Review report, state of Georgia, Department of Defense, year ended June 30, 1994

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:D43
1993-9-4
STATE OF GEORGIA DEPARTMENT OF AUDITS
254 WASHINGTON STREET ATLANTA. GEORGIA 30334

REVIEW REPORT STATE OF GEORGIA DEPARTMENT OF DEFENSE YEAR ENDED JUNE 30, 1994

DEPARTMENT OF DEFENSE - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

EXHIBITS

FINANCIAL STATEMENTS

A COMBINED BALANCE SHEET (STATUTORY BASIS)

ALL FUND TYPES AND ACCOUNT GROUPS

2

B STATEMENT OF CHANGES IN FUND BALANCES

(STATUTORY BASIS)

GOVERNMENTAL FUND TYPE

3

C STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES

BUDGET FUND

4

D STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES

COMPARED TO BUDGET

BUDGET FUND

6

E NOTES TO THE FINANCIAL STATEMENTS

7

SUPPLEMENTARY INFORMATION

SCHEDULES

1 SCHEDULE OF APPROVED BUDGET

16

2 CASH AND CASH EQUIVALENTS

17

3 SCHEDULE OF FEDERAL REVENUES

18

4 SCHEDULE OF OTHER OPERA TING EXPENSES

19

5 SCHEDULE OF EXTRAORDINARY EXPENDITURES

20

SECTION II FINDINGS AND IMPROPER OR QUESTIONED COSTS SCHEDULE OF FINDINGS AND IMPROPER OR QUESTIONED COSTS

SECTION I FINANCIAL

CLAUDE L. VICKERS STATE AUDITOR (404) 656-2174
TAX RATIO (404) 656-0494

~epa:rtmeut of ~uh-its
254 WASHINGTON STREET, SW ROOM 214
J\thmht, &,eorgin 30334-8400
October 21, 1994

FINANCIAL AUDITS (404) '656-2180
PROGRAM AUDITS (404) 656-2006

Honorable Zell Miller, Governor Members of the General Assembly of Georgia
and Honorable William P. Bland, Jr., Adjutant General Department ofDefense
INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have reviewed the accompanying financial statements (Exhibits A througll E) of the Department of Defense as of and for the year ended June 30, 1994, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. As described in Note 1, these financial statements were prepared on a prescribed basis of accounting that demonstrates compliance with the budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. All information included in these financial statements is the representation of the management of the Department of Defense.
A review consists principally of inquiries of agency personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with the basis of accounting described in Note 1.
Our review was made for the purpose of expressing limited assurance that there were no material modifications that should be made to the financial statements in order for them to be in conformity with the basis of accounting described in Note 1. The accompanying supplementary information (Schedules 1 through 5) is presented only for supplementary analysis purposes. Such information has been subjected to the inquiries and

94ARL-4

analytical procedures applied in the review ofthe financial statements and we are not aware of any material modifications that should be made thereto.
Respectfully submitted,
~~~~
Claude L. Vickers State Auditor
CLV:cm 94ARL-4

FINANCIAL STATEMENTS -I-

DEPARTMENT OF DEFENSE
COMBINED BALANCE SHEET (STATUTORY BASIS) ALL FUND TYPES AND ACCOUNT GROUPS
JUNE 30. 1994

EXHIBIT "A"

ASSETS Cash and Cash Eguivalents
(See Schedule) Accounts Receivable
State Appropriation Federal Financial Assistance Other
Fixed Assets Equipment
Amount to be Provided for Payment of Accrued Canpensated Absences

GOVERNMENTAL FUND TYPE BUDGET

ACCOUNT GROUPS

GENERAL FIXED ASSETS

GENERAL LONG-TERM
DEBT

TOTALS (Memorandum Only)
J-U-N-E---3-0-,--1-9-94----JU-N-E---3-0-,--1-9-9-3

$ 1,236,188.27

$1,236,188.27 $ -69,298.82

$

821.02

734,203.82

44,631.11

$ 779,655.95

$

821.02 $

0.00

734,203.82 323,185.53

44,631.11

2,804.42

$ 779,655.95$ 325,989.95

$ 738,580.16

$ 738,580.16$ 483,979.75

$ 482,837.94$ 482,837.94 $ 377,381.49

Total Assets

$ 2,015,844.22
=============

$ 738,580.16
============

$ 482,837.94
=============

$==3=,2=3==7=,2=6==2=.3=2=

$1,118,052.37
=============

LIABILITIES AND FUND EQUITY LIABILITIES
Accounts Payable Payroll Withholdings Canpensated Absences
Total Liabilities FUND EQUITY
Investment in General Fixed Assets Fund Balances
Reserved Federal Financial Assistance Annory Funds Billeting Funds
Unreserved Designated Surplus Total Fund Equity

$ 376,596.36 404.05
------------$---3--7-7-,0--0-0-.4-1-

$ 376,596.36 $ 33,565.87

404.05

459.05

$----4-8-2-,8--3-7-.9-4-

482,837.94
-------------

377,381.49
-------------

$----4-8-2-,8--3-7-.9-4-

$ 859,838.35
-------------

$ 411,406.41
-------------

$ 738,580.16
$1,377,420.39 98,016.02 46,050.90
117,356.50
------------- -------------
$ 1,638,843.81 $ 738,580.16
------------- -------------

$ 738,580.16$ 483,979.75

1,377,420.39 98,016.02 46,050.90

21,760.30 0.00 0.00

117,356.50 200,905.91
------------- -------------
$ 2,377,423.97 $ 706,645.96
------------- -------------

Total Liabilities and Fund Equity

$ 2,015,844.22
=============

$ 738,580.16$ 482,837.94
============= =============

$=3==,2=3=7=,=2=6=2=.3==2

$=1=,=1=1=8=,=0=5=2=.=3=7=

See Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Infonnation. The notes to the financial statements are an integral part of this statement.
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DEPARTMENT OF DEFENSE STATEMENT OF CHANGES IN FUND BALANCES (STATUTORY BASIS)
GOVERNMENTAL FUND TYPE YEAR ENDED JUNE 30, 1994

EXHIBIT 8 11 11

FUND BALANCES - JULY 1
Reserved Unreserved
Designated Surplus
ADDITIONS
Adjustments to Prior Year's Accdunts Payable Excess of Funds Available over Expenditures
Exhibit "C" Restatement of Prior Year Balance for Inclusion
of Armory Funds Reimbursement of Non-Budgeted Expenditures
Georgia State Financing and Investment Commission Reimbursement of Prior Year's Expenditures
DEDUCTIONS
Unreserved Fund Balance (Surplus) Returned to Office of Treasury and Fiscal Services Year Ended June 30, 1992 Year Ended June 30, 1993
Adjustments to Prior Year's Accounts Receivable
Non-Budgeted Expenditures Bond Sale Proceeds Paid to Various Vendors
Refund of Unexpended Funds to Granter Reserved Fund Balance Carried Over from
Prior Year as Funds Available Transfer to Office of the Governor
Georgia Emergency Management Agency In Accordance with Provisions of Act No. 983 of the 1992 Georgia Laws
FUND BALANCES - JUNE 30
(To Exhibit "A")

BUDGET FUND YEAR ENDED
JUNE 30, 1994 JUNE 30, 1993

$ 21,760.30 $ 125,645.46

200,905.91

277,027.32

------------- -------------

$----2-2-2-,6--6-6-.2-1-

$ 402,672.78
-------------

$ 16,396.10 $ 375,557.22

1,495,261.12

322,443.08

154,966.67

0.00

0.00

336,424.23

360.73

354.84

------------- -------------

$ 1,666,984.62 $ 1,034,779.37
------------- -------------

$

0.00 $ 277,027.32

200,905.91

0.00

28,140.81

11,253.97

0.00 0.00

336,424.23 93,862.93

21,760.30

125,645.46

0.00

370,572.03

------------- -------------

$ 250,807.02 $ 1,214,785.94
------------- -------------

$1,638,843.81 $ 222,666.21

See Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
The notes to the financial statements are an integral part of this statement.
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DEPARTMENT OF DEFENSE
STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES BUDGET FUND
YEAR ENDED JUNE 30, 1994

EXHIBIT "C" Page 1

FUNDS AVAILABLE REVENUES
STATE APPROPRIATION General Appropriation Amended Appropriation Governor's Emergency Fund Total State Appropriation
FEDERAL REVENUES (See Schedule) OTHER REVENUES RETAINED
Armory Donations Rents Sale of Timber
Total Other Revenues Retained Total Revenues CARRY-OVER FROM PRIOR YEAR Transfers from Reserved Fund Balance Federal Financial Assistance Nuclear Preparedness Training Grant Total Carry-Over from Prior Year

TOTALS YEAR ENDED JUNE 30, 1994 JUNE 30, 1993

$3,858,508.00$ 3,842,551.00

253,000.00

-90,148.00

0.00

230,000.00

$4,111,508.00$ 3,982,403.00

$14,243,037.26 $ 8,538,915.52

$ 62,148.63 $

0.00

414,593.51

0.00

------2-,6--8-2-.5--0 ----------0-.0--0

$----4-7-9-,-4-2-4-.6--4 $----------0-.-0-0

$18,833,969.90
-------------

$-1-2-,5--2-1-,3--1-8-.5--2

$ 21,760.30 $

0.00

----------0-.0--0

125,645.46
-------------

$-----2-1-,7--6-0-.3--0 $----1-2-5-,-6-4-5-.-4-6

Total Funds Available

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

EXPENDITURES

PERSONAL SERVICES

Salaries and Wages Employer's Contributions for:
F.I.C.A. Retirement Health Insurance Personal Liability Insurance Unemplorment Compensation Insurance Workers Compensation Insurance Assessments by Merit System

$5,848,554.66$ 5,221,347.58

382,630.14 806,250.00 652,951.53
27,984.00 10,907.00 163,158.00 31,476.63

345,733.96 677,293.77 554,732.16
17,596.00 12,027.00 138,323.00 32,911.66

$7,923,911.96$ 6,999,965.13

REGULAR OPERATING EXPENSES

Motor Vehicle Expenses Supplies and Materials Repairs and Maintenance Utilities

$ 16,565.16$ 54,184.53

900,607.45

285,060.39

2,925,859.40 1,470,691.00

2,805,160.31 2,402,656.12

See Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement.
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DEPARTMENT OF DEFENSE STATEMENT ~F FUNDS AVAILABLE AND EXPENDITURES
: BUDGET FUND YEAR ENDED JUNE 30, 1994

EXHIBIT "C" Page 2

EXPENDITURES REGULAR OPERATING EXPENSES
Rents (Other than Real Estate) Insurance and Bonding Other Operating Expenses (See Schedule) Extraordinary Expenditures (See Schedule) Publications and Printing
TRAVEL MOTOR VEHICLE PURCHASES EQUIPMENT
Equipment Purchases COMPUTER CHARGES
Other Costs Supplies and Materials Repairs and Maintenance
Software Equipment
Equipment Purchases Computer Billings, DOAS
REAL ESTATE RENTALS TELECOMMUNICATIONS PER DIEM, FEES AND CONTRACTS
Per Diem and Fees Contracts
CAPITAL OUTLAY Per Die~, Fees and Contracts Contracts Total Expenditures
Excess of Funds Available over Expenditures

TOTALS
J-U-N-E---3-0-, --1Y-9EA-9R-4--E-NJU-DN-ED-E--3-0-,--1-9-9-3

$ 97,759.81 $

7,660.84

66,401.21

89,874.00

470,607.30

67,188.27

13,311.71

179,322.55

-----1-4-,-5-9-5-.-9-8 ------6-,0--5-6-.0--5

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

$-----2-8-,9--9-1-.5--3 $-----2-8-,7--4-4-.6-2-

$-----1-3-,6--4-6-.0--0 $----------0-.0--0

$ 315,873.81 $ 32,847.08

$

2,026.16 $

1,759.00

65,888.68

898.54 75.00
1,083.49

73,138.44

2,691.32

------1-,2--2-8-.7--5 --------6-7-4-.-6-5

$----1-4-4-,-0-4-1-.0--3 $------5-,4--2-3-.-0-0

$-----4-5-,7--3-2-.2--0 $-----7-2-,8--4-5-.4--8

$----5-2-5-,-3-0-4-.9--4 $-----5-6-,3--4-3-.6--9

$ 143,783.54 $

3,922.95

----3-9-0-,-4-7-2-.8--6 ----5-6-1-,-7-3-5-.-2-0

$----5-3-4-,-2-5-6-.4--0 $----5-6-5-,-6-5-8-.-1-5

$ 517,842.B8 $

0.00

$17,360,469.08 $12,324,520.90

1,495,261.12

322,443.08

$18,855,730.20 $12,646,963.98
See Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement.
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DEPARTMENT DF DEFENSE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
YEAR ENDED JUNE 30, 1994

EXHIBIT "D"

BUDGET

ACTUAL

VARIANCE FAVORABLE
(UNFAVORABLE)

FUNDS AVAILABLE

REVENUES

State Appropriation Federal Revenues Other Revenues Retained

$4,111,508.00$ 4,111,508.00$

13,755,034.00 14,243,037.26

464,084.00

479,424.64

0.00 488,003.26
15,340.64

CARRY-OVER FROM PRIOR YEAR

$18,330,626.00 $18,833,969.90$ 503,343.90

Transfer from Reserved Fund Balance

0.00

21,760.30

21,760.30

$18,330,626.00 $18,855,730.20$ 525,104.20

EXPENDITURES
Personal Services Regular Operating Expenses Travel Motor Vehicle Purchases Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem, Fees and Contracts Capital Outlay

$ 8,507,307.00 $ 7,923,911.96 $

7,407,579.00 7,310,868.33

39,875.00

28,991.53

13,650.00

13,646.00

375,079.00 315,873.81

152,360.00

144,041.03

46,740.00

45,732.20

554,946.00

525,304.94

713,590.00

534,256.40

519,500.00 517,842.88

583,395.04 96,710.67 10,883.47
4.00 59,205.19 8,318.97 1,007.80 29,641.06 179,333.60 1,657.12

$18,330,626.00 $17,360,469.08$ 970,156.92

Excess of Funds Available over Expenditures

$1,495,261.12 $1,495,261.12

See Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement.
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DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXIIlBIT "E"

NOTE l: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY The Department ofDefense, an organizational unit of the State of Georgia, is part of the executive branch of the government of the State of Georgia. The Department was created by an act of the General Assembly (O.C.G.A. 38-2-130), and presently consists ofa Military Division and Administrative Services Division. The Adjutant General is the Executive Officer of the Department. The tenure of office of the Adjutant General is at the pleasure of the Governor, who is designated as Commander-in-Chief of all militia and other military and naval forces of the State of Georgia.
The Department of Defense does not have authority to determine the amount of funding it will receive from the State of Georgia for any given fiscal year. Such authority is vested in the General Assembly of Georgia. The Department also does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, the Department of Defense is included within the State of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational and financial relationships with the State of Georgia. These reporting entity relationships are defined in Section 2100 of the Governmental Accounting Standards Board Codification of Governmental Accounting and Financial Reporting Standards.
FUND ACCOUNTING The Department ofDefense uses a fund and account groups to report on its financial position and the results of its operations determined in conformity with accounting practices prescribed or permitted by statutes and regulations ofthe State of Georgia. 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. An account group, on the other hand, is a financial reporting device designed to provide accountability for certain assets and liabilities that are not recorded in the funds because they do not directly affect net expendable available financial resources. The fund and account groups presented in the accompanying financial statements are as follows:
GOVERNMENTAL FUND TYPE
BUDGET FUND - The fund used to account for activities and functions as set forth in the Amended Appropriations Act of 1993-1994. The Budget Fund is similar in nature to a General Fund as identified in generally accepted accounting principles in that the Budget Fund is used to account for all activities except those required to be accounted for in some other fund.
ACCOUNT GROUPS
GENERAL FIXED ASSETS - The account group used to account for fixed assets used in governmental fund type operations. Fixed assets purchased are recorded at historical cost. Donated fixed assets are recorded at fair market value on the date donated. Disposals are deleted at recorded values. No depreciation has been provided on general fixed assets.

-7-

DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXIDBIT "E"

NOTE I: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FUND ACCOUNTING
ACCOUNT GROUPS
GENERAL LONG-TERM DEBT - The account group used to report the noncurrent portions of certain governmental long-term liabilities, such as claims, judgments and compensated absences, which will be paid from future resources.
BASIS OF ACCOUNTING MEASUREMENT FOCUS
The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Governmental funds should be accounted for using the current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. Operating statements ofthese funds present increases (i.e., revenues) and decreases (i.e., expenditures) in net current assets.
GOVERNMENTAL FUND TYPE BUDGET FUND
Except as disclosed in the following paragraphs, units of government of the State of Georgia record their Budget Fund revenues and expenditures in accordance with the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Revenues that are accrued include primarily State appropriations, Federal grants and entitlements, and certain amounts earned under operating agreements with other parties. Further,
the modified accrual basis ofaccounting calls for expenditures, other than accrued interest of general long-term
debt, to be recorded when the related fund liability is incurred.
Contractual obligations for services which have not been performed and for goods which have not been delivered at the end of the fiscal year are recognized as expenditures and liabilities in the accompanying financial statements. This accounting practice causes expenditure-driven grant revenues to be accrued based in part on the unexecuted portion of contracts for goods and services. The recognition of encumbrances as expenditures and liabilities is in conformity with accounting practices prescribed or permitted by statutes and regulations ofthe State of Georgia, but is not consistent with generally accepted accounting principles, which provide for the recording of encumbrances as a reservation of fund balance. Further, revenue recognition for expenditure-driven grants should be based upon expenditures determined in accordance with generally accepted accounting principles.
Prior period adjustments and certain other items are reported as additions to and deductions from fund balances ofthe Budget Fund in the accompanying financial statements. This presentation is in accordance with

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DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXHIBIT "E"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING GOVERNMENTAL FUND TYPE BUDGET FUND
accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, but differs from generally accepted accounting principles in that immaterial adjustments should be reported as current period revenues and expenditures.
BUDGET Appropriation allotments to the Department of Defense are on the basis of a budget submitted by the Department and approved by the Legislature and the Governor. The budget is compiled in the same manner as all State departments and expenditures are classified by budget unit object classes as provided in Act No. 608 of Georgia Laws 1993 (as approved April 28, 1993) and amended by Act No. 622 of Georgia Laws 1994 (as approved February 8, 1994), which is an appropriated budget and is referred to in these notes as the Amended Appropriations Act of 1993-1994.
CASH AND CASH EQUIVALENTS Cash and Cash Equivalents consist of demand deposits with banks and other financial institutions.
INVENTORIES No inventories of supplies are reported in the current financial statements. Expendable supplies are recorded as expenditures at the time of purchase.
RESERVED FUND BALANCE Reserves represent those portions of fund equity not appropriable for expenditure or legally segregated for a specific future use. The following is a brief description of the reserves reflected in the accompanying financial statements:
FEDERAL FINANCIAL ASSISTANCE The residual portion ofFederal financial assistance revenues not yet expended or encumbered. This amount is restricted for expenditure in future years. This accounting treatment differs from generally accepted accounting principles in that the unearned portion of Federal financial assistance should be reflected as Deferred Revenue.
ARMORY FUNDS The residual portion of non-appropriated revenues not yet expended or encumbered for all State National Guard Armories. Balances in this fund are reserved so that no part thereof will be deposited in the general treasury.
BILLETING FUNDS The residual portion of non-appropriated revenues not yet expended or encumbered for all State billeting units. Balances in this fund are reserved so that no part thereof will be deposited in the general treasury.
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DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXHIBIT "E"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPENSATED ABSENCES Compensated absences represent obligations of the Department relating to employee's rights to receive compensation for future absences based upon services already rendered. This obligation relates only to vesting accumulating annual leave in which payment is probable and can be reasonably estimated. No liability has been recorded in the individual funds for the current portion of this obligation as this amount will not be liquidated with expendable available financial resources. Funds are provided in the appropriation of funds each year to the Department to cover the cost of annual leave paid to terminated employees.
The liability for compensated absences at year end is reported in the General Long-Term Debt Account Group for governmental funds.
MEMORANDUM ONLY -TOTAL COLUMNS Total columns on the Combined Balance Sheet (Statutory Basis) are captioned "Memorandum Only" to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position in conformity with generally accepted accounting principles. Neither are such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data.
COMPARATIVE DATA Comparative total data for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in the Department's financial position and operations. However, comparative data have not been presented in all statements because their inclusion would make certain statements unduly complex and difficult to understand.
NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds of the State of Georgia cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more ofthe following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
(1) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia.
(2) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.
(3) 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.

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DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXHIBIT "E"

NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS

STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES (4) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.

(5) Bonds, bills, certificates of indebtedness, notes, or other obligations of a subsidiary corporation ofthe United States government, which are fully guaranteed by the United States government both as to principal and interest, and debt obligations issued 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.

(6) Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.

As authorized in the Official Code of Georgia Annotated Section 50-17-53, the State Depository Board has adopted policies which allow agencies ofthe State of Georgia the option of exempting demand deposits from the collateral requirements.

CATEGORIZATION OF DEPOSITS For purposes of analysis of custodial credit risk, cash deposits consist of all bank balances which include demand deposits and/or interest bearing accounts. These bank balances are categorized below in order to provide information about the extent to which such deposits are exposed to custodial credit risk.

Category 1 - Amounts covered by depository insurance or collateralized with securities (at market value) held by the Department or by its agent in the Department's name.

Category 2 - Amounts collateralized with securities (at market value) held by the financial institution's trust department or agent in the Department's name.

Category 3 - Amounts collateralized with securities (at market value) held by the financial institution or by its trust department or agent, but not in the Department's name, and amounts uncollateralized.

Cash Deposits

Carrying Amount

Bank Balance

Risk Categories

2

3

$ l 236 I88 27 $ 2 140 627.75 $ 244 066 92 $==-0=00 $ I 896 560 83

NOTE 3: CHANGES IN GENERAL FIXED ASSETS
In accordance with the statutory definition of moveable personal property as defined in Official Code of Georgia Annotated Section 50-16-161, only those items with an acquisition cost of$1,000.00 or greater are reflected in the General Fixed Assets Account Group.

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DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXHIBIT "E"

NOTE 3: CHANGES IN GENERAL FIXED ASSETS

The following is a summary of changes of equipment in the General Fixed Assets Account Group during the fiscal year:

Balance July 1, 1993

$ 483,979.75

Additions Deductions

360,180.41 105,580.00

Balance June 30, 1994

$ 738,580.16

NOTE 4: GENERAL LONG-TERM DEBT

CHANGES IN GENERAL LONG-TERM DEBT During the year ended June 30, 1994, the following changes occurred in the compensated absences liability reported in the General Long-Term Debt Account Group:

Balance July 1, 1993
Additions Annual Leave Earned and Utilized (Net) Salaries Salary Related Fringe Benefits (*)
Balance June 30, 1994

$ 377,381.49
71,144.23 34,312.22 $ 482,837.94

(*) Includes related fringe benefits applicable to compensated absences at July 1, 1993.

NOTE 5: DEFERRED COMPENSATION PLAN

The State of Georgia offers its employees a deferred compensation plan in accordance with Internal Revenue Code Section 457. The plan, available to employees ofthe State of Georgia and county health departments,
permits such employees to defer a portion of their salary until future years. Participants choose the option or options in which they wish to participate. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency, All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are (until paid or made available to the employee or other beneficiary) solely the property or rights ofthe State ofGeorgia subject only to the claims of the State's general creditors. Participant's rights under the plan are equal to those of a general creditor of the State of Georgia in an amount equal to the fair market value ofthe deferred account of each participant. Financial information relative to the plan is presented in the financial report of the State Personnel Board - Merit System ofPersonnel Administration for the year ended June 30, 1994.

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DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXHIBIT "E"

NOTE6: RETIREMENTPLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA The Department ofDefense participates in the Employees' Retirement System of Georgia, a single-employer, defined benefit pension plan. The Employees' Retirement System of Georgia was established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia. The Retirement System is funded through a combination of employee and employer contributions. Employees are required to contribute a graduated percentage of annual compensation. Employer contributions are for a specified percentage ofactive member payroll determined annually by an actuarial valuation. During the year ended June 30, 1994, the Department contributed $806,250.00 to the Employees' Retirement System of Georgia. Participation in the Retirement System is not segregated by employee groups of individual governmental units and the Department has no further liability under the retirement system other than future employer contributions as established for each fiscal year. Information relative to the plan description, funding status and historical trends is presented in the financial report ofthe Employees' Retirement System of Georgia for the year ended June 30, 1994.
GEORGIA DEFINED CONTRIBUTION PLAN The State of Georgia also provides retirement coverage for temporary, seasonal, and part-time employees who are not eligible for membership in the Employees' Retirement System of Georgia referred to above through a single-employer defined contribution plan. The Georgia Defined Contribution Plan was established by the General Assembly of Georgia and is administered by the Board of Trustees of the Employees' Retirement System of Georgia. Covered employees are required to contribute 7.5% of their gross salary, with no matching contribution by the employer. A member who terminates employment may apply for a refund of contributions and interest. Benefits are based solely on the amount contributed by the employee plus investment earnings. Upon discretion ofthe Board ofTrustees, members who leave employment with less than $3,500.00 credited to their account may be required to make a lump-sum withdrawal. Members are eligible to retire at the age of65 with the option ofreceiving a periodic payment based on mortality tables and interest accumulation as adopted by the Board of Trustees of the Employees' Retirement System of Georgia. Information relative to the plan description and funding status is presented in the financial report of the Employees' Retirement System of Georgia for the year ended June 30, 1994.
NOTE 7: LEAVE POLICIES
Employees earn ten hours of sick leave each month with a maximum accumulation of ninety days. Unused accumulated sick leave does not vest with the employee and is forfeited upon retirement or termination of employment.
Employees earn annual leave ranging from ten to fourteen hours each month depending upon the employees' length of continuous State service with a maximum accumulation of forty five days. Employees are paid for unused accumulated annual leave upon retirement or termination of employment. See Note 1 - Compensated Absences
Certain employees who retire with one hundred and twenty days or more of forfeited annual and sick leave are entitled to additional service credit in the Employees' Retirement System of Georgia.
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DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXlllBIT "E"

NOTE 8: NONMONETARY TRANSACTIONS
The Georgia State Financing and Investment Commission (GSFIC), a unit of State government, is responsible for the issuance of state debt and for the investment and accounting for proceeds derived from the issuance of state debt. In addition, GSFIC is authorized to acquire and construct projects for the benefit of units of State government or to contract with units of State government for the construction or acquisition of capital outlay projects. During the fiscal year ended June 30, 1994, the Georgia State Financing and Investment Commission paid $482,706.35 to various vendors for approved projects related to the Department ofDefense.
NOTE 9: CONTINGENCIES
Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures which are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although the Department expects such amounts, if any, to be immaterial to its overall financial position.
Litigation, claims and assessments filed against the Department ofDefense, if any, are generally considered to be actions against the State of Georgia. Pursuant to the Official Code of Georgia Annotated, the Department ofAdministrative Services maintains a program of purchased insurance and self- insurance which provides coverage for such litigation, claims and assessments. Accordingly, significant litigation, claims and assessments pending against the State ofGeorgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 1994.
NOTE 10: BONDING INFORMATION
All employees ofthe Department of Defense are bonded under a Public Employees Blanket Bond written by Employers Insurance ofWausau, their Bond No. 1450-00-110723, on which the premium was paid to October 1, 1994. Under this agreement the Public Employee Dishonesty Coverage insures the Department to a maximum of$1,000,000.00 against loss sustained through fraudulent or dishonest acts by its employees. The Faithful Performance of Duty Coverage insures the Department to a maximum of$100,000.00 against loss sustained from failure ofits employees to perform faithfully their duties or to account properly for all monies and property received by virtue of their position or employment.
All employees ofthe Department ofDefense are also bonded under a Commercial Crime Policy written by the United States Fire Insurance Company, their Policy No. 626 011675 2, on which the premium was paid to October 1, 1994. Under this additional public employee dishonesty coverage, the policy insures the Department to a maximum of $4,000,000.00 against loss sustained through fraudulent or dishonest acts by its employees.
Unit Commanders ofthe Georgia Army National Guard and the Georgia Air National Guard are also bonded under a Public Employees Blanket Bond written by the Glens Falls Insurance Company, their Bond No. BNP 001 95 95, on which the premium was paid to September 19, 1994. Under insuring agreement No. 2, the Blanket Bond insures the Department of Defense to a maximum of $2,500.00 against loss sustained through fraudulent or dishonest acts by the specified employees.
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SUPPLEMENTARY INFORMATION - 15 -

DEPARTMENT OF DEFENSE SCHEDULE OF APPROVED BUDGET YEAR ENDED JUNE 30. 1994

SCHEDULE "1"

FUNDS AVAILABLE
------ --------
REVENUES
State Appropriation Federal Revenues Other Revenues Retained
EXPENDITURES
Personal Services Regular Operating Expenses Travel Motor Vehicle Purchases Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem, Fees and Contracts Capital Outlay

ORIGINAL

AMENDED

BUDGET

APPROPRIATION APPROPRIATION ADJUSTMENTS

TOTAL

$ 3,858,508.00 $ 8,282,724.00 0.00

253,000.00

$ 4,111,SOB.60

$ 5,472,310.00 13,755,034.00

464,084.00

464,084.00

$12,141,232.00$ 253,000.00$ 5,936,394.00 $18,330,626.00
============= ============= ============= =============

$ 6,896,883.00

$ 1,610,424.00 $ 8,507,307.00

4,281,541.00

3,126,038.00 7,407,579.00

21,960.00

17,915.00

39,875.00

13,000.00

650.00

13,650.00

23,000.00

352,079.00

375,079.00

14,100.00

138,260.00

152,360.00

4,740.00

42,000.00

46,740.00

54,108.00

500,838.00

554,946.00

565,900.00

147,690.00

713,590.00

266,000.00 $ 253,000.00

500.00

519,500.00

------------- ------------- ------------- -------------

$12,141,232.00$ 253,000.00$ 5,936,394.00 $18,330,626.00
============= ============= ============= =============

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
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DEPARTMENT OF DEFENSE CASH AND CASH EQUIVALENTS
JUNE 30 1 1994
NONINTEREST BEARING ACCOUNTS
NationsBank of Georgia, N. A., Atlanta, Georgia State Armory Operating
Accounts (List on File) State Billeting Operating
Accounts (List on File)

SCHEDULE "2"
$ 1,092,121.35 98,016.02 46,050.90
$1,236,188.27

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
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DEPARTMENT OF DEFENSE SCHEDULE OF FEDERAL REVENUES
YEAR ENDED JUNE 30. 1994

PROGRAM
Defense, U.S. Department of National Guard Bureau Direct
Justice, U. S. Department of Drug Control and System Improvement - Formula Grant Direct

CFDA NUMBER
N/A
16.579

SCHEDULE "3"
AMOUNT $14,240,740.99
2,296 ..27 $14,243,037.26

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
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DEPARTMENT OF DEFENSE SCHEDULE OF OTHER OPERATING EXPENSES
YEAR ENDED JUNE 30. 1994

SCHEDULE "4"

REGULAR OPERATING EXPENSES
Association Dues Bank Charges Clipping Service Commercial Contractors Airport Use Agreements Conference and Registration Fees Examinations and Testing Field Trips Freight, Express and Storage Legal Advertising National Guard Civilian Youth Opportunities Program
Student Allowances and Stipends Student Laundry Student Lunches
Subscriptions and Dues

$ 1,928.70 3,262.26 709.25 63,635.68 6,362.80 34,995.74 6,260.10 11,570.92 1,300.16

$ 328,390.75 10,152.14 379.02

338,921.91

1,659.78

$ 470,607.30
=============

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
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DEPARTMENT OF DEFENSE SCHEDULE OF EXTRAORDINARY EXPENDITURES
YEAR ENDED JUNE 30. 1994
REGULAR OPERATING EXPENSES
Georgia Army National Guard Aviation Missions Flown in Support of Georgia Emergency Management Agency
Georgia National Guard Subsistence Expenses Severe Weather Conditions

SCHEDULE "5"
$ 11,737.60 1,574.11
$ 13,311.71
=============

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
- 20 -

SECTION II FINDINGS AND IMPROPER OR QUESTIONED COSTS

DEPARTMENT OF DEFENSE SCHEDULE OF FINDINGS AND IMPROPER OR QUESTIONED COSTS
YEAR ENDED JUNE 30, 1994

STATVS OF PRIOR YEAR FINDINGS AND IMPROPER OR QUESTIONED COSTS

The status of the findings disclosed in the review report for the year ended June 30, 1993, is summarized below:

Audit Control Number

Status of Finding

411-93-01 411-93-02

See Audit Control Number 411-94-01 Corrective Action Implemented

PRIOR YEAR/CURRENT YEAR

ACCOUNTING CONTROLS (OVERALL) - Financial Statements ADMINISTRATIVE REQUIREMENTS - Federal Financial Assistance Inadequate Separation of Duties Other Federal Assistance . Drug Control and System Improvement (CFDA 16.579) Audit Control Number 411-94-01

The review report for the year ended June 30, 1993, noted that internal accounting control procedures ofthe Department of Defense did not provide for an adequate separation of duties in the performance of certain accounting functions and related procedures. For the year under review. a limited review ofthese procedures revealed that the Department had made no significant changes that would provide for an adequate separation of duties in the following control categories:

( 1) Cash and Cash Equivalents

(2) Revenues/Receivables/Receipts

(3) General Ledger

(4) General Fixed Assets/Property Management

The Department should review the accounting procedures in place, design procedures which would enhance segregation of duties relative to the above control categories, and implement those procedures to strengthen the internal controls over the accounting function.