DOUGLAS COUNTY BOARD OF EDUCATION DOUGLASVILLE, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor DOUGLAS 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 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 10 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 11 H NOTES TO THE BASIC FINANCIAL STATEMENTS 13 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERALFUND 31 DOUGLAS COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 32 3 SCHEDULE OF STATE REVENUE 34 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 35 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 37 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS DOUGLAS COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 April 19, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Douglas 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 Douglas County Board of Education, as of and for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Douglas County Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our op1mons. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Douglas County Board ofEducation, as ofJune 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-11 In accordance with Government Auditing Standards, we have also issued our report dated April 19, 2007, on our consideration of the Douglas County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be 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 ix and page 31 respectively, are not a required part ofthe basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Douglas County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy 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, I ~l;diit~~~ ~ State Auditor RWH:gp 2006ARL-11 DOUGLAS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 The discussion and analysis of the Douglas County Board of Education's financial performance provides an overall review of the Board's financial activities for the fiscal year ended June 30, 2006. The intent of this discussion and analysis is to look at the Board's financial performance as a whole; readers should also review the financial statements and the notes to the basic financial statements to enhance their understanding of the Board's financial performance. Financial Highlights Key financial highlights for fiscal year 2006 are as follows: In March of 2005, the citizens of Douglas County voted to approve the continuation of the existing special sales and use tax of one percent to raise up to $120.0 million over 20 calendar quarters, primarily to finance the acquisition, construction and equipping of new schools, classroom additions and renovations, and the purchase of land for future school sites. This tax will begin to be collected after the expiration of SPLOST II in December of 2006. In conjunction with the approval of SPLOST III, the citizens of Douglas County voted to issue general obligation bonds in the aggregate principal amount of $78,600,000. These bonds were issued in May 2005. Net assets increased $24.5 million, which represents a 16.7 percent increase from fiscal year 2005. This total increase was due to governmental activities since the Board has no business-type activities. General revenues accounted for $100.8 million in revenue or 47.1 percent of all revenues. Program specific revenues in the form of charges for services and sales, grants and contributions accounted for $113.4 million or 52.9 percent of total revenues. Total revenues were $214.2 million. The Board had $189.7 million in expenses related to governmental activities; only $113 .4 million of these expenses were offset by program specific charges for services, grants or contributions. General revenues, primarily taxes, of $100.8 million were adequate to provide for these programs. Among major funds, the general fund had $180.l million in revenues and $175.l million in expenditures. The general fund's balance increased to $36.7 million from $33.3 million. 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 Douglas County Board of Education as a financial whole, or as an entire operating entity. DOUGLAS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 The Statement ofNet Assets and Statement ofActivities provide 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. The 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 with all other nonmajor funds presented in total in one column. In the case of the Douglas County Board of Education, the general fund is by far the most significant fund. Reporting the Board as a Whole Statement ofNet Assets and Statement ofActivities While these documents contain the large number of funds used by the Board to provide programs and activities, the view of the Board as a whole looks at all financial transactions and asks the question, "How did we do financially during fiscal year 2006?" The Statement ofNet Assets and the Statement of Activities answer this question. These statements include all assets and all liabilities using the accrual basis ofaccounting similar to the accounting used by most privatesector 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 whether, for the Board as a whole, the financial position of the Board has improved or diminished. The causes of this change may be the 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, support services, operation and maintenance of plant, pupil transportation, food service, after school program, school activity accounts and various others. 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, the District-wide capital projects fund, and the debt service fund. ii DOUGLAS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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 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/unds 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 school activity 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 2006 compared to fiscal year 2005. iii DOUGLAS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table 1 Net Assets (in Thousands) Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Assets Current and Other Assets Capital Assets, Net $ 158,482 170,411 $ 161,035 150,307 Total Assets $ 328,893 $ 311,342 Liabilities Current and Other Liabilities Long-Term Liabilities $ 28,879 128.675 $ 20,431 144,085 Total Liabilities $ 157.554 $ 164.516 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 104,673 30,425 36.241 $ 90,142 26,065 30,619 Total Net Assets $ 171.339 $ 146,826 Total net assets increased $24.5 million. Table 2 shows the changes in net assets for fiscal year 2006 compared to the changes in net assets for fiscal year 2005. IV DOUGLAS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table 2 Change in Net Assets (in Thousands) Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions Total Program Revenues General Revenues: Taxes Property Taxes For Maintenance and Operations For Debt Service Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Debt Service For Capital Projects Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Total Revenues Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations 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 2006 Year 2005 $ 4,736 104,776 3,914 $ 113,426 $ 4,748 90,192 258 $ 95,198 $ 58,891 2,931 22,999 1,322 751 4,026 5,382 4,525 $ 100,827 $ 214,253 $ 119,693 4,251 4,688 3,854 3,373 11,865 1,690 11,210 8,103 3,469 950 1,012 9,970 5,612 $ 189,740 $ 24,513 $ 54,688 2,899 25 15,143 4,987 2,069 649 4,041 1,564 4,643 $ 90,708 $ 185,906 $ 103,308 3,577 4,155 3,406 2,442 9,969 3,282 10,207 6,403 2,772 971 895 8,757 3,017 $ 163,161 $ 22,145 V DOUGLAS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Governmental Activities Instruction comprises 63 .1 percent of governmental program expenses. Interest expense comprises 3.0 percent of governmental program expenses. Interest expense was attributable to the outstanding bonds for capital projects. 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 total cost of services and the net cost of services. That is, it identifies the cost of these services supported by tax revenue and unrestricted State entitlements. Table 3 Governmental Activities (in Thousands) Total Cost of Services Fiscal Fiscal Year 2006 Year 2005 Net Cost of Services Fiscal Fiscal Year 2006 Year 2005 Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations ofNon-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt $ 119,693 $ 103,308 $ 38,665 $ 36,513 4,251 4,688 3,854 3,373 11,865 1,690 11,210 8,103 3,469 950 3,577 4,155 3,406 2,442 9,969 3,282 10,207 6,403 2,772 971 3,085 2,106 1,745 1,977 7,454 1,482 5,347 5,526 2,852 678 2,744 1,407 1,662 1,512 6,120 3,161 4,772 4,191 2,361 876 1,012 9,970 5,612 895 8,757 3,017 221 -436 5,612 11 -384 3,017 Total Expenses $ 189,140 $ 163,161 $ 16,314 $ 67,963 Although program revenues make up a majority of the revenues, the Board is still dependent upon tax revenues for governmental activities. Over 32.3 percent of instruction activities are supported through taxes and other general revenues; for all governmental activities general revenue support is 40.2 percent. 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 $215.6 million and expenditures and other financing uses of $227.7 million. There was a decrease of $22.2 million in the capital projects fund expenditures primarily due to the amount of capital projects building and renovation activity in fiscal year 2006. This decrease is directly related to VI DOUGLAS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 the fiscal year 2005 issuance of bonds for capital projects. Debt service fund expenditures also increased $4.9 million in large part due to the prior year issuance of these bonds. The general fund had a fund balance increase of $3.4 million. The positive change in the fund balance of the general fund for the year indicates that the Board was able to meet current costs from current revenues. The Board has one Nonmajor Governmental Fund which is used to account for the Perpetual Trust of Winston Elementary. The corpus of this trust is invested in stocks, which fluctuates in value according to market conditions. The corpus of this trust may not be spent; however, interest earned may be used to fund approved projects at Winston Elementary School. 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 2006, the Board did not amend its general fund budget. The Board uses site-based budgeting. The budgeting systems are designed to tightly control total site budgets but provide flexibility for site management. For the General Fund, the actual revenues of $180.1 million exceeded the budgeted amount by $24.4 million. This excess was related primarily to additional State funds received at mid-term due to student growth and the inclusion in our financial statements of the actual amounts of school activity revenue accounts which were not included in our budgeted amounts. The actual expenditures of $175.1 million for the General Fund exceeded the budgeted amount by $8.8 million. This was due to the additional expenditures related to student growth, capital projects, and the inclusion in our financial statements of the actual amounts of school activity expenditure accounts which were not included in our budgeted amounts. General Fund revenues exceeded expenditures by $5.0 million. The Board has made a concerted effort to raise fund balance in anticipation of future needs, continued decline in State funding, and continued student growth. This result is evidence of their work. Capital Assets and Debt Administration Capital Assets At the end of fiscal year 2006, the Board had $170.4 million invested in capital assets, all in governmental activities. Table 4 shows fiscal year 2006 balances compared with fiscal year 2005 balances. vii DOUGLAS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table 4 Capital Assets (Net of Depreciation, in Thousands) Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Land Construction in Progress Buildings and Building Improvements Equipment Land Improvements $ 26,319 19,208 108,895 13,240 2,749 $ 22,677 1,172 109,346 14,202 2,910 Total $ 1701411 $ 1501307 Due to the ongoing growth in the county, the Board continues to have numerous construction projects including new buildings, additions and renovations. Debt At June 30, 2006, the Board had $123.7 million in bonds outstanding with $17.7 million due within one year. Table 5 shows fiscal year 2006 balances compared with fiscal year 2005 balances. Table 5 Debt at June 30 (in Thousands) Governmental Activities Fiscal Fiscal Year 2006 Year 2005 General Obligation Bonds $ 123)40 $ 1381795 Current Issues The Douglas County School System is financially stable. The School System's current operating millage is 19.4, which produces approximately $3.5 million per mill. Douglas County, and the Douglas County School System, appears to be recovering from economic setbacks suffered in prior years, in line with the state and national economy. The tax digest for Douglas County grew more than 9% between 2005 and 2006. Additionally, in recent months, sales tax collections have improved. Capital projects are being evaluated and re-prioritized in light of available revenue and current needs. On March 20, 2007, the voters of Douglas County approved an issuance of general obligation bonds in the amount of $150.55 million for the purposes of providing funds for construction of new educational facilities, additional classrooms, school buses, technology Vlll DOUGLAS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 and other infrastructure improvements and equipment. The county's economic outlook continues to be healthy. From all indications, the State of Georgia will continue to impose formula reductions across the State, and continue to impose restrictions on maximum class sizes without fully funding the teachers needed to meet these requirements. The continuing population growth is expected to be reflected in school system enrollment growth for several years to come, and is a significant factor in the Board's annual budget and planning processes. Despite these challenges, the School System's management and Board are committed to continue to effectively and prudently manage the available resources to provide quality educational opportunities for all of the School System's students. 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 information, contact Kay R. Turner, CPA, Chief Financial Officer at the Douglas County Board of Education, 9030 Highway 5, Douglasville, Georgia 30134. You may also email your questions to kay_turner@douglas. kl2.ga.us. ix DOUGLAS COUNTY BOARD OF EDUCATION DOUGLAS COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Prepaid Items Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages 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 Continuation of Federal Programs Debt Service Capital Projects Permanent Funds 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 $ 44,288,908 92,041,465 5,337,551 12,040,262 3,418,390 239,370 2,183 1,114,007 26,319,012 19,208,138 3,230,775 144,154,508 31,864,888 -54,366,229 $ ===32=8=,8=93='=22=8= $ 9,415,577 14,855,072 3,015,216 1,593,679 18,069,603 110,605,250 $ 157,554,397 $ 104,673,005 1,774,117 19,661,800 8,942,278 47,000 36,240,631 $ 171,338,831 $ ===32=8=,8=93='=22=8= DOUGLAS COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Sales Taxes Special Purpose Local Option Sales Tax For Debt Services Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year EXPENSES CHARGES FOR SERVICES $ 119,693,370 $ 4,251,039 4,687,542 3,853,784 3,372,781 11,864,568 1,689,706 11,210,057 8,102,668 3,469,027 950,315 1,012,471 9,970,301 5,612,184 $ 189,739,813 $ 290,803 791,435 3,653,557 4 735 795 Net Assets - End of Year 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 $ 77,802,874 $ 1,165,914 2,581,578 2,021,987 1,045,073 4,410,494 207,535 5,834,879 2,281,209 617,498 271,730 6,535,818 $ 104,776,589 $ 2,934,856 $ 87,125 350,543 27,906 295,934 217,346 3,913,710 $ -38,664,837 -3,085,125 -2,105,964 -1,744,672 -1,977,165 -7,454,074 -1,482,171 -5,347,272 -5,525,525 -2,851,529 -678,585 -221,036 436,420 -5,612, 184 -76,313,719 $ 58,890,950 2,931,280 22,998,548 1,321,806 750,721 4,026,330 5,382,214 4,525,193 $ 100,827,042 $ 24,513,323 146,825,508 $ ===1=71..,,3...,3...,8..,,,8,...31= -3- DOUGLAS COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Prepaid Items Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND $ 40,819,016 $ 8,107 3,293,017 72,428,466 12,040,262 3,418,390 239,370 1114 007 4,062,196 2,183 Total Assets $ 60,924,062 $ 76,500,952 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects Permanent Funds Unreserved Designated for Capital Construction Designated for Charter Technical School Designated for Self-Insurance Designated for Technology Designated for Textbooks Designated for Vehicle Equipment Undesignated Reported in: General Fund Permanent Fund Total Fund Balances $ 9,412,126 $ 14,844,228 $ 24,256,354 $ 2,169 10,844 3,015,216 1,593,679 4,621,908 $ 1,173,277 1,114,007 $ 71,879,044 500,000 4,000,000 308,979 500,000 1,750,000 120,000 27,201,445 $ 36,667,708 $ 71,879,044 Total Liabilities and Fund Balances The notes to the basic financial statements are an integral part of this statement. -4- $ 60,924,062 $ 76,500,952 EXHIBIT"C" DEBT SERVICE FUND NONMAJOR GOVERNMENTAL FUND TOTAL $ 3,461,785 16,264,319 $ $ 55,663 44,288,908 92,041,465 4,062,196 12,040,262 3,418,390 239,370 2,183 1 114 007 $ 19,726,104 $=======5=5=6=63= $ 157,206,781 $ 1,282 $ 1 282 $ 9,415,577 14,855,072 3,015,216 1,593,679 $ 28,879,544 $ 19,724,822 $ $ 19,724,822 $ $ 47,000 1,173,277 19,724,822 1,114,007 71,879,044 47,000 500,000 4,000,000 308,979 500,000 1,750,000 120,000 8663 27,201,445 8 663 55663 $ 128,327,237 $ 19,726,104 $====5=5=66=3= $ 157,206,781 -5- (This page left intentionally blank) DOUGLAS COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006 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 Unamortized Bond Premiums Total Long-Term Liabilities $ 128,327,237 $ 26,319,012 19,208,138 3,230,775 144,154,508 31,864,888 -54,366,229 170,411,092 1,275,355 $ -123,740,000 -4,934,853 -128,674,853 Net Assets of Governmental Activities (Exhibit "A") $ 171,338,831 The notes to the basic financial statements are an integral part of this statement. -7- DOUGLAS COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006 REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES} Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND $ 57,880,028 1,980,233 91,524,851 $ 17,486,815 4,735,795 1,839,701 4,612,380 3,617,776 2,822,095 $ 180,059,803 $ 6,439,871 $ 109,087,040 5,060,322 4,687,542 3,537,284 2,099,351 11,864,568 2,019,695 $ 20,000 13,678,525 7,864,951 3,771,712 950,315 1,012,471 9,432,942 29,494,956 $ 175,066,718 $ 29,514,956 $ 4,993,085 $ -23,075,085 $ 1,612,418 $ -1,612,418 -787 460 $ -1,612,418 $ 824,958 $ 3,380,667 $ -22,250, 127 33,287,041 94,129,171 Fund Balances - Ending The notes to the basic financial statements are an integral part of this statement. -8- $ 36,667.708 $ 71,879,044 EXHIBIT"E" DEBT SERVICE FUND NONMAJOR GOVERNMENTAL FUND TOTAL $ 2,880,788 23,090,842 721,047 $ $ 26,692,677 $ $ -629 60,760,816 25,071,075 95,142,627 17,486,815 4,735,795 5,382,214 4,612,380 -629 $ 213,191,722 $ $ 4,623 15,055,000 5,612,184 $ 20,671,807 $ $ 6,020,870 $ 0 $ 109,087,040 5,060,322 4,687,542 3,537,284 2,099,351 11,864,568 2,044,318 13,678,525 7,864,951 3,771,712 950,315 1,012,471 9,432,942 29,494,956 15,055,000 5,612,184 0 $ 225,253,481 -629 $ -12,061,759 $ 787,460 $ 787,460 $ 6,808,330 $ 12,916,492 $ 2,399,878 -2,399,878 $ 0 -629 $ -12,061,759 56,292 140,388,996 $ 19,724,822 $======5=5.,.66..,3= $ 128,327,237 -9- DOUGLAS 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, 2006 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements 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: Amortization of Bond Premium $ -12,061,759 $ 27,177,026 -7,072,970 20,104,056 1,061,414 15,055,000 354,612 Change in Net Assets of Governmental Activities (Exhibit "B") $ 24,513,323 The notes to the basic financial statements are an integral part of this statement. -10- DOUGLAS COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ ==3=1=3,=52=4= $ =====3=1=3,=52=4= The notes to the basic financial statements are an integral part of this statement. - 11 - (This page left intentionally blank) DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Douglas County Board of Education (School District) was established under the laws of the State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Douglas County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. - 13 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST) and Bond Proceeds to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments, or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless ofwhen the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt and claims and - 14 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES judgments, 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. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year and equity investments are reported at fair value. The Official Code of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate of return 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, - 15 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. 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. PROPERTY TAXES The Douglas County Board of Commissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on September 23, 2005 (levy date). Taxes were due on November 23, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Douglas County Tax Commissioner bills and collects the property taxes for the School District, withholds 1% oftaxes collected as a fee for tax collection and remits the balance oftaxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $57,880,028 and for school bonds amounted to $2,880,788. Tax millage rates levied for the 2005 tax year (calendar year) for the Douglas County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): School Operations School Bonds 18.4 mills ---:2mills 19.3 mills - 16 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $22,998,548 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. PREPAID ITEMS Payments made to vendors for services that will benefit periods subsequent to June 30, 2006, 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. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: - 17 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Capitalization Policy Estimated Useful Life Land Land Improvements Buildings Temporary Permanent Building Improvements Equipment All $ 10,000 NIA 20 years $ 10,000 25 years $ 50,000 50 years $ 10,000 7 to 30 years $ 10,000 4 to 20 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. FUND BALANCES UNRESERVED-DESIGNATED Designated fund balances represent tentative plans for future use offinancial resources. In 2005, the School District entered into an agreement to build a charter school on the site of West Central Technical College in Douglasville, Georgia. This charter school will be a joint venture between the School District and West Central Technical College wherein high school students can earn joint credit towards a high school diploma and technical college credit. In 2006, the Georgia General Assembly authorized the use of proceeds from the issuance of General Obligation Debt in the amount of $4,999,000 for the purpose of constructing the State's portion of the charter school building on the campus of West Central Technical College. Included in the School District's Unreserved- Designated fund balance is $4,000,000 for the purpose offunding the construction and furnishings of the School District's portion of the charter school building on the campus of West Central Technical College. These two buildings will be connected by an atrium that will be owned by the State ofGeorgia. A formal memorandum ofunderstanding is currently being finalized by the Department ofTechnical and Adult Education, Georgia State Financing and Investment Commission and the Douglas County Board of Education. - 18 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. 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 ofthe State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities ofthe State ofGeorgia, (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 ofthe 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, 2006, the bank balances were $49,492,686. The amounts ofthe total bank balances are classified into four categories of custodial credit risk: Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. - 19 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name. Category 4 - Uncollateralized. The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows: Custodial Credit Risk Category Bank Balance 1 $ 4,245,144 2 2,588,132 3 42,659,410 4 0 Total $ 49,492.686 CATEGORIZATION OF INVESTMENTS Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event ofa failure ofthe counterparty to a transaction, the School District will not be able to recover the value of the investment or collateral securities that are in the possession ofan outside party. The School District does not have a formal policy for managing custodial credit risk. Investments are classified as to custodial credit risk by the categories described below: Category 1 - Insured or registered, or securities held by the School District or the School District's agent in the School District's name. Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the School District's name. Category 3 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent, but not in the School District's name. Funds invested in an investment pool managed by another government are not required to be categorized unless the investing entity owns specific, identifiable investment securities in the pool. At June 30, 2006, the carrying value of the School District's total investments was $91,291,465 which is materially the same as fair value. These investments included funds in the amount of $9,571,477 invested in the Local Government Investment Pool administered by the State ofGeorgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School - 20- DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS District did not own any specific identifiable securities in the pool. The investment policy of the State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows: The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool. Georgia Fund I is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U.S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days. Funds invested in U. S. Treasury Money Market Mutual Funds (open-end mutual funds) are not required to be classified by categories of custodial credit risk. The investments are classified as to custodial credit risk categories as follows: Trne oflnvestment Debt Securities Repurchase Agreements Investment Portfolio Account $ Total Investments $ Risk Categories 2 3 Carrying Amount Fair Value $ 55 663 55 663 $ 0 $ 81,664,325 $ 81,664,325 55 663 $ 81 66~ 325 $ 81112 288 $ 81,664,325 55 663 $ 81112 288 Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value of an investment. The School District does not have a formal policy for managing interest rate risk. - 21 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS At June 30, 2006, the School District's investment consisted ofRepurchase Agreements which had an investment maturity of 1 - 5 years. Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The School District does not have a formal policy for managing credit quality risk. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2005 Increases Balances Decreases June 30, 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 22,676,601 $ 3,642,411 1,172,667 18,035,471 $ $ 26,319,012 0 19,208,138 Total Capital Assets Not Being Depreciated $ 23,849,268 $ 21,677,882 $ 0 $ 45,527.150 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 141,459,647 $ 29,094,671 3,230,775 2,694,861 2,804,283 $ $ 144,154,508 34,066 31,864,888 3,230,775 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 32,114,008 14,892,646 320,671 3,145,229 3,766,202 161,539 34,066 35,259,237 18,624,782 482,210 Total Capital Assets, Being Depreciated, Net $ 126.457,768 $ -1,573,826 $ 0 $ 124,883,942 Governmental Activity Capital Assets - Net $ 150,301.036 $ 20.104,056 $ 0 $ 110,411,022 Current year depreciation expense by function is as follows: -22 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 5: CAPITAL ASSETS Instruction Support Services Educational Media Services General Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 5,127,609 $ 152,219 612,449 48,755 752.204 1,565,627 379.734 $ 71072,97Q Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds, the Endowment Corpus of Permanent Funds and property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants, statutory provisions or trust agreements. Restricted assets at June 30, 2006, were as follows: Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions Permanent Fund District-wide Capital Projects Bond SPLOST Proceeds Debt Service Funds Permanent Fund $ 3,461,785 $ 165 $ 7,942 $ 16,264,319 $ 7,028,460 $ 65,400,006 $ 47,000 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2006, consisted of the following: Transfer to Transfers From District-wide General Capital Fund Projects District-wide Capital Projects Debt Service Fund $ 1,612,418 $_ _7.:.;:8..:..:i7,..:.:46~0 Total $ L6 I2A18 $======7==87=A==6==o - 23 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 7: INTERFUND TRANSFERS Transfers are used to (1) move land expenditures from the General Fund to the District-wide Capital Projects Fund and (2) move investment funds from the District-wide Capital Projects Fund to the Debt Service Fund for debt service payments. 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; unemployment compensation and vision plan. 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 ofthe 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. A premium is paid by the General Fund at the beginning of the fiscal year for an excess workers' compensation coverage policy which covers individual claims in excess of$300,000 loss per occurrence, up to the statutory limit. Assessments of individual programs, except for School Food Services, are performed, as needed, on the basis of that program's payroll to total payroll in order to cover estimated claims budgeted by management based on known claims and prior experiences. School Food Services is billed by the General Fund for the actual amount ofclaims for that program. The School District accounts for claims with expenses/expenditures and liability being reported when it is probable that a loss has occurred, in the amount of that loss can be reasonably estimated. Changes in the workers' compensation claims liability during the last two fiscal years are as follows: 2005 2006 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0 $ 752,618 $ 752,618 $ 0 $ 0 $ 521,103 $ 521,103 $ 0 -24- DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 8: RISK MANAGEMENT The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount ofthat loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2005 2006 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End ofYear Liability $ 0 $ 23,309 $ 23,309 $ 0 $ 0 $ 36,772 $ 36,772 $ 0 The School District is self-insured with regard to vision claims. The School District accounts for claims within the General Fund with expenditures and liabilities being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the vision claims liability during the year are as follows: 2005 2006 Beginning ofYear Liability Claims and Changes in Estimates Claims Paid EndofYear Liability $ 0 $ 116,693 $ 116,693 $ 0 $ 0 $ 123,673 $ 123,673 $ 0 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Other Employees $ 100,000 $ 250,000 Note 9: OPERATING LEASES Douglas County Board of Education has entered into various leases as lessee for copiers. These leases are considered for accounting purposes to be operating leases. Lease expenditures for the year ended June 30, 2006, for governmental funds amounted to $507,288. Future minimum lease payments for these leases are as follows: - 25 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 9: OPERATING LEASES Year Ending Governmental Funds 2007 2008 $ 489,288 464,088 Total $ 953.376 Note 10: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 1995 4.35% - 5.45% General Government - Refunding - Series 1999 3.10% - 5.00% General Government - Series 2001 3.625% - 5.25% General Government - Series 2002 3.00% - 5.00% General Government - Refunding - Series 2002A 2.50% - 5.00% General Government - Series 2005 3.00% - 5.00% $ 1,155,000 13,670,000 7,500,000 4,670,000 18,145,000 78,600,000 $ 123,740,000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: Governmental Funds General Obligation Bonds Unamortized Bond Premium Total Balance July I, 2005 $ 138,795,000 $ 5,289,465 $ 144,084,465 Deductions Debt Retired Bond Premium Amortized 15,055,000 354,612 15,055,000 354,612 Balance June 30, 2006 $ 123,740.000 $ 4,934.853 $ 128,674.853 Portion of Long-Term Debt Due within One Year $ 17,715,000 $ 354,603 $ 18,069,603 - 26- DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 10: LONG-TERM DEBT At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 General Obligation Debt Principal Interest Unamortized Bond Premium 2007 2008 2009 2010 2011 2012 - 2016 2017 - 2020 $ 17,715,000 $ 4,955,182 $ 354,603 17,615,000 4,840,474 354,600 11,670,000 4,072,074 354,600 10,390,000 3,611,780 354,600 10,235,000 3,195,237 354,600 32,495,000 9,908,212 1,773,000 23,620,000 2,910,250 1,388,850 Total Principal and Interest $, 123,740,000 $ 33,493,209 $ 4,934,853 Note 11: PRIOR YEAR DEFEASEMENT OF DEBT In fiscal years 1999 and 2003, the School District defeased certain general obligation bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the School District's basic financial statements. A partial call of Series 1995 Bonds occurred on January 1, 2005. The Series 1993 Bonds were called on January 1, 2003. At June 30, 2006, none of the bonds previously defeased are outstanding or considered defeased. Note 12: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $2,653,597 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 $2,630,398 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 $23,199 - 27 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 13: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2006, together with funding available: Project Unearned Executed Contracts Funding Available From State 060-648-009 07-648-025 070-648-023 07-648-026 07-648-027 Stewart Middle HVAC Energy Management Upgrade $ 8,944 191,321 20,942,120 11,542,649 1,121,115 1,173,003 770,345 $ 401,975 484,672 11,117,420 5,263,817 1,210,000 $ 35,749.497 $ 18,477,884 The amounts described in this note are not reflected in the basic financial statements. Note 14: 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. Note 15: SUBSEQUENT EVENTS In the subsequent fiscal year, voters authorized the School District to issue general obligation bonds in the amount of $150,550,000. The proceeds from these bonds will be used for constructing, equipping and repairing new and existing schools, the acquisition of buses and transportation equipment and acquisition and installing of new computers, technology and equipment. - 28 - DOUGLAS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 16: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2006 2005 2004 100% 100% 100% $ 8,731,863 $ 8,032,772 $ 7,484,239 - 29 - (This page left intentionally blank) DOUGLAS COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2006 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 Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING USES Other Uses Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending NONAPPROPRIATED BUDGETS ORIGINAL (1 l FINAL (1) ACTUAL AMOUNTS $ 57,000,000 $ 57,000,000 $ 57,880,028 82,386,567 82,386,567 1,980,233 10,906,268 10,906,268 91,524,851 3,752,473 3,752,473 17,486,815 510,196 510,196 4,735,795 1,061,371 1,061,371 1,839,701 4,612,380 $ 155,616,875 $ 155,616,875 $ 180,059,803 $ 108,824,650 $ 108,824,650 $ 109,087,040 4,933,728 3,657,579 3,489,735 1,682,115 10,401,744 2,093,079 11,630,615 6,901,808 3,521,945 9,142,249 4,933,728 3,657,579 3,489,735 1,682,115 10,401,744 2,093,079 11,630,615 6,901,808 3,521,945 9,142,249 5,060,322 4,687,542 3,537,284 2,099,351 11,864,568 2,019,695 13,678,525 7,864,951 3,771,712 950,315 1,012,471 9,432,942 $ 166,279,247 $ 166,279,247 $ 175,066,718 $ -10,662,372 $ -10,662,372 $ 4,993,085 -1,612,418 $ -10,662,372 $ -10,662,372 $ 3,380,667 31,241,855 31,241,855 33,287,041 $ 20,579,483 $ 20,579,483 $ 36,667,708 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. - 31 - DOUGLAS COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U.S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U.S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Direct Safe and Drug Free Schools and Communities - National Programs Pass-Through From Georgia Department of Education Advanced Placement Charter Schools Comprehensive School Reform Demonstration English Language Acquisition Grants Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality State Grants Safe and Drug-Free Schools and Communities - State Grants State Grants for Innovative Programs Title I Grants to Local Educational Agencies Twenty-First Century Community Learning Centers Vocational Education - Basic Grants to States Total U. S. Department of Education Defense, U.S. Department of Direct Department of the Marines R.O.T.C. Program Labor, U.S. Department of Pass-Through From Georgia Department of Education Workforce Investment Act Adult Program Total Federal Financial Assistance NIA = Not Available - 32 - CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 10.550 NIA N/A $ $ (2) 8,753,038 8,753,038 NIA $ 639 324 9,392,362 . 84.027 . 84.173 N/A $ N/A $ 3,403,043 101 843 3,504,886 84.184 84.330 84.282 84.332 84.365 84.318 . 84.938 . 84.367 84.186 . 84.298 84.010 84.287 84.048 N/A NIA N/A N/A N/A N/A NIA N/A N/A NIA N/A N/A $ 164,516 164 164,282 555,277 106,542 63,179 (3) 713,792 94,908 101,715 3,273,913 695,808 193 592 9,632,574 $ 17.258 N/A $ 168 378 9 951 $ ===1=9,=20=3=,2=6=5 DOUGLAS COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" 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 ($1,397,553) were not maintained separately and are included in the 2006 National School Lunch Program. (3) Funds earned on the Hurricane Education Program, in the amount of $1,633,658, do not require reporting of expenditures. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Douglas 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. - 33 - DOUGLAS COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING GRANTS Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Nursing Services Principal Supplements Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Health Insurance K-8 Statewide Reading Program National Teacher Certification Preschool Handicapped Program Rule 10 Special Education Support Cost Virtual Schools Grant Georgia State Financing and Investment Commission Reimbursement on Construction Projects Office of Treasury and Fiscal Services Public School Employees Retirement CONTRACT Education, Georgia Department of Foreign Language Model Program GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 5,526,174 1,200,379 12,967,243 2,228,002 6,168,165 1,745,831 12,616,217 10,296,843 3,569,269 510,789 916,112 6,054,268 1,864,291 242,710 2,867,027 191,004 978,063 564,559 1,943,932 626,210 404,807 1,934,603 3,934,748 5,654,273 1,716,971 295,934 396,561 76,059 4,026,330 493,564 203,780 -4,155,880 2,630,398 342,289 85,780 284,646 71,000 550 $ 5,526,174 1,200,379 12,967,243 2,228,002 6,168,165 1,745,831 12,616,217 10,296,843 3,569,269 510,789 916,112 6,054,268 1,864,291 242,710 2,867,027 191,004 978,063 564,559 1,943,932 626,210 404,807 1,934,603 3,934,748 5,654,273 1,716,971 295,934 396,561 76,059 4,026,330 493,564 203,780 -4,155,880 2,630,398 342,289 85,780 284,646 71,000 550 $ 3,617,776 23,199 3,617,776 23,199 28 151 28151 See notes to the basic financial statements. - 34 - $ 91,524,851 $ 3 617 776 $ 95,142,627 DOUGLAS COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 SCHEDULE "4" PROJECT The payment of principal and interest on the School District's Series 1993 Bonds maturing July 1, 2003 through and including July 1, 2007; the principal and interest on the School District's Series 1995 Bonds maturing July 1, 2003 through and including January 1, 2007; and the principal and interest on the School District's Series 1999 Bonds maturing July 1, 2003 through and including July 1, 2007. The acquisition and installation of new technology and equipment at all educational facilities; the acquisition, construction and equipping of three new schools and the purchase of land to be used as sites for future educational facilities; the acquisition, construction and equipping of classroom additions, physical education facilities and renovations and modifications to existing educational facilities and the acquisition of new school buses and transportation equipment. The payment of principal and interest on the School District's Series 1999 Bonds maturing July 1, 2007, through and including January 1, 2012, and the School District's Series 2002A Bonds maturing July 1, 2007, through and including January 1, 2010. The acquisition, construction and equipping of new schools and the purchase of land to be used as sites for future educational facilities; the acquisition, construction and equipping of classroom additions, other educational facilities and renovations and modifications to existing educational facilities; the acquisition and installation of new instructional, safety and transportation equipment for all educational facilities. ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) (4) AMOUNT EXPENDED IN PRIOR YEARS (3) (4) PROJECT STATUS $ 30,000,000 $ 22,745,107 $ 6,768,988 $ 15,724,493 Ongoing 79,000,000 86,254,893 14,153,364 67,469,958 Ongoing 12,600,000 12,600,000 Ongoing 107,400,000 107,400,000 19,474,788 Ongoing $ 229,000,000 $ 229,000,000 $ 40,397,140 $ 83,194,451 (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 Douglas County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. (4) A portion of the Series 1995 Bonds were retired through the sale of Series 1999 Refunding Bond Issue. The School District will utilize the SPLOST proceeds budgeted for this project, plus any excess SPLOST proceeds to retire the Series 1999 Refunding Bond Issue. The Series 1993 Bonds were retired through the sale of Series 2002A Refunding Bond Issue. The School District will utilize the SPLOST proceeds budgeted for this project, plus any excess SPLOST proceeds to retire the Series 2002A Refunding Bond Issue. See notes to the basic financial statements. - 35 - (This page left intentionally blank) DOUGLAS COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM {QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2006 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle 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) TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 6,388,938 $ 6,463,050 $ 208,764 $ 6,671,814 1,370,807 1,482,199 8,008 1,490,207 15,026,898 14,874,215 949,744 15,823,959 2,626,259 4,096,800 21,933 4,118,733 7,150,889 7,710,574 423,249 8,133,823 2,033,129 14,641,618 11,908,477 4,144,116 11,131,375 3,372,910 226,270 1,132,448 640 517 1,916,803 14,829,299 13,940,641 3,961,152 394,628 1,594,961 9,374,301 853,841 59,902 3,395,729 120,093 1,307,977 735.895 13,591 607,373 790,712 305,864 10,087 11,838 99,095 38,123 9,850 47,554 308 35,866 11.220 1,930,394 15,436,672 14,731,553 4,267,016 404,715 1,606,799 9,473,396 891,964 69,752 3,443,283 120,401 1,343,843 747115 $ 81,794,651 $ 87,112,260 $ 3,593,179 $ 90,705,439 2,258,002 477 344 3,224,070 187.246 254,090 184,285 3,478,160 371 531 TOTAL QBE FORMULA FUNDS $ 84,529,997 $ 90,523,576 $ 4,031.554 $-=====-94_,,:,;;55~5~,1.;,3~0 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 37- 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 April 19, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Douglas 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 ofDouglas County Board ofEducation as ofand for the year ended June 30, 2006, which collectively comprise Douglas County Board of Education's basic financial statements and have issued our report thereon dated April 19, 2007. 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered Douglas County Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. 2006YB-10 Compliance and O~her Matters As part of obtaining reasonable assurance about whether Douglas County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the Douglas County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, w.~ Rus 11 W. Hinton, CPA, CGFM State Auditor RWH:gp 2006YB-10 Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS. 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 April 19, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Douglas 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 Douglas 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, 2006. Douglas County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Douglas County Board of Education's management. Our responsibility is to express an opinion on Douglas County Board of Education's compliance based on our audit. We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States 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 Douglas County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Douglas County Board of Education's compliance with those requirements. 2006SA-30 In our opinion, the Douglas County Board ofEducation 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, 2006. Internal Control Over Compliance The management of Douglas 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 Douglas County Board of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. We noted a certain matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Douglas County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FA-6481-06-01. A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. This report is intended solely for the information and use of the management, members of the Douglas 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, ' w.A$ Ru sell W. Hinton, CPA, CGFM St te Auditor RWH:gp 2006SA-30 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS DOUGLAS COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION IV FINDINGS AND QUESTIONED COSTS DOUGLAS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Douglas County Board ofEducation's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Douglas County Board ofEducation did not disclose any reportable conditions related to the financial statements. 3. Noncompliance Material to the Financial Statements The audit of the Douglas County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Douglas County Board ofEducation disclosed a reportable condition in internal control over major programs for the following compliance requirement. Activities Allowed or Unallowed The reportable condition described above is not considered to be a material weakness. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Douglas County Board of Education's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Douglas County Board of Education's audit disclosed an audit finding required to be reported by section .510(a) of 0MB Circular A-133. This audit finding is included in section IV ofthis report. 7. Major Programs Federal awards audited as major programs are as follows: 84.010 Title I Grants to Local Educational Agencies 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 84.367 Improving Teacher Quality State Grants 84.938 Hurricane Education Recovery 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $625,108. - 1- DOUGLAS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 9. Low Risk Auditee The Douglas County Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA 84.938) Finding Control number: FA-6481-06-01 Condition: The School District did not have procedures in place to ensure that Hurricane Education Recovery Act (HERA) funds provided for displaced students reported as having disabilities were used for the excess costs of providing special education and related services to students with disabilities. Criteria: The following guidance applied to the management of Emergency Impact Aid for Displaced Students to include funds made available for displaced students: 1. Section 107(e)(4) of HERA, 2. Volumes "I" and "II" ofU. S. Department of Education (USED) guidelines included in "Frequently Asked Questions, Emergency Impact Aid for Displaced Students", and 3. State of Georgia issued publication titled "Georgia Guidance on Federal Emergency Hurricane Act" (GDOE Guidelines). -2 - DOUGLAS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA 84.938) Finding Control number: FA-6481-06-01 Provisions of HERA, USED and GDOE Guidelines state that HERA funds for students with disabilities may only be used to pay for special education and related service consistent with the Individuals with Disabilities Education Act (IDEA). Both Volumes "I" and "II" of USED guidance state that the funds provide for students with disabilities must be recorded and traced separately from those HERA funds provided for non-disabled students. This Federal requirement was not specifically included in GDOE Guidelines. Provisions of HERA and GDOE guidelines state that these funds may become a part of a School District's special education budget to ensure that they are only used to pay for special education and related service consistent with IDEA. The guidelines further stated that since these funds are to be applied and used in a manner as funds made available under Part B ofIDEA, it was also advised to consult with State and local staffwho are cognizant of IDEA requirements. Questioned Cost: $141,746 Information: HERA funds received by the School District included $141,746 for students with disabilities. Although required by Federal guidelines, the receipt and expenditure of these funds were not maintained separately. We further noted that the budget for special education was not modified for the increase in HERA funds designated for special education and related purposes. Cause: The School District relied on GDOE Guidelines which did not require that the School District provide separate accountability ofHERA funds provided for students with disabilities. Consideration had not been given to consulting with local and State special education staff or revising its special education budget to ensure that these HERA funds were applied in line with IDEA. -3- DOUGLAS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA 84.938) Finding Control number: FA-6481-06-01 Effect: We were unable to determine ifthe $141,746 ofHERA funds earmarked for students with disabilities were used for special education and related purposes. Recommendation: Management should ensure that procedures are in place to comply with Federal and State guidelines when administering HERA funds for special education purposes. GDOE should review this matter and determine ifthese funds were used properly or if a refund is appropriate. -4- SECTIONV MANAGEMENT'S RESPONSES DOUGLAS COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control number: FA-6481-06-01 We concur with this finding. School System officials relied on Georgia Department of Education Guidelines which did not require separate accountability ofHERA funds provided for students with disabilities. The Georgia Department of Education has audited these funds and no refund was determined to be appropriate in regards to these funds. We will continue to follow all guidance provided by the Georgia Department of Education as it relates to Federal and State funds received. Contact Person: Kay R. Turner, Chief Financial Officer Phone: (770) 651-2278 Fax Number: (770) 920-4115 E-mail Address: kay.turner@douglas.kl2.ga.us