BANKS COUNTY BOARD OF EDUCATION HOMER, GEORGIA REPORT ON AUDIT Of THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor BANKS 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 REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 5 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 6 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 7 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 8 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 9 H NOTES TO THE BASIC FINANCIAL STATEMENTS 11 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 27 BANKS COUNTY BOARD OF EDUCATION -TABLE OF CONTENTS- SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 28 3 SCHEDULE OF STATE REVENUE 30 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 32 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 33 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB 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 SECTION I FINANCIAL RUSSELL W. HINTON STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 June 28, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Banks 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 ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Banks County Board of Education, as of and for the year ended June 30, 2003, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Banks 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 ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 op1mons. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective position ofthe governmental activities, each major fund, and the aggregate remaining fund information of the Banks County Board of Education, as of June 30, 2003, and the respective changes in financial position thereoffor the year then ended in conformity with accounting principles generally accepted in the United States of America. 2003-34ARL-11 As discussed in Note 2 to the basic financial statements, during fiscal year 2003, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements, consolidated its individual school activity accounts for inclusion in the basic financial statements and changed its method of accounting for the salaries of certain ten-month employees from a cash basis to a basis that is generally accepted. These changes are in accordance with generally accepted accounting principles. As described in Note 2, the Banks County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003. In accordance with Government Auditing Standards, we have also issued our report dated June 28, 2004, on our consideration ofthe Banks County Board ofEducation's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through ix and page 27 respectively, are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Banks County Board of Education's basic financial statements. The accompanying supplementary information which consist 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 ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. 2003-34ARL-11 A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code ofGeorgia Annotated section 506-24. Respectfully submitted, RWH:gp 2003-34ARL-11 State Auditor BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Introduction Our discussion and analysis of the Banks County School District's financial performance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2003. The intent of this discussion and analysis is to look at the School District's financial performance as a whole; readers should also review the notes to the basic financial statements and financial statements to enhance their understanding of the School District's financial performance. Financial Highlights Key financial highlights for 2003 are as follows: The School District implemented GASB 34 for 2003. Due to this being the implementation year, many comparisons are not available that will be available for 2004. On the district-wide financial statements, the assets of the School District exceeded liabilities by $28.9 million. Of this amount, $2.9 million is unrestricted and is available for spending at the School District's discretion. The School District had $17.7 million in expenses relating to governmental activities; only $673,874 of these expenses are offset by program specific charges for services, and $11.5 million was offset by grants and contributions. General revenues (primarily property and sales taxes) of $8.5 million were adequate to provide for these programs. As stated above, general revenues accounted for $8.5 million or 41 % of all revenues totaling $20.7 million. Program specific revenues in the form of charges for services, grants and contributions accounted for the rest. Overview of the Financial Statements This report consists of several parts including management's discussion and analysis, the basic financial statements and required supplementary information. The basic financial statements include two levels of statements that present different views of the School District. These include the district-wide andfundfinancial statements. The district-wide financial statements include the Statement of Net Assets and Statement of Activities. These statements provide information about the activities of the School District presenting both short-term and long-term information about the School District's overall financial status. BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 The fund financial statements focus on individual parts of the School District, reporting the School District's operation in more detail. The Governmental Funds statements disclose how basic services are financed in the short-term as well as what remains for future spending. The Fiduciary Funds statement provides information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. The fund financial statements reflect the School District's most significant funds. In the case of the Banks County School District, the General Fund, Capital Projects Fund and Debt Service Funds are the most significant funds. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. Additionally, other supplementary information (not required) is also presented that further supplements understanding ofthe financial statements. District-wide Statements The district-wide financial statements are basically a consolidation of all of the School District's operating funds into one column called governmental activities. In reviewing the district-wide financial statements, a reader might ask the question, are we in a better financial position than last year? The Statement of Net Assets and the Statement of Activities provides the basis for answering this question. These financial statements include all School District's assets and liabilities and uses the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid. These two statements report the School District's net assets and any changes in those assets. The change in net assets is important because it tells the reader that, for the School District as a whole, the financial position of the School District has improved or diminished. The causes of this change may be the results of many factors, including those not under the School District's control, such as the property tax base, facility conditions, required educational programs and other factors. The Statement of Net Assets and the Statement of Activities reflects the School District's governmental activities. Fund Financial Statements The School District uses many funds to account for a multitude of financial transactions during the fiscal year. However, the fund financial statements presented in this report provide detail information about only the School District's significant or major funds. 11 BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Governmental Funds: Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at yearend available for spending in future periods. These funds are reported using the modified accrual method ofaccounting which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds are reconciled within the financial statements. Fiduciary Funds: The School District is the trustee, or fiduciary, for assets that belong to others, such as school clubs and organizations within the principals' accounts. The School District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The School District excludes these activities from the district-wide financial statements because it cannot use these assets to finance its operations. Financial Analysis of the School District as a Whole Recall that the Statement of Net Assets provides the perspective of the School District as a whole. Table 1 provides a summary of the School District's net assets for this fiscal year. Since this is the first year the School District has prepared financial statements following GASB Statement 34, net asset comparisons to fiscal year 2002 are not available. 111 BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Table 1 Net Assets Governmental Activities Fiscal Year 2003 Assets Current and Other Assets Capital Assets, Net Total Assets $26,275,069 23,314,372 $49,589,441 Liabilities Accounts Payables and Other Current Liabilities Salaries Payable Long-Term Liabilities $ 1,301,587 1,385,573 17,974,245 Total Liabilities $20,661,405 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $14,719,238 11,286,678 2,922,120 Total Net Assets $28,928,036 Table 2 shows the Changes in Net Assets for this fiscal year. Since this is the first year the School District has prepared financial statements following GASB Statement 34, revenue and expense comparisons to fiscal year 2002 are not available. IV BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Table2 Change in Net Assets Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Total Program Revenues General Revenues: Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Debt Service Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Total Revenues Program Expenses 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 ofNon-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Expenses Increase in Net Assets Governmental Activities Fiscal Year 2003 $ 673,874 11,498,846 $12,172,720 $ 4,785,809 2,728,274 22,522 260,265 487,294 210,386 $ 8,494,550 $20,667,270 $11,198,040 372,467 287,951 648,025 71,172 796,835 128,317 1,106,766 802,338 27,002 184,622 141,511 122,403 1,068,650 703,822 $17,659,921 $ 3,007.349 V BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Governmental Activities The Statement of Activities shows the cost of program services and the charges for services and grants offsetting these services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services. It identifies the cost of these services supported by tax revenue and unrestricted State entitlements. Since this is the first year the School District has prepared financial statements following GASB Statement 34, cost of service comparisons for fiscal year 2002 are not available. Table 3 Governmental Activities Total Cost of Services Fiscal Year 2003 Net Cost of Services Fiscal Year 2003 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 ofNon-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt $11,198,040 $ 3,192,832 372,467 287,951 648,025 71,172 796,835 128,317 1,106,766 802,338 27,002 184,622 293,975 177,392 414,114 -390,089 211,268 128,317 374,878 256,240 27,002 148,094 141,511 122,403 1,068,650 703,822 -108,069 29,980 27,445 703,822 Total Expenses $17!659!921 $ 5A871201 Financial Analysis of the School District's Funds The School District's governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues and other financing sources of $20.6 million and total expenditures of $20.5 million. Vl BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 General Fund Budgeting Highlights The School District's budget is prepared according to Georgia Law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2003, the School District amended its general fund budget as needed. The School District uses site-based budgeting as a part of the budget process. The budgeting systems are designed to control total site budgets but provide flexibility for site management. For the General Fund, the actual revenues of $17.4 million were under the final budgeted amounts of $17. 7 million by $0.2 million. This difference (actual vs. final budget) was due primarily to the net effect of an increase in state revenues over final budget of $438,359, the local tax revenues over final budget of$247,889, increase in charge for services of$ 339,495, and the decrease in miscellaneous revenue by $1,161,415. The charge for services revenue over final budget was due to the inclusion ofthe principals' accounts in our financial statements, but not in the budget. The miscellaneous revenue difference was due to $1,400,000 ofexcess splost revenue due to the de/easement ofbonds that were budgeted which did not occur until 2004. The actual expenditures of $16.9 million were under the final budgeted amount of $18.6 million by $1.7 million. This difference was due primarily to $1.4 million budgeted for a new stadium and in part to our school principals' accounts not being included in the budget process. General Fund revenues were greater than expenditures by $507,894. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At fiscal year ended June 30, 2003, the School District had $23,314,372 invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances net of accumulated depreciation. Since this is the first year the School District has prepared financial statements following GASB Statement 34, capital assets comparisons to fiscal year 2002 are not available. Vll BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Table 4 Capital Assets (Net of Depreciation) Governmental Activities Fiscal Year 2003 Land Land Improvements Buildings and Improvements Equipment Construction in Progress $ 537,154 261,474 18,179,447 1,797,042 2,539,255 Total $23,314.372 Due to the implementation of H.B. 1187, the School District has numerous construction projects including new buildings, additions and renovations. Current Issues Currently known facts, decisions or conditions that are expected to have a significant effect on financial positions or results of operations. Economic Slowdown - State funding for education has been stagnant and as a result more pressure is being placed on the local school districts to prioritize its educational programs and provide additional local funding. Additional costs to the School District will be required with the continued implementation of House Bill 1187, which mandates lower teacher to student ratios, requiring additional teachers and additional classrooms. Despite these challenges, the Banks County School District is strong financially and we remain optimistic about the ability of the School District to maximize all of the financial resources to provide a quality education to our students. Capital Improvements - The School District plans capital improvements as future capital needs arise due to increased student population and facility repair and maintenance needs. Specific capital expenditure plans are formalized in conjunction with individual general obligation bond issues and anticipated annual receipts of capital outlay funds from the State of Georgia Department of Education. The School District regularly monitors anticipated capital outlay needs. vm BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Contacting the School District's Financial Management This financial report is designed to provide our citizen's, taxpayers, investors and creditors with a general overview of the School District's finances and to show the School District's accountability for the money it receives. If you have questions about this report or need additional financial information contact Mr. Michael E. Beasley, Finance Director for the Banks County School System, 102 Highway 51 South, Homer, Georgia 30547. You may also email your questions to Mr. Beasley at mbeasley@banks.k12.ga.us. lX BANKS COUNTY BOARD OF EDUCATION BANKS COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2003 ASSETS Cash and Cash Equivalents Investments Accounts Receivable. Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenues Long-Term Liabilities Due Within One Year 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 notes to the basic financial statements are an integral part of this statement. -3- EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 3,813.886 19.500.780 1,179.913 1.223.238 124.104 423.209 9.939 537.154 2.539.255 474.582 21.394.048 2.899.177 -4 529 844 $ ===4=9=,5=8=9,.,.4..,41..., $ 746.766 1.385.573 380.658 171.460 2.703 2,349.546 15,624,699 $ 201661A05 $ 14.719.238 168.665 10.809.596 308.417 2,922,120 $ 28,928,036 $ ===4=9=.5=8=9=.4=41= BANKS COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2003 EXHIBIT"B" EXPENSES PROGRAM REVENUES OPERATING CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS 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 Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities $ 11,198,040 372,467 287,951 648,025 71,172 796,835 128,317 1,106,766 802,338 27,002 184,622 141,511 $ 122,403 1,068,650 703,822 $ 17,659,921 $ $ 249,580 92,423 331,871 673 874 $ 8,005,208 $ 78,492 110,559 233,911 461,261 585,567 731,888 546,098 36,528 709,334 11498846 $ -3,192,832 -293,975 -177,392 -414,114 390,089 -211,268 -128,317 -374,878 -256,240 -27,002 -148,094 108,069 -29,980 -27,445 -703 822 -5,487,201 General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Debt Services Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous $ 4,785,809 2,728,274 22,522 260,265 487,294 210 386 Total General Revenues $ _ ___,8::,;4::;,:9::,;4i.,:5.:::,50=- Change in Net Assets $ 3,007,349 Net Assets - Beginning of Year Net Assets - End of Year The notes to the basic financial statements are an integral part of this statement. -4- BANKS COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2003 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Designated for Self-Insurance Undesignated Reported in: General Fund Total Fund Balances Total Liabilities and Fund Balances GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 3,503,878 $ 71,156 $ 238,852 $ 3,813,886 10,013,414 9,487,366 19,500,780 227,643 1,223,238 124,104 11,232 9,939 671,401 411,977 899,044 1,223,238 124,104 423,209 9,939 $ 5,100,034 $ 10,084,570 $ 10,809,596 $ 25,994,200 $ 746,766 1,385,573 $ 2,703 $ 2,135,042 $ 380,658 171,460 552,118 $ 746,766 1,385,573 380,658 171,460 2 703 $ 2,687,160 $ 158,726 $ 158,726 $ 10,809,596 10,809,596 9,939 9,939 $ 9,532,452 9,532,452 56,628 56,628 2,739,699 2,739,699 $ 2,964,992 $ 9,532,452 $ 10,809,596 $ 23,307,040 $ 5,100,034 $ 10,084,570 $ 10,809,596 $ 25,994,200 The notes to the basic financial statements are an integral part of this statement. -5- BANKS COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30. 2003 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: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District"s property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. 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 Capital Leases Total Long-Term Liabilities $ 23,307,040 $ 537,154 2,539,255 474,582 21,394,048 2,899,177 -4,529,844 23,314,372 280,869 $ -17,920,000 -54 245 -17,974,245 Net Assets of Governmental Activities (Exhibit "A") $ 28,928,036 The notes to the basic financial statements are an integral part of this statement. -6- BANKS COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2003 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 Enterprise Operations Community Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 4,717,889 22,522 9,989,873 1,769,238 673,875 8,359 $ 246,584 $ 17,428,340 $ $ $ 2,728,274 203,207 275,728 203,207 $ 3,004,002 $ 4,717,889 2,750,796 9,989,873 1,769,238 673,875 487,294 246,584 20,635,549 $ 11,096,846 $ 372,467 287,951 647,217 69,259 789,898 126,510 1,104,272 866,469 27,002 184,622 141,511 122,403 1,039,885 $ $ 2,552,202 1,807 39,176 4 958 285,000 698,864 $ 16,920,446 $ 2,552,202 $ 985,671 $ $ 507,894 $ -2,348,995 $ 2,018,331 $ 2,457,098 11,881,447 8,791,265 11,096,846 372,467 287,951 647,217 69,259 789,898 128,317 1,104,272 866,469 27,002 184,622 141,511 122,403 1,039,885 2,552,202 324,176 703,822 20,458,319 177,230 23,129,810 $ 2,964,992 $ 9,532,452 $ 10,809,596 $ 23,307,040 The notes to the basic financial statements are an integral part of this statement. -7- BANKS 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. 2003 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 $ 2,915,177 -440,955 Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. In the Statement of Activities, only the gain on the sale of the equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements Capital Lease Payments Total Long-Term Debt Repayments $ 285,000 39,176 177,230 2,474,222 67,920 -36,199 324176 Change in Net Assets of Governmental Activities (Exhibit "B") $ ===,;;;,3,i,;;,00;;;,;7.i,;,3~4~9 The notes to the basic financial statements are an integral part of this statement. -8- BANKS COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2003 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $===6=1,=15=6= $====61 =15=6 The notes to the basic financial statements are an integral part of this statement. -9- BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Banks County Board ofEducation (School District) was established under the laws ofthe 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 Banks County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the :financial activities ofthe 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 ofActivities presents a comparison be.tween 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 ofthe 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 ofgoods 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 ofinternal activities. Separate statements for each category (governmental and :fiduciary) are presented. The emphasis of fund :financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: - 11 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for sales taxes legally restricted for the payment of general longterm principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various individuals and Principal accounts. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund 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 ofwhen 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 ofaccounting. 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 ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources. - 12 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. For fiscal year 2003, the School District changed its method of accounting for the final two payments on one hundred and ninety day contracts and for the related revenue due from the State to fund these contracts. Adjustments have been made in the fiscal year 2003 financial statements to record costs for salaries and fringe benefits earned by employees through June 30, 2003, (even though paid in July and August 2003) and the related revenue due from the State to fund these contracts. Adjustments were also made for the similar salaries, benefits and related State revenues earned in fiscal year 2002 and recorded in fiscal year 2003. The net effect of the above accounting treatment results in the accompanying financial statements reflecting costs for those salaries and benefits earned by employees during fiscal year 2003 and the related State revenue to fund these contracts. In addition, both the net assets and fund balance at July 1, 2002, have been restated for salaries and benefits earned by employees in fiscal year 2002 but not paid until July and August 2002 and for the related State revenue for these contracts. This change is in accordance with generally accepted accounting principles. See Restatement of Prior Year Fund Balance. RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of $166,782 at July 1, 2002. For fiscal year 2003, these funds have been reported as part of the General Fund. In addition, governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been reported within the General Fund for fiscal year ended June 30, 2003. The governmental fund activity ofthe various school activity accounts had a fund balance of $88,211 at July 1, 2002. This change is in accordance with generally accepted accounting principles. - 13 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund Balance July 1, 2002 $ 2,626,088 Add Funds Consolidated with General Fund: School Food Services Fund School Activity Account - Governmental Activity 166,782 88,211 Add: State Revenue Related to July and August 2002 Salary Payments Earned by Employees in Fiscal Year 2002 1,116,446 Deduct: July and August 2002 Salary Payments Earned by Employees in Fiscal Year 2002 1,540,429 General Fund Balance July 1, 2002 (Restated) $ 2,457.098 CHANGES IN ACCOUNTING PRINCIPLES The Banks County Board ofEducation has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis -for State and Local Governments, as of June 30, 2003. The provisions of GASB Statement No. 34 require the inclusion ofa Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following: General Fund (Restated) July 1, 2002 Capital Projects Fund Debt Service Fund $ 2,457,098 11,881,447 8,791,265 Governmental Funds (Restated) July 1, 2002 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Bonds and Notes Payable Capital Leases Payable $ 23,129,810 25,160,704 -4,284,355 212,949 -18,205,000 -93,421 Net Assets Beginning (See Exhibit "B") $ 25,920.687 - 14 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30. 2003 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash 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. Georgia Laws OCGA 45-8-14 authorize the Board to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone 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 are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn 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 Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. 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 - 15 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 Banks County Board of Commissioners fixed the property tax levy for the 2002 tax digest year (calendar year) on February 6, 2003 (levy date). Taxes were due on April 25, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2002 tax digest are reported as revenue in the governmental funds for fiscal year 2003. The Banks County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance oftaxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2003, for maintenance and operations amounted to $4,717,889. The tax millage rate levied for the 2002 tax year (calendar year) for the Banks County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 12.25 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $2,728,274 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. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals 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. - 16 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time ofpurchase. 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 fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost ofnormal 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. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land All NIA Land Improvements $ 10,000 25 years Buildings and Improvements $ 20,000 30 to 80 years Equipment $ 5,000 5 to 25 years Portable Classrooms $ 8,000 25 years Works ofArt and Historical Treasures All NIA Software Developed or Obtained for Internal Use $ 20,000 10 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. 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. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) 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 ofmoney which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face - 17 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts. 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 ofthe 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 ofthe 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 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 At June 30, 2003, the bank balances were $12,047,930. The amounts ofthe total bank balances are classified into three categories of credit risk: - 18 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2003, as follows: Risk Category Bank Balance 1 $ 8,313,790 2 3,734,140 3 0 Total $ 12,047.930 CATEGORIZATION OF INVESTMENTS Investments are classified as to risk by the three categories described below: Category 1 - Insured or registered, or securities held by the School District or the School District's agent in the School District's name. Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the School District's name. Category 3 - Uninsured or unregistered, with securities held by the counterparty, or by its trust department or agent but not in the School District's name. At June 30, 2003, the carrying value of the School District's total investments was $11,838,135 which is materially the same as fair value. The investments are classified as to risk categories as follows: TXlle of Investment Risk Categories 2 Repurchase Agreements $ 11.789 474 $ Q $ Not Subject to Categorization Requirements Mutual Funds Total Investments Carrying Fair 3 Amount Value Q $ 11,789,474 $ 11,789,474 48,661 48,661 $ 11,838 135 $ 11838135 - 19 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 4: 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 Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2002 Increases Decreases Balances June 30, 2003 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 414,834 $ 122,320 $ 0 2,539,255 0 $ 537,154 2,539,255 Total Capital Assets Not Being Depreciated $ 414,834 $ 2,661,575 $ 0 $ 3,076,409 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 21,394,048 2,877,240 $ 474,582 253,602 $ $ 21,394,048 231,665 2,899,177 474,582 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 2,934,012 1,156,218 194,125 280,589 141,383 18,983 195,466 3,214,601 1,102,135 213,108 Total Capital Assets, Being Depreciated, Net $ 20,461,515 $ -187,353 $ 36,199 $ 20,237,963 Governmental Activity Capital Assets - Net $ 20,876.349 $ 2,474.222 $ 36.199 $ 23,314.372 Capital assets being acquired under capital leases as of June 30, 2003, are as follows: Governmental Funds Equipment Less: Accumulated Depreciation $ 110,682 37.632 $,==:!e:73~,0~5~0 Current year depreciation expense by function is as follows: - 20 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 5: CAPITAL ASSETS Instruction Support Services Educational Media Services General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 285,637 $ 785 1,858 6,739 2,423 115,568 127,373 27 945 $======4==40-,9==5==5 Note 6: RESTRICTED ASSETS General obligation bond proceeds, Georgia State Financing and Investment Commission (GSFIC) funds and Special Purpose Local Option Sales Tax (SPLOST) specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2003, were as follows: District-wide Capital Projects Bond Proceeds GSFIC Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions Note 7: RISK MANAGEMENT $ $ 10,013,414 $ 439,137 238,852 $ 9,487,366 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 ofloss associated with vehicles. In addition, the School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk ofloss on account of general liability or property damage, including - 21 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 7: RISK MANAGEMENT safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members of the system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse) and automobile risks. Payment ofexcess insurance for the system varies by line ofcoverage. The School District has elected to self-insure for all losses related to acts of God. The School District has not experienced any losses related to this risk in 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 expenditures and liability being reported when it is probable that a loss has occurred, and the amount ofthat loss can be reasonably estimated. The School District has not incurred any liabilities for unemployment compensation during the past two fiscal years. The School District participates in the Georgia Education Workers' Compensation Trust, a public entity risk pool organized on December 1, 1991, to develop, implement and administer a program of workers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Trust for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Trust with the Midwest Employers Casualty Company to provide coverage for potential losses sustained by the Trust in excess of $400,000 loss per occurrence, up to $2,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent Each Principal Finance Director $ 100,000 $ 100,000 $ 100,000 Note 8: LONG-TERM DEBT CAPITAL LEASES The Banks County Board ofEducation has entered into various lease agreements as lessee for office equipment and football stadium lights. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value ofthe future minimum lease payments as of the date of their inception. - 22- BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 8: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 1996 General Government - Series 2002 4.30% - 7.000% 2.00%-4.125% $ 5,995,000 11,925,000 $ 17,920.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2003, were as follows: Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2002 $ 93,421 $ 18,205,000 $ 18,298,421 Deductions Debt Retired 39,176 285,000 324,176 Balance June 30, 2003 $===54-,2!!=4=5 $ 17,920.000 $ 17,974,245 Portion of Long-Term Debt Due within One Year $_~3~9,~54~6 $ 2,310,000 $ 2,349,546 At June 30, 2003, payments due by fiscal year which includes principal and interest for these items are as follows: -23 - BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 8: LONG-TERM DEBT Fiscal Year Ended June 30 Capital Leases Principal Interest General Obligation Debt Principal Interest 2004 2005 2006 2007 2008 2009-2013 2014-2018 $ 39,546 $ 14,699 2,703 $ 2,310,000 $ 358 2,615,000 2,780,000 2,895,000 2,960,000 2,150,000 2,210,000 481,356 603,468 535,040 449,798 353,550 933,488 298,968 Total Principal and Interest $ 54.245 $ 3.061 $ 17,920.000 $ 3,655.668 Note 9: ON-BEHALF PAYMENTS The Board has recognized revenues and costs in the amount of $176,222 for health insurance and retirement contributions paid on the Board's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $139,052 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $37,170 Note 10: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2003, together with funding available: Project Unearned Executed Contracts Funding Available From State SA0IS-606-189 and 04G-606-001 New Stadium $ 8,410,808 $ 2,901,002 204,017 $ 826142825 $ 229012002 The amounts described in this note are not reflected in the basic financial statements. - 24- BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 11: 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. Note 12: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. 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. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2003 2002 2001 100% 100% 100% $ 835,222 $ 764,270 $ 855,482 - 25 - BANKS COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2003 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 Enterprise Operations Community Services Food Services Operation Capital Outlay Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING USES Other Uses Net Change in Fund Balances Fund Balances - Beginning Adjustments Fund Balances - Ending NONAPPROPRIATED BUDGETS ORIGINAL FINAL ACTUAL AMOUNTS $ 4,470,000 $ 4,470,000 $ 4,717,889 22,522 9,551,514 9,551,514 9,989,873 1,662,069 1,884,760 1,769,238 334,380 334,380 673,875 15,000 15,000 8,359 1,408,000 1,408,000 246,584 $ 17,440,963 $ 17,663,654 $ 17,428,340 $ 11,047,793 $ 11,323,571 $ 11,096,846 398,770 410,569 402,499 378,374 843,736 174,415 1,232,082 959,652 27,000 42,299 1,076,931 1,420,000 425,270 342,091 415,943 351,827 843,736 174,415 1,232,082 959,646 27,000 44,299 1,076,931 1,420,000 372,467 287,951 647,217 69,259 789,898 126,510 1,104,272 866,469 27,002 184,622 141,511 122,403 1,039,885 44134 $ 18,414,120 $ 18,636,811 $ 16,920,446 $ -973,157 $ -973,157 $ 507,894 -14 000 -14 000 $ -987,157 $ -987,157 $ 507,894 2,643,841 2,643,841 2,457,098 -15 723 -15 723 $ 1,640,961 $ 1,640,961 $ ===e:;2;,i,;,9~6;;;,4;,;:;,9~92~ See notes to the basic financial statements. - 27 - BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2003 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture. U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food and Nutrition Program Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Distribution Program (1) Pass-Through From Office of Treasury and Fiscal Services National Forest Reserve Funds Total U.S. Department of Agriculture Education. U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Individuals with Disabilities Education Act Part B - Special Education Flow Through Preschool Capacity Building Improvement Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Elementary and Secondary Education Act Title I Grants to Local Educational Agencies School Improvement Title II Enhancing Education Through Technology Improving Teacher Quality TitleV Innovative Education Program Strategies Title VI Rural and Low Income Schools Vocational Education - Basic Grants to States High School Program Basic Grant Pass-Through From Rabun County Board of Education Elementary and Secondary Education Act Title Ill Limited English Proficient Pass-Through From Union County Board of Education Elementary and Secondary Education Act Title Ill Technology Literacy Challenge Grant Funds Total U. S. Department of Education - 28- CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 N/A N/A $ $ (2) 987 966 987.966 10.550 10.665 N/A N/A $ 51.918 (3) 1,039,884 84.027 84.173 84.027 NIA $ N/A N/A $ 215.312 12,721 4628 232,661 * 84.010 N/A * 84.010 N/A 84.318 N/A 84.367 N/A 84.298 N/A 84.358 N/A 84.048 N/A 602,406 4,207 80,466 65,664 15,402 45,481 64,225 84.365 N/A 9,389 84.318 N/A $ 221 1,120,122 BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2003 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Labor. U. S. Department of Pass-Through From North Georgia Youth Opportunity Council School to Work Opportunities Grant CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 17.258 N/A $ _ _ _ _9~4_5_8 Total Federal Financial Assistance N/A = Not Available $ =====2=16=9=!=4=6=4 Notes to the Schedule of Expenditures of Federal Awards (1) The amounts shown for the Food Distribution Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the system during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($156,606) were not maintained separately and are included in the 2003 National School Lunch Program. (3) Funds earned on the National Forest Reserve Funds, in the amount of $306 do not require reporting of expenditures. 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 Banks 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 basic financial statements. See notes to the basic financial statements. - 29- BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2003 AGENCY/FUNDING GRANTS 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 Grades (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 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 Regular Bus Replacement Sparsity Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Apprenticeship Program Health Insurance Mentor Teachers Preschool Handicapped Program (4-8) Statewide After School Program (K-3) Statewide Reading Program Lottery Programs Assistive Technology Computers in the Classroom Student Information System Post Secondary Options - 30 - SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 649,354 42,033 1,303,472 167,906 733,527 129,799 1,206,722 849,048 363,333 61,592 295,405 729,587 165,951 46,450 83,182 37,657 89,078 80,702 193,099 63,392 41,767 319,679 467,349 598,026 411,981 101,734 34,095 63,814 9,756 15,836 121,572 69,982 265,907 -256,903 231 139,052 2,656 46,486 20,721 24,479 6,696 50,442 72,910 3,146 BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2003 AGENCY/FUNDING GRANTS Office of Treasury and Fiscal Services Public School Employees Retirement OTHER Community Affairs, Georgia Department of Local Assistance Grant SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 37,170 30000 $ ======9=,9=8=9=,8=73= See notes to the basic financial statements. - 31 - BANKS COUNTY BOARD OF EDUCATION APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30. 2003 SCHEDULE "4" PROJECT For the retirement of $10.598.975 of general obligation debt consisting of the principal and interest on the School District"s series 1996 general obligation school bonds for the years 1997 through 2007 and the payment to redeem said bonds maturing in the years 2009 through 2017 For the acquisition, construction, equipping and furnishing of a new middle school and other school buildings and facilities; the acquisition, construction, equipping and furnishing of a high school athletic complex; adding to, renovating, improving and equipping existing school buildings and facilities; acquiring new school equipment; and acquiring any property necessary or desirable therefor, both real and personal ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 10,598,975 $ 10,598,975 $ 603,210 $ 3,134,505 Ongoing 16,000,000 16,000,000 2,929,162 Ongoing $ 26,598,975 $ 26,598,975 $ 3,532,372 $ 3,134,505 (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 Banks 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. - 32 - BANKS COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2003 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL 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 Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 783,345 $ 53,522 1,596,966 193,296 876,446 149,324 1,464,201 1,037,845 443,577 1,532,864 101,436 47,093 108,256 92420 708,788 $ 68,142 1,653,538 167,014 904,555 94,325 1,495,513 1,332,433 357,819 25,038 353,357 646,974 41,291 45,891 107,537 49,997 79,265 89,339 17,802 $ 53,309 43,293 114 79,128 107,231 41,222 1,383 4,431 182,005 4,195 1,749 1 663 726,590 68,142 1,706,847 167,014 947,848 94,439 1,574,641 1,439,664 399,041 26,421 357,788 828,979 45,486 45,891 109,286 49,997 79,265 91,002 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 8,480,591 $ 8,220,816 $ 537,525 $ 8,758,341 Media Center Program Staff and Professional Development 233,911 51116 339,151 27,256 35,339 23180 374,490 50436 TOTAL QBE FORMULA FUNDS $ 8,765,618 $ 8,587,223 $ 596,044 $==,;;;9,=18=3"",2=6=7 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 33 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS RUSSELL W. HINTON STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 June 28, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Banks County Board of Education REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 Banks County Board of Education as of and for the year ended June 30, 2003, which collectively comprise Banks County Board ofEducation's basic financial statements and have issued our report thereon dated June 28, 2004. 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. Compliance As part of obtaining reasonable assurance about whether Banks County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination offinancial 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 ofour tests disclosed no instances ofnoncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered Banks County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal 2003-34YB-30 control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Banks County Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule ofFindings and Questioned Costs as item FS-6061-03-01. A material weakness is a condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. This report is intended solely for the information and use ofthe management, members ofthe Banks County Board ofEducation, 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, - ~-~ Russell W. Hinton State Auditor RWH:gp 2003-34YB-30 RUSSELL W. HINTON STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 June 28, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Banks County Board of Education REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 Ladies and Gentlemen: Compliance We have audited the compliance of Banks County Board ofEducation with the types ofcompliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2003. Banks 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 Banks County Board of Education's management. Our responsibility is to express an opinion on Banks 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 ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance 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 Banks 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 Banks County Board of Education's compliance with those requirements. 2003SA-10 In our opinion, the Banks County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2003. Internal Control Over Compliance The management of Banks County Board of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered Banks County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level of risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course ofperforming their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use ofthe management, members ofthe Banks County Board ofEducation, 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, RWH:gp 2003SA-10 State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS BANKS COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6061-01-02 FS-6061-02-01 Further Action Not Warranted Previously Reported Corrective Action Implemented SECTION IV FINDINGS AND QUESTIONED COSTS BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Banks County Board of Education's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Banks County Board of Education disclosed a financial statement reportable condition related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts Expenditures/Liabilities/Disbursements The reportable condition described above is not considered to be a material weakness. 3. Noncompliance Material to the Financial Statements The audit ofthe Banks County Board ofEducation disclosed no instances ofnoncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Banks County Board of Education did not disclose any reportable conditions in internal control over major programs. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Banks County Board ofEducation's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510{a) of 0MB Circular A-133 The Banks County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 84.010 Elementary and Secondary Education Act - Title I - Grants to Local Educational Agencies 84.010 Elementary and Secondary Education Act - Title I - School Improvement 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Banks County Board ofEducation qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133. - 1- BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6061-03-01 Our examination ofthe Principals' accounts disclosed weaknesses in internal controls as discussed below: Cash and Cash Equivalents 1) The bank reconciliation function was not separated from the record keeping and voucher payment function. 2) The June bank statement was not reconciled to the general ledger for four of the schools. 3) Errors disclosed during the bank reconciliation process were carried as reconciling items for extended periods of time. Revenues/Receivables/Receipts 1) Deposit preparation was not separated from the record keeping and cash custody functions. Expenditures/Liabilities/Disbursements 1) The check writing function was not separated from record keeping or processing of signed checks. These deficiencies were a result of management's decision to limit the number of administrative staff, at the various school sites, made responsible for accounting functions and failure to ensure established controls were functioning as designed. Management should implement procedures to ensure that the key accounting functions ofcustody, record keeping and authorization are segregated. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -2 -