BULLOCH COUNTY BOARD OF EDUCATION STATESBORO, 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 BULLOCH COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 9 H NOTES TO THE BASIC FINANCIAL STATEMENTS 10 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERALFUND 25 BULLOCH COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 3 SCHEDULE OF STATE REVENUE 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM Page 26 28 30 31 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 BULLOCH 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) 856-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 March 14, 2007 Honorable Sonny Perdue, Governor Members ofthe General Assembly Members ofthe State Board of Education and Superintendent and Members ofthe Bulloch County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) ofthe Bulloch 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 Bulloch 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 op1mons. 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 Bulloch 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 In accordance with Government Auditing Standards, we have also issued our report dated March 14, 2007, on our consideration of the Bulloch 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. Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through viii and page 25 respectively, are not a required part ofthe basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Bulloch 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, ~ w.~~ Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2006ARL-11 BULLOCH COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 INTRODUCTION Our discussion and analysis of the Bulloch County School District's financial performance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2006. The intent of this discussion and analysis is to look at the School District's financial performance as a whole; readers should also review the notes to the basic financial statements and financial statements to enhance their understanding of the School District's financial performance. FINANCIAL HIGHLIGHTS Key financial highlights for 2006 are as follows: On the District-wide financial statements, the assets of the School District exceeded liabilities by $76.6 million. Of this amount, $11.7 million is unrestricted and is available for spending at the School District's discretion. The School District had $75.3 million in expenses relating to governmental activities; only $52.2 million of these expenses are offset by program specific charges for services, grants and contributions. General revenues (primarily property and sales taxes) of $38.8 million and fund balance were adequate to provide for these programs. As stated above, general revenues accounted for $38.8 million, or 43%, of all revenues totaling $91.0 million. Program specific revenues in the form of charges for services, grants and contributions accounted for the rest. OVERVIEW OF THE FINANCIAL STATEMENTS This report consists of several parts including management's discussion and analysis, the basic financial statements and required supplementary information. The basic financial statements include two levels of statements that present different views of the School District. These include the District-wide and fund financial statements. The District-wide financial statements include the Statement of Net Assets and Statement of Activities. These statements provide information about the activities of the School District presenting both short-term and long-term information about the School District's overall financial status. The fund financial statements focus on individual parts of the School District, reporting the School District's operation in more detail. The Governmental Funds statements disclose how basic services are financed in the short-term as well as what remains for future spending. The Fiduciary Funds statement provides information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. The fund financial statements reflect the School District's most significant funds. In the case of the Bulloch County School District, the General Fund, District-wide Capital Projects Funds, and Debt Service Funds are the most significant funds. - 1- BULLOCH COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. Additionally, other supplementary information (not required) is also presented that further supplements understanding of the financial statements. District-wide Statements The District-wide financial statements are basically a consolidation of all of the School District's operating funds into one column called governmental activities. In reviewing the District-wide financial statements, a reader might ask the question about whether the School District is in a better financial position than last year? The Statement of Net Assets and the Statement of Activities provides the basis for answering this question. These financial statements include all School District's assets and liabilities and uses the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid. These two statements report the School District's net assets and any changes in those assets. The change in net assets is important because it tells the reader that, for the School District as a whole, the financial position of the School District has improved or diminished. The causes of this change may be the results of many factors, including those not under the School District's control, such as the property tax base, facility conditions, required educational programs and other factors. The Statement of Net Assets and the Statement of Activities reflects the School District's governmental activities. Fund Financial Statements The School District uses many funds to account for a multitude of financial transactions during the fiscal year. However, the fund financial statements presented in this report provide detail information about only the School District's significant or major funds. Governmental Funds Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using the modified accrual method of accounting which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds are reconciled within the financial statements. - ii - BULLOCH COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Fiduciary Funds The School District is the trustee, or fiduciary, for assets that belong to others, such as school clubs and organizations within the principals' accounts. The School District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The School District excludes these activities from the Districtwide financial statements because it cannot use these assets to finance its operations. FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE Table 1, Statement of Net Assets, provides the perspective of the School District as whole. Table 2 shows the Changes in Net Assets for the year. Table 1 Net Assets Governmental Activities Fiscal Fiscal Net Year 2006 Year 2005 Change Assets Current and Other Assets Capital Assets, Net $ 59,062,774 $ 60,902,325 $ -1,839,551 63,378,627 55,295,033 8,083,594 Total Assets $122,441,401 $116,197,358 $ 6,244,043 Liabilities Current and Other Liabilities Long-Term Liabilities $ 8,569,312 $ 9,484,423 $ -915,111 37,255,000 45,790,000 -8,535,000 Total Liabilities $ 45,824,312 $ 55,274,423 $ -9,450,111 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 54,545,559 $ 46,379,541 $ 8,166,018 10,337,788 7,412,936 2,924,852 11,733,742 7,130,458 4,603,284 Total Net Assets $ 16,611,082 $ 60,222,235 $ 15.624.154 - iii - BULLOCH COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table 2 Change in Net Assets Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions Governmental Activities Fiscal Fiscal Net Year 2006 Year 2005 Change $ 1,359,881 $ 3,216,992$ -1,857,111 49,061,129 45,346,783 3,714,346 1,762,683 214,594 1,548,089 Total Program Revenues $ 52,183,693 $ 48,778,369 $ 3,405,324 General Revenues: Taxes Property Taxes For Maintenance and Operations $ 12,280,927 For Debt Services 1,769,937 Railroad Cars 5,695 Sales Taxes Special Purpose Local Option Sales Tax For Maintenance and Operations 9,948,677 For Debt Services 9,946,307 Intangible Recording Tax 379,158 Real Estate 146,446 Grants and Contributions not Restricted to Specific Programs 1,697,984 Investment Earnings 1,338,010 Miscellaneous 1,314,251 $ 11,711,739$ 1,714,754 6,093 569,188 55,183 -398 8,714,664 8,650,459 305,954 110,400 2,183,314 915,181 786,468 1,234,013 1,295,848 73,204 36,046 -485,330 422,829 527,783 Total General Revenues $ 38,827,392 $ 35,099,026 $ 3,728,366 Total Revenues $ 91,011,085 $ 83,877,395 $ 7,133,690 Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt $ 48,408,203 2,891,724 1,203,867 1,389,791 745,579 4,331,849 336,031 5,322,827 3,730,828 719,418 562,625 0 4,257,170 1,417,019 $ 46,899,910$ 1,508,293 2,564,244 1,107,813 1,339,088 654,721 4,307,464 993,155 5,236,650 3,520,702 291,271 583,264 327,480 96,054 50,703 90,858 24,385 -657,124 86,177 210,126 428,147 -20,639 779,563 4,148,510 1,982,540 -779,563 108,660 -565,521 Total Expenses $ 75,316,931 $ 74,408,895 $ 908,036 Increase in Net Assets $ 15,6241154 $ 2,46815QQ $ 612251654 - iv - BULLOCH COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Governmental Activities The Statement of Activities shows the cost of program services and the charges for services and grants offsetting these services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services. It identifies the cost of these services supported by tax revenue and unrestricted State entitlements Table 3 Governmental Activities Total Cost of Services Fiscal Year2006 Net Cost of Services Fiscal Year2006 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 Food Services Interest on Short-Term and Long-Term Debt $ 48,408,203 $ 10,632,560 2,891,724 1,203,867 1,389,791 745,579 4,331,849 336,031 5,322,827 3,730,828 719,418 562,625 1,759,693 630,982 540,542 -338,704 2,387,474 335,428 2,856,308 2,094,661 717,911 231,137 4,257,170 1,417,019 -131,773 1,417,019 Total Expenses $ 75,316.931 $ 23,133,238 FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT'S FUNDS The School District's governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of $91.1 million and total expenditures of $91.9 million. The excess of expenditures over revenues was the result of capital outlay expenditures which were offset by fund balance. These revenues were collected in fiscal year 2004 from the sale of the 2004 Series General Obligation Bonds. General Fund Budgeting Highlights The School District's budget is prepared according to Georgia Law. The most significant budgeted fund is the General Fund, which includes local, state and Federal funds collected and disbursed for the purpose of operating the school system. -v- BULLOCH COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 The School District uses site-based budgeting as a part of the budget process. The budgeting systems are designed to control total site budgets but provide flexibility for site management. For the General Fund, the actual revenues of $76.9 million were over the final budgeted amount of $70.9 million by $6.0 million. This difference (actual vs. final budget) was due to sales tax collections, state funding formula collections, Federal funds collections, service charge collections, and interest income collections in excess of budgeted amounts, the occurrence of pass-through grants and stipends, as well as the inclusion of the principals' accounts in the financial statements but not in the budget. The actual expenditures of $72.0 million were approximately the same as the final budgeted amount of $72.0 million. General Fund revenues exceeded expenditures by $4.9 million. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At fiscal year ended June 30, 2006, the School District had $63 .4 million invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances net of accumulated depreciation. The School District has developed a facilities plan to construct and improve three high schools and three elementary schools. These capital expenditures will be funded by combined Education Special Purpose Local Option Sales Tax (ESPLOST) revenues, General Obligation Bond proceeds, and state capital outlay funding. In September, 2005, the voters of Bulloch County approved early re-imposition of the Education Special Purpose Local Option Sales Tax, to be collected between January 1, 2009, and December 31, 2013, to provide additional resources to complete this facilities plan. Table 4 Capital Assets at June 30 (Net of Depreciation) Governmental Activities Fiscal Fiscal Net Year 2006 Year 2005 Change Land Construction in Progress Land Improvements Buildings and Building Improvements Equipment Total $ 2,571,985 11,078,010 320,883 46,858,805 2,548,944 $ 2,571,985 1,706,743 262,160 47,896,274 2,857,871 $ 0 9,371,267 58,723 -1,037,469 -308.927 $ 63,378if;i27 $ 55,225,033 $ 8,083,59~ - VI - BULLOCH COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Debt In September, 2003, voters approved a 1% Education Special Purpose Local Option Sales Tax (ESPLOST) in conjunction with a $38 million General Obligation Bond issuance, for the purpose of building new schools. The ESPLOST, collected between January 1, 2005 and December 31, 2008, will be used to retire the bonds. In addition, in September, 2005, the voters approved an early re-imposition of the ESPLOST, to be collected between January 1, 2009, and December 31, 2013. General Obligation Bonds were approved in conjunction with the second ESPLOST but these bonds have not been issued. In January, 2005, the Bulloch County Board of Education issued $12.835 million in General Obligation Refunding Bonds to advance refund $12.295 million of outstanding General Obligation Bonds, resulting in the present value economic gain of over one-half million dollars due to interest cost reduction. At fiscal year ended June 30, 2006, the School District had $37.255 million in bonds outstanding, but no other long-term debt. This is summarized in Table 5. Bonds Payable Table 5 Debt at June 30 Governmental Activities Fiscal Fiscal Net Year 2006 Year 2005 Change $ 37,255.000 $ 45,790.000 $ -8.535.000 At June 30, 2006, the School District's assigned bond rating was "AA+" as determined by Standard and Poors. CURRENT ISSUES Following is a list of currently known facts, decisions or conditions that are expected to have a significant effect on financial positions or results of operations. Economic Recovery - State funding for education decreased between fiscal year 2001 and fiscal year 2004. However, beginning in fiscal year 2005, signs of economic recovery surfaced at the state and local levels, resulting in the proposed increases in funding from the state to local school districts. Actual allocations for fiscal year 2007 included a partial restoration of the state's "Austerity Reduction" in conjunction with the full implementation of class size guidelines outlined in House Bill 1187. Additional adjustments to the state funding formula are not expected in fiscal year 2008, but the Bulloch County School System does expect funding increases associated with increased student enrollment. Bulloch County's local economy has remained strong, resulting in stable sales tax and property tax collections. In September, 2005 (fiscal year 2006), voters approved early re-imposition of the Education Special Purpose Local Option Sales Tax (ESPLOST), to be collected between January 1, 2009 and December 31, 2013, for the purpose of providing the necessary funding to implement the school system's facilities plan. -vu- BULLOCH COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 CONTACTING THE SCHOOL DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, investors and creditors with a general overview of the School District's finances and to show the School District's accountability for the money it receives. If you have questions about this report or need additional financial information contact Mr. Charles Wilson, Assistant Superintendent for Business and Finance for the Bulloch County School System, 150 Williams Road, Suite A, Statesboro, Georgia 30458. You may also email your questions to Mr. Wilson at cwilson@bulloch.k12.ga.us. - Vlll - BULLOCH COUNTY BOARD OF EDUCATION BULLOCH 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 Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Salaries Payable Contracts 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 Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 45,297,614 3,446,390 4,225,915 4,999,877 928,144 164,834 2,571,985 11,078,010 1,070,451 60,811,774 10,353,511 -22,507,104 $ ===12=2=4=4=1=4=01= $ 7,954,062 615,250 8,730,000 28,525,000 $ 45,824,312 $ 54,545,559 116,618 772,250 7,858,106 1,590,814 11,733,742 $ 76 617 089 $ ===12=2=4=4=1=4=0=1 The notes to the basic financial statements are an integral part of this statement. -1- BULLOCH 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 Food Services Interest on Short-Term and Long-Term Debt Total Govemmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Railroad Cars Sales Taxes Local Option Sales Tax For Maintenance and Operations Special Purpose Local Option Sales Tax For Debt Services Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 48,408,203 $ 2,891,724 1,203,867 1,389,791 745,579 4,331,849 336,031 5,322,827 3,730,828 719,418 562,625 4,257,170 1 417 019 $ 75,316,931 $ 149,000 1,210,881 1,359,881 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 $ 36,455,971 $ 1,132,031 572,885 799,948 1,068,431 1,911,079 2,380,056 1,404,483 40 273,959 3,062,246 $ 49,061,129 $ 1,170,672 $ 49,301 15,852 33,296 603 86,463 231,684 1,467 57,529 115,816 1,762,683 $ -10,632,560 -1,759,693 -630,982 -540,542 338,704 -2,387,474 -335,428 -2,856,308 -2,094,661 -717,911 -231,137 131,773 -1417019 -23, 133,238 $ 12,280,927 1,769,937 5,695 9,948,677 9,946,307 379,158 146,446 1,697,984 1,338,010 1,314,251 $ 38,827,392 $ 15,694,154 60,922,935 $ ======76=,6..,1..,7..,,0,..89= -3- BULLOCH 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 Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 11,157,579 $ 29,096,997 $ 988,845 1,530,999 2,147,173 4,999,877 928,144 164,834 5,043,038 $ 926,546 1,838,201 45,297,614 3,446,390 3,985,374 4,999,877 928,144 164 834 Total Assets $ 20,386,452 $ 30,627,996 $ 7,807,785 $ ===5=8,..,8=2=2,..,23.,.3,.. LIABILITIES AND FUND BALANCES LIABILITIES Salaries Payable Contracts Payable Total Liabilities FUND BALANCES Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund Total Fund Balances $ 7,954,062 $ $ 7,954,062 $ 615,250 615,250 $ 116,618 607,416 $ 164,834 $ 30,012,746 11,543,522 $ 12,432,390 $ 30,012,746 $ $ $ $ 7,807,785 7,807,785 $ 7,954,062 615,250 8,569,312 116,618 607,416 7,807,785 164,834 30,012,746 11,543,522 50,252,921 Total Liabilities and Fund Balances $ 20,386,452 $ 30,627,996 $ 7,807,785 $===5.,.8.,.,8..,2.,.2,,..23.,.3= The notes to the basic financial statements are an integral part of this statement. -4- BULLOCH 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. Bonds Payable, which are Long-Term Liabilities, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Net Assets of Governmental Activities (Exhibit "A") $ 50,252,921 $ 2,571,985 11,078,010 1,070,451 60,811,774 10,353,511 -22,507,104 63,378,627 240,541 -37,255,000 $ 76,617,089 The notes to the basic financial statements are an integral part of this statement. -5- BULLOCH 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 Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 12,383,862 $ 1,767,493 $ 10,435,628 9,984,960 41,009,579 $ 1,530,999 9,981,218 1,359,881 436,167 636,506 265,337 1,320,776 $ 76,927,111 $ 2,167,505 $ 12,017,790 $ 14,151,355 20,420,588 42,540,578 9,981,218 1,359,881 1,338,010 1,320,776 91,112,406 $ 47,147,295 $ 2,891,724 1,203,867 1,312,425 720,702 4,279,598 326,409 5,334,811 3,456,464 735,831 483,077 4,105,577 $ $ 9,983,575 8,676 8,535,000 1 417 019 $ 71,997,780 $ 9,983,575 $ 9,960,695 $ $ 4,929,331 $ -7,816,070 $ 2,057,095 $ 7,503,059 37,828,816 5,750,690 47,147,295 2,891,724 1,203,867 1,312,425 720,702 4,279,598 335,085 5,334,811 3,456,464 735,831 483,077 4,105,577 9,983,575 8,535,000 1417019 91,942,050 -829,644 51,082,565 $ 12,432,390 $ 30,012,746 $ 7,807,785 $ 50,252,921 The notes to the basic financial statements are an integral part of this statement. -6- BULLOCH 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. In the Statement of Activities, only the gain on the sale of the equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, this amount consists of Bond Principal Retirements. Change in Net Assets of Governmental Activities (Exhibit "B") $ -829,644 $ 9,880,365 -1,790,246 8,090,119 -94,796 -6,525 8,535,000 $ 15,694,154 The notes to the basic financial statements are an integral part of this statement. -7- (This page left intentionally blank) BULLOCH COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 ASSETS Cash and Cash Equivalents Investments Certificates of Deposit Total Assets LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ 321,875 56,462 $ ======3=7=8'=33=7= $ ==3=78='=33=7= The notes to the basic financial statements are an integral part of this statement. -9- BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Bulloch County Board of Education (School District) was established under the laws of the State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Bulloch 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. - 10- BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" 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 Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for 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 type: 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. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized - 11 - BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources. 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. 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 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: (I) 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, - 12 - BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (6) The Local Government Investment Pool administered by the State ofGeorgia, 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 Bulloch County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on August 2, 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 Bulloch 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 of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $12,378,167 and for school bonds amounted to $1,767,493. Tax millage rates levied for the 2005 tax year (calendar year) for the Bulloch County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): School Operations School Bonds 9.45 mills 0.84 mills SALES TAXES 10.29 mills Local Option Sales Tax revenue, at the fund reporting level, during the fiscal year amounted to $9,948,677 and was recorded in the General Fund. Local Option Sales Tax is to be used for the maintenance and operation ofthe School District. - 13 - BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $9,946,307 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 ofdonated 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: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment Any Amount $ 100,000 $ 100,000 $ 5,000 NIA 15 years 60 years 5 to 12 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. - 14 - BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 ofNet 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. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities ofthe State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia, and - 15 - BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS (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 $52,105,332. 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 $ 493,443 2 4,265,870 3 47,346,019 4 0 Total $ 52,105,332 CATEGORIZATION OF INVESTMENTS At June 30, 2006, the carrying value ofthe School District's total investments was $1,876,482 which is materially the same as fair value. This investment consisted entirely offunds invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows: - 16 - BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS The Primary Liquidity Portfolio consists ofGeorgia Fund 1, which is a combination local and state government investment pool. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net ofmanagement fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days. 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: - 17 - BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 5: CAPITAL ASSETS Balances July 1, 2005 Increases Decreases Balances June 30, 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 2,571,985 $ 1,706.743 $ 9.371,267 0 $ 2,571,985 11,078,010 Total Capital Assets Not Being Depreciated $ 4,278.728 $ 9.371.267 $ 0 $ 13,649,995 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 60,694,681 $ 10,185,215 977,957 117,093 299,511 $ 92,494 $ 60,811,774 131,215 10,353,511 1,070,451 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 12,798,407 7,327,344 715,797 1,154,562 601,913 33.771 124,690 13,952,969 7,804,567 749,568 Total Capital Assets, Being Depreciated, Net $ 51,016,305 $ -1,281,148 $ 6,525 $ 49,728.632 Governmental Activity Capital Assets - Net $ 55,225,033 $ 8,020,112 $ 6,525 $ 63,318,621 Current year depreciation expense by function is as follows: Instruction Support Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services $ 1,008,478 $ 57,649 18,537 38,934 705 101,104 360,426 1,716 672270 646,341 135A27 $ 1,790.246 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds, property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2006, were as follows: - 18 - BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 6: RESTRICTED ASSETS District-wide Capital Projects Bond Proceeds Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions $ 5,043,038 $ 29,096,997 $ $ 1,530,999 926,546 Note 7: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with automobiles. The School District has neither significantly reduced coverage for this risk nor incurred losses (settlements) which exceeded the School District's insurance coverage in any ofthe past three years. The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups ofself-insurance funds, including the processing and defense ofclaims brought against members of the system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse), errors and omissions and crime. Payment of excess insurance for the system varies by line of coverage. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the same fund that the employee's salary and benefits were paid. Claims are accounted for with expenditure and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. - 19 - BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 7: RISK MANAGEMENT Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2005 2006 Beginning ofYear Liability Claims and Changes in Estimates Claims Paid EndofYear Liability $ 3 891 $ 34 190 $ 29,512 $ 8 569 $ 8 569 $ 13,243 $ 15,528 $ 6,284 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 $ 50,000 $ 200,000 Note 8: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 1996 General Government - Series 1997 General Government - Series 2004 General Government - Refunding - Series 2005 4.70% - 6.00% 4.80% - 7.00% 2.00% - 4.00% 2.50% - 4.50% $ 435,000 465,000 23,635,000 12,720.000 $ 37,255.000 Voters have authorized $44,265,000 in general obligation debt for various construction projects which was not issued as of June 30, 2006. - 20- BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 8: LONG-TERM DEBT The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: Governmental Funds General Obligation Bonds Balance July 1, 2005 $ 45,790,000 Deductions Debt Retired 8,535,000 Balance June 30, 2006 $ 37,255.000 Portion of Long-Term Debt Due within One Year $ 8,730,000 At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2007 2008 2009 2010 2011 2012 -2016 2017 $ 8,730,000 $ 1,176,384 8,930,000 935,544 9,145,000 637,463 1,130,000 414,537 1,170,000 380,637 6,625,000 1,215,605 1,525,000 68,625 Total Principal and Interest $ 37,255.000 $ 4,828.795 Note 9: PRIOR YEAR DEFEASEMENT OF DEBT In fiscal year 2005, 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. At June 30, 2006, $12,295,000 ofbonds are outstanding and are considered defeased. - 21 - BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $ I ,468,094 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 ofNon-Certified Personnel In the amount of $I,456,474 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of$ I I,620 Note I I: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2006, together with funding available: Project Unearned Executed Contracts Funding Available From State SA0IS-6I6-302 $ I I,997,760 $ Nevils Elementary School 7,02I,049 Statesboro High School Stadium Renovations I,956,336 Portal Middle/High School Stadium Renovations 622,809 I70,222 $ 21,527,254 $====I===70""".2==2==2 The amounts described in this note are not reflected in the basic financial statements. Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. - 22 - BULLOCH COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 13: 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 ofGeorgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% oftheir 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% $ 3,816,231 $ 3,617,467 $ 3,607,371 -23 - (This page left intentionally blank) BULLOCH 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 Food Services Operation 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 NONAPPROPRIATED BUDGETS ORIGINAL {1) FINAL {1) ACTUAL AMOUNTS $ 12,182,763 $ 12,182,763 $ 12,383,862 9,152,356 9,152,356 10,435,628 38,234,126 38,398,255 41,009,579 9,300,301 9,593,947 9,981,218 1,212,300 1,212,300 1,359,881 160,350 160,000 436,167 162 148 281,026 1,320,776 $ 70,404,344 $ 70,980,647 $ 76,927,111 $ 46,689,205 $ 47,288,260 $ 47,147,295 2,993,150 627,396 1,339,038 739,509 4,265,324 356,097 5,229,102 3,197,946 593,214 327,989 4,217,850 3,037,853 1,059,093 1,375,530 752,493 4,305,597 359,136 5,390,393 3,189,571 642,572 411,280 4,217,850 2,891,724 1,203,867 1,312,425 720,702 4,279,598 326,409 5,334,811 3,456,464 735,831 483,077 4,105,577 $ 70,575,820 $ 72,029,628 $ 71,997,780 $ -171 476 $ -1,048,981 $ 4,929,331 $ 192,502 $ 192,502 -192,002 -192,002 $ 500 $ 500 $ -170,976 $ -1,048,481 $ 4,929,331 5,980,798 5,980,798 7,503,059 Fund Balances - Ending $ 5,809,822 $ 4,932,317 $==1=2=,4=3=2=,3..,90= 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. - 25- BULLOCH 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 Direct Fund for the Improvement of Education Pass-Through From Georgia Department of Education Advanced Placement Program English Language Acquisition Grants Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality State Grants Migrant Education Rural Education Safe and Drug-Free Schools and Communities - National Programs State Grants for Innovative Programs Title I Grants to Local Educational Agencies Twenty-First Century Community Learning Centers Vocational Education - Basic Grants to States Total U.S. Department of Education Justice, U. S. Department of Direct Drug-Free Communities Support Program Grants Labor, U. S. Department of Pass-Through From Georgia Department of Technical and Adult Education Employment Services and Job Training Pilots Demonstrations and Research CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 N/A N/A $ $ (2) 3,719,215 3,719,215 10.550 NIA $ 211 449 3,930,664 * 84.027 * 84.173 N/A $ N/A $ 1,725,712 52656 1,778,368 84.215 84.330 84.365 84.318 84.938 * 84.367 84.011 84.358 84.184 84.298 84.010 84.287 84.048 N/A NIA N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A $ 247,587 82 31,616 152,981 (3) 533,603 61,952 284,519 84,563 34,554 2,706,592 807,782 116 468 6,840,667 16.729 $ 133 992 17.249 N/A $ 77 960 - 26- BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Defense, U. S. Department of Direct Department of the Army R.O.T.C. Program CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD $ _ _ _-'-15""'3""9'-'1-=-6 Total Federal Financial Assistance N/A = Not Available $==1=1=1,=37....1=9=9 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 ($777,404) 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 $6,930, 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 Bulloch 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. -27- BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program $ 950,996 $ Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities 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 Migrant Education Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs K-8 Statewide Reading and Mathematics Program Health Insurance National Teacher Certification Preschool Handicapped Program School Improvement (CRCT Remediation) Virtual Schools Grant 2,471,528 604,444 5,060,111 1,463,017 2,293,831 1,103,906 425,763 4,560,456 4,346,216 1,482,639 5,075,815 452,765 -1,655 397,235 242,726 797,013 260,187 158,963 934,961 1,840,362 2,160,644 1,290,783 231,684 163,512 29,739 250,000 1,669,575 209,930 118,531 -2,034,460 141,365 1,456,474 182,447 128,938 11,792 275 Georgia State Financing and Investment Commission Reimbursement on Construction Projects $ 1,530,999 Office of Treasury and Fiscal Services Public School Employees Retirement 11,620 TOTAL 950,996 2,471,528 604,444 5,060,111 1,463,017 2,293,831 1,103,906 425,763 4,560,456 4,346,216 1,482,639 5,075,815 452,765 -1,655 397,235 242,726 797,013 260,187 158,963 934,961 1,840,362 2,160,644 1,290,783 231,684 163,512 29,739 250,000 1,669,575 209,930 118,531 -2,034,460 141,365 1,456,474 182,447 128,938 11,792 275 1,530,999 11,620 - 28- BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING CONTRACT Human Resources, Georgia Department of Family Connection GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ _ __.;;;.6.a..5-'-4-=-51'-- - - - - - $ _ __.;;;.6.a..5'-'-45~1:.... $ 41,009,579 $ 1,530,999 $ 42,540,578 See notes to the basic financial statements. - 29 - BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 SCHEDULE "4" PROJECT For the purpose of acquiring, constructing, and equipping new facilities for Portal High School and Middle School, Southeast Bulloch High School, Statesboro High School, and Nevils Elementary School; relocation of William James Middle School to the existing Statesboro High School and the renovation and equipping of the facilities for use as a middle school; a new central auditorium on the campus of the new Statesboro High School to be used by all Bulloch County students; and site improvements, improvements to facilities, and technology upgrades throughout the Bulloch County School System. ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 49,800,000 $ 45,000,000 $ 11,316,304 $ 2,921,645 Ongoing (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 project. Includes all cost from project inception to completion. (3) The voters of Bulloch County approved the imposition of a 1% sales tax to fund the above project and retire associated debt. Amounts expended for this project may include sales tax proceeds, state, local property taxes and/or other funds over the life of the project. See notes to the basic financial statements. - 30- BULLOCH COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2006 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1} (2} ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Gifted Student - Category VI Alternative Education Program English Speakers of Other Languages (ESOL) 2,875,209 $ 704,517 5,943,997 1,632,089 2,699,895 1,229,283 492,816 5,383,088 5,088,680 1,699,507 5,889,774 548,544 465,742 269,010 2,073,541 $ 269,584 7,561,629 1,241,093 3,438,061 551,156 6,269,917 6,063,683 1,396,773 56,815 625,540 3,959,414 720,749 600,307 148,557 2,325 57,778 $ 8,284 162,648 21,010 82,150 14,805 205,219 283,559 136,689 1,609 85,619 2,212 23,198 457,733 2,131,319 277,868 7,724,277 1,262,103 3,520,211 565,961 6,475,136 6,347,242 1,533,462 56,815 627,149 4,045,033 722,961 623,505 606,290 2 325 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 34,922,151 $ 34,979,144 $ 1,542,513 $ 36,521,657 Media Center Program Staff and Professional Development 931,251 186 950 1,141,746 188,996 109 1,330,742 109 TOTAL QBE FORMULA FUNDS $ 36,040,352 $ 36,120,890 $ 1,731,618 $ _===3..,7,,..8=52=,5=0==8 (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. - 31 - 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 March 14, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Bulloch 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 ofBulloch County Board ofEducation as of and for the year ended June 30, 2006, which collectively comprise Bulloch County Board of Education's basic financial statements and have issued our report thereon dated March 14, 2007. 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 of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Bulloch 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 Bulloch County Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6161-06-01, FS-6161-06-02 and FS-6161-06-04. 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 Bulloch 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 Bulloch County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, '<~ uJ.4J~ Russell W. Hinton, CPA, CGFM State Auditor RWH:as 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 March 14, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Bulloch County Board of Education REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 Ladies and Gentlemen: Compliance We have audited the compliance of Bulloch County Board of Education with the types of compliance requirements described in the U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Bulloch County Board ofEducation'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 Bulloch County Board of Education's management. Our responsibility is to express an opinion on Bulloch County Board of Education's compliance based on our audit. We conducted our audit ofcompliance 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 ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types 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 Bulloch County Board ofEducation's compliance with 2006SA-15 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 Bulloch County Board of Education's compliance with those requirements. In our opinion, the Bulloch 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. However, the results of our auditing procedures disclosed a nonmaterial instance of noncompliance with those requirements, which is described in the accompanying Schedule of Findings and Questioned Costs as item FA-6161-06-01. Internal Control Over Compliance The management of Bulloch County Board of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered Bulloch 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. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with 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. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the management, members of the Bulloch 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, ~w.4J~ Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2006SA-15 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS BULLOCH 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-6161-04-01 FS-6161-04-02 FS-6161-04-03 FS-6161-05-01 FS-6161-05-02 Further Action Not Warranted Unresolved - See Corrective Action/Reponses Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION Inadequate Internal Control Procedures Finding Control Number: FS-6161-04-02 The School District has attempted to clear this finding with the Georgia Department of Community Health; however, the Department ofCommunity Health has not provided any direction on this issue or billed the School District for any adjustment in health insurance billing related to this finding. CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS Inadequate Internal Control Procedures Finding Control Number: FS-6161-05-01 Separation ofduties among school personnel, pertaining to school principal's accounts, is being addressed. This will require involving more existing personnel in the cash custody, record keeping and review functions but can be accomplished with adequate support from the central office and school principal. In addition, school principal's accounts are being incorporated into the school system accounting software program to ensure proper recording of assets and review of school principal's accounts. Strict accountability at the school level and additional review at the system level will increase internal controls over the collection, disbursement and recording offunds, as well as timely and accurate review, of the school principal's accounts. - 1- BULLOCH 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 CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Finding Control Number: FS-6161-05-02 Our school system has recently begun recording capital assets in its financial records. Current procedures are being revised to ensure accurate and timely recording of capital assets calculation of depreciation expense. In addition, the school system plans to implement a financial accounting system that will allow the inclusion ofcapital assets in the perpetual accounting records, as well as more efficient tracking and depreciation of current assets. Revised internal controls, in addition to an improved accounting system, will lead to effective capital assets recording procedures. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-6161-04-01 FA-6161-05-01 Further Action Not Warranted Previously Reported Corrective Action Implemented -2- SECTION IV FINDINGS AND QUESTIONED COSTS BULLOCH 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 Bulloch 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 Bulloch County Board of Education disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts Accounting Controls (Overall) Expenditures/Liabilities/Disbursements Capital Assets None ofthe reportable conditions described above are considered to be material weaknesses. 3. Noncompliance Material to the Financial Statements The audit of the Bulloch 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 Bulloch County Board ofEducation did not disclose any reportable conditions in internal control over major programs. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Bulloch County Board of Education's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510(a) ofOMB Circular A-133 The Bulloch County Board ofEducation's audit did not disclose an audit finding required to be reported by section .5 lO(a) ofOMB Circular A-133; however, we noted a certain instance of noncompliance which 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 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 84.367 Improving Teacher Quality State Grants 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $334,324. - 1- BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 9. Low Risk Auditee The Bulloch County Board of Education 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-6161-06-01 Condition: This is a repeat finding (FS-6161-05-01 and FS-6161-04-01) 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 voucher payment functions. The bank reconciliation was not reviewed by an administrator not directly connected with cash operations. A certificate of deposit held by one school was not recorded on the school's general ledger. The June bank reconciliations for two bank accounts were not reconciled to the total cash listed on the general ledger as presented for audit. Revenues/Receivables/Receipts The deposit preparation function was not separated from the record keeping and cash custody functions. Based on a review of twenty five receipts, two receipts were not deposited timely and five receipts lacked supporting documentation. -2- BULLOCH 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-6161-06-01 Expenditures/Liabilities/Disbursements Based on a review oftwenty five vouchers, the following deficiencies were noted: (1) One check was written to the school secretary for distribution of cash rewards to teachers, (2) One check was written to and signed by the principal without the required approval from the assistant principal, (3) Three vouchers lacked approval from a sponsor, (4) One voucher lacked adequate supporting documentation, and (5) One voucher lacked proof of receipt. Cause: These deficiencies were a result of management's decision to limit the number ofadministrative staffmade responsible for 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 oversight for these incompatible activities. In addition, management should monitor controls to provide reasonable assurance that transactions are processed according to established policies and implement those procedures deemed necessary to strengthen internal controls over the accounting functions. -3 - BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls Reportable Condition Finding Control Number: FS-6161-06-02 Condition: The accounting procedures ofthe School District did not maintain adequate separation of duties in the Financial Accounting System. Criteria: Separation of duties involving key accounting functions, both manual and automated, is the basis for achieving an adequate system of internal control. Questioned Cost: NIA Information: Access controls in the Financial Accounting System did not prevent users from accessing accounting functions that are outside of their area of responsibility. Cause: The School District's management is responsible for designing and maintaining internal controls that restrict access to programs or data. Management has not limited the access rights of users of the Financial Accounting System. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: Management should ensure that the access controls in the accounting information system should complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of the employee's duties. -4 - BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Use of SPLOST Proceeds Nonmaterial Noncompliance Finding Control Number: FS-6161-06-03 Condition: The School District spent Special Purpose Local Option Sales Tax (SPLOST) proceeds on stadium renovations which were not specifically identified in the SPLOST project referendum and do not appear to meet the definition of "capital outlay projects for educational purposes" in State laws regarding imposition and use of sales taxes for educational purposes. Criteria: Paragraph IV, Section VI, Article VIII of the Constitution of the State of Georgia states as follows, "The purpose or purposes for which the proceeds of the tax are to be used and may be expended include: (1) Capital outlay projects for educational purposes; (2) the retirement of previously incurred general obligation debt with respect only to capital outlay projects of the school system... " O.C.G.A. 48-8-121 states, "The proceeds received from the tax authorized by this part shall be used ... exclusively for the purpose or purposes specified in the resolution or ordinance calling for imposition ofthe tax." The Attorney General's Official Opinion 97-7 for O.C.G.A. 20-2-260 (b)(5) states, "The definition of educational facilities specifically excludes swimming pools, tracks, stadiums, and other facilities or portions offacilities used primarily for athletic competition." Questioned Cost: NIA Information: During the year under review, the School District spent $1,307,730 for the equipping and renovating ofthe Statesboro High School stadium and Portal High School stadium. Cause: The School District believed this project was covered under their referendum that states the following: "constructing and equipping new facilities for Portal High School and... Statesboro High School." Effect: Expenditures of SPLOST funds for stadium renovations appear to be in conflict with State laws regarding imposition and use ofSPLOST funds when you consider that Paragraph IV, Section VI, Article VIII ofthe Constitution ofthe State ofGeorgia provides that SPLOST proceeds should be spent on -5- BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Use of SPLOST Proceeds Nonmaterial Noncompliance Finding Control Number: FS-6161-06-03 capital outlay projects for educational purposes and the Attorney General has ruled that facilities used primarily for athletic competition do not meet the definition of educational facilities. Recommendation: The School District should research this issue, consult with legal counsel and verify ifexpenditures ofthis nature are an appropriate use ofSPLOST funds in accordance with State law and the SPLOST referendum as approved by the voters of Bulloch County. CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6161-06-04 Condition: The School District failed to adequately maintain capital asset records. Criteria: Chapter 37 Fixed Assets of the Financial Management for Georgia Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records. Questioned Cost: NIA Information: A review ofthe School District's capital asset policies and procedures and the related capital asset records noted the following deficiencies: Fourteen items were noted on the capital asset records which did not meet the capitalization thresholds. Depreciation expense was not calculated in accordance with the School District's policy for current year additions and deletions. Depreciation expense for current year additions and deletions was calculated based on the month placed in service. The School District's depreciation policy states that depreciation expense will be calculated using the one-half year convention. -6- BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6161-06-04 Estimated useful lives of forty-seven assets categorized as buildings were not assigned in accordance with the School District's capitalization policy. These forty-seven assets were assigned estimated useful lives of twenty-five years. The School District's capitalization policy states the estimated useful life of buildings is sixty years. Cause: The School District failed to properly maintain its capital asset records in accordance with the School District's approved capital asset policy. Effect: The failure ofthe School District to maintain an accurate capital asset listing can lead to inaccurate internal and external reporting. Recommendation: The School District should review its capital asset records and make appropriate adjustments to ensure the capital asset records conform to the School District's approved capital asset policy. In addition, management should establish controls that will ensure capital asset records are properly maintained. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CASH MANAGEMENT Excessive Cash Balances Failure to Refund Interest Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Special Education - Grants to States (CFDA 84.027) Special Education - Preschool Grants (CFDA 84.173) Finding Control Number: FA-6161-06-01 Condition: A review of cash management procedures for the Special Education Cluster programs disclosed that cash draws were made in advance ofimmediate cash needs, resulting in the accumulation of excessive cash balances. -7- BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CASH MANAGEMENT Excessive Cash Balances Failure to Refund Interest Nonmaterial Noncompliance U. S. Department of Education Through Georgia Department of Education Special Education - Grants to States (CFDA 84.027) Special Education - Preschool Grants (CFDA 84.173) Finding Control Number: FA-6161-06-01 Criteria: In accordance with 34 CFR 80.21 interest earned on advances by local government grantees is required to be submitted promptly to the Federal grantor agency. Up to $100 per year may be kept for administrative expenses. Questioned Cost: $2,683 Information: The Special Education Cluster programs had an average cash balance of $50,140 with excessive ending monthly cash balances in seven months. Cause: The School District failed to accurately forecast the cash needs of the program. Effect: Excessive cash balances maintained for more than seven months resulted in noncompliance with grant requirements. Recommendation: The School District should implement procedures to accurately forecast the cash needs ofthe program. In addition, procedures should be implemented to minimize the time elapsing between the transfer of funds from the Georgia Department of Education and disbursement of such funds by the School District. The Georgia Department ofEducation should review this matter to determine if a refund of funds is necessary for the excess interest proceeds. - 8- SECTIONV MANAGEMENT'S RESPONSES BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-6161-06-01 We concur with this finding. Separation of duties among school personnel, pertaining to school principal's accounts, is being addressed. This will require involving more existing personnel in the cash custody, record keeping and review functions but can be accomplished with adequate support from the central office and school principal. In addition, school principal's accounts were incorporated for the first year into the school system accounting software program to ensure proper recording of assets and review of school principal's accounts. Strict accountability at the school level and additional review at the system level will increase internal controls over the collection, disbursement and recording of funds, as well as timely and accurate review, ofthe school principal's accounts. Finding Control Number: FS-6161-06-02 We concur with this finding. We have now implemented a new procedure whereby all lunchroom cashiers and managers must change their passwords every 90 days. We also have instituted a mechanism to require that passwords are changed as required. Finding Control Number: FS-6161-06-03 We do not concur with this finding. Under advisement from both general legal counsel and bond legal counsel, the Bulloch County Board of Education did not include terminology, relating to the specifics ofeach project, in its SPLOST referendum. In addition, the details ofthis finding reference the State ofGeorgia's Attorney General Official Opinion 97-7, which specifically refers to 0.C.G.A. 48-8-121 and O.C.G.A. 20-2-260(b). We do not believe that 48-8-121, which states that "proceeds received from the tax authorized by this part shall be used...exclusively for the purpose or purposes specified in the resolution or ordinance calling for imposition of the tax", applies in this instance since the essence ofthis finding relates to the lack ofspecifics in the Bulloch County Board ofEducation's SPLOST terminology. Furthermore, O.C.G.A. 20-2-260 is included under Title 20 (Education), Article 6 (Quality Basic Education), Part 10 (Capital Outlay Funding), specifically referring to the use of State Department ofEducation funding for capital outlay purposes. Because the Bulloch County Board of Education followed the advice of legal counsel related to SPLOST referendum terminology, and because the use of SPLOST funds by the Bulloch County School System was in accordance with the community's school facilities needs, we do not believe that SPLOST proceeds have been used improperly. Finding Control Number: FS-6161-06-04 We concur with this finding. Current procedures are being revised to ensure accurate and timely recording of capital assets and calculation of depreciation expense. Revised internal controls will lead to effective capital assets recording procedures. - 1- BULLOCH COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FA-6161-06-01 We concur with this finding. Beginning July 2006, the Bulloch County Board of Education implemented new procedures for State and Federal funding requests. We believe that these new procedures allow us to more accurately forecast the timing of expenditures related to State and Federal grants. Therefore, we do not expect to have excess cash balances for these State and Federal programs in the future. Contact Person: Charles Wilson, Assistant Superintendent for Business and Finance Phone: (912) 764-1603 Fax Number: (912) 764-9561 E-mail Address: cwilson@bulloch.k12.ga.us -2-