Clay County Board of Education, Fort Gaines, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2004

CLAY COUNTY BOARD OF EDUCATION FORT GAINES, 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

CLAY 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

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

25

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

26

3 SCHEDULE OF STATE REVENUE

27

CLAY COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

28

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

29

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

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

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

CLAY 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
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
April 11, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Clay County Board of Education
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Ladies and Gentlemen:
We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Clay 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 of the Clay County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm10ns.
As discussed in Note 2 to the financial statements, management has not recorded school activity (principals) accounts maintained at the individual schools in the governmental activities, general fund or fiduciary fund (which comprise a material portion of the aggregate remaining fund information) as appropriate. Accounting principles generally accepted in the United States of America require that the assets, liabilities, revenues, expense or expenditures, as appropriate, and the
2004ARL-14

respective changes in financial position ofthese accounts be reflected in these financial statements. The aggregate effect on the financial statements of this variance or omission has not been determined, but is believed to be material.
In our opinion, because of the effects of the matters discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position ofthe aggregate remaining fund information of the Clay County Board of Education, as of June 30, 2004, and the changes in financial position thereof for the year then ended.
In addition, in our opinion, except for the effects ofnot recording school principal account activity in the governmental activities and general fund as described in the third paragraph, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and general fund of the Clay 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.
In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the district-wide capital projects fund and the debt service fund ofthe Clay County Board ofEducation, as ofJune 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 Clay 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. This change is in accordance with generally accepted accounting principles.
As described in Note 2, the Clay 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 April 11, 2005, on our consideration of the Clay 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 ofour testing of internal control over financial reporting and compliance and the results ofthat 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.
2004ARL-14

The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 25, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Clay 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, except for the effects ofthe matters referred to in the third paragraph, such information, 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,

RWH:gp 2004ARL-14

State Auditor

CLAY COUNTY BOARD OF EDUCATION

CLAY COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable. Net
Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable 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 Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets
The notes to the basic financial statements are an integral part of this statement. -3-

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

684,631

1,107,041

50,300 159,005
95,285 10,860
1,548

40,659 1,292,010
244,000 3,064,886
827,294 -1 214 140

$ ===6=,3=6=3'=3=79=

$

112,010

256,140

61,427

5,000

10,348

215,000 1,255,000

$

1914925

$

2,784,709

31,020 26,862 805,361 396,635 403 867

$

4448 454

$ ======6=,3=6=3!=,3=79=

CLAY 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 Other Support Services Operations of Non-Instructional Services Community Services Food Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities

$

2,356,205

40,208 276,700
53,458 326,115 253,718
50,893 218,710 276,989
407 116,896

61,769 237,160 $
71 752

4,340 980 $

6,959 6,959

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

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

$

1,511,474 $

34,415 256,645
31,907 256,741 123,140

75,582 172,075
567 71,679

61,796 214,911

$

2,810,932 $

6,484 $
349 34,020
1,032 41 885 $

-838,247
-5,793 -20,055 -21,551 -69,374 -130,578 -50,893 -142,779 -70,894
160 -45,217
27 -14,258 -71 752
-1,481,204

$

1,091,635

11

13,120 211,792
11,718 1,342
105,059 16,143 38 611

$

1489431

$

8,227

4 440 227

$ ====4.!:4=4=8=,4=54===

-5-

CLAY 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 Other Inventories
Total Assets

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 303.171 $ 265,008
13,499 159,005 95,285
10,860 1 548

312.340 $ 69.120 $ 684,631

105,792

736,241

1,107,041

44,930

58,429 159,005
95,285 10,860
1 548

$ 848,376 $

463,062 $ 805,361 $ 2,116,799

LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenue
Total Liabilities
FUND BALANCES
Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories Capital Projects
Unreserved Designated for Self-Insurance Undesignated Reported in: General Fund
Total Fund Balances
Total Liabilities and Fund Balances

$ 112,010 256,140 $
10,348
$ 378,498 $

61,427 5,000
66427

$ 112,010 256,140 61,427 5,000 10 348
$ 444,925

$ 31,020 25,314
1,548 $
30,399
381,597
$ 469,878 $

$ $ 805,361 396,635

31,020 25,314 805,361
1,548 396,635

30,399

381,597

396,635 $ 805,361 $ 1 671 874

$ 848,376 $

463,062 $ 805,361 $ 2,116,799

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

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

$

1,671,874

$

40,659

1,292,010

244,000

3,064,886

827,294

-1 214 140

4,254,709

-8,129

-1,470,000 $ ====4=44=8=4=54=

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

CLAY 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 Other Support Services Community Services Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning (Restated)
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 866,372 13,060 $
2,057,395 1,122,518
6,959 6,176 38 611
$ 4,111,091 $

$
211,792 7,865 9,966
229,623 $

11 $
13,120

866,383 237,972 2,057,395 1,130,383
6,959 16,143 38 611

13,132 $ 4,353,846

$ 2,283,053

$ 2,283,053

40,208 276,700
53,458 326,115 253,718
49,853 $
214,771 228,922
407 116,896
61,769 225,515

296 $
1,274,400

40,208

276,700

53,458

326,115

253,718

744

50,893

214,771

228,922

407

116,896

61,769

225,515

1,274,400

205,000 71 752

205,000 71 752

$ 4,131,385 $ 1,274,696 $ 277,496 $ 5,683,577

$ -20,294 $ -1,045,073 $ -264,364 $ -1,329,731

490,172

1 441 708

1,069,725

3,001,605

$ 469,878 $ 396,635 $ 805,361 $ 1 671 874

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

CLAY 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.
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

$ -1,329,731

$

1,266,535

-128,938

1,137,597 -4,639

205,000

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

$===8=2=27=

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

CLAY 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
$ ===17,,,..0=0=3=

$

16.988

15

$ ===17='=00=3=

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

CLAY 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 Clay County Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements ofthe Clay 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 ofintemal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.

- 11 -

CLAY 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 Federal grants from Georgia Department ofEducation and Special Purpose Local Option Sales Tax proceeds to be used for the acquisition, construction or renovation of major capital facilities.
Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governments or individuals.
BASIS OF ACCOUNTING
The basis 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 of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes 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

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities are reported as other financing sources.

The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.

Although "school activity accounts" are maintained at the individual schools, neither the assets, liabilities and fund balances, nor the revenues, expenses/expenditures and changes in net assets/fund balances of these accounts are reflected in these financial statements. To conform to generally accepted accounting principles, these accounts should be recorded in the basic financial statements.

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 $28,866 at July 1, 2003. For fiscal year 2004, these funds have been reported as part of the General Fund. This change is in accordance with generally accepted accounting principles.

General Fund Balance July 1, 2003

$ 461,306

Add Funds Consolidated with General Fund: School Food Services Fund

28,866

General Fund Balance July 1, 2003 (Restated) CHANGES IN ACCOUNTING PRINCIPLES

$===4==90=.1-7=2

The Clay County Board ofEducation has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 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 -

CLAY 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

$ 490,172 1,441,708 1,069,725

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

$ 3,001,605 4,243,314 -1,126,202 -3,490 -1,675,000

Net Assets Beginning (See Exhibit "B")

$ 4!440!227

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 ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:

(1) Obligations issued by the State of Georgia or by other states,

(2) Obligations issued by the United States government,

(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,

(4) Obligations of any corporation of the United States government,

(5) Prime banker's acceptances,

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(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 Clay County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on December 23, 2003 (levy date). Taxes were due on February 29, 2004 (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 Clay County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2004, for maintenance and operations amounted to $866,372 and for school bonds amounted to $11.

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

School Operations

10.00 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $224,912 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

INVENTORIES

FOOD INVENTORIES On the basic financial statements, inventories ofdonated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 ofpurchase. On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at 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 of assets or materially extend the useful lives ofthe assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art.

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

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

Any Amount

$

10,000

$

10,000

$

10,000

NIA 15 to 80 years 10 to 80 years 4 to 20 years

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

GENERAL OBLIGATION BONDS

The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. 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 -

CLAY 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 ofmoney which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. 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 $1,491,665. The amounts of the total bank balances are classified into three categories of credit risk:

- 17 -

CLAY 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

$ 200,488

2

730,547

3

560,630

Total

$ 1,491.665

CATEGORIZATION OF INVESTMENTS At June 30, 2004, the carrying value ofthe School District's total investments was $446,410 which is materially the same as fair value. This investment consisted entirely of funds invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows:

The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 ofthe 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 of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund.

- 18 -

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

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS

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:

Balances July 1, 2003

Increases

Balances Decreases June 30, 2004

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

$

40,659

$

25,475 $ 1,266,535

0 $

40,659

1,292,010

Total Capital Assets Not Being Depreciated $

66,134 $ 1,266,535 $

0 $ 1,332,669

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 3,064,886 868,294 244,000

$ 3,064,886

$

41,000

827,294

244,000

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

507,985 $ 528,750
89467

55,571 57,100 16,267

41,000

563,556 544,850 105,734

Total Capital Assets, Being Depreciated, Net $ 3,050,978 $ -128,938 $

0 $ 2,922,040

Governmental Activity Capital Assets - Net $ 3,117.112 $ 1.137,597 $

0 $ 4.254.709

Current year depreciation expense by function is as follows:

- 19 -

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

EXHIBIT "H"

Note 5: CAPITAL ASSETS

Instruction Support Services
Maintenance and Operation of Plant Student Transportation Services Food Services

$

66,668

$

3,590

48 067

51,657 10,613

$ 128!938

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST) is reported as restricted assets in the Statement ofNet Assets because its use is limited by applicable statutory provisions. Restricted assets at June 30, 2004, were as follows:

District-wide Capital Projects SPLOST

Debt Service Funds

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

$
$ 312,340

69,120

$

736,241

$

105,792

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. However, the errors or omissions policy excludes coverage for sexual harassment and discrimination. 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.

- 20 -

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

EXHIBIT "H"

Note 7: RISK MANAGEMENT

The School District is self-insured with regard to unemployment compensation claims. In connection with this program, a self-insurance reserve has been established within the General Fund by the School District. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount 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 of Year Liability

$

0 $

7 375 $

0 $

7 375

$

7 375 $

0 $

7 375 $

0

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

$

25,000

$

1,000

Note 8: LONG-TERM DEBT

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

Purpose

Interest Rates

Amount

General Government - Series 1996 General Government - Series 2002

4.80% - 5.80% $ 735,000

3.57%

735,000

$ 1,470.000

- 21 -

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

EXHIBIT"H"

Note 8: LONG-TERM DEBT

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

Governmental Funds General
Obligation Bonds

Balance July 1, 2003

$ 1,675,000

Deductions Debt Retired

205,000

Balance June 30, 2004

$ 1,470,000

Portion of Long-Term Debt Due within One Year

$ 215,000

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

General Obligation

Debt

Principal

Interest

2005 2006 2007 2008 2009 2010 - 2014 2015 - 2016

$ 215,000 $

63,763

225,000

55,506

235,000

46,651

245,000

37,268

55,000

31,188

330,000

106,608

165,000

14,500

Total Principal and Interest

$ 1,470.000 $ 355.484

Note 9: SIGNIFICANT CONTINGENT LIABILITIES

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

-22 -

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

EXHIBIT"H"

Note 10: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)

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

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%

$ 184,773 $ 181,882 $ 163,825

- 23 -

CLAY 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
Total Expenditures
Excess of Revenues over (under) Expenditures
Net Change in Fund Balances
Fund Balances - Beginning (Restated)
Adjustments

NONAPPROPRIATED BUDGETS

ORIGINAL(1)

FINAL(1)

ACTUAL AMOUNTS

$

720.000 $

720.000 $

866,372

4,500

4,500

13,060

2,165,760

2,549,957

2,057,395

947,953

1,176,626

1,122,518

10,000

10,000

6,959

6,100

6,100

6,176

23,500

24,935

38,611

$

3,877,813 $

4,492 118 $

4,111 091

$

2,432,034 $

2,614,895 $

2,283,053

48,455 230,741
54,062 291,732 241,280
51,051 184,816 301,024
108,491 50,657 540

50,493 299,067
54,062 293,973 266,933
51,801 184,816 309,290
600 111,123
60,739 218 865

40,208 276,700
53,458 326,115 253,718
49,853 214,771 228,922
407 116,896
61,769 225,515

$

3 994,883 $

4,516,657 $

4,131 385

$

-117,070 $

-24,539 $

-20,294

$

-117,070 $

-24,539 $

-20,294

520,166

520,166

490,172

130,815

130,815

Fund Balances - Ending

$

533 911 $

626,442 $ ===4=6='9'=87~8~

Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual

(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts.

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

See notes to the basic financial statements.

- 25 -

CLAY 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 Randolph County Board of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Other Programs Direct Impact Aid Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Improving Teacher Quality State Grants Safe and Drug-Free Schools and Communities School Renovation - Schools State Grants for Innovative Programs Title I Grants to Local Educational Agencies Pass-Through From Morehouse College Twenty-First Century Community Learning Centers
Total U. S. Department of Education
Labor, U. S. Department of Pass-Through From Columbus, Georgia Consolidated Government Workforce Investment Act

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 10.555
10.550

N/A

(2)

N/A $ _ _ _ _20_3~,3~7~9

$

203,379

N/A

6 414

$ _ _ _=20~9~,7~9~3

84.027 84.173
84.041 84.318 84.367 84.186 84.352
. 84.298 84.010 84.287

N/A $ N/A
$

46,515 7,454
53,969

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

(3)
12,029 74,181
9,262 7,865 5,288 374,040
159,797
696,431

17.258

N/A $ _ _ _ _3~3_5_5

Total Federal Financial Assistance N/A = Not Available

$====90;;,;9,..5=7=9

Notes to the Schedule of Expenditures of Federal Awards

(1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year.
(2) Expenditures for the funds earned on the School Breakfast Program ($68,444) were not maintained separately and are included in the 2004 National School Lunch Program.
(3) Funds earned on the Impact Aid program, in the amount of $229,902, do not require reporting of expenditures.

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

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

The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Clay 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.

- 26 -

CLAY 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 Middle School (6-8) Program Students with Disabilities Category I Category II Category Ill Category V Gifted Student - Category VI Alternative Education Program Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Student Information System Lottery Program Student Information System

See notes to the basic financial statements.

- 27 -

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

175.670

106.706 61.688
247.367 36.664
123.898 102.182
7.288 236.140
10.096 10.506 38.783
6.426 28.734
7.613 31.771
9.203 5.335
224.827 87,014 75,582
161,656 34,020
123,121 25,316 1.152 9,985 98.210 12,398 -85,977
12,000 12,407 11,284
8 330
$ ===2=,0=5=7,=39=5=

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

SCHEDULE "4"

PROJECTS
The repayment of principal and interest on the Clay County School District's Series 1996 Bonds maturing February 1, 2016, in the maximum amount of $1,611,090.
Acquiring a site; constructing, equipping and improvements in the Clay County School District at a maximum cost of $950,000.
Adding to, renovating, repairing, improving and equipping Clay County Elementary School, including the acquisition, construction and equipping of six (6) additional classrooms, additional parking areas and improvements to playgrounds and outdoor physical education areas; improvements to the existing central office facilities; the purchase of school buses; the acquisition and installation of system-wide technology improvements and the purchase of school furniture, equipment and fixtures.

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT YEAR(3) (4)

AMOUNT EXPENDED
IN PRIOR YEARS (3) (4)

PROJECT STATUS

$ 1,611,090 $ 1,611,090 $

82,568 $

317,749 Ongoing

950,000

950,000

Ongoing

1,600,000

1,600,000

1,266,707

17,595 Ongoing

$ 4161 090 $ 4,161,090 $ 1,349,275 $ =====3=3==5=34=4=

(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 Clay 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

$

21,509

Current Year

29 185

Total

$ ===50='=69=4=

See notes to the basic financial statements.

- 28 -

CLAY 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 Middle School (6-8) Program Students with Disabilities Category II Category Ill Category V Gifted Student - Category VI Alternative Education Program
TOTAL DIRECT INSTRUCTIONAL PROGRAMS
Media Center Program Staff and Professional Development

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

ELIGIBLE QBE PROGRAM COSTS

SALARIES OPERATIONS

TOTAL

$

128,221 $

87,090 $

3,860 $

90,950

67,583

57,569

747

58,316

284,892

314,540

6,056

320,596

56,448

144,498

144,498

147,899

256,667

4,328

260,995

123,847 43,017
243,234 84,447
29,599 9 033

105,144 134,395 120,550
29,811 23,705
5,534 39,009 13,544

6,297 5,242
25,789 271 135

105,144 140,692 125,792
29,811 49,494
5,534 39,280 13 679

$

1,218,220 $ 1,332,056 $

52,725 $

1,384,781

37,651 6,352

44,911 8208

3,767 3 372

48,678 11 580

TOTAL QBE FORMULA FUNDS

$

1,262,223 $ 1,385,175 $

59 864 $ ===1=44=5=0=3==9

(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.

- 29-

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
April 11, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Clay 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 Clay County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Clay County Board ofEducation's basic financial statements and have issued our report thereon dated April 11, 2005. This report was qualified for various departures 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 Clay County Board of Education'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 coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Clay County Board of Education'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 of Findings and Questioned Costs as items FS-6301-04-01 and FS-6301-04-02.
A material weakness is a reportable condition in which the design or operation of one 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 item FS-6301-04-02 to be a material weakness.
Compliance and Other Matters
As part ofobtaining reasonable assurance about whether Clay County Board ofEducation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, 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 Clay County Board of Education and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
~""~ Russell W. Hinton State Auditor
RWH:gp 2004YB-40

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
April 11, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members ofthe Clay 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 Clay County Board of Education with the types of compliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to its major Federal program for the year ended June 30, 2004. Clay County Board of Education's major Federal program is identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to its major Federal program is the responsibility of Clay County Board of Education's management. Our responsibility is to express an opinion on Clay County Board ofEducation's compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Clay 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 Clay County Board of Education's compliance with those requirements.
2004SA-30

In our opinion, the Clay County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to its major Federal program for the year ended June 30, 2004.
Internal Control Over Compliance
The management of Clay County Board ofEducation is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered Clay County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
We noted a certain matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Clay County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FA-6301-04-01.
A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements 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 the reportable condition described above is not a material weakness.
This report is intended solely for the information and use ofthe management, members of the Clay 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,

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RWH:gp 2004SA-30

State Auditor

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

CLAY 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-6301-02-01 FS-6301-03-01

Further Action Not Warranted Previously Reported Corrective Action Implemented

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

F A-6301-02-01 FA-6301-03-01 FA-6301-03-02

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

CORRECTIVE ACTION/RESPONSES

SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Finding Control Number: FA-6301-03-02

Procedures have been implemented to combine Federal program funds to support the Title I school-wide program according to 0MB Circular A-87 requirements.

SECTION IV FINDINGS AND QUESTIONED COSTS

CLAY 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 Clay 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 Clay County Board of Education disclosed financial statement reportable conditions related to the following control categories.

Inventories Revenues/Receivables/Receipts General Ledger

Expenditures/Liabilities/Disbursements Employee Compensation Accounting Controls (Overall)

Of the reportable conditions described above, Revenues/Receivables/Receipts and Expenditures/Liabilities/Disbursements are considered to be material weaknesses.

3. Noncompliance Material to the Financial Statements The audit of the Clay 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 Clay County Board of Education disclosed a reportable condition in internal control over the major program for the following compliance requirement.

Special Tests and Provisions

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

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

6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Clay County Board of Education's audit disclosed an audit finding required to be reported by section .5 I0(a) ofOMB Circular A-133. This audit finding is included in section IV of this report.

7. Maj or Programs The Federal award audited as a major program is as follows: 84.010 Title I Grants to Local Educational Agencies

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

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CLAY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
I SUMMARY OF AUDITOR'S RESULTS
9. Low Risk Auditee The Clay County Board of Education qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133.
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
INVENTORIES EMPLOYEE COMPENSATION GENERAL LEDGER ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-6301-04-01
Accounting procedures ofthe Clay County Board ofEducation were insufficient to provide adequate internal controls over the following control categories. The following deficiencies were noted:
Inventories
The School District did not have procedures in place to ensure that the inventory balances as presented for audit were accurate. The USDA and Purchased Food inventory balances on the general ledger have not been adjusted in over three years.
Employee Compensation
The process of adding new employees to the personnel system was not separated from the processing ofpayroll checks, reviewing the checks for accuracy and preparing the checks for disbursement to employees.
The School District did not have procedures in place to ensure employee compensation expenditures were properly calculated and reported before disbursement offunds. Our tests ofemployee compensation records for ten employees revealed one salary overpayment in the amount of $9,311. This situation resulted from the School District's failure to properly calculate an increase in the employee's salary due to a certificate change. Tests also revealed that six employees were given sign-on bonuses in the amount of $1,000 each that were not reported as employee compensation. As a result, gross wages for these individuals were underreported for income tax purposes.
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CLAY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
INVENTORIES EMPLOYEE COMPENSATION GENERAL LEDGER ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-6301-04-01
General Ledger
The School District did not have adequate procedures in place to ensure all journal entries made to the accounting records were posted to the appropriate accounts. Numerous journal entries reviewed by auditor were posted to the incorrect accounts on the general ledger. The School District failed to reflect transfers between funds appropriately. Revenue and expenditure accounts were incorrectly adjusted which resulted in inaccurate reporting of financial statement information.
Accounting Controls (Overall)
Access controls in the Financial System do not prevent users from accessing accounting functions that are outside oftheir area of responsibility.
The deficiencies noted above occurred because of management's failure to implement controls adequate to ensure that; food inventory balances on the general ledger are properly adjusted, employee compensation accounting functions are properly separated, employee compensation expenditures are properly calculated and reported, journal entries are adequately documented and posted to the correct account, and employee access to the Financial System is limited to their area of responsibility. The School District should establish and implement appropriate procedures that will strengthen internal control over accounting functions. Separation ofduties involving key accounting functions is the basis for achieving an adequate system of internal control. Management should periodically review this decision to determine if employees' duties can be reassigned to achieve a higher degree of internal control with existing staff. Additionally, management should ensure that the access controls in the accounting information system complement the system ofinternal control by limiting an employee's access to only the accounting functions necessary for the performance of that employee's duties.
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CLAY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Report School Activity Accounts Reportable Condition - Material Weakness Finding Control Number: FS-6301-04-02
The Clay County Board of Education did not report assets, liabilities and fund balances, nor the revenues, expenses/expenditures and changes in net assets/fund balances of the school activity accounts which are maintained at the school within its basic financial statements. This omission of material amounts, by management, is considered to be a financial irregularity in accordance with O.C.G.A 20-2-67 and this condition results in the basic financial statements of the School District being incomplete and not in accordance with generally accepted accounting principles. The School District should establish appropriate policies and procedures designed to ensure that all financial activity of the school activity accounts is reported within its basic financial statements as required.
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition Repeated From Prior Year U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6301-04-01
During the year in review, the School District identified one school that participated in a school-wide program. Federal provisions prescribe that multiple funding sources (Federal, State or Local) are required to support a school-wide program. The Title I program, the Title II program, the Title V program, and the Title VI program supported the school-wide program at one ofthe School District's schools. Although required by U. S. Department of Education and 0MB A-133 Compliance Supplement provisions, we found that the School District had not consolidated the different Federal funds for the school that participated in a school-wide program. Furthermore, we noted that the School District arbitrarily charged each Federal fund with individual school-wide expenditures rather than using a prescribed cost allocation plan to distribute school-wide program expenditures to each funding source.
In accordance with provisions ofU. S. Department ofEducation Instructions and 0MB Circular A13 3, 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
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CLAY 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 Repeated From Prior Year U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6301-04-01 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. 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. To distribute such costs, provisions of 0MB Circular A-87, Attachment E, F.3 state that a cost allocation plan should be developed, documented, maintained for audit. The School District personnel were unaware ofthese requirements and it was the School District's understanding that school-wide program expenditures lose their identity and therefore any school-wide program cost can be charged to Title I and other Federal funding programs. The School District should implement procedures to (1) combine such funds as prescribed by U.S. Department of Education and (2) in line with 0MB Circular A-87 provisions allocate such schoolwide 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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SECTIONV MANAGEMENT'S RESPONSES

CLAY COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2004
Finding Control Number: FS-6301-04-01
We concur with this finding.
Inventories
The School District will implement procedures to ensure that the USDA and Purchased Food Inventory balances on the general ledger will be adjusted monthly.
Employee Compensation
The School District will implement procedures to ensure that employee compensation expenditures are carefully calculated and reviewed before disbursement of funds. The School District has proceeded in pursuing the overpayment of salary. A certified-return receipt letter has been sent to the employee, who is no longer employed with the School District. The system will ensure that sign-on bonuses be reported as employee compensation. This change will be implemented by June 2005.
General Ledger
The Program bookkeeper will implement procedures to assure that journal entries and the transfer between funds are carefully reviewed prior to posting to the general ledger.
Accounting Controls (Overall)
The Program bookkeeper will ensure that food inventory balances are adjusted on the general ledger monthly; employee compensation expenditures will be carefully reviewed prior to posting, and that access to the Financial System is limited to each employee deemed necessary for the performance of the employee's duties.
During fiscal year 2005, the system plans to utilize the school's Clerical Aide at the central office to ensure that there is separation of duties for those who perform monthly bank reconciliation and voucher payment functions.
Finding Control Number: FS-6301-04-02
We concur with this finding.
The Clay County Board of Education will establish appropriate procedures to ensure that all financial activity of the school activity accounts is reported within its basic financial statements as required. This procedure will be implemented by June 2005.
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CLAY COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2004 Finding Control Number: FA-6301-04-01 We concur with this finding. The School District will implement procedures to combine Federal funds as prescribed by U. S. Department ofEducation and in line with 0MB Circular A-87. This change will be implemented by July 2005. Contact Person: Shirley Christian, Financial Officer Phone: (229) 768-2232 Fax Number: (229) 768-3654 E-mail Address: schristi@doe.k12.ga.us
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