Calhoun County Board of Education, Morgan, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2004

CALHOUN COUNTY BOARD OF EDUCATION
MORGAN# GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30# 2004
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

CALHOUN 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

29

CALHOUN COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

30

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

31

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATIERS 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

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

SECTION I FINANCIAL

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

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
May 19, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Calhoun 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 Calhoun County Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Calhoun County Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm1ons.
As discussed in Note 2 to the basic financial statements, management has not properly recorded current year sales tax revenue in the amount of $20,989 in its Debt Service Fund. Accounting principles generally accepted in the United States of America require that revenues be recognized when measurable and available.

2004ARL-23

In our opinion, except for the effects of not properly recognizing revenues within the Debt Service Fund the financial statements referred to above present fairly, in all material respects, the financial position of the Debt Service Fund of the Calhoun County Board of Education, as of June 30, 2004, and the changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the General Fund, the District-wide Capital Projects Fund and the aggregate remaining fund information of the Calhoun County Board of Education, as of June 30, 2004, 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 Calhoun 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 discussed in Note 2 to the basic financial statements, during fiscal year 2004, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements and consolidated its individual school activity accounts for inclusion in the basic financial statements. These changes are in accordance with generally accepted accounting principles.
As described in Note 2, the Calhoun County Board of Education 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, 2004.
In accordance with Government Auditing Standards, we have also issued our report dated May 19, 2005, on our consideration of the Calhoun 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 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.
2004ARL-23

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Calhoun 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 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 of Georgia Annotated section 506-24.
Respectfully submitted,
~~LU.~
J:ell W. Hinton State Auditor
RWH:gp 2004ARL-23

CALHOUN COUNTY BOARD OF EDUCATION

CALHOUN COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2004

EXHIBIT "A"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Inventories Capital Assets Land Land Improvements Buildings and Improvements Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries 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 Debt Service Unrestricted (Deficit)
Total Net Assets
Total Liabilities and Net Assets
The notes to the basic financial statements are an integral part of this statement. -3-

GOVERNMENTAL ACTIVITIES

$

1,285,502

243,197

97,513 408,640 192,752
8,584

1,483,279 485,884
5,769,025 1,086,623 -4,655,652

$

305,933

507,620

42,182

438,627 1,090,979

$

2,385,341

$

3,639,553

38,730 73,505 273,834 -5,616

$

4,020,006

$ ====6;;.,,4;,;0;;,5,!:3=47=

CALHOUN COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30. 2004

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 Operations of Non-Instructional Services Food Services Interest on Short-Term and Long-Term Debt

$

3,798,245

200,076 329,355
7,343 348,994 468,158 124,841 484,011 389,606
10,080

452,067 $ 24999

16,454

Total Governmental Activities

6 637,775 $

16,454

General Revenues Taxes Property Taxes For Maintenance and Operations Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Debt Services Intangible Recording Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous

Total General Revenues

Change in Net Assets

Net Assets - Beginning of Year (Restated)

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

$

3,449,839

64,390 103,628 66,078
71,514 225,193 221,129 248,161 130,478 $

379,899

$

4,960,309 $

$ 34,028 34 028 $

-348,406
-135,686 -225,727
58,735 -277,480 -242,965
96,288 -235,850 -225,100
-10,080
-55,714 -24,999
-1,626,984

$

1,393,128

15,679

315,422 9,402
131,460 11,503
192,521

$

2,069,115

$

442,131

3 577,875

$ ====4=,0=20='=00=6=

-5-

CALHOUN COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30. 2004

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Inventories
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Cash Overdraft Accounts Payable Salaries 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

$ 348,421 $ 937,823

$ 1,286,244

8,043 $ 235,154

243,197

24,889 408,640 192,752
8,584

39,422

64,311 408,640 192,752
8,584

$ 983,286 $ 945,866 $ 274,576 $ 2,203,728

$ 304,629 $ 507,620 42,182
$ 854,431 $

$ 1,304
1,304 $

742 $ 742 $

742 305,933 507,620
42,182
856,477

$

38,730

$

38,730

64,921

64,921

$ 273,834

273,834

8,584

8,584

$ 944,562

944,562

16,620

16,620

$ 128,855 $ 944,562 $ 273,834 $ 1,347,251

$ 983,286 $ 945,866 $ 274,576 $ 2,203,728

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

CALHOUN COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30. 2004

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 Land Improvements Buildings Equipment Accumulated Depreciation
Total Capital Assets
Some of the School District's property tax revenues will be collected after year end but are not available soon enough to pay for the current period"s expenditures.
Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:
Bonds Payable Capital Leases
Total Long-Term Liabilities

$

1.347,251

$

1.483,279

485,884

5,769,025

1,086,623

-4,655,652

4,169,159

33,202

$ -1,390,000 -139,606

-1,529,606

Net Assets of Governmental Activities (Exhibit "A")

$ ==4=.0=2=0=,0=06=

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

CALHOUN COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2004

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 Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES
Proceeds of Long-Term Capital-Related Debt Capital Leases
Total Other Financing Sources
Net Change in Fund Balances
Fund Balances - Beginning (Restated)

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 1,426,603 9,402
3,961,656 1,164,141
16,454 6,967 $
191,421
$ 6,776,644 $

$ 2,542

$ 315,422
1,994 1,100

1,426,603 324,824
3,961,656 1,164,141
16,454 11,503 192,521

2,542 $ 318,516 $ 7,097,702

$ 3,626,954 $
200,076 329,355
335 348,994 466,266
98,999 484,011 452,112
10,080 433,425
19,553 2,583
$ 6,472,743 $
$ 303,901 $

13,200

$ 3,640,154

24,000 $

1,842

11,762

200,076 329,355
335 348,994 466,266 124,841 484,011 452,112
10,080 433,425
11,762

355,000 22,416

374,553 24,999

48,962 $ 379,258 $ 6,900,963

-46,420 $ -60,742 $

196,739

$ $ 118,801 $ 118,801 $ $ 422,702 $
-293,847

983,021 $

16,979 $ 1,000,000 118,801

983,021 $ 16,979 $ 1,118,801

936,601 $ -43,763 $ 1,315,540

7,961

317,597

31,711

Fund Balances - Ending

$ 128,855 $

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

-8-

944,562 $ 273,834 $ 1,347,251

CALHOUN 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. 2004

EXHIBIT"F"

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

$

1,315,540

$

118,801

-230, 166

-111,365 -17,796

-1,000,000 -118,801

$

355,000

19,553

374,553

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

$ ===4=4=2-=1=3=1

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

CALHOUN COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004
ASSETS Accounts Receivable, Net
Other
LIABILITIES Cash Overdraft Funds Held for Others
Total Liabilities

EXHIBIT"G"

AGENCY FUNDS
$ ===2=0=,3=2=2

$

19,070

1,252

$ ===2=0=,3=2=2

The notes to the basic financial statements are an integral part of this statement. -10-

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Calhoun 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 Calhoun 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 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 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.

- 11 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

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 to be used for the acquisition, construction or renovation of major capital facilities.
Debt Service Fund accounts for taxes (sales) legally restricted for the payment ofgeneral longterm principal, interest and paying agent's fees.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various 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 and grants. 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 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

- 12 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

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.

The School District has understated debt service fund revenues by $20,989. To conform to generally accepted accounting principles, revenues should be accurately reported. See Finding Control Number: FS-6191-04-05.

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 $109,015 at July 1, 2003. For fiscal year 2004, 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, 2004. The governmental fund activity of the various school activity accounts had a fund balance of $8,328 at July 1, 2003. This change is in accordance with generally accepted accounting principles.

General Fund Balance July 1, 2003

$ -411,190

Add Funds Consolidated with General Fund: School Food Services Fund School Activity Account - Governmental Activity

109,015 8,328

General Fund Balance July 1, 2003 (Restated)

$ -293.847

CHANGES IN ACCOUNTING PRINCIPLES

The Calhoun County Board of Education 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, 2004.

The provisions of GASB Statement No. 34 require the inclusion of a Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following:

- 13 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Fund (Restated) July 1, 2003 Capital Projects Fund Debt Service Fund

$ -293,847 7,961
317 597

Governmental Funds (Restated) July 1, 2003 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Bonds Payable Capital Leases Payable

$

31,711

8,706,010

-4,425,486

50,998

-745,000

-40,358

Net Assets Beginning (See Exhibit "B")

$ 3,577.875

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 of deposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code 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,

- 14 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(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.

PROPERTY TAXES

The Calhoun County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on September 2, 2003 (levy date). Taxes were due on December 20, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Calhoun 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, 2004, for maintenance and operations amounted to $1,410,924.

The tax millage rate levied for the 2003 tax year (calendar year) for the Calhoun County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

15.55 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $315,422 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.

- 15 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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:

Land Land Improvements Buildings and Improvements Equipment

Capitalization Policy

Estimated Useful Life

All

NIA

$

10,000 15 to 30 years

$

10,000 15 to 40 years

$

10,000 10 to 30 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.

- 16 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT"H"

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. If a 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. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating 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, 2004, the bank balances were $1,626,949. The amounts of the total bank balances are classified into three categories of credit risk:

- 17 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS

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.)

The School District's deposits are classified by risk category at June 30, 2004, as follows:

Risk Category

Bank Balance

1

$ 110,156

2

1,516,793

3

0

Total

$ 1,626,949

CATEGORIZATION OF INVESTMENTS Investments are classified as to risk by the three categories described below:

Category 1 - Insured or registered, or securities held by the School District or the School District's agent in the School District's name.
Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the School District's name.
Category 3 - Uninsured or unregistered, with securities held by the counterparty, or by its trust department or agent but not in the School District's name.

Funds invested in an investment pool managed by another government are not required to be categorized unless the investing entity owns specific, identifiable investment securities in the pool.

At June 30, 2004, the carrying value ofthe School District's total investments was $243,197 which is materially the same as fair value. The investments are classified as to risk categories as follows:

Tyge oflnvestment

U.S. Government

$

Local Government Investment Pools

Total Investments

Risk Categories

2

3

17,022 $

0 $

Carrying Amount

Fair Value

$

17,022 $

17,022

226,175

226,175

$

243,197 $

243 197

- 18 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS
The carrying amounts shown above includes amounts maintained in an investment pool by the State of Georgia, Office ofTreasury and Fiscal Services in which the School District owns no identifiable securities. The investment policy ofthe State of Georgia, 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 ofthe 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 Securities and Exchange Commission (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 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 ofGeorgia'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, 2004, was 24 days. The average investment duration for Fund 6 on June 30, 2004, was 0.22 years.
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:

- 19 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT"H"

Note 5: CAPITAL ASSETS

Balances July I, 2003

Increases

Balances Decreases June 30, 2004

Governmental Activities

Capital Assets, Not Being Depreciated:

Land

$ 1,483,279 $

0 $

0 $ 1,483,279

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 5,769,025 967,822 $ 485,884

$ 118,801

0 $ 5,769,025 1,086,623 485,884

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

3,253,100 732,260 440,126

139,900 59,761 30,505

3,393,000 792,021 470 631

Total Capital Assets, Being Depreciated, Net $ 2,797,245 $ -111,365 $

0 $ 2,685,880

Governmental Activity Capital Assets - Net $ 4,280.524 $ -111.365 $

0 $ 4,169.159

Capital assets being acquired under capital leases as of June 30, 2004, are as follows:

Governmental Funds

Equipment Less: Accumulated Depreciation

$ 118,801 5 940

$.==="'1~12~,~86gl

Current year depreciation expense by function is as follows:

Instruction Support Services
Educational Media Services School Administration Student Transportation Services Food Services

$ 150,405

$

6,667

1,800

53,558

62,025 17 736

$ 230,166

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, 2004, were as follows:

- 20 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 6: RESTRICTED ASSETS

District-wide Capital Projects Bond Proceeds

Debt Service Funds

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

$

959,021

$

235,154

$

8,043

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

The School District has elected to self-insure for all losses related to acts of God. The School District has not experienced any losses related to this risk in the past three years.

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:

2003 2004

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End ofYear Liability

$

0 $

7 739 $

7 739 $

0

$

0 $

9 023 $

9 023 $

0

- 21 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT"H"

Note 7: RISK MANAGEMENT

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 $400,000 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 Each Principal

$

50,000

$

10,000

Note 8: SHORT-TERM DEBT

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

$===0 $ 350,150 $ 350,150 $====0

Note 9: LONG-TERM DEBT

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

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

- 22 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 9: LONG-TERM DEBT

Purpose

Interest Rates

Amount

General Government - Series 1999 General Government - Series 2004

3.95% 2.59%

$ 390,000 1,000,000

$ 1,390.000

The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows:

Governmental Funds

General

Capital

Obligation

Leases

Bonds

Total

Balance July 1, 2003

$

40,358 $ 745,000 $ 785,358

Additions Capital Leases G.O. Bonds

118,801

1,000,000

118,801 1,000,000

Deductions Debt Retired

19,553

355,000

374,553

Balance June 30, 2004

$ 139,606 $ 1,390,000 $ 1,529,606

Portion of Long-Term Debt Due within One Year

$

48,627 $ 390,000 $ 438,627

At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30

Cagital Leases

Princigal

Interest

2005 2006 2007 2008

$

48,627 $

29,038

30,308

31,633

6,522 3,976 2,707 1,382

Total Principal and Interest

$ 139,606 $

14 587

- 23 -

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT"H"

Note 9: LONG-TERM DEBT

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

2005 2006 2007 2008 2009 2010

$ 390,000 $ 110,000 215,000 220,000 225,000 230,000

37,632 24,475 20,267 14,633
8,871 2 979

Total Principal and Interest

$ 1,390.000 $ 108.857

Note 10: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of$70,832 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $70,150

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 $682

Note 11: 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 12: 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

- 24-

CALHOUN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 12: RETIREMENT PLANS

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% 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

2004 2003 2002

100% 100% 100%

$ 307,577 $ 329,604 $ 311,390

- 25 -

CALHOUN COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30. 2004

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 Community Services Food Services Operation
Debt Service
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES
Other Sources
Net Change in Fund Balances
Fund Balances - Beginning (Restated)
Adjustments

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

1,579,554 $

1,579,554 $

1,426,603

20,000

20,000

9,402

3,805,746

3,960,985

3,961,656

1,114,325

1,285,961

1,164,141

11,540

11,540

16,454

5,500

5,500

6,967

27,500

27,500

191,421

$

6,564,165 $

6,891,040 $

6,776 644

$

3,802,772 $

3,926,278 $

3,626,954

208,043 105,154 173,968 385,963 396,669
93,742 481,727 367,220
6,200
404,870

229,489 186,576 173,945 405,851 423,800
94,192 481,727 372,077
10,080 6,200
15,834 404,870

200,076 329,355
335 348,994 466,266
98,999 484,011 452,112
10,080
433,425 22,136

$

6,426,328 $

6,730,919 $

6,472,743

$

137,837 $

160,121 $

303,901

118,801

$

137,837 $

160,121 $

422,702

-142,798

-142,798

-293,847

213 557

213,557

Fund Balances - Ending

$

208,596 $

230,880 $ ===~12~8~8;;,;;55~

Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts.

The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 27 -

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30. 2004

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Donation (1)
Total U.S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Other Programs Pass-Through From Georgia Department of Education Accountability Grants Enhancing Education Through Technology Program Improving Teacher Quality State Grants Rural Education State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States
Total U.S. Department of Education
Labor, U. S. Department of Pass-Through From Georgia Department of Labor Workforce Investment Act Youth Activities

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 10.555
10.550

N/A

(2)

N/A

$ _ _ _ _38_2~4_2_4

$

382,424

N/A

24 117

$ _ _ _ _40_6~5_4_1

84.027 84.173
84.348 84.318 84.367 84.358 84.298 84.010 84.048
17.259

N/A

$

N/A

$

132,301 10,331
142,632

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

11,563 39,160 79,536 16,515 16,701 468,279 14,430
788,816

N/A

$ _ _ _ _2_2~3_1_0

Total Federal Financial Assistance N/A = Not Available

$===1=-=21=7,!=6=6=7

Notes to the Schedule of Expenditures of Federal Awards

(1) The amount shown for the Food Donation Program represent 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 School Breakfast Program ($95,478) were not maintained separately and are included in the 2004 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 Calhoun County Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 28 -

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004

AGENCY/FUNDING
GRANTS Bright from the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle Grades (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs At-Risk Summer School Program Health Insurance Limited School Choice Program Preschool Handicapped Program Student Information System Lottery Program Student Information System
Office of Treasury and Fiscal Services Public School Employees Retirement
CONTRACT Education, Georgia Department of Middle School/After School Program

See notes to the basic financial statements.

- 29 -

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

90,251

147,472 145,798 286,266 350,030 210,147 52,882 367,030 274,861 142,344
5,277 190,852 161,788
70,854 22,144 18,654 13,660 30,202
8,061 66,329 20,866 13,431
256,058 191,481 184,466
148,365 34,028
223,750 32,532 2,793 9,008
164,305 26,884 11,370 -171,071
12,000 70,150 12,000 37,497 12,588
6,294
682
7,277
$ =======3:!:,9=6=1,..,6=56=

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30 2004

SCHEDULE "4"

PROJECT
The acquisition, construction and equipping of modifications, extensions, renovations and repairs to the facilities and equipment of the Calhoun County Middle/High School, including, but not limited to the cafeteria, gymnasium and athletic facilities; the acquisition, construction and equipping of modifications, extensions, renovations and repairs to the facilities and equipment of the Calhoun County Elementary School, including, but not limited to the lunchroom, gymnasium and athletic facilities; and acquiring, constructing and equipping and adding to, renovating, repairing, improving and equipping instructional and support facilities, existing school buildings and other buildings and facilities useful or desirable in connection therewith; and acquiring any necessary property therefor, both real and personal and acquiring any necessary or desirable rights in connection therewith.
The funding of the payment of principal and interest on the Calhoun County School District General Obligation Bonds, Series 1999, coming due on October 1, 2004 in an amount up to $100,000; rehabilitating, adding to, repairing, renovating, extending and improving Calhoun County Elementary School and Calhoun County Middle/High School and related facilities useful or desirable in connection therewith, including without limitation, roof replacements and repairs, mechanical system repairs and replacements, wiring and infrastructure modifications, renovations and improvements to physical education and athletic facilities, additional parking and paving, and security systems; acquiring any necessary property therefor, both real and personal and acquiring any necessary or desirable rights in connection therewith; renovations and repairs to the School District's bus shop; the acquisition and installation of technology additions and improvements; the acquisition of school buses; and purchasing school furnishings, equipment and fixtures; and paying costs incident to accomplishing the foregoing.

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS(2)

AMOUNT EXPENDED IN CURRENT YEAR (3) (4)

AMOUNT EXPENDED
IN PRIOR YEARS (3) (4)

PROJECT STATUS

$

2,000,000 $ 2,000,000 $

24,961 $

1,667,652 Completed

2,000,000

2,000,000

Ongoing

$

4,000,000 $

4,000,000 $

24 961 $==1.,.6a.a6.7..,.,6.5...2..

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

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

Prior Years

$

205,696

Current Year

22 416

Total

$ ===22=8='1=1=2

See notes to the basic financial statements.

- 30-

CALHOUN COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2004

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 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 Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL)
TOTAL DIRECT INSTRUCTIONAL PROGRAMS
Media Center Program Staff and Professional Development

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

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

$

165,026 $

133,653 $

959 $

134,612

159,892

136,688

1,124

137,812

328,095

354,216

8,387

362,603

406,209

354,443

1,781

356,224

233,789

187,503

7,754

195,257

70,206 418,350 316,813 162,970 501,456
23,671 15,084 34,667
7,976

93,601 341,132 385,791 153,045
29,343 263,086 112,885
47,040 26,697 12,770 29,862

292 17,196 15,303 13,039
133 1,781 4,138
133 222
133 101

93,893 358,328 401,094 166,084
29,476 264,867 117,023
47,173 26,919 12,770 29,995
101

$

2,844,204 $

2,661,755 $

72,476 $

2,734,231

75,451 15 449

163,449 9,718

19,267 6,172

182,716 15,890

TOTAL QBE FORMULA FUNDS

$

2,935,104 $

2,834,922 $

97,915 $ ==,,,,:2;;.,;;,;93~2~,8;;;;3,;,.7

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

See notes to the basic financial statements.

- 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
May 19, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Calhoun 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 of Calhoun County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Calhoun County Board of Education's basic financial statements and have issued our report thereon dated May 19, 2005. 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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Calhoun County Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion 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 corning to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Calhoun County Board ofEducation's ability to record, process, summarize and report financial data

2004YB-40

consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6191-04-01, FS-6191-04-02, FS-6191-04-03, FS-6191-04-04 and FS-6191-04-05.
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, of the reportable conditions described above, we consider items FS-6191-04-01 and FS-6191-04-05 to be material weaknesses.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Calhoun 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 Calhoun County Board of Education and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

RWH:gp 2004YB-40

~,W,~
Russell W. Hinton
State Auditor

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
May 19, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Calhoun 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 Calhoun County Board of Education with the types of compliance requirements described in the US. 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, 2004. Calhoun 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 Calhoun County Board of Education's management. Our responsibility is to express an opinion on Calhoun County Board of Education's compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General 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 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 Calhoun 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 Calhoun County Board of Education's compliance with those requirements.
2004SA-30

In our opinion, the Calhoun 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, 2004.
Internal Control Over Compliance
The management of Calhoun 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 Calhoun 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 certain matters involving the internal control over compliance 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 compliance that, in our judgment, could adversely affect the Calhoun County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FA-6191-04-01, FA-6191-04-02, FA-6191-04-03 and FA-6191-0404.
A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above is a material weakness.
This report is intended solely for the information and use of the management, members of the Calhoun 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 2004SA-30

State Auditor

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

CALHOUN COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-6191-02-01 FS-6191-02-02 FS-6191-03-01 FS-6191-03-02 FS-6191-03-03 FS-6191-03-04 FS-6191-03-05

Further Action Not Warranted Further Action Not Warranted Previously Reported Corrective Action Implemented Unresolved Unresolved Partially Resolved Previously Reported Corrective Action Implemented

CORRECTIVE ACTION/RESPONSES

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION GENERAL LEDGER Inadequate Accounting Procedures Finding Control Number: FS-6191-03-02

Procedures were not implemented as planned for fiscal year 2004; however, the following procedures will be implemented for fiscal year 2005. Bank accounts for the general operating and trust accounts will be properly reconciled to the general ledger. All expenditures will be properly documented, properly coded, checked for accuracy, and properly approved before disbursement offunds. Careful attention will be given to ensure: bank statements are reconciled to the general ledger, checks are issued in sequential order, revenues are recorded properly, expenditures are properly documented and receipt of goods confirmed before disbursement offunds. Upper level management with assistance of a financial consultant will make periodic checks to ensure this is being done.

PROCUREMENT Failure to Maintain Documentation of Legal Compliance Finding Control Number: FS-6191-03-03

Calhoun County Board of Education has not entered into any new multi-year leases for office equipment. Previous lease agreements have not been amended.

- 1-

CALHOUN COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CORRECTIVE ACTION/RESPONSES

GENERAL LEDGER Failure to Properly Record Debt Service Activities Finding Control Number: FS-6191-03-04

Procedures have been implemented to ensure that all debt service activities, with the exception of revenues, are properly recorded. Beginning in fiscal year 2005, upper level management, with the assistance of a financial consultant, will ensure that debt service revenue is properly recorded. Management and consultant will periodically review debt service activities to ensure procedures are being followed.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

F A-6191-02-01 FA-6191-02-02 FA-6191-03-01 FA-6191-03-02 FA-6191-03-03 FA-6191-03-04 FA-6191-03-05 FA-6191-03-06

Further Action Not Warranted Further Action Not Warranted Previously Reported Corrective Action Implemented Unresolved Unresolved Previously Reported Corrective Action Implemented Unresolved Unresolved

CORRECTIVE ACTION/RESPONSES

CASH MANAGEMENT Excessive Cash Balances Finding Control Number: FA-6191-03-02

Beginning July 1, 2005, cash draw downs are being made only after funds have been expended. This has eliminated the problem of excessive cash balances.

ELIGIBILITY Failure to Maintain Master List of Eligible Students Finding Control Number: FA-6191-03-03

Beginning in fiscal year 2006, a master list for all students who participate in the Child Nutrition Program is being maintained. This includes dates of withdrawals, denials, approvals, and change of status of students.

-2-

CALHOUN COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES SPECIAL TESTS AND PROVISIONS Failure to Verify Required Number of Applications Finding Control Number: FA-6191-03-05 Food Service is working with Marjorie Massey, School Nutrition Regional Office, Moultrie, in trying to resolve this finding. SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Finding Control Number: FA-6191-03-06 Beginning in fiscal year 2005, procedures have been implemented to ensure that multiple sources of funding are being used to support school-wide programs. Funds are being blended to meet regulations.
-3-

SECTION IV FINDINGS AND QUESTIONED COSTS

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

I SUMMARY OF AUDITOR'S RESULTS

1. Type of Report Issued on the Financial Statements The auditor's opinion on the Calhoun 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 Calhoun 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 Employee Compensation General Ledger

All of the reportable conditions described above are considered to be material weaknesses.

3. Noncompliance Material to the Financial Statements The audit of the Calhoun 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 Calhoun County Board of Education disclosed reportable conditions in internal control over major programs for the following compliance requirements.

Allowable Costs/Cost Principles Cash Management

Reporting Special Tests and Provisions

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

5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Calhoun 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 .51 0(a) of 0MB Circular A-133 The Calhoun County Board of Education's audit disclosed audit findings required to be reported by section .510(a) of 0MB Circular A-133. These audit findings are included in section IV of this report.

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

- 1-

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
I SUMMARY OF AUDITOR'S RESULTS
8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.
9. Low Risk Auditee The Calhoun County Board of Education did not qualify as a low risk auditee as defined by Section .530 of 0MB Circular A-133.
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION GENERAL LEDGER ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Reportable Condition - Material Weakness Repeated From Prior Year Finding Control Number: FS-6191-04-01
Accounting procedures of the Calhoun County Board of Education were insufficient to provide adequate internal controls over the following control categories. The following deficiencies were noted:
Cash and Cash Equivalents
The School District did not have procedures in place to ensure proper bank codes were used for the general operating and construction bank accounts. The School District had to make numerous journal entries correcting posting errors made between bank codes. In addition, checks were written between bank accounts to reconcile cash to subsidiary ledgers. Our tests also identified several outstanding checks had remained on the bank reconciliation for over one year.
Revenues/Receivables/Receipts
The School District did not have procedures in place to ensure accounts receivables were recorded correctly on the general ledger. The accounts receivable on the general ledger for the General Fund, as presented for examination, were understated by $72,162. Extensive audit procedures were performed by the auditors to identify items that were needed to properly reflect the State and Federal revenues received from the Georgia Department of Education on the School District's financial statements.
-2 -

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION GENERAL LEDGER ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Reportable Condition - Material Weakness Repeated From Prior Year Finding Control Number: FS-6191-04-01
In addition, the School District failed to record $861 of interest revenue that was earned on the construction bank account.
Expenditures/Liabilities/Disbursements
The School District did not have procedures in place to ensure all expenditures were adequately documented, properly coded, checked for accuracy, or properly approved before disbursement of funds.
Our tests of operating expenditures revealed numerous instances where funds were disbursed without proper coding, approval or proper documentation to support the expenditure. The School District could not locate four expenditures that were requested by auditors.
Employee Compensation
The School District did not have adequate procedures in place to ensure that employee compensation expenditures were adequately documented and approved before disbursement of funds. Our tests of employee compensation records revealed additional payments to two employees in excess of compensation approved by the School District for which no documentation could be provided for the additional work performed outside of the normal workday. In addition, approved annual and sick leave records were not available to support leave used for five employees.
General Ledger
The School District did not have adequate procedures in place to ensure that journal entries were properly documented and approved before posting to the general ledger. Our tests of twenty journal entries posted to the general ledger revealed two that did not have adequate supporting documentation and one that was not approved. In addition, the School District could not locate two journal entries that were requested by auditors for examination.
-3-

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION GENERAL LEDGER ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Reportable Condition - Material Weakness Repeated From Prior Year Finding Control Number: FS-6191-04-01
Accounting Controls (Overall)
Access controls in the Financial System do not prevent users from accessing accounting functions that are outside of their area of responsibility.
The deficiencies noted above occurred because of management's failure to implement controls adequate to ensure: bank statements are reconciled properly, revenues are recorded correctly, expenditures are properly documented, processed, and approved before disbursement of funds, all amounts paid to system employees are adequately documented and properly approved, approved annual and sick leave records exist prior to the processing of employee payroll transactions, and journal entries are adequately documented and approved before posting to the general ledger. The School District should establish and implement appropriate procedures to strengthen internal controls over: reconciliation ofbank statements to the general ledger, recording accounts receivables, processing expenditures, processing employee compensation, maintaining approved annual and sick leave records and posting journal entries to the general ledger. Additionally, management should ensure that the access controls in the accounting information system complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of that employee's duties.
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-6191-04-02
Our examination of the principal's accounts disclosed weaknesses in internal control as discussed below:
-4 -

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-6191-04-02
Cash and Cash Equivalents
(1) The bank reconciliation function was not separated from the record keeping and voucher payment function.
(2) Bank reconciliations were not prepared for the high school bank account. There was an unidentified cash variance between the bank statement and the amount presented for examination by the School District of $1,913.
(3) The bank reconciliation for the elementary school bank account did not reconcile to the records presented for examination by the School District. There was an unidentified variance of$130. Additionally, an outstanding deposit in the amount of$228 had been carried as a reconciling item since August 2003.
(4) A bank account set up for the elementary school was not recorded on the accounting records as presented for examination.
Revenues/Receivables/Receipts
(1) Deposit preparation was not separated from the record keeping and cash custody functions.
(2) Multiple spiral notebooks were used to record funds received. Receipts recorded in the School's accounting records could not be easily traced to entries manually made in receipt notebooks. No supporting documentation was maintained for any of the receipts. In addition, the entries made to the notebooks did not always contain sufficient descriptions and never contained the account to which the funds should be charged. As a result, there is no method of tracing deposits recorded in the receipt books to the financial records. This lack of proper accounting procedures increases the risk oftheft or fraud as there are no controls in place to verify that all funds received were actually recorded in the financial records.
-5 -

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-6191-04-02
Expenditures/Liabilities/Disbursements
(1) The check writing function was not separated from the record keeping or processing of signed checks.
(2) Documentation was not found for seventeen of the twenty-five expenditures that were tested. Additionally, the voucher packages did not contain the account to which the expenditure should be charged. As a result, there is no method oftracing expenditures recorded in the check register to the supporting documentation. This lack of proper accounting procedures increases the risk of inaccurate reporting of financial information.
These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible for accounting functions and failure to implement controls to properly account for all transactions involving the school activity accounts. Management should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization be segregated. Additionally, controls should be revised to ensure disbursements and receipts of funds within the school activity accounts are adequately documented and recorded in the financial records.
EMPLOYEE COMPENSATION EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6191-04-03
During the fiscal year ended June 30, 2004, the School District may have under paid employer cost associated with health insurance plans administered by the Georgia Department of Community Health (DCH). The School District has employees with health insurance under the Health Insurance Plan for Public School Teachers (See OCGA Title 20, Chapter 2, Article 17, Part 6, Sub Part 1) and Health Insurance Plan for Public School Employees (See OCGA Title 20, Chapter 20, Article 17, Part 6, Sub Part 2). While the employer costs and benefits are identical under either plan the employer costs varies by plan.
-6-

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EMPLOYEE COMPENSATION EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6191-04-03
Employer costs for the Health Insurance Plan for Public School Teachers is determined by multiplying the State based component of teacher's salary by 13.1 percent. Employer cost for the Health Insurance Plan for Public School Employees is a flat rate of$162.72 per month per employee.
We performed an analytical procedure designed to estimate the employer cost due on the Health Insurance Plan for Public School Teachers for the month of March 2004. While the results of this procedure is not accurate enough to determine the exact amount of employer cost due on teachers salaries paid in March 2004, the procedure is an indicator ofpossible under payments. The results of this procedure indicated that the School District may have under paid the March 2004 billing in the amount of $2,735 which represents a 9.50 percent error. In addition, as part ofour payroll sampling procedures we looked at various job codes where employer health insurance cost errors have occurred in other School Districts and we found indicators that the School District may have misclassified employees between the two health insurance plans.
The School District should establish policies and procedures to ensure that employer contributions for employee health insurance plans are paid in accordance with State Laws. In addition, the School District should contact the Georgia Department of Community Health to determine whether the School District should make payment to DCH for employer cost under payments.
EMPLOYEE COMPENSATION Improper Processing/Reporting of Wages Reportable Condition Finding Control Number: FS-6191-04-04
A review of expenditures charged to the principal accounts at the high school revealed sixty-six payments totaling $3,637 that were not reported as employee compensation. Twelve employees of the School District received total payments ranging from $25 to $675 for extra work that were not properly reported by the School District. As a result, gross wages for these individuals were underreported for income tax purposes. Federal income taxes are generally required to be withheld for all payments ofcompensation. Failure to follow tax regulations could result in the assessment of penalty charges against the employee for underpayment of individual income taxes and could result in a liability to the School District. This deficiency occurred because management failed to process all employee compensation through the payroll system.
-7-

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EMPLOYEE COMPENSATION Improper Processing/Reporting of Wages Reportable Condition Finding Control Number: FS-6191-04-04
The School District should implement procedures to ensure that all payments made to employees for services rendered are processed through the payroll system. The School District should adjust employee earnings records to properly reflect actual wages earned by the individuals affected.
GENERAL LEDGER Failure to Properly Record Debt Service Activities Reportable Condition - Material Weakness Repeated From Prior Year Finding Control Number: FS-6191-04-05
The School District uses a fiscal agent, U. S. Bank, to directly receive all Special Purpose Local Option Sales Tax (SPLOST) receipts. The School District receives a monthly statement from the fiscal agent, from which monthly activity should be recorded on the general ledger. A review of Debt Service activity for the year ended June 30, 2004, revealed accounting procedures ofthe School District were insufficient to provide adequate general ledger control. The SPLOST revenue for the 12 month period was understated by $20,989. Review of the general ledger noted that the revenue amounts recorded on the general ledger for the 12 month period during fiscal year 2004 did not agree to the amount of revenue on the confirmation from the Georgia Department of Revenue.
The failure of management to properly record material revenues is considered to be a financial irregularity in accordance with O.C.G.A. 20-2-67 and results in the basic financial statements being incomplete and not in accordance with generally accepted accounting principles. No audit adjustments were posted to correct the errors noted.
These deficiencies occurred because ofmanagement's failure to establish procedures to reconcile the activity occurring in the escrow account to the general ledger. The School District should review the accounting procedures in place and design and implement procedures relative to the above deficiencies to strengthen the internal controls over the debt service fund accounting functions.
-8 -

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
ALLOWABLE COSTS/COST PRINCIPLES Inaccurate Indirect Cost Calculation Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6191-04-01
A review of the School District's indirect cost plan revealed the School District failed to follow instructions issued by the Georgia Department of Education when calculating the indirect cost rate for fiscal year 2004. The School District was instructed to use the fiscal year 2002 DE-046 Report when preparing the indirect cost rate; however, the School District used fiscal year 2003 expenditure reports. This condition occurred because management failed to follow instructions as set forth by the Georgia Department of Education and implement procedures to ensure that indirect cost calculations were accurate before posting to the General Ledger. The School District should seek Georgia Department of Education guidance in implementing fiscal procedures for accurately calculating indirect costs. Indirect cost calculations should be adjusted based on fiscal year 2002 DE-046 Report data. Adjustments should be made to indirect cost charges to the Title I program based on the above adjustment.
CASH MANAGEMENT Excessive Cash Balances Reportable Condition U.S. Department of Education Through Georgia Department of Education Repeated From Prior Year Finding Control Number: FA-6191-04-02
A review of cash management procedures for the Title I Grants to Local Educational Agencies (CFDA 84.010) Program disclosed that cash draws were made in advance of immediate cash needs, resulting in the accumulation of excessive cash balances. During fiscal year 2004, the program had an average cash balance of $32,784 and had excessive ending monthly cash balances in seven months. As a result, the School District earned $487 in interest revenue that was not refunded to the Georgia Department of Education.
The excessive cash balances are a result of management's failure to accurately forecast the cash needs of this program. The School District should implement procedures to minimize the time elapsing between the transfer offunds from the Georgia Department ofEducation and disbursement of such funds. The School District should refund $487 to the Georgia Department of Education for unallowable interest proceeds.
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CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

REPORTING Failure to File Accurate and Timely Completion Report Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6191-04-03

An examination of the School District's compliance with regulations for the Title I Grants to Local Educational Agencies (CFDA 84.010) Program revealed that the School District failed to file an accurate completion report for this program as required by guidelines established by the Georgia Department of Education. A review of the School District's accounting records revealed that the completion report was not supported by the total expenditures for this program as indicated below:

Actual Program Expenditures

Expenditures per Completion Report

Difference

$479,887

$489,550

$9,663

It was also noted that the Completion Report submitted by the School District to the Georgia Department of Education was not submitted by the due date as listed below:

Due Date

Date Submitted

September 30, 2004

October 20, 2004

These deficiencies occurred because management neglected the specific requirement imposed upon the School District by the Georgia Department of Education. Appropriate procedures should be implemented to ensure that accurate and timely reports are submitted as required by the Georgia Department of Education. The Georgia Department of Education should review this matter and determine if a reclaim of grant funds is appropriate.

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 Repeated From Prior Year Finding Control Number: FA-6191-04-04

During the year in review, there were two schools that the School District identified as participating in a school-wide program. While Federal provisions prescribe that multiple funding sources

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CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
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 Repeated From Prior Year Finding Control Number: FA-6191-04-04
(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 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 ofa 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 ofEducation 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.
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SECTION V MANAGEMENT'S RESPONSES

CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2004
Finding Control Number: FS-6191-04-01
We concur with this finding. The Financial Director, in consultation with tech services personnel at Georgia Department of Education, will explore means ofcontrolling and restricting individual access to functions of accounting system not essential to an individual's job responsibility.
Finding Control Number: FS-6191-04-02
We concur with this finding. The Financial Director will provide additional training for staff. Procedures will be put in place to ensure proper handling of principal accounts. Staff assignments will be adjusted to provide needed separation of duties.
Finding Control Number: FS-6191-04-03
A review ofemployer costs for health insurance indicates that all certificated employees' costs were calculated on a percentage rate basis and non-certified employees' costs were calculated at flat rate. We will continue to monitor process to ensure that all employee benefits are properly calculated.
Finding Control Number: FS-6191-04-04
We concur with this finding. Procedures have been put in place to ensure that all wages are paid through payroll system.
Finding Control Number: FS-6191-04-05
We concur with this finding. Procedures have been put in place to ensure proper maintenance of debt service records.
Finding Control Number: FA-6191-04-01
We concur with this finding. The Georgia Department of Education now calculates indirect cost percentage automatically.
Finding Control Number: FA-6191-04-02
We concur with this finding. The Financial Director, working with bookkeeper and Superintendent, will implement procedures to ensure that all requests for funds are closely aligned with actual program expenditures.
Finding Control Number: FA-6191-04-03
We concur with this finding. The Financial Director, working with bookkeeper and Superintendent, will implement procedures to ensure that all completion reports are filed in a timely and accurate manner.
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CALHOUN COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2004 Finding Control Number: FA-6191-04-04 We concur with this finding. In cooperation with Georgia Department of Education, we started implementation of school-wide accounting procedures in fiscal year 2005. Contact Person: Harvey Causey, Financial Director Phone: (229) 849-2765 Fax Number: (229) 849-2113 E-mail Address: hcausey@doe.kl2.ga.us
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