EFFINGHAM COUNTY BOARD OF EDUCATION SPRINGFIELD, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor EFFINGHAM COUNTY BOARD OF EDUCATION -TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS B STATEMENT OF ACTIVITIES FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS H NOTES TO THE BASIC FINANCIAL STATEMENTS SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 3 SCHEDULE OF STATE REVENUE 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS Page 3 4 6 7 8 9 11 12 27 28 30 31 EFFINGHAM COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 33 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 EFFINGHAM COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 May 27, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Effingham 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 Effingham County Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Effingham 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 opinions. 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 Effingham County Board of Education, as ofJune 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2004ARL-11 The Effingham County Board of Education has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements. In accordance with Government Auditing Standards, we have also issued our report dated May 27, 2005, on our consideration of the Effingham County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 27 is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement 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 Effingham County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code of Georgia Annotated section 506-24. Respectfully submitted, ~w.ci}~ Russell W. Hinton State Auditor RWH:as 2004ARL-11 EFFINGHAM COUNTY BOARD OF EDUCATION EFFINGHAM COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government 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 Deposits and Deferred Revenues Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Continuation of Federal Programs Debt Service Unrestricted (Deficit) Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 6,946,838 3,428,877 1,732,251 5,104,047 821 93,260 2,098,658 6,690,787 9,939,000 63,170,327 7,616,819 -29,463,249 $===7=7=,3=5=8=,4=36= $ 3,656,368 6,974,909 54,748 309,092 3,325,000 12,660,000 $ 26,980,117 $ 47,309,189 531,083 3,425,336 -887 289 $ 50,378,319 $ ===7=7=,3=5=8-=,4=36= The notes to the basic financial statements are an integral part of this statement. -3 - EFFINGHAM COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2004 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services 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 For Capital Projects Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Changes in Net Assets Net Assets - Beginning of Year Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 45,080.937 $ 2,143.589 2.107,264 1,733.814 846.949 3.212,056 793,025 4,149,829 2,964,885 79,935 547,316 3,761,157 1,138,263 $ 68,559,019 $ 541,810 555,734 1,504,849 2 602 393 The notes to the basic financial statements are an integral part of this statement. -4- EXHIBIT "B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 31,067,787 $ 622,255 945,887 791,382 1,111,667 1,648,536 2,437,346 1,520,286 92,529 1,774,950 $ 42,012,625 $ 1,054,668 $ 41,660 31,245 28,967 16,579 233,502 118,451 1 525 072 $ -12,416,672 -1,521,334 -1,161,377 -900,772 264,718 -1,532,275 -764,058 -1,695,904 -1,211,097 12,594 8,418 -362,907 -1 138 263 -22,418,929 $ 14,511,144 1,707,219 2,141,212 2,508,066 614,098 23,139 4,818,352 103,116 1,256,955 $ 27,683,301 $ 5,264,372 45,113,947 $ =====5=0"'=3=7='8=3=19= -5- EFFINGHAM COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2004 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Prepaid Items Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 9,086,539 $ 3,312,099 $ $ 3,428,304 573 1,499,163 4,780,397 821 93 260 862,209 323,650 54,136 12,398,638 3,428,877 2,415,508 5,104,047 821 93 260 Total Assets $ 15,460,180 $ 4,614,163 $ 3,366,808 $===2=3='=4=4=1'=1=51= LIABILITIES AND FUND BALANCES LIABILITIES Cash Overdraft Accounts Payable Salaries Payable Contracts Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund Capital Projects Total Fund Balances $ 5,451,800 $ 3,572,403 81,911 $ 6,974,909 54,748 309,092 $ 10,856,404 $ 5,588,459 $ $ 2,054 2 054 $ $ 437,823 $ $ 3,364,754 93,260 $ 3,135,303 4,072,693 -4,109,599 $ 4,603,776 $ -974,296 $ 3,364,754 $ 5,451,800 3,656,368 6,974,909 54,748 309,092 16 446,917 437,823 3,364,754 93,260 3,135,303 4,072,693 -4,109,599 6,994,234 Total Liabilities and Fund Balances $ 15,460,180 $ 4,614,163 $ 3,366,808 $===2;;;;3;;,!,;4;;;;4:,;,1.,;,1~51~ The notes to the basic financial statements are an integral part of this statement. -6- EFFINGHAM COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2004 EXHIBIT "D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Bond Payables, which are Long-Term Liabilities, are not due and payable in the current period and therefore are not reported as liabilities in the funds. $ 6,994,234 $ 2,098,658 6,690,787 9,939,000 63,170,327 7,616,819 -29,463,249 60,052,342 -683,257 -15,985,000 Net Assets of Governmental Activities (Exhibit "A") $ 50,378,319 The notes to the basic financial statements are an integral part of this statement. -7- EFFINGHAM COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2004 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Enterprise Operations Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Net Change in Fund Balance Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 15,579,949 $ 1,725,539 $ 573,277 $ 2,508,066 2,205,172 41,710,691 1,291,570 5,353,788 2,602,393 55,033 39,671 8,412 1,245,577 11,378 $ 67,120,708 $ 3,839,307 $ 3,950,501 $ 17,305,488 5,286,515 43,002,261 5,353,788 2,602,393 103,116 1,256,955 74,910,516 $ 42,312,306 $ 2,143,589 2,107,264 1,603,525 846,949 3,114,340 698,648 4,097,978 3,014,932 79,935 547,316 3,390,708 276,735 $ $ 2,491,962 3,784 19,796 416117 3,200,000 722,146 $ 64,670,138 $ 2,491,962 $ 3,925,930 $ $ 2,450,570 $ 1,347,345 $ 24,571 $ 2,153,206 -2,321,641 3,340,183 42,312,306 2,143,589 2,107,264 1,603,525 846,949 3,114,340 702,432 4,097,978 3,014,932 79,935 547,316 3,390,708 2,768,697 3,219,796 1,138,263 71,088,030 3,822,486 3 171 748 $ 4,603,776 $ -974,296 $ 3,364,754 $ =====6='=,9=9=4=,2=34= The notes to the basic financial statements are an integral part of this statement. -8- EFFINGHAM COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30. 2004 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District"s fiscal year ends, they are not considered "available" revenues. The net effect of various miscellaneous transactions involving Capital Assets is to decrease net assets. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements Capital Lease Payments Total Long-Term Debt Repayments $ $ 2,178,108 -2,514,005 $ 3,200,000 19 796 3,822,486 -335,897 -1,087,125 -354,888 3,219,796 Change in Net Assets of Governmental Activities (Exhibit "B") $ =====5:1:,2=6=41=,3=72= The notes to the basic financial statements are an integral part of this statement. -9- EFFINGHAM COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ 1,977,745 $ 1,977,745 The notes to the basic financial statements are an integral part of this statement. - 11 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Effingham County Board of Education (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Effingham County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: - 12 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Bond Proceeds, grants from Georgia State Financing and Investment Commission and Special Purpose Local Option Sales Tax proceeds to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments and individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental, and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes and grants. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund - 13 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES liability is incurred, except for principal and interest on general long-term debt and interest on GSBA Installment Sale Agreement, 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 are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, - 14 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Effingham County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on August 25, 2003 (levy date). Taxes were due on November 15, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Effingham County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2004, for maintenance and operations amounted to $15,579,949 and for school bonds amounted to $1,725,539. Tax millage rates levied for the 2003 tax year (calendar year) for the Effingham County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): School Operations School Bonds 15.146 mills 1.835 mills 16.981 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $4,649,278 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. - 15 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories ofdonated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time ofpurchase. On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives 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: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment Any Amount $ 50,000 $ 50,000 $ 5,000 NIA 15 years 20 to 40 years 5 to 10 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. - 16 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DEFICIT FUND BALANCE The fund reporting a deficit fund balance at June 30, 2004, is as follows: Fund Type/Fund Name Deficit Balance Governmental Funds District-wide Capital Projects Fund $ 4,109.599 The Effingham County Board of Education plans to transfer funds from the General Fund and use Special Purpose Local Option Sales Tax to liquidate this deficit. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or ofthe State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, - 17 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2004, the bank balances were $10,352,743. The amounts ofthe total bank balances are classified into three categories of credit risk: Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2004, as follows: Risk Category Bank Balance 1 $ 6,104,165 2 4,248,578 3 0 Total $ 10~352)43 CATEGORIZATION OF INVESTMENTS Investments are classified as to risk by the three categories described below: Category 1 - Insured or registered, or securities held by the School District or the School District's agent in the School District's name. Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the School District's name. Category 3 - Uninsured or unregistered, with securities held by the counterparty, or by its trust department or agent but not in the School District's name. - 18 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Funds invested in an investment pool managed by another government are not required to be categorized unless the investing entity owns specific, identifiable investment securities in the pool. At June 30, 2004, the carrying value ofthe School District's total investments was $3,428,877 which is materially the same as fair value. The investments are classified as to risk categories as follows: Type of Investment Investment Portfolio Account $ Local Government Investment Pools Total Investments Risk Categories 2 3 Carrying Amount Fair Value $ 5:Z3 $ 0 $ 573 $ 573 3,428,304 3,428,304 $ 3 428 8:Z:Z $ 3,428,81'.Z The carrying amounts shown above includes amounts maintained in an investment pool by the State of Georgia, Office ofTreasury and Fiscal Services in which the School District owns no identifiable securities. The investment policy ofthe State of Georgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description ofthe Primary Liquidity Portfolio is as follows: The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the Securities and Exchange Commission (SEC) as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U. S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2004, was 24 days. The average investment duration for Fund 6 on June 30, 2004, was 0.22 years. - 19 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2003 Increases Decreases Balances June 30, 2004 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 2,098,658 8,159,025 $ $ 2,098,658 212,878 $ 1,681,116 6,690,787 Total Capital Assets Not Being Depreciated $ 10,257,683 $ 212,878 $ 1,681,116 $ 8,789,445 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 60,345,678 $ 7,518,374 9,939,000 2,824,649 821,697 $ $ 63,170,327 723,252 7,616,819 9,939,000 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 15,127,731 5,134,044 7,055,833 1,499,199 445,406 569,400 368,364 16,626,930 5,211,086 7,625,233 Total Capital Assets, Being Depreciated, Net $ 50,485,444 $ 1,132,341 $ 354,888 $ 51,262,897 Governmental Activity Capital Assets - Net $ 60,743.127 $ 1,345.219 $ 2,036.004 $ 60,052.342 Current year depreciation expense by function is as follows: Instruction Support Services Educational Media Services School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 1,723,156 $ 81,090 60,817 56,384 32,271 329,725 560,287 230,562 $ 2!514!005 - 20- EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), Bond Proceeds 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 or statutory provisions. Restricted assets at June 30, 2004, were as follows: District-wide Capital Projects Bond SPLOST Proceeds Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions $ 3,312,099 $ 3,156,934 $ 3,428,304 $ 573 Note 7: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions,job related illness or injuries to employees and acts ofGod. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years. The School District 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 of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability 2003 2004 $ 0 $ 0 $ 0 $ 0 $ 0 $ 4 507 $ 4 507 $ 0 - 21 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 7: RISK MANAGEMENT The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent Each Employee $ 100,000 $ 50,000 Note 8: SHORT-TERM DEBT The School District issues tax anticipation notes in advance of property tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution ofthe State of Georgia limits the aggregate amount ofshort-term debt to 75 percent of the total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 of the calendar year in which the debt was incurred. Short-term debt activity for the fiscal year is as follows: Beginning Balance Issued Redeemed Ending Balance Tax Anticipation Notes $ 5,000.000 $=====0 $ 5,000.000 $=====0 Note 9: LONG-TERM DEBT CAPITAL LEASES The Effingham County Board of Education has entered into a lease agreement as lessee for a bus. This lease agreement qualifies as a capital lease for accounting purposes and, therefore, has been recorded at the present value of the future minimum lease payments as of the date of its inception. GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 1994 General Government - Series 2001 A General Government - QZAB Series 2001B 4.20% - 6.25% 3.25% - 4.00% 0% $ 7,845,000 3,940,000 4,200,000 $ 15,985.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows: - 22 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 9: LONG-TERM DEBT Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2003 $ 19,796 $ 19,185,000 $ 19,204,796 Deductions Debt Retired 19 796 3,200,000 3,219,796 Balance June 30, 2004 $====0 $ 15,985,000 $ 15,985,000 Portion of Long-Term Debt Due within One Year $_ _ _~0 $ 3,325,000 $ 3,325,000 At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2005 2006 2007 2008 2009 2015 - 2019 $ 3,325,000 $ 3,465,000 1,590,000 1,660,000 1,745,000 4,200,000 583,863 433,669 311,338 212,813 109,062 Total Principal and Interest $ 15,985,000 $ 1,650,745 During fiscal year 2004, the Effingham County Board of Education failed to make deposits in accordance with the Series 2001A and QZAB Series 2001B Bond covenants. Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $550,291 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. - 23 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 10: ON-BEHALF PAYMENTS Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $545,127 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 $5,164 Note 11: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. The Effingham County Board of Education entered into an agreement in February 2003, with the Georgia School Board Association (GSBA), Incorporated, for the construction and subsequent lease ofvarious school facilities. Under the terms ofthe installment sales agreement, the School District will make semi-annual payments through August 15, 2018. This sales agreement includes an annual renewal clause. The lease will be an obligation of the School District in fiscal year 2005. The School District made interest payments on the installment sales agreement during fiscal year 2004 totaling $415,295. The Effingham County Board of Education entered into construction contracts as an agent for GSBA, with Pope Construction, Ellis Wood Contracting Company, Incorporated, and Buckley and Associates, Incorporated. The significant commitments with these Unearned Contracts totaled $2,481,326 and the Funding Available from Wachovia(the bank where the funds are being held for GSBA) is $1,920,050. Note 12: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and - 24 - EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 12: RETIREMENT PLANS survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2004 2003 2002 100% 100% 100% $ 3,413,587 $ 3,318,992 $ 2,981,412 - 25 - EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE "1" GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30. 2004 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 Other Support Services Enterprise Operations Food Services Operation Capital Outlay Debt Service Total Expenditures Net Change in Fund Balances Fund Balances - Beginning NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 12,172,000 $ 13,440,862 $ 15,579,949 700,000 700,000 573,277 39,499,565 40,591,012 41,710,691 4,147,833 5,313,244 5,353,788 1,378,000 1,556,462 2,602,393 11,155 5,000 55,033 816 062 716 568 1245577 $ 58,724,615 $ 62,323,148 $ 67,120,708 $ 39,002,162 $ 40,285,622 $ 42,312,306 2,012,156 2,047,854 1,654,370 848,731 3,082,094 532,266 3,789,024 3,087,659 159,814 3,002,382 297,834 2,048,343 2,083,646 1,632,538 826,542 3,232,449 737,942 4,143,148 3,276,286 134,412 3,286,121 640,294 2,143,589 2,107,264 1,603,525 846,949 3,114,340 698,648 4,097,978 3,014,932 79,935 547,316 3,390,708 276,735 435 913 $ 59,516,346 $ 62,327,343 $ 64,670,138 $ -791,731 $ -4,195 $ 2,450,570 3,093,759 3,093,759 2,153,206 Fund Balances - Ending $ 2,302,028 $ 3,089,564 $ ===4=,6=0=3=7,=76== Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 27 - EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U.S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Armstrong Atlantic State University Teacher Quality Enhancement Grants Programs Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Even Start Improving Teacher Quality State Grants Reading Excellence - Local Reading Improvement State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U. S. Department of Education Defense, U. S. Department of Direct Department of the Air Force R.O.T.C. Program Total Federal Financial Assistance N/A = Not Available CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD . 10.553 . 10.555 N/A N/A $ $ (2) 2 977 971 2,977,971 10.550 N/A $ 200 579 3178550 . 84.027 . 84.173 N/A $ N/A $ 1,112,981 76 635 1,189,616 84.336 84.318 84.213 84.367 84.338 84.298 84.010 84.048 N/A N/A N/A NIA N/A N/A N/A N/A $ 19,927 44,914 297,229 330,418 459,882 45,078 1,232,930 86,826 3,706,820 $ 99 427 $ ===6=98=4=7=9=7 - 28 - EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2004 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 ($254,430) were not maintained separately and are included in the 2004 National School Lunch Program. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Effingham 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. - 29- EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004 SCHEDULE "3" AGENCY/FUNDING GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Education. Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle 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 4-8 Statewide After School Program K-3 Statewide Reading Program Health Insurance Mentor Teachers National Teacher Certification Preschool Handicapped Program Georgia State Financing and Investment Commission Reimbursement on Construction Projects Office of Treasury and Fiscal Services Public School Employees Retirement See notes to the basic financial statements. - 30 - GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 951.230 $ 951.230 2,179,525 690.421 4.703.414 1,571,069 2.482.928 1,110,087 5,368.536 3.827.037 1,720,511 232.364 798.921 2.188.571 774,233 184.425 508,586 97.306 397.691 56.928 795,973 255.087 169.480 903.115 1.617.196 2.431.736 1.165.555 233.502 180.468 34.383 4,536,383 227.410 255.202 -1.774.173 52.226 97.861 545.127 13.787 24.712 96.714 2,179,525 690.421 4.703.414 1,571,069 2.482,928 1.110.087 5,368,536 3,827.037 1,720,511 232.364 798.921 2.188.571 774,233 184.425 508.586 97.306 397,691 56.928 795.973 255.087 169,480 903,115 1.617,196 2,431,736 1.165.555 233.502 180,468 34,383 4,536.383 227.410 255.202 -1.774.173 52.226 97.861 545.127 13.787 24,712 96,714 $ 1.291.570 5 164 1,291,570 5 164 $ 41710691 $ 1 291 570 $ 43 002 261 EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL SALES TAXES PROJECTS YEAR ENDED JUNE 30. 2004 SCHEDULE "4" PROJECT The constructing. equipping and furnishing of a new elementary school to replace the present Springfield Central Elementary School; a new elementary school to replace the present Marlow Elementary School; new classroom wings at Guyton and Sand Hill Elementary Schools, and Ebenezer Middle School; a new gymnasium and media center at Rincon Elementary School; a new band room at South Effingham Middle School; outdoor physical education/sports facilities at middle and high schools; a new middle school to replace the present Effingham County Middle School; replacing aged roofs and heating/air conditioning units, as necessary, at all School District buildings; renovating/ relocating. furnishing and equipping Alternative School; installing air conditioning units in gymnasiums at Ebenezer. Guyton, Marlow and Sand Hill Elementary Schools and at South Effingham Middle School; installing additional playground equipment at all elementary schools; renovating the Board of Education"s Bus Shop, installing bus washing equipment. replacing maintenance vehicles and purchasing new buses; constructing an access road behind Effingham County Middle School; renovating and modifying to the Board of Education"s central offices in Springfield; purchasing new textbooks and instructional equipment. including band and vocational equipment; installing storage buildings at all schools; purchasing land for Effingham County School District operations. including future school sites; adding to. remodeling. renovating. improving, and equipping existing educational buildings, properties, and facilities of the School District. acquiring any necessary personal and real property and equipment. including computers and related technology. copiers, energy management systems, heating and air conditioning systems. lighting, fencing and paving, security and safety equipment. and similar equipment at all Effingham County District schools. including Ebenezer Elementary. Effingham County High, Effingham County Middle, Guyton Elementary. Marlow Elementary. Rincon Elementary. Sand Hill Elementary, South Effingham Elementary, South Effingham High, South Effingham Middle. and Springfield Central Elementary ORIGINAL ESTIMATED COST(1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 35,000,000 $ 40,290,597 $ 2 665 175 $ 21,274,272 Ongoing (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 project. Includes all cost from project inception to completion. (3) The voters of Effingham County approved the imposition of a 1% sales tax to fund the above project and retire associated debt. Amounts expended for this project may include sales tax proceeds. state. local property taxes and/or other funds over the life of the project. See notes to the basic financial statements. - 31 - EFFINGHAM COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2004 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category 111 Category IV Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 2,380,367 $ 810,518 5,234,535 1,763,349 2,779,066 2,324,482 $ 979,250 6,023,926 2,008,724 3,054,897 1,235,001 5,969,987 4,280,163 1,922,417 4,614,862 948,974 137,782 5,994,861 5,734,858 1,455,383 269,109 893,789 2,703,684 90,373 563,499 97,367 443,634 58,807 397,680 122,761 310,582 61,296 105,520 $ 87,780 97,469 125,568 8,137 145,755 181,336 4,895 13,457 78,532 4,427 575 9,605 13,936 1 103 2,430,002 979,250 6,111,706 2,008,724 3,152,366 948,974 263,350 6,002,998 5,880,613 1,636,719 274,004 907,246 2,782,216 94,800 575 407,285 122,761 324,518 62,399 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 32,153,572 $ 33,512,411 $ 878,095 $ 34,390,506 Media Center Program Staff and Professional Development 884,174 189 352 1,072,280 52477 526,622 114 927 1,598,902 167 404 TOTAL QBE FORMULA FUNDS $ 33,227,098 $ 34,637,168 $ 1,519,644 $ =====3=6,.,.1=56:e,8=1=2 (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. - 33 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 May 27, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Effingham County Board of Education REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ladies and Gentlemen: We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Effingham County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Effingham County Board ofEducation's basic financial statements and have issued our report thereon dated May 27, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Effingham County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Effingham County Board of Education's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6511-04-01, FS-6511-04-02, FS-6511-04-03, FS-6511-04-04 and FS-6511-04-05. 2004YB-50 A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above is a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether Effingham County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed an instance ofnoncompliance that is required to be reported under Government Auditing Standards and which is described in the accompanying Schedule of Findings and Questioned Costs as item FS6511-04-02. This report is intended solely for the information and use of the management and members of the Effingham County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:as 2004YB-50 State Auditor Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 May 27, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Effingham 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 Effingham County Board of Education with the types of compliance requirements described in the US. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2004. Effingham County Board ofEducation's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each ofits major Federal programs is the responsibility ofEffingham County Board of Education's management. Our responsibility is to express an opinion on Effingham County Board of Education's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Effingham 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 Effingham County Board ofEducation's compliance with those requirements. 2004SA-30 In our opinion, the Effingham County Board ofEducation complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2004. Internal Control Over Compliance The management of Effingham 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 Effingham 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 certain matters involving the internal control over compliance and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Effingham County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FA-6511-04-01 and FA-6511-04-02. A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above is a material weakness. This report is intended solely for the information and use of the management, members of the Effingham County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:as 2004SA-30 '-(\.~ sell W. Hinton State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS EFFINGHAM COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6511-03-01 FS-6511-03-02 FS-6511-03-03 Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-6511-03-01 Deposit preparation has now been separated from the record keeping and cash custody functions at all schools. All receipts will be documented and stored in a secure place. EMPLOYEE COMPENSATION EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-6511-03-02 The old rules have been reinterpreted requiring reclassification of some of these employees. We are in discussion with the Georgia Department of Community Health. Effingham County Board of Education will adhere to all rules as they apply to these circumstances. BUDGET PREPARATION/EXECUTION Deficit Fund Balance Finding Control Number: FS-6511-03-03 The School District will fund these Projects as required from Federal, state, local, and private sources. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-6511-03-01 Previously Reported Corrective Action Implemented SECTION IV FINDINGS AND QUESTIONED COSTS EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Effingham County Board of Education's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Effingham County Board ofEducation disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Employee Compensation Revenues/Receivables/Receipts Capital Assets Expenditures/Liabilities/Disbursements Budget Preparation/Execution General Ledger None ofthe reportable conditions described above are considered to be material weaknesses. 3. Noncompliance Material to the Financial Statements The audit of the Effingham County Board of Education disclosed one instance of noncompliance deemed material to the financial statements. This noncompliance involved the Board's failure to follow bond covenants. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Effingham County Board of Education disclosed reportable conditions in internal control over major programs for the following compliance requirements. Reporting Special Tests and Provisions None ofthe reportable conditions described above are considered to be material weaknesses. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Effingham 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) ofOMB Circular A-133 The Effingham County Board of Education's audit disclosed audit findings required to be reported by section .510(a) of 0MB Circular A-133. These audit findings are included in section IV of this report. - 1- EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Effingham County Board of Education qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6511-04-01 An examination of the internal accounting control procedures revealed that the School District did not provide for adequate separation of duties in the performance of the following accounting functions and related procedures: Central Office Accounts Cash and Cash Equivalents Two bank accounts were not properly reconciled to the general ledger. Deposits were not made in a timely manner. Principal Accounts Cash and Cash Equivalents One bank account was not properly reconciled to the school's accounting records. Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions. Receipt documentation was not maintained for the principal account tested. Based on a review of ten items, nine receipts could not be traced to deposit slips. -2- EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6511-04-01 Expenditures/Liabilities/Disbursements The check writing function was not separated from the record keeping functions. Based on a review of twenty items, the following deficiencies were noted: 1. One voucher lacked a purchase order. 2. One approved purchase order was never used or voided. 3. Three approved purchase orders were blank and incomplete. These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible for accounting functions and their failure to ensure established controls were functioning as designed. The School District should review the accounting procedures in place, design procedures which would enhance segregation of duties relative to the above control categories, and implement those procedures to strengthen the internal control over accounting functions. CASH AND CASH EQUIVALENTS GENERAL LEDGER Violation of Bond Covenant Reportable Condition Material Noncompliance Finding Control Number: FS-6511-04-02 During the year under review, the School District failed to deposit sales tax receipts in accordance with Article V of the Series 2001 Bond Covenant. The following deficiencies were noted: Sales tax receipts were deposited into the wrong bank account. $250,123 of the required $500,000 deposit was not transferred into the specified Qualified Zone Academy Bonds (QZAB) bank account by December 1, 2003, as required. Interest earned on the specified bank accounts was recorded in the Capital Projects Fund rather than the Debt Service Fund, as required. These deficiencies were a result ofmanagement's failure to implement appropriate internal controls to ensure compliance with Bond Covenants. The School District should establish procedures to ensure sales tax receipts and related interest are deposited and recorded in accordance with applicable Bond Covenants. -3- EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6511-04-03 During the fiscal year ended June 30, 2004, the School District classified 39 employees as eligible for the Health Insurance Plan for Public School Employees (See OCGA, Title 20, Chapter 2, Article 17, Part 6, Sub Part 2). However, these individuals may be eligible for membership in the Health Insurance Plan for Public School Teachers (See OCGA Title 20, Chapter 2, Article 17, Part 6, Sub Part 1). According to the Department ofCommunity Health (DCH), School District employees who are to be included as members of the Health Insurance Plan for Public School Teachers (PST) are either: 1. Employed in a professionally certificated position; employee holds a valid certification; employee is assigned to a position that requires a certification as a qualification; employee's compensation is determined, at least in part, based upon the certificate; and employee is a member of the Teachers Retirement System or other public school retirement system. Or: 2. Employed in a professionally certificated capacity; employee holds a valid certification; employee is not assigned to a position that requires a certification as a qualification; employee's compensation is determined, at least in part, based upon the certificate; and employee is a member ofthe Teachers Retirement System or other public school retirement system. With respect to membership in the Health Insurance Plan for Public School Employees (PSE) Georgia Laws OCGA 20-2-910 and 47-4-2 (20) provide that the definition of public school employee, for the purpose ofmembership in the Health Insurance Plan for Public School Employees, means classroom aides, paraprofessionals, noncertified administrative and clerical employees, school bus drivers, school lunchroom personnel, school maintenance personnel and school custodial personnel. Generally, in order to determine which School District employees are eligible for the PSE or for the PST insurance plans, a comparison should be made ofthe employee's position and DCH's criteria listed above. Ifthe employee meets either test, then the employee is eligible for the Health Insurance Plan for Public School Teachers. If the employee fails both of the above tests, the employee is eligible for the Health Insurance Plan for Public School Employees. From information provided by the School District, 39 employees are eligible for membership in the PSE plan under DCH's criteria. -4- EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6511-04-03 The School District should establish policies and procedures to ensure that employer contributions for employee health insurance are paid in accordance with State Laws. In addition, the School District should contact the Georgia Department of Community Health to determine whether the employees who were moved from the PST plan were moved in error. If employees were moved in error, the affected employees should be returned to the PST plan and the School District should make payment to DCH for those employees. CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6511-04-04 A review of the School District's Capital Assets policies and procedures and the related Capital Assets records noted deficiencies as discussed below: The School District did not update Capital Assets records for activity occurring during fiscal year 2004 until May 2005. The Capital Assets records contained numerous calculation errors. During a review of current year additions, the following deficiencies were noted: - One item was added twice. - One item was not added to the listing and did not have an identification tag. - Eighteen items were added in error. During a review of current year deletions, the following deficiencies were noted: - The listing of deletions was incomplete and inaccurate. - Revenue from the sale of items was not properly documented. - One item disposed ofduring the year under review was not removed form the Capital Assets records. - Four items were removed from the Capital Assets records but no disposal information was available. - Two items were noted as being sold at an auction; however, the revenue from the sale could not be traced to the general ledger. Depreciation Expense and Accumulated Depreciation were not calculated in accordance with the School District's policy. -5- EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6511-04-04 The Capital Asset Records presented for audit failed to present depreciation expense by function. The Capital Assets Listing was incomplete and failed to meet proper management standards set forth in Chapter 41 ofthe Financial Management for Georgia Local Units of Administration (FMGLUA). These deficiencies were a result ofmanagement's failure to establish adequate controls related to the Capital Assets. The School District should reassess internal control procedures for Capital Assets to ensure that Capital Assets records are updated timely, reflect actual purchases, reflect actual deletions, include depreciation expense calculated in accordance with the School District's policy and contain all required information. An administrative review should be performed to ensure the accuracy of inventory records and amounts recorded in the general ledger at the close ofeach fiscal year. BUDGET PREPARATION/EXECUTION Deficit Fund Balance Reportable Condition Finding Control Number: FS-6511-04-05 At June 30, 2004, the Capital Projects Fund ofthe Effingham County Board ofEducation reported a deficit fund balance in the amount of $4,109,599, which is considered to be an irregularity in accordance with O.C.G.A. 20-2-67. This condition occurred because management approved expenditures in excess of funds available in the Capital Projects Fund. The School District should establish appropriate policies and procedures designed to ensure that in future periods, the School District does not report a deficit. -6- EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS REPORTING Errors on Reimbursement Claim Forms U.S. Department of Agriculture Through Georgia Department of Education Reportable Condition Finding Control Number: FA-6511-04-01 A review ofthe School District's reporting procedures for the Child Nutrition Cluster (CFDA 10.553 and 10.555) revealed that the School District failed to adequately complete the reimbursement claim forms submitted to the Georgia Department ofEducation. The School District incorrectly completed the DE-0112 and DE-0118 claim forms, causing the amount of reimbursement to be in error. Additionally, management did not properly review the forms for accuracy before submission. This condition was a result of management's failure to implement appropriate internal controls to ensure that the reimbursement claims are accurate. The School District should implement procedures to ensure that the DE-0112 and DE-0118 claim forms are reviewed for accuracy and submitted in accordance with reporting requirements. Georgia Department of Education should review this matter to determine if a reclaim of funds is necessary. SPECIAL TESTS AND PROVISIONS Failure to Verify Required Number of Applications U.S. Department of Agriculture Through Georgia Department of Education Reportable Condition Finding Control Number: FA-6511-04-02 A review of the School District's verification procedures for the Child Nutrition Cluster (CFDA 10.553 and 10.555) revealed that the School District failed to adequately perform the verification process. This condition was a result of management's failure to implement appropriate internal controls to ensure that 3% of free and reduced-price meal applications are properly verified. Procedures should be implemented to ensure that the verification of free and reduced-price meal applications is performed in accordance with eligibility requirements. The Georgia Department ofEducation should evaluate the School District's compliance with program requirements and determine amounts to be reclaimed, if any. -7- SECTIONV MANAGEMENT'S RESPONSES EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FS-6511-04-01 The Finance Department has begun implementing procedures to ensure all reconciliations are performed timely. The separation of duties has been addressed at the schools with the realignment of duties. This has been implemented as a result of the 2003 audit, but due to the late performance of the 2003 audit the same problem occurred in 2004. Finding Control Number: FS-6511-04-02 Additional review has been implemented to ensure receipts are deposited into the correct account. Funding of Debt Service for QZAB has been met on timely basis by depositing SPLOST receipts to the debt service account monthly. Also, the recording of interest earned has been changed to the Debt Service Fund. This has been implemented as a result of the 2003 audit, but due to the late performance of the 2003 audit the same problem occurred in 2004. Finding Control Number: FS-6511-04-03 We do not concur with this finding. This issue is the same as in 2003. The classification of the 43 employees was based on documentation from the Department of Community Health that clearly states certified employees not in a certified position should not be included in the certified employees plan. Finding Control Number: FS-6511-04-04 Management has begun the capital asset documentation in a more timely manner. The documentation of physical inventory, the timely recording of assets and the documentation of purchased or disposed of assets will ensure accurate record keeping. Finding Control Number: FS-6511-04-05 The Board of Education decided to proceed with much-needed capital outlay projects before the receipts of all the Special Purpose Local Option Sales Tax revenue had been received. We realized that proceeding with the projects before the receipt of SPLOST caused us to temporarily borrow from the general fund and put the Capital Projects in a deficit position. This situation will be corrected as SPLOST receipts are received. Finding Control Number: FA-6511-04-01 School Food Services has implemented additional training for staff, which will emphasize proper reporting procedures. - 1- EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FA-6511-04-02 School Food Services has implemented additional training for staff, which will emphasize the proper number of application to verify. Contact Person: Ron Wilson, Director of Finance Phone: (912) 754-5885 Fax Number: (912) 754-3489 E-mail Address: r1wilson@effingham.kl2.ga.us -2-