DEKALB COUNTY BOARD OF EDUCATION DECATUR, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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 B STATEMENT OF ACTIVITIES FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS H NOTES TO THE BASIC FINANCIAL STATEMENTS SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND Page 1 2 4 7 8 10 11 13 33 DEKALB COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS - CHARTER SCHOOLS 34 3 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS - CHARTER SCHOOLS 36 4 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 38 5 SCHEDULE OF STATE REVENUE 40 6 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 42 7 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 43 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 September 25, 2008 Honorable Sonny Perdue, Governor Members ofthe 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) ofthe DeKalb County Board of Education, as of and for the year ended June 30, 2007, 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 did not audit the financial statements ofAcademy ofLithonia, DeKalb Academy ofTechnology and the Environment, DeKalb PATH Academy, Destiny Academy of Excellence and the International Community School Charter Schools, which represent 22 percent and 100 percent ofthe assets and revenues, respectively, ofthe aggregate remaining fund information. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for Academy ofLithonia, DeKalb Academy ofTechnology and the Environment, DeKalb PATH Academy, Destiny Academy ofExcellence and the International Community School Charter Schools is based on the reports of other auditors. 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the DeKalb County Board of 2007 ARL-12X Education's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 and the reports of other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the reports ofother auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position ofthe governmental activities, each major fund, and the aggregate remaining fund information of the DeKalb County Board ofEducation, as ofJune 30, 2007, and the respective changes in financial position thereoffor the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated September 25, 2008, on our consideration of the DeKalb County Board of Education's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope ofour testing ofinternal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through viii and page 33 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 ofAmerica. We and the other auditors 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 ofSchedules 2 through 7, 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 by us and the other auditors in the audit ofthe basic financial statements, and in our opinion, based on our audit and the reports ofother auditors, are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. 2007ARL- l 2X A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, ~~ lh..qJ~ ~ell W. Hinton, CPA, CGFM State Auditor RWH:gp 2007ARL-12X DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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, 2007. 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 2007 are as follows: In total, net assets increased $78.3 million to $1.053 billion. This represents an 8 percent increase from 2006. This total increase was due to governmental activities since the Board has no business-type activities. General revenues accounted for $608.1 million in revenue or 53.8 percent of all revenues. Program specific revenues in the form of charges for services, operating and capital grants and contributions accounted for $521.0 million or 46.2 percent of total revenues of $1.129 billion. The Board had $1.023 billion in expenses related to governmental activities; $521.0 million of these expenses were offset by program specific charges for services, grants or contributions. Among major funds, the general fund has $1.012 billion in revenues and $1.011 billion in expenditures. The general fund's "Net Change in Fund Balances" decreased by $6.43 million resulting in a change in the "Total Fund Balances" from $25.78 million to $19.35 million for the fiscal year. The fund balance reflects the full accrual of all contracted salaries and benefits unpaid at June 30 in full compliance with generally accepted accounting principles. 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. DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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 looking at all financial transactions to ask the question, "How did we do financially during 2007?" 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, 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, debt service fund and the nonmajor governmental funds. 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, 2007 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 2007 compared to fiscal year 2006. Table 1 Net Assets (in Thousands) Governmental Activities Fiscal Fiscal Year 2007 Year 2006 Assets Current and Other Assets Capital Assets, Net $ 569,507 $ 182,218 962,861 923,254 Total Assets $ 1,532,368 $ 1,105,472 Liabilities Current and Other Liabilities Long-Term Liabilities $ 163,413 $ 116,528 315,759 14,085 Total Liabilities $ 479,172 $ 130,613 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 957,545 $ 922,502 93,492 48,707 2,159 3,650 Total Net Assets $ 1,053.196 $ 974,859 Total net assets increased $78.3 million. Table 2 shows the changes in net assets for fiscal year 2007 compared to fiscal year 2006. 111 DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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 Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Intangible Recording Tax Real Estate Alcoholic Beverages Investment Earnings Miscellaneous Special Items Loss on Disposal of Building and Equipment 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 of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt Total Expenses Increase in Net Assets Governmental Activities Fiscal Fiscal Year 2007 Year 2006 $ 8,875 501,616 10,556 $ 521,047 $ 11,582 466,291 20,978 $ 498,851 $ 454,788 $ 417,387 102,656 11,117 3,881 6,049 14,188 18,101 -2,631 $ 608,149 $ 1,129,196 97,729 10,982 3,817 5,920 7,730 9,078 $ 552,643 $1,051,494 $ 631,396 32,708 53,393 19,725 10,632 61,188 10,023 81,207 48,256 20,586 1,577 3,100 46,722 2,519 $ 1,023,032 $ 106)64 $ 594,542 28,287 63,176 20,426 5,896 61,085 6,036 76,581 41,016 19,835 1,466 44,887 90 $ 963,323 $ 882171 IV DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 GOVERNMENTAL ACTIVITIES Instruction, Pupil Services and Improvement of Instructional Services comprises 70.1 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 2007 compared to fiscal year 2006. That is, it identifies the cost of these services supported by tax revenue and unrestricted State entitlements. Table 3 Governmental Activities (in Thousands) Net Cost of Services Fiscal Year 2007 Net Cost of Services Fiscal Year 2006 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 $ 251,788 $ 224,765 26,240 34,844 10,265 9,875 41,846 9,396 56,988 39,775 12,858 1,396 25,392 47,228 11,837 -1,315 43,644 5,195 52,473 34,401 19,234 2,072 2,123 2,519 248 1,280 90 Total Net Cost of Services $ 501,985 $ 464,472 Although program revenues make up 46.2 percent of the revenues, the Board is still primarily dependent upon tax revenues for governmental activities. More than 39.9 percent of instruction activities are supported through taxes and other general revenues; for all governmental activities general revenue support is 49. I percent. V DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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 $1.446 billion and expenditures of $1.105 billion. There was an increase in fund balance of $356.0 million in the capital project funds due to the sales tax proceeds collected being higher than projected during the year and a bond issue. The general fund had a decrease in fund balance of $6.4 million. The change in the fund balance of the general fund for the year was due to significant increases in budgeted expenditures during the year. These increases in spending were the result of a concentrated increase in instructional expenditures and student transportation services. The effort by the Board to begin to rebuild the general fund balance, which has been severely depleted in prior years by state funding reductions which began in fiscal year 2003, was subordinated to provide additional resources for instruction and student achievement. This has resulted in a reduction in state earnings of nearly $79.0 million over the past five fiscal years. 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 2007, 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, final budgeted revenues and other sources of $1.012 billion was exceeded by the actual by $2.6 million. This difference was due mainly to receiving additional Property Taxes that exceeded the projected amounts. Better than expected investment earnings were also a factor in the better than projected revenue forecast. Actual expenditures of $1.011 billion were 3.0 percent more than the final budgeted total of $979.9 million. More than projected instructional salaries and operating costs contributed to the budget variance. Additionally, the food costs for the school nutrition operations were more than expected. General Fund expenditures exceeded revenues and other financing sources resulting in a decrease in "Net Change in Fund Balances" of over $6.4 million for the year. The additional instruction related costs was a major factor in the decrease. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At the end of fiscal year 2007 the Board had $962.9 million invested in capital assets, all in governmental activities. Table 4 shows fiscal year 2007 balances compared with fiscal year 2006 balances. VI DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 Table 4 Capital Assets at June 30 (Net of Depreciation, in Thousands) Governmental Activities Fiscal Fiscal Year 2006 Year 2007 (Restated) Land Construction in Progress Buildings and Building Improvements Improvements Other than Buildings Equipment $ 35,771 81,239 770,948 29,435 45,469 $ 33,536 124,130 688,227 2,281 47,278 Total $ 962!862 $ 895!452 The primary increases occurred in buildings and building improvements and improvements other than buildings. Due to the ongoing growth in the county, the Board has numerous construction projects including new buildings, additions, and renovations. Debt At June 30, 2007 the Board had $2.5 million in capital leases. There were $11.7 million in compensated absences. The Board issued $300.0 million in general obligation bonds during fiscal year 2007 with $13.3 million in premiums. $8.6 million of the outstanding debt 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 2007 balances to fiscal year 2006 balances. Table 5 Debt at June 30 (in Thousands) Capital Leases Compensated Absences General Obligation Bonds Unamortized Bond Premiums Total Governmental Activities Fiscal Fiscal Year 2006 Year 2007 (Restated) $ 2,467 11,704 300,000 13,292 $ 872 13,333 $ 327!463 $ 14!205 Vll DEKALB COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 The Board maintains an AA- and Aa3 bond rating from Standard and Poor's and Moody's, respectively. CURRENT ISSUES The DeKalb County School System continues to face serious reductions in the State's "Quality Basic Education" funding formula earnings. In addition to the over $8.9 million in State funding lost in the current year, State austerity reductions have amounted to nearly $79.0 million through fiscal year 2007. Sales tax collections from the Special Purpose Local Option Sales Tax instituted in 2002 also continue to fluctuate versus projections. However, signs point to a rebound in collections as sales tax revenue has shown an increase in fiscal year 2006 and 2007. On a positive note, the State of Georgia ended the fiscal year 2007 with a surplus and has budgeted to reduce the amount of the funding formula reductions for fiscal year 2009. This is a trend we hope continues until the austerity reductions are completely eliminated. Revenues in the fiscal year 2007 have been strong all school year for the Board. The Board will be challenged to continue to overcome any current or future financial challenges given the state of the local, state, and national economy. DeKalb County School System does continue to strive to increase 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. Marcus T. Turk, 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 marcus_turk@fc.dekalb .k 12 .ga. us. viii DEKALB COUNTY BOARD OF EDUCATION DEKALB COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2007 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Prepaid Items Deferred Charges Other Current Assets Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries and Benefits Payable Contracts Payable Retainages Payable Deposits and Deferred Revenues Compensated Absences Payable Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. -1- EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 116,853,390.29 351,259,855.01 21,373,483.51 55,868,028.25 20,394,262.56 509,521.93 3,152,651.15 85,425.00 1,663.00 9,000.00 35,770,769.61 81,238,739.01 30,468,038.00 1,086,534,275.93 81,350,044.00 -352,500,450.00 $ 1,532,368,697.25 $ 55,208,940.36 81,274,307.74 10,563,364.68 4,081,726.76 580,541.68 5,500,000.00 3,167,705.29 318,795,651.45 $ 479,172,237.96 $ 957,545,437.06 1,196,822.29 7,529,675.21 3,706,850.00 81,041,416.77 2,176,257.96 $ 1,053,196,459.29 $ 1,532,368,697.25 DEKALB COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2007 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 and Special Items Taxes Property Taxes For Maintenance and Operations For Debt Services Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Intangible Recording Tax Real Estate Transfer Tax Alcoholic Beverages Tax Investment Earnings Miscellaneous Special Items Loss on Disposal of Building and Equipment Total General Revenues and Special Items Change in Net Assets Net Assets - Beginning of Year, Restated Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 631,396,204.52 $ 32,707,580.68 53,393,018.82 19,724,874.55 10,632,328.88 61,188,009.87 12,319,806.35 81,206,698.56 48,255,706.01 20,586,499.65 1,576,528.18 3,100,443.59 46,722,241.56 221,786.15 $ 1,023,031,727.37 $ 579,841.98 8,295,092.44 8,874,934.42 The notes to the basic financial statements are an integral part of this statement. -2- EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 371,965,562.16 $ 6,466,832.25 18,501,806.43 9,366,514.11 755,658.08 19,342,386.48 392,120.34 24,095,782.09 6,385,229.56 7,728,134.38 180,200.00 1,028,895.94 35,406,678.11 $ 501,615,799.93 $ 7,063,152.53 $ 1,236.46 47,276.85 93,575.55 1,208.92 234,576.00 122,880.62 2,095,109.00 34.85 897,379.91 10,556,430.69 $ -251,787,647.85 -26,239,511.97 -34,843,935.54 -10,264, 784.89 -9,875,461.88 -41,845,623.39 -11,693,110.01 -56,988,035.85 -39,775,367.45 -12,858,330.42 -1,396,328.18 -2,071,547.65 -2,123,091.10 -221 786.15 -501,984,562.33 $ 454,788,176.56 15.61 102,656,303.59 11,117,074.98 3,880,754.74 6,049,170.47 14,187,370.71 18,101,056.04 -2,631,271.99 $ 608,148,650.71 $ 106,164,088.38 947,032,370.91 $ 1,053,196,459.29 -3- DEKALB COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2007 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Prepaid Items Deferred Charges Other Current Assets Total Assets GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND $ 53,554,195.72 $ 62,357,318.99 19,770,495.46 330,000,439.90 1,225,099.75 55,843,911.25 20,378,237.56 352,089.93 3,152,651.15 17,096,503.67 $ 154,276,680.82 $ 409,454,262.56 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries and Benefits Payable Contracts Payable Retainages Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories Capital Projects Other Unreserved Undesignated Reported in: General Fund Total Fund Balances $ 53,158,383.03 $ 863,681.33 81,183,608.74 10,563,364.68 4,081,726.76 580,541.68 $ 134,922,533.45 $ 15,508,772.77 $ 1,196,822.29 6,433,729.80 $ 2,460,561.77 3,152,651.15 391,484,928.02 8,570,944.13 $ 19,354,147.37 $ 393,945,489.79 Total Liabilities and Fund Balances $ 154,276,680.82 $ 409,454,262.56 The notes to the basic financial statements are an integral part of this statement. -4 - EXHIBIT"C" DEBT SERVICE FUND NON MAJOR GOVERNMENTAL FUNDS TOTAL $ 46,978.58 $ 1,199,309.65 894,897.00 $ 289,610.00 24,117.00 16,025.00 157,432.00 85,425.00 1,663.00 9 000.00 116,853,390.29 351,259,855.01 18,321,603.42 55,868,028.25 20,394,262.56 509,521.93 3,152,651.15 85,425.00 1,663.00 9,000.00 $ 1,246,288.23 $ 1,478,169.00 $ 566,455,400.61 $ 1,186,876.00 $ 55,208,940.36 90,699.00 81,274,307.74 10,563,364.68 4,081,726.76 580,541.68 $ 1,277,575.00 $ 151,708,881.22 $ 1,246,288.23 $ $ 1,246,288.23 $ $ 16,862.00 1, 196,822.29 6,433,729.80 3,706,850.00 3,152,651.15 391,484,928.02 16,862.00 183,732.00 200,594.00 $ 8,754,676.13 414,746,519.39 $ 1,246,288.23 $ 1,478,169.00 $ 566,455,400.61 -5- (This page left intentionally blank) DEKALB COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2007 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Capital Leases Compensated Absences Unamortized Bond Premiums Total Long-Term Liabilities $ 414,746,519.39 $ 35,770,769.61 81,238,739.01 30,468,038.00 1,086,534,275.93 81,350,044.00 -352,500,450.00 962,861,416.55 3,051,880.09 $ -300,000,000.00 -2,467, 148.91 -11,703,866.63 -13,292,341.20 -327,463,356.74 Net Assets of Governmental Activities (Exhibit "A") $ 1,053,196,459.29 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, 2007 REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation Capital Outlay Debt Services Principal Dues and Fees Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Accrued Interest on Bonds Sold Capitalized Interest on Bonds Sold Proceeds of Long-Term Capital Related Debt Premiums on Bonds Sold Sale of Equipment Capital Leases Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning, Restated GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND $ 453,710,773.47 21,047,000.19 $ 102,656,303.59 406,982,933.91 8,461,321.69 96,531,646.02 8,535,518.42 8,141,862.42 4,207,396.40 17 172 862.69 52 000.00 $ 1,012,122,597.12 $ 115,377,021.68 $ 622,977,431.15 32,756,590.13 54,028,212.54 19,654,182.41 9,681,052.14 61,852,337.79 9,854,472.82 $ 81,110,498.00 47,276,989.26 20,586,473.32 185,337.18 3,100,443.59 46,061,227.55 279,941.02 158,415.50 70,765,698.45 935,204.15 221 786.15 2,294,750.22 $ 1,010,562,179.20 $ 73,218,864.17 $ 1 560 417.92 $ 42,158,157.51 $ 612,829.95 300,000,000.00 13,292,341.20 $ 60,377.35 2,171,961.10 -10,226,209.00 $ -7 993 870.55 $ 313,905,171.15 $ -6,433,452.63 $ 356,063,328.66 25 787 600.00 37,882,161.13 Fund Balances - Ending The notes to the basic financial statements are an integral part of this statement. -8 - $ 19 354 147.37 $ 393,945,489.79 EXHIBIT "E" DEBT SERVICE FUND NONMAJOR GOVERNMENTAL FUNDS TOTAL $ 15.61 $ 7,365.50 $ 196,329.00 339,416.00 23,487.00 815 816.00 453,710,789.08 123,703,303.78 415,444,255.60 96,727,975.02 8,874,934.42 12,380,111.32 18,040,678.69 $ 7 381.11 $ 1 375 048.00 $ 1,128,882,047.91 $ 9,092,803.00 $ 632,070,234.15 979,279.00 1,390,284.00 3,469.00 32,756,590.13 54,028,212.54 19,654,182.41 10,660,331.14 61,852,337.79 10,012,888.32 81,110,498.00 47,276,989.26 20,586,473.32 1,575,621.18 3,100,443.59 46,061,227.55 71,049,108.47 $ 2,059.04 30,001.00 965,205.15 2,296,809.26 221 786.15 $ 2,059.04 $ 11 495 836.00 $ 1,095,278,938.41 $ 5 322.07 $ -10 120 788.00 $ 33,603,109.50 $ 1,194,429.44 $ $ 1,194,429.44 $ $ 1,199,751.51 $ 46,536.72 $ 10,226,209.00 1,194,429.44 612,829.95 300,000,000.00 13,292,341.20 60,377.35 2,171,961.10 10,226,209.00 -10,226,209.00 10,226,209.00 $ 317 331 939.04 105,421.00 $ 350,935,048.54 95 173.00 63,811,470.85 $ 1,246,288.23 $ 200,594.00 $ 414,746,519.39 -9 - 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, 2007 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") $ 350,935,048.54 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 $ 89,891,542.35 -19,850, 739.20 70,040,803.15 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. 1,077,402.43 In the Statement of Activities, only the loss on the sale or disposal of the buildings and equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale decrease financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the buildings and equipment sold. -2,631,271.99 Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from: General Obligation Bonds Issued, including a premium of $13,292,341.20 -313,292,341.20 Some of the Capital Assets acquired this year were financed with capital leases. In Governmental Funds, a capital lease arrangement is considered a source offinancing, but in the Statement of Net Assets, the lease obligation is reported as a Long-Term Liability. -2,560,332. 70 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 965,205.15 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: Decrease in Compensated Absences 1,629,575.00 Change in Net Assets of Governmental Activities (Exhibit "B") $ 106,164,088.38 The notes to the basic financial statements are an integral part of this statement. - 10 - DEKALB COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2007 ASSETS Accounts Receivable, Net Other LIABILITIES Cash Overdraft Accounts Payable Other Liabilities Funds Held for Others Total Liabilities EXHIBIT"G" AGENCY FUNDS $ 8,341,323.23 $ 3,027,277.94 187,608.67 3,238,237.96 1,888, 198.66 $ 8,341,323.23 The notes to the basic financial statements are an integral part of this statement. - 11 - (This page left intentionally blank) DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 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. Blended Component Units Included within the School District are five Charter Schools. Each Charter School is responsible for the public education ofall students attending its school. The Charter Schools were created through a contract between the School District and each Charter School whereby all State funding associated with the students attending the Charter Schools and certain specified local funds are remitted to the Charter Schools to cover the cost of their operations. The financial statements of the Charter Schools have been blended with the School District's nonmajor governmental funds. A listing of the Charter Schools follows: Academy of Lithonia, Incorporated 3235 Evans Mill Road Lithonia, Georgia 30058 Destiny Academy of Excellence, Incorporated 3595 Linecrest Road Ellenwood, Georgia 30294 DeKalb Academy of Technology and the Environment, Incorporated 1833 Stone Mountain Lithonia Road Lithonia, Georgia 30058 International Community School, Incorporated 3260 Covington Highway Decatur, Georgia 30032 DeKalb PATH Academy, Incorporated 3007 Hermance Drive Clarkston, Georgia 30021 The Gateway to College Academy (Charter School) is responsible for the public education of all students attending its school. The Charter School was created through a contract between the School District, Charter School and Georgia Perimeter College whereby all State funding associated with the students attending the Charter School and certain specified local funds are turned over to the Charter School to cover the cost of its operations. Gateway to College Academy was included in the audited financial statements of Georgia Perimeter College. - 13 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" 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 of Activities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting of internal 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. All remaining governmental funds are aggregated and reported as nonmajor funds. 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 (SPLOST), Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation ofmajor capital facilities. - 14 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, 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, 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 ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. - 15 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RESTATEMENT OF PRIOR YEAR NET ASSETS/FUND BALANCES Beginning net assets and fund balances have been adjusted in the following statements pursuant to corrections of prior year errors and changes in policies: District-wide Statements: Governmental Activities: Net assets at the beginning of the year for governmental activities have been decreased by $27,827,178.09 as described in the following paragraphs. For fiscal year 2007, the School District restated various Capital Assets due to a change in the capitalization policy. The School District decreased, net of accumulated depreciation, buildings and improvements and equipment, $149,927.24 and $28,504,662.85, respectively. The result is a decrease in Net Assets at July 1, 2006, of $28,654,590.09. This change is in accordance with generally accepted accounting principles. For fiscal year 2007, the School District included Charter School activity which had been omitted from the prior year. The result is an increase in Net Assets at July 1, 2006, of $827,412.00. This restatement is made up of the Charter Schools' Fund Balance of $95,173.00, Long-Term Debt Liability of$119,980.00 and capital assets, net of accumulated depreciation, buildings and improvements, equipment and land improvements, $530,462.00, $318,631.00 and $3,126.00, respectively. This change is in accordance with generally accepted accounting principles. Fund Financial Statements: Nonmajor Governmental Funds: Net adjustments totaling $95,173.00 were made to increase the beginning fund balance for the Nonmajor Governmental Funds. These adjustments were made to include the Charter School activity. 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. Official Code of Georgia Annotated Section 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. - 16 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. - 17 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PROPERTY TAXES The DeKalb County Board ofCommissioners fixed the property tax levy for the 2006 tax digest year (calendar year) on June 15, 2006 (levy date). Taxes were due on November 15, 2006 (lien date) and could be paid in two installments on August 15, 2006 and November 15, 2006 (due dates). Taxes collected within the current fiscal year or within 60 days after year-end on the 2006 tax digest are reported as revenue in the governmental funds for fiscal year 2007. The DeKalb County Tax Commissioner bills and collects the property taxes for the School District, withholds 1.25% oftaxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2007, for maintenance and operations amounted to $453,710,773.47 and for school bonds amounted to $15.61. The tax millage rate levied for the 2006 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 SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $102,656,303.59 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 of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. - 18 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PREPAID ITEMS Payments made to vendors for services that will benefit periods subsequent to June 30, 2007, are recorded as prepaid items. 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. During the fiscal year under review, no events or changes in circumstances affecting a capital asset that may indicate impairment were known to the School District. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Improvements Other than Buildings Equipment Outdoor Equipment Vehicles Kitchen Equipment Computers Miscellaneous Equipment Buses All $ 100,000.00 $ 100,000.00 $ 100,000.00 NIA 20 years 80 years 20 years $ 5,000.00 15 years $ 5,000.00 20 years $ 5,000.00 12 years $ 5,000.00 10 years $ 5,000.00 10 to 30 years $ 5,000.00 20 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. - 19 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement ofNet Assets. NET ASSETS The School District's net assets in the District-wide Statements are classified as follows: Invested in capital assets, net of related debt - This represents the School District's total investment in capital assets, net ofoutstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restricted net assets - These represent resources for which the School District is legally or contractually obligated to spend resources for bus replacement, continuation of Federal programs, debt service and capital projects in accordance with restrictions imposed by external third parties. Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. At June 30, $1,383,753.00 of deposits were not secured by surety bond, insurance or collateral as specified above. The School District is working with the affected financial institutions to ensure appropriate levels of collateral are maintained for all of the School District's deposits. - 20 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2007, the bank balances were $150,883,698.18. The amounts of the total uninsured bank balances are classified into three categories of custodial credit risk: Category 1 - Uncollateralized, Category 2 - Cash collateralized with securities held by the pledging financial institution, or Category 3 - Cash collateralized with securities held by the pledging financial institution's trust department or agent but not in the School District's name. The School District's uninsured deposits are classified by custodial credit risk category at June 30, 2007, as follows: - 21 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Custodial Credit Risk Category 1 2 3 Total Bank Balance $ 1,383,753.00 0.00 125,616,669.90 $127.000,422.90 CATEGORIZATION OF INVESTMENTS The School District's investments as of June 30, 2007, are presented below. All investments are presented by investment type and debt securities are presented by maturity. Investment Type Fair Value Debt Securities Money Market Funds $313,530,128.07 Investment Pools Office of Treasury and Fiscal Services Georgia Fund 1 17,669,621.48 Total Investments $331.199. 749.55 The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services is not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State of Georgia, 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. Additional information on the Local Government Investment Pool is disclosed in the State of Georgia Comprehensive Annual Financial Report. This audit can be obtained from the Georgia Department of Audits and Accounts at http://www.audits.state.ga.us/internet/searchRpts.html. The Primary Liquidity Portfolio consists of Georgia Fund 1 which is not registered with the SEC as an investment company but does operate in a manner consistent with the SEC's Rule 2a-7 of the Investment Company Act of 1940. The investment is valued at the pool's share price, $1.00 per share. The pool is an AAAm rated investment pool by Standard and Poor's. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2007, was 15 days. The First American Money Market Funds consists of First American Treasury Obligations Fund which is not registered with the SEC as an investment company but does operate in a manner - 22 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS consistent with the SEC's Rule 2a-7 of the Investment Company Act of 1940. The investment is valued at the pool's share price, $1.00 per share. The pool is an AAAm rated investment pool by Standard and Poor's. The weighted average maturity for First American Treasury Obligations Fund was approximately 5 days. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress Total Capital Assets Not Being Depreciated Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements Total Capital Assets, Being Depreciated, Net Governmental Activity Capital Assets - Net Balances July I, 2006 (Restated) Increases Decreases Balances June 30. 2007 $ 33,535,949.00 $ 2,234,820.61 $ 35,770,769.61 124.129,540.00 75,362,013.47 $118,252.814.46 81,238.739.01 $157.665,489.00 $ 77,596,834.08 $118.252,814.46 $ 117,009,508.62 $991,554,502.00 $ 97,912,773.93 $ 2,933,000.00 $1,086,534,275.93 79,996,094.71 4,655,698.28 3,301,748.99 81,350,044.00 2,488,987.00 27,979,051.00 30,468,038.00 303,327,459.24 32,717,640.56 208,088.00 14,128,633.34 4,897,058.62 825,047.24 1,869,787.00 I, 733,690.00 315,586,305.58 35,881,009.18 1,033,135.24 $737.786,395.91 $110.696,784.0 I $ 2.631,271.99 $ 845.851.907.93 $825,~51,884 91 $188,223,618,Q2 $] 2Q,88~ Q86 ~5 $ 262,861,~16.55 - 23 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 5: CAPITAL ASSETS Capital assets being acquired under capital leases as of June 30, 2007, are as follows: Buildings and Improvements Equipment Less: Accumulated Depreciation Governmental Funds $ 200,000.00 7,301,002.92 2,414,848.34 $ 5,086,154.58 Current year depreciation expense by function is as follows: Instruction Support Services Pupil Services Improvements of Instructional Services Educational Media Services General Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Food Services $14,300,641.45 $ 2,503.43 95,720.62 189,460.77 2,447.67 474,941.92 248,794.24 2,719,249.12 70.56 3,733,188.33 1,816,909.42 $19,850,739.20 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds, property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2007, were as follows: District-wide Capital Projects Bond SPLOST Proceeds Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions $ 2,460,561.77 $59,896,757.22 $ 46,978.58 $ 1,199,309.65 $17,669,621.48 $312,330,818.42 -24- DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2007, consisted of the following: Transfer to Transfers From General Fund All Others $10,226,209.00 Transfers are used to move Federal, State and miscellaneous revenues collected by the General Fund to the individual charter schools to fund their operations. Note 8: 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 acts of God. 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 ofthe past three years. The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members of the system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse), errors and omissions, crime and automobile risks. Payment of excess insurance for the system varies by line of coverage. The School District has established a limited risk management program for workers' compensation claims. The School District accounts for claims within the same fund as the employee's salaries and benefits are paid. Expenses/Expenditures and liability are 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$500,000.00 loss per occurrence, up to a statutory limit. - 25 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 8: RISK MANAGEMENT Changes in the workers' compensation claims liability during the last two fiscal years are as follows: 2006 2007 Beginning ofYear Liability Claims and Changes in Estimates Claims Paid EndofYear Liability $ 0.00 $ 3,780,512.00 $ 3,780,512.00 $ 0.00 $ 0.00 $ 3,217,336.13 $ 3,217,336.13 $ 0.00 The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the same fund that the employee's salaries and benefits are paid. Expenses/Expenditures and liability are 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: 2006 2007 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End ofYear Liability $ 0.00 $ 172,752.00 $ 172,752.00 $ 0.00 $ 0.00 $ 190,026.05 $ 190,026.05 $ 0.00 The School District has purchased a surety bond to provide additional insurance coverage as follows: Position Covered Amount Superintendent $ 100,000.00 Note 9: LONG-TERM DEBT CAPITAL LEASES The DeKalb County Board of Education has entered into various lease agreements as lessee for vehicles, buses, solid waste system, copiers and laptops. These lease agreements qualify as capital leases for accounting purposes, and, therefore, have been recorded at the present value ofthe future minimum lease payments as ofthe date oftheir inception. COMPENSATED ABSENCES Compensated absences represent obligations ofthe 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. - 26 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 9: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 2007 4%-5% $300.000.000.00 The changes in Long-Term Debt during the fiscal year ended June 30, 2007, were as follows: Balance July I, 2006 Retroactive Restatement of Prior Year Balances Balance July I, 2006 Restated Additions Capital Leases Annual Leave Earned G.O. Bonds Unamortized Bonds Deductions Annual Leave Utilized Debt Retired Balance June 30, 2007 Portion of Long-Term Debt Due within One Year Capital Leases Governmental Funds Unamortized Compensated Bond Absences Premium General Obligation Bonds Total $ 752,042.36 $13,333,441.00 $ 0.00 $ 0.00 $ I4,085,483.36 119,980.00 119,980.00 $ 872,022.36 $13,333,441.00 $ 0.00 $ 0.00 $ 14,205,463.36 2,560,332.33 7,353,353.00 13,292,341.20 300,000,000.00 2,560,332.33 7,353,353.00 300,000,000.00 13,292,341.20 8,982,928.00 965,205.15 8,982,928.00 965,205.15 $ 2.467, 149.54 $11,703 866.00 $ I3,292,341.20 $300,000,000.00 $327,463,356.74 $ 952,315.09 $ 5,500,000.00 $ 2,215,390.20 $ 0.00 $ 8,667,705.29 At June 30, 2007, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 Ca2ital Leases Princi2al Interest 2008 2009 2010 2011 $ 952,315.09 $ 155,242.40 916,478.88 83,865.50 342,321.73 22,149.72 256,033.84 8,352.22 Total Principal and Interest $2,467,149.54 $ 269,609.84 - 27 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 9: LONG-TERM DEBT Fiscal Year Ended June 30 General Obligation Debt Principal Interest Unamortized Bond Premium 2008 2009 2010 2011 2012 2013 $11,120,550.00 $ 2,215,390.20 14,827,400.00 2,215,390.20 $ 80,000,000.00 14,827,400.00 2,215,390.20 85,000,000.00 10,840,900.00 2,215,390.20 85,000,000.00 6,633,650.00 2,215,390.20 50,000,000.00 2,439,750.00 2,215,390.20 Total Principal and Interest $ 300,000,000.00 $60,689,650.00 $13,222,341.20 Note 10: PRIOR YEAR DEFEASEMENT OF DEBT In fiscal year 2003, the School District defeased certain general obligation bonds by placing the proceeds ofnew bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the School District's basic financial statements. At June 30, 2007, $12,705,000.00 of bonds are outstanding and are considered defeased. Note 11: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of$16,461,019.99 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $15,579,912.87 Paid to the Teachers Retirement System of Georgia For Teachers Retirement System (TRS) Employer's Cost In the amount of $789,272.12 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 $91,835.00 - 28 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 12: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2007, together with funding available: Project Unearned Executed Contracts Funding Available From State Arabia Mountain Briarlake Addition Chamblee High School Columbia High School Columbia High School HVAC Ceiling and Lighting Replacement Cross Keys Renovation Evansdale Elementary School Henderson Middle School Lakeside Renovation Mountain Industrial Center New McNair Cluster New Peachtree Middle School Snapfinger Elementary HVAC Renovation $28,386,368.60 1,145,774.00 1,097,500.00 29,510.69 $12,319,918.00 907,904.00 1,462,344.00 24,805.56 34,382.57 830,024.81 282,728.14 9,366.00 5,125,722.86 927,424.21 116,300.00 5,249,995.00 174,048.00 $39,472,251.44 $18,651,865.00 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. The School District (DCSD) is a defendant in a lawsuit filed by Heery International, Inc., E.R. Mitchell & Co., and Heery/Mitchell, A Joint Venture in DeKalb County Superior Court on February 20, 2007. Heery/Mitchell alleges that DCSD breached its contract with Heery/Mitchell for construction program management services when DCSD terminated the Agreement and failed to remit payment to Heery/Mitchell for three outstanding pay applications. Heery/Mitchell claims that - 29 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 13: SIGNIFICANT CONTINGENT LIABILITIES it has incurred over $1 million in lost profits and other consequential damages as a result ofDCSD's alleged breach. Heery/Mitchell also seeks to recover litigation expenses, including attorneys' fees, from DCSD, pursuant to O.C.G.A. 13-6-11. DCSD is contesting the case vigorously. On March 23, 2007, DCSD filed an Answer and Counterclaims in response to Heery/Mitchell's Complaint. In addition to answering Heery/Mitchell's allegations, DCSD filed counterclaims against Heery/Mitchell for (1) fraud, (2) breach of fiduciary duty, and (3) breach of contract. In addition, DCSD alleges that Heery/Mitchell failed to satisfy a number oftheir contractual obligations relating to, among other things, record maintenance and retention, project supervision and coordination, and reporting to DCSD. Although both the results and cost of litigation are uncertain, DCSD strongly believes that Heery/Mitchell's claims are totally without merit and will be ultimately dismissed. On the other hand, DCSD believes, based on the available evidence, that its Counterclaims against Heery/Mitchell are strong and that the DCSD will achieve a substantial recovery against Heery/Mitchell. The School District believes the likelihood of a material adverse outcome is remote. Accordingly, adjustments, if any, that might result from the resolution ofthis matter have not been reflected in the basic financial statements. Note 14: RELATED PARTY TRANSACTIONS The School District employed the services of Vincent Pope and Associates, Inc. for various construction projects. This company is owned and operated by Vincent Pope, the husband of Patricia Pope, who is currently the ChiefOperations Officer (COO) for the DeKalb County Board of Education. While some of these services were secured by a bid procedure, all were not. Additionally, the contracts were signed prior to Ms. Pope becoming the School District's COO. Current year expenditures to Vincent Pope and Associates, Inc. totaled $337,786.00. Note 15: 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. - 30 - DEKALB COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 15: RETIREMENT PLANS 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 9.28% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2007 2006 2005 100% 100% 100% $55,503,701.12 $51,922,344.00 $48,185,200.00 - 31 - (This page left intentionally blank) DEKALB COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2007 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation Capital Outlay 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 NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 437,266,925.00 $ 17,500,000.00 389,362,509.00 84,312,776.00 12,130,100.00 3,625,003.00 9,453,061.00 437,266,925.00 $ 19,325,000.00 382,895,398.00 100,245,947.00 12,145,610.00 3,625,003.00 54 041 667.00 453,710,773.47 21,047,000.19 406,992,718.33 96,531,646.02 8,535,518.42 8,141,862.42 17,163,078.27 $ 953,650,374.00 $ 1,009,545,550.00 $ 1,012,122,597.12 $ 584,255,538.00 $ 591,318,003.00 $ 622,977,431.15 22,920,882.00 69,770,128.00 18,760,214.00 4,412,992.00 61,244,167.00 7,627,392.00 80,904,990.00 44,335,453.00 19,864,340.00 42,113,737.00 32,182,349.00 69,316,388.00 18,633,686.00 5,128,896.00 60,974,705.00 7,803,297.00 82,360,336.00 46,947,028.00 20,356,581.00 197,200.00 1,182,419.00 42,783,399.00 667,990.00 32,756,590.13 54,028,212.54 19,654,182.41 9,681,052.14 61,852,337.79 9,854,472.82 81,110,498.00 47,276,989.26 20,586,473.32 185,337.18 3,100,443.59 46,061,227.55 279,941.02 1,156,990.30 $ 956,209,833.00 $ 979,852,277.00 $ 1,010,562,179.20 $ -2,559,459.00 $ 29,693,273.00 $ 1,560,417.92 $ 2,180,877.00 $ -2, 180,877.00 $ 0.00 $ $ -2,559,459.00 $ 41914216.00 2,182,882.00 $ -2, 182,882.00 2,232,338.45 -10,226,209.00 0.00 $ -7,993,870.55 29,693,273.00 $ -6,433,452.63 45,728,041.00 25,787,600.00 Fund Balances - Ending $ 39,354,757.00 $ 75 421 314.00 $ 19 354147.37 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. - 33 - DEKALB COUNTY BOARD OF EDUCATION COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS - CHARTER SCHOOLS JUNE 30, 2007 ASSETS Cash and Cash Equivalents Investments Accounts Receivable State Federal Other Prepaid Items Deferred Charges Other Current Assets Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries and Benefits Payable Total Liabilities FUND BALANCES Reserved for: Other Unreserved Undesignated Reported in: Nonmajor Governmental Funds Total Fund Balances Total Liabilities and Fund Balances Academy of Lithonia DeKalb Academy of Technology and the Environment $ 212,872.00 $ 20,927.00 3,238.00 11,770.00 119,031.00 53,991.00 9,000.00 $ 2211880.00 $ ===20=2=,9=49=.o=o= $ 599,260.00 $ 80,892.00 $ 680,152.00 $ 331,239.00 331,239.00 $ -452,272.00 $ $ -452,272.00 $ -128,290.00 -128,290.00 $ 2211880.00 $ ===2=0=2=,9=49=.o=o= See notes to the basic financial statements. - 34- SCHEDULE "2" Special Revenue Funds DeKalb PATH Academy Destiny Academy of Excellence International Community School Total $ 329,456.00 $ 289,610.00 6,361.00 63,407.00 $ 268,235.00 $ 24,117.00 9,664.00 17,759.00 17,404.00 19,664.00 1,663.00 894,897.00 289,610.00 24,117.00 16,025.00 157,432.00 85,425.00 1,663.00 9,000.00 $ 625,427.00 $ 114,947.00 $ 306,966.00 $ 1,478,169.00 $ 161,878.00 $ $ 161,878.00 $ 2,480.00 $ 9,807.00 12,287.00 $ 92,019.00 $ 1,186,876.00 90,699.00 92,019.00 $ 1,277,575.00 $ 16,862.00 $ 16,862.00 $ 463,549.00 $ $ 463,549.00 $ 102,660.00 198,085.00 102,660.00 $ 214,947.00 $ 183,732.00 200,594.00 $ 625,427.00 $ 114,947.00 $ 306,966.00 $ 1,478,169.00 - 35 - DEKALB COUNTY BOARD OF EDUCATION COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS - CHARTER SCHOOLS FOR THE YEAR ENDED JUNE 30, 2007 REVENUES Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services General Administration Other Support Services Capital Outlay Debt Services Principal Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES Transfers In Net Change in Fund Balances Fund Balances - Beginning (Restated) Fund Balances - Ending Academy of Lithonia DeKalb Academy of Technology and the Environment $ 1,631.00 $ 107,184.00 $ 1,631.00 $ 107,184.00 $ 1,003,451.00 $ 1,983,759.00 1,284,369.00 3,469.00 $ 2,291,289.00 $ $ -2,289,658.00 $ 1,983,759.00 -1,876,575.00 2,559,761.00 $ 270,103.00 $ -722,375.00 1,617,417.00 -259, 158.00 130,868.00 $ -452,212.00 $ ===-1=2=8=,2=90=.o=o= See notes to the basic financial statements. - 36 - SCHEDULE "3" Special Revenue Funds DeKalb PATH Academy Destiny Academy of Excellence International Community School Total $ 100,629.00 $ 9,664.00 $ 86,036.00 $ 173,765.00 165,651.00 17,758.00 5,729.00 73 800.00 252,573.00 380,628.00 196,329.00 339,416.00 23,487.00 815 816.00 $ 365,952.00 $ 262,237.00 $ 638,044.00 $ 1,375,048.00 $ 2,039,025.00 $ 849,387.00 $ 3,217,181.00 $ 9,092,803.00 526,111.00 3,752.00 150,477.00 302,691.00 102,163.00 979,279.00 1,390,284.00 3,469.00 30,001.00 30 001.00 $ 2,568,888.00 $ 999,864.00 $ 3,652,036.00 $ 11,495,836.00 $ -2,202,936.00 $ -737,627.00 $ -3,013,992.00 $ -10,120,788.00 2,221,424.00 $ 18,488.00 $ 445,061.00 840,287.00 2,987,320.00 10,226,209.00 102,660.00 $ -26,672.00 $ 105,421.00 0.00 241,619.00 95 173.00 $ 463,549.00 $ 102,660.00 $ 214,947.00 $ =====2=0=0=,5=94==00= - 37 - DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2007 SCHEDULE "4" FUNDING AGENCY PROGRAM/GRANT CFDA NUMBER Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program * 10.553 10.555 Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Pass-Through From Bright From the Start: Georgia Department of Early Care and Learning Child and Adult Care Food Program 10.550 10.558 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 94.004 Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants 84.027 * 84.173 Total Special Education Cluster Other Programs Direct Fund for the Improvement of Education Safe and Drug-Free Schools and Communities - National Programs Transition to Teaching Pass-Through From Georgia Department of Education Charter Schools Education for Homeless Children and Youth English Language Acquisition Grants Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality State Grants Mathematics and Science Partnerships Reading First State Grants Safe and Drug-Free Schools and Communities - State Grants Special Education State Program Improvement Grants for GLRS Mentor State Grants for Innovative Programs Title I Grants to Local Educational Agencies Twenty-First Century Community Learning Centers Vocational Education - Basic Grants to States 84.215 84.184 84.350 84.282 84.196 84.365 84.318 84.938 84.367 84.366 84.357 84.186 84.323 84.298 84.010 84.287 84.048 PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD NIA (2) NIA $ 40,401,701.94 $ 40,401,701.94 NIA 2,383,103.22 NIA 281,037.94 $ 43,065,843.10 NIA $ 26,372.59 NIA $ 18,088,278.33 NIA 653,916.16 $ 18,742,194.49 1,845,144.98 338,983.80 350,792.16 NIA 580,798.44 NIA 178,282.30 NIA 2,207,481.69 NIA 610,018.27 NIA (3) NIA 4,433,700.81 NIA 344,942.72 NIA 830,087.55 NIA 532,343.09 NIA 16,993.10 NIA 165,731.02 NIA 29,626,149.33 NIA 2,285,927.44 (4) NIA 1,187,561.31 - 38- DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2007 SCHEDULE "4" FUNDING AGENCY PROGRAM/GRANT Education, U. S. Department of Other Programs Pass-Through From Georgia Department of Human Resources Safe and Drug-Free Schools and Communities Stale Grants Pass-Through From Georgia State University Teacher Quality Enhancement Grants Total U. S. Department of Education Energy, U. S. Department of Direct National Aeronautics and Space Administration Glenn Research Center Partnership Health and Human Services, U. S. Department of Pass-Through From Georgia Department of Human Resources Refugee and Entrant Assistance Discretionary Grants Temporary Assistance for Needy Families Total U. S. Department of Health and Human Services 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 84.186 84.336 N/A $ 60,941.27 N/A 66,180.52 $ 64,404,254.29 43.001 93.576 93.558 $ _ _ _1_3_0~3_7_3._30_ N/A $ N/A $ 185,185.30 45,854.52 231,039.82 $ 614,925.12 85,177.34 825,759.30 $ 1,525,861.76 Total Federal Financial Assistance $ 109,383,744.86 N/A = Not Available 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 ($6,502,174.51) were not maintained separately and are included in the 2007 National School Lunch Program. (3) Funds earned on the Hurricane Education Recovery Act, in the amount of $44,575.48, do not require reporting of expenditures. (4) Includes Federal Assistance of $110,265.00 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. - 39 - DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2007 SCHEDULE "5" AGENCY/FUNDING GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program $ 8,288,139.08 $ 8,288,139.08 Community Affairs, Georgia Department of Local Assistance Grants 12,750.00 12,750.00 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 Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement State Bonds Nursing Services Principal Supplements Vocational Supervisors Food Services Vocational Education Amended Formula Adjustment Other State Programs Charter Schools Comprehensive Academic Performance System Graduation Coaches Health Insurance K-8 State Reading and Mathematics Program K-8 State Reading and Mathematics Program - Psycho Ed Middle School Summer Remedial Program National Teacher Certification 26,767,730.00 2,509,722.00 60,944,811.00 6,872,857.00 28,140,238.00 4,456,514.00 1,533,687.00 47,656,287.00 48,996,164.00 10,305,662.00 6,779,887.00 7,258,531.00 24,750,149.00 5,992,850.00 260,761.00 14,817,408.00 1,111,144.00 4,041,597.00 6,518,719.00 8,932,614.00 2,694,380.00 1,713,574.00 7,285,505.00 17,390,645.00 23,018,475.00 5,513,215.00 595,109.00 1,500,000.00 1,657,472.00 330,883.00 75,434.00 2,284,610.00 668,299.67 -8,916,524.00 180,200.00 553,035.00 368,690.00 15,579,912.87 1,579,634.68 10,800.00 71,811.29 399,797.00 26,767,730.00 2,509,722.00 60,944,811.00 6,872,857.00 28,140,238.00 4,456,514.00 1,533,687.00 47,656,287.00 48,996,164.00 10,305,662.00 6,779,887.00 7,258,531.00 24,750,149.00 5,992,850.00 260,761.00 14,817,408.00 1,111,144.00 4,041,597.00 6,518,719.00 8,932,614.00 2,694,380.00 1,713,574.00 7,285,505.00 17,390,645.00 23,018,475.00 5,513,215.00 595,109.00 1,500,000.00 1,657,472.00 330,883.00 75,434.00 2,284,610.00 668,299.67 -8,916,524.00 180,200.00 553,035.00 368,690.00 15,579,912.87 1,579,634.68 10,800.00 71,811.29 399,797.00 - 40 - DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2007 SCHEDULE "5" AGENCY/FUNDING GRANTS Education, Georgia Department of Other State Programs Preschool Handicapped Program Residential and Reintegration Services Residential Treatment Centers Grants Rule 10 Special Education Grant Severely Emotionally Disturbed Teachers' Retirement Virtual Schools State Grant Georgia State Financing and Investment Commission Reimbursement on Construction Projects Office of Planning and Budget Georgia Council for the Arts Georgia Challenge Program Georgia Teacher Alternative Preparation Program Office of Treasury and Fiscal Services Public School Employees Retirement CONTRACTS Board of Regents of the University System of Georgia Georgia State University National Commissions on Teaching and America's Future Department of Early Childhood Education Reading Recovery Program Education, Georgia Department of Second Step GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 1,204,685.19 65,191.00 74,929.00 40,450.01 3,079,922.00 789,272.12 1,200.00 $ 1,204,685.19 65,191.00 74,929.00 40,450.01 3,079,922.00 789,272.12 1,200.00 $ 8,461,321.69 8,461,321.69 3,000.00 54,600.00 91,835.00 3,000.00 54,600.00 91,835.00 3,000.00 52,055.00 19,615.00 3,000.00 52,055.00 19,615.00 $ 406,982,933.91 $ 8,461,321.69 $ 415,444,255.60 See notes to the basic financial statements. - 41 - DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2007 SCHEDULE "6" 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 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. $ 524,404,330.00 $ 611,134,108.00 $ 70,314,284.00 $ 350,022,746.00 Ongoing Property acquisition, renovations and expansion, construction and equipping, roofing, site improvements of new and existing schools; acquisition of buses, technology-media center upgrades, HVAC systems, roofing, school improvement projects throughout the School District, technology additions, renovations and upgrades, transportation improvements and site acquisition; paying capitalized interest on General Obligation Bonds. 609,460,500.00 609,460,500.00 2,291,750.22 Ongoing $ 1,133,864,830.00 $ 1,220,594,608.00 $ 72,606,034.22 $ 350,022,746.00 (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. - 42 - DEKALB COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2007 SCHEDULE"?" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 34,089,934.00 $ 3,240,184.00 77,436,744.00 8,947,037.00 35,922,041.00 33,476,894.99 $ 724,987.47 72,702,411.82 9,573,645.22 38,826,255.82 601,229.84 $ 1,834,565.62 34,078,124.83 724,987.47 74,536,977.44 9,573,645.22 38,826,255.82 5,737,183.00 2,132,815.00 60,999,595.00 62,467,693.00 13,251,251.00 57,393,535.00 18,745,761.00 1,402,404.00 5,170,668.00 8,507,722.00 267,854.89 28,925,156.81 64,650,066.42 71,041,741.74 10,748,051.97 37,578,164.85 4,956,924.74 21,974,447.68 4,553,525.39 415,199.86 9,674,612.70 154,988.10 1,648,022.39 9,534,836.43 131,184.61 1,237,581.70 2,966,092.97 908,351.93 2,205,136.47 30,011.75 90,132.79 48,858.92 61,840.56 8,829.93 1,780.00 42,539.79 267,854.89 29,056,341.42 65,887,648.12 74,007,834.71 11,656,403.90 39,783,301.32 4,986,936.49 22,064,580.47 4,602,384.31 477,040.42 9,683,442.63 156,768.10 1,690,562.18 9,534,836.43 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 395,444,567.00 $ 421,427,789.29 $ 10,168,136.88 $ 431,595,926.17 Media Center Program Staff and Professional Development 11,190,533.00 2,215,710.00 16,516,323.59 793,601.00 2,470,364.78 1,430,466.82 18,986,688.37 2,224,067.82 TOTAL QBE FORMULA FUNDS $ 408,850,810.00 $ 438,737,713.88 $ 14,068,968.48 $ 452,806,682.36 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State amended formula adjustment. See notes to the basic financial statements. -43- 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 September 25, 2008 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 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 ofDeKalb County Board of Education as of and for the year ended June 30, 2007, which collectively comprise DeKalb County Board of Education's basic financial statements and have issued our report thereon dated September 25, 2008. Our report was modified to include a reference to other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Other auditors audited the financial statements of the Academy of Lithonia, DeKalb Academy ofTechnology and the Environment, DeKalb PATH Academy, Destiny Academy ofExcellence and International Community School (Charter Schools), as described in our report on DeKalb County Board of Education's financial statements. This report does not include the results ofother auditors' testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statements of the DeKalb Academy ofTechnology and the Environment, DeKalb PATH Academy, and International Community School audited by other auditors were not audited in accordance with Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered DeKalb County Board of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose ofexpressing an opinion 2007YB-30X on the effectiveness of the DeKalb County Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the DeKalb County Board of Education's internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we and other auditors identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies. A control deficiency exists when the design or operation ofa control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affect the DeKalb County Board of Education's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the DeKalb County Board of Education's financial statements that is more than inconsequential will not be prevented or detected by the DeKalb County Board of Education's internal control. We consider items FS-6441-07-01, FS-6441-07-02, FS-6441-07-03, FS-6441-07-04, FS-6441-07-05 and FS-6441-07-06 in the accompanying Schedule of Findings and Questioned Costs to be significant deficiencies in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement ofthe financial statements will not be prevented or detected by the DeKalb County Board of Education's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph ofthis section and would not necessarily disclose all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, we believe that none of the significant deficiencies described above are material weaknesses. 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 and other auditors 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. We noted certain matters that we have reported to management of DeKalb County Board of Education in a separate letter dated September 25, 2008. 2007YB-30X DeKalb County Board ofEducation's response to the findings identified in our audit is described in the accompanying Schedule ofManagement's Responses. We did not audit DeKalb County Board of Education's response and, accordingly, we express no opinion on it. 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, ~ ~-aJ:,. sell W. Hinton, CPA, CGFM State Auditor RWH:gp 2007YB-30X 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 September 25, 2008 Honorable Sonny Perdue, Governor Members ofthe General Assembly Members ofthe State Board of Education and Superintendent and Members ofthe 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 of Education with the types of compliance requirements described in the U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2007. DeKalb County Board ofEducation's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of 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 of compliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the DeKalb County Board ofEducation'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. 2007SA-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 ofits major Federal programs for the year ended June 30, 2007. 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 ofexpressing our opinion on compliance, but not for the purpose ofexpressing an opinion on the effectiveness ofinternal control over compliance. Accordingly, we do not express an opinion on the effectiveness ofthe DeKalb County Board of Education's internal control over compliance. A control deficiency in an entity's internal control over compliance exists when the design or operation ofa control does not allow management or employees, in the normal course ofperforming their assigned functions, to prevent or detect noncompliance with a type ofcompliance requirement of a Federal program on a timely basis. A significant deficiency is a control deficiency, or combination ofcontrol deficiencies, that adversely affects the entity's ability to administer a Federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a Federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a Federal program will not be prevented or detected by the entity's internal control. Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. 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, RWH:gp 2007SA-10 Ru ell W. Hinton, CPA, CGFM State Auditor 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, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AUDITEE'S RESPONSE/STATUS SEE AUDITOR'S COMMENTS FS-6441-05-03 Further Action Not Warranted FS-6441-05-04 Further Action Not Warranted FS-6441-05-05 Further Action Not Warranted FS-6441-06-01 Unresolved - See Corrective Action/Responses FS-6441-06-02 Previously Reported Corrective Action Implemented FS-6441-06-03 Unresolved - See Corrective Action/Responses FS-6441-06-04 Further Action Not Warranted (1) FS-6441-06-05 Further Action Not Warranted (1) FS-6441-06-06 Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Control Procedures over School Activity Accounts Finding Control Number: FS-6441-06-01 Subsequent to the original finding, substantial training and support was provided by the internal audit staffto ensure controls over school activity accounts work as designed. This training, support, and monitoring will continue to be provided to help ensure that our controls function as designed. PROCUREMENT EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Controls over the Purchase Card Purchases Finding Control Number: FS-6441-06-03 Revised regulations have been implemented and strictly define acceptable use ofPurchase Cards (P-Card). These new regulations have been communicated to all P-Card users. Consequences for failure to adhere to the regulations are severe and include revocation of the P-Card. The School District will continue to monitor transactions to review for fraud and abuse. These new procedures could not be implemented in time to resolve this finding for the fiscal year 2007 audit due to the timing of the fiscal year 2006 audit in which the deficiency was noted. - 1- DEKALB COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Finding Control Number: FS-6441-06-06 The prior year finding noted the following deficiencies: 1. Unrecorded Buildings and Building Improvement additions totaling $27,337,252.00 were noted and corrected during the year under review. 2. Management failed to verify that the fiscal year 2006 Construction in Progress Analysis was correctly footed. This was corrected during the year under review with a correctly footed Construction in Progress Analysis. 3. Management failed to verify that a building placed in service in fiscal year 1991 was entered into the system at the appropriate amount. The amount was corrected during fiscal year 2006. 4. Procedures related to equipment inventory were strengthened during the year under review to ensure that significant additions are capitalized in the correct year. 5. Reconciliations of capital asset additions are performed during the equipment audit of the various departments each year. An additional reconciliation for significant equipment items is conducted at year-end to ensure that no significant items are missed. 6. The fiscal year 2006 Construction in Progress Analysis contained significant errors which were corrected and adjustment for during the year under review. The fiscal year 2007 Construction in Progress Analysis was properly footed and contained no significant errors. 7. The Capital Assets listing for fiscal year 2006 incorrectly presented additions related to a Wide Area Network. The amounts presented for audit during fiscal year 2007 correctly included current year additions for Construction in Progress related to the Wide Area Network (WAN) system upgrade during the year under review. 8. For the year under review, balances on the subsidiary ledger (FASGOV) can be traced to the District-wide financial statements as presented for audit. Amounts have been reconciled to the DE-46 for fiscal year 2007. All points identified in the fiscal year 2006 audit finding have been addressed and corrected during the year under review. An accurate and complete listing of capital assets was maintained and recorded on our financial statements during the year under review (fiscal year 2007) as required by generally accepted accounting principles and our approved capital assets policy. -2 - DEKALB COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Finding Control Number: FS-6441-06-06 The additional controls, policies and procedures that have been implemented during the year under review (fiscal year 2007) will continue to be applied and strengthened as necessary to alleviate any identified deficiencies and decrease the risk of incorrectly reporting capital assets. AUDITOR'S COMMENTS (1) Findings/internal control deficiencies ofthis nature, that are not deemed significant deficiencies or material weaknesses and do not require reporting in the audit report in accordance with Statements on Auditing Standards (SAS) 112 or Governmental Auditing Standards (Yellow Book), will be communicated in a management letter in subsequent periods. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AUDITEE'S RESPONSE/STATUS SEE AUDITOR'S COMMENTS FA-6441-05-01 Previously Reported Corrective Action Implemented FA-6441-06-01 Unresolved - See Corrective Action/Responses (1) FA-6441-06-02 Previously Reported Corrective Action Implemented FA-6441-06-03 Previously Reported Corrective Action Implemented CORRECTIVE ACTION/RESPONSES ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA 84.938) Finding Control Number: FA-6441-06-01 The School District adhered to the guidance received from the Georgia Department of Education (GDOE). The Volumes "I" and "II" of the U. S. Department of Education -3 - DEKALB COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA 84.938) Finding Control Number: FA-6441-06-01 guidelines included in "Frequently Asked Questions, Emergency Impact Aid for Displaced Students" were released in the seventh month ofthe fiscal year 2006, at which point most ofthe funds had been expended. The GDOE Guidelines did not specifically include the Federal requirement cited in this finding. As a result of guidance that was not clear, specific, or timely, the School District does not agree with the $691,876.00 questioned cost. AUDITOR'S COMMENTS (1) Funding for the Hurricane Education Recovery program was a one year grant. Georgia Department ofEducation is reviewing this matter to determine ifthese funds were used properly or if a refund is appropriate. -4- SECTION IV FINDINGS AND QUESTIONED COSTS DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the DeKalb County Board ofEducation's financial statements was unqualified. 2. Significant Deficiencies in Internal Control Disclosed by the Audit ofthe Financial Statements The audit report for the DeKalb County Board of Education disclosed financial statement significant deficiencies related to the following control categories. Revenues/Receivables/Receipts Procurement General Ledger Expenditures/Liabilities/Disbursements Employee Compensation Capital Assets None of the significant deficiencies 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. Significant Deficiencies in Internal Control Over Major Programs The audit report for the DeKalb County Board ofEducation did not disclose any significant deficiencies 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) ofOMB Circular A-133 The DeKalb County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) ofOMB 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 Leaming Centers 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $3,000,000. - 1- DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 I SUMMARY OF AUDITOR'S RESULTS 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. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Control Procedures over School Activity Accounts Significant Deficiency Finding Control Number: FS-6441-07-01 Condition: This is a repeat finding (FS-6441-05-03 and FS-6441-06-01) from the years ended June 30, 2005, and June 30, 2006, respectively. The accounting procedures of the School District were insufficient to provide for adequate internal controls over the school activity accounts. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures. Questioned Cost: NIA Information: Revenues/Receivables/Receipts Based on a review of the School District's internal audits performed on the school activity accounts, the following deficiencies were identified: o Receipt books were missing for various receipts. o Receipt books were not properly utilized. o Receipt documentation was inadequate. Our testing identified additional deficiencies, as follows: o Receipts were not deposited in a timely manner. o Original receipt documentation could not be provided for several receipts. o Receipts totaling $717.55 were stolen from an unsecured location while in a teacher's possession. -2- DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Control Procedures over School Activity Accounts Significant Deficiency Finding Control Number: FS-6441-07-01 Expenditures/Liabilities/Disbursements Based on a review ofthe School District's internal audits performed on the school activity accounts, the following deficiencies were identified: o Invoices were not included with the check vouchers. o Purchase orders were not included with the check vouchers. o No evidences of approval were included with the check vouchers. o Unreasonable expenditures were noted. Our testing of fifty additional items revealed the following deficiencies: o Four check vouchers did not include either a proper invoice or purchase order. o Two check vouchers did not include documentation of approval by responsible party. o One voucher was for an expenditure that was determined to be unreasonable. General Ledger Extensions, or account codes, charged at the school level were not consistent throughout the School District. Inconsistencies could result in improper reporting ofagency and governmental funds in the financial statements. Cause: These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the school level. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: Management should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures. -3- DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS PROCUREMENT EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Controls over the Purchase Card Purchases Significant Deficiency Finding Control Number: FS-6441-07-02 Condition: This is a repeat finding (FS-6441-06-03) from the year ended June 30, 2006. School District personnel utilized Purchase Cards (P-Cards) to circumvent normal procurement procedures which require the use of a purchase order and may require multiple bids. In addition, some P-Card transactions were not adequately documented. Criteria: Management of the School District is responsible for designing, implementing and documenting internal controls that provide reasonable assurance that transactions are processed according to established procedures. Questioned Cost: NIA Information: Based on a review of the P-Card statements for the fiscal year under review, the following deficiencies were noted: 12 instances were noted where acquisitions of goods/services were split into several transactions. In doing so, School District personnel circumvented normal purchasing procedures which limit the allowable dollar amount of a single transaction. Five instances were noted where transactions were not properly supported by an invoice or receipt documentation. Several purchases of gift cards totaling $6,696.00 were not adequately documented to indicate the purpose or use of the gift cards. Further review indicated that there are no procedures in place to ensure that the gift cards were used to purchase allowable items. A review of the School District's P-Card policy and procedures for monitoring the P~Card transactions indicated that transactions are only being reviewed for unallowable expenditures. No consideration has been given for split-transactions, adequate supporting documentation or gift card transactions. -4 - DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS PROCUREMENT EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Controls over the Purchase Card Purchases Significant Deficiency Finding Control Number: FS-6441-07-02 Cause: Management failed to properly define adequate policies related to P-Cards. Existing policies related to P-Cards were not adequately communicated to personnel initializing transactions. In addition, management failed to adequately monitor P-Card purchases to ensure that proper procedures were being followed. Effect: Inadequate internal controls can result in the misappropriation of assets, misstatement of the financial statements, inaccurate decision making regarding current and future purchasing card purchases, and potential abuse. Recommendation: Management should revise the P-Card policy to define when it is acceptable and unacceptable to initialize expenditures with P-Cards. This policy should be communicated to all personnel involved with P-Cards. This communication should occur at least annually and be adequately developed so that risky types of transactions can be targeted. This monitoring should occur on a regular basis and be documented. Procedures should be developed to provide additional training to personnel outlining consequences of abuse of the School District P-Card policy. Subsequent to June 30, 2007, the School District implemented revised policies and procedures for P-Card usage. These new policies and procedures will be subject to testing in the subsequent year's audit. EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls at the Central Office Significant Deficiency Finding Control Number: FS-6441-07-03 Condition: The accounting procedures ofthe School District were insufficient to provide for adequate internal controls over expenditures/liabilities/disbursements at the Central Office. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures. -5- DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls at the Central Office Significant Deficiency Finding Control Number: FS-6441-07-03 Questioned Cost: NIA Information: Based on a review of Central Office controls over the expenditure process, the following deficiencies were noted: Actual Fiscal Year 2006 expenditures were included in the Fiscal Year 2007 current year activity. Prepaid Expense was not recorded for disbursements made before the actual liability was incurred. Expenditures were charged to incorrect account codes. Expenditure activity occurring in Fiscal Year 2007, but not paid until the subsequent fiscal year, was not accrued as liabilities on the financial statements. Cause: These deficiencies were a result of management's failure to ensure that internal controls over expenditures/liabilities/disbursements were established, implemented and functioning at the Central Office. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendations: Management should review the accounting procedures in place, design procedures which would enhance the internal controls relative to the above control category and implement those procedures to strengthen the internal control over accounting functions. EMPLOYEE COMPENSATION Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-6441-07-04 Condition: The School District did not have adequate controls in place to ensure that the salaries and benefits payable listing was inclusive ofall ten and eleven month employees and was reviewed for completeness and accuracy. -6 - DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EMPLOYEE COMPENSATION Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-6441-07-04 Criteria: The School District's management is responsible for designing and maintaining internal controls to provide reasonable assurance that transactions are processed according to established procedures. Questioned Cost: NIA Information: A review of the salaries and benefits payable listing by employee noted deviations from the amounts actually recorded as salaries and benefits payable. Specifically for 10 month employees, numerous instances were noted where the two-month payments earned at year-end had not been accrued. Also, for 11 month employees, numerous instances were noted where the one-month earned year-end accrual had been recorded twice. This created a significant misstatement to the salaries and benefits payable and related expense recorded on the financial statements. The School District corrected the error and resubmitted the financial statements to the auditors for inclusion in the audit report. Cause: These deficiencies were the result of management's failure to ensure that internal controls were established, implemented and functioning to detect significant misstatements related to the salaries and benefits payable. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: The School District should establish a process to properly calculate salaries and benefits accrual liability for each year end. The School District should also establish procedures to review the underlying basis for the accruals in order to ensure the completeness and accuracy of amounts reported on the financial statements. -7 - DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EMPLOYEE COMPENSATION Improper Compensation to Senior Management Significant Deficiency Finding Control Number: FS-6441-07-05 Condition: The School Superintendent purchased a school district vehicle for personal use at a fraction of the fair market value ofthe vehicle. A transaction ofthis nature constitutes a gift for the difference between the fair market value of the vehicle and the amount paid which would violate the "gratuities clause" of the Constitution of the State of Georgia. Criteria: Article III, Section VI, Paragraph VI of the Constitution of the State of Georgia states, in part, "the General Assembly shall not grant or authorize extra compensation to any public officer, agent, or contractor after the service has been rendered or the contract entered into." Questioned Cost: $10,708.75 Information: The Superintendent paid the School District $5,766.25 to purchase his district issued 2006 Ford Five Hundred vehicle. This vehicle was determined to have a fair market value of$16,475.00 at the time of transfer. Cause: This transaction occurred because management's misapplied the Department ofAdministrative Services' (DOAS) policies regarding disposition ofassets. Effect: Management's override of controls increases the risk of fraud, theft and abuse. Recommendation: The School District should develop policies and procedures to ensure that transactions ofthis nature have been properly approved by the Board and are not in violation of State statutes. The School District should also review the matters above to determine ifa recovery or repayment of funds is necessary. CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Significant Deficiency Finding Control Number: FS-6441-07-06 Condition: This is a repeat finding (FS-6441-06-06 and FS-6441-05-05) from the years ended June 30, 2006, and June 30, 2005, respectively. The School District failed to adequately maintain the capital asset records. -8- DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Significant Deficiency Finding Control Number: FS-6441-07-06 Criteria: Chapter 37 Fixed Assets of the Financial Management for Georgia Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records. Questioned Cost: NIA Information: The following errors were noted during the review of the detailed capital assets listing: The School District's capital asset records failed to include prior year additions totaling $13,815,747.00. The understatements were corrected in the current fiscal year by netting with current year mcreases. o Land beginning balance was understated by $2,234,820.92. o Building beginning balance was understated by $5,427,851.10. o Construction In Progress beginning balance was understated by $8,555,871.18. o Accumulated Depreciation beginning balance related to the omission of prior year additions was understated by $67,848.14. The School District's capital asset records included accumulated depreciation understatement of $236,318.00 due to utilizing a report to generate depreciation that omitted depreciable assets. During recalculation of depreciation expense, an overstatement of depreciation expense totaling $313,728.00 was identified. This variance was the result ofthe School District's full month straight line depreciation method incorrectly calculated for certain assets. The balances on the School District's subsidiary ledger (FASGov) did not reconcile to the amounts posted to the general ledger; therefore, materially correct balances were not submitted to the Georgia Department of Education as required. Cause: The School District failed to properly maintain its capital assets records in accordance with the School District's approved capital asset policy. -9- DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Significant Deficiency Finding Control Number: FS-6441-07-06 Effect: The failure ofthe School District to maintain a complete and accurate capital assets listing can lead to inaccurate internal and external reporting, as well as noncompliance with generally accepted accounting principles. Recommendation: The School District should review its capital assets records and make appropriate adjustments to ensure that the capital asset records conform to the School District's approved capital assets policy and generally accepted accounting principles. In addition, the School District should ensure that the amounts submitted to the Georgia Department of Education agree with the subsidiary ledgers. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. - 10 - SECTIONV MANAGEMENT'S RESPONSES DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2007 Finding Control Number: FS-6441-07-01 We concur with this finding. We will continue to revise and monitor controls to ensure that transactions are processed according to established procedures. Finding Control Number: FS-6441-07-02 We concur with this finding. We will communicate to all personnel, annually, the acceptable and unacceptable use of purchase cards. Monitoring will continue to occur monthly and will be documented. Training on the procedures for purchase card usage will continue to be offered. The revised policies and procedures implemented should eliminate the finding in subsequent audits. Finding Control Number: FS-6441-07-03 We concur with this finding. Accounting procedures and internal controls will be enhanced to strengthen the internal controls over accounting functions. Finding Control Number: FS-6441-07-04 We do not concur with this finding. The error sighted was $71,483.07 on a journal entry of more than $80 million. The error does not significantly alter the fair presentment of the financial statements. Even with the error, the entry is more than 99.999% correct. Finding Control Number: FS-6441-07-05 We concur with this finding. The Superintendent will reimburse the School District in the amount of $10,708.75. Finding Control Number: FS-6441-07-06 We do not concur with this finding. The errors totaling $13,815,747.00 were identified and corrected during the year under review due to additional controls and procedures that were implemented. These prior year errors were disclosed to the auditors and were included with current year additions. The accumulated depreciation overstatement of$313,728.00 represents an insignificant error in the financial statement balance of$351,956,743.00. Depreciation expense and accumulated depreciation is calculated by our fixed asset software (FASGOV). Manual recalculations of depreciation expense were completed by the auditors with differences of $313,728.00 noted. This insignificant error represents 1.59% of the depreciation expense for the year. - 1- DEKALB COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2007 Finding Control Number: FS-6441-07-06 Additionally, reports were provided to the auditors, during field work, which could be traced directly to the financial statements. These reports reconciled to the amounts recorded on the general ledger. Controls and procedures that were implemented during the year will continue to be strengthened and revised as necessary to ensure that errors are minimized. Contact Person: Marcus Turk Title: Chief Financial Officer Phone: (678) 676-0034 Fax: (678) 875-5025 E-mail: marcus_turk@fc.dekalb.kl2.ga.us -2-