Hancock County Board of Education, Sparta, Georgia, annual financial report for the fiscal year ended June 30, 2012 (including independent auditor's reports)

HANCOCK COUNTY BOARD OF EDUCATION
SPARTA, GEORGIA
ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012
(Including Independent Auditor's Reports)

HANCOCK COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

B

STATEMENT OF ACTIVITIES

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 3 SCHEDULE OF STATE REVENUE

Page
1 2 3 4 5 6 7 9
25 26 28

HANCOCK COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I
FINANCIAL
SCHEDULES
SUPPLEMENTARY INFORMATION
4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 5 ALLOTMENTS AND EXPENDITURES
GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM

Page
29 31

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

HANCOCK COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTION V MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 30, 2013

Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Hancock County Board of Education
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Ladies and Gentlemen:
We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Hancock County Board of Education, as of and for the year ended June 30, 2012, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Hancock County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Board's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the governmental activities, activities, each major fund, and the aggregate remaining fund information of the Hancock County Board of Education, as of June 30, 2012, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Management has omitted Management's Discussion and Analysis that accounting principles generally accepted in the United States of America requires to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an
2012ARL-11

essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.
In accordance with Government Auditing Standards, we have also issued our report dated July 30, 2013, on our consideration of the Hancock County Board of Education's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 25 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Hancock County Board of Education's financial statements as a whole. The accompanying supplementary information consists of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U. S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole.
A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24.
Respectfully submitted,

GSG:as 2012ARL-11

Greg S. Griffin State Auditor

HANCOCK COUNTY BOARD OF EDUCATION

HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2012
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes Intergovernmental
State Federal Inventories Prepaid Items Deferred Charges Capital Assets, Non-Depreciable Capital Assets, Depreciable (Net of Accumulated Depreciation)
Total Assets
LIABILITIES
Accounts Payable Salaries and Benefits Payable Accrued Interest Payable Deferred Revenue Bonds Payable, Due Within One Year Bonds Payable, Due in More Than One Year Capital Leases, Due Within One Year Capital Leases, Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Debt Service Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes are an integral part of these financial statements.
- 1 -

EXHIBIT "A"

GOVERNMENTAL ACTIVITIES

$

638,291

292,005

2,073,908

766,505 689,298
8,749 6,058 25,240 162,777 9,448,635

$

14,111,466

$

329,047

1,164,980

19,427

170,854

200,000

645,000

119,179

373,134

$

3,021,621

$

8,274,099

48,357 11,205 314,299 2,441,885

$

11,089,845

$

14,111,466

HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2012

EXHIBIT "B"

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Food Services Interest on Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes, Levied for Maintenance and Operations Sales Taxes, for Capital Projects Intangible Taxes Transfer Taxes Railroad Equipment Tax Unrestricted Investment Earnings Miscellaneous
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year

EXPENSES

PROGRAM REVENUES

OPERATING

CHARGES FOR

GRANTS AND

SERVICES

CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$ 7,025,317 $
730,925 646,199 148,904 481,425 832,386 386,420 1,313,056 1,161,218 336,114 244,218
1,200,337 68,516
$ 14,575,035 $

273,392 $
37,454 310,846 $

4,182,324 $
619,523 423,720 138,580 580,062 687,818
35,533 566,071 621,449
32,002 140,517
965,870
8,993,469 $

-2,569,601
-111,402 -222,479
-10,324 98,637 -144,568 -350,887 -746,985 -539,769 -304,112 -103,701
-197,013 -68,516
-5,270,720

$

5,116,494

460,564

18,221

5,989

12,874

2,674

205,838

$

5,822,654

$

551,934

10,537,911

Net Assets - End of Year

$

11,089,845

The accompanying notes are an integral part of these financial statements. - 2 -

HANCOCK COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2012

EXHIBIT "C"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes Intergovernmental
State Federal Due From Other Funds Inventories Prepaid Items
Total Assets

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$

471,223 $

2,035,551
766,505 689,298 166,323
8,749 6,058

167,068 $ 292,005
38,357

0 $

638,291

292,005

2,073,908

766,505 689,298 166,323
8,749 6,058

$ 4,143,707 $

497,430 $

0 $

4,641,137

LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries and Benefits Payable Due to Other Funds Deferred Revenue
Total Liabilities
FUND BALANCES
Nonspendable Inventory Prepaid Items
Restricted Federal Programs Capital Projects Debt Service
Unassigned
Total Fund Balances
Total Liabilities and Fund Balances

$

329,047

1,164,980

$

2,093,934

$ 3,587,961 $

166,323 166,323

$

8,749

6,058

39,608 $
501,331

314,299 16,808 $

$

555,746 $

331,107 $

$ 4,143,707 $

497,430 $

$

329,047

1,164,980

166,323

2,093,934

$

3,754,284

$

8,749

6,058

39,608

314,299

16,808

0

501,331

0 $

886,853

0 $

4,641,137

The accompanying notes are an integral part of these financial statements. - 3 -

HANCOCK COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2012

EXHIBIT "D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Cost Less Accumulated Depreciation
Total Capital Assets
Taxes that are not available to pay for current period expenditures are deferred in the funds.
Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:
Bonds Payable Bond Issuance Costs, Net of Amortization Capital Leases Accrued Interest
Total Long-Term Liabilities

$

$

19,064,798

-9,453,386

$

-845,000

25,240

-492,313

-19,427

886,853
9,611,412 1,923,080
-1,331,500

Net Assets of Governmental Activities (Exhibit "A")

$

11,089,845

The accompanying notes are an integral part of these financial statements. - 4 -

HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2012

EXHIBIT "E"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Transfers In Transfers Out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$

4,885,766

37,084 $

4,634,396

4,359,073

310,846

2,394

205,431

$

14,434,990 $

$ 460,564
280 407 461,251 $

0 $

4,885,766

497,648

4,634,396

4,359,073

310,846

2,674

205,838

0 $

14,896,241

$

6,724,100

726,247 646,199 148,904 481,425 832,386 379,093 1,266,719 1,023,257 315,655 244,218 1,194,940
$

124,172 19,661

$

14,126,976 $

$

308,014 $

$

34,341 $
34,341 $ 426,910 $

195,000 40,928
235,928 $
-235,928 $

6,724,100
726,247 646,199 148,904 481,425 832,386 379,093 1,266,719 1,023,257 315,655 244,218 1,194,940
34,341
319,172 60,589
14,397,245
498,996

$

4,622

$

235,928 $

$

-240,550

$

4,622 $

-240,550 $

235,928 $

$

312,636 $

186,360 $

0 $

243,110

144,747

0

240,550 -240,550
0 498,996 387,857

$

555,746 $

331,107 $

0 $

886,853

The accompanying notes are an integral part of these financial statements. - 5 -

HANCOCK COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2012

EXHIBIT "F"

Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")
Amounts reported for Governmental Activities in the Statement of Activities are different because:
Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are:
Capital Outlay Depreciation Expense
Excess of Capital Outlay over Depreciation Expense
Taxes reported in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds.
Bond issuance costs, deferred gains on refundings and similar items when debt is first issued are reported as an expenditure in Governmental Funds, but are reported as deferred charges on the Statement of Net Assets and amortized over the term of the debt, using the straight-line method. The details of this difference in the current period are as follows:
Amortization of Bond Issuance Costs
Issuance of Long-Term Debt provides current financial resources to Governmental Funds, while repayment of the principal of Long-Term Debt consumes the current financial resources of Governmental Funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences in the treatment of Long-Term Debt and related items.
Principal Payments - Bonds Principal Payments - Capital Leases
Total Issuance of Long-Term Debt
Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of:
Change in Accrued Interest

$

$

48,775

-537,810

$

195,000

124,172

498,996
-489,035 230,728
-6,310
319,172 -1,617

Change in Net Assets of Governmental Activities (Exhibit "B")

$

551,934

The accompanying notes are an integral part of these financial statements. - 6 -

HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2012
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT "G"

AGENCY FUNDS

$

32,268

$

32,268

The accompanying notes are an integral part of these financial statements. - 7 -

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HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

NOTE 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Hancock County (School District) was established under the laws of the State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Hancock County Board of Education.
District-wide Statements: The Statement of Net Assets and the Statement of Activities display information about the financial activities of the overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support of the School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds including fiduciary funds. Eliminations have been made to minimize the double counting of internal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds.
The School District reports the following major governmental funds:
General Fund is the School District's primary operating fund. It accounts for and reports all financial resources not accounted for and reported in another fund.
District-wide Capital Projects Fund accounts for and reports financial resources including Special Purpose Local Option Sales Tax (SPLOST) that are restricted, committed or assigned to the expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets.
Debt Service Fund accounts for and reports financial resources that are restricted, committed, or assigned including taxes (sales) legally restricted for the payment of general long-term principal and interest.

- 9 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governments or individuals.
BASIS OF ACCOUNTING
The basis of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources.
The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
CASH AND CASH EQUIVALENTS
Composition of Deposits Cash and cash equivalents consist of cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated Section 45-8-14 authorizes the School District to deposit its funds in one or more solvent banks, insured Federal savings and loan associations or insured chartered building and loan associations.
INVESTMENTS
Composition of Investments Investments made by the School District in nonparticipating interest-earning contracts (such as certificates of deposit) and repurchase agreements are reported at cost. Participating interestearning contracts and money market investments with a maturity at purchase of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year and equity investments are reported at fair value. The Official Code of Georgia Annotated Section 36-83-4 authorizes the School District
- 10 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate of return shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:

1. Obligations issued by the State of Georgia or by other states,

2. Obligations issued by the United States government,

3. Obligations fully insured or guaranteed by the United States government or a United States government agency,

4. Obligations of any corporation of the United States government,

5. Prime banker's acceptances,

6. The Georgia Fund 1 administered by the State of Georgia, Office of the State Treasurer,

7. Repurchase agreements, and

8. Obligations of other political subdivisions of the State of Georgia.

The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration of credit risks, interest rate risks or foreign currency risks.
RECEIVABLES
Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.
PROPERTY TAXES
The Hancock County Board of Commissioners fixed the property tax levy for the 2011 tax digest year (calendar year) on September 14, 2011 (levy date). Taxes were due on December 20, 2011 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2011 tax digest are reported as revenue in the governmental funds for fiscal year 2012. The Hancock County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2012, for maintenance and operations amounted to $4,885,766.00.

The tax millage rate levied for the 2011 tax year (calendar year) for the Hancock County was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

13.522 m ills

SALES TAXES
Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $460,564 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

- 11 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

INVENTORIES
Food Inventories On the basic financial statements, inventories of donated food commodities used in the preparation of meals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.
PREPAID ITEMS

Payments made to vendors for services that will benefit periods subsequent to June 30, 2012, are recorded as prepaid items.
CAPITAL ASSETS

Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. During the fiscal year under review, no events or changes in circumstances affecting a capital asset that may indicate impairment were known to the School District.

Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows:

C a pita liz a tio n Policy

Estim ated Useful Life

Land Construction in Progress Land Im provem ents Buildings and Im provem ents M achinery & Equipm ent Intangible Assets

All

$

5 ,0 0 0 .0 0

$

5 ,0 0 0 .0 0

$

5 ,0 0 0 .0 0

$

5 ,0 0 0 .0 0

$

3 0 0 ,0 0 0 .0 0

N/A N/A
50 Years 15 to 80 Years
3 to 20 Years 3 to 20 Years

Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives, with the exception of intangible assets which are amortized.
Amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, copyrights and internally generated software is computed using the straight-line method over the estimated useful lives of the assets, generally 10 to 20 years.
GENERAL OBLIGATION BONDS
The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. In the District-wide financial statements, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method. Bond issuance costs are reported as deferred charges and amortized over the term of the debt.

- 12 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

In the fund financial statements, the School District recognizes bond premiums and discounts, as well as bond issuance costs during the fiscal year bonds are issued. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets.
NET ASSETS
The School District's net assets in the District-wide Statements are classified as follows:
Invested in capital assets, net of related debt - This represents the School District's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt.
Restricted net assets - These represent resources for which the School District is legally or contractually obligated to spend resources for bus replacement, continuation of Federal programs, debt service and capital projects in accordance with restrictions imposed by external third parties.
Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes.
FUND BALANCES
The School District's fund balances are classified as follows:
Nonspendable Amounts that cannot be spent either because they are in a nonspendable form or because they are legally or contractually required to be maintained intact.
Restricted Constraints are placed on the use of resources are either (1) externally imposed conditions by creditors, grantors, contributors, or laws and regulations of other governments or (2) imposed by law through constitutional provisions or enabling legislation.
Committed Amounts that can be used only for specific purposes pursuant to constraints imposed by formal action of the Board of Education. The Board of Education is the School District's highest level of decision-making authority, and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the Board. Committed fund balance also should incorporate contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements.
Assigned Amounts that are constrained by the School District's intent to be used for specific purposes, but are neither restricted nor committed. The intent should be expressed by (1) the Board of Education or (2) the budget or finance committee, or the Superintendent, or designee, to assign amounts to be used for specific purposes.
Unassigned The residual classification for the General Fund. This classification represents fund balances that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the General Fund.
It is the goal of the School District to achieve and maintain a committed, assigned, and unassigned fund balance in the general fund at fiscal year end of not less than 15 % of not to exceed 15% of the total budget of the subsequent fiscal year, in compliance with Official Code of Georgia Annotated Section 20-2-167(a)5. If the unassigned fund balance at fiscal year end falls below the goal, the School District shall develop a restoration plan to achieve and maintain the minimum fund balance.

- 13 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

When multiple categories of fund balance are available for expenditure, the School District will start with the most restricted category and spend those funds first before moving down to the next category with available funds.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
NOTE 3: BUDGETARY DATA
The budget is a complete financial plan for the School District's fiscal year, and is based upon careful estimates of expenditures together with probable funding sources. The budget is legally adopted each year for the general, debt service, and capital projects funds. There is no statutory prohibition regarding over expenditure of the budget at any level. The budget for all governmental funds is prepared and adopted by fund. The legal level of budgetary control was established by the Board at the aggregate fund level. The budget for the General Fund was prepared in accordance with accounting principles generally accepted in the United States of America.
The budgetary process begins with the School District's administration presenting an initial budget for the Board's review. The administration makes revisions as necessary based on the Board's guidelines and a tentative budget is approved. After approval of this tentative budget by the Board, such budget is advertised at least once in a newspaper of general circulation in the locality, as well as the School District's website. At the next regularly scheduled meeting of the Board after advertisement, the Board receives comments on the tentative budget, makes revisions as necessary and adopts a final budget. The approved budget is then submitted, in accordance with provisions of Official Code of Georgia Annotated section 20-2-167(c), to the Georgia Department of Education. The Board may increase or decrease the budget at any time during the year. All unexpended budget authority lapses at fiscal year-end.
If expenditure of funds in any fund is anticipated to be more than the budgeted amount, the Superintendent shall request Board approval for the budget amendment. Any position or expenditure not previously approved in the annual budget that exceeds $5,000 shall require Board approval unless the Superintendent deems the position or purchase an emergency. In such case, the expenditure shall be reported to the Board at its regularly scheduled meeting. Under no circumstance is the Superintendent or other staff person authorized to spend funds that exceed the total budget without approval by the Board.
See Schedule 1 General Fund Schedule of Revenues, Expenditures and Changes in Fund Balances Budget to Actual for a detail of any over/under expenditures during the fiscal year under review.
NOTE 4: DEPOSITS AND INVESTMENTS
COLLATERALIZATION OF DEPOSITS
Official Code of Georgia Annotated (O.C.G.A.) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate of the face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent of the public funds being secured after the deduction of the amount of deposit insurance. If a depository elects the pooled method (O.C.G.A. Section 45-8-13.1) the aggregate of the market value of the securities pledged to secure a pool of public funds shall be not less than 110 percent of the daily pool balance.

- 14 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

At June 30, 2012, $571,488 of deposits were not secured by surety bond, insurance or collateral as specified above. The School District is working with the affected financial institutions to ensure appropriate levels of collateral are maintained for all of the School District's deposits.

Acceptable security for deposits consists of any one of or any combination of the following:

1. Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,

2. Insurance on accounts provided by the Federal Deposit Insurance Corporation,

3. Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,

4. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,

5. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,

6. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and

7. Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by or securities guaranteed by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.
CATEGORIZATION OF DEPOSITS

Custodial credit risk is the risk that in the event of a bank failure, the School District's deposits may not be returned to it. At June 30, 2012, the bank balances were $1,145,126. The amounts exposed to custodial credit risk are classified into three categories as follows:

Category 1 Category 2 -
Category 3 -

Uncollateralized, Cash collateralized with securities held by the pledging financial institution, or Cash collateralized with securities held by the pledging financial institution's trust department or agent but not in the School District's name.

The School District's deposits by custodial risk category at June 30, 2012, are as follows:

Custodial Credit Risk Category

Bank Balance

1

$

57 1 ,4 8 8

2

0

3

0

Total

$

57 1 ,4 8 8

- 15 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

CATEGORIZATION OF INVESTMENTS

At June 30, 2012, the School District had the following investments:

Investment Type

M a tu r i ti e s

R a ti n g*

Georgia Fund 1 F idelity Institutional Treasury
(M oney M ark et M utual F und)

48 Day Weighted Average 48 Day Weighted Average

AAAm AAA

Total Investments

Fair Value

$

256,792

35,213

$

292,005

*Rating as per Standard and Poor's

Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value of an investment. The School District does not have a formal policy for managing interest rate risk.
Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, the School District will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The School District does not have a formal policy for managing custodial credit risk for investments.
At June 30, 2012, $35,213 of the School District's applicable investments were uninsured or unregistered, with securities held by the counterparty, or by its trust department or agent, but not in the School District's name.
Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The School District does not have a formal policy for managing credit quality risk.
NOTE 5: NON-MONETARY TRANSACTIONS
The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories

- 16 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

NOTE 6: CAPITAL ASSETS

The following is a summary of changes in the Capital Assets during the fiscal year:

Balances July 1, 2011

Increases

Decreases

Balances June 30, 2012

Governmental Activities Capital Assets, Not Being Depreciated:
Land

$

162,777 $

0$

0$

162,777

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$

15,322,337

3,222,013 $

308,896

$ 48,775

0$

15,322,337 3,270,788 308,896

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

6,886,680 1,976,725
52,171

317,410 199,807
20,593

7,204,090 2,176,532
72,764

Total Capital Assets, Being Depreciated, Net $

9,937,670 $

-489,035 $

0$

9,448,635

Governmental Activity Capital Assets - Net $

10,100,447 $

-489,035 $

0$

9,611,412

Capital assets being acquired under capital leases as of June 30, 2012, are as follows:
Governm ental Funds

Equipm ent Less: Accum ulated Depreciation

$

7 1 4 ,8 8 5

1 4 4 ,0 7 9

$

5 7 0 ,8 0 6

Current year depreciation expense by function is as follows:

In s tru c tio n

Support Services

Pupil Services

$

Business Adm inistration

M aintenance and Operation of Plant

Student Transportation Services

Central Support Services

Food Services

$
4 ,6 7 8 7 ,3 2 7 5 3 ,0 8 6 1 3 7 ,7 6 5 2 0 ,4 5 9

$

3 0 9 ,0 9 8
2 2 3 ,3 1 5 5 ,3 9 7
5 3 7 ,8 1 0

- 17 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

NOTE 7: INTERFUND ASSETS AND LIABILITIES

Due to and due from other funds are recorded for interfund receivables and payables which arise from interfund transactions. Interfund balances at June 30, 2012, consisted of the following:

Due From Other Funds

Due To Other Funds

General Fund District-w ide C apital Projects

$

1 6 6 ,3 2 3

$

1 6 6 ,3 2 3

$

166,323 $

1 6 6 ,3 2 3

Interfund balances were incurred to repay the General Fund for capital construction project expenditures with future SPLOST receipts.
NOTE 8: INTERFUND TRANSFERS

Interfund transfers for the year ended June 30, 2012, consisted of the following:

Transfer to

Transfers From District-w id e C a pital Projects

General Fund Debt Service Fund

$

4 ,6 2 2

2 3 5 ,9 2 8

Total

$

2 4 0 ,5 5 0

Transfers from the District-wide Capital Projects Fund were used to move SPLOST revenue to the Debt Service Fund for the payment of bonds and to the General Fund to fund capital projects.
NOTE 9: RISK MANAGEMENT

The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation.

The School District has obtained commercial insurance for risk of loss associated with torts, assets, errors or omissions, job related illness or injuries to employees, and acts of God. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years.

The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated.

Changes in the unemployment compensation claims liability during the last two fiscal years are as follows:

Beginning of Year Liability

Claim s and Changes in Estim ates

Claim s Paid

End of Year Liability

2011

$

17,604 $

41,318 $

58,922 $

0

2012

$

0$

16,479 $

16,479 $

0

- 18 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

The School District has purchased surety bonds to provide additional insurance coverage as follows:

Position Covered

Amount

Su p e rin te n d e n t Finance Director

$

1 0 0 ,0 0 0

$

1 0 0 ,0 0 0

NOTE 10: SHORT-TERM DEBT

The School District issues tax anticipation notes in advance of property tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections were received by the School District.. Article IX, Section V, Paragraph V of the Constitution of the State of Georgia limits the aggregate amount of short-term debt to 75 percent of the total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 of the calendar year in which the debt was incurred.

Short-term debt activity for the fiscal year is as follows:

Beginning Balance

Is s u e d

Redeem ed

Ending Balance

Tax Anticipation Notes

$

0$

1 ,1 7 5 ,5 0 0 $

1 ,1 7 5 ,5 0 0 $

0

NOTE 11: LONG-TERM DEBT CAPITAL LEASES
The Hancock County Board of Education has entered into various lease agreements as lessee for buses and copiers. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of the minimum lease payments as of the date of their inception.
GENERAL OBLIGATION DEBT OUTSTANDING
General Obligation Bonds currently outstanding are as follows:

Purpose

Interest Rates

Am ount

General Governm ent - Series 2005

3 .1 5 % - 4 .1 0 %

$

8 4 5 ,0 0 0

The changes in Long-Term Debt during the fiscal year ended June 30, 2012, were as follows:

Balance July 1, 2011

A d d i ti o n s

Governmental Funds D e d u c ti o n s

Balance June 30, 2012

Due Within One Year

G.O. Bonds

$

Capital Leases

1,040,000 $ 616,485

0$

195,000 $

845,000 $

200,000

124,172

492,313

119,179

$

1,656,485 $

0$

319,172 $

1,337,313 $

319,179

- 19 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

At June 30, 2012, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30:

Capital Leases

Principal

I n te r e s t

2013 2014 2015 2016

$

119,179 $

119,377

124,152

129,605

19,588 14,925 10,150
5,197

Total Principal and Interest Fiscal Year Ended June 30:

$

492,313 $

49,860

General Obligation Debt

Principal

I n te r e s t

2013 2014 2015 2016

$

200,000 $

210,000

215,000

220,000

33,615 25,915 17,620
9,020

Total Principal and Interest

$

845,000 $

86,170

NOTE 12: ON-BEHALF PAYMENTS
The School District has recognized revenues and costs in the amount of $794,382 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.
Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Certificated Personnel In the amount of $771,680
Office of the State Treasurer Paid to the Public School Employees' Retirement System For Public School Employees' Retirement (PSERS) Employer's Cost In the amount of $22,702
NOTE 13: SIGNIFICANT CONTINGENT LIABILITIES
Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position.
The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance of routine School District operations. The ultimate disposition of these proceedings is not presently determinable, but is not believed to be material to the basic financial statements.

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HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

NOTE 14: SUBSEQUENT EVENTS
TAX ANTICIPATION NOTE
On August 14, 2012, the Hancock County Board of Education issued a $1,175,500 temporary loan in advance of property tax collections. Proceeds from this short-term loan were issued to provide cash for operations until property tax collections were received by the School District. The maturity date of the loan was December 31, 2012. Three draws totaling $1,175,500 were required to meet the cash flow needs of the School District. The note was repaid on December 26, 2012.
NOTE 15: POST-EMPLOYMENT BENEFITS
GEORGIA SCHOOL PERSONNEL POST-EMPLOYMENT HEALTH BENEFIT FUND
Plan Description. The Georgia School Personnel Post-employment Health Benefit Fund (School OPEB Fund) is a cost-sharing multiple-employer defined benefit post-employment healthcare plan that covers eligible former employees of public school systems, libraries and regional educational service agencies. The School OPEB Fund provides health insurance benefits to eligible former employees and their qualified beneficiaries through the State Employees Health Benefit Plan administered by the Department of Community Health. The Official Code of Georgia Annotated (O.C.G.A.) assigns the authority to establish and amend the benefit provisions of the group health plans, including benefits for retirees, to the Board of Community Health (Board). The Department of Community Health, which includes the School OPEB Fund, issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.
Funding Policy. The contribution requirements of plan members and participating employers are established by the Board in accordance with the current Appropriations Act and may be amended by the Board. Contributions of plan members or beneficiaries receiving benefits vary based on plan election, dependent coverage, and Medicare eligibility and election. For members with fewer than five years of service as of January 1, 2012, contributions also vary based on years of service. On average, members with five years or more of service as of January 1, 2012, pay approximately 25 percent of the cost of the health insurance coverage. In accordance with the Board resolution dated December 8, 2011, for members with fewer than five years of service as of January 1, 2012, the State provides a premium subsidy in retirement that ranges from 0% for fewer than 10 years of service to 75% (but no greater than the subsidy percentage offered to active employees) for 30 or more years of service. The subsidy for eligible dependents ranges from 0% to 55% (but no greater than the subsidy percentage offered to dependents of active employees minus 20%). No subsidy is available to Medicare eligible members not enrolled in a Medicare Advantage Option. The Board of Community Health sets all member premiums by resolution and in accordance with the law and applicable revenue and expense projections. Any subsidy policy adopted by the Board may be changed at any time by Board resolution and does not constitute a contract or promise of any amount of subsidy.
Participating employers are statutorily required to contribute in accordance with the employer contribution rates established by the Board. The contribution rates are established to fund all benefits due under the health insurance plans for both active and retired employees based on projected "pay-as-you-go" financing requirements. Contributions are not based on the actuarially calculated annual required contribution (ARC) which represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years.
The combined active and retiree contribution rates established by the Board for employers participating in the School OPEB Fund were as follows for the fiscal year ended June 30, 2012:

- 21 -

HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

For certificated teachers, librarians and regional educational service agencies and certain other eligible participants:

June 2011 July 2011 August 2011 - March 2012 April 2012 - June 2012

1.429% of covered payroll for July coverage 18.534% of covered payroll for August coverage 24.000% of covered payroll for September - April coverage
3.958% of covered payroll for May - July coverage

For non-certificated school personnel:

July 2011 - August 2011

$246.20 per member per month

September 2011 - June 2012 $296.20 per member per month

No additional contribution was required by the Board for fiscal year 2012 nor contributed to the School OPEB Fund to prefund retiree benefits. Such additional contribution amounts are determined annually by the Board in accordance with the School plan for other post-employment benefits and are subject to appropriation.
Currently, the state is requiring that local Boards of Education pay only on active employees. The District's contribution to the health insurance plans for the fiscal years ended June 30, 2012, 2011 and 2010 was $1,006,666, $1,018,799 and $815,163, respectively, which equaled the required contribution. Currently, the State of Georgia has been making the remaining contributions to fund the pay as you go financing on behalf of all local Boards of Education.
NOTE 16: RETIREMENT PLANS
TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)
Plan Description. The TRS is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS. The Teachers' Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.
On October 25, 1996, the Board created the Supplemental Retirement Benefits Plan of the Georgia Teachers' Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1, 1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits.
TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.
Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 30 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also

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HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

available.

Funding Policy. TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 10 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2012, were 5.53% of annual salary. The member contribution rate will increase to 6.00% effective July 1, 2012. Employer contributions required for fiscal year 2012 were 10.28% of annual salary as required by the June 30, 2009, actuarial valuation. The employer contribution rate will increase to 11.41% effective July 1, 2012.

Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage C o ntribute d

Required C o n trib u tio n

2012 2011 2010

100% 100% 100%

$

7 1 8 ,5 0 7

$

7 3 1 ,3 6 1

$

7 2 1 ,2 3 5

PUBLIC SCHOOL EMPLOYEES' RETIREMENT SYSTEM (PSERS)
Bus drivers, lunchroom personnel, and maintenance and custodial personnel are members of the Public School Employees' Retirement System of Georgia. The System is funded by contributions by the employees and by the State of Georgia. The School District makes no contribution to this plan.
See Note 12: On-behalf payments for information on the contributions made by the State of Georgia on behalf of the School District's employees.

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HANCOCK COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2012

SCHEDULE "1"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services Operation
Capital Outlay Debt Service
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES
Transfers In
Net Change in Fund Balances
Fund Balances - Beginning
Adjustments
Fund Balances - Ending

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

VARIANCE OVER/UNDER

$

5,083,676 $ 5,083,676 $ 4,885,766 $

-197,910

13,280

13,280

37,084

23,804

4,696,992

4,710,189

4,634,396

-75,793

6,627,008

6,827,862

4,359,073

-2,468,789

310,846

310,846

2,000

2,000

2,394

394

185,000

185,000

205,431

20,431

$ 16,607,956 $ 16,822,007 $ 14,434,990 $ -2,387,017

$

7,920,796 $ 8,088,428 $ 6,724,100 $ 1,364,328

1,175,063 762,880 193,584 718,369
1,082,319 355,021
1,248,340 1,385,231
286,402 346,336 886,605 256,815

1,175,315 817,565 193,584 722,844
1,123,253 356,521
1,248,340 1,371,982
284,902 354,704 891,605 250,815

726,247 646,199 148,904 481,425 832,386 379,093 1,266,719 1,023,257 315,655 244,218 1,194,940
143,833

449,068 171,366
44,680 241,419 290,867 -22,572 -18,379 348,725 -30,753 110,486 -303,335 250,815 -143,833

$ 16,617,761 $ 16,879,858 $ 14,126,976 $ 2,752,882

$

-9,805 $

-57,851 $

308,014 $

365,865

3,000

3,000

4,622

1,622

$

-6,805 $

-54,851 $

312,636 $

367,487

-108,491

742,059

243,110

-498,949

-336

-13,816

13,816

$

-115,632 $

673,392 $

555,746 $

-117,646

Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual
(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The principal accounts had actual revenues of $273,372 and actual expenditures of $292,786.
The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 25 -

HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2012

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total U. S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Title I, Part A Cluster Pass-Through From Georgia Department of Education ARRA - Title I Grants to Local Educational Agencies Title I Grants to Local Educational Agencies
Total Title I, Part A Cluster
Other Programs Pass-Through From Georgia Department of Education Career and Technical Education - Basic Grants to States Education Jobs Fund Improving Teacher Quality State Grants Rural Education Safe and Drug-Free Schools and Communities - State Grants Twenty-First Century Community Learning Centers
Total Other Programs
Total U. S. Department of Education
Health and Human Services, U. S. Department of Head Start Cluster Direct ARRA - Early Head Start Head Start
Total U.S. Department of Health and Human Services
Defense, U. S. Department of Direct Department of the Air Force R.O.T.C. Program

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

* 10.553 * 10.555

N/A N/A $
$

(2) 1,008,999 (1)
1,008,999

* 84.027 * 84.173

N/A $ N/A
$

299,449 6,051
305,500

* 84.389 * 84.010

N/A $ N/A
$

21,312 647,217
668,529

84.048 84.410 84.367 84.358 84.186 84.287

N/A $ N/A N/A N/A N/A N/A
$
$

14,159 2,885
127,408 33,666 106 3,551
181,775
1,155,804

* 93.709 * 93.600

405,597 1,909,720

$

2,315,317

$

42,907

Total Expenditures of Federal Awards N/A = Not Available

- 26 -

$

4,523,027

HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2012

SCHEDULE "2"

Notes to the Schedule of Expenditures of Federal Awards
(1) Includes the Federally assigned value of donated commodities for the Food Donation Program in the amount of $39,199.
(2) Expenditures for the funds earned on the School Breakfast Program ($270,951) were not maintained separately and are included in the National School Lunch Program.
Major Programs are identified by an asterisk (*) in front of the CFDA number.
The School District did not provide Federal Assistance to any Subrecipient.
The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Hancock County Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 27 -

HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2012
AGENCY/FUNDING
GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Program for Intellectually Gifted Students - Category VI Remedial Education Program Alternative Education Program Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Nursing Services Mid-term Adjustment Hold-Harmless Vocational Supervisors Food Services Vocational Education Amended Formula Adjustment Other State Programs CTAE- Ag Extended Day Dual Enrollment Funding Health Insurance Math and Science Supplements Preschool Handicapped Program
Office of the State Treasurer Public School Employees' Retirement

See notes to the basic financial statements.

- 28 -

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

243,507

239,313 36,217
428,589 145,045 300,882
33,843 419,768 509,818 113,613 668,505
57,692 46,747 41,480 82,516 25,522 18,216
238,943 242,208 222,475
316,387 35,242
127,125 7,047
13,257
-826,395
4,463 10,756 771,680 12,892 24,341
22,702

$

4,634,396

HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2012

SCHEDULE "4"

PROJECT
Acquiring, constructing and equipping new school buildings and other buildings and facilities useful or desirable in connection therewith, including a new auditorium/performing arts center, (ii) acquiring, constructing and equipping administrative offices, auxiliary education programs, and miscellaneous office space, (iii) acquiring communication equipment, technology, including computers, and other equipment, including buses and transportation equipment, (iv) adding to, renovating, repairing, improving and equipping existing school buildings and grounds, agricultural facilities and athletic facilities, and other buildings and facilities useful or desirable in connection therewith, including but not limited to M.E. Lewis Elementary School and Hancock Central Middle/High School, (v) acquiring land useful or desirable for the purpose of future expansion and associated costs, and (vi) completing any capital outlay projects authorized in connection with the sales and use tax currently in effect
Project #1 M.E. Lewis Elementary School renovation/New Athletic facilities
Project #2 Debt Service paid on prior Bonds
Project #3 Purchase of school buses
Project #4 Purchase of Technology
Other Various Projects

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT YEAR (3)

AMOUNT EXPENDED IN PRIOR YEARS (3)

TOTAL COMPLETION
COST

EXCESS PROCEEDS NOT
EXPENDED

ESTIMATED COMPLETION
DATE

$

195,000 $

253,818 $

38,963 $

214,855 $

0 $

1,167,100

1,187,619

235,928

951,691

800,000 600,000

800,000 600,000

987,900

0 June 30,2016 June 30,2016 June 30,2016 June 30,2016 June 30,2016

$ 3,750,000 $ 2,841,437 $

274,891 $ 1,166,546 $

0 $

0

(1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax.
(2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion.
(3) The voters of Hancock County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects.

See notes to the basic financial statements

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HANCOCK COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2012

SCHEDULE "5"

DESCRIPTION
Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category III Gifted Student - Category VI Remedial Education Program Alternative Education Program
TOTAL DIRECT INSTRUCTIONAL PROGRAMS
Media Center Program Staff and Professional Development
TOTAL QBE FORMULA FUNDS

ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2)

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

$

344,001 $

366,395 $

12,849 $

379,244

43,207

630,399

348,216

348,216

203,166

431,875

431,875

414,595

704,446

150

704,596

56,280

60,261

60,261

603,062 737,860 155,697 940,748
78,910 78,591 58,702

548,008 997,242 178,595
86,060 68,248 125,380 81,378 151,349 101,536

112,978 27,769
1,411 464

548,008 1,110,220
206,364
86,060 68,248 125,380 82,789 151,349 102,000

$

4,345,218 $ 4,248,989 $

155,621 $ 4,404,610

118,028 26,011

162,132

1,710

163,842 31,822

$

4,489,257 $ 4,411,121 $

157,331 $ 4,600,274

(1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State amended formula adjustment.

See notes to the basic financial statements.

- 31 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 30, 2013

Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Hancock County Board of Education
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Hancock County Board of Education as of and for the year ended June 30, 2012, which collectively comprise Hancock County Board of Education's basic financial statements and have issued our report thereon dated July 30, 2013. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
Management of Hancock County Board of Education is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered Hancock County Board of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Hancock County Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Hancock County Board of Education's internal control over financial reporting.
Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses and therefore, there can be no assurances that all deficiencies, significant deficiencies or material weaknesses have been identified. However, as described in the accompanying Schedule of Findings and Questioned Costs, we identified certain deficiencies in internal control over financial reporting that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies.

2012YB-40

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider items FS-6701-12-01, FS-6701-12-05, and FS-6701-12-08 to be material weaknesses.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider items FS-6701-12-02, FS-6701-12-03, FS-6701-12-04, FS-6701-12-06, FS-6701-12-07, and FS-6701-12-09 in the accompanying Schedule of Findings and Questioned Costs to be significant deficiencies in internal control over financial reporting.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Hancock County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
We noted certain matters that we have reported to management of Hancock County Board of Education in a separate letter dated July 30, 2013.
Hancock County Board of Education's response to the findings identified in our audit is described in the accompanying Schedule of Management's Responses. We did not audit Hancock County Board of Education's response and, accordingly, we express no opinion on the response.
This report is intended solely for the information and use of management, members of the Hancock County Board of Education, others within the entity, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

GSG:as 2012YB-40

Greg S. Griffin State Auditor

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 30, 2013

Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Hancock County Board of Education
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133
Ladies and Gentlemen:
Compliance
We have audited Hancock County Board of Education's compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2012. Hancock County Board of Education's major Federal programs are identified in the Summary of Auditor's Results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major Federal programs is the responsibility of Hancock County Board of Education's management. Our responsibility is to express an opinion on Hancock County Board of Education's compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Hancock County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Hancock County Board of Education's compliance with those requirements.
As described in item FA-6701-12-03 in the accompanying Schedule of Findings and Questioned Costs, Hancock County Board of Education did not comply with requirements regarding Activities Allowed or Unallowed and Allowable Costs/Cost Principles that are applicable to its Headstart Cluster. Compliance with such requirements is necessary, in our opinion, for Hancock County Board of Education to comply with requirements applicable to that program.
2012SA-55

In our opinion, except for the noncompliance described in the preceding paragraph, the Hancock County Board of Education complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2012. The results of our auditing procedures also disclosed other instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying Schedule of Findings and Questioned Costs as items FA-6701-12-01, FA-6701-12-02, and FA-6701-12-04.
Internal Control Over Compliance
Management of Hancock County Board of Education is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to Federal programs. In planning and performing our audit, we considered Hancock County Board of Education's internal control over compliance with the requirements that could have a direct and material effect on a major Federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Hancock County Board of Education's internal control over compliance.
Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies.
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiency in internal control over compliance described in the accompanying Schedule of Findings and Questioned Costs as item FA-6701-12-03 to be a material weakness.
A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a Federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. We consider the deficiencies in internal control over compliance described in the accompanying Schedule of Findings and Questioned Costs as items FA-6701-12-01, FA-6701-12-02, and FA-6701-12-04 to be significant deficiencies.
Hancock County Board of Education's responses to the findings identified in our audit is/are described in the accompanying Schedule of Management's Responses. We did not audit Hancock County Board of Education's responses and, accordingly, we express no opinion on the responses.
2012SA-55

This report is intended solely for the information and use of management, members of the Hancock County Board of Education, others within the entity, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

GSG:as 2012SA-55

Greg S. Griffin State Auditor

SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2012

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-6701-10-01 FS-6701-10-02 FS-6701-10-03 FS-6701-10-04 FS-6701-10-05 FS-6701-10-06 FS-6701-10-07 FS-6701-11-01 FS-6701-11-02 FS-6701-11-03 FS-6701-11-04 FS-6701-11-05 FS-6701-11-06 FS-6701-11-07

Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Further Action Not Warranted Previously Reported Corrective Action Implemented Further Action Not Warranted Further Action Not Warranted Further Action Not Warranted Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

CASH AND CASH EQUIVALENTS Inadequate Internal Control Procedures Finding Control Number: FS-6701-10-02

We concur with this finding. The School District will implement procedures for designing and maintaining internal controls over Cash and Cash Equivalents.

ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls-Separation of Duties Finding Control Number: FS-6701-11-01

We concur with this finding. The School District will implement procedures to ensure that access control duties are separated.

REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Finding Control Number: FS-6701-11-03

We concur with this finding. The School District will revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures and implement procedures to ensure that key accounting functions of custody, record keeping, and authorization are separated, utilize management oversight of these incompatible activities, and implement procedures to ensure that expenditures of school activity accounts are properly documented and approved prior to payment.

- 1 -

HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2012
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES BUDGET PREPARATION/EXECUTION Deficit Fund Balance Failure to Adopt a Balanced Budget Finding Control Number: FS-6701-11-04 We concur with this finding. The School District will establish policies and procedures to ensure that expenditures do not exceed availability of resources. Appropriate procedures will also be implemented to ensure that the adopted budget for each budgeted fund is balanced as required. EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls Finding Control Number: FS-6701-11-05 We concur with this finding. The School District will adequately monitor and implement procedures to ensure that appropriate internal controls are established, implemented and functioning. GENERAL LEDGER Inadequate Accounting Procedures Finding Control Number: FS-6701-11-06 We concur with this finding. The School District will review current internal control procedures to ensure that journal entries are properly approved, documented, and posted in the accounting records. CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Finding Control Number: FS-6701-11-07 We concur with this finding. The School District will reassess internal control procedures related to capital assets to ensure that they are in place and operating effectively.
- 2 -

HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2012

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER

AUDITEE'S RESPONSE/STATUS

SEE AUDITOR'S COMMENTS

FA-6701-10-01

Partially Resolved See Corrective Action/Responses

FA-6701-10-02

Partially Resolved See Corrective Action/Responses

FA-6701-10-03

Partially Resolved See Corrective Action/Responses

(1)

FA-6701-10-05

Previously Reported Corrective Action Implemented

FA-6701-10-06

Partially Resolved See Corrective Action/Responses

FA-6701-11-01

Unresolved - See Corrective Action/Responses

FA-6701-11-02

Unresolved - See Corrective Action/Responses

FA-6701-11-03

Unresolved - See Corrective Action/Responses

FA-6701-11-04

Further Action Not Warranted

(1)

FA-6701-11-05

Previously Reported Corrective Action Implemented

FA-6701-11-06

Unresolved - See Corrective Action/Responses

AUDITOR'S COMMENTS

(1) Findings/internal control deficiencies of this nature, that are not deemed significant deficiencies or material weaknesses and do not require reporting in the audit report in accordance with Office of Management and Budget (OMB) Circular A-133, will be communicated in a management letter.

CORRECTIVE ACTION/RESPONSES

ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES PROCUREMENT, SUSPENSION AND DEBARMENT Inadequate Internal Control Procedures U. S. Department of Education Through Georgia Department of Education Title I, Part A Cluster (CFDA 84.010) Questioned Cost: $22,000.00 Finding Control Number: FA-6701-10-01

We concur with this finding. The School District has implemented procedures to ensure that all expenditures charged to Federal programs are allowable under OMB Circular A-87, approved by the program director and Superintendent or Designee and properly documented.

Auditor's Comment: The School District returned $22,000.00 to Georgia Department of Education during fiscal year 2013.

- 3 -

HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2012
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTION/RESPONSES
ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES PROCUREMENT, SUSPENSION AND DEBARMENT Inadequate Internal Control Procedures U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Questioned Cost: $645.97 Finding Control Number: FA-6701-10-02
We concur with this finding. The School District has implemented procedures to ensure that all expenditures charged to Federal programs are allowable under OMB Circular A-87, approved by program director and Superintendent or Designee and properly documented.
Auditor's Comment: The School District returned $645.97 to Georgia Department of Education during fiscal year 2013.
CASH MANAGEMENT Excessive Cash Balance U. S. Department of Education Through Georgia Department of Education Special Education Cluster (CFDA 84.027, 84.173, 84.391 and 84.392) Title I, Part A Cluster (CFDA 84.010 and 84.389) Questioned Cost:$2,506.84 Special Education Cluster (CFDA 84.027, 84.173, 84.391 and 84.392) - $1,513.61 Title I, Part A Cluster (CFDA 84.010 and 84.389) - $993.23 Finding Control Number: FA-6701-10-03
We concur with this finding. The Hancock County Board of Education has implemented procedures to accurately forecast cash needs on the required contract expenditure reports. The new procedures will accurately forecast cash needs based on actual expenditures incurred in order to minimize or eliminate the time elapsing between the transfer of funds from GDOE and the disbursement of such funds by the School District.
Auditor's Comment: The School District returned $2,506.84 to Georgia Department of Education during fiscal year 2013.
- 4 -

HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2012
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTION/RESPONSES
SPECIAL REPORTING Inadequate Internal Control Procedures U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Questioned Cost: $9,882.48 Finding Control Number: FA-6701-10-06
We concur with this finding. The Hancock County Board of Education has implemented internal controls. The School District has reviewed the internal controls for Federal compliance procedures in place, and designed procedures which will enhance compliance with Federal guidelines and implemented proper internal controls relative to the findings of School Breakfast Program (CFDA No. 10.553), and the Food Services National School Lunch Program (CFDA 10.555).
Auditor's Comment: The School District returned $9,882.48 to Georgia Department of Education during fiscal year 2013.
ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures U. S. Department of Education Through Georgia Department of Education Title I, Part A Cluster (CFDA 84.010) Questioned Cost: $18,367.03 Finding Control Number: FA-6701-11-01
We concur with this finding. The School District has implemented procedures to ensure that all expenditures charged to Federal programs are allowable under OMB Circular A-87, approved by the program director and Superintendent or Designee and properly documented.
ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Questioned Cost: $155.00 Finding Control Number: FA-6701-11-02
We concur with this finding. The School District has implemented procedures to ensure that all expenditures charged to Federal programs are allowable under OMB Circular A-87, approved by program director and Superintendent or Designee and properly documented.
- 5 -

HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2012
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures U. S. Department of Health and Human Services Head Start Cluster (CFDA 93.600, 93.708 and 93.709) Questioned Cost: $1,020.02 Finding Control Number: FA-6701-11-03 We concur with this finding. The School District has implemented procedures to ensure that all expenditures charged to Federal programs are allowable under OMB Circular A-87, approved by the program director and Superintendent or Designee and properly documented SPECIAL REPORTING Inadequate Internal Control Procedures U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Finding Control Number: FA-6701-11-06 We concur with this finding. The Hancock County Board of Education has implemented internal controls. The School District has reviewed the internal controls for Federal compliance procedures in place, and designed procedures which will enhance compliance with Federal guidelines and implemented proper internal controls relative to the findings of School Breakfast Program (CFDA No. 10.553), and the Food Services National School Lunch Program (CFDA 10.555).
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SECTION IV FINDINGS AND QUESTIONED COSTS

HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

I SUMMARY OF AUDITOR'S RESULTS

Financial Statements

Type of auditor's report issue: Governmental Activities; General Fund; Capital Projects Fund; Debt Service Fund; Aggregate Remaining Fund Information

Unqualified

Internal control over financial reporting:

Material weaknesses identified?

Yes

Significant deficiencies identified?

Yes

Noncompliance material to financial statements noted:

No

Federal Awards

Internal Control over major programs:

Material weakness identified?

Yes

Significant deficiencies identified?

Yes

Type of auditor's report issued on compliance for major programs: Unqualified for all major programs except for Head Start Cluster, which was qualified.

Any audit findings disclosed that are required to be reported in

accordance with OMB Circular A-133, Section 510(a)?

Yes

Identification of major programs:

CFDA Numbers

Name of Federal Program or Cluster

10.553, 10.555 84.010, 84.389 84.027, 84.173 93.600, 93.709

Child Nutrition Cluster Title I, Part A Cluster Special Education Cluster Head Start Cluster

Dollar threshold used to distinguish between Type A and Type B programs:

$300,000.00

Auditee qualified as low-risk auditee?

No

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls-Separation of Duties Material Weakness Finding Control Number: FS-6701-12-01

Condition: This is a repeat finding (FS-6701-11-01 and FS-6701-10-01) from the years ended June 30, 2011, and June 30, 2010, respectively. The policies and procedures of the School District were insufficient to provide adequate controls over logical access to the School District's financial system.

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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
Criteria: The School District's management is responsible for providing policies and procedures that allow for the granting of proper access to the School District's financial system. Access should be reasonable for the user's job duties and no user should be able to perform conflicting duties within the logical environment in the absence of compensating internal controls outside of the financial system. In addition, finance personnel should not have administrator roles within the financial system.
Questioned Cost: N/A
Information: A review of access to the School District's financial system revealed several users were granted access that allowed the user to perform conflicting significant duties. A test of compensating controls outside of the financial system revealed these controls were not effective, and therefore, the access that allowed for conflicting duties could have an effect on data that is used in the preparation of the financial statements. In addition, financial personnel were granted administrator roles which allows for the addition, modification, and deletion of user access in the financial system.
Cause: Management failed to monitor and implement access to the School District's financial system to ensure each user had appropriate access and that compensating controls outside of the financial system were appropriately functioning.
Effect: The lack of adequate controls over the logical access to the School District's financial system may result in errors and/or irregularities not being detected in a timely manner.
Recommendation: The School District should review the access to the financial system and determine if the users' access is appropriate for the users' job duties. In addition, users with administrator access should be carefully reviewed to ensure this access is only granted by IT personnel.
CASH AND CASH EQUIVALENTS Inadequate Internal Control Procedures Significant Deficiency Finding Control Number: FS-6701-12-02
Condition: This is a repeat finding (FS-6701-11-02, FS-6701-10-02 and FS-6701-09-01) from the years ended June 30, 2011, June 30, 2010 and June 30, 2009, respectively. The accounting procedures of the School District were insufficient to provide adequate internal control procedures over the Cash and Cash Equivalents function.
Criteria: The School District's management is responsible for designing and maintaining an adequate system of internal controls that ensure that all cash accounts are supported by and reconciled to either cash on hand or bank accounts held at authorized financial institutions.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
Questioned Cost: N/A
Information: A review of three months of bank reconciliations for all bank accounts revealed the following deficiencies:
No administrative review was performed during the month of June on bank reconciliations to determine the Head Start, SPLOST, School Nutrition, Payroll, and General Operating accounts were correct and all required adjustments had been made. In addition, no administrative review of Head Start, SPLOST, School Nutrition or Payroll bank reconciliations were performed for March 2012.
There were eight instances where bank reconciliations for Head Start, SPLOST, School Nutrition, Payroll, and General Operating accounts were not performed in a timely manner.
Reconciling items for the General Operating account were not properly addressed in a timely manner for two of the three months.
Cause: These deficiencies were the result of management's failure to ensure adequate internal control procedures were established, implemented and functioning as intended with regard to Cash and Cash Equivalents.
Effect: The lack of adequate control over cash increases the risk for theft, fraud, or misuse of School District resources that may result in errors and/or irregularities which would not be detected in a timely manner.
Recommendation: The School District should establish procedures to ensure all bank reconciliations are completed in a timely manner, all reconciling items are properly addressed in a timely manner, and an administrative review is performed to determine bank reconciliations are correct and all required adjustments have been made and documented.
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Significant Deficiency Finding Control Number: FS-6701-12-03
Condition: This is a repeat finding (FS-6701-11-03, FS-6701-10-03 and FS-6701-09-02) from the years ended June 30, 2011, June 30, 2010, and June 30, 2009, respectively. The accounting procedures of the School District were insufficient to provide adequate internal controls over school activity accounts.
Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance transactions are processed according to established procedures.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
Questioned Cost: $691.88
Information:
Cash and Cash Equivalents A review of three months of bank reconciliations revealed the following deficiencies:
No administrative review was performed for two months on bank reconciliations to determine whether the Hancock Central Middle School, and M.E. Lewis Elementary School accounts were correct and all required adjustments had been made.
Bank reconciliations for Hancock Central High School, Hancock Central Middle School, and M.E. Lewis Elementary School accounts were not performed in a timely manner.
Adequate supporting documentation was not provided for two bank reconciliations to determine if the Hancock Central High School accounts were properly reconciled.
No administrative review was performed for Hancock Central High School.
Revenues/Receivables/Receipts None of the thirty receipts tested were supported by adequate documentation to determine if receipts were deposited in a timely manner or properly recorded.
Expenditures/Liabilities/Disbursements A review of thirty-one vouchers revealed the following deficiencies:
Twenty-one vouchers had no evidence of receipt, did not have a purchase order or other supporting documentation.
Three vouchers were not properly classified between governmental and agency funds. Four vouchers were not properly recorded in the correct account. Three expenditures in the amount of $691.88 were made for unallowable administrative
lunches.
Cause: The deficiencies were a result of management's failure to ensure internal controls were established, implemented, and functioning at the school level.
Effect: Errors and/or irregularities may not be detected in a timely manner.
Recommendation: The School District should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures. In addition, management should implement procedures to ensure adequate documentation is maintained for receipts and deposits are made in a timely manner. Finally, management should monitor expenditures to ensure proper documentation, correct accounts, and approval are completed prior to payment.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
BUDGET PREPARATION/EXECUTION Failure to Adopt a Balanced Budget Significant Deficiency Finding Control Number: FS-6701-12-04
Condition: This is a repeat finding (FS-6701-11-04, FS-6701-10-04 and FS-6701-09-03) from the years ended June 30, 2011, June 30, 2010, and June 30, 2009, respectively. The School District failed to adopt a balanced budget for the General Fund.
Criteria: Chapter 32, Preparing Operating Budgets, of the Financial Management for Georgia Local Units of Administration (FMGLUA) states in part: 'The budget must be balanced for all budgeted funds. Total anticipated revenues should equal total estimated expenditures. In the event anticipated revenues are insufficient to fund anticipated essential expenditures, a portion of unreserved fund balance from previous years must be used to fund the shortfall. In the event there is insufficient unreserved fund balance from previous years to fund anticipated expenditures, then such expenditures must be reduced to equal anticipated revenues plus available unreserved fund balance'.
Questioned Cost: N/A
Information: The School District's original budget for the General Fund budgeted deficit fund balance in the amount of $115,632.
Cause: The School District adopted an unbalanced original budget for the General Fund.
Effect: Adopting an unbalanced budget could lead to a financial statement irregularity in accordance with the Official Code of Georgia Annotated 20-2-67.
Recommendation: The School District should establish procedures to ensure the adopted budget for each budgeted fund is balanced as required.
FINANCIAL REPORTING Inadequate Controls over Financial Reporting Material Weakness Finding Control Number: FS-6701-12-05
Condition: The School District did not have adequate controls in place to ensure that all required activity was included in the financial statement information presented for audit.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
Criteria: Chapter 22A Annual Financial Reporting of the Financial Management for Georgia Local Units of Administration provides that School Districts must prepare their financial statements in accordance with generally accepted accounting principles.
Questioned Cost: N/A
Information: Agency Fund activity was incorrectly reported in the General Fund. An audit adjustment of $22,327 was necessary to correct Cash and Funds Held for Others in Agency Funds. In addition, the auditors identified numerous immaterial uncorrected misstatements. Management determined that their effects are immaterial, both individually and in the aggregate, to the financial statements as a whole.
Cause: The School District did not implement an adequate system of internal control over the financial reporting process.
Effect: The School District did not comply with the requirements of the Georgia Department of Education regarding financial reporting.
Recommendation: The School District should implement controls over the financial statement reporting process to ensure all required activity is included in the financial statement information.
EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-6701-12-06
Condition: This is a repeat finding (FS-6701-11-05, FS-6701-10-05 and FS-6701-09-04) from the years ended June 30, 2011, June 30, 2010, and June 30, 2009, respectively. The accounting procedures of the School District were insufficient to provide adequate internal controls over the expenditure process.
Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance transactions are properly approved, documented, processed and reported in accordance with State law, procedures established by the Georgia Department of Education and School District policies and procedures.
Questioned Cost: $900.00
Information: A review of thirty vouchers revealed the following deficiencies:
Four vouchers had no invoice or other supporting documentation. Nine vouchers did not have evidence of receipt.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
One voucher included sales tax in the amount of $17.71. Five vouchers were charged to the wrong account. Sixteen accounts payable in the amount of $98,965.37 were determined to be invalid.
A review of purchase card purchases revealed the following deficiencies: One voucher in the amount of $900.00 was unallowable. One expenditure in the amount of $400.00 was undocumented.
Cause: Management failed to adequately monitor and implement procedures to ensure appropriate internal controls were established, implemented and functioning.
Effect: The lack of adequate control over expenditures may result in misstatements which would not be detected in a timely manner.
Recommendation: The School District should develop and implement procedures sufficient to ensure all expenditures are properly approved, adequately documented, follow State and local procurement policies, and are recorded in the proper accounts and accounting period.
EMPLOYEE COMPENSATION Inaccurate Salary Calculations Significant Deficiency Finding Control Number: FS-6701-12-07
Condition: The School District failed to implement procedures to ensure salary payments were accurately calculated and documented.
Criteria: The School District's management is responsible for designing and maintains internal controls that provide reasonable assurance employees are paid according to approved salary schedules.
Questioned Cost: N/A
Information: Based on a review of forty-six employee payroll records, the following deficiencies were noted:
The Superintendent was overpaid $166.62 due to an incorrect calculation for furlough days. A furlough of $2,785.16 was not calculated for one employee. In addition, this employee was
paid $1,986.24 that was not supported by documentation, resulting in a total overpayment of $4,771.40. Two employees were not paid in accordance with the state salary schedule resulting in overpayments in the amounts of $1,034.02 and $240.75, respectively. Four employees were overpaid a total of $778.48 based on documentation provided. One employee was underpaid in the amount of $3,158.90, based on documentation provided.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
Cause: These deficiencies were a result of management's failure to adequately monitor and implement procedures to ensure payments made to employees are based on an approved rate of pay that is adequately documented in the employee's personnel file.
Effect: Errors and/or irregularities may occur and not be detected in a timely manner.
Recommendation: Internal controls should be strengthened by the School District to ensure that personnel files are properly maintained and all salary payments to employees are based on an approved rate of pay. Additionally, the School District should review this matter to determine if the recovery or payment of funds is needed.
GENERAL LEDGER Inadequate Accounting Procedures Material Weakness Finding Control Number: FS-6701-12-08
Condition: This is a repeat finding (FS-6701-11-06, FS-6701-10-06 and FS-6701-09-05) from the years ended June 30, 2011, June 30, 2010, and June 30, 2009, respectively. A review of internal control procedures revealed the School District failed to implement controls to ensure journal entries were properly documented, approved and recorded.
Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance transactions are properly approved, documented, processed, and reported in accordance with State law, procedures established by the Georgia Department of Education and School District policies and procedures.
Questioned Cost: N/A
Information: Weaknesses in internal controls relating to journal entries were noted as follows:
Procedures were not in place to ensure journal entries were approved by someone independent of the general ledger journal entry function.
Procedures were not in place to ensure documentation was available to support journal entries.
A review of twenty journal entries revealed the following: Five journal entries could not be located for review. None of the journal entries were reviewed and approved by someone independent of the general ledger journal entry function. Four journal entries contained no supporting documentation.
Cause: Management failed to adequately monitor and implement procedures to ensure all journal entries are properly documented, approved and recorded in the accounting records.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
Effect: The lack of adequate control over the journal entry process may result in material misstatements which would not be detected in a timely manner.
Recommendation: The School District should review current internal control procedures to ensure journal entries are properly approved by someone independent of the general ledger journal entry function, maintained, documented and recorded in the accounting records.
CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Significant Deficiency Finding Control Number: FS-6701-12-09
Condition: This is a repeat finding (FS-6701-11-07, FS-6701-10-07, and FS-6701-09-06) from the years ended June 30, 2011, June 30, 2010, and June 30, 2009, respectively. The School District failed to adequately maintain the capital assets records.
Criteria: Chapter 37 Implementing a Capital Asset Management System of the Financial Management for Georgia Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records.
Questioned Cost: N/A
Information: A review of the School District's capital asset records noted deficiencies as discussed below:
The School District lacked proper internal controls to detect significant errors in a timely manner.
The capital assets listing, as presented, failed to provide all elements of information as required by Chapter 37 of the Financial Management for Georgia Local Units of Administration, such as asset identifiers and location identifiers.
Several assets were noted that were on the asset listing but were no longer owned by the School District.
Assets had been removed from the assets listing that were still owned by the School District. Assets were noted in prior years that had not been added to the assets listing and were not
corrected in the current year. Several assets appeared to be impaired in accordance with GASB 42. The School District
failed to adhere to its capital assets policy in determining the status of the assets. Depreciation expense was not calculated in accordance with the School District capital
assets policy. Several additions, in the amount of $125,165.64, were noted in the current year that were
not added to the assets listing
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
A physical review of thirty-six capital assets revealed the following deficiencies: o Five assets could not be located due to incorrect information on capital assets listing. o Twelve assets were not properly tagged. o Three assets were in an incorrect location.
Cause: The School District failed to ensure adequate accounting procedures were in place to process, record and report capital assets and related activity.
Effect: The failure of the School District to maintain a complete and accurate capital assets listing can lead to inaccurate internal and external reporting, as well as noncompliance with generally accepted accounting principles.
Recommendation: The School District should reassess internal control procedures related to capital assets to ensure that they are in place and operating effectively. An administrative review should be performed to ensure the accuracy of capital assets records and make appropriate adjustments to ensure capital assets records and procedures for maintaining capital assets conform to generally accepted accounting principles.
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Significant Deficiency U. S. Department of Education Through Georgia Department of Education Title I, Part A Cluster (CFDA 84.010) Finding Control Number: FA-6701-12-01
Condition: This is a repeat finding (FA-6701-11-01, FA-6701-10-01 and FA-6701-09-01) from fiscal years ended June 30, 2011, June 30, 2010, and June 30, 2009, respectively. A review of expenditures charged to the Title I Grants to Local Educational Agencies (CFDA 84.010) program revealed the School District failed to implement internal control procedures to ensure expenditures were properly documented, authorized, and in compliance with grant requirements.
Criteria: Provisions of OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, require that 'to be allowable under Federal awards, costs must be...authorized or not prohibited under state or local laws or regulations' and 'be adequately documented'.
Questioned Cost: $3,629.65
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Information: A review of twenty-six expenditure vouchers for the Title I, Part A Cluster revealed the following deficiencies:
Three voucher packages in the amount of $3,629.65 had no invoice or other supporting documentation.
One voucher package was identified as not being recorded in the correct period, resulting in a misstatement of $8,804.08. The expenditure should have been recorded in the previous year.
Cause: Management failed to monitor compliance with Federal guidelines to ensure expenditures charged to the Federal Program were allowable and properly documented.
Effect: Failure to ensure program expenditures are properly documented can result in noncompliance with the Federal grant.
Recommendation: The School District should implement procedures to ensure all expenditures charged to the Federal program are allowable under OMB Circular A-87, recorded in the correct period and properly documented. In addition, the Georgia Department of Education should review this matter to determine if a reclaim of grant funds is appropriate.
ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Significant Deficiency U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Finding Control Number: FA-6701-12-02
Condition: This is a repeat finding (FA-6701-11-02 and FA-6701-10-02) from fiscal years ended June 30, 2011, and June 30, 2010. A review of expenditures charged to the Child Nutrition Cluster (CFDA 10.553 and 10.555) programs revealed the School District failed to implement internal control procedures to ensure expenditures were properly documented, authorized, and allowable.
Criteria: Provisions of OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, require that 'to be allowable under Federal awards, costs must be...authorized or not prohibited under state or local laws or regulations' and 'be adequately documented'.
Questioned Cost: $2,150.50
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Information: A review of thirty-four expenditure vouchers for the Child Nutrition Cluster programs revealed the following deficiencies:
Two voucher packages had no documentation indicating prior approval of the purchase. Three vouchers in the amount of $1,952.50 were determined to be unallowable. One voucher package in the amount of $198.00 did not include supporting documentation. Four voucher packages were identified as not being recorded in the correct period, resulting
in a misstatement of $8,939.95. The expenditures should have been recorded in the previous year.
Cause: Management failed to monitor compliance with Federal guidelines to ensure expenditures charged to the Federal Program were allowable and approved.
Effect: Failure to ensure program expenditures are allowable and approved can result in noncompliance with the Federal grant.
Recommendation: The School District should implement procedures to ensure all expenditures charged to the Federal program are allowable under OMB Circular A-87, in the correct period, properly documented and approved by appropriate management. In addition, the Georgia Department of Education should review this matter to determine if a reclaim of grant funds is appropriate.
ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Material Noncompliance Material Weakness U. S. Department of Health and Human Services Head Start Cluster (CFDA 93.600 and 93.709) Finding Control Number: FA-6701-12-03
Condition: This is a repeat finding (FA-6701-11-03) from fiscal year ended June 30, 2011. A review of expenditures charged to Head Start Cluster (CFDA 93.600 and 93.709) programs revealed the School District failed to implement internal control procedures to ensure expenditures were properly documented, authorized, and allowable.
Criteria: Provisions of OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, require that 'to be allowable under Federal awards, costs must be...authorized or not prohibited under state or local laws or regulations' and 'be adequately documented'.
Questioned Cost: $10,076.73
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Information: A review of twenty-five expenditure vouchers for the Head Start Cluster programs revealed the following deficiencies:
Three voucher packages had no documentation indicating prior approval of the purchase. A voucher in the amount of $1,080.00 had no supporting documentation. Unallowable travel reimbursements in the amount of $23.68 were made to a non-Head Start
employee. One voucher in the amount of $1,750.00 was determined to be unallowable. One travel reimbursement in the amount of $166.25 did not follow the Statewide Travel
Regulations.
A review of seven payroll records for the Head Start Cluster programs revealed the following deficiencies:
Two employees were overpaid in the amounts of $6,192.15 and $1,030.90, respectively, based on the documentation provided.
One employee was underpaid $60.38, based on documentation provided.
Cause: Management failed to monitor compliance with Federal guidelines to ensure expenditures charged to the Federal Program were allowable, approved and properly documented.
Effect: Failure to ensure program expenditures are allowable, approved, and properly documented can result in noncompliance with the Federal grant.
Recommendation: The School District should implement procedures to ensure that all expenditures charged to the Federal program are allowable under OMB Circular A-87, follow Statewide Travel Regulations, recorded in the correct period, approved by appropriate management, and properly documented. In addition, the Department of Health and Human Services should review this matter to determine if a reclaim of grant funds is appropriate.
SPECIAL REPORTING Inadequate Internal Control Procedures Significant Deficiency U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Finding Control Number: FA-6701-12-04
Condition: This is a repeat finding (FA-6701-11-06 and FA-6701-10-06) from fiscal years ended June 30, 2011, and June 30, 2010. A review of the School District's DE-0106 reports submitted to the Georgia Department of Education disclosed that they did not agree with the DE-0112 and DE-0118 Participation Reports for the Child Nutrition Cluster (CFDA 10.553 and 10.555) programs.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Criteria: Provisions in 7 CFR 210.7(c) require that the School District "base claims for reimbursement on lunch counts, taken daily at the point of service, which correctly identify the number of free, reduced price and paid lunches served to eligible children" and "correctly record, consolidate and report those lunch and supplemental counts on the Claim for Reimbursement..." Questioned Cost: N/A Information: The DE-0106 reports submitted for the months of February and June 2012 disclosed that meal counts did not agree with the number of meals served on the DE-0112 and DE-0118 Participation Reports. The number of Breakfasts and Lunches reported on the DE-0106 for Free students was less than those reported on the DE-0112 and DE-0118. The number of Breakfasts and Lunches reported on the DE-0106 for Reduced and Paid students was greater than those reported on the DE0112 and DE-0118. This resulted in an under reimbursement to the School District for the months of February and June, 2012. Cause: These deficiencies are a result of management's failure to monitor compliance with Federal guidelines to ensure reimbursement requests are accurate. Effect: Failure to ensure that reimbursement requests accurately report the number of meals served can result in noncompliance of the Federal grant. Recommendation: Management should become familiar with the Federal regulations for the Child Nutrition Cluster program in order to develop procedures to provide accurate reporting of meals served. The Georgia Department of Education should review the reports submitted by the School District to determine the accuracy of all reimbursement requests for the year under review and determine the resolution of this matter.
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SECTION V MANAGEMENT'S RESPONSES

HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2012

Finding Control Number: FS-6701-12-01

We concur with this finding. The School District will implement procedures to ensure that access control duties are segregated.

Contact Persons:
Telephone: Fax: Email:

Gwendolyn J. Reeves, Superintendent Alma D. Harper, Finance Director (706) 444-5775, ext. 236 (Reeves), ext. 276 (Harper) (706) 444-7026 greeves@hancock.k12.ga.us or aharper@hancock.k12.ga.us

Finding Control Number: FS-6701-12-02

We concur with this finding. The School District will implement procedures for designing and maintaining internal controls over Cash and Cash Equivalents.

Contact Persons:
Telephone: Fax: Email:

Gwendolyn J. Reeves, Superintendent Alma D. Harper, Finance Director (706) 444-5775, ext. 236 (Reeves), ext. 276 (Harper) (706) 444-7026 greeves@hancock.k12.ga.us or aharper@hancock.k12.ga.us

Finding Control Number: FS-6701-12-03

We concur with this finding. The School District will revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures and implement procedures to ensure that key accounting functions of custody, record keeping, and authorization are separated, utilize management oversight of these incompatible activities, and implement procedures to ensure that expenditures of school activity accounts are properly documented and approved prior to payment.

Contact Persons:
Telephone: Fax: Email:

Gwendolyn J. Reeves, Superintendent Alma D. Harper, Finance Director (706) 444-5775, ext. 236 (Reeves), ext. 276 (Harper) (706) 444-7026 greeves@hancock.k12.ga.us or aharper@hancock.k12.ga.us

Finding Control Number: FS-6701-12-04

We concur with this finding. The School District will establish policies and procedures to ensure that the adopted budget for each budgeted fund is balanced as required.

Contact Persons:
Telephone: Fax: Email:

Gwendolyn J. Reeves, Superintendent Alma D. Harper, Finance Director (706) 444-5775, ext. 236 (Reeves), ext. 276 (Harper) (706) 444-7026 greeves@hancock.k12.ga.us or aharper@hancock.k12.ga.us

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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2012

Finding Control Number: FS-6701-12-05

We concur with this finding. The School District will ensure that adequate controls are in place to ensure that all required activity is included in the financial statement information presented for the audit.

Contact Persons:
Telephone: Fax: Email:

Alma D. Harper, Finance Director Matthias Jones, Assistant Finance Director (706) 444-5775, ext. 276 (Harper), ext. 125 (Jones) (706) 444-7026 aharper@hancock.k12.ga.us or mjones@hancock.k12.ga.us

Finding Control Number: FS-6701-12-06

We concur with this finding. The School District will develop and implement procedures sufficient to ensure that all expenditures are properly approved, adequately documented, follow State and local procurement policies, and are recorded in the proper accounts and accounting period.

Contact Persons:
Telephone: Fax: Email:

Gwendolyn J. Reeves, Superintendent Alma D. Harper, Finance Director (706) 444-5775, ext. 236 (Reeves), ext. 276 (Harper) (706) 444-7026 greeves@hancock.k12.ga.us or aharper@hancock.k12.ga.us

Finding Control Number: FS-6701-12-07

We concur with this finding. The School District will implement procedures to ensure salary payments are accurately calculated and documented.

Contact Persons:
Telephone: Fax: Email:

Alma D. Harper, Finance Director Matthias Jones, Assistant Finance Director (706) 444-5775, ext. 276 (Harper), ext. 125 (Jones) (706) 444-7026 aharper@hancock.k12.ga.us or mjones@hancock.k12.ga.us

Finding Control Number: FS-6701-12-08

We concur with this finding. The School District will review current internal control procedures to ensure that journal entries are properly approved, documented, and posted in the accounting records.

Contact Persons:
Telephone: Fax: Email:

Alma D. Harper, Finance Director Matthias Jones, Assistant Finance Director (706) 444-5775, ext. 276 (Harper), ext. 125 (Jones) (706) 444-7026 aharper@hancock.k12.ga.us or mjones@hancock.k12.ga.us

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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2012

Finding Control Number: FS-6701-12-09

We concur with this finding. The School District will reassess internal control procedures related to capital assets to ensure that they are in place and operating effectively.

Contact Persons:
Telephone: Fax: Email:

Alma D. Harper, Finance Director Matthias Jones, Assistant Finance Director (706) 444-5775, ext. 276 (Harper), ext. 125 (Jones) (706) 444-7026 aharper@hancock.k12.ga.us or mjones@hancock.k12.ga.us

Finding Control Number: FA-6701-12-01

We concur with this finding. The School District has implemented procedures to ensure that all expenditures charged to Federal programs are allowable under OMB Circular A-87, approved by the program director, and Superintendent or Designee and properly documented.

Contact Person: Telephone: Fax: Email:

Miranda Wilson, Title I Director (706) 444-5775, ext. 119 (706) 444-7026 mwilson@hancock.k12.ga.us

Finding Control Number: FA-6701-12-02

We concur with this finding. The Hancock County Board of Education has implemented internal controls for monitoring compliance with Federal guidelines. The School District has reviewed the internal controls for Federal compliance procedures in place, designed procedures which will enhance monitoring compliance with Federal guidelines and implemented proper internal controls relative to the findings of School Breakfast Program (CFDA No 10.533), and the Food Services National School Lunch Program (CFDA No 10.555).

Contact Person: Telephone: Fax: Email:

Shirley Harper, Nutrition Director (706) 444-5775 ext. 112 (706) 444-7026 sharper@hancock.k12.ga.us

Finding Control Number: FA-6701-12-03

We concur with this finding. The School District will implement procedures to ensure that all expenditures charged to Federal programs are allowable under OMB Circular A-87, approved by the program director, and Superintendent or Designee and properly documented.

Contact Person: Telephone: Fax: Email:

Tanger Ward, Director (706) 444-5775 ext. 240 (706) 444-7026 tward@hancock.k12.ga.us

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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2012

Finding Control Number: FA-6701-12-04

We concur with this finding. The Hancock County Board of Education has implemented internal controls. The School District has reviewed the internal controls for Federal compliance procedures in place, and has designed procedures which will enhance compliance with Federal guidelines and implemented proper internal controls relative to the findings of School Breakfast Program (CFDA No 10.533), and the Food Services - National School Lunch Program (CFDA No 10.555).

Contact Person: Telephone: Fax: Email:

Shirley Harper, Nutrition Director (706) 444-5775 ext. 112 (706) 444-7026 sharper@hancock.k12.ga.us

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