Barrow County Board of Education, Winder, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2006, June 30, 2006

BARROW COUNTY BOARD OF EDUCATION
WINDER, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

BARROW COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

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

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

B

STATEMENT OF ACTIVITIES

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

H

STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

I

NOTES TO THE BASIC FINANCIAL STATEMENTS

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

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

SUPPLEMENTARY INFORMATION

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

Page
1 2 4 5 6 7 8 9 10
27
28 29

BARROW COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

30

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

33

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133

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

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

BARROW COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 23, 2007

Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education
and Superintendent and Members of the . Barrow County Board of Education
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Ladies and Gentlemen:
We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through I) of the Barrow County Board of Education, as of and for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Barrow County Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm1ons.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Barrow County Board ofEducation, as ofJune 30, 2006, 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.
2006ARL-11

The Barrow County Board of Education has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements.
In accordance with Government Auditing Standards, we have also issued our report dated July 23, 2007, on our consideration of the Barrow County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 27, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Barrow County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U. S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
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,
~~.k
R ssell W. Hinton, CPA, CGFM State Auditor
RWH:gp 2006ARL-l 1

BARROW COUNTY BOARD OF EDUCATION

BARROW COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Internal Balances Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Debt Service Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets
The notes to the basic financial statements are an integral part of this statement. -1-

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

9,917,960

72,198,925

3,746,449 5,975,494 1,248,352
381,459 100,000
73,581

1,838,526 2,361,284 2,723,837 89,879,491 9,963,980 -23,961,570

$ ====17==6=4==4==7=7==68...,

$

1,718,398

9,245,672

1,107,358

180,986

6,655,588 83,089,384

$

101,997,386

$

60,521,880

543,222 5,276,482 1,414,965 6,693,833

$

74,450,382

$ ===17=6=,4=4=7=7,=68=

BARROW COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2006

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Intangible Recording Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year (Restated)

EXPENSES

CHARGES FOR SERVICES

$

58,483,338 $

2,052,377 2,506,833 1,677,391 1,135,668 5,820,366 1,463,059 7,946,957 4,684,494
604,042 54,162

768,798 4,785,981
399 419

$ ======9=2=,3=8=2=,=8=8=5= $

789,977
23,646 791,381 1,651,076 3,256,080

Net Assets - End of Year

The notes to the basic financial statements are an integral part of this statement. -2 -

EXHIBIT"B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

36,905,181 $

513,407 650,965 958,923 1,339,133 1,943,801

2,764,540 1,363,930
184,807 54,462

5,848,710

$

52,527,859 $

472,587 $ 20,989
21,071 852
46,015 183,015
2,744
31,818
779 091 $

-20,315,593
-1,517,981 -1,855,868
-718,468 224,536 -3,875,713 -1,463,059 -5, 112,756 -3,137,549 -416,491
300
22,583 2,745,623 -399 419
-35,819,855

$

25,300,667

-21,400

11,240

5,120,197 3,697,079 1,457,861 4,062,504
619,199 1,286,673

$

41,534,020

$

5,714,165

68,736,217

$ ======74=,4=5=0=,3=82.,.

-3-

BARROW COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2006

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Due From Other Funds Inventories
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable
Total Liabilities
FUND BALANCES
Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects
Unreserved Undesignated Reported in: General Fund
Total Fund Balances
Total Liabilities and Fund Balances

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 8,799,743 $

986,067 $

132,150 $ 9,917,960

67,117,605

5,081,320

72,198,925

1,213,995 5,975,494 1,248,352
270,965 100,000 73 581

1,601,512 70,433

721 40,061

2,816,228 5,975,494 1,248,352
381,459 100,000 73 581

$ 17,682,130 $ 69,775,617 $ 5,254,252 $ 92,711,999

$ 1,718,398 9,245,672 $
$ 10,964,070 $

1,107,358 180,986
1,288,344

$ 1,718,398 9,245,672 1,107,358 180,986
$ 12,252,414

$

469,641

$

469,641

$ 5,254,252

5,254,252

73,581

73,581

$ 68,487,273

68,487,273

6,174,838

6,174,838

$ 6,718,060 $ 68,487,273 $ 5,254,252 $ 80,459,585

$ 17,682,130 $ 69,775,617 $ 5,254,252 $ 92,711,999

The notes to the basic financial statements are an integral part of this statement.
. 4.

BARROW COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2006

EXHIBIT"D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation
Total Capital Assets
Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures.
Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:
Bonds Payable Capital Leases Compensated Absences Unamortized Bond Premiums
Total Long-Term Liabilities
Net Assets of Governmental Activities (Exhibit "A")

$ 80,459,585

$

1,838,526

2,361,284

2,723,837

89,879,491

9,963,980

-23,961,570

82,805,548

930,221

$ -83,525,000 -2,896,050 -320,424 -3,003,498

-89,744,972

$ 74,450,382

The notes to the basic financial statements are an integral part of this statement. -5-

BARROW COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006

EXHIBIT "E"

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

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 25,728,250 1,457,861 $
49,855,362 6,918,016 3,256,080 340,052 1,280,873

$ 3,697,079
596,076
111,384

5,302 $ 5,120,197
167,763

$ 88,836,494 $ 4,404,539 $ 5,293,262 $

25,733,552 10,275,137 50,451,438
6,918,016 3,256,080
619,199 1,280,873
98,534,295

$ 57,787,200

$ 57,787,200

1,956,756 2,506,833 1,677,391
953,281 $ 5,808,969
573,288 7,832,649 4,625,525
598,760 54,162
768,798 4,765,236
1,725

108,582 884,211 $
3,686,031

5,560

1,956,756 2,506,833 1,677,391 1,061,863 5,808,969 1,463,059 7,832,649 4,625,525
598,760 54,162
768,798 4,765,236 3,687,756

269,059 15 586

5,490,000 899 354

5,759,059 914 940

$ 90,195,218 $ 4,678,824 $ 6 394 914 $ 101,268,956

$ -1,358,724 $ -274,285 $ -1, 101,652 $ -2,734,661

$

$ 65,000,000

3,337,220

$

5,800

1,022,860

-310 910

-447 404

181,799 $ 758,314

181,799 65,000,000
3,337,220 5,800
1,022,860 758,314 -758 314

$

717 750 $ 67,889,816 $

940 113 $ 69,547,679

$

-640,974 $ 67,615,531 $ -161,539 $ 66,813,018

7,359,034

871 742

5 415 791

13,646,567

Fund Balances - Ending

$ 6,718,060 $ 68,487,273 $ 5,254,252 $ 80,459,585

The notes to the basic financial statements are an integral part of this statement. -6 -

BARROW 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, 2006

EXHIBIT"F"

Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")
Amounts reported for Governmental Activities in the Statement of Activities are different because:
Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are:
Capital Outlay Depreciation Expense
Excess of Capital Outlay over Depreciation Expense
Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues.
Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from:
General Obligation Bonds Issued, including a premium of $3,337,220
Some of the Capital Assets acquired this year were financed with capital leases, net of trade-in. In Governmental Funds, a capital lease arrangement is considered a source of financing, but in the Statement of Net Assets, the lease obligation is reported as a Long-Term Liability.
Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of:
Bond Principal Retirements Capital Lease Payments
Total Long-Term Debt Repayments
Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of:
Amortization of Bond Premiums Increase in Compensated Absences

$ 66,813,018

$

5,268,857

-2,652,429

2,616,428 -443,045

-68,337,220 -1,012,616

$

5,260,000

499,310

5,759,310

$

333,722

-15 432

318,290

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

$ =====5=1=' 14...,.1=6=5

The notes to the basic financial statements are an integral part of this statement. -7-

BARROW COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS
FIDUCIARY FUNDS JUNE 30, 2006

EXHIBIT"G"

ASSETS Cash and Cash Equivalents
LIABILITIES Due to Other Funds Funds Held for Others
Total Liabilities NET ASSETS Held in Trust for Private Purposes
Total Liabilities and Net Assets

PRIVATE PURPOSE TRUSTS

AGENCY FUNDS

$

54,686 $==2=12='=91=6=

$ 100,000 112,916
$ 212,916

$ _ _.;;.54.;.il.;.68;:;.;6;_

$

54,686 $ ==2=12='=91=6=

The notes to the basic financial statements are an integral part of this statement. -8-

BARROW COUNTY BOARD OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS
FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2006
ADDITIONS Investment Earnings Interest
DEDUCTIONS Scholarships Change in Net Assets
Net Assets - Beginning (Restated)
Net Assets - Ending

EXHIBIT"H"

PRIVATE PURPOSE TRUSTS

$

2,308

$

3 705

$

-1,397

56,083

$ ====54...,6=8=6=

The notes to the basic financial statements are an integral part of this statement. -9-

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Barrow County Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Barrow County Board of Education.
District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement ofActivities presents a comparison 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 ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.

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BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 ofthe School District, except those resources required to be accounted for in another fund.
District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST), Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation ofmajor capital facilities.
Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees.
The School District reports the following fiduciary fund types:
Private Purpose Trust funds report trust arrangements in which the corpus is to be invested and preserved intact with the resultant income to be used to administer, secure and manage funds and assets to provide educational scholarships for students in Barrow County and for other general purposes.
Agency funds account for assets held by the School District as an agent for various funds, governments or individuals.
BASIS OF ACCOUNTING
The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless ofwhen the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.

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BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources.
The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
RESTATEMENT OF PRIOR YEAR NET ASSETS/FUND BALANCES
For fiscal year 2006, the School District restated beginning fund balance for various governmental funds. The School District decreased the General Fund's beginning fund balance by $51,996 and increased the Debt Service beginning fund balance by $357,542. The result is an increase in Net Assets at July 1, 2005, of$305,546. Additionally, the School District increased the Private Purpose Trusts' Net Assets at July I, 2005, by $1,480. These changes are in accordance with generally accepted accounting principles.
CASH AND CASH EQUIVALENTS
COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.
INVESTMENTS
COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among

- 12 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:
(1) Obligations issued by the State of Georgia or by other states,
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,
(4) Obligations of any corporation of the United States government,
(5) Prime banker's acceptances,
(6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services,
(7) Repurchase agreements, and
(8) Obligations of other political subdivisions of the State of Georgia.
The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit 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 Barrow County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on November 10, 2005 (levy date). Taxes were due on January 10, 2006 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Barrow County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance oftaxes collected to the School District.

- 13 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $25,717,010 and for school bonds amounted to $5,302.

The tax millage rate levied for the 2005 tax year (calendar year) for the Barrow County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

17.5 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $8,817,276 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

INVENTORIES

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

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 ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art.

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

- 14 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

All

NIA

$

5,000 20 to 80 years

$

5,000 10 to 80 years

$

5,000 3 to 20 years

Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives.

GENERAL OBLIGATION BONDS

The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets.

Note 3: DEPOSITS AND INVESTMENTS

COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. At June 30, $345,815 of deposits were not secured by surety bond, insurance or collateral as specified above. The School District is working with the affected financial institutions to ensure appropriate levels of collateral are maintained for all of the School District's deposits.

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

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

(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,

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

- 15 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 3: DEPOSITS AND INVESTMENTS

(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 the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.

CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $12,780,427. The amounts ofthe total bank balances are classified into four categories of custodial credit risk:

Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name.
Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name.
Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.
Category 4 - Uncollateralized.

The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows:

Custodial Credit Risk Category

Bank Balance

1

$ 509,814

2

666,455

3

11,258,343

4

345,815

Total

$ 12!780!427

- 16 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 3: DEPOSITS AND INVESTMENTS

CATEGORIZATION OF INVESTMENTS Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the School District will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The School District does not have a formal policy for managing custodial credit risk.

At June 30, 2006, the fair value of the School District's total investments was $72,198,925 and this entire amount consists of U.S. Treasury Money Market Mutual Funds (open-end mutual funds) which are not required to be classified by categories of custodial credit risk.

Note 4: NON-MONETARY TRANSACTIONS

The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories

Note 5: CAPITAL ASSETS

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

Balances July 1, 2005

Increases

Decreases

Balances June 30, 2006

Governmental Activities Capital Assets, Not Being Depreciated:
Land Construction in Progress

$ 1,838,526

$ 1,838,526

9,189,385 $ 2,933,700 $ 9,761,801

2,361,284

Total Capital Assets Not Being Depreciated $ 11,027,911 $ 2,933,700 $ 9,761,801 $ 4,199,810

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 78,656,710 $ 11,222,781

9,239,458

874,177 $

2,723,837

$ 89,879,491

149,655

9,963,980

2,723,837

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

14,953,537 5,297,612 1,207,647

1,806,450 701,081 144 898

149,655

16,759,987 5,849,038 1,352,545

Total Capital Assets, Being Depreciated, Net $ 69,161,209 $ 9,444,529 $

0 $ 78,605,738

Governmental Activity Capital Assets - Net $ 80,189,120 $ 12,378,222 $ 9,161,801 $ 82,805,548

- 17 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 5: CAPITAL ASSETS

Capital assets being acquired under capital leases as of June 30, 2006, are as follows:

Governmental Funds

Buildings and Improvements Equipment Less: Accumulated Depreciation

$ 2,805,899 1,313,754 630,833

$ 3,488.820

Current year depreciation expense by function is as follows:

Instruction Support Services
Pupil Services General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Food Services

$ 1,864,547

$

82,811

83,132

3,363

181,546

300,668

10,826

662,346 125,536

$ 2,652,429

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds and property tax levied specifically for retirement ofoutstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2006, were as follows:

- 18 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 6: RESTRICTED ASSETS

District-wide Canital Projects

Bond

SPLOST

Proceeds

Debt Service Funds

Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions
Restricted Investments: Debt Services Capital Acquisitions

$ 985,898

$ 132,150

$ 5,081,320 $ 67,117,605

Note 7: INTERFUND ASSETS AND LIABILITIES

Due to and due from other funds are recorded for interfund receivables and payables which arise from interfund transactions. Interfund balances at June 30, 2006, consisted of the following:

Due From Other Funds

Due To Other Funds

General Fund Agency Funds

$ 100,000 $ 100,000

$

100,000 $

l0Q2QQ0

Transfers are used to loan money to the Employee Benefit fund.

Note 8: INTERFUND TRANSFERS

Interfund transfers for the year ended June 30, 2006, consisted of the following:

Transfer to

Transfers From

District-wide

General

Capital

Fund

Projects

Debt Service Fund

$ 31Q,91Q $ 447 404

- 19 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 8: INTERFUND TRANSFERS

Transfers are used to move property and sales tax revenues collected by the General Fund and the District-wide Capital Projects Fund to the Debt Service Fund to pay principal and interest on bonds and to pay agent fees.

Note 9: RISK MANAGEMENT

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

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

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

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

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

EndofYear Liability

2005 2006

$

0 $

40 894 $

40 894 $

0

$

0 $

18,283 $

18,283 $

0

The School District participates in the Georgia Education Workers' Compensation Trust, a public entity risk pool organized on December 1, 1991, to develop, implement and administer a program of workers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Trust for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Trust with the Midwest Employers Casualty Company to provide coverage for potential losses sustained by the Trust in excess of $500,000 loss per occurrence, up to $2,000,000.

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

Position Covered

Amount

Superintendent All Employees

$ 100,000 $ 100,000

- 20 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 10: SHORT-TERM DEBT

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

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

Beginning Balance

Issued

Redeemed

Ending Balance

Tax Anticipation Notes

$==~0 $3,017.657 $ 3.017,657 $=====0

Note 11: LONG-TERM DEBT

CAPITAL LEASES On February 1, 2002, the Barrow County Board of Education entered into an agreement with the Winder-Barrow Industrial Building Authority, whereby revenue bonds were issued to finance the cost of acquiring, constructing and equipping a certain consolidated central office and related real and personal property.

The Barrow County Board of Education also entered into various lease agreements as lessee for school buses and copiers. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value ofthe future minimum lease payments as of the date of their inception.

COMPENSATED ABSENCES Compensated absences represent obligations of the School District relating to employees' rights to receive compensation for future absences based upon service already rendered. This obligation relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. Typically, the General Fund is the fund used to liquidate this long-term debt. The School District uses the vesting method to compute compensated absences.

GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows:

- 21 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 11: LONG-TERM DEBT

Purpose

Interest Rates

Amount

General Government - Refunding - Series l 995B General Government - Series 1995A General Government - Series 2001 General Government - Series 2003 General Government - Refunding - Series 2004 General Government - Series 2006

3.90% - 5.40% 4.00%- 5.40% 4.00% 1.95% 2.87% 4.00% - 5.00%

$ 4,150,000 200,000
2,170,000 2,175,000 9,830,000 65,000,000

$ 83,525,000

The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows:

WinderBarrow Industrial Building Authori!)'.

Ca11ital Leases Other

Total

Compensated Absences (I)

General Obligation
Bonds

Unamortized Bond
Premium

Total

Balance July 1, 2005

$ 1,860,000 $ 522,744 $ 2,382,744 $ 304,992 $23,785,000 $

0 $26,472,736

Additions Capital Leases Annual Leave Earned G.O. Bonds Unamortized Bonds

1,022,860 1,022,860

359,425

65,000,000

3,337,220

1,022,860 359,425
65,000,000 3,337,220

Deductions Annual Leave Utilized Debt Retired Trade-Ins Bond Premiums Amortized

230,000

269,310 10,244

499,310 10,244

343,993

5,260,000

333,722

343,993 5,759,310
10,244 333,722

Balance June 30, 2006

$ I 63Q,QQQ $ 1,266,Q5Q $ 2 826 Q5Q $ 32Q,424 $83 525 QQQ $ 3 QQ3 :128 $82 :Z44 272

Portion of Long-Term Debt Due within One Year

$ 245,000 $ 576,866 $ 821,866 $

0 $ 5,500,000 $ 333,722 $ 6,655,588

(I) The portion of Compensated Absences due within one year has been determined to be immaterial to the basic financial statements.

At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows:

- 22 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 11: LONG-TERM DEBT

Fiscal Year Ended June 30
2007 2008 2009 2010 2011 2012 - 2016
Total Principal and Interest
Fiscal Year Ended June 30
2007 2008 2009 2010 2011 2012 - 2016 2017 - 2021
Total Principal and Interest

Cagital Leases

Winder-Barrow Industrial

Building Authoritx

Princigal

Interest

Princigal

Other

Interest

$

245,000 $

255,000

265,000

275,000

290,000

300,000

70,905 $ 60,247 49,155 37,628 25,665 13 050

576,866 $ 165,815 172,021 178,453 172,895

7,309 25,783 19,577 13,144
6,614

$ 1,630.000 $

256.650 $ 1,266.050 $

72.427

General Obligation

Debt

Princigal

Interest

Unamortized Bond
Premium

$ 5,500,000 $ 4,925,000 5,520,000 6,465,000 6,015,000
45,175,000 9,925,000

2,717,392 $ 3,568,129 3,344,199 3,104,643 2,792,154 8,720,380
489 650

333,722 333,722 333,722 333,722 333,722 1,334,888

$ 83,525.000 $ 24,736.547 $ 3,003.498

Note 12: PRIOR YEAR DEFEASEMENT OF DEBT

In fiscal year 2004, the School District defeased certain general obligation bonds by placing the proceeds ofnew 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. The 1995A bonds were redeemed on February 1, 2006. At June 30, 2006, none of the bonds are outstanding.

Note 13: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $1,868,414 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $1,856,752

- 23 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 13: ON-BEHALF PAYMENTS

Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $11,662

Note 14: SIGNIFICANT COMMITMENTS

The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2006:

Project
Auburn Elementary School Statham Elementary School Winder-Barrow High School

Unearned Executed Contracts
$ 6,804,254 7,776,062 380,000
$ 14,960,316

The amounts described in this note are not reflected in the basic financial statements.

Note 15: SIGNIFICANT CONTINGENT LIABILITIES

Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position.

The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements.

Note 16: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)

TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

- 24 -

BARROW COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 16: RETIREMENT PLANS

TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2006 2005 2004

100% 100% 100%

$ 3,969,314 $ 3,919,365 $ 3,812,133

- 25 -

(This page left intentionally blank)

BARROW COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2006

SCHEDULE "1"

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

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

25,500,000 $

25,500,000 $

25,728,250

850,000

950,000

1,457,861

45,772,135

46,285,198

49,855,362

6,563,084

7,081,922

6,918,016

1,764,700

1,764,700

3,256,080

75,350

75,350

340,052

1 250

89,305

1,280,873

$

80,526,519 $

81,746,475 $

88,836,494

$

54,195,590 $

55,005,826 $

57,787,200

1,951,705 2,398,875 1,665,245 1,095,111 5,647,035 1,002,628 7,796,833 3,371,554
628,823 68,462
329,590 4,503,943
52,051

2,123,155 2,730,988 1,667,915 1,021,601 5,681,331
991,668 7,858,159 3,425,063
618,004 74,694
329,590 4,503,943
52,051

1,956,756 2,506,833 1,677,391
953,281 5,808,969
573,288 7,832,649 4,625,525
598,760 54,162
768,798
4,765,236 1,725
284 645

$

84,707,445 $

86,083,988 $

90,195,218

$

-4,180,926 $

-4,337,513 $

-1,358,724

$

1,823 $

1,028,660

$

-310 910

-312 733

-310910

$

-310 910 $

-310 910 $

717 750

$

-4,491,836 $

-4,648,423 $

-640,974

7,349,866

7,349,866

7,359,034

Fund Balances - Ending

$

2,858,030 $

2 701 443 $

6,718,060

Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual
(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts.
The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.
See notes to the basic financial statements.
- 27 -

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE' 30, 2006

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Donation (1)
Total U. S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Other Programs Pass-Through From Georgia Department of Education English Language Acquisition Grants Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality State Grants Mathematics and Science Partnerships Safe and Drug-Free Schools and Communities - State Grants State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States
Total U. S. Department of Education

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 10.555
10.550

N/A

(2)

NIA $ _____4i.a;.3..;..14'"-4-'-"8"'-7

$

4,314,487

NIA

207 421

$ _____4,=5~21~,9~0~8

84.027 84.173
84.365 84.318 84.938 84.367 84.366 84.186 84.298 * 84.010 84.048

N/A $ N/A
$

1,543,347 103 463
1,646,810

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

112,722 40,010 (3) 362,103 122,269 61,894 38,945 1,655,262 93 884
4,133,899

Total Federal Financial Assistance

$

8,655,807

N/A = Not Available

Notes to the Schedule of Expenditures of Federal Awards

(1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year.
(2) Expenditures for the funds earned on the School Breakfast Program ($715,783) were not maintained separately and are included in the 2006 National School Lunch Program.
(3) Funds earned on the Hurricane Education Recovery program, in the amount of $103,090, do not require reporting of expenditures.

Major Programs are identified by an asterisk {*) in front of the CFDA number.

The School District did not provide Federal Assistance to any Subrecipient.

The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Barrow County Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 28 -

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Bright from the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3} Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5} Program Middle School (6-8} Program High School General Education (9-12} Program Vocational Laboratory (9-12} Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL} Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Nursing Services Principal Supplements Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Health Insurance National Teacher Certification Preschool Handicapped Program Statewide K-8 Reading and Mathematics Program Virtual Schools Grant
Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Office of Treasury and Fiscal Services Public School Employees Retirement

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$

716,313

$

716,313

3,213,308 400,145
7,165,211 629,334
3,313,193 293,346
5,991,644 4,399,954 1,618,589
454,255 599,779 3,075,529 939,141 253,468 861,263 178,605 442,533 670,372 958,923 302,932 198,688
1,153,137 1,907,307 2,750,686
1,188,107 183,015 198,957 36,494
5,118,445 243,328 261,975
-2,089,510
1,856,752 64,583 131,330 162,269 300

3,213,308 400,145
7,165,211 629,334
3,313,193 293,346
5,991,644 4,399,954 1,618,589
454,255 599,779 3,075,529 939,141 253,468 861,263 178,605 442,533 670,372 958,923 302,932 198,688
1,153,137 1,907,307 2,750,686
1,188,107 183,015 198,957 36,494
5,118,445 243,328 261,975
-2,089,510
1,856,752 64,583 131,330 162,269 300

$ 11 662

596,076

596,076 11 662

See notes to the basic financial statements.

$ - 29-

596 076 $ 50,451,438

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2006

SCHEDULE "4"

PROJECT
Provide funds to pay or to be applied toward the cost of the repayment of a portion of the principal and interest on the School District's Series 1993, Series 1995A and 1995B Bonds coming due August 1, 2002, through and including February 1, 2007, the maximum amount of debt to be retired not to exceed $9,000,000.
Provide funds to pay or to be applied toward the cost of the acquisition, construction and equipping of two or more new elementary schools and necessary furnishings and additions, renovations and improvements to existing schools and system-wide technology improvements and acquisition of land for additional schools, the maximum cost of such projects not to exceed $34,000,000.
Provide funds to pay or to be applied toward the cost of the acquisition, construction and equipping of new school buildings and facilities, including but not limited to new schools, physical education/athletic facilities and equipment, classrooms, lunchrooms, gymnasiums and auditoriums, the addition, renovation, repair and improvement to existing school buildings and facilities, including, but not limited to, WinderBarrow High School, Auburn Elementary School, Holsenbeck Elementary School, Statham Elementary School and Apalachee High School and other classrooms and physical education/athletic facilities and equipment, the acquisition and purchase of any property necessary and desirable therefore, both real and personal, including but not limited to, technology and transportation facilities and equipment and the purchase of land, the maximum of such projects not to exceed $60,785,000.

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT YEAR (3) (4)

AMOUNT EXPENDED
IN PRIOR YEARS (3) (4)

PROJECT STATUS

$ 9,000,000 $ 9,000,000 $

1,383,350 $

5,505,865 Ongoing

34,000,000

34,997,540

1,380,396

33,617,144 Complete

60,785,000

60,785,000

2,414,217

Ongoing

- 30 -

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2006

SCHEDULE "4"

PROJECT
Provide funds to pay principal and interest on the School District' Series 19958 and Series 2004 Bonds coming due August 2, 2007, through and including February 1, 2012, the maximum amount of debt to be retired not to exceed $9,215,000.

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT YEAR (3) (4)

AMOUNT EXPENDED
IN PRIOR YEARS (3) (4)

PROJECT STATUS

$ 9,215,000 $ 9,215,000

Ongoing

$ 113,000,000 $ 113,997,540 $ 5,177,963 $ 39,123,009

(1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax.

(2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion.

(3) The voters of Barrow County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects.

(4) In addition to the expenditures shown above, the School District has incurred interest to provide advance funding for the above projects as follows:

Prior Years

$ 3,961,086

Current Year

252,972

$ 4,214,058

See notes to the basic financial statements.

- 31 -

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BARROW COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM {QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2006

SCHEDULE "5"

DESCRIPTION
Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV 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 Professional Development

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

ELIGIBLE QBE PROGRAM COSTS

SALARIES OPERATIONS

TOTAL

$

3,658,698 $ 3,425,544 $

65,400 $

3,490,944

456,876

499,181

4,725

503,906

8,108,655

8,205,515

331,027

8,536,542

718,051

742,518

12,958

755,476

3,779,654

4,940,544

181,125

5,121,669

339,675 6,822,696 4,958,753 1,894,645 6,159,787
962,235 197,044 503,234 740 728

657,851 7,128,182 6,552,737 1,809,536
48 975,773 6,414,541 130,119 72,614 920,549 263,580 707,630 869,127

3,729 428,038 527,437 645,327
238,669 12,202
128,658 25,511 14,420 16,269
1,038 18,662 3 085

661,580 7,556,220 7,080,174 2,454,863
238,717 987,975 6,543,199 155,630 87,034 936,818 264,618 726,292 872,212

$

39,300,731 $ 44,315,589 $ 2,658,280 $ 46,973,869

1,091,727 228 877

1,327,398 45 118

313,892 136,990

1,641,290 182 108

TOTAL QBE FORMULA FUNDS

$

40,621,335 $ 45,688,105 $ 3,109,162 $-=-=4.,.8,..,79.,.7..,2.=6==7

(1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction.

See notes to the basic financial statements.

- 33-

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 23, 2007

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Barrow County Board of Education
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information ofBarrow County Board of Education as of and for the year ended June 30, 2006, which collectively comprise Barrow County Board of Education's basic financial statements and have issued our report thereon dated July 23, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Barrow County Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect Barrow County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6071-06-0 I, FS-6071-06-02 and FS-6071-06-03.
2006YB-30

A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above are material weaknesses.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Barrow County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and 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.
This report is intended solely for the information and use of the management and members of the Barrow County Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
:i>~ .... w ~-~~
~~sell W. Hinton, CPA, CGFM State Auditor
RWH:gp 2006YB-30

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 23, 2007

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Barrow County Board of Education
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULARA-133
Ladies and Gentlemen:
Compliance
We have audited the compliance ofBarrow County Board ofEducation with the types ofcompliance requirements described in the U.S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2006. Barrow 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 Barrow County Board of Education's management. Our responsibility is to express an opinion on Barrow 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 ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Barrow County Board ofEducation'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 Barrow County Board of Education's compliance with those requirements.
2006SA-30

In our opinion, the Barrow County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2006.

Internal Control Over Compliance

The management of Barrow County Board of Education is responsible for establishing and maintaining effective internal control over compliance with r~quirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered Barrow County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose ofexpressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.

We noted a certain matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Barrow County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FA-6071-06-01.

A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness.

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

Respectfully submitted,

,

~~o~~~

State Auditor

RWH:gp 2006SA-30

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

BARROW COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-6071-03-01 FS-6071-04-01 FS-6071-04-02 FS-6071-05-01 FS-6071-05-02

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

CORRECTIVE ACTION/RESPONSES

REVENUES/RECEIVABLES/RECEIPTS Inadequate Internal Control Procedures Finding Control Number: FS-6071-05-02

During the past years, our system has attempted to implement procedures to improve the internal control procedures as they relate to our system's school activity accounts. A Standard Operating Procedures Manual for Barrow County Board of Education's School Activity Funds was written and distributed to each location's principal and bookkeeper in the summer of 2004, and is updated periodically as needed. This manual provides the following:
1) Guidelines for principals and bookkeepers to adhere to when establishing and maintaining their respective location's school activity funds,
2) procedures for principals and bookkeepers to follow when recording school activity funds financial transactions in Quicken,
3) a consistent chart of accounts, 4) cumulative quarterly reporting requirements by each location to the Budget
Coordinator at the Central Office, and 5) reporting requirements by each location to the Budget Coordinator at the Central
Office.

Additionally, a meeting of all school bookkeepers is scheduled at the beginning of each school year to inform the staff of any additions, changes or deletions regarding the recording and/or reporting of school activity funds. At this time, school activity fund issues that were brought to our attention during the prior audit are reviewed in the meeting.

At the close of fiscal year 2005, each location's bookkeeper provided the Budget Coordinator at the Central Office with an annual report of school funds received and disbursed for incorporation into the system's financials. At the end of fiscal year 2006, this requirement was amended to also include a copy of the bank statement and bank reconciliation to confirm the ending cash balances at each location.

- 1-

BARROW COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CORRECTIVE ACTION/RESPONSES

REVENUES/RECEIVABLES/RECEIPTS Inadequate Internal Control Procedures Finding Control Number: FS-6071-05-02

To improve the internal control procedures with our system's school activity funds, the system will be meeting with the principals only to discuss their school activity funds as well as including the principals in the annual bookkeepers meetings to better communicate the guidelines and procedures for reporting school activity accounts. The guidelines and responsibilities ofboth principals and bookkeepers will be stressed heavily. Additionally, the appropriate handling of school activity accounts is a topic covered at the School District's annual administrator's retreat but will be a topic discussed in more detail in future years. Secondly, the system is planning to obtain a copy ofbank signature cards on an annual basis for all school activity bank accounts. Thirdly, the system and School District is considering implementing one of the below options:

a) Employ additional staff in Business Services to provide manpower to internally audit each location's school activity accounts on an on-going basis, or
b) seek an external audit firm to audit the school activity accounts on an on-going basis at the expense of each location.

Some of these changes and modifications to our internal procedures outlined in the prior paragraph will not be able to be implemented during fiscal year 2007 because of timing; they should vastly improve our internal control over the School District's school activity accounts and eliminate this finding in fiscal year 2008 and subsequent years.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-6071-04-01 F A-6071-05-01

Further Action Not Warranted Previously Reported Corrective Action Implemented

-2 -

SECTION IV FINDINGS AND QUESTIONED COSTS

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

I SUMMARY OF AUDITOR'S RESULTS

1. Type of Report Issued on the Financial Statements The auditor's opinion on the Barrow County Board ofEducation's financial statements was unqualified.

2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Barrow County Board of Education disclosed financial statement reportable conditions related to the following control categories.

Cash and Cash Equivalents Revenues/Receivables/Receipts

Expenditures/Liabilities/Disbursements General Ledger

None ofthe reportable conditions described above are considered to be material weaknesses.

3. Noncompliance Material to the Financial Statements The audit of the Barrow County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements.

4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Barrow County Board ofEducation disclosed a reportable condition in internal control over major programs for the following compliance requirement.

Activities Allowed or Unallowed

The reportable condition described above is not considered to be a material weakness.

5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Barrow County Board ofEducation's report on compliance with requirements applicable to major programs was unqualified.

6. Audit Findings Required to be Reported by Section .51 0{a) of 0MB Circular A-133 The Barrow County Board of Education's audit disclosed an audit finding required to be reported by section .510(a) of 0MB Circular A-133. This audit finding is included in section IV of this report.

7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.010 Title I Grants to Local Educational Agencies 84.938 Hurricane Education Recovery

- 1-

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

I SUMMARY OF AUDITOR'S RESULTS

8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.

9. Low Risk Auditee The Barrow County Board ofEducation qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133.

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-6071-06-01

Condition:

This is a repeat finding (FS-6071-05-02 and FS-6071-04-02) from the years ended June 30, 2005, and June 30, 2004, respectively. The accounting procedures of the School District were insufficient to provide for adequate internal controls over the school activity accounts.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures.

Questioned Cost: NIA

Information:

Cash and Cash Equivalents The bank reconciliation function was not separated from the record keeping and check preparation functions. The bank reconciliations did not include evidence of approval by an administrator not directly connected with cash operations. The School District's Federal employee identification (FEI) number was used by five unauthorized organizations to open bank accounts.

Revenues/Receivables/Receipts The cash receipts and deposit preparation functions were not separated from the record keeping and cash custody functions. Based on a review of twenty-five items, one receipt was not deposited in a timely manner and two receipts lacked adequate supporting documentation.

-2-

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-6071-06-01

Expenditures/Liabilities/Disbursements The check writing function was not separated from the record keeping function.

Cause:

These deficiencies were a result of management's decision to limit the number ofadministrative staffmade responsible for the accounting functions and management's failure to ensure that internal controls were established, implemented and functioning at the school level.

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

The School District should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization are separated and/or utilize management oversight for these incompatible activities. In addition, management should monitor controls to provide reasonable assurance that transactions are processed according to established procedures and implement procedures deemed necessary to strengthen internal controls over the accounting functions.

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Falsifying Documents, Theft and Forgery Reportable Condition Finding Control Number: FS-6071-06-02

Condition:

Theft of funds at Holsenbeck Elementary School.

Criteria:

School District personnel are required to uphold laws and regulations, as well as, to support and to enforce the School District's values and ethical standards.

Questioned Cost: NIA

-3 -

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Falsifying Documents, Theft and Forgery Reportable Condition Finding Control Number: FS-6071-06-02

Information:

The Holsenbeck Elementary School's June 2006 bank balance confirmed by Regions Bank did not agree with the bank statement presented for audit. The Bank confirmed $30,719 less than the bank statement balance. The June 2006 bank statement presented for audit had been falsified. A comparison of fiscal year 2006 checks recorded on the books versus bank copies of these checks revealed that seven checks were written payable to the school bookkeeper but recorded on the books as written to various vendors other than the school bookkeeper, totaling $9,228.

A comparison of fiscal year 2006 deposits recorded on the books versus deposits as recorded by the bank revealed a shortage of about $18,410. These receipts were recorded in the financial records but never deposited into the school's bank account.

The School District's bookkeeper at Holsenbeck Elementary School admitted that she falsified financial records, forged the School Principal's signature and wrote checks to herself to misappropriate funds. She also admitted to purchasing items from certain vendors with school funds for her own personal use. These checks totaling approximately $18,711 were used, at least in part to pay for items for the bookkeeper's personal use.

Cause:

The Holsenbeck Elementary School bookkeeper failed to perform her assigned job duties ethically. In addition, the Holsenbeck Elementary School Principal failed to utilize compensating controls required by the School District's written procedures for School Activity Funds.

Effect:

Local funds were misappropriated. Financial records were falsified and documents were forged in an attempt to conceal this activity.

Recommendation:

The School District has forwarded this matter to local law enforcement for further investigation. In addition, management should implement procedures that ensure that required compensating controls at the school level are functioning and properly monitored by the central office.

-4-

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Failure to Report the Financial Statements in a Timely Manner Reportable Condition Finding Control Number: FS-6071-06-03

Condition:

The School District failed to submit the DE046 financial report to the Georgia Department of Education in a timely manner.

Criteria:

Chapter I Introduction to LUA Accounting ofthe Financial Management for Georgia Local Units of Administration indicates that "accounting records must provide meaningful, reliable, accurate and timely information to the many persons and groups with legitimate interests in the financial affairs of an LUA".

Questioned Cost: NIA

Information:

The School District's DE046 financial report was submitted to the Georgia Department of Education on December 1, 2006.

Cause:

Management failed to comply with the due date of September 30, 2006, as established by the Georgia Department of Education.

Effect:

The failure ofthe School District to prepare and submit the financial report in a timely manner prohibits legitimate users of the report from being able to have timely access to the financial information provided.

Recommendation:

The School District should implement policies and/or procedures which will ensure timely submission of the DE046 financial report as specified by the Georgia Department of Education.

-5-

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA No. 84.938) Finding Control Number: FA-6071-06-01

Condition:

There were no procedures in place to ensure that Hurricane Education Recovery Act (HERA) funds provided to the Board for displaced students reported as having disabilities were used for the excess costs of providing special education and related services to students with disabilities.

Criteria:

The following guidance applied to the management of Emergency Impact Aid for Displaced Students to include funds made available for displaced students:
1. Section 107(e)(4) of HERA, 2. Volumes "I" and "II" ofU. S. Department of Education (USED)
guidelines included in "Frequently Asked Questions, Emergency Impact Aid for Displaced Students", and 3. State of Georgia issued publication titles "Georgia Guidance on Federally Impact Aid" (GDOE Guidelines).

Provisions of HERA, USED and GDOE Guidelines state that HERA funds for students with disabilities may only be used to pay for special education and related services consistent with the Individuals with Disabilities Education Act (IDEA). Both Volumes "I" and "II" of USED guidance state that the funds provided for students with disabilities must be recorded and tracked separately from those HERA funds provided for non-disabled students. This Federal requirement was not specifically included in GDOE guidelines.

Provisions of HERA and GDOE guidelines state that these funds may become a part of a Board's special education budget to ensure that they are only used to pay for special education and related services consistent with IDEA. The guidelines further stated that since these funds are to be applied and used in a manner as funds made available under Part B ofIDEA, it was also advised to consult with State and local staffwho are cognizant oflDEA requirements.

Questioned Cost: $22,500

-6 -

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA No. 84.938) Finding Control Number: FA-6071-06-01

Information:

HERA funds received by the School District were included for students with disabilities. Although required by Federal guidelines, the receipt and expenditure of these funds were not maintained separately.

We further noted that the budget for special education was not modified for the increase in HERA funds designated for special education and related purposes. There was no evidence that State or local special education staff was consulted about the use of these funds.

Cause:

The Board relied solely on GDOE Guidelines which did not require that the Board provide separate accountability ofHERA funds provided for students with disabilities. Consideration had not been given to consulting with local and State special education staff or revising its special education budget to ensure that these HERA funds were applied in line with IDEA.

Effect:

We were unable to determine ifthe HERA funds earmarked for students with disabilities were used for special education and related purposes.

Recommendation:

Management should ensure that procedures are in place to comply with both Federal and State guidelines when administering HERA funds for special education purposes. GDOE should review this matter and determine ifthese funds were used properly or a refund is appropriate.

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SECTIONV MANAGEMENT'S RESPONSES

BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006
Finding Control Number: FS-6071-06-01
We concur with this finding. The Board has already conducted two in-service training meetings as ofthis date. One meeting was held with all school level Administrators and one with Principals and Bookkeepers. The purposes ofthe meetings were to discuss current guidelines that relate to record keeping and check preparation functions. Also, new safeguards for cash receipts and deposit preparation functions have been discussed. Where management is not able to hire additional staff, compensating controls will be implemented. In addition, each School Principal and Bookkeeper have signed offon a document that indicates that not only have they read and understood the school activity accounting guidelines but they also agree to follow the guidelines relative to the management and financial reporting ofeach school's activity accounts. The school activity account guidelines cover topics such as defining what is meant by timely deposits, the staffresponsible for bank statement reconciliations and signing and securing school activity fund checks. Also, discussed in the guidelines are the receipting of funds, documentation necessary to properly authorize payment and procedures when making adjustment to the school activity fund.
Lastly, the five unauthorized organizations using the School District's FEI number have been contacted requesting they take action to resolve this issue.
Finding Control Number: FS-6071-06-02
We concur with this finding. During the year under review, it was discovered that the bank statement prepared by the School Bookkeeper had been falsified. Checks bearing the School's Principal's signature were forged so that the Bookkeeper could write checks made payable to herself. Finally, the amount deposited by the School Bookkeeper verses what was actually deposited was short by $18,410.19.
Criminal charges have been filed against this former employee.
Finding Control Number: FS-6071-06-03
We do not concur with this finding. While the School District does acknowledge the fact that data submitted to the Georgia Department of Education was not submitted until December 1, 2006, the School District believes that this issue could have and should have been resolved between the School District and the Georgia Department of Education. In reviewing Chapter 1 Introduction to LUA Accounting of the Financial Management for Georgia Local Units of Administration it does not specify a date or time data must be submitted to the Georgia Department of Education. The School District does believe and agree that data needs to be submitted timely to the Georgia Department of Education and to that end a calendar which consists of dates and procedure to accomplish this task has been developed. It is the School District's belief this checklist will ensure the timely submission of data to the Georgia Department of Education.
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BARROW COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006 Finding Control Number: FA-6071-06-01 We concur with this finding. The School District did receive HERA funds and did comply with guidelines published by Georgia Department of Education. The Federal requirement that dictates that funds for students with disabilities must be recorded and tracked separately from those HERA provided for non-disabled students was not specifically included in Georgia Department of Education's guidelines. Going forward the School District will not solely depend on the Georgia Department of Education for guidance but will also seek clarification from the United States Department of Education. Contact Person: Kenneth C. Cato, Assistant Superintendent for Business Services Phone: (770) 867-4527 Fax Number: (678) 425-2896 E-mail Address: ken.cato@barrow.kl2.ga.us
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