Bartow County School System annual financial report, 2014 June 30

BARTOW COUNTY BOARD OF EDUCATION
- TABLE OF CONTENTS -
SECTION I
FINANCIAL
INDEPENDENT AUDITOR'S REPORT
REQUIRED SUPPLEMENTARY INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
BASIC FINANCIAL STATEMENTS
DISTRICT-WIDE FINANCIAL STATEMENTS STATEMENT OF NET POSITION STATEMENT OF ACTIVITIES
FUND FINANCIAL STATEMENTS BALANCE SHEET GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL BUDGETARY BASIS STATEMENT OF FIDUCIARY NET POSITION AGENCY FUNDS NOTES TO THE FINANCIAL STATEMENTS
SCHEDULES
SUPPLEMENTARY INFORMATION
SCHEDULE OF STATE REVENUE ALLOTMENTS AND EXPENDITURES
SCHEDULE OF QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM
SCHEDULE OF EXPENDITURES OF EDUCATIONAL LOCAL OPTION SALES TAX PROCEEDS

Page
1
5
16 17
19 20 21 22 23 25
46 47 48

BARTOW COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTION II FINDINGS AND QUESTIONED COSTS COMMUNICATION OF SIGNIFICANT DEFICIENCIES

Page

SECTION I FINANCIAL

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
October 22, 2015

Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Bartow County Board of Education
INDEPENDENT AUDITOR'S REPORT
Ladies and Gentlemen:
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Bartow County Board of Education, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Board's basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also

2014ARL-11

includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Opinions
In our opinion, the basic 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 of the Bartow County Board of Education, as of June 30, 2014, and the respective changes in financial position thereof and the respective budgetary comparison for the general fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As described in Note 2 to the financial statements, in 2014 the Bartow County Board of Education adopted new accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter.
As described in Note 15 to the financial statements, in fiscal year 2015 the School District will adopt Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions. The provisions of this Statement establish accounting and financial reporting standards for pensions that are provided to the employees of state and local governmental employers through pension plans that are administered through trusts. Implementation of this statement will require the School District to record a liability for its proportionate share of the Net Pension Liability of pension plans in which it participates. Based on information provided by the Teacher Retirement System of Georgia (TRS), the School District's liability for the its proportionate share of the Net Pension Liability of the pension plan administered through TRS is estimated to be $86 million at June 30, 2015.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
2014ARL-11

Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Bartow County Board of Education's basic financial statements. The accompanying supplementary information is presented for the purposes of additional analysis and is not a required part of the basic financial statements.
The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements as a whole.
A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24.
Respectfully submitted,

GSG:jt 2014ARL-11

Greg S. Griffin State Auditor

(This page left intentionally blank)

BARTOW COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2014
INTRODUCTION
Our discussion and analysis of the Bartow County Board of Education's financial performance provides an overview of the School District financial activities for the fiscal year ended June 30, 2014. The intent of this discussion and analysis is to look at the School District's financial performance as a whole. Readers should also review the basic financial statements and the notes to the financial statements to enhance their understanding of the School District financial performance.
FINANCIAL HIGHLIGHTS
Key financial highlights for fiscal year 2014 are as follows:
In total, net position decreased $1.9 million which represents a .75% decrease from the prior year.
Combined general revenues for governmental activities accounted for $58.4 million or 41.4% of all revenues. Program specific revenues charges for services, grants and contributions accounted for $82.9 million or 58.7% of total revenues of $141.4 million. Total combined revenues were $7.8 million less than the prior year.
Combined general and program revenues for the year were from Federal, State, and Local sources, with the State QBE appropriation, proceeds from the Educational Local Option Sales Tax, and local property tax assessments providing the bulk of the resources. The percentage breakdown by source is as follows: Property Taxes 23.88%; Sales and Other Taxes 12.96%; State funds 48.44%; Federal funds 10.1% Charges for services 4.17%; Investment earnings .02% and Miscellaneous .43%.
The School District had $139.3 million in expenses related to governmental activities and $82.9 million of these expenses were offset by program specific charges for services, grants and contributions. General revenues of $58.5 million provided the remaining support for these programs.
Among major funds, the General Fund had $123.6 million in revenues and $129.3 million in expenditures and the capital project fund had $17.3 million in revenues and $19.0 million in expenditures (excluding proceeds from the sale of capital assets and transfers to debt service fund). Fund balance decreased for the General Fund by $6.3 million and the fund balance decreased for capital projects by $13.4 million.
5

BARTOW COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2014

The following charts show the source of governmental activities revenue for the current and prior fiscal years.

Revenue By Source FY 2014

Federal Funds, 10.10%

Property Taxes, 23.88%

Sales and Other Taxes, 12.96%

Revenue By Source FY 2013

Property Taxes, 26.20%

Federal Funds, 10.80%

Sales and Other Taxes, 10.34%

State Funds, 48.44%

Charges for
Service, 4.17%

Interest Income and Misc., 0.45%

State Funds, 50.25%

Charges for
Service, 2.40%

Interest Income, 0.01%

OVERVIEW OF THE FINANCIAL STATEMENTS
This annual report consists of three parts: management's discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include a series of statements and notes to the statements. These statements are presented so the reader can understand the School District as a financial whole or its individual fund level.
The system-wide financial statements include the statement of net positions and statement of activities and the supporting notes to these statements. These statements provide aggregated information about the activities of the School District, presenting both short-term and long-term information about the School District's overall financial status.
At the next level, the fund financial statements focus on individual parts of the School District, reporting operation's in more detail and includes the supporting notes to these statements. The governmental funds statements disclose how basic services are financed in the short-term as well as what remains for future spending. The fiduciary fund statements provide information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. The fund financial statements reflect the School District's most significant funds with all other non-major funds presented in total in one column. In the case of the Bartow County School System, the General Fund, District-Wide Capital Project Fund, and Debt Service Fund are the most significant funds. These funds are reported as major funds and therefore are not non-major funds.

6

BARTOW COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2014

Table 2 shows the changes in net position for the current and prior fiscal years:

Table 2 Changes in Net Position
June 30

Revenues Program Revenues:
Charges for Services and Sales OperatingGrants and Contributions Capital Grants and Contributions
Total ProgramRevenues
General Revenues: Taxes Property Taxes Sales Taxes Other Taxes
Grants and Contributions not Restricted to Specific Programs
Investment Earnings Miscellaneous Special Items Loss on Disposal of Capital Assets
Total General Revenues and Special Items
Total Revenues and Special Items
Program Expenses Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operations of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Food Services Interest on Long-TermDebt
Total Expenses
Change in Net Position Net Position, Beginningof Year Net Position, End of Year

Governmental Activities

2014

2013

$ 5,869,027 74,836,743 2,183,995
82,889,765

$ 4,517,158 90,445,142 739,049
95,701,349

33,606,136 15,547,203 2,692,507
5,983,910 28,069
605,588
(3,940,881) 54,522,532 137,412,297

36,278,400 15,269,529
674,332
1,151,494 44,456 -
53,418,211 149,119,560

92,994,902

99,108,348

4,113,495 1,012,862 1,754,055 1,351,613 7,532,203 1,309,123 9,906,180 7,591,578 2,525,062
184,933

4,248,987 1,227,983 1,876,235 1,460,192 7,906,328 1,826,453 9,882,192 7,236,417 2,195,798
183,811

7,721,311 1,275,773
139,273,090
(1,860,793) 247,084,591 $ 245,223,798

8,042,119 1,010,638
146,205,501
2,914,059 244,170,532 $ 247,084,591

9

(This page left intentionally blank)

SECTION II FINDINGS AND QUESTIONED COSTS

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
October 22, 2015

Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Bartow County Board of Education
COMMUNICATION OF SIGNIFICANT DEFICIENCIES
In planning and performing our audit of the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information Bartow County Board of Education as of and for the year ended June 30, 2014, in accordance with auditing standards generally accepted in the United States of America, we considered Bartow County Board of Education's internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Bartow County Board of Education's internal control. Accordingly, we do not express an opinion on the effectiveness of Bartow County Board of Education's internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as discussed below, we identified certain deficiencies in internal control that we consider to be a material weakness and a significant deficiency.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, the in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency item described below as item FS 2014-001 to be a material weakness.
A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiency item described below as item FS 2014-002 to be a significant deficiency:

FS 2014-001 Control Category: Internal Control Impact:

Inadequate Controls over Financial Reporting Financial Reporting Material Weakness

Description: The School District did not have adequate controls in place over the financial statement reporting process.
Criteria: The School District is required to maintain a system of controls over the preparation of financial statements in accordance with generally accepted accounting principles (GAAP). The School District's internal controls over GAAP financial reporting should include adequately trained personnel with the knowledge, skills and experience to prepare GAAP based financial statements and include all disclosures as required by the Governmental Accounting Standards Board (GASB).
GASB Statement No. 34, Basic Financial Statements - Management's Discussion and Analysis for State and Local Governments (Statement), requires governments to present government-wide and fund financial statements as well as a summary reconciliation of the (a) total governmental funds balances to the net position of governmental activities in the Statement of Net Position, and (b) total change in governmental fund balances to the change in the net position of governmental activities in the Statement of Activities. In addition, the Statement requires information about the government's major and nonmajor funds in the aggregate, to be provided in the fund financial statements.
Chapter 22A, Annual Financial Reporting of the Financial Management for Georgia Local Units of Administration provides that School Districts must prepare their financial statements in accordance with generally accepted accounting principles.
Condition: The School District did not have adequate internal control over the financial reporting process. During the review of the School District's financial statements, prepared by a consultant, the following were noted:
Adjusting entries were proposed and accepted to reclassify the following account balances: o Deposits into money market accounts that were highly liquid in nature and readily convertible to cash totaling $17,167,140 were recorded as investments rather than cash equivalents. o On-behalf payments of $6,138,048 made to the Department of Community Health by the Georgia Department of Education were recorded twice, once on the general ledger and once during the preparation of the financial statements. This amount was material to the General Fund and Governmental Activities. o In the District-Wide Statement of Activities, a current year disposal of an elementary school was presented as a program expense rather than a Special Item loss of $3,940,881. This type of transaction is not frequent in nature for a school district. o Accounts Receivable totaling $1,426,199 were presented as a receivable due from the State rather than being classified as a tax receivable. To be consistent with the presentation of SPLOST revenues, a reclassification was recommended and made by the School District.

o Interest payments made on behalf of the School District in the Debt Service Fund for interest on Qualified School Construction Bonds (QSCB) totaling $605,588 were not recognized as revenue or interest expense to the School District, resulting in revenues and expenses to the Debt Service fund being understated. This activity was material to the Debt Service Fund.
On the Statement of Activities, the method used by the School District to allocate Federal and State program revenues by function was not based on the percentage of each Programs' expenses to total expenses. An entry was proposed and accepted to reallocate the material misclassified revenues to the appropriate function.
On the Statement of Net Position, an entry was proposed and accepted to reclassify Net Position for Net Investment in Capital Assets and Restricted balances.
Invoices paid for services to be provided in the subsequent period were not recognized as prepaid assets.
Corrections were proposed and accepted to correct various errors in the notes to the financial statements.
Other immaterial uncorrected misstatements were noted and communicated to management.
Cause: In discussing the deficiency with the School District, it appears that the errors occurred primarily due to misinterpretations by the independent accountant who compiled the financial statements and lack of an adequate review process over the completed financial statements.
Effect or Potential Effect: Material misstatements were included in the financial statements presented for audit. In addition, the lack of controls and monitoring could impact the reporting of the School District's financial position and results of operation.
Recommendation: As part of internal control over the preparation of financial statements, including disclosures, the School District should continue to implement comprehensive preparation and/or review procedures to ensure that the financial statements are complete and accurate. These procedures should be performed by a properly trained individual possessing a thorough understanding of the applicable GAAP, GASB pronouncements, and knowledge of the School District's activities and operations.
Views of Responsible Officials and Corrective Action Plans: The School District contracts the financial audit and preparation of the financial statements with an independent CPA firm. These statements were audited by the Department of Audits and though there were misstatements noted, the majority of the misstatements were reclassifications that did not have any material affect in the net positions or fund balance for the fiscal period audited therefore having no material impact on the District's financial position. The District has made a professional service change for fiscal year 2015 to ensure that the financial statements are prepared in accordance with the requirements of the Generally Accepted Accounting Principles. The School District will continue to implement comprehensive review procedures to ensure that the financial statements are complete and accurate. All concerns indicated have already been addressed and the impact of these changes will be evident in the audit ending June 2015. These changes should correct the audit concerns and eliminate this finding.
Contact Person: Megan Brown, Chief Financial Officer Telephone: (770)606-5800 Fax: (770)606-5999 E-mail: megan.brown@bartow.k12.ga.us

Auditor's Concluding Remarks: The School District is correct in noting there was no material effect to the ending net position or fund balances of the School District, but there were material effects to revenues, expenses and the overall financial reporting.

FS 2014-002 Control Category: Internal Control Impact:

Inadequate Controls over Capital Assets Capital Assets Significant Deficiency

Description: Adequate policies and procedures are not in place to ensure capital assets inventory records are properly maintained.
Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that capital assets inventory records are properly maintained. Chapter 37 Implementing a Capital Assets Management System of the Financial Management for Georgia Local Units of Administration provides that School Districts must establish capital asset policies, define system requirements, implement a capital asset system, and maintain capital asset inventory records.
Condition: A review of the School District's capital asset records revealed the following:
The School District did not conduct a complete physical inventory during the fiscal year, nor over the past several years. A physical inventory was performed in FY 2016.
Several capital assets were not tagged according to Board policy A building with a change in duration of use was not tested for impairment in the prior year A reconciliation of current year asset additions to the General Ledger was not performed The useful life assigned to some assets does not agree with Board Policy Depreciation for buildings is not being properly allocated across functions that use the asset
Cause: In discussing these deficiencies with the School District, management indicated that the cause is staffing constraints due to limited resources in the current economy.
Effect or Potential Effect: When a School District does not maintain a complete and accurate capital asset listing, it can lead to inaccurate internal and external reporting, as well as noncompliance with generally accepted accounting principles.
Recommendation: The School District's management should review the capital asset records and make appropriate adjustments to ensure that the capital assets records conform to the School District's approved capital assets policy.
Views of Responsible Officials and Corrective Action Plans: The items listed in the condition above are addressed below:
- Partial capital asset counts were conducted in previous fiscal years. The School District has conducted a complete inventory of capital assets prior to the close of the 2015 fiscal year. Although the risk existed in the prior year, the results of the inventory found no material

discrepancies in the capital asset reported. The District will continue to work with administrators each year to complete an inventory of capital assets. - The District has implemented a new capital asset policy to help minimize the risk of misstatement. A full reconciliation of the current year's additions has also been completed and no discrepancies were found. This procedure will be done in all future years. - All assets will be assessed for impairment. The building with the change in duration of use was a onetime transaction. The building was sold and disposed of in fiscal year 2015 therefore this entry will not be reoccurring in future years.
The District has reassessed the internal control procedures related to capital assets to ensure that they are in place and operating effectively. An administrative review will be conducted to ensure that the capital assets listing is accurate, and confirm that the list conforms to generally accepted accounting principles. All concerns indicated have already been addressed and the impact of these changes will be evident in the audit ending June 2015. These changes should correct the audit concerns and eliminate this finding.
Contact Person: Megan Brown, Chief Financial Officer Telephone: (770)606-5800 Fax: (770)606-5999 E-mail: megan.brown@bartow.k12.ga.us
This communication is intended solely for the information and use of management, member of the Bartow County Board of Education, and others within the entity, and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

GSG:jt

Greg S. Griffin State Auditor