Review report, state of Georgia, Department of Defense, year ended June 30, 1996

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STATE OF GEORGIA DEPARTMENT OF AUDITS
254 WASHINGTON STREET ATLANTA, GEORGIA 30334

REVIEW REPORT STATE OF GEORGIA DEPARTMENT OF DEFENSE YEAR ENDED JUNE 30, 1996

DEPARTMENT OF DEFENSE - TABLE OF CONTENTS -

SECTION I

FINANCIAL

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

EXIIlBITS

FINANCIAL STATEMENTS

A COMBINED BALANCE SHEET (STATUTORY BASIS)

ALLFUNDTYPESANDACCOUNTGROUPS

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

I SCHEDULE OF APPROVED BUDGET

20

2 CASH AND CASH EQUNALENTS

21

3 SCHEDULE OF FEDERAL REVENUES

22

4 SCHEDULE OF OTHER OPERATING EXPENSES

23

5 SCHEDULE OF EXTRAORDINARY EXPENDITURES

24

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

DEPARTMENT OF AUDITS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
December 13, 1996

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 through E) of the Department of Defense as of and for the year ended June 30, 1996, 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 ofDefense.
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 ofany 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 ofexpressing 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

96ARL-4

analytical procedures applied in the review of the 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
96ARL-4

FINANCIAL STATEMENTS - 1-

DEPARTMENT OF DEFENSE COMBINED BALANCE SHEET <STATUTORY BASIS}
ALL FUND TYPES AND ACCOUNT GROUPS JUNE 30, 1996

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

GOVERNMENTAL FUND TYPE BUDGET

ACCOUNT GROUPS

GENERAL

GENERAL

FIXED

LONG-TERM

ASSETS

DEBT

TOTALS
(Memorandum On~} JUNE 3011996 JUNE 3011995

$ 21651 1622.14

$

45,389.87

1,378,416.36

36.229.28

$ 114601035.51

s $ 21651 1622.14

115891486.36

$

45,389.87 $

1,378,416.36

36.229.28

$ 114601035.51 $

38,952.96 50,825.51 107.147.13
196.925.60

$ 8171406.00

$

8171406.00 $

8261217.90

$ 8161985.86 $

8161985.86 $

6791312.28

$ 4,111,657.65 $ 817,406.00 $ 816,985.86 $ 5,746,049.51 $ 3,291,942.14

LIABILITIES AND FUND EQUITY

Liabilities

Accounts Payable

$

Payroll Withholdings

Compensated Absences

Total Liabilities

$

Fund Equity

Investment in General Fixed Assets

Fund Balances

Reserved

Federal Financial Assistance

$

Armory Funds

Billeting Funds

Unreserved

Designated

Surplus

Total Fund Equity

$

3,071,417.74 360.95
31071.778.69

$ 3,071,417.74 $

360.95

$ 8161985.86

816.985.86

$ 8161985.86 $ 31888.764.55 $

$ 817,406.00

$ 817,406.00 $

842,513.09 96,781.09 72,549.76

842,513.09 96,781.09 72,549.76

281035.02 110391878.96 $

8171406.00

28.035.02
$ 11ss11284.96 s

943,751.39 429.49
6791312.28 116231493.16
826,217.90
618,107.05 85,463.24 12,006.02
126.654.77 1,668.448.98

Total Liabilities and Fund Equity $ 4,111,657.65 $ 817,406.00 $ 816,985.86 $ 5,746,049.51 $ 3,291,942.14

See Independent Accountanfs Combined Report on Review of Financial Statements

and Supplementary Information.



The notes to the financial statements are an integral part of this statement.

- 2 ..

DEPARTMENT OF DEFENSE STATEMENT OF CHANGES IN FUND BALANCES (STATUTORY BASIS)
GOVERNMENTAL FUND TYPE YEAR ENDED JUNE 30. 1996

EXHIBIT.B"

FUND BALANCES - JULY 1
Reserved Unreserved
Designated Surplus
ADDITIONS
Adjustments to Prior Year's Accounts Payable Excess of Funds Available over Expenditures
Exhibit"C" Reimbursement of Prior Year's Expenditures
DEDUCTIONS
Unreserved Fund Balance {Surplus) Returned to Office of Treasury and Fiscal Services Year Ended June 30, 1994 Year Ended June 30, 1995
Adjustments to Prior Year's Accounts Receivable
Refund of Unexpended Funds to Grantor Reserved Fund Balance Carried Over from
Prior Year as Funds Available
FUND BALANCES - JUNE 30
{To Exhibit "Aj

BUDGET FUND YEAR ENDED JUNE 30, 1996 JUNE 30, 1995

$

715,576.31 $ 1,521,487.31

126,654.77

117,356.50

$

842,231.08 $ 1,638,843.81

$

77,763.15 $

972,666.83 2,618.38

$ 1,053,048.36 $

17,975.38
909,457.95
735.11
928,168.44

$

0.00 $ 117,356.50

126,654.77

0.00

0.00
13,169.40

7,869.66 78,067.70

715,576.31

1,521,487.31

$

855,400.48 $ 1,724,781.17

$ 1,039,878.96 $

842,231.08

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. -3-

DEPARTMENT OF DEFENSE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
BUDGET FUND YEAR ENDED JUNE 30, 1996

EXHIBITc

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 Interest Earned Rents Sale of land
Total Other Revenues Retained
Total Revenues
CARRY-OVER FROM PRIOR YEAR
Transfer from Reserved Fund Balance Federal Financial Assistance Armory Funds Billeting Funds
Total Carry-Over from Prior Year

TOTALS
YEAR ENDED JONE 30, 1996 JONE 30, 1995

$ 4,694,610.00 $
0.00
0.00

4,087,965.00 980,506.00 143,709.00

$ 4,694,610.00 $ 5,212, 180.00

$ 19,177,907.38 $ 18,712,156.81

$ 308,692.59 $
9,641.89
249,160.94 2,275.00

84,931.47 0.00
419,574.93 0.00

$ 569,770.42 $

504,506.40

$ 24,442,287.80 $ 24,428,843.21

$ 618,107.05 $ 1,377,420.39

85,463.24

98,016.02

12,006.02

46,050.90

$ 715,576.31 $ 1,521,487.31

Total Funds Available

$ 25,157,864.11 $ 25,950,330.52

EXPENDITURES

PERSONAL SERVICES

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

$ 7,181,420.86 $ 10,318,941.50

474,888.06 955,055.94 783,690.28
64,464.00 8,002.00
178,490.00 37,875.91

669,588.20 930,755.94 767,412.18
74,970.00 9,674.00
161,335.00 34,430.57

$ 9,683,887.05 $ 12,967,107.39

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.

-4-

DEPARTMENT OF DEFENSE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
BUDGET FUND
YEAR ENDED JUNE 30, 1996

EXHIBIT"C"

EXPENDITURES

REGULAR OPERATING EXPENSES

Motor Vehicle Expenses Supplies and Materials

Repairs and Maintenance

Utilities

.

Rents (Other than Real Estate) Insurance and Bonding

Other Operating Expenses (See Schedule)

Extraordinary Expenditures (See Schedule)

Publications and Printing

Equipment Purchases

TRAVEL
MOTOR VEHICLE PURCHASES
EQUIPMENT
Equipment Purchases
COMPUTER CHARGES
Software Equipment
Equipment Purchases Computer Billings, DOAS

REAL ESTATE RENTALS
TELECOMMUNICATIONS
PER DIEM, FEES AND CONTRACTS
Per Diem and Fees Contracts

Total Expenditures Excess of Funds Available over Expenditures

TOTALS
VEAR ENDED JONE 30, 1996 JONE 30, 1995

$

31,938.75 $

1,226,734.15

7,590,731.80

2,452,210.91

135,139.75

71,791.59

1,064,833.12

840.44

17,329.48

91,105.43

$ 12,682,655.42 $

$

62,791.31 $

$

15,023.70 $

153,450.18 1,416,350.59 3,074,069.90 2,458,567.53
156,331.17
68,868.31 889,229.26 1,626,550.84
15,258.61
101,376.32
9,960,052.71
82,669.45
0.00

$

23,855.98 $ - - - -33-,4-36-.71-

$

16,733.01 $

5,339.00

63,142.22 1,846.02

40,638.98
1,998.68

$

81,721.25 $

47,976.66

$

85,349.16 $

64,466.13

$ 834,851.14 $ 1,129,605.42

$ 311,626.90 $ 403,435.37

334,936.82 420,621.28

$ 715,062.27 $ - - -7-55-,5-58-.1-0
$ 24,185,197.28 $ 25,040,872.57

972,666.83

909,457.95

$ 25,157,864.11 $ 25,950,330.52
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.
-5-

DEPARTMENT OF DEFENSE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
YEAR ENDED JUNE 30, 1996

EXHIBIT "D''

FUNDS AVAILABLE REVENUES
State Appropriation Federal Revenues Other Revenues Retained
CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance

BUDGET

ACTUAL

VARIANCEFAVORABLE (UNFAVORABLE)

$ 4,694,610.00 $ 4,694,610.00 $

19,709,529.00 19,1TT,907.38

657,834.00

569,TT0.42

$ 25,061,973.00 $ 24,442,287.80 $

0.00 -531,621.62
-88,063.58
-619,685.20

0.00

715,576.31

715,576.31

$ 25,061,973.00 $ 25,157,864.11 $ _ _ _ _9_5__,8__9_1._1_1

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

$ 9,813,979.00 $ 9,683,887.05 $

13,206,806.00 12,682,655.42

66,212.00

62,791.31

15,791.00

15,023.70

72,544.00

23,855.98

119,580.00

81,721.25

85,376.00

85,349.16

849,422.00

834,851.14

832,263.00

715,062.27

130,091.95 524,150.58
3,420.69 767.30
48,688.02 37,858.75
26.84 14,570.86 111,200:13

$ 25,061,973.00 $ 24,185,197.28 $ _ _ _ _87_6__,_TT_5_.7_2

Excess of Funds Available over Expenditures

$

972,666.83 $-=-=--97_2_,66_6_.8_3

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
-6-

DEPARTMENT OF DEFENSE
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996

EXIIlBIT "E"

NOTE l: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY The Department ofDefense, an organizational unit ofthe State ofGeorgia, is part ofthe 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 ofthe Department. The tenure ofoffice ofthe Adjutant General is at the pleasure ofthe Governor, who is designated as Commander-in-Chiefofall militia and other military and naval forces ofthe State ofGeorgia.
The Department ofDefense does not have authority to determine the amount offunding 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 ofDefense is included within the State of Georgia reporting entity for financial reporting purposes because of the significance ofits legal, operational and financial relationships with the State ofGeorgia. These reporting entity relationships are defined in Section 2100 ofthe 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 ofits operations determined in conformity with accounting practices prescribed or permitted by statutes and regulations ofthe State ofGeorgia. A fund is an independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device used to account for certain assets and liabilities of the governmental funds not recorded directly in those funds. 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 1995-1996. The Budget Fund is similar in nature to a General Fund as defined 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 cost or at estimated historical cost if historical cost is not practically determinable. 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, 1996

EXIIlBIT "E"

NOTE I: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FUND ACCOUNTING
ACCOUNT GROUPS
GENERAL FIXED ASSETS The cost of normal maintenance and repairs that do not add to the value ofthe asset or materially extend assets' lives are not included in the General Fixed Assets Account Group. Material improvements adding to the value or useful life ofthe assets are included in the General Fixed Assets Account Group.
GENERAL LONG-TERM DEBT - The account group used to report the noncurrent portions ofcertain governmental long-tenn 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 flow ofcurrent financial resources measurement focus. With this measurement focus, operating statements present increases and decreases in net current assets and unreserved fund balance is a measure ofavailable spendable resources. In accordance with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, the Budget Fund remits its unreserved fund balance (surplus) to the Office ofTreasury and Fiscal Services in the subsequent fiscal year.
GOVERNMENTAL FUND TYPE BUDGETFUND
Except as disclosed in the following paragraphs, units of government of the State of Georgia record their Budget Fund revenue~ and expenditures in accordance with the modified accrual basis of accounting. Under the modified accrual basis ofaccounting, revenues are recognized when susceptible to accrual (i.e., when they are "measurable and available"). "Measurable" means the amount ofthe transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities ofthe current period. Revenues that are accrued include primarily State appropriations, Federal grants and entitlements, and certain amounts earned under operating agreements with other parties. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences, claims and judgements which are recognized when the obligations are expected to be liquidated with expendable available financial resources.
Contractual obligations for goods and services which have not been received 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 of the State of Georgia, but is not consistent with generally accepted accounting principles, which provide for the recording of encumbrances
-8-

DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996

EXHIBIT "E"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING GOVERNMENTAL FUND TYPE BUDGETFUND
as a reseivation offund balance. Further, revenue recognition for expenditure-driven grants should be based
upon expenditures detennined 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
accounting practices prescribed or permitted by statutes and regulations ofthe 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 adopted on a basis consistent with accounting practices prescribed or permitted by statutes and regulations ofthe State of Georgia and is
compiled in the same manner as all State departments. Expenditures are classified by budget unit object classes as provided in Act No. 476 ofGeorgia Laws 1995 (as approved April 21, 1995) and amended by Act No. 513
of Georgia Laws 1996 (as approved February 16, 1996). This budget is considered to be an appropriated
budget and is referred to in these notes as the Amended Appropriations Act of 1995-1996.
Overexpenditure of a budget unit object class, except for the "common object classes", included in the Department's final amended budget is in violation of Section 54 ofthe 1995-1996 Amended Appropriations Act. Expenditures ofno more than 102% ofthe stated amount for each common object class are authorized by Section 54. However, the total expenditure for the group of common object classes may not exceed the sum of the stated amounts for the separate object classes ofthe group. The common object classes include Personal Services, Regular Operating Expenses, Travel, Motor Vehicle Purchases, Equipment, Computer Charges, Real Estate Rentals, Tel~communications and Postage.
CASH AND CASH EQUIVALENTS Cash and Cash Equivalents include currency on hand and demand deposits with banks and other financial institutions.
INVENTORIES
No inventories of supplies are reported in these financial statements. Expendable supplies are recorded as
expenditures at the time of purchase.
RESERVED FUND BALANCE Reserves represent those portions offund 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:
-9-

DEPARTMENT OF DEFENSE
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996

EXHIBIT "E"

NOTE I: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESERVED FUND BALANCE
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 ofFederal financial assistance should be reflected as a liability (deferred revenue).
.ARMORY FUNDS The residual portion of nonappropriated 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 PROGRAM The residual portion of nonappropriated revenues not yet expended or encumbered for all State billeting funds. Balances in this fund are reserved each year so that no part thereof will be deposited in the general treasury.
UNRESERVED FUND BALANCE In accordance with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, the Budget Fund's unreserved fund balance is remitted to the Office ofTreasury and Fiscal Services in the subsequent fiscal year as surplus. This amount ofunexpended general appropriations is designated for reappropriation by the State in subsequent years.
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 ofthis obligation as this amount will not be liquidated with expendable available financial resources. Funds are provided in the appropriation offunds 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" because they do not represent consolidated financial information and are presented only to facilitate financial analysis. The columns do not present information that reflects 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.
- 10-

DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996

EXIDBIT "E"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPARATIVE DATA Comparative total data for the prior year have been presented in selected sections of the accompanying :financial statements in order to provide an understanding ofthe changes in the Department's financial position and operations. Comparative totals have not been included on statements where their inclusion would not provide enhanced understanding of the Department's financial position and operations or would cause the statements to be unduly complex and difficult to understand. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year's presentation.
NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds ofthe 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, certificates ofindebtedness, notes, or other direct obligations ofthe United States or ofthe State ofGeorgia.
(2) Bonds, bills, certificates ofindebtedness, notes, or other obligations of the counties or municipalities of the State of Georgia.
(3) Bonds ofany public authority created by the laws ofthe State of Georgia, providing that the statute that created the authority authorized the use ofthe bonds for this purpose.
(4) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia.
(5) Bonds, bills, certificates ofindebtedness, notes, or other obligations ofa 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 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.

- 11 -

DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996

EXHIBIT "E"

NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS

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. The bank balances as ofJune 30, 1996, 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 pledging financial institution's trust department or agent in the Department's name.

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

Cash Deposits

Carrying
Amount

Bank Balances

Risk Categories

2

3

$ 2 651322 14 $ 3 918 634.72 $ 285 491.78 $===0...,.00... $ 3 633 142 94

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.

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

Balance July 1, 1995

$ 826,217.90

Additions Deductions

4,259.00 13,070.90

Balance June 30, 1996

$ 817,406.00

NOTE 4: GENERAL LONG-TERM DEBT

CHANGES IN GENERAL LONG-TERM DEBT During the year ended June 30, 1996, the following changes occurred in the compensated absences liability reported in the General Long-Term Debt Account Group:

- 12 -

DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996

EXHIBIT "E"

NOTE4: GENERALLONG-TERMDEBT

CHANGES IN GENERAL LONG-TERM DEBT Balance July 1, 1995

$ 679,312.28

Additions Annual Leave Earned and Utilized (Net) Salaries Salary Related Fringe Benefits

127,890.00 9,783.58

Balance June 30, 1996

$ 816,985.86

NOTE 5: RISK MANAGEMENT

Public Entity Risk Pool

The State Personnel Board, Merit System ofPersonnel Administration administers for the State of Georgia a program ofhealth benefits for the employees ofunits ofgovernment ofthe State of Georgia, units of county government and local education agencies located within the State of Georgia. This plan is funded by participants covered in the plan, by employers' contributions paid by the various units of government participating in the plan, and appropriations made by the General Assembly of Georgia. The State Personnel Board, Merit System ofPersonnel Administration has contracted with Blue Cross Blue Shield of Georgia to process claims in accordance with the State Employees' Health Benefit Plan as established by the State Personnel Board.

Other Risk Management

The Department ofAdministrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. The Department ofDefense is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.

NOTE 6: DEFERRED COMPENSATION PLAN

The State ofGeorgia 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,
pennits such employees to defer a portion oftheir salary until future years. Participation in the plan is optional.
Participants choose the option or options in which they wish to participate. The deferred compensation is not

- 13 -

DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996

EXIIlBIT "E"

NOTE 6: DEFERRED COMPENSATION PLAN
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 of the State of Georgia 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 ofthe State of Georgia in an amount equal to the fair market value of the deferred account of each participant. Financial information relative to the plan will be presented in the State of Georgia Comprehensive Annual Financial Report for the year ended June 30, 1996.
NOTE7: RETIREMENTPLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
Plan Description The Department ofDefense participates in the Employees' Retirement System of Georgia ("ERS"), a singleemployer, defined benefit plan established by the General Assembly ofGeorgia for the purpose of providing retirement allowances for employees ofthe State of Georgia. The Department's payroll for the year ended June 30, 1996, for employees covered by ERS was $6,132,467.48. The Department's total payroll for all employees was $7,181,420.86.
Benefits The benefit structure of ERS was significantly modified on July 1, 1982. Unless elected otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. All other members are "new plan" members subject to the modified plan provisions.
Under both the old plan and new plan, members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 65. If 10 years of service is completed and age 60 is reached, the member may retire with a reduced benefit. Additionally, there are certain provisions allowing for retirement after 30 years of service regardless of age.
Retirement benefits paid to members are based upon a formula which considers the monthly average ofthe member's highest eight consecutive calendar quarters of salary, the number of years of creditable service, and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension at reduced rates to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS.
Funding Status and Progress Funding status and progress information is presented in the ERS June 30, 1996, financial report which may be obtained through ERS.
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DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996

EXlllBIT "E"

NOTE 7: RETIREMENT PLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
Contributions Required and Contributions Made
As established by State statute, all full-time employees ofthe State of Georgia and its political subdivisions, who are not members ofother state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute.
Under the old plan, member contributions consist ofemployee contributions paid by the employee of 1.25% ofcompensation and 4.75% of compensation paid by the Department on behalf of the employee. Under the new plan, member contributions consist solely of 1.25% of compensation paid by employee. The Department also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation. For the year ended June 30, 1996, the ERS employer contribution rate for the Department amounted to 14.82% ofcovered payroll and included the 4.75% contributed on behalfofthe employee under the old plan referred to above. The employer contributions are projected to liquidate the unfunded actuarial liability within 20 years based upon the actuarial valuation ofJune 30, 1995. Employer contributions are also made on amounts paid for accumulated leave to retiring employees.
Actuarial assumptions used by the ERS to compute actuarially determined contribution requirements are the same as those used to compute the pension benefit obligation.
Total contributions to the plan made during fiscal year 1996 amounted to $985,721.18, of which $909,062.40 was made by the Department and $76,658.78 was made by employees. These contributions met the requirements of the plan.
Trend Infonnation
Historical trend information is presented in the ERS June 30, 1996, financial report which may be obtained through ERS. This information gives an indication ofthe progress made in accumulating sufficient assets to pay benefits when due.
GEORGIA DEFINED CONTRIBUTION PLAN
Plan Description
The Department ofDefense participates in the Georgia Defined Contribution Plan ("GDCP") which is a singleemployer defined contribution plan established by the Georgia General Assembly for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Employees' Retirement System Board ofTrustees. The Department's payroll for the year ended June 30, 1996, for employees covered by GDCP was $698,870.99. The Department's total payroll for all employees was $7,181,420.86.

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DEPARTMENT OF DEFENSE
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996

EXHIBIT "E"

NOTE7: RETIR.EMENTPLANS
GEORGIA DEFINED CONTRIBUTION PLAN
Benefits A member may retire and elect to receive periodic payments after attainment ofage 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board. Ifa member has less than $ 3,500 credit to his/her account, the Board has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary.
Contributions and Vesting Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contnbutions. Earnings are credited to each member's account in a manner established by the Board. Upon termination of employment, the amount ofthe member's account is refundable upon request by the member.
Total contributions made by employees during fiscal year 1996 amounted to $52,416.46 which represents 7.50% ofcovered payroll. These contributions met the requirements ofthe plan.
NOTE 8: 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 ofcontinuous 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 offorfeited annual and sick leave are entitled to additional service credit in the Employees' Retirement System of Georgia.
NOTE 9: 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, 1996, the Georgia State Financing and Investment Commission paid $98,694.68 to various vendors for approved projects for the benefit of Department of Defense.

- 16 -

DEPARTMENT OF DEFENSE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996

EXIIlBIT "E"

NOTEl0: 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 grantorcannot 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, ifany, are generally considered to be actions against the State ofGeorgia. 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, 1996.
NOTE 11: BONDING INFORMATION
.The Commissioner and all employees of the Department ofDefense are bonded under a Public Employees
Blanket Bond written by Employers Insurance of Wausau, their Bond No. 1450-02-110723, on which the premium was paid to October 1, 1996. 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 ofDuty Coverage insures the Department to a maximum of $1,000,000.00 against loss sustained from failure of its 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 Commercial Crime Policies written by the United States Fire Insurance Company, their Policy Nos. 626 012292 6 and 626 012294 4, on which premiums were paid to October 1, 1996. Under these additional public employee dishonesty coverages, the policies insure the Department ofDefense to a maximum of$9,000,000.00 against loss sustained through fraudulent or dishonest acts by its employees and from failure ofits employees to perform faithfully.
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 Policy No. BNDOOl 95 95, on which the premium was paid to September 19, 1996. Under insuring agreement No. 2 with the Blanket Bond insures the Department ofDefense to a maximum of $2,500.00 against loss sustained through fraudulent or dishonest act by the specified employees.

- 17 -

D~av\ \c__
~ le;

SUPPLEMENTARY INFORMATION
- 19-

DEPARTMENT OF DEFENSE SCHEDULE OF APPROVED BUDGET
YEAR ENDED JUNE 30.1996

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

ORIGINAL

BUDGET

APPROPRIATION ADJUSTMENTS

TOTAL

$

4,694,610.00

$ 4,694,610.00

11,473,251.00 $ 8,236,278.00

19,709,529.00

2541612.00

403,222.00

657,834.00

$ 16,422,473.00 $ 8,639,500.00 $ 25,0611973.00

$

9,171,902.00 $

642,077.00 $ 9,813,979.00

6,644,215.00

6,562,591.00

13,206,806.00

29,375.00

36,837.00

66,212.00

15,791.00

15,791.00

28,840.00

43,704.00

72,544.00

11,125.00

108,455.00

119,580.00

24,400.00

60,976.00

85,376.00

40,825.00

808,597.00

849,422.00

456,000.00

376,263.00

832,263.00

$ 16,422,473.00 $ 8,639,500.00 $ 25,061,973.00

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

DEPARTMENT OF DEFENSE CASH AND CASH EQUIVALENTS
JUNE 30. 1996

SCHEDULE "2

NONINTEREST BEARING ACCOUNTS The Hinesville Bank, HinesviUe, Georgia State Armory Operating Accounts (List on File)
INTEREST BEARING ACCOUNTS First Bulloch Bank and Trust, Statesboro, Georgia
NationsBank of Georgia, N. A., AUanta, Georgia State Billeting Operating Accounts (List on File)
OTHER Cash on Hand

$

48,299.30

9,367.55 $

57,666.85

$

69.17

2,569,335.66

24,250.46

2,593,655.29

300.00

$ 2,651,622.14

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
-21 -

DEPARTMENT OF DEFENSE SCHEDULE OF FEDERAL REVENUES
YEAR ENDED JUNE 30, 1996

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
NIA
16.579

SCHEDULE "3"
AMOUNT $ 18,876,331.83
301,575.55 $ 19,177,907.38

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
-22-

DEPARTMENT OF DEFENSE
SCHEDULE OF OTHER OPERATING EXPENSES
YEAR ENDED JUNE 30, 1996

SCHEDULE "4"

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

$

4,704.77

2,092.70

1,903.06

780.00

46,080.00

23,671.90

2,100.00

34,045.41

20,970.00

958.17

9,995.38

6,959.62

$

1,050.78

867,333.71

35,594.42

740.00

904,718.91 1,000.00 4,853.20

. $ 1,064,833.12

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
-23-

DEPARTMENT OF DEFENSE SCHEDULE OF EXTRAORDINARY EXPENDITURES
YEAR ENDED JUNE 30, 1996
REGULAR OPERATING EXPENSES Georgia National Guard Subsistence Expenses Severe Weather Conditions

SCHEDULE "5"
$-=====84=0=.44=

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
-24-

SECTION II FINDINGS AND IMPROPER OR QUESTIONED COSTS

DEPARTMENT OF DEFENSE
SCHEDULE OF FINDINGS AND IMPROPER OR QUESTIONED COSTS
YEAR ENDED JUNE 30, 1996

STATUS 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, 1995, is categorized below:

Audit Control Number

Status ofFindings

411-95-01 411-95-02 411-95-03

Corrective Action Implemented Corrective Action Implemented Corrective Action Implemented