Effingham County Board of Education, Springfield, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2006

EFFINGHAM COUNTY BOARD OF EDUCATION
SPRINGFIELD, 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

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

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

5

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

6

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

7

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

9

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

10

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERALFUND

27

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

28

3 SCHEDULE OF STATE REVENUE

29

EFFINGHAM COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

30

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

31

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
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
April 21, 2007

Honorable Sonny Perdue, Governor Members ofthe 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) of the Effingham County Board ofEducation, as ofand 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 of the Effingham County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm1ons.
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 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

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 April 21, 2007, 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 considered in assessing 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 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 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 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,

RWH:gp 2006ARL-11

Ru ell W. Hinton, CPA, CGFM State Auditor

EFFINGHAM COUNTY BOARD OF EDUCATION

EFFINGHAM 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 Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries 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
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

$

8,940,861

5,692,817

2,282,524 5,643,391 1,003,715
65,101 47,518

3,248,707 10,144,536 9,999,000 82,391,875 9,574,484 -34,870,895

$ ===10=4=,1=6=3,.,,.6=34=

$

2,798,263

8,795,275

10,313

2,124,798 16,065,325

$

29,793,974

$

63,180,575

47,518 3,176,134 7,965,433

$

74.369,660

$ ===10=4=,1=6=3,.,,.6=34=

EFFINGHAM 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 Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Intangible Recording Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Total General Revenues
Changes in Net Assets
Net Assets - Beginning of Year

EXPENSES

CHARGES FOR SERVICES

$

53,311,547 $

2,264,659 1,714,939 1,796,054 1,250,743 4,061,716
842,007 4,479,002 3,824,970
32,448

646,733 4,559,793
820,930

$====7=9=,6=0=5,=54=1= $

1,170,134
20,983 643,706 1,729,405 3,564,228

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

$

36,949,507 $

584,148 389,993 907,185 1,267,941 1,847,610

2,661,430 1,248,608
32,448

2,077,366

$

47,966,236 $

1,955,780 $
76,225 84,348 115,329 33,112 224,241
198,872
2,687,907 $

-13,236, 126
-1,680,511 -1,324,946
-812,644 17,198
-2,129,758 -726,678
-1,763,477 -2,352,121
0
-3,027 -554,150 -820,930
-25,387, 170

$

19,115,342

1,473,445

35,588

8,780,236 821,366
7,902,768 733,758 572 714

$

39,435,217

$

14,048,047

60,321,613

$ ======74=,3=6=9=,6=6.0...

-3-

EFFINGHAM COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2006

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Due From Other Funds Inventories
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Cash Overdraft Accounts Payable Salaries Payable Due To Other Funds Deposits and Deferred Revenue
Total Liabilities
FUND BALANCES
Reserved for: Debt Service Inventories Capital Projects
Unreserved Undesignated Reported in: General Fund Capital Projects
Total Fund Balances
Total Liabilities and Fund Balances

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 13,826,342 $
1,402,025 5,643,391 1,003,715
38,691 313,094 47 518

$ 3,101,037 1,410,686
26,410

525,985 $ 14,352,327

2,591,780

5,692,817

69,923

2,882,634 5,643,391 1,003,715
65,101 313,094 47 518

$ 22,274,776 $ 4,538,133 $ 3,187,688 $ 30,000,597

$ $ 1,956,455
8,795,275
10 313
$ 10,762,043 $

5,411,466 841,808 313,094
6,566,368

$ 5,411,466 2,798,263 8,795,275 313,094 10 313
$ 17,328,411

$ 3,187,688 $ 3,187,688

$

47,518

47,518

$

970,028

970,028

11,465,215

-2,998,263

$ 11,512,733 $ -2,028,235 $

11,465,215 -2,998,263
3,187,688 $ 12,672,186

$ 22,274,776 $ 4,538,133 $ 3,187,688 $ 30,000,597

The notes to the basic financial statements are an integral part of this statement. -4 -

EFFINGHAM 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 Capital Leases
Total Long-Term Liabilities

$ 12,672,186

$

3,248,707

10,144,536

9,999,000

82,391,875

9,574,484

-34,870,895

80,487,707

-600,110

$ -9,195,000 -8,995,123

-18,190,123

Net Assets of Governmental Activities (Exhibit "A")

$ 74,369,660

The notes to the basic financial statements are an integral part of this statement. -5-

EFFINGHAM COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006

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
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
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 18,814,145 756,483 $
50,643,029 5,450,216 3,564,228 300,870 547 914

$ 8,780,236 2,463,666
311,354 25,000

$ 80,076,885 $ 11,580,256 $

1,509,573 $ 64,883
121,534

20,323,718 9,601,602 53,106,695 5,450,216 3,564,228 733,758 572 914

1,695,990 $ 93,353,131

$ 50,490,198 $

194,836

$ 50,685,034

2,277,587 1,714,939 1,683,612 1,250,743 3,923,717
643,972 4,456,261 3,787,511
32,448 646,733 4,239,474 621,449

257 $ 100,000
11,344,677

9,091

2,277,587 1,714,939 1,683,612 1,250,743 3,923,717
653,320 4,456,261 3,887,511
32,448 646,733 4,239,474 11,966,126

513,304 387,261

3,465,000 433,669

3,978,304 820,930

$ 76,669,209 $ 11,639,770 $ 3,907,760 $ 92,216,739

$ 3,407,676 $

-59 514 $ -2,211,770 $ 1,136,392

$

22,623

$ 1,040,202 $ 1,062,825

$ -1,040,202

-22,623

-1,062,825

$

22,623 $ -1,040,202 $ 1,017,579 $

0

$ 3,430,299 $ -1,099,716 $ -1,194, 191 $ 1,136,392

8,082,434

-928,519

4,381,879

11,535,794

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 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.
In the Statement of Activities, only the gain on the sale of the land is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the cost of the land sold.
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
Change in Net Assets of Governmental Activities (Exhibit "B")

$ 1,136,392

$ 11,633,063 -3,000,169

8,632,894 300,657

-200

$ 3,465,000 513,304

3,978,304

$ 14,048,047

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

(This page left intentionally blank)

EFFINGHAM 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=5=0,=7.6..1. =
$ ==3=5.,.0,=76=1=

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

EFFINGHAM 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 Effingham County Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists ofall 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 st~tements, 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 ofActivities 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.

- 10 -

EFFINGHAM 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), Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation ofmajor capital facilitie~.
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 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
- 11 -

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral 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 ofthe United States government,
(5) Prime banker's acceptances,

- 12 -

EFFINGHAM 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 Effingham County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on June 27, 2005 (levy date). Taxes were due on November 15, 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 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, 2006, for maintenance and operations amounted to $18,778,557 and for school bonds amounted to $1,509,573.

Tax millage rates levied for the 2005 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

15.570 mills 1.178 mills

16.748 mills

- 13 -

EFFINGHAM 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 $8,780,236 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

INVENTORIES

FOOD INVENTORIES On the basic financial statements, inventories ofdonated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.

CAPITAL ASSETS

Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art.

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

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.

- 14 -

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL OBLIGATION BONDS

The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement ofNet Assets.

DEFICIT FUND BALANCES

Funds and individual nonmajor funds reporting deficit fund balances at June 30, 2006, are as follows:

Fund Type/Fund Name

Deficit Balances

Governmental Funds District-wide Capital Projects Fund General Fund School Food Services Fund

$ 2,998,263

$

43,624

The Effingham County Board of Education plans to transfer funds from the General Fund and use Special Purpose Local Option Sales Tax to liquidate the District-wide Capital Projects Fund deficit. The Effingham County Board ofEducation plans to alleviate the School Food Service Fund deficit through an increase in meal prices and a reduction in spending.

Note 3: DEPOSITS AND INVESTMENTS

COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance.

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,

- 15 -

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS

(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,

(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities ofthe 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 ofthe 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 $11,256,735. 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.
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
1 2 3 4
Total

Bank Balance
$ 2,009,105 9,208,387 39,243 0
$ 11,256,735

- 16 -

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS
CATEGORIZATION OF INVESTMENTS Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a 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 of an outside party. The School District does not have a formal policy for managing custodial credit risk.
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 ofthe School District's total investments was $5,692,817 which is materially the same as fair value. These investments included funds in the amount of$3,101,037 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 District did not own any specific identifiable securities in the pool. The investment policy of the 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 of the Primary Liquidity Portfolio is as follows:
The Primary Liquidity Portfolio consists ofGeorgia Fund 1, which is a combination local and state government investment pool. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 ofthe Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund.
Investments in Georgia Fund 1 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.

- 17 -

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS

The investments are classified as to custodial credit risk categories as follows:

Type of Investment

Risk Categories

2

3

Carrying Amount

Federal Home Loan Mortgage Corporation Discount Notes DTD $,===:!!: $ 2 520 016 $.===="'o $ 2 520 016

Fair Value
$ 2 601 osJ

Interest Rate Risk Interest rate risk is the risk that changes in interest rates ofdebt investment will adversely affect the fair value ofan investment. The School District does not have a formal policy for managing interest rate risk.

Investments are classified as to investment maturity as follows:

Investment Type

Investment Maturity Less Than 1 Year

Debt Securities Federal Home Loan Mortgage Corporation Discount Notes DTD

$ 2,601,083

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.

The Federal Home Loan Mortgage Corporation, Discount Notes DTD have a credit quality rating of AAA by Moody's and Standard and Poor's.

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:

- 18 -

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT"H"

Note 5: CAPITAL ASSETS

Balances July 1. 2005

Increases

Balances Decreases June 30, 2006

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

$ 2,524,549 $ 724,358 $

540,605

9,603,931

$ 3,065.154 $ 10,328,289 $

200 $ 3,248,707 10,144.536
200 $ 13,393.243

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 81,984,155 $ 8,853,944 9,939,000

407,720 837,054 $
60,000

$ 82,391,875

116,514

9,574,484

9,999,000

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

18,396,611 5,709,830 7,880,799

2,008,076 633,693 358,400

Total Capital Assets, Being Depreciated, Net $ 68,789,859 $ -1.695.395 $

Governmental Activity Capital Assets - Net $ 71,855,013 $ 8,632,82~ $

116,514

20,404,687 6,227,009 8,239.199

0 $ 67.094,464

200 $ 80,4811:Z0:Z

Capital assets being acquired under capital leases as of June 30, 2006, are as follows:

Governmental Funds

Buildings and Improvements Land Less: Accumulated Depreciation

$ 9,728,972 275,000 364,836

$ 9,639.136

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

$ 1,992,609

$

92,824

102,716

140,444

40,323

389,074

765,381 242,179

$ 3,000,169

- 19 -

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds and Qualified Zone Academy Bonds (QZAB) escrow account, 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, 2006, were as follows:

District-wide Capital Projects Bond Proceeds

Debt Service Funds

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

$

525,985

$

970,028

$ 2,591,780

Note 7: INTERFUND ASSETS AND LIABILITIES

Due to and due from other funds are recorded for interfund receivables and payables which arise from interfund transactions. Interfund balances at June 30, 2006, consisted of the following:

Due From Other Funds

Due To Other Funds

General Fund District-wide Capital Projects

$ 313,094 $ 313.094

$ 3131Q24 $ 313,Q24

This represents an amount due to reimburse the General Fund for Capital Project expenditures.

Note 8: INTERFUND TRANSFERS

Interfund transfers for the year ended June 30, 2006, consisted ofthe following:

- 20-

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT"H"

Note 8: INTERFUND TRANSFERS

Transfer to

Transfers From

District-wide

Capital

Debt Service

Projects

Fund

General Fund Debt Service Fund

$ $ 1,040.202

22,623

Total

$ 1,040,202 $

22,623

Transfers are used to move funds from the Debt Service Fund to the General Fund as reimbursement for a prior year Debt Service expenditure and to move Special Purpose Local Option Sales Tax revenue from the District-wide Capital Projects Fund to the Debt Service Fund to retire bond debt.

Note 9: 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 ofthat loss can be reasonably estimated.

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

Beginning ofYear Liability

Claims and Changes in Estimates

Claims Paid

End of Year Liability

2005

$

0 $

0 $

0 $

0

2006

$

0 $

106 $

106 $

0

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

- 21 -

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT"H"

Note 9: RISK MANAGEMENT

Position Covered

Amount

Superintendent Each Employee

$ 100,000 $ 150,000

Note 10: SHORT-TERM DEBT

The School District issues tax anticipation notes in advance ofproperty 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 ofGeorgia limits the aggregate amount ofshort-term debt to 75 percent ofthe total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 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

$======0 $ 8,000.000 $ 8,000.000 $=====0

Note 11: LONG-TERM DEBT

CAPITAL LEASES The Effingham County Board of Education entered into an agreement in February 2003, with the Georgia School Board Association for the construction and subsequent lease of various school facilities. Under the terms ofthe agreement, the School District will make annual payments through August 15, 2018. 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 2001A General Government- QZAB - Series 2001B

4.20% - 6.25% 3.25% - 4.00%
0.00%

$ 4,975,000 20,000
4,200,000

$ 9,195.000

- 22 -

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 11: LONG-TERM DEBT

Voters have authorized $15,000,000 in general obligation debt for advance funding of the 2006, Special Purpose Local Option Sales Tax Capital Outlay Projects. This debt was not issued as of June 30, 2006.

The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows:

Governmental Funds

General

Capital

Obligation

Leases

Bonds

Total

Balance July 1, 2005

$ 9,508,427 $ 12,660,000 $ 22,168,427

Deductions Debt Retired
Balance June 30, 2006

513,304

3,465.000

3,978.304

$ 8,995,123 $ 9,195,000 $ 18,190,123

Portion of Long-Term Debt Due within One Year

$ 534,798 $ 1,590,000 $ 2,124.798

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

Capital Leases

Principal

Interest

2007 2008 2009 2010 2011 2012 - 2016 2017 - 2021

$ 534,798 $ 557,192 579,617 604,794 630,119
3,568,475 2,520,128

365,369 342,503 319,604 293,896 268,036 913,482 161,042

Total Principal and Interest

$ 8,995,123 $ 2,663,932

- 23 -

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 11: LONG-TERM DEBT

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

2007 2008 2009 2016 - 2019

$ 1,590,000 $ 1,660,000 1,745,000 4,200,000

311,338 212,813 109,062

Total Principal and Interest

$ 9,195.000 $ 633.213

Note 12: 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

06-651-018 Rincon Elementary School 06-651-020 and 060-651-010 Central Learning Center Central Office

$

1,480 $

43,402

3,332,188

121,921

72,691

381,655 279,369

$ 3,571.682 $===6=61-,0=2==4

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

Note 13: SIGNIFICANT CONTINGENT LIABILITIES

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

- 24-

EFFINGHAM COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 14: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)

TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System ofGeorgia (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 ofTrustees 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%

$ 3,979,176 $ 3,578,723 $ 3,413,587

- 25 -

(This page left intentionally blank)

EFFINGHAM 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 Other Support Services Enterprise Operations Food Services Operation
Capital Outlay Debt Service
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES
Other Sources
Net Change in Fund Balances
Fund Balances - Beginning
Adjustments

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

14,500,000 $

16,500,000 $

18,814,145

700,000

700,000

756,483

42,868,409

47,301,698

50,643,029

5,588,161

5,837,088

5,450,216

1,580,092

1,672,800

3,564,228

7,500

11,000

300,870

708,075

758 040

547 914

$

65,952.237 $

72,780.626 $

80,076,885

$

42,648,038 $

47,296,689 $

50,490,198

2,235,818 1,973,955 1,722,656
887,920 3,297,176
743,845 4,161,872 3,385,720
15,850
3,488,245 1,161,079

2,112,007 1,960,698 1,689,044 1,063,966 4,640,527
556,164 4,593,581 3,781,277
22,646
3,855,470 314,300 900,622

2,277,587 1,714,939 1,683,612 1,250,743 3,923,717
643,972 4,456,261 3,787,511
32,448 646,733 4,239,474 621,449 900,565

$

65,722,174 $

72,786,991 $

76,669,209

$

230,063 $

-6,365 $

3,407,676

22,623

$

230,063 $

-6,365 $

3,430,299

7,862,795

7,862,795

8,082,434

-94,222

-94,222

Fund Balances - Ending

$

7,998,636 $

7,762,208 $===11="',5=1=2=,7=3=3

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, 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 Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Even Start Hurricane Education Recovery Improving Teacher Quality State Grants 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 Department of the Navy R.O.T.C. Program
Total U. S. Department of Defense

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 10.555
10.550

N/A

(2)

N/A $ _ _ _4....,._13__1_-'-',6_0_9

$

4,131,609

N/A

113,374

$ _ _ _4-"'"'-24-'-'4-'-',9...;.8.c..3

* 84.027 * 84.173
84.318 84.213 84.938 * 84.367 84.298 * 84.010 84.048

NIA $ N/A
$

1,348,394 86,027
1,434,421

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

30,168 285,113 (3) 329,283 23,944 1,234,407 95,597
3,432,933

$

42,237

75,669

$ _ _ _ _1_1_7~,9_06_

Total Federal Financial Assistance NIA = Not Available

$ =====7,.,.79=5=,8==2=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 {$363,531) were not maintained separately and are included in the 2006 National School Lunch Program.
(3) Funds earned on the Hurricane Education Recovery program, in the amount of $54,055, 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 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.

- 28-

EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Bright from the Start: Georgia Department of Early Care and Leaming 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 Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs K-8 Reading and Math Program National Teacher Certification Preschool Handicapped Program Unpaid Sales Tax (1) Virtual Schools Grant
Georgia State Financing and Investment Commission Reimbursement on Construction Projects

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$ 1,755,012

$ 1,755,012

1,871,255 1,049,888 5,996,851 1,245,501 2,812,858
727,853 5,792,581 4,739,054 2,014,796
285,269 835,166 2,586,730 1,017,396 1,106,422 1,034,923
93,245 457,068
64,926 906,560 290,957 193,161
1,066,715 1,801,314 2,655,263
1,245,050 224,241 187,562 34,328 18,183
7,620,266 232,044 159,432
-1,949,507
140,763 59,926 104,352 165,000
625

1,871,255 1,049,888 5,996,851 1,245,501 2,812,858
727,853 5,792,581 4,739,054 2,014,796
285,269 835,166 2,586,730 1,017,396 1,106,422 1,034,923
93,245 457,068
64,926 906,560 290,957 193,161
1,066,715 1,801,314 2,655,263
1,245,050 224,241 187,562 34,328 18,183
7,620,266 232,044 159,432
-1,949,507
140,763 59,926 104,352 165,000 625

- - - - - $_~2~,4~63~,6~6~6-

2,463,666

$ 50,643,029 $ 2.463,666 $ 53,106,695 (1) The purpose of the funds are to reimburse local school systems for taxes charged on the purchase of materials for infrastructure.

See notes to the basic financial statements.

- 29-

EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2006

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(1l

CURRENT ESTIMATED COSTS(2)

AMOUNT EXPENDED IN CURRENT
YEAR (3)

AMOUNT EXPENDED IN PRIOR YEARS (3)

PROJECT STATUS

$ 35,000,000 $ 40,290,597 $ 11,677.976 $ 27,010,202 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.

- 30-

EFFINGHAM 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 Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL)
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

$

2,146,427 $ 1,666,915 $

59,472 $

1,726,387

1,124,728

1,929,455

1,929,455

6,606,300

7,224,381

157,653

7,382,034

1,366,570

2,726,154

2,726,154

3,131,068

3,215,069

124,451

3,339,520

817,527
6,418,953 5,207,067 2,216,643 6,325,294
1,088,999 102,460 504,654 69640

1,300,423 131,223
7,300,267 6,442,745 1,643,423
108,900 1,210,977 3,945,649
58,396
712,521 99,937
286,903 76 751

302,163 3,695
354,637 191,985
8,510 40,303 69,472 17,775 12,774 15,563
1,082 32,601
1 328

1,300,423 433,386
7,303,962 6,797,382 1,835,408
117,410 1,251,280 4,015,121
76,171 12,774 728,084 101,019 319,504 78079

$

37,126,330 $ 40,080,089 $

1,393,464 $

41,473,553

1,001,698 215 831

1,146,947 89 341

536,040 92 011

1,682,987 181,352

TOTAL QBE FORMULA FUNDS

$

38,343,859 $ 41,316,377 $

2,021,515 $

43,337,892

(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.

- 31 -

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 21, 2007

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members ofthe 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, 2006, which collectively comprise Effingham County Board of Education's basic financial statements and have issued our report thereon dated April 21, 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 Effingham County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose ofexpressing our opinions 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 our judgment, could adversely affect Effingham County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule of Findings and Questioned Costs as items FS-6511-06-01 and FS-6511-06-04.
2006YB-30

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 are material weaknesses.
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 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 Effingham County Board of Education and is not intended to be and should not be used by anyone other than these specified parties.
..zj Respectfully submitted,
-:.:?,. ...oo w.
~):sell W~ton, CPA, CGFM
State Auditor
RWH:gp 2006YB-30

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

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
April 21, 2007

Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education
and Superintendent and Members ofthe 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 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. 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 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 ofStates, 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 Effingham County Board ofEducation's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Effingham County Board ofEducation's compliance with those requirements.
2006SA-10

In our opinion, the Effingham 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 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 ofexpressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses.
This report is intended solely for the information and use of the management, members of the 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,
~~ID~~ State Auditor
RWH:gp 2006SA-10

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, 2006

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-6511-03-02 FS-6511-04-01 FS-6511-04-02 FS-6511-04-03 FS-6511-04-04 FS-6511-04-05 FS-6511-05-01 FS-6511-05-02 FS-6511-05-03 FS-6511-05-04 FS-6511-05-05

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

CORRECTIVE ACTION/RESPONSES

EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION Inadequate Internal Control Procedures Finding Control Number: FS-6511-04-03

The old rules have been reinterpreted requiring reclassification of some of these employees. We are in discussion with the Georgia Department of Community Health; however, no resolution has been determined with the Georgia Department ofCommunity Health. Effingham County Board of Education has corrected the classification of these employees in fiscal year 2005, and will continue to adhere to these rules as they apply to these circumstances.

CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-6511-05-01

Administration has begun reconciling the Debt Service cash account in accordance with the Management's Response from the 2005 Audit Report. Administration ofSchool Food Service has implemented review of invoices by the Director. The approval process is continuing to evolve as staff work out the routine procedures, the details of which primarily have been corrected and include the School Food Director having approval over the disbursements prior to mailing.

- 1-

EFFINGHAM 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 CORRECTIVE ACTION/RESPONSES REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-6511-05-03 The various schools have made adjustments to reorganize the duties. This process is on going training due to the tum over in staff in the schools offices as well as new teacher training. The new software has been installed and is functioning in all schools. Training will be reviewed and updated allowing new and established personnel refresher training. BUDGET PREPARATION/EXECUTION Deficit Fund Balance Finding Control Number: FS-6511-05-04 The 2001 Special Purpose Local Option Sales Tax projects are almost complete. The SPLOST revenue has continued to remain above projected amounts, which will increase Fund Balance to a positive position, as fiscal year 2007 closes. The deficit in the Capital Projects Fund will be corrected with future Special Purpose Local Option Sales Tax receipts and if required transfers from the General Fund.
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.
-2 -

SECTION IV FINDINGS AND QUESTIONED COSTS

EFFINGHAM 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 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.

Revenues/Receivables/Receipts

Budget Preparation/Execution

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 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 Effingham County Board ofEducation did not disclose a reportable condition in internal control over major programs.

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

6. Audit Findings Reguired to be Reported by Section .510(a) ofOMB Circular A-133 The Effingham County Board ofEducation's audit did not disclose an audit finding required to be reported by section .510(a) ofOMB Circular A-133; however, we noted a reportable condition in a nonmajor program which is included in section IV of this 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

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

- 1-

EFFINGHAM 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 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

REVENUES/RECEIVABLES/RECEIPTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-6511-06-01

Condition:

This is a repeat finding (FS-6511-05-03 and FS-6511-04-01) from the years ended June 30, 2005, and 2004, respectively. The accounting procedures of the School District were insufficient to provide for adequate internal controls over the school activity accounts.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures.

Questioned Cost: NIA

Information:

Revenues/Receivables/Receipts Based on a review oftwenty-five items, four receipts lacked adequate supporting documentation.

Cause:

These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the school level.

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

Management should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures.

EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Obtain Performance Audits of SPLOST Projects Nonmaterial Noncompliance Finding Control Number: FS-6511-06-02

Condition:

The School District did not comply with provisions ofO.C.G.A. 20-2-491.

-2 -

EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Obtain Performance Audits of SPLOST Projects Nonmaterial Noncompliance Finding Control Number: FS-6511-06-02

Criteria:

O.C.G.A. 20-2-491 states in part: "When a sales tax for educational purposes is imposed for capital outlay projects as provided in Part 2 of Article 3 of Chapter 8 of Title 48 and such tax generates or is reasonably anticipated to generate annualized proceeds of $5 million per year or more, the expenditure oftax proceeds shall be subject to an ongoing performance audit or performance review... "

Questioned Cost: NIA

Information:

The School District received in excess of $5 million of SPLOST proceeds during the 2005 fiscal year and in excess of$8 million during the 2006 fiscal year. The School District did not contract for a performance audit or review.

Cause:

Management failed to contract with an outside auditor, consultant, or other provider for such performance audit or review.

Effect:

The failure ofthe School District to have a performance review or audit leads to incomplete external reporting as required by O.C.G.A. 20-2-491.

Recommendation: The School District should implement procedures to ensure that provisions of O.C.G.A. 20-2-491 are adhered to.

GENERAL LEDGER Excessive Fund Balance Nonmaterial Noncompliance Finding Control Number: FS-6511-06-03

Condition:

The School District did not comply with provisions of O.C.G.A. 20-2-167 as defined by Chapter 32 of the Financial Management for Georgia Local Units of Administration (FMGLUA). "The purpose of this paragraph is to prohibit local school systems from accumulating surplus funds through taxation without accounting to the taxpayers for how such funds will be expended, and this paragraph shall be liberally construed to accomplish this purpose." The School District's General Fund had an excessive unreserved, undesignated fund balance at fiscal year end.

-3-

EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Excessive Fund Balance Nonmaterial Noncompliance Finding Control Number: FS-6511-06-03

Criteria:

O.C.G.A. 20-2-167 states in part: "The budget ofeach local school system shall designate all of such anticipated revenues among the several funds or accounts of the system and shall not leave any anticipated revenues undesignated. Except as otherwise provided in this paragraph, all amounts allocated to each fund or account and any existing balance in each fund or account shall be intended for expenditure within the budget year for the purposes of that fund or account. There shall be no fund or account in the nature of a 'surplus' or 'unobligated surplus' fund or account. Each local school system may, however, establish a single reserve fund or reserve account intended to cover unanticipated deficiencies in revenue or unanticipated expenditures, provided that the budget for any year shall not allocate to such reserve fund or reserve account any amounts which, when combined with the existing balance in such fund or account, exceed 15 percent of that years total budget".

Chapter 32 Preparing Operating Budgets of the Financial Management for Georgia Local Units of Administration (FMGLUA) states_in part: "The O.C.G.A. 20-2-167 limits this part of fund balance to 15% of the total budget. What this statute really means is that the general fund balance, after deducting all other reserves, may not exceed 15% ofthe next year's budgeted general fund expenditures".

Questioned Cost: NIA

Information:

The School District's General Fund reported an unreserved, undesignated fund balance at fiscal year end that exceeded 15 percent of the 2007 fiscal year budgeted general fund expenditures.

Cause:

The School District neglected the specific limitations imposed upon the School District by the Georgia Department of Education.

Effect:

Nonmaterial noncompliance with respect to Chapter 32 of the FMGLUA.

Recommendation:

The School District should establish policies and procedures designed to ensure that in future periods the School District complies with the provisions ofO.C.G.A. 20-2-167 as defined by Chapter 32 of the FMGLUA.

-4-

EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

BUDGET PREPARATION/EXECUTION Deficit Fund Balance Reportable Condition Finding Control Number: FS-6511-06-04

Condition:

This is a repeat finding (FS-6511-05-04 and FS-6511-04-05) from the years ended June 30, 2005, and 2004, respectively. Deficit Fund Balances.

Criteria:

Chapter 25 Reportingfor LUA 's with General Fund Deficit Balances ofthe Financial Management for Georgia Local Units of Administration states in part: "The seriousness of fund balance deficits cannot be overstated. The Georgia Department ofEducation requires those LUA's with deficit balances to meet certain reporting requirements".

Questioned Cost: NIA

Information:

The School District's Capital Projects Fund reported a deficit fund balance in the amount of$2,998,263. The School District's School Food Service Fund, which is included in the General Fund, reported a deficit fund balance in the amount of $43,624.

Cause:

The School District had a deficit beginning fund balance and incurred expenditures in excess of revenues during the year under review in the Capital Projects Fund. The School District incurred expenditures in excess ofrevenues during the year under review for the School Food Services Fund.

Effect:

A financial statement irregularity in accordance with O.C.G.A. 20-2-67.

Recommendation:

The School District should establish policies and procedures designed to ensure that in future periods the School District does not report deficit fund balances.

-5-

EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Reportable Condition U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Finding Control Number: FA-6511-06-01

Condition:

A review of the expenditures for the Food Services - School Breakfast Program (CFDA 10.553) and the Food Services - National School Lunch Program (CFDA 10.555) revealed that control procedures were not in place to adequately provide for the proper approval of expenditures.

Criteria:

Provisions of the 0MB Circular A-87, Cost Principles for Determining Allowable Costs, require that "governmental units are responsible for the efficient and effective administration of Federal awards through the application of sound management practices" and "to be allowable under Federal awards, costs must be adequately documented".

Questioned Cost: NIA

Information:

The School District did not have adequate procedures in place to conform to the requirements.
The goods receiving function was not separated from the order processing and inventory record functions.
The check writing function was not separated from the record keeping function.
Based on a review of ten items, six vouchers lacked an approved order form, five vouchers were paid without approval and four vouchers lacked proper receiving documentation.

Cause:

These deficiencies were the result of management's failure to ensure that internal controls for School Food Service Funds were established, implemented and functioning properly.

Effect:

Errors and/or irregularities may not be detected in a timely manner.

-6-

EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Reportable Condition U.S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Finding Control Number: FA-6511-06-01

Recommendation:

The School District should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization be separated and/or utilize management oversight for these incompatible activities. In addition, management should review the control procedures in place to provide reasonable assurance that transactions are processed according to established policies, implement those procedures deemed necessary to strengthen internal controls over the accounting functions and ensure all costs are allowable under 0MB Circular A-87.

-7-

SECTIONV MANAGEMENT'S RESPONSES

EFFINGHAM COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006
Finding Control Number: FS-6511-06-01
The School Principal Accounts have been reviewed and Job Tasks have been reassigned to address needed separation of duties. Reassignment of duties includes cash deposit receipt preparation and record keeping function performed by different persons allowing for better separation of duties.
Management has also purchased and has implemented new accounting software. This new software created by Star Software Systems is web based allowing all schools common functionality. Management has a program ofmonthly review of all school records and will continue the review of functional processes to complete the separation process. The monthly review process will continue to make adjustments to those procedures required for better control and review allowing management the mechanism to find and change procedures as required.
Finding Control Number: FS-6511-06-02
Management has begun the process ofRequesting Bids for this audit from private accounting firms. The audit process will be conducted in a timely manner with appropriate attention to detail for fiscal years 2005 to 2012. Each year will be audited separately with the prior years audited first and then each following year in tum as each year is completed.
Finding Control Number: FS-6511-06-03
Management has begun the needed transfers to the appropriate Capital Project funds to correct this excess as well as monitoring the current year to ensure current year compliance.
Finding Control Number: FS-6511-06-04
The Board ofEducation decided to proceed with much-needed capital projects before they received all of the Special Purpose Local Option Sales Tax Revenue. The accelerated pace of Project completion beyond the pace of SPLOST collections placed the Capital Project Funds in a deficit position. This deficit will be corrected as SPLOST receipts are collected and the approved Projects are completed. Management has monitored SPLOST receipts and has concluded the combined SPLOST receipts and transfers from General Fund will eliminate this negative Fund Balance.
Finding Control Number: FA-6511-06-01
Management has taken steps to implement control procedures to ensure authorization oftransaction and oversight of procedures. These controls have been implemented to ensure record keeping accuracy, separation of key duties and approvals, as well as, strengthen internal controls at the individual cafeteria locations.
Contact Person: Ronald Wilson, CPA, CGFO, Director of Finance Phone: (912) 754-5885; Fax Number: (912) 754-3489 E-mail Address: r1wi1son@effingham.kl2.ga.us