BANKS COUNTY BOARD OF EDUCATION HOMER, GEORGIA ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30,2010 (Including Independent Auditor's Reports) 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 FEDERALAWARDS REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS B STATEMENT OF ACTIVITIES FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS H NOTES TO THE BASIC FINANCIAL STATEMENTS SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND BANKS COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERALAWARDS 3 SCHEDULE OF STATE REVENUE 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND -QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MAlTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WlTH GOVERNMENTAUDITING STANDARDS INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WlTH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WlTH OMB CIRCULAR A-133 SECTION Ill AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION 1V FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS BANKS COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION V MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FI NANClAL Russell W. Hinton STATE AUDITOR (404)656-2174 DEPARTMENOTF AUDITSAND ACCOUNTS 270 Washington Street, S.W., Suite 1-1 56 Atlanta, Georgia 30334-8400 July 1 8 , 2 0 1 1 Honorable Nathan Deal, 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 of the 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, 2010, 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 of America and the standards applicable to financial audits contained in GovernmentAuditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Banks County Board of Education, as of June 30, 2010, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditng Standards, we have also issued our report dated July 18, 2011, on our consideration of the Banks County Board of Education's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditng Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and the Schedule of Revenues, Expendituresand Changes in Fund Balances - Budget and Actual, as presented on pages i through viii and page 25 respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reportingfor placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures, to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence t o express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Banks County Board of Education's financial statements as a whole. The accompanying supplementary information consists of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U. S. Office of Management and Budget Circular A-133, Audii3 of States, Local Governmen&, and Nun-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used t o prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, aRussel W. Hinton, CPA, CGFM State uditor BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCALYEAR ENDED JUNE 30,2010 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, 2010. 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 understandingof the School District's financial performance. FINANCIAL HIGHLIGHTS Key financial highlights for 2010 are as follows: On the District-widefinancial statements, the assets of the School District exceeded liabilities by $44.2 million compared to $41.7 million for the previous year. Of this amount, $1.7 million is unrestricted and is available for spending at the School District's discretion. The School District had $26.0 million in expenses relating to governmental activities compared to $27.1 million for the previous year which is a decrease of $1.10 million. Only $458,395.20 of these expenses are offset by program specific charges for services, and $17.3 million were offset by grants and contributions. General revenues (primarily property and sales taxes) of $10.8 million were adequate to provide for these programs. As stated above, general revenues accounted for $10.8 million or 38.0% of all revenues totaling $28.5 million compared to $11.1 million or 40.0% of all revenues totaling $27.8 million in the prior year. 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-wideand fund finsncia/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-termand long-term information about the School District's overall financial status. 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 Fiduciaw 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 of the financial statements. BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCALYEAR ENDED JUNE 30,2010 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 governmentalactivities.In reviewingthe District-widefinancial 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 bask 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 notes that for the School District as a whole, the financialpositionof 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. GovernmentalFunds 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 a t year-end available for spending in future periods. These funds are reported usingthe modifiedaccrual method of accounting 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. BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSIONAND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30,2010 FINANCIAL ANALYSIS OF THE SCHOOL DISTRICTAS A WHOLE Recall that the Statement of Net Assets provides the perspective of the School District as a whole. Table 1provides a summary of the School District's net assets for this fiscal year and the prior year. Table 1 Net Assets Governmental Activities Fiscal Fiscal Year 2010 Year 2009 Assets Current and Other Assets Capital Assets, Net Total Assets Liabilities Accounts Payables and Other Current Payables Salaries Payable Long-Term Liabilities $ 892,032.11 $ 501,843.59 Total Liabilities Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total Net Assets Table 2 shows the Changes in Net Assets for this fiscal year and the prior year. BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'SDISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30,2010 Table 2 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 Railroad Can Sales Taxes Special Purpose Local Option Sales Tax For Debt Services Other Taxes Grants and Contributions not Restrictedto Specific Programs Investment Earnings Miscellaneous Total General Revenues Total Revenues Program Expenses: Instruction Support Services Pupil Services Improvementof InstructionalServices Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operationsof Non-InstructionalServices Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Expenses Increasein Net Assets Governmental Activities Fiscal Year 2010 Fiscal Year 2009 BANKS COUNTY BOARD OF EDUCATION MANAGEMENTS DISCUSSION AND ANALYSIS FOR THE FISCALYEAR ENDEDJUNE 30,2010 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. Table 3 Governmental Activities Total Cost of Services Fiscal Fiscal Year 2010 Year 2009 Net Cost of Services Fiscal Fiscal Year 2010 Year 2009 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 Expenses FINANCIAL ANALYSIS OF THE SCHOOL DISTRICTS FUNDS The School District's governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of $28.4 million and total expenditures of $27.9 million compared to $27.9 million in revenue and $29.1 million of expenditures for the prior year. Of the $27.9 million of expenditures, $3.1 million pertained to principal and interest on debt services. 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 2010, 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. BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCALYEAR ENDED JUNE 30,2010 For the General Fund, the actual revenues of $25.4 million were over the final budgeted amounts of $26.6 million by $1.2 million. This difference (actual vs. final budget) was due to an increase in the miscellaneous income of $426,887, increase in Federal funds of $58,072, decrease in property taxes of $505,072 and a decrease in state funds of $1,175,806. The miscellaneous revenue over final budget was due to the inclusion of the principals' accounts in our financial statements, but not in the budget. The actual expenditures of $24.8 million were under the final budgeted amount of $26.2 million by $1.4 million. The expenditures from the school activity accounts are included in the actual expenditures, but were not included in the budget amounts. General Fund revenues were greater than expenditures by $559,002.63. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assefs At fiscal year ended June 30, 2010, the School District had $48,053,878.59 invested in capital assets, all in governmental activities compared to $48,891,325.42 for the prior year. Table 4 reflects a summary of these balances net of accumulated depreciation for the current year and the prior year. Table 4 Capital Assets (Net of Depreciation) Governmental Activities Fiscal Fiscal Year 2010 Year 2009 Land Land Improvements Buildingand Improvements Equipment Construction In Progress $ 534,510.00 $ 4,075,105.99 41,244,452.10 2,170,677.44 29,133.06 534,510.00 4,272,017.70 41,811,238.68 2,244,425.98 29,133.06 Total Due to the implementation of House Bill 1187, the School District has completed numerous construction projects including new buildings, additions and renovations. Debt At fiscal year ended June 30, 2010, the School District had $8,760,000.00 in long-term liabilities compared to $11,435,000.00 in long-term liabilities at the end of June 30, 2009. This decrease of $2,675,000.00 is due to bond payments of $2,675,000.00. The $8,760,000.00 in long-term debt at the end of 2010 was made up of $2,800,000.00 due within one year. BANKS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCALYEAR ENDEDJUNE 30,2010 Table 5 Debt at June 30 Governmental Activities Fiscal Fiscal Year 2010 Year 2009 Bonds PapbleSeries 2005 Bonds PapbleSeries 2007 $ 7,480,000.00 $ 1,280,000.00 9,775,000.00 1,660,000.00 Total CURRENT ISSUES The following are the 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 declining and as a result more pressure is being placed on the local School Districts to prioritize its educational programs and provide additional local funding. Despite 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 resourcesto 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. In 2007 the School District completed construction of a new elementary school, a new transportation facility, and an addition to the high school cafeteria. The School District has also constructed nine new classrooms, an administrative suite, expanded the kitchen at the primary school and expanded the athletic complex at the high school. The School District regularly monitors anticipated capital outlay needs. On March 15,2010, the voters of Banks County authorized the continuance of a one percent sales tax to raise no more than $19,000,000 or to be collected for 2 0 consecutive quarters, whichever comes first. In conjunction with the continuing of this one percent sales tax, the voters authorized the School District to issue general obligation bonds in the amount of $15,000,000. The School District issued $10,000,000 of the approved $15,000,000 general obligation bonds. The proceeds from these bonds will be used for (i) adding to, renovating, improving and equipping existing school buildings and facilities, including but not limited to Banks County High School, transportation facilities, physical education/athletic fields and facilities, classrooms, agricultural and other facilities, (ii) acquiring, constructing, equipping and furnishing new school buildings and facilities, including but not limited to a new elementary school, an administrative facility and other new school buildings and facilities, (iii) acquiring technology equipment, and security equipment and other school equipment, (iv) acquiring school buses and other school vehicles, (v) acquiring textbooks and band instruments and (vi) acquiring any capital property necessary or desirable for the foregoing purposes both real and personal, necessary or desirable for the foregoing purposes. vi i BANKS COUNTY BOARD OF EDUCATION MANAGEMENTS DISCUSSION AND ANALYSIS FOR THE FISCALYEAR ENDEDJUNE 30,2010 CONTACTING THE SCHOOL DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, 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 5 1South, Homer, Georgia 30547. You may also email your questions to Mr. Beasley at mbeasley@banks.kl2.ga.u~. BANKS COUNTY BOARD OF EDUCATION BANKS COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30,2010 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets. Non-Depreciable Capital Assets, Depreciable(Net of Accumulated Depreciation) Total Assets LIABILITIES Accounts Payable Salaries and Benefits Payable Payroll Withholdings Payable Interest Payable Long-Term Liabilities Due Within One Year Due in More Than OneYear Total Liabilities NET ASSETS Invested in Capital Assets. Net of Related Debt Restricted for Bus Replacement Continuation of Federal Programs Debt Service Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT "AM GOVERNMENTAL ACTIVITIES The notes t o the basicfinancial statements are an integral part of this statement. -1- BANKS COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDEDJUNE 30,2010 EXHIBIT "B" EXPENSES GOVERNMENTALACTIVITIES 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 Operationsof Non-InstructionalServices Enterprise Operations Community Services Food Services Interest on Short-Term and LongTerm Debt Total GovernmentalActivities General Revenues Taxes Properly Taxes For Maintenanceand Operations Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Debt Services Other Sales Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginningof Year PROGRAM REVENUES OPERATING CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS Net Assets - End of Year The notes to the basic financial statements are an integral part of this statement. -2- BANKS COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30.2010 GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND Cash and Cash Equivalents Investments Accounts Receivable. Net Taxes State Government Federal Government Other Inventories ~ o t Aas~sets LIABILITIESAND FUND BALANCES LIABILITIES Accounts Payable Salaries and Benefits Payable Payroll Withholdings Payable Interest Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Resewed for: Bus Replacement Continuationof Federal Programs Debt Sewice Unresewed Designated for Student Activities Undesignated Reported in: General Fund Capital Projects Total Fund Balances Total Liabilities and Fund Balances EXHIBIT "Cn TOTAL The notesto the basicfinancial statements are an integral part of this statement. - 3 - BANKS COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30.2010 Total Fund Balances- Governmental Funds (Exhibit"C") Amounts reportedfor GovernmentalActivities in the Statementof Net Assets are different because: Capital Assets used in GovernmentalActivities 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 Taxes that are not available to pay for current period expendituresare deferred in the funds. LoneTerm 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 yearend consist of: Bonds Payable NetAssets of GovernmentalActivities (Exhibit"A") EXHIBIT "D" The notes to the basic financial statements are an integral part of this statement - A- BANKS COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURESAND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30,2010 REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvementof Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student TransportationServices Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation 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 EXHIBIT "En TOTAL The notes to the basicfinancial statements are an integral part of this statement -5- 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 30,2010 Total Net Change in Fund Balances - Governmental Funds (Exhibit "EM) Amounts reportedfor GovernmentalActivities in the Statement of Activities are different because: Capital Outlays are reported as expendituresin Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Taxes reported in the Statement of Activities that do not providecurrent financial resources are not reported as revenues in the funds. The net effect of various miscellaneoustransactions involvingcapital assets (i.e., sales, trade-ins, donations, and disposals) is to decrease net assets. Repaymentof 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 Change in Net Assets of GovernmentalActivities (Exhibit "B") EXHIBIT "F" The notesto the basic financial statements are an integral part of this statement. -6- BANKS COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30,2010 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT "G" AGENCY FUNDS The notesto the basic financial statements are an integral part of this statement. - 7 - (This page left intentionally blank) BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Banks County Board of Education (School District) was established under the laws of the State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Banks County Board of Education. District-wide Statements= The Statement of Net Assets and the Statement of Activities display information about the financial activities of the overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support of the School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, includingall taxes, are presented as general revenues. Fund Financial Statements= The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting of internal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for all financial resources of the School District, except those resources required to be accounted for in another fund. BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST) to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (sales) 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, the local public library and the individual school accounts for clubs, student organizations, awards, gifts, etc. BASIS OF ACCOUNTING The basis of accounting 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 of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Propertytaxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities are reported as other financing sources. The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenue. The State of Georgia reimburses the School District for teachers' salaries and operating costs through the Quality Basic Education Formula Earnings program (QBE). Generally teachers are contracted for the school year (July 1- June 30) and paid over a twelve month contract period, BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" generally September 1through August 31. In accordance with the respective rules and regulations of the QBE program, the State of Georgia reimburses the School District over the same twelve month period in which teachers are paid. At June 30, the amount of teachers' salaries incurred but not paid until July and August of the subsequent year are accrued. Since the State of Georgia recognizes its QBE liability for the July and August salaries at June 30, the School District recognizes the same QBE as a receivable and revenue, consistent with symmetrical recognition. NEW ACCOUNTING PRONOUNCEMENTS In fiscal year 2010, the School District adopted the Governmental Accounting and Standards Board (GASB) Statement No. 51, Accounting and Reporting for Intangible Assets. The provisions of this Statement generally require retroactive reporting for intangible assets acquired after June 30, 1980, with the exception of those intangible assets that have indefinite useful lives and those that are considered internally generated. There were no intangible assets to reclassify for this (GASB) Statement No. 51. In addition, the School District adopted GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. The provisions of this Statement impacts disclosure regarding derivative instruments entered into by the state and local governments. Derivative disclosures, if any, will be identified in Note 3. CASH AND CASH EQUIVALENTS Composition of Deposits Cash and cash equivalents consist of cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated Section 45-8-14 authorizes the School District to deposit its funds in one or more solvent banks, insured Federal savings and loan associations or insured chartered building and loan associations. lNVESTMENTS Composition of Investments lnvestments made by the School District in nonparticipating interest-earning contracts (such as certificates of deposit) and repurchase agreements are reported at cost. Participating interestearning contracts and money market investments with a maturity at purchase of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code of Georgia 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 of return shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" (5) Prime banker's acceptances, (6) The Georgia Fund 1administered 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. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration of credit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Banks County Board of Commissioners fixed the property tax levy for the 2009 tax digest year (calendar year) on February 23, 2010 (levy date). Taxes were due on May 26, 2010 (lien date). Taxes collected within the current fiscal year or within 6 0 days after year-end on the 2009 tax digest are reported as revenue in the governmental funds for fiscal year 2010. The Banks County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2010, for maintenance and operations amounted to $6,553,564.67. The tax millage rate levied for the 2009 tax year (calendar year) for the Banks County Board of Education was as follows (a mill equals $ 1per thousand dollars of assessed value): School Operations 13.244 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $2,949,161.87 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 of meals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first in, first out). The School District uses the consumption method to account for BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" 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. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. During the fiscal year under review, no events or changes in circumstances affecting a capital asset that may indicate impairment were known to the School District. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land lmprovements Buildings and lmprovements Equipment lntangible Assets Works of Art/Historical Treasures Software Developed or Obtained for Internal Use Portable Classrooms All $ 10,000.00 $ 20,000.00 $ 5,000.00 $ 100,000.00 All $ 20,000.00 $ 8,000.00 N/A 25 years 30 to 80 years 5 to 25 years 5 to 100 years N/A 10 years 25 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives, with the exception of intangible assets which are amortized. Amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, copyrights and internally generated software is computed using the straight-line method over the estimated useful lives of the assets, generally 10 to 20 years. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. In the District-wide and fund financial statements, the School District recognizes bond premiums and discounts, as well as bond issuance costs during the fiscal year bonds are issued. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "tl" whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. To conform to generally accepted accounting principles, bond premiums and discounts, as well as bond issuance costs should be amortized over the life of the bonds on the District-wide statements. The effect of this deviation is deemed to be immaterial to the fair presentation of the basic financial statements. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. NET ASSETS The School District's net assets in the District-wide Statements are classified as follows: Invested in capital assets, net of related debt -This represents the School District's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restricted net assets - These represent resources for which the School District is legally or contractually obligated to spend resources for bus replacement, continuation of Federal programs, debt service and capital projects in accordance with restrictions imposed by external third parties. Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating t o the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes. FUND BALANCES Reserved Reserves represent those portions of fund balance equity that are legally segregated for a specific future use. Unreserved- Designated Designatedfund balances represent tentative plans for future use of financial resources. USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (O.C.G.A.) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate of the face value of such surety bond and the market value of securities pledged shall be equal to not less than BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" 1 1 0 percent of the public funds being secured after the deduction of the amount of deposit insurance. If a depository elects the pooled method (O.C.G.A. Section 45-8-13.1) the aggregate of the market value of the securities pledged to secure a pool of public funds shall be not less than 110 percent of the daily pool balance. 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) lnsurance on accounts provided by the Federal Deposit lnsurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by or securities guaranteed by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan MortgageAssociation, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS Custodial credit risk is the risk that in the event of a bank failure, the School District's deposits may not be returned to it. The School District does not have a formal deposit policy for managing custodial credit risk. At June 30, 2010, the bank balances were $4,734,442.21. The bank balances were entirely covered by Federal depository insurance or collateralized with securities held by the pledgingfinancial institution's trust department or agent in the School District's name. CATEGORIZATION OF INVESTMENTS The School District's investments as of June 30, 2010, are presented below. Investment Type Fair Value Other Investments U. S. Treasury Money Market Mutual Funds (Open-End) BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The School District does not have a formal policy for managing credit quality risk. Funds invested in the U.S. Treasury Money Market Mutual Funds (Open-End Mutual Funds) are managed by First American Investments. These funds are AAAm by Standard and Poor's and have a weighted average maturity of 60 days or less. Note 4: NON-MONETARYTRANSACTIONS 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: Governmental Activities Capital Assets, Not Being Depreciated: Land Construction Work In Progress Balances July 1,2009 Increases Decreases Balances June 30,2010 $ 534,510.00 29,133.06 $ 115,721.81 $ 115,721.81 29,133.06 Total Capital Assets, Not Being Depreciated $ 563,643.06 $ 115,721.81 $ 115,721.81 $ 563,643.06 Capital Assets, Being Depreciated: Buildings and Improvements Equipment Land Improvements $ 46,511,273.84 3,884,688.39$ 4,922,792.57 $ 115,72181 17,164.18 $ 8,914.49 46,494,109.66 3,991,495.71 4,922,792.57 Less: Accumulated Depreciation: Buildings and Improvements Equipment Land lmprovements 4,700,035.16 1,640,262.41 565,928.38 187,687.46 16,305.98 7,13160 5,249,657.56 1,820,818.27 Total Capital Assets, Being Depreciated, Net $ 48,327,682.36$ Governmental Activity Capital Assets - Net $ 48.89t325.42 $ -834,805.74$ -719,083.93$ 2,64109 $ 47,490,235.53 118,362.90 $ 48,053,878.59 BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" Current year depreciation expense by function is as follows: Instruction Support Services General Administration School Administration Maintenance and Operation of Plant Student TransportationServices Food Services $ 950,527.55 Note 6: RESTRICTEDASSETS Special Purpose Local Option Sales Tax (SPLOST) proceeds are restricted assets in the Statement of Net Assets because its use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30,2010, were as follows: Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Restricted Investments: Debt Services Note 7: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk of loss associated with vehicles. The School District has neither significantly reduced coverage for this risk nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years. 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 of loss on account of general liability or property damage, including 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), errors and omissions and crime. Payment of excess insurance for the system varies by line of coverage. BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: Claims and Beginningof Year Changes in Claims End of Year Liability Estimates Paid Liability 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 st provide coverage for potential losses sustained by the in excess of $700,000.00 loss per occurrence, up to the statutory limit. Employers' Liability insurance coverage is also provided by Midwest Employers Casualty Company to provide coverage for potential losses sustained by the Fund in excess of $700,000.00 loss per occurrence, up to $1,000,000.00, with an aggregate limit of $2,000,000.00. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Employees Note 8: SHORT-TERM DEBT The School District issues tax anticipation notes in advance of property tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution of the State of Georgia limits the aggregate amount of short-term debt to 7 5 percent of the total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 3 1of the calendar year in which the debt was incurred. Short-term debt activity for the fiscal year is as follows: Beginning Balance Issued Redeemed Ending Balance Tax Anticipation Notes $ 0.00 $ 4,020,000.00 $ 4,020,000.00 $ 0.00 BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 Note 9: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates General Government- Series 2005 General Government -Series 2007 EXHIBIT "H" Amount The changes in Long-Term Debt during the fiscal year ended June 30,2010, were as follows: Balance July 1, 2009 Additions Governmental Funds Balance Deductions June 30,2010 Due Within One Year G. 0. Bonds At June 30, 2010, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30: General Obligation Debt Principal Interest Total Principal and Interest $ 8,760,000.00 $ 481,301.00 Note 10: PRIOR YEAR DEFEASEMENT OF DEBT In fiscal year 2004, the School District defeased certain general obligation bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the School District's basic financial statements. At June 30, 2010, $3,570,000.00 of bonds are outstanding and are considered defeased. Note 11: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $63,274.51 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30.2010 EXHIBIT "H" Georgia Department of Education Paid t o the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $42,196.71 Paid to the Teachers Retirement System of Georgia For Teachers Retirement System (TRS) Employer's Cost In the amount of $8,675.29 Office of Treasury and Fiscal Services Paid t o the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $12,402.51 Note 12: 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 13: SUBSEQUENT EVENTS In the subsequent fiscal year, on March 15, 2011, voters of Banks County authorized the continuance of a one percent sales tax (SPLOST) to raise no more than $19,000,000.00 to be collected for 2 0 consecutive quarters, whichever occurs first, for the purpose of providing funds to pay or to be applied toward (a) the cost of (i) adding to, renovating, improving, equipping and furnishing existing school buildings and facilities, including but not limited to Banks County High School, transportation facilities, physical education/athletic fields and facilities, classrooms, agricultural facilities and other facilities, (ii) acquiring, constructing, equipping and furnishing new school buildings and facilities, including but not limited to a new elementary school, an administrative facility and other new school buildings and facilities, (iii) acquiring technology equipment, safety and security equipment and other school equipment, (iv) acquiring school buses and other school vehicles, (v) acquiring textbooks and band instruments and (vi) acquiring any capital property necessary or desirable for the foregoing purposes, both real and personal, the maximum amount to be applied to such projects not to exceed $18,500,000.00, and (b) the payment of a portion of the principal and interest on the Banks County School District (Georgia) General Obligation Sales Tax Bonds, Series 2005, the maximum amount of debt service to be paid on such bonds not to exceed $500,000.00. In conjunction with the imposition of such sales and use tax, voters also approved the issuance of general obligation debt of the Banks County School District (which may be in the form of notes, bonds or a loan) in an aggregated principal amount of $15,000,000.00. The proceeds of the debt, if issued, shall be used to pay all or a portion of the costs of the Projects, capitalized interest on the Debt and the cost of issuingthe Debt. "On June 9, 2011, the Banks County School District issued $9,030,000.00 of General Obligation Sales Tax Bonds (GO Series 2011). The purpose of the bonds were for (a) paying costs of projects (i) through (vi) in above Projects description, (b) paying a portion of the interest on the Bonds accruing through September 1,2012, and (c) paying costs of issuance of the Bonds." BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" Note 14: POST-EMPLOYMENT BENEFITS GEORGIA SCHOOL PERSONNEL EMPLOYEES POST-EMPLOYMENT HEALTH BENEFIT FUND Plan Description. The Georgia School Personnel Post-Employment Health Benefit Fund (School OPEB Fund) is a cost-sharing multiple-employer defined benefit post-employment healthcare plan that covers eligible former employees of public school systems, libraries and regional educational service agencies. The School OPEB Fund provides health insurance benefits to eligible former employees and their qualified beneficiaries through the State Employees Health Insurance Plan administered by the Department of Community Health. The Official Code of Georgia Annotated (OCGA) assigns the authority to establish and amend the benefit provisions of the group health plans, including benefits for retirees, to the Board of Community Health (Board). Funding Policy. The contribution requirements of plan members and participating employers are established by the Board in accordance with the current Appropriations Act and may be amended by the Board. Contributions of plan members or beneficiaries receiving benefits vary based on plan election, dependent coverage, and Medicare eligibility and election. On average, plan members pay approximately 25 percent of the cost of the health insurance coverage. Participating employers are statutorily required to contribute in accordance with the employer contribution rates established by the Board. The contribution rates are established to fund all benefits due under the health insurance plans for both active and retired employees based on projected "pay-as-you-go" financing requirements. Contributions are not based on the actuarially calculated annual required contribution (ARC) which represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not t o exceed thirty years. The combined active and retiree contribution rates established by the Board for employers participating in the School OPEB Fund were as follows for the fiscal year ended June 30, 2010: For certificated teachers, librarians and regional educational service agencies: July 2 0 0 9 August 2 0 0 9 - October 2 0 0 9 November 2 0 0 9 -June 2010 18.534% of covered payroll for August Coverage 14.492% of covered payroll for Septem ber - November Coverage 18.534% of covered payroll for December - July Coverage For non-certificated school personnel: July 2 0 0 9 -June 2 0 1 0 $162.72 per member per month plus Department of Education contribution of $22,838,311.00 No additional contribution was required by the Board for fiscal year 2010 nor contributed to the State OPEB Fund to prefund retiree benefits. Such additional contribution amounts are determined annually by the Board in accordance with the State plan for other post-employment benefits and are subject to appropriation. BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" The School District's combined active and retiree contributions to the health insurance plans, which equaled the required contribution, for the current fiscal year and the preceding two fiscal years were as follows: Percentage Required Fiscal Year Contributed Contribution Note 15: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) Plan Description. The TRS is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. On October 25, 1996, the Board created the Supplemental Retirement Benefits Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1,1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRCSection 415 imposed limitation on benefits. TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 3 0 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service. Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 4 0 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 6 0 or by 7% for each year or fraction thereof by which the member has less than 3 0 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available. Funding Policy. TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 1 0 years of service. If a member terminates with less than 1 0 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2010, were BANKS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30.2010 EXHIBIT "H" 5.25% of annual salary. The member contribution rate will increase to 5.53% effective July 1,2010. Employer contributions required for fiscal year 2010 were 9.74%of annual salary as required by the June 30, 2007, actuarial valuation. The employer contribution rate will increase to 10.28% effective July 1,2010. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution (This page left intentionally blank) BANKS COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30.2010 REVENUFS Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) Current Instruction Support Services Pupil Services Improvementof InstructionalServices EducationalMedia Services General Administration School Administration Business Administration Maintenanceand Operation of Plant Student TransportationServices Central Support Services Other Support Services Food Services Operation Enterprise Operations Community Sewices Total ExDenditLJreS Excess of Revenues over (under) Expenditures OTHER FINANCING USES OperatingTransfers to Other Funds Net Change in Fund Balances - Fund Balances Beginning Adjustments Fund Balances - Ending Notesto the Schedule of Revenues. ExDenditureSand Chanees in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgetedrevenues or expenditures of the various principal accounts. The accompanying schedule of revenues. expendituresand changes in fund balances budget and actual is presented on the modified accrual basis of accountingwhich is the basis of accounting used in the presentation of the fund financial statements. SCHEDULE "1" ACTUAL AMOUNTS See notes to the basic financial statements. BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30,2010 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Departmentof Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Schools and Roads Cluster Pass-Through From Office of Treasury and Fiscal Services - Schools and Roads Grantsto States Other Programs Pass-Through From Georgia Departmentof Education Food Services ARRA- Child Nutrition Discretionary Grants Limited Availabiliv Total U. S. Departmentof Agriculture Education, U. S. Department of Education Technology State Grants Cluster Pass-ThroughFrom Georgia Departmentof Education Education TechnologyState Grants Special EducationCluster Pass-Through From Georgia Department of Education Special Education - ARRA Grantsto States ARRA- Preschool Grants Grants to States Preschool Grants Total Special Education Cluster State Fiscal Stabilization Fund Cluster Pass-Through From Georgia Department of Education - ARRA Education State Grants Title I,Part A Cluster Pass-ThroughFrom Georgia Departmentof Education ARRA- Title I Grants to Local Educational Agencies Title I Grants to Local Educational Agencies Total Title I, Part A Cluster Other Programs Pass-Through From Georgia Department of Education - Career and Technical Education Basic Grants to States English Language Acquisition Grants ImprovingTeacher QualityState Grants Migrant Education - State Grant Program Safe and Drug-FreeSchools and Communities - State Grants Twenty-FirstCentury Community LearningCenters Total Other Programs Total U. S. Departmentof Education CFDA NUMBER PASS THROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30,2010 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Defense, U. S. Department of Direct Department of the Army R.O.T.C. Program CFDA NUMBER PASS THROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD Total Federal FinancialAssistance N/A = Not Available Notesto the Schedule of Exoenditures of FederalAwards (1) Includesthe Federally assigned value of donated commoditiesfor the Food Donation Program in the amount of $67.717.89. (2) Expendituresfor the funds earned on the School Breakfast Program ($259,461.54) were not maintained separatelyand are included in the 2010 NationalSchool Lunch Program. (3) Funds earned on this program, in the amount of $552.69, do not require reporting of expenditures. Major Programsare identified by an asterisk (*) in front of the CFDA number. The School District did not provide FederalAssistance to any Subrecipient The accompanyingschedule of expendituresof Federal awards includes the Federal grant activity of the Banks County Board of Educationand is presented on the modified accrual basis of accountingwhich is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDEDJUNE 30.2010 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 ElementaryGrades (4-5) Program Upper ElementaryGrades - Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory(9-12) Program Students with Disabilities Category l Category II Category Ill Category IV Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 DaysAdditional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Sparsity Nursing Services Vocational Supervisors Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Amended Formula Adjustment 3 Day Furlough -Austerity Reduction Other State Programs Dual Enrollment Health Insurance National Teacher Certification Preschool Handicapped Program Teachers' Retirement Office of Treasury and FiscalServices Public School Employees Retirement See notes to the basicfinancial statements. SCHEDULE 3 ' GOVERNMENTAL FUND TYPE GENERAL FUND BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDEDJUNE 30.2010 SCHEDULE "4' PROJECT (i) acquiring, constructing,equipping and furnishinga new elementary school and other new school buildings and facilities (ii) adding to ,renovating, improvingand equippingexistingschool buildings and facilities, includingan elementary school. bus maintenancefacilities, athletic fields and facilities, classrooms and other facilities (iii) acquiringtechnology equipment and other school equipment (iv)acquiringschool buses and other school vehicles (v) acquiring textbooks (vi) acquiring any capital property necessary or desirablefor the foregoing purposes, both real and personal ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) (4) AMOUNT EXPENDED IN PRIOR YEARS (3) (4) PROJECT STATUS Ongoing 500.000.00 $ 13,936,830.11 Ongoing 45.047.82 Ongoing 35,211.00 Ongoing Ongoing Ongoing (1) The School District's original cost estimate as specified in the resolutioncalling for the imposition of the Local Option Sales Tax. (2) The School District'scurrent estimate of total cost for the projects. Includes all cost from project inceptionto completion. (3) The voters of Banks Countyapproved the impositionof a l%sales tax to fund the above projects and retire associated debt. Amounts expendedfor these projectsmay include sales tax proceeds,state, local property taxes and/or other funds over the life of the projects. (4) In addition to the expendituresshown above, the School District has incurred interest to provideadvance funding for the above projects as follows: Prior Years $ 1,718,031.99 Current Year Total See notesto the basic financial statements. (This page left intentionally blank) BANKS COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES- BY PROGRAM YEAR ENDED JUNE 30.2010 SCHEDULE "5' DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early lntervention Program Primary Grades (1-3) Program Primary Grades-Early lntervention (1-3) Program Upper Elementary Grades (4-5) Program Upper ElementaryGrades-Early lntervention (4-5) Program Middle School (6-8) Program High School General Education ( 4 1 2 ) Program Vocational Laboratory (9-12) Program Students with Disabilities Category l Category I1 Category Ill Category IV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and ProfessionalDevelopment ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION(1) (2) $ ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL TOTAL QBE FORMULA FUNDS (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State amended formula adjustment. See notes to the basic financial statements. SECTION I1 COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENOTF AUDITSAND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 July 1 8 , 2 0 1 1 Honorable Nathan Deal, 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 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MAlTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITING 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, 2010, which collectively comprise Banks County Board of Education's basic financial statements and have issued our report thereon dated July 18, 2011. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Re~orting In planning and performing our audit, we considered Banks County Board of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Banks County Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Banks County Board of Education's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Com~lianceand Other Matters 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 of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we have reported to management of Banks County Board of Education in a separate letter dated July 18,2011. This report is intended solely for the information and use of management, members of the Banks County Board of Education, others within the entity, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~ u & e l lW. Hinton, CPA, CGFM State Auditor Russell W. Hinton STATE AUDITOR (404)656-2174 DEPARTMENOTF AUDITSAND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 July 1 8 , 2 0 1 1 Honorable Nathan Deal, 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 REPORT ON COMPLIANCE WlTH REOUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MNOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WlTH OMB CIRCULAR A-133 Ladies and Gentlemen: We have audited Banks County Board of Education's compliance with the types of compliance requirements described in the OMB Circular A-133 Cbmpliance Supplementthat could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2010. 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 of the United States; and OMB Circular A-133, Audib o f States, focal Governments, andNon-Profit Organkations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred t o 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. As described in items FA-6061-10-01and FA-6061-10-02 in the accompanying Schedule of Findings and Questioned Costs, Banks County Board of Education did not comply with requirements regarding Activities Allowed/Unallowed, Allowable Costs/Cost Principles and Procurement, Suspension and Debarment that are applicable to its Title 1,Part C, Migrant Education Program. Compliance with such requirements is necessary, in our opinion, for Banks County Board of Education to comply with requirements applicable to that program. In our opinion, except for the noncompliance described in the preceding paragraph, Banks County Board of Education complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major Federal programsfor the year ended June 30,2010. Internal Control Over Com~liance Management of Banks County Board of Education is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to Federal programs. In planning and performing our audit, we considered Banks County Board of Education's internal control over compliance with the requirements that could have a direct and material effect on a major Federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Banks County Board of Education's internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in internal control over compliance described in the accompanying Schedule of Findings and Questioned Costs as items FA-6061-10-01 and FA-606110-02 to be material weaknesses. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a Federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. We consider the deficiency in internal control over compliance described in the accompanying Schedule of Findings and Questioned Costs as item FA-6061-10-03 to be a significant deficiency. Banks County Board of Education's responses to the findings identified in our audit are described in the accompanying Schedule of Management's Responses. We did not audit Banks County Board of Education's responsesand, accordingly, we express no opinion on the responses. This report is intended solely for the information and use of management, members of the Banks County Board of Education, others within the entity, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~ u s s k lWl . Hinton, CPA, CGFM State Auditor SECTION Ill 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 30,2010 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS No matters were reported. PRIOR YEAR FEDERAL AWARD FINDINGS AND OUESTIONED COSTS No matters were reported. SECTION IV FINDINGS AND QUESTIONED COSTS BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGSAND QUESTIONEDCOSTS YEAR ENDED JUNE 30,2010 I SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of auditor's report issue: Governmental Activities; General Fund; Capital Projects Fund; Debt Service Fund; Aggregate Remaining Fund Information Internal control over financial reporting: Material weakness identified? Significant deficiency identified? Noncompliance material to financial statements noted: Unqualified N 0 None Reported Federal Awards Internal Control over major programs: Material weaknesses identified? Yes Significant deficiency identified? Yes Type of auditor's report issued on compliance for major programs: Unqualified for all major programs except for Title I, Migrant Education Program, which was qualified. Any audit findings disclosed that are required to be reported in accordance with OMB Circular A-133, Section 510(a)? Yes Identification of major programs: CFDA Numberk) Name of Federal Program or Cluster 84.011 84.287 Title 1, Part A Cluster Special Education Cluster State Fiscal Stabilization Fund Cluster Title I, Migrant Education Program Twenty-First Century Community Learning Centers Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGSAND QUESTIONEDCOSTS YEAR ENDED JUNE 30,2010 Ill FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED/UNALLOW ED ALLOWABLE COSTS/COST PRINCIPLES PROCUREMENT, SUSPENSION AND DEBARMENT Expenditures Not Properly Supported Material Weakness Material Noncompliance U. S. Department of Education Through Georgia Department of Education Title I, Part C, Migrant Education Program (CFDA 84.011) Finding Control Number: FA-6061-10-01 Condition: A review of the Title I, Part C, Migrant Education Program (CFDA 84.011) revealed unapproved, undocumented and unsupported expenditures. Criteria: 0MB Circular A-87, Cost Principles for State, focal and Indian Tribal Governments, guidelines require that: "Governmental units assume responsibility for administering Federal funds in a manner consistent with underlying agreements, program objectives, and the terms and conditions of the Federal award. To be allowable under Federal awards, costs must meet the following general criteria... Be necessary and reasonable for proper and efficient performance and administration of ... Federal Awards Be authorized or not prohibited under State and local laws or regulations. Be consistent with policies, regulations, and procedures that apply uniformly to both Federal awards and ... other activities of the governmental unit Be adequately documented." Questioned Cost: $8,689.24 Information: A review of expenditures charged to the Migrant Education Program revealed the following: Numerous instances of expenditure payments for goods and services that were not supported by documentation evidencing prior approval or authorization, receipt of goods prior to payment and adequate documentation to determine that purchases were for program purposes. A review of purchased professional service expenditures revealed several instances where the School District did not maintain a service contract on file in support of payments made. In addition, there were instances of payment without work logsto verify services performed. Cause: Management failed to implement internal controls for monitoring compliance with Federal grant requirements and School District policies. Effect: Failure to monitor expenditures for compliance can result in noncompliance with the requirements of the Federal grant. Recommendation: The School District should implement procedures to ensure that all expenditures are reviewed and approved by the Program Director for allowability and should be supported with adequate documentation. The Georgia Department of Education should review these expenditures to determine if a reclaim of funds is appropriate. - 2 - BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30,2010 Ill FEDERALAWARD FINDINGSAND QUESTIONEDCOSTS ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Improper Controls over Employee Compensation Material Weakness Material Noncompliance U. S. Department of Education Through Georgia Department of Education Title I, Part C, Migrant Education Program (CFDA 84.011) Finding Control Number: FA-6061-10-02 Condition: A review of the Title I, Part C, Migrant Education Program (CFDA 84.011) revealed employees were compensated without documentation to determine if salary was reasonable for services rendered and conforms to the established policy of the governmental unit. Criteria: OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, describes in Attachment B, Section 8a that salaries include: "Compensation for personnel services includes all remuneration, paid currently or accrued, for services rendered during the period of performance under Federal awards, including but not necessarily limited to wages, salaries, and fringe benefits. The costs of such compensation are allowable to the extent that they satisfy the specific requirements of this Circular, and that the total compensation for individual employees: (1)Is reasonable for the services rendered and conforms to the established policy of the governmental unit consistently applied to both Federal and non-Federalactivities; (2) follows an appointment made in accordance with a governmental unit's laws and rules and meets merit system or other requirements required by Federal law, where applicable; and (3) is determined and supported as provided in subsection h." Questioned Cost: $41,289.75 Information: A review of employee's payroll records revealed several instances of employees' salary not supported by appropriate pay scales, salary schedules or other documentation. Cause: Management failed to implement appropriate procedures to ensure compliance with Federal guidelines regarding salary amounts being supported by adequate documentation to determine if reasonablefor the services rendered. Effect: Noncompliance with applicable provisions of OMB Circular A-87. BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30,2010 Ill FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRlNClPLES Improper Controls over Employee Compensation Material Weakness Material Noncompliance U. S. Department of Education Through Georgia Department of Education Title I, Part C, Migrant Education Program (CFDA 84.011) Finding Control Number: FA-6061-10-02 Recommendation: The School District should implement procedures to ensure that salaries and wages paid from Federal award programs are allowable and properly documented in accordance with OMB Circular A87. The Georgia Department of Education should review this matter to determine if a reclaim of funds is appropriate. ALLOWABLE COSTS/COST PRINCIPLES Time and Attendance Records Not Utilized Significant Deficiency U. S. Department of Education Through Georgia Department of Education Special Education Cluster (CFDA 84.027 and 84.391) Title I, Part C, Migrant Education Program (CFDA 84.011) Finding Control Number: FA-6061-10-03 Condition: Periodic certifications and personnel activity reports were not completed in support of the Special Education Cluster and Migrant Education Program salaries and wages as required by OMB Circular A87. Criteria: 0MB Circular A-87, a s t Principlesfor State, LocalandIndian Tribal Governments, require that salaries be documented as follows: Where employees are expected to work solely on a single Federal award or cost objective, charges for their salaries and wages will be supported by periodic certifications that the employees worked solely on that program for the period covered by the certification. These certifications will be prepared at least semi-annually and will be signed by the employee or supervisory official havingfirsthand knowledge of the work performed by the employee. Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports (PARs) or equivalent documentation. Such documentary support will be required where employees work on more than one Federal award, or a Federal award and a non-Federal award. PARs must reflect an after-the-fact distribution of the actual activity of each employee, account for the total activity for which the employee is compensated, be prepared at least monthly and must coincide with one or more pay periods, and be signed by the employee. BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONEDCOSTS YEAR ENDED JUNE 30.2010 Ill FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ALLOWABLE COSTS/COST PRINCIPLES Time and Attendance Records Not Utilized Significant Deficiency U. S. Department of Education Through Georgia Department of Education Special Education Cluster (CFDA 84.027 and 84.391) Title 1, Part C, Migrant Education Program (CFDA 84.011) Finding Control Number: FA-6061-10-03 Budget estimates or other distribution percentages determined before the services are performed do not qualify as support for charges to Federal awards. Questioned Cost: N/A Information: Based on a review of employees' payroll records, it was noted that multiple employees' salary charged to the Special Education Cluster and the Migrant Education Program were not supported with the required semi-annual certifications or personnel activity reports or equivalent documentation. Cause: Management failed to implement appropriate procedures to ensure compliance with Federal guidelines regarding charges for salaries and wages being supported by periodic certifications or personnel activity reports. Effect: Noncompliance with applicable provisions of OM6 Circular A-87. Recommendation: The School District should implement procedures to ensure that salaries and wages paid from Federal award programs are allowable and properly documented in accordance with OMB Circular A87. SECTION V MANAGEMENT3 RESPONSES BANKS COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30,2010 Finding Control Number: FA-6061-10-01 We concur with this recommendation. We will contact the Migrant Education Director and ask that they maintain service contracts, work logs and all documentation necessary to properly support expenditures for the Migrant Education Program. For additional information we had a verbal agreement to be the fiscal agent for the Migrant Education Program. Per this agreement we would pay accounts payable invoices and reimburse travel expenses upon approval by the Migrant Education Director, print payroll checks, order items with purchase orders upon his request, and draw down grant funds to reimburse Banks County for expenses paid on their behalf. We have performed our duties timely and very efficiently per this agreement. We did not actually run or administer this program in any way. Although we understand the reporting requirements of the state auditors, we feel it is unfair to hold us accountable for events out of our control dealing with the Migrant Education Program and if we had known we would be held accountable for their actions we would not have agreed to be their fiscal agent. We will cease to be their fiscal agent a t the end of year 2011. Finding Control Number: FA-6061-10-02 We concur with this recommendation. We will contact the Migrant Education Director and ask that they have the appropriate pay scales, salary schedules and any other documentation necessary to determine that salaries are reasonable for services rendered and conform to the established policy of the governmental unit. For additional information we had a verbal agreement to be the fiscal agent for the Migrant Education Program. Per this agreement we would pay accounts payable invoices and reimburse travel expenses upon approval by the Migrant Education Director, print payroll checks, order items with purchase orders upon his request, and draw down grant funds to reimburse Banks County for expenses paid on their behalf. We have performed our duties timely and very efficiently per this agreement. We did not actually run or administer this program in any way. Although we understand the reporting requirements of the state auditors, we feel it is unfair to hold us accountable for events out of our control dealing with the Migrant Education Program and if we had known we would be held accountable for their actions we would not have agreed to be their fiscal agent. We will cease to be their fiscal agent at the end of year 2011. Finding Control Number: FA-6061-10-03 We concur with this recommendation. We will contact the Migrant Education Director and our Special Education Director and review with them the requirements for semi-annual certification and personnel activity reports and internally audit the Special Education program to verify that these reports are done timely in the future. Contact Person: Telephone: Fax: Email: Mike Beasley, Finance Director (706) 677-2224 (706) 677-2223 mbeasley@banks.kl2.ga.u~