BUTTS COUNTY BOARD OF EDUCATION JACKSON, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor BUTTS COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 6 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 9 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 10 H NOTES TO THE BASIC FINANCIAL STATEMENTS 11 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 27 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 28 3 SCHEDULE OF STATE REVENUE 30 BUTTS COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 31 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 33 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL RUSSELL W. HINTON STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 July 8, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Butts County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Butts County Board of Education, as of and for the year ended June 30, 2003, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Butts County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our op1mons. As discussed in Note 2 to the financial statements, management has not: * Properly reconciled the bank statements to the general ledger cash balances for the school activity (principals) accounts. This variance results in a material misstatement of cash for the agency funds which comprises the aggregate remaining fund information. 2003-34ARL-21X The aggregate effect on the financial statements of this variance is believed to be material. In our opinion, because of the effects of the matters discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States ofAmerica, the financial position ofthe aggregate remaining fund information of the Butts County Board of Education, as of June 30, 2003, and the changes in financial position thereof for the year then ended. In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities and each major fund of the Butts County Board of Education, as of June 30, 2003, 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. The Butts County Board ofEducation has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements. As described in Note 2, the Butts County Board of Education has implemented a new financial reporting model as required by provisions ofGovernmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003. In accordance with Government Auditing Standards, we have also issued our report dated July 8, 2004, on our consideration ofthe Butts County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 27, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Butts County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. 2003-34ARL-21X A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code ofGeorgia Annotated section 506-24. Respectfully submitted, ~-~ RWH:gp 2003-34ARL-21X State Auditor BUTTS COUNTY BOARD OF EDUCATION BUTTS COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2003 ASSETS Cash and Cash Equivalents Investments Accounts Receivable. Net Taxes State Government Federal Government Other Prepaid Items Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Short-Term Debt Retainages Payable Deposits and Deferred Revenues Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Bus Replacement Continuation of Federal Programs Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. -3- EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 4,606,161 2,765,101 760,357 1,800,827 314,824 101,412 2,235 29,496 254,600 2,491,249 517,177 84,602,917 3,267,425 -23 746 424 $ ===7=7a67=6=7,=35=7= $ 898,575 1,854,890 147,863 478,952 2,339 1,580,000 11510000 $ 16 472 619 $ 56,596,058 102,902 428,846 3,636,456 530476 $ 61,294,738 $ ===7~7a!a:7'=6=7'!::3=57= BUTTS COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2003 EXPENSES CHARGES FOR SERVICES GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt $ 17,340,865 $ 900,884 623,109 457,481 673,065 1,485,179 489,325 1,779,813 1,250,767 3,240 259,516 229,122 1,399,059 548 668 45,891 400,850 Total Governmental Activities $ ====2=7=,4=4=0,=09=3= $ General Revenues Taxes Property Taxes For Maintenance and Operations Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous 446,741 Total General Revenues Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year The notes to the basic financial statements are an integral part of this statement. -4 - EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 11,106,426 $ 160,436 164,196 273,451 476,419 590,253 861,065 548,992 146,019 236,722 898,027 $ 15,462,006 $ 686,416 $ 5,222 78 1,477 67,434 22,689 783,316 $ -5,502,132 -740,448 -458,913 -184,030 -191,424 -894,848 -489,325 -917,271 -634,341 -3,240 -113,497 7,600 -77,493 -548 668 -10,748,030 $ 7,156,104 12,741 2,236,307 347,078 199,678 41,304 1,142,604 155,057 422 502 $ 11 713 375 $ 965,345 60 329 393 $ 61,294,738 -5- BUTTS COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2003 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Prepaid Items Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Short-Term Debt Retainages Payable Deposits and Deferred Revenue 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 Total Liabilities and Fund Balances GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 41.324 $ 4,564.837 $ 2,100,000 665,101 1,076,865 1,736,265 314,824 98,412 2,235 29,496 436,366 64,562 3,000 0 $ 4,606,161 2,765,101 1,513,231 1,800,827 314,824 101,412 2,235 29,496 $ s,399,421 $ 5,733,866 $ ===o= $ 11,133,287 $ 586,220 $ 1,854,890 2,339 $ 2,443,449 $ 312,355 147,863 478,952 939,170 $ 898,575 1,854,890 147,863 478,952 2,339 $ 3,382,619 $ 102,902 399,350 $ 29,496 $ 4,794,696 2,424,224 $ 2,955,972 $ 4,794,696 $ $ 102,902 399,350 0 0 29,496 4,794,696 2,424,224 0 $ 7,750,668 $ s,399,421 $ s.733,866 $ ===o= $ 11,133,287 The notes to the basic financial statements are an integral part of this statement. -6- BUTTS COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30. 2003 EXHIBIT" " Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable. are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable $ 7,750,668 $ 254,600 2,491,249 517,177 84,602,917 3,267,425 -23,746,424 67,386,944 -752,874 -13,090,000 Net Assets of Governmental Activities (Exhibit "A") $ 61,294,738 The notes to the basic financial statements are an integral part of this statement. -7- BUTTS COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2003 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations 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 $ 7,668,597 240,982 $ 13,574,969 2,420,945 446,741 39,310 946 872 347,078 $ 783,316 $ 2,236,307 117,679 82,394 $ 25,338,416 $ 1,330,467 $ 2,236,307 $ 7,668,597 2,824,367 14,358,285 2,420,945 446,741 156,989 1,029,266 28,905,190 $ 14,770,384 $ 14,770,384 900,884 623,109 457,481 652,835 1,484,877 483,638 $ 1,772,303 1,059,825 3,240 259,516 229,122 1,311,171 5,687 1,789 6,504,194 900,884 623,109 457,481 652,835 1,484,877 489,325 1,774,092 1,059,825 3,240 259,516 229,122 1,311,171 6,504,194 $ 2,080,000 548,668 2,080,000 548 668 $ 24,008,385 $ 6,511,670 $ 2,628,668 $ 33,148,723 $ 1,330,031 $ -5,181,203 $ -392,361 $ -4,243,533 1,625,941 9,975,899 392,361 11,994,201 $ 2,955,972 $ 4,794,696 $ 0 $====7'=75=0a!=,6=68= The notes to the basic financial statements are an integral part of this statement. -8- BUTTS COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2003 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However. in the Statement of Activities. the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense 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. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements $ -4,243,533 $ 5,356,489 -1 727,859 3,628,630 -499,752 2,080,000 Change in Net Assets of Governmental Activities (Exhibit "B") $ ===96=5==3=45= The notes to the basic financial statements are an integral part of this statement. -9- BUTTS COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2003 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ ====68='==79=0= $ ===68='==79=0== The notes to the basic financial statements are an integral part of this statement. - 10 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Butts 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 ofthe Butts County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement of Activities 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 of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support 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 of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, 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 ofintemal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: - 11 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund is the School District's primary operating fund. It accounts for all financial resources of the 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, and Special Purpose Local Option Sales Tax proceeds 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 of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. 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 - 12 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 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 of general long-term liabilities 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. Although the "school activity accounts" are maintained and reflected within these financial statements, the School District failed to properly reconcile the cash balances presented for audit to the general ledgers maintained at the individual schools. Material cash variances within the agency funds were identified. For fiscal year 2003, the School District changed its method of accounting for the final two payments on one hundred and ninety day contracts and for the related revenue due from the State to fund these contracts. Adjustments have been made in the fiscal year 2003 financial statements to record costs for salaries and fringe benefits earned by employees through June 30, 2003, (even though paid in July and August 2003) and the related revenue due from the State to fund these contracts. Adjustments were also made for the similar salaries, benefits and related State revenues earned in fiscal year 2002 and recorded in fiscal year 2003. The net effect of the above accounting treatment results in the accompanying financial statements reflecting costs for those salaries and benefits earned by employees during fiscal year 2003 and the related State revenue to fund these contracts. In addition, both the net assets and fund balance at July 1, 2002, have been restated for salaries and benefits earned by employees in fiscal year 2002 but not paid until July and August 2002 and for the related State revenue for these contracts. This change is in accordance with generally accepted accounting principles. See Restatement of Prior Year Fund Balance. RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of $352,958 at July 1, 2002. For fiscal year 2003, these funds have been reported as part of the General Fund. In addition, governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been reported within the General Fund for fiscal year ended June 30, 2003. The governmental fund activity ofthe various school activity accounts had a fund balance of $98,730 at July 1, 2002. This change is in accordance with generally accepted accounting principles. - 13 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund Balance July 1, 2002 $ 1,706,382 Add Funds Consolidated with General Fund: School Food Services Fund School Activity Account - Governmental Activity 352,958 98,730 Add: State Revenue Related to July and August 2002 Salary Payments Earned by Employees in Fiscal Year 2002 1,614,060 Deduct: July and August 2002 Salary Payments Earned by Employees in Fiscal Year 2002 2,146,189 General Fund Balance July 1, 2002 (Restated) $ 1,625,941 CHANGES IN ACCOUNTING PRINCIPLES The Butts County Board ofEducation has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003. The provisions of GASB Statement No. 34 require the inclusion of a Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following: General Fund (Restated) July 1, 2002 Capital Projects Fund Debt Service Fund $ 1,625,941 9,975,899 392,361 Governmental Funds (Restated) July 1, 2002 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Bonds Payable $ 11,994,201 85,776,879 -22,018,565 -253,122 -15,170.000 Net Assets Beginning (See Exhibit "B") $ 60,329,393 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 - 14 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES institutions. Georgia Laws OCGA 45-8-14 authorize the Board to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables 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. - 15 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PROPERTY TAXES The Butts County Board of Commissioners fixed the property tax levy for the 2002 tax digest year (calendar year) on July 25, 2002 (levy date). Taxes were due on October 7, 2002 (lien date) and could be paid in two installments on October 7, 2002 and December 9, 2002 (due dates). Taxes collected within the current fiscal year or within 60 days after year-end on the 2002 tax digest are reported as revenue in the governmental funds for fiscal year 2003. The Butts County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2003, for maintenance and operations amounted to $7,655,856. The tax millage rate levied for the 2002 tax year (calendar year) for the Butts County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 17.00 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $2,583,385 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. PREPAID ITEMS Payments made to vendors for services that will benefit periods subsequent to June 30, 2003, are recorded as prepaid items. - 16 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time ofpurchase. On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost ofnormal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment All NIA $ 5,000 20 years $ 5,000 25 to 70 years $ 5,000 5 to 15 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee 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 - 17 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case of operating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2003, the bank balances were $6,034,034. The amounts of the total bank balances are classified into three categories of credit risk: Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) - 18 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS The School District's deposits are classified by risk category at June 30, 2003, as follows: Risk Category Bank Balance 1 $ 300,000 2 5,727,903 3 6 131 Total $ 6,034,034 CATEGORIZATION OF INVESTMENTS At June 30, 2003, the carrying value ofthe School District's total investments was $2,665,101 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: The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. 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 to ensure stability. The pool distributes earnings (net of management 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 and Fund 6 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, 2003, was 30 days. The average investment duration for Fund 6 on June 30, 2003, was 0.39 years. - 19 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July I, 2002 Increases Balances Decreases June 30, 2003 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 254,600 $ 254,600 5,138,007 $ 5,104,840 $ 7,751,598 2,491,249 Total Capital Assets Not Being Depreciated $ 5,392,607 $ 5,104,840 $ 7,751,598 $ 2,745,849 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 76,851,319 $ 3,020,954 511,999 7,751,598 $ 246,471 5,178 0 $ 84,602,917 3,267,425 517,177 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 19,637,505 2,061,027 320,033 1,536,520 170,991 20,348 21,174,025 2,232,018 340,381 Total Capital Assets, Being Depreciated, Net $ 58,365,707 $ 6,275,388 $ 0 $ 64,641,095 Governmental Activity Capital Assets - Net $ 63,758,314 $ 11,380,228 $ 7,751,598 $ 67,386,944 Current year depreciation expense by function is as follows: Instruction Support Services General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 1,514,114 $ 11,520 172 3,258 148 747 163,697 50,048 $ 1)27~859 - 20 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) and general obligation bond proceeds 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, 2003, were as follows: District-wide Capital Projects Bond SPLOST Proceeds Restricted Cash and Cash Equivalents: Capital Acquisitions Restricted Investments: Capital Acquisitions $ 3,245,900 $ 1,170,574 $ 665,101 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 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, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members of the system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse) and automobile risks. Payment of excess insurance for the system varies by line of coverage. The School District is self-insured with regard to unemployment compensation claims. A premium is charged when needed by the General Fund to each user program on the basis ofthe percentage of that fund's payroll to total payroll in order to cover estimated claims budgeted by management based on known claims and prior experience. The School District accounts for claims with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: - 21 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 7: RISK MANAGEMENT Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability 2002 2003 $ 0 $ 0 $ 0 $ 0 $ 0 $ 9 777 $ 9 777 $ 0 The School District participates in the Georgia School Boards Association Workers' Compensation Fund, a public entity risk pool organized on July 1, 1992, to develop, implement, and administer a program ofworkers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Fund for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Fund with the United States Fidelity and Guaranty Company to provide coverage for potential losses sustained by the Fund in excess of $350,000 loss per occurrence, up to $1,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Employees $ 100,000 $ 100,000 Note 8: SHORT-TERM DEBT The School District obtained a temporary loan in advance of property tax collections for the purchase of real property. Article IX, Section V, Paragraph V of the Constitution of the State of Georgia limits the aggregate amount of short-term debt to 75 percent ofthe total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 of the calendar year in which the debt was incurred. Short-term debt activity for the fiscal year is as follows: Beginning Balance Issued Redeemed Ending Balance Temporary Loans $ t 84,450 $.===o $ 36.587 $ 147,863 Note 9: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: - 22 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 9: LONG-TERM DEBT Purpose Interest Rates Amount General Government - Series 2001 3.50% - 4.0% $ 13,090,000 The changes in Long-Term Debt during the fiscal year ended June 30, 2003, were as follows: Governmental Funds General Obligation Bonds Balance July 1, 2002 $ 15,170,000 Deductions Debt Retired 2,080,000 Balance June 30, 2003 $ 13,090,000 Portion of Long-Term Debt Due within One Year $ 1,580,000 At June 30, 2003, 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 2004 2005 2006 2007 2008 $ 1,580,000 $ 2,245,000 2,535,000 2,935,000 3,795,000 476,825 409,888 319,900 210,500 75 900 Total Principal and Interest $ 13,090,000 $ 1,493,013 Note 10: ON-BEHALF PAYMENTS The Board has recognized revenues and costs in the amount of $216,813 for health insurance and retirement contributions paid on the Board's behalf by the following State Agencies. - 23 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 10: ON-BEHALF PAYMENTS Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $169,470 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 $47,343 Note 11: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2003: Project Unearned Executed Contracts Athletic Field Buildings and Renovations Jackson Elementary North Mulberry Elementary $ 754,543 15,180 10,120 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. 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 of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and - 24 - BUTTS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 13: RETIREMENT PLANS survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2003 2002 2001 100% 100% 100% $ 1,172,015 $ 1,106,795 $ 1,278,026 - 25 - BUTTS COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30. 2003 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation Capital Outlay 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 Adjustments Fund Balances - Ending NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 7,392,450 $ 7,392,450 $ 7,668,597 80,000 80,000 240,982 13,185,091 13,185,091 13,574,969 832,597 832,597 2,420,945 379,392 379,392 446,741 36,000 36,000 39,310 152 419 152,419 946,872 $ 22,057,949 $ 22,057,949 $ 25,338,416 $ 13,926,278 $ 13,926,278 $ 14,770,384 842,475 673,039 467,288 567,232 1,512,522 258,757 2,128,316 1,225,688 2,000 166,604 1,310,600 25,000 842,475 673,039 467,288 567,232 1,512,522 258,757 2,128,316 1,225,688 2,000 166,604 1,310,600 25,000 900,884 623,109 457,481 652,835 1,484,877 483,638 1,772,303 1,059,825 3,240 259,516 229,122 1,311,171 $ 23,105,799 $ 23,105,799 $ 24,008,385 $ -1,047,850 $ -1,047,850 $ 1,330,031 $ 4,000 $ 4,000 -4 000 -4 000 $ 0 $ 0 $ -1,047,850 $ -1,047,850 $ 1,330,031 1,740,788 1,740,788 1,625,941 -107 217 -107 217 $ 585 721 $ 585721 $==~2~,9~5~5,9~72= 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. See notes to the basic financial statements. - 27 - BUTTS COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2003 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U.S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food and Nutrition Program Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Distribution Program (1) Total U.S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Individuals with Disabilities Education Act Part B - Special Education Flow Through Preschool Capacity Building Improvement Total Special Education Cluster Other Programs Pass-Through From DeKalb County Board of Education Elementary and Secondary Education Act Title IV 21st Century Community Learning Centers Pass-Through From Georgia Department of Education Elementary and Secondary Education Act Title I Grants to Local Educational Agencies School Improvement Title II Eisenhower Professional Development Enhancing Education Through Technology Improving Teacher Quality Title Ill Technology Literacy Challenge Fund Grants Title IV Safe and Drug-Free Schools and Communities 21st Century Community Learning Centers Title V Innovative Education Program Strategies Title VI Rural and Low Income Schools School Renovation - Schools Vocational Education - Basic Grants to States High School Program Basic Grant Total U.S. Department of Education - 28 - CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 NIA N/A $ $ (2) 1,034,963 1,034,963 10.550 N/A $ 83,225 1,118,188 * 84.027 * 84.173 * 84.027 N/A $ N/A N/A $ 335,081 23,999 14,357 373,437 84.287 N/A 109,414 * 84.010 * 84.010 84.281 84.318 84.367 84.318 84.186 84.287 84.298 84.358 84.352 84.048 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A $ 707,422 16,185 269 7,815 163,545 17,984 19,341 48,999 20,675 53,176 4,365 39,231 1,581,858 BUTTS COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2003 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Defense, U. S. Department of Direct Department of the Navy R.O.T.C. Program CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD $ _ _ _ _3_3~,3_96_ Total Federal Financial Assistance N/A = Not Available $===2-=73=3=4=4=2 Notes to the Schedule of Expenditures of Federal Awards (1) The amounts shown for the Food Distribution Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the fund earned on the School Breakfast Program ($149,014) were not maintained separately and are included in the 2003 National School Lunch Program. 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 Butts County Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the basic financial statements. See notes to the basic financial statements. - 29 - BUTTS COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2003 SCHEDULE "3" AGENCY/FUNDING GRANTS Education. Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Extended Day - Agriculture Extended Year - Agriculture Extended Day - Technology/Career Education 4-8 Statewide After School Program K-3 Statewide Reading Program Health Insurance Mentor Teachers National Teacher Certification Preschool Handicapped Program Lottery Programs Assistive Technology Computers in the Classroom Post Secondary Options Georgia Institute Technology Lottery Programs Student Information System Georgia State Financing and Investment Commission Reimbursement on Construction Projects Office of Treasury and Fiscal Services Public School Employees Retirement GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 829,980 124,165 1,830,735 310,110 920,928 207,680 1,952,699 1,484,600 428,217 38,904 191,001 767,822 173,159 11,475 162,452 28,270 141,702 275,176 94,480 57,250 376,368 535,550 861,065 420,200 91,745 34,095 79,665 12,767 25,270 920,831 92,336 11,408 -334,373 5,836 2,381 18,477 30,001 43,896 169,470 3,486 2,958 29,954 1,095 2,261 1,376 58,703 $ 47 343 $ 829,980 124,165 1,830,735 310,110 920,928 207,680 1,952,699 1,484,600 428,217 38,904 191,001 767,822 173,159 11,475 162,452 28,270 141,702 275,176 94,480 57,250 376,368 535,550 861,065 420,200 91,745 34,095 79,665 12,767 25,270 920,831 92,336 11,408 -334,373 5,836 2,381 18,477 30,001 43,896 169,470 3,486 2,958 29,954 1,095 2,261 1,376 58,703 783,316 783,316 47 343 See notes to the basic financial statements. $ 13 574 969 $ 783 316 $ 14 358 285 - 30- BUTTS COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30. 2003 SCHEDULE "4" PROJECT Acquiring, constructing and equipping a new middle school; constructing, installing and equipping additional classrooms at Jackson High School; renovating the existing middle school and elementary/primary school complex; and acquiring necessary property, both real and personal, necessary therefore. Acquiring, constructing and equipping a new elementary school; adding to, renovating, repairing, improving and equipping two existing elementary schools; acquiring any necessary real or personal property and equipment; and adding to, renovating, repairing, improving and equipping existing educational buildings, properties and facilities of the School District, including, without limitation, adding technology upgrades, renovating the auditorium, acquiring new buses and improving the School District's athletic facilities. ORIGINAL ESTIMATED COST(1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 10,283,525 $ 15,500,000 $ 101,971 $ 14,630,784 Ongoing 18,003,161 13,641,000 6,950,378 6,299,222 Ongoing $ 28,286,686 $ 29,141,000 $ 7,052,349 $ 20,930,006 (1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax. (2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion. (3) The voters of Butts County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. See notes to the basic financial statements. - 31 - BUTTS COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2003 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle 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 CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 942,293 $ 1,052,272 $ 56,199 $ 1,108,471 140,122 96,576 96,576 2,116,046 1,735,509 181,543 1,917,052 355,556 311,973 1,371 313,344 1,069,554 1,100,163 90,322 1,190,485 228,192 2,262,593 1,692,221 523,686 1,341,198 183,170 37,295 163,669 192,191 16,658 2,090,779 2,016,167 500,269 124,283 252,951 679,586 87,691 5,341 187,421 64,893 171,265 159,862 180,037 10,585 2,278 444 27,052 1,016 317 120,714 192,191 16,658 2,250,641 2,196,204 510,854 126,561 253,395 706,638 87,691 5,341 188,437 65,210 291,979 $ 11,055,595 $ 10,685,988 $ 831,740 $ 11,517,728 317,601 66,493 351,907 3,381 101,817 54,978 453,724 58,359 TOTAL QBE FORMULA FUNDS $ 11,439,689 $ 11,041.276 $ 988,535 $ =~1~2,:,;;,02~9;,;;,8;;,;1~1 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 33- SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS RUSSELL W. HINTON STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 July 8, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Butts County Board of Education REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ladies and Gentlemen: We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Butts County Board of Education as of and for the year ended June 30, 2003, which collectively comprise Butts County Board ofEducation's basic financial statements and have issued our report thereon dated July 8, 2004. This report was qualified for a departure from generally accepted accounting principles, as identified in the auditor's report on the basic financial statements. 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. Compliance As part ofobtaining reasonable assurance about whether Butts County Board ofEducation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective ofour audit, and accordingly, we do not express such an opinion. The results ofour tests disclosed no instances ofnoncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered Butts County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of 2003-34YB-40 expressing our opinion on the financial statements and not to provide assurance 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 ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Butts 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-6181-03-01, FS-6181-03-02 and FS-6181-03-03. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, ofthe reportable conditions described above, we consider item FS-6181-0301 to be a material weakness. This report is intended solely for the information and use ofthe management, members ofthe Butts County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:gp 2003-34YB-40 State Auditor RUSSELL W. HINTON STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 July 8, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Butts 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 Butts County Board of Education with the types of compliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2003. Butts County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Butts County Board of Education's management. Our responsibility is to express an opinion on Butts County Board of Education's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Butts County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Butts County Board of Education's compliance with those requirements. 2003SA-30 In our opinion, the Butts County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2003. Internal Control Over Compliance The management ofButts County Board ofEducation 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 Butts County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. We noted a certain matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Butts County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FA-6181-03-01. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level of risk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. This report is intended solely for the information and use ofthe management, members ofthe Butts County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. --- ~-~ Respectfully submitted, RWH:gp 2003SA-30 State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS BUTTS COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6181-01-01 FS-6181-01-02 Further Action Not Warranted Previously Reported Corrective Action Implemented SECTION IV FINDINGS AND QUESTIONED COSTS BUTTS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Butts County Board of Education's financial statements was qualified for a departure from generally accepted accounting principles. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Butts County Board of Education disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts Expenditures/Liabilities/Disbursements General Ledger Ofthe reportable conditions described above, Cash and Cash Equivalents is considered to be a material weakness. 3. Noncompliance Material to the Financial Statements The audit ofthe Butts County Board of Education disclosed no instances ofnoncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Butts County Board ofEducation disclosed a reportable condition in internal control over major programs for the following compliance requirement. Special Tests and Provisions The reportable condition described above is not considered to be a material weakness. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Butts 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 .5 lO{a) of 0MB Circular A-133 The Butts County Board of Education's audit disclosed an audit finding required to be reported by section .510(a) of OMB Circular A-133. This audit finding is included in section IV of this report. - 1- BUTTS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 I SUMMARY OF AUDITOR'S RESULTS 7. Major Programs Federal awards audited as major programs are as follows: 84.010 Elementary and Secondary Education Act - Title I - Grants to Local Educational Agencies 84.010 Elementary and Secondary Education Act - Title I - School Improvement 84.027 Individuals with Disabilities Education Act - Part B - Special Education Flow Through 84.173 Individuals with Disabilities Education Act - Part B - Special Education Preschool 84.027 Individuals with Disabilities Education Act - Part B - Special Education Capacity Building Improvement 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Butts 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 Failure to Properly Reconcile School Activity Accounts Reportable Condition - Material Weakness Finding Control Number: FS-6181-03-01 Our examination ofthe principals' accounts disclosed that bank reconciliations were not reconciled to the general ledger as presented for audit for the school activity (principals) account agency funds. The cash balance per the general ledger was materially less than the cash amounts on the bank reconciliation. These agency funds are maintained at the individual schools in the fiduciary fund, which comprised the aggregate remaining fund information, as required by generally accepted accounting principles. This misstatement in the cash balance is considered to be a financial irregularity in accordance with O.C.G.A. 20-2-67 and results in the basic financial statements ofthe School District being materially misstated for the fiduciary fund type. This deficiency is a result ofmanagement's failure to ensure established controls were functioning as designed. The School District should establish appropriate policies and procedures to ensure that all ofthe financial activity related to the various school activity accounts are properly reconciled to the general ledger balances as presented for audit by the School District as required by generally accepted accounting principles. -2- BUTTS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6181-03-02 Our examination of the principals' accounts disclosed weaknesses in internal control as discussed below: Cash and Cash Equivalents The bank reconciliation function was not separated from the record keeping and voucher payment functions. Bank reconciliations were not reconciled to the total cash listed on the general ledger as presented for audit. Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody function. School personnel were unable to reconcile cash receipts for athletic events because prenumbered tickets were not used for these events. Based upon a sample of 25 items, two receipts were not deposited to the bank account in a timely manner; seven receipts did not agree with the deposit documentation; and four receipts were dated after the deposit date shown on the supporting documentation. Pre-numbered receipt books were not used for the principal account tested. Expenditures/Liabilities/Disbursements The check writing function was not separated from record keeping or processing of signed checks. Based on a sample of 25 items, fourteen voucher packages did not contain an invoice or other supporting documentation for the expenditure, sixteen voucher packages did not contain purchase orders and none of the voucher packages contained approval by the appropriate school personnel. These deficiencies were a result ofthe management's decision to limit the number of administrative staff made responsible, at the various principal account sites, for the accounting functions and their failure to ensure established controls were functioning as designed. Management should implement procedures to ensure that the key accounting functions ofcustody, record keeping and authorization be segregated. Controls should be revised and monitored to provide reasonable assurance that transactions are processed according to established procedures. Additionally, the School District -3 - BUTTS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6181-03-02 should establish appropriate policies and procedures to ensure that all ofthe financial activity related to the various school activity accounts are properly reconciled to the general ledger balances as presented for audit by the School District. GENERAL LEDGER Inadequacies in Control Over Subsidiary Ledgers Reportable Condition Finding Control Number: FS-6181-03-03 Our examination included a review of the procedures utilized by the School District in recording transactions to the various modules comprising the CSI (Computer Software Innovations) accounting system. Our testing revealed that at June 30, 2003, the School District's general ledger module did not balance with the accounts payable subsidiary module. This condition was primarily due to errors in posting subsidiary records following the conversion from the GENESIS accounting system and due to transactions not being properly posted in the appropriate subsidiary modules. The School District could not provide a reconciliation of the general ledger balance to the accounts payable subsidiary records at June 30, 2003. Management's failure to ensure that the subsidiary records are accurate and properly support general ledger balances causes internal reports to management, generated from these subsidiary records, to be inaccurate and misleading. This condition can lead to erroneous decisions by the School District's management and result in inaccurate reporting of financial information. To provide accurate and timely reporting of financial information from subsidiary records, the School District should ensure that transactions are posted correctly to the appropriate subsidiary ledgers which support financial data recorded in the general ledger. Appropriate controls and procedures should be developed which require the reconciliation ofsubsidiary ledgers to the general ledger on a regular basis. -4 - BUTTS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Outstanding Loan Nonmaterial Noncompliance Finding Control Number: FS-6181-03-04 On December 31, 2002, the Capital Projects Fund had an unpaid loan outstanding in the amount of $184,450.00. Article IX, Section V, Paragraph V of the Constitution of the State of Georgia provides, in part, as follows: "The governing authority of any county, municipality or other political subdivision of this state may incur debt by obtaining temporary loans in each year to pay expenses...Such loans shall be payable on or before December 31 ofthe calendar year in which such loan is made. No such loan may be obtained when there is a loan then unpaid obtained in any prior year." This condition occurred because of management's failure to retire the entire loan on December 31, 2002, as required. Repayment ofloans should be made in conformity with constitutional limitations. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6181-03-01 During the year in review, the School District identified three schools as participating in a schoolwide program. While Federal provisions prescribe that multiple funding sources (Federal, State or local) are required to support a school-wide program, we noted that the Title I program was identified as the only funding source supporting the school-wide program concept at the participating schools and, in contrast with Federal requirements, the School District arbitrarily charged the Title I fund with school-wide expenditures. In accordance with provisions ofU. S. Department of Education Instructions and 0MB Circular A133, Compliance Supplement provisions, eligible schools are able to use their Title I, Part A funds, in combination with other Federal, State and local funds, in order to upgrade the entire educational program of the school and to raise academic achievements for all students. By combining funds from Title I and other eligible U. S. Department of Education funded programs in support of a school-wide program, U. S. Department ofEducation Instructions provide that specific school-wide -5- BUTTS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6181-03-01 program costs lose their identity but only in those circumstances when funds are combined in a school-wide program. In line with 0MB Circular A-87 requirements, school-wide expenditures should be charged to those Federal funding sources supporting the school-wide program in a reasonable manner. Ifthere is only one Federal funding source, then costs should be charged to the Federal program based on the specific benefits derived from that cost. When more than one Federal program supports a school-wide program, then school-wide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support of the school-wide program. It was the School District's understanding that costs related to a school-wide program lose their identity and therefore any school-wide program cost can be charged to the Title I program. They were unaware that this was only applicable when there is more than one funding source supporting the school-wide program. The School District should implement procedures to assure that ifthe Title I program continues to be the only funding source in support of a school-wide program, only those costs that specifically relate to the Title I program may be charged to the Title I fund. If more than one funding source is to support the school-wide program in the future, then procedures should be developed to (1) combine such funds as prescribed by U.S. Department of Education and (2) in line with 0MB Circular A-87 provisions, allocate such school-wide program costs to the respective Federal fund in a reasonable manner. The School District should seek Georgia Department of Education guidance in implementing fiscal procedures for combining and allocating school-wide program expenditures to Federal programs. -6-