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

DEKALB COUNTY BOARD OF EDUCATION
DECATUR, 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

DEKALB COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

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

11

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

12

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

29

DEKALB COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

30

3 SCHEDULE OF STATE REVENUE

32

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

34

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

35

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

DEKALB COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS
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
April 26, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the DeKalb 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 DeKalb 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 DeKalb County Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our op1mons.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe DeKalb 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.
2004ARL-11

In accordance with Government Auditing Standards, we have also issued our report dated April 26, 2005, on our consideration of the DeKalb 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.
Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through viii and page 29 respectively, are not a required part ofthe basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the DeKalb 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,
~~-QQ.w.4l..h 1 R~ell W. Hinton State Auditor
RWH:as 2004ARL-11

DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
The discussion and analysis of the DeKalb County Board of Education's financial performance provides an overall review of the Board's financial activities for the fiscal year ended June 30, 2004. The intent of this discussion and analysis is to look at the Board's financial performance as a whole; readers should also review the notes to the basic financial statements and the financial statements to enhance their understanding of the Board's financial performance.
Financial Highlights
Key financial highlights for 2004 are as follows:
In total, net assets increased $85.8 million, which represents a 12.0 percent increase from 2003. This total increase was due to governmental activities since the Board has no businesstype activities.
General revenues accounted for $507.4 million in revenue or 53.7 percent of all revenues. Program specific revenues in the form of charges for services, operating and capital grants and contributions accounted for $438.3 million or 46.3 percent of total revenues of $945.7 million.
The Board had $859.5 million in expenses related to governmental activities; $438.3 million of these expenses were offset by program specific charges for services, grants or contributions.
Among major funds, the general fund has $851.3 million in revenues and $829.5 million in expenditures. The general fund's "Net Change in Fund Balances" increased by $23.4 million resulting in a change in the "Total Fund Balances" from a deficit of $9.7 million to $13.6 million for the fiscal year. For the first time, the fund balance reflects the full accrual of all contracted salaries and benefits unpaid at June 30 in full compliance with GASB 34 regulations.
Using the Basic Financial Statements
This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the DeKalb County Board of Education as a financial whole, or as an entire operating entity.
The Statement ofNet Assets and Statement ofActivities provides information about the activities of the whole Board, presenting both an aggregate view of the Board's finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term as well as what remains for future spending. The fund financial statements also look at the Board's most significant funds. In the case of the DeKalb County Board of Education, the general fund is by far the most significant fund.
- 1-

DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Reporting the Board as a Whole
Statement ofNet Assets and the Statement ofActivities
While this document includes a number of funds used by the Board to provide programs and activities, a view of the Board, as a whole requires a look at all financial transactions to ask the question, "How did we do financially during 2004?" The Statement of Net Assets and the Statement of Activities answers this question. These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid.
These two statements report the Board's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the Board as a whole, the financial position of the Board has improved or diminished. The causes of this change may be a result of many factors, some financial, some not. Nonfinancial factors include the Board's property tax base, facility conditions, required educational programs and other factors.
In the Statement of Net Assets and the Statement of Activities, the Board has one distinct type of activity:
Governmental Activities - All of the Board's programs and services are reported here including instruction, pupil services, improvement of instructional services, educational media services, general administration, school administration, business administration, maintenance and operation of plant, student transportation services, central support services, other support services, enterprise operations, food services and interest on debt.
Reporting the Board's Most Significant Funds
Fund Financial Statements
Fund financial reports provide detailed information about the Board's major funds. The Board uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the Board's most significant funds. The Board's major governmental funds are the general fund, District-wide capital projects funds and the debt service fund.
Governmental Funds: Most of the Board's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the Board's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that
-11-

DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

can be spent in the near future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements.

Fiduciary Funds: The Board is the trustee, or fiduciary, for assets that belong to others, such as school clubs and organizations within the principals' accounts. The Board is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The Board excludes these activities from the District-wide financial statements because it cannot use these assets to finance its operations.

The Board as a Whole

The perspective of the statement of net assets is of the Board as a whole. Table 1 provides a summary of the Board's net assets for fiscal year 2004 compared to fiscal year 2003.

Table 1 Net Assets (in Thousands)

Governmental Activities

Fiscal

Fiscal

Year 2003

Year 2004 {Restated)

Assets Current and Other Assets Capital Assets, Net

$ 212,064 774,460

$ 220,100 717,649

Total Assets

$ 986,524 $ 937,749

Liabilities Current and Other Liabilities Long-Term Liabilities

$ 169,322 16,524

$ 204,248 18,651

Total Liabilities

$ 185,846 $ 222,899

Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted

$ 769,969 36,825 -6,116

$ 707,996 31,937 -25,083

Total Net Assets

$ 8002678 $ 7142850

Total net assets increased $85.8 million.

Table 2 shows the changes in net assets for fiscal year 2004 compared to fiscal year 2003.

-111-

DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Table 2 Change in Net Assets
(in Thousands)
Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions
Total Program Revenues
General Revenues: Taxes Property Taxes For Maintenance and Operations For Debt Service Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Debt Service For Capital Projects Intangible Recording Tax Real Estate Alcoholic Beverages Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Total General Revenues
Total Revenues
Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations ofNon-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt
Total Expenses
Special Item: Defeasance
Increase in Net Assets
- IV -

Governmental Activities

Fiscal

Fiscal

Year 2004

Year 2003

$ 16,838 406,177 14,888
$ 437,903

$ 12,862 403,806 6,359
$ 423,027

$ 384,920 -5 61
85,436 14,108 3,101 4,855
9,664 2,388 2,897
$ 507,425
$ 945,328
$ 531,816
17,926 47,392 17,812 19,007 53,700
7,125 69,992 36,721 14,523
110
1 42,068
1,307
$ 859,500
$ 85,828

$ 354,484 -4
73,063 9,444 11,860 1,698 4,873
11,671 3,543
150
$ 470,782
$ 893,809
$ 551,961
16,311 25,757 16,604
1,043 53,018
5,497 68,678 37,257 15,092
1,936 39,149
2,463
$ 834,766
$ -3,160
$ 55,883

DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Governmental Activities

Instruction, Pupil Services and Improvement of Instructional Services comprises 69.5 percent of governmental program expenses. The Operations of Non-instructional Services amounted to 4.9 percent of the total governmental program expenses. These operations consist primarily of the School Nutrition and Athletics programs.

The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. Table 3 shows, for governmental activities, the net cost of services for fiscal year 2004 compared to fiscal year 2003. That is, it identifies the cost of these services supported by tax revenue and unrestricted State entitlements.

Table3 Governmental Activities
(in Thousands)

Net Cost of Services Fiscal Year 2004

Net Cost of Services Fiscal Year 2003

Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt

$ 215,928
15,710 40,953
9,497 4,139 37,241 6,649 45,852 30,968 14,190
110
1 -948 1,307

$ 233,360
13,322 23,558
9,099 -6,774 37,648 5,282 44,969 30,905 15,013
1,935 960
2,462

Total Expenses

$ 421,597 $ 411,739

Although program revenues make up 46.3 percent of the revenues, the Board is still primarily dependent upon tax revenues for governmental activities. Over 40.6 percent of instruction activities are supported through taxes and other general revenues; for all governmental activities general revenue support is 49.05 percent.

-v-

DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
The Board's Funds
The Board's governmental funds are accounted for using the modified accrual basis of accounting. Total governmental funds had revenues and other financing sources of $953.1 million and expenditures of $925.9 million. There was an increase in fund balance of $3.8 million in the capital project funds due to slightly fewer expenditures of sales tax proceeds than projected during the year for capital outlay projects for educational purpose and purchase of school buses. The general fund had an increase in fund balance of $23 .4 million. The positive change in the fund balance of the general fund for the year was due to significant reductions in budgeted expenditures during the year. These reductions in spending were the result of a concentrated effort by the Board of Education to begin to rebuild the general fund balance which has been severely depleted in prior years by state funding reductions instituted in fiscal year 2003 and continued in the current year.
General Fund Budgeting Highlights
The Board's budget is prepared according to Georgia law. The most significant budgeted fund is the General Fund.
During the course of fiscal year 2004, the Board amended its general fund budget as needed. The Board uses site-based budgeting based on FTE student allocations. The budgeting systems are designed to tightly control total sited budgets but provide flexibility for site management.
For the General Fund, actual revenues and other sources exceeded the final budget of $829.2 million by $23.7 million. This difference was due mainly to an increase in local tax revenues of $18.9 million and an increase in Federal funds of $11.6 million. These increases over budget were offset by reductions of $4.9 million under budget for state funds and $2.9 in investment earnings. The increases were due to higher than projected property and real estate recording taxes as well as additional Federal funding due to unanticipated new and carry-over grant funds. The reductions were due to greater statewide revenue "austerity" adjustments for the year than were initially anticipated and lower investment earnings than anticipated.
Actual expenditures of $829.5 million were within 0.25 percent of the budgeted total amount of $831.5 million. This difference was primarily due to an increase in instructional salaries and benefits costs of $9 million resulting from the hiring of a much more experienced staff than projected. Utility costs also exceeded budgeted projections by just over $3 million for the year. These costs were offset by spending less grant funds than projected on transportation and instructional services during the year. Supplies and materials costs were also reduced due to conservative budgeting and cost control measures instituted during the year.
General Fund revenues and other financing sources exceeded expenditures and other financing resulting in a positive "Net Change in Fund Balances" of over $23 million for the year. This is the result of a concentrated effort by the Board of Education to begin to rebuild the general fund balance which has been severely depleted in prior years by state funding reductions instituted in fiscal year 2003 and continued in the current year.
- Vl -

DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Capital Assets and Debt Administration

Capital Assets

At the end of fiscal year 2004 the Board had $774.4 million invested in capital assets, all in governmental activities. Table 4 shows fiscal year 2004 balances compared with fiscal year 2003 balances.

Table 4 Capital Assets at June 30 (Net of Depreciation in Thousands)

Governmental Activities

Fiscal

Fiscal

Year 2003

Year 2004 (Restated)

Land Construction in Progress Buildings and Improvements Improvements Other Than Buildings Equipment

$ 33,395 65,322 597,353 719 77,671

$ 32,575 27,565 574,163 780 82,566

Total

$ 774A60 $ 717,649

The primary increases occurred in construction in progress, buildings and building improvements. Due to the ongoing growth in the county, the Board has numerous construction projects including new buildings, additions, and renovations.

Debt

At June 30, 2004 the Board had $4.5 million in capital leases and $12 million in compensated absences, $14.8 million of which is due within one year. The Board defeased all of its outstanding General Obligation Bonds in prior years. This defeasance was the culmination of the 1997 Special Purpose Local Option Sales Tax Program with sales tax proceeds being used to enable the Board to become essentially debt free.

Table 5 summarizes capital leases and compensated absences outstanding and compares fiscal year 2004 balances to fiscal year 2003 balances.

-vn -

DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Table 5 Debt at June 30 (in Thousands)

Governmental Activities

Fiscal

Fiscal

Year2004 Year 2003

Capital Leases Compensated Absences

$ 4,491 12,033

$ 9,654 8,997

Total

$ 162524 $ 182651

The Board maintains an AA and Aa bond rating from Standard and Poor's and Moody's respectively.

Current Issues

The DeKalb County School System, DeKalb County, and the state of Georgia continue to face serious economic challenges. In addition to the over $18 million in state funding lost in the current year, state austerity reductions have amounted to nearly $27 million through fiscal year 2004 with additional annual reductions of $21 million for fiscal years 2005 and 2006 having already been instituted. Sales tax collections from the Special Purpose Local Option Sales Tax instituted in 2002 also continue to lag projections by nearly 8 percent.

On a positive note the property tax digest continues to grow at a 4-5 percent annual growth rate. Approximately 50 percent of the growth being due to new residential, commercial and industrial properties and 50 percent due to reassessment of existing properties. Enrollment also continues to climb at 1 percent to 2 percent annually. Short-term interest rates have also begun to increase slowly, increasing the opportunity for higher investment earnings in the future.

The significant cost and budgetary control measures which were initiated by the school system in fiscal year 2004 were maintained in fiscal year 2005 and are budgeted to continue in fiscal year 2006. The Board has taken budgetary action to see to it that the DeKalb County School System will overcome any current or future economic challenges while increasing the working reserve to higher levels in order to sustain the school system in the future.

Contacting the Board's Financial Management

This financial report is designed to provide our citizens, taxpayers, investors and creditors with a general overview of the Board's finances and to show the Board's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Mr. Rick A. Cost, Chief Financial Officer, at the DeKalb County Board of Education, 3770 North Decatur Road, Decatur, Georgia, 30032. You may also e-mail your questions to rcost@fc.dekalb.kl2.ga. us.

- viii -

DEKALB COUNTY BOARD OF EDUCATION

DEKALB COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Improvements Other than Buildings Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Short-Term Debt 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 Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

100,518,911

16,910,683

18,927,104 56,966,624 12,732,301
2,696,580 3,312,188

33,395,131 65,321,858
786,356 878,146,785 133,830,034 -337,020, 158

$ ===98=6;,i;,5=2=4,3=97=

$

31,623,880

70,299,551

55,461,450

6,761,977

4,793,241

382,072

7,729,072 8 795 046

$

185,846,289

$

769,969,033

2,356,542 8,726,322 25,742,866 -6,116,655

$

800,678,108

$ ==9=8=65,52=4:!a,3=9===7

The notes to the basic financial statements are an integral part of this statement. -3-

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

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Intangible Recording Tax Real Estate Alcoholic Beverages 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

EXPENSES

CHARGES FOR SERVICES

$

531,816,680 $

17,926,387 47,392,356 17,811,783 19,007,325 53,699,769
7,125,038 69,992,036 36,721,363 14,523,136
109,783

951 42,067,653
1,306,582

$

859,500,842 $

4,139,580
12,698,219 16,837,799

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

$

308,371,378 $

2,215,855 5,812,190 7,896,442 6,836,437 16,459,093

23,730,797 4,656,226 332,869

29,866,340

$

406,177,627 $

3,377,184 $
626,987 418,700 8,032,210 476,167 408,968 1,096,862
451,001
14,888,079 $

-215,928,538
-15,710,532 -40,953, 179
-9,496,641 -4,138,678 -37,240,676 -6,648,871 -45,852,271 -30,968,275 -14,190,267
-109,783
-951 947,907 -1,306,582
-421,597,337

$

384,920,183

-5,080

60,563

85,436,056 14,107,710 3,100,870 4,854,879 9,664,031 2,388,400 2,897,495

$

507,425,107

$

85,827,770

714,850,338

$ ===80=0=,6=7=8=1,=08=

-5-

DEKALB 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

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 52,319,032 $ 48,147,355 $

17,987

16,892,696

841,115 44,021,390 12,732,301
2,696,580 3,312,188

14,774,249 12,945,234

52,524 $ 5

100,518,911 16,910,683
15,615,369 56,966,624 12,732,301
2,696,580 3,312,188

Total Assets

$ 115,940,593 $ 92,759,534 $

52,529 $ ===20=8=,7=5=2=65=6=

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

$ 31,623,880 70,299,551 $ 55,461,450 6,761,977 4,793,241 382,072
$ 102,305,503 $ 67,016,668
$ 2,356,542 7,725,504 1,000,818 $ 25,742,866
2.552,226 $
$ 13,635,090 $ 25,742,866 $

$

31,623,880

70,299,551

55,461,450

6,761,977

4,793,241

382,072

$

169,322,171

$
52,529 52,529 $

2,356,542 7,725,504 1,000,818 25.742,866
2,552,226 52,529
39,430,485

Total Liabilities and Fund Balances

$ 115,940,593 $ 92,759,534 $

52,529 $===2=08;,i,,7=5=2=,6=56=

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

DEKALB 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 Buildings Equipment Improvements Other than Buildings 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 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:
Capital Leases Compensated Absences
Total Long-Term Liabilities

$ 39,430,485

$ 33,395,131 65,321,858
878,146,785 133,830,034
786,356 -337,020, 158

774,460,006

3,311,735

$ -4,490,973 -12,033, 145

-16,524,118

Net Assets of Governmental Activities (Exhibit "A")

$ 800,678,108

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

DEKALB 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 Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES
Capital Leases
Net Change in Fund Balances
Fund Balances - Beginning (Restated)
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 385.258,909 22,063,459 $ 338,658,444 78,200,856 16,837,799 1,443,771 8,802,499

$ 85,436,056 13,791,217
944,629 25410

$ 851,265,737 $ 100,197,312 $

122 $

385,259,031 107,499,515 352,449,661
78,200,856 16,837,799
2,388,400 8,827,909

122 $ 951,463,171

$ 526,035,350

17,850,934 46,641,001 16,974,138
3,237,619 53,473,580
6,169,563 69,198,845 33,093,623 14,535,977
110,460 41,407,805
$

$ 89,089,256

657,340 158,465

6,148,384 1148,117

$ 829,544,700 $ 96,385,757 $

$ 21,721,037 $ 3,811,555 $

$ 526,035,350

2,850

17,850,934 46,641,001 16,974,138
3,237,619 53,473,580
6,172,413 69,198,845 33,093,623 14,535,977
110,460 41,407,805 89,089,256

6,805,724 1,306,582

2,850 $ 925,933,307

-2,728 $ 25,529,864

1,643,167

$ 23,364,204 $ 3,811,555 $

-9,729,114

21,931,311

-2,728 $ 55,257

1,643,167 27,173,031 12,257,454

$ 13,635,090 $ 25,742,866 $

52,529 $ 39,430,485

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

DEKALB 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")

$ 27.173,031

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

$ 85,173,778 -22,512,564

62,661,214

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.

-283,365

In the Statement of Activities, only the gain on the sale of the equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold.

-5,849,984

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.

-1,643,167

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:

Capital Lease Payments

6,805,724

Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of:

Increase in Compensated Absences

-3,035,683

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

$ 85,827,770

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

DEKALB COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS
FIDUCIARY FUNDS JUNE 30, 2004
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT"G"
AGENCY FUNDS $ 2,085,010
$ 2,085,010

The notes to the basic financial statements are an integral part of this statement. - 11 -

DEKALB 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 DeKalb 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 of the DeKalb 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.

- 12 -

DEKALB 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 Special Purpose Local Option Sales Tax proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation ofmajor capital facilities.
Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governments, or individuals.
BASIS OF ACCOUNTING
The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless ofwhen the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and
- 13 -

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
judgments, and compensated absences, 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 and acquisitions under capital leases are reported as other financing sources.
The School District funds certain programs by a combination of specific 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.
For fiscal year 2004, the School District changed its method of accounting for the final two payments on one hundred and ninety day contracts and for the related revenue due from the State to fund these contracts. Adjustments have been made in the fiscal year 2004 financial statements to record costs for salaries and fringe benefits earned by employees through June 30, 2004, (even though paid in July and August 2004) and the related revenue due from the State to fund these contracts. Adjustments were also made for the similar salaries, benefits and related State revenues earned in fiscal year 2003 and recorded in fiscal year 2004.
The net effect of the above accounting treatment results in the accompanying financial statements reflecting costs for those salaries and benefits earned by employees during fiscal year 2004 and the related State revenue to fund these contracts. In addition, both the net assets and fund balance at July 1, 2003, have been restated for salaries and benefits earned by employees in fiscal year 2003 but not paid until July and August 2003 and for the related State revenue for these contracts. This change is in accordance with generally accepted accounting principles. See Restatement of Prior Year Fund Balance.
RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND
In prior years, excess funds related to the Employee's Alternative Benefit Plans were reported as Agency Funds. This fund had a fund balance of$9,918,760 at July 1, 2003. For fiscal year 2004, these funds have been reported as part of the General Fund.

- 14 -

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Fund Balance July 1, 2003

$ 17,503,793

Add: State Revenue Related to July and August 2003 Salary Payments Earned by Employees in Fiscal Year 2003 Alternative Benefit Funds Previously Reported as Agency Fund

45,093,728 9,918,760

Deduct: July and August 2003 Salary Payments Earned by Employees in Fiscal Year 2003

82,245,395

General Fund Balance July 1, 2003 (Restated)

$ -9.729,114

RESTATEMENT OF PRIOR YEAR NET ASSETS

For fiscal year 2004, the School District restated Capital Assets due to an addition ofa building that was removed in the prior year and for prior period adjustments that were not reported in the School District's Financial Statements. The School District increased Buildings and Building Improvements by $9,509,100, Accumulated Depreciation for Buildings and Building Improvements by $3,661,193 and Accumulated Depreciation for Equipment by $1,512,274. The result is an increase of Net Assets at July 1, 2003, of $4,335,633. This change is in accordance with generally accepted accounting principles.

CASH AND CASH EQUIVALENTS

COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.

INVESTMENTS

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

- 15 -

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

(2) Obligations issued by the United States government,

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

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

(5) Prime banker's acceptances,

(6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services,

(7) Repurchase agreements, and

(8) Obligations of other political subdivisions of the State of Georgia.

RECEIVABLES

Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.

PROPERTY TAXES

The DeKalb County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on June 10, 2003 (levy date). Taxes were due on November 15, 2003 (lien date) and could be paid in two installments on August 15, 2003 and November 15, 2003 (due dates). Taxes collected within the current fiscal year on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The DeKalb County Tax Commissioner bills and collects the property taxes for the School District, withholds 1.9% of taxes collected as a fee for tax collection and remits the balance oftaxes 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 $385,198,346 and for school bonds amounted to $122.

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

School Operations

22.98 mills

- 16 -

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SALES TAXES
Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $85,436,056 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
CONSUMABLE SUPPLIES On the basic financial statements, consumable supplies are reported at cost (first-in, first-out). The School District uses the consumption method to account for the consumable supplies inventory whereby an asset is recorded when supplies are purchased and expenses are recorded at the time the supplies are consumed.
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:

- 17 -

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Improvements Other than Buildings Equipment
Outdoor Equipment Vehicles Kitchen Equipment Computers Miscellaneous Equipment Buses

All $ 100,000 $ 100,000 $ 100,000

NIA 20 years 80 years 20 years

$

1,000

15 years

$

1,000

20 years

$

1,000

12 years

$

1,000

10 years

$

1,000 10 to 30 years

$

1,000

20 years

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

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 ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. 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,

- 18 -

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

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS

(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 $110,978,639. The amounts ofthe total bank balances are classified into three categories of credit risk:

Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name.
Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name.
Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.)

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

Risk Category

Bank Balance

1

$ 762,478

2

110,216,161

3

0

Total

$ 1101978!639

- 19 -

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

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS
CATEGORIZATION OF INVESTMENTS At June 30, 2004, the carrying value of the School District's total investments was $16,892,696 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 ofGeorgia, Office ofTreasury 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 of Treasury 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 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.
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

-20-

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

EXHIBIT"H"

Note 5: CAPITAL ASSETS

The following is a summary of changes in the Capital Assets during the fiscal year:

Balances July 1, 2003 (Restated)

Increases

Balances Decreases June 30, 2004

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

$ 32,575,406 $ 819,725

$ 33,395,131

27,564,681 65,094,428 $ 27,337,251 65,321,858

Total Capital Assets Not Being Depreciated $ 60,140,087 $ 65,914,153 $ 27,337,251 $ 98,716,989

Capital Assets Being Depreciated Building and Building Improvements Improvement Other Than Buildings Equipment

$ 844,251,837 $ 33,894,948

$ 878,146,785

786,356

786,356

149,323,092 12,701,928 $ 28,194,986 133,830,034

Less Accumulated Depreciation for: Buildings and Improvements Improvement Other Than Buildings Equipment

270,089,119 6,709
66,756,768

10,704,405 60,547
11,747,612

22,345,002

280,793,524 67,256
56,159,378

Total Capital Assets, Being Depreciated, Net $ 657,508,689 $ 24,084,312 $ 5,849,984 $ 675,743,017

Governmental Activity Capital Assets - Net $ 717,648,776 $ 82,228,465 $ 33,187,235 $ 774,460,006

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

Governmental Funds

Equipment Less: Accumulated Depreciation

$ 7,811,832 1,563,720

$ 6,248,112

Current year depreciation expense by function is as follows:

- 21 -

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

EXHIBIT"H"

Note 5: CAPITAL ASSETS

Instruction Support Services
Improvements of Instructional Services Educational Media Services General Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Food Services

$ 4,870,703

$ 904,265 603,865
11,584,358 686,746 589,829
2,622,347

16,991,410 650,451

$ 22,512,564

Note 6: RESTRICTED ASSETS

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

District-wide Capital Projects SPLOST

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

$ 48,147,355 $ 16,892,696

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.

-22-

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

EXHIBIT"H"

Note 7: RISK MANAGEMENT

The School District has established a limited risk management program for workers' compensation claims. The School District accounts for claims within the same fund that the employees salaries and benefits were paid 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. An excess coverage insurance policy covers individual claims in excess of$350,000 loss per occurrence, up to the statutory limit.

Changes in the workers' compensation claims liability during the last two fiscal years are as follows:

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End ofYear Liability

2003 2004

$

0 $ 2,047,128 $ 2,047,128 $

0

$

0 $ 2,375,746 $ 2,375,746 $

0

The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the fund that the employees salary and benefits were paid 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 ofYear Liability

Claims and Changes in Estimates

Claims Paid

End ofYear Liability

$

0 $

143,545 $

143,545 $

0

$

0 $

387,438 $

387,438 $

0

The School District has purchased a surety bond to provide additional insurance coverage as follows:

Position Covered

Amount

Superintendent

$ 100,000

Note 8: SHORT-TERM DEBT

The School District issues tax anticipation notes in advance of sales tax collections, depositing the proceeds in its District-wide Capital Projects Fund. This short-term debt is to provide cash for operations until sales tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution of the State of Georgia limits the aggregate amount of short-term

- 23 -

DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30. 2004

EXHIBIT"H"

Note 8: SHORT-TERM DEBT

debt to 75 percent ofthe total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 ofthe 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

Tax Anticipation Notes

$80,962,096 $55,461,450 $80,962.096 $55,461,450

Note 9: LONG-TERM DEBT

CAPITAL LEASES The DeKalb County Board of Education has entered into various lease agreements as lessee for vehicles, buses, copiers, solid waste system and software. 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.

COMPENSATED ABSENCES Compensated absences represent obligations of the School District relating to employees' rights to receive compensation for future absences based upon service already rendered. This obligation relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. Typically, the General Fund is the fund used to liquidate this long-term debt. The School District uses the vesting method to compute compensated absences.

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

Balance July 1, 2003 Additions Deletions Balance June 30, 2004 Portion of Long-Term Debt
Due within One Year

Governmental Funds

Capital

Compensated

Leases

Absences

Total

$ 9,653,530 $ 8,997,462 $ 18,650,992

1,643,167

6,316,869

7,960,036

6,805,724

3,281,186

10,086,910

$ 4,490.973 $ 12,033,145 $ 16,524.118

$ 2,729,072 $ 5,000,000 $ 7,729,072

-24-

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

EXHIBIT"H"

Note 9: LONG-TERM DEBT

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

Ca:gital Leases

Princi:gal

Interest

2005 2006 2007 2008 2009 2010 and Thereafter

$ 2,729,072 $ 1,052,408 203,018 118,004 123,570 264,901

184,361 77,318 27,979 21,447 15,881 14,001

Total Principal and Interest

$ 4,490,973 $ 340,987

Note 10: PRIOR YEAR DEFEASEMENT OF DEBT

In fiscal year 2003, the School District defeased certain general obligation bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the School District's basic financial statements. At June 30, 2004, $56,670,000 ofbonds are outstanding and are considered defeased.

Note 11: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $7,449,541 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $7,395,029

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 $54,512

- 25 -

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

EXHIBIT "H"

Note 12: SIGNIFICANT COMMITMENTS

The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2004, together with funding available:

Project

Unearned Executed Contracts

Funding Available From State

001 New Oakvale Elementary School 002 Miller Grove High School 638 New Tucker Middle School 640 Hightower Elementary School 642 Kelley Lake Elementary School 644 Rowlands Elementary School 648 Coralwood Center 655 Pine Ridge Elementary School 659 Sagamore Hills Elementary School 667 Laurel Ridge Elementary School 668 Hawthorne Elementary School 676 Chamblee Middle School 679 Fembank Elementary School 689 Stephenson High School 723 Columbia Elementary School 749 Chapel Hill Elementary School 777 Rainbow Elementary School 778 Tilson Elementary School 779 Terry Mill Elementary School 887 East DeKalb Campus Phase II

$ 4,625,852 $ 5,090,904

13,452,466

1,549,275

7,716,193

4,406

34,924

2,718,343

179,820

1,454,591

448,270

13,006

179,820

3,591

2,000

5,720

603,428

167,825

4,579,336

3,800

2,501

6,989

530,302

4,830

938,115

7 385

$ 30,458.828 $ 13,864,864

The amounts described in this note are not reflected in the basic financial statements.

Note 13: 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.

The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements.

- 26-

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

EXHIBIT"H"

Note 14: 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%

$ 47,510,329 $ 47,693,749 $ 45,372,318

- 27 -

DEKALB 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 Enterprise Operations Food Services Operation
Debt Service
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES {USES}
Other Sources Other Uses
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning (Restated)

NONAPPROPRIATED BUDGETS

ORIGINAL (1}

FINAL (1}

ACTUAL AMOUNTS

$ 383,062,208 $ 383,062,208 $ 385,258,909

6,000,000

5,400,000

22,063,459

338,841,141

343,599,332

338,658,444

60,155,680

66,567,052

78,200,856

7,980,352

7,999,511

16,837,799

3,735,000

4,335,000

1,443,771

14,578,753

15,920,308

8,802,499

$ 814,353,134 $ 826,883,411 $ 851,265,737

$ 530,446,396 $ 518,581,866 $ 526,035,350

15,932,054 25,849,776 17,396,641
3,315,900 54,173,772
5,562,177 66,043,857 37,869,856 14,399,629
2,460,514 37,736,238

16,738,748 54,341,841 17,091,933
3,297,863 53,913,272
6,243,059 66,100,681 37,859,831 17,157,656
2,460,514 37,736,238

17,850,934 46,641,001 16,974,138
3,237,619 53,473,580 6,169,563 69,198,845 33,093,623 14,535,977
110,460
41,407,805 815 805

$ 811.186,810 $ 831,523,502 $ 829,544,700

$

3,166,324 $

-4,640,091 $

21,721,037

$

2,291,885 $

2,291,885 $

-2,254,877

-2,254,877

1,643,167

$

37008 $

37 008 $

1 643 167

$

3,203,332 $

-4,603,083 $

23,364,204

13,675,389

11,938,242

-9729114

Fund Balances - Ending

$

16,878,721 $

7,335,159 $ ==,:,,;13~,6~3;;;5.;;:,0~90~

Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual
(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts.
The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

-29-

DEKALB 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
Corporation for National and Community Service Pass-Through From Georgia Department of Education Learn and Serve America School and Community Based Programs
Education, U.S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Other Programs Direct Community Technology Centers Fund for the Improvement of Education Safe and Drug-Free Schools and Communities Transition to Teaching Twenty-First Century Community Leaming Centers Pass-Through From Georgia Department of Education Charter Schools Comprehensive School Reform Demonstration Education for Homeless Children and Youth English Language Acquisition Grants Enhancing Education Through Technology Program Improving Teacher Quality State Grants Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Twenty-First Century Community Learning Centers Vocational Education - Basic Grants to States
Total U.S. Department of Education
Health and Human Services, U. S. Department of Pass-Through From Georgia Department of Education Refugee and Entrant Assistance Pass-Through From Georgia Department of Human Resources Abstinence Education Program
Total U. S. Department of Health and Human Services

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

* 10.553 * 10.555

N/A N/A $
$

(2) 36,277,729
36,277,729

10.550

N/A
$

2,829,088 39,106,817

94.004

N/A $

69 760

* 84.027 * 84.173

N/A $ N/A
$

13,271,314 474 538
13,745,852

84.341 84.215 84.184 84.350 * 84.287
84.282 84.332 84.196 84.365 84.318 84.367 84.186 84.298 84.010 * 84.287 84.048

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

108,816 919,077 574,535 305,263 2,443,029
194,889 48,329 19,277 1,765,562 278,106 3,508,461 831,829 782,814 20,229,645 1,994,187 (3) 754 343
48,504,014

93.576 93.235

N/A $ N/A
$

260,166 89638
349 804

- 30-

DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2004

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Justice, U.S. Department of Pass-Through From Office of Community Oriented Policing Services Public Safety Partnership and Community Policing Grant
Defense, U.S. Department of Direct Department of the Air Force R.O.T.C. Program Department of the Army R.O.T.C. Program Department of the Navy R.O.T.C. Program
Total U.S. Department of Defense

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

16.710

N/A $ _ _ ___c2=2=,6"-'3=-9

$

434,845

57,088

466,630

Total Federal Financial Assistance N/A = Not Available

$ ===8=9,=0=11..,,5=9=7

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 ($5,024,733) were not maintained separately and are included in the 2004 National School Lunch Program.
(3) Includes Federal Assistance of $1,375,270 provided to subrecipients.

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

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

- 31 -

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

SCHEDULE "3"

AGENCY/FUNDING

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program

$

7.091,813

$

Community Affairs. Georgia Department of Local Assistance Grant

9,500

Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Special Education Itinerant Special Education Supplemental Speech Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Nursing Services Principal Supplements Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs Apprenticeship Program 4-8 Statewide After School Program Georgia Learning Resources System Health Insurance Limited School Choice Program (K-3 Statewide Reading Program) Mentor Teachers National Teacher Certification

22,536,583 2,065,248
47,034,174 11,306,008 24,347,406
7,120,001 2,573,776 44,251,289 41,681,031 6,660,624
4,583,054 6,119,006 19,178,735 5,316,558
429,683 11,578,222
21,323 57,547 1,083,560 3,535,621 4,633,021 7,439,392 2,316,811 1,561,969
6,268,879 15,185,433 22,597,906
4,423,025 1,096,862 1,741,256
364,814 1,248,694 2,292,005 -19,262,380
85,500 729,339
96,894 7,395,029 1,089,787
81,043 203,222

TOTAL
7,091,813
9,500
22,536,583 2,065,248
47,034,174 11,306,008 24,347,406
7,120,001 2,573,776 44,251,289 41,681,031 6,660,624
4,583,054 6,119,006 19,178,735 5,316,558
429,683 11,578,222
21,323 57,547 1,083,560 3,535,621 4,633,021 7,439,392 2,316,811 1,561,969
6,268,879 15,185,433 22,597,906
4,423,025 1,096,862 1,741,256
364,814 1,248,694 2,292,005 -19,262,380
85,500 729,339
96,894 7,395,029 1,089,787
81,043 203,222

- 32 -

DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2004

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Education, Georgia Department of Other State Programs PayforPertormance Preschool Handicapped Program Psychoed (K-3 Statewide Reading Program) Rule 10 Special Education State Grant Residential and Reintegration Severely Emotionally Disturbed Teachers' Retirement Technology/Career High Schools that Work Technology/Career Extended Day Technology/Career Extended Year Vocational Educational Industry Certification
Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Northwest Georgia Regional Educational Service Agency Georgia's Choice - Statewide School Improvement Network
Office of Treasury and Fiscal Services Public School Employees Retirement
CONTRACTS Education, Georgia Department of Foreign Language Model Program
Office of the Governor Georgia Challenge Program Pass Through From Metropolitan Regional Educational Service Agency

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$

519,021

1,310,510

12,000

63,482

145,142

3,538,315

965,796

67,371

26,649

24,368

278

$

519,021

1,310,510

12,000

63,482

145,142

3,538,315

965,796

67,371

26,649

24,368

278

$ 13,791,217

13,791,217

1,500,000 54,512

1,500,000 54,512

236,737

236,737

25,000 _____

25,000

$ 338,658,444 $ 13,791,217 $ 352,449,661

See notes to the basic financial statements.

- 33-

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

SCHEDULE "4"

PROJECT

ORIGINAL ESTIMATED
COST(1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT
YEAR(3)

AMOUNT EXPENDED
IN PRIOR YEARS (3)

PROJECT STATUS

Property acquisition, construction and equipping of eleven (11) new schools, including two (2) elementary schools, seven (7) middle schools, and two (2) high schools; renovations, modifications, additions and equipment for existing schools; acquisition of a warehouse facility; and acquisition and installation of information systems hardware and infrastructure at all schools and selected other facilities.

$ 381,733,800 $ 407,120,349 $ 13,550,427 $ 383,433,854 Ongoing

Property acquisition, construction and equipping a minimum of eight (8) new schools and two (2) new centers; renovations, modifications, additions and equipment for existing schools; acquisition and installation of information systems, hardware and infrastructure at all schools and selected other facilities; purchase of both new school buses and school buses currently under lease.

524,404,330 570,232,543

82,835,330

61,173,752 Ongoing

$ 906,138,130 $ 977,352,892 $ 96,385,757 $ 444,607,606

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

See notes to the basic financial statements.

- 34-

DEKALB 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 High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Category V 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

$

28,895,267 $ 27,902,744 $

23,158 $

27,925,902

2,801,180

218,105

218,105

61,030,636

55,664,125

1,727,949

57,392,074

14,618,502

4,094,288

4,094,288

31,673,083

31,492,710

31,492,710

9,136,147 3,611,223 56,998,880 53,705,552 8,559,290 45,778,275
14,625,129 1,435,257 4,565,535 6,060,935

287,264 26,501,646 49,719,937 56,092,393
7,527,024
25,737,987 4,962,652 16,673,737 4,792,179 1,093,334 8,698,052 10,439,773 2,165,070 7,251,765

1,310,400 2,288,318 3,111,533
688,844
1,933,326 28,408 70,664 52,730 7,450 9,784
12,447

287,264 27,812,046 52,008,255 59,203,926
8,215,868
27,671,313 4,991,060 16,744,401 4,844,909 1,100,784 8,707,836 10,439,773 2,177,517 7,251,765

$

343,494,891 $ 341,314,785 $ 11,265,011 $ 352,579,796

9,588,593 2 014 319

14,504,696 1,355,521

1,948,640 813,152

16,453,336 2,168,673

TOTAL QBE FORMULA FUNDS

$

355,097,803 $ 357,175,002 $ 14,026,803 $ 371,201,805

(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.

- 35-

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
April26,2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education
and Superintendent and Members ofthe DeKalb 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 DeKalb County Board of Education as ofand for the year ended June 30, 2004, which collectively comprise DeKalb County Board of Education's basic financial statements and have issued our report thereon dated April 26, 2005. 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.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered DeKalb 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 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 DeKalb County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6641-04-01 and FS-6641-04-02.
2004YB-30

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, we believe none of the reportable conditions described above is a material weakness.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether DeKalb County Board of Education'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 DeKalb County Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
RWH:as 2004YB-30

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

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
April 26, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the DeKalb 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 DeKalb County Board ofEducation with the types ofcompliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2004. DeKalb 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 DeKalb County Board of Education's management. Our responsibility is to express an opinion on DeKalb County Board of Education's compliance based on our audit.
We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States 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 Al 33, 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 DeKalb 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 DeKalb County Board of Education's compliance with those requirements.
2004SA-10

In our opinion, the DeKalb 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 DeKalb 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 DeKalb 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.
Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses.
This report is intended solely for the information and use of the management, members of the DeKalb 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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Rus ell W. Hinton State Auditor
RWH:as 2004SA-10

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

DEKALB 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-6441-03-01

Previously Reported Corrective Action Implemented

SECTION IV FINDINGS AND QUESTIONED COSTS

DEKALB 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 DeKalb County Board of Education's financial statements was unqualified.

2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the DeKalb County Board of Education disclosed financial statement reportable conditions related to the following control categories.

Accounting Controls (Overall)

Capital Assets

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

3. Noncompliance Material to the Financial Statements The audit of the DeKalb 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 DeKalb County Board of Education did not disclose any reportable conditions in internal control over major programs.

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

6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The DeKalb County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133.

7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 84.287 Twenty-First Century Community Learning Centers

8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $2,670,348.

9. Low Risk Auditee The DeKalb County Board of Education did not qualify as a low risk auditee as defined by Section .530 of 0MB Circular A-133.

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DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
ACCOUNTING CONTROLS (OVERALL) Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-6441-04-01
An examination of the internal accounting control procedures revealed that the School District did not maintain adequate separation of duties in the Financial Accounting System. Access controls in the Financial Accounting System do not prevent users from accessing accounting functions that are outside of their area of responsibility.
Separation ofduties involving key accounting functions, both manual and automated, is the basis for achieving an adequate system of internal control. The deficiencies noted were a result of management's decision not to limit the access rights of users of the Financial Accounting System. Management should ensure that the access controls in the accounting information system should complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of that employee's duties.
CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6441-04-02
An examination of the School District's Construction in Progress activity identified significant building projects completed during fiscal year 2005. Although these construction projects were removed from the Construction In Progress capital assets category properly, the Board failed to add these new buildings to the Building and Building Improvement category on the capital assets listing.
An audit adjustment of $27,337,251 was posted to correct this omission of Building and Building Improvements on the financial statements. This condition occurred because the School District failed to establish procedures to reconcile completed construction projects to the capital assets subsidiary listing. The School District should design and implement adequate controls to ensure that all activity related to Construction in Progress is accurately reported within the financial accounting records of the entity.
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
No matters were reported.
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SECTIONV MANAGEMENT'S RESPONSES

DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2004
Finding Control Number: FS-6441-04-01
We concur with this finding. The Board has established and filled a new "Data Integration Manager" position with primary responsibility for the access controls ofthe Financial Accounting System. A complete review of all employees' access authority as it relates to their required duties will be conducted. The "Data Integration Manager" will limit access authority accordingly and establish procedures to ensure future compliance.
Finding Control Number: FS-6441-04-02
We concur with this finding. The Board has purchased a new fixed asset software package and established and filled a new "Audit Specialist" position to ensure that all activity related to Construction in Progress is accurately reported within our financial accounting records.
Contact Person: Rick A. Cost, Chief Financial Officer Phone: (678) 676-0069 Fax Number: (678) 676-0394 E-mail Address: rickcost@dekalb.kl2.ga.us