Fannin County Board of Education, Blue Ridge, Georgia, report on audit of the financial statements for the year ended June 30, 2004

FANNIN COUNTY BOARD OF EDUCATION
BLUE RIDGE, 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

FANNIN 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

Page
3 4
6
7 8
9 10 I I
25 26
28

FANNIN COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

29

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

FANNIN COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTION V 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
July 7, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Fannin 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 Fannin 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 of the Fannin 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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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 opm10ns.
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 of the Fannin County Board of Education, as of June 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 Fannin 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 July 7, 2005, on our consideration ofthe Fannin County Board ofEducation'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 ofour testing ofinternal control over financial reporting and compliance and the results ofthat 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 25, 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 Fannin 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,

RWH:gp 2004ARL-11

State Auditor

FANNIN COUNTY BOARD OF EDUCATION

FANNIN COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004
ASSETS
Cash and Cash Equivalents 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 Contracts Payable Retainages Payable Deposits and Deferred Revenues Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Debt Service Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets
The notes to the basic financial statements are an integral part of this statement. -3-

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

5,852,066

927,500 1,722,756
245,614 19,733 40,505

1,325,369 390,713
1,029,698 29,075,172
3,012,402 -11,628,672

$ ===3=2;;,;,0=1=2,=8=56=

$

1,435,154

2,687,158

465,693

151,597

910

2,000,662 5 697 418

$

12,438,592

$

16,020,539

170,764 2,068,043
663,866 651 052

$

19 574 264

$ ===3=2;;,;,0=1=2,=8=56=

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

EXPENSES

CHARGES FOR SERVICES

GOVERNMENTAL ACTIVITIES

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

$

17.510,773 $

772,128 445,554 534,780 389,322 1,964,214 192,643 2,064,822 1,367,080
49,111 5,871

52,172 1,752
1,574,824 383 148

500,079 419,578

Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous

$ ======2=7=,3-0=8=,=1=9=4= $

919,657

Total General Revenues

Change in Net Assets

Net Assets - Beginning of Year

Net Assets - End of Year

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

$

13,408,370 $

195,131 159,989 286,019
23,352 63,603
2,586 11,995 494,647

5,295

878,413

$

15,529,400 $

113,334 $ 444 188
1,190 123,314
928
1,785 241,183 $

-3,488,990
-576,997 -285, 121 -248,761 -365,782 -1,900,611 -190,057 -2,051,637 -749,119
-48, 183 -576
-52, 172 -1,752
-275,048 -383 148
-10,617,954

$

8,481,980

2,855,755 197,053 741,389 134,554 317,564

$

12 728 295

$

2,110,341

17,463 923

$ ===1=9=,5=7=4"=,2=64===

-5-

FANNIN COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30. 2004

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Accounts Receivable, Net
Taxes State Government Federal Government Other Due From Other Funds Inventories
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable Due To Other Funds 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
Total Fund Balances
Total Liabilities and Fund Balances

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 3.376,472 $ 2,469,831 $

5,763 $ 5,852,066

453,048 1.667,572
245,614 19,733
40,505

513,275 55,184

301,800

2,062,280

966,323 1,722,756
245,614 19,733
2,364,080 40505

$ 5,802,944 $ 3,340,090 $ 2,068,043 $ 11,211,077

$ 1,435,154 2,687,158 $
301,800 910

465,693 151,597 2,062,280

$ 4,425,022 $ 2,679,570

$ 1.435, 154 2,687,158 465,693 151,597 2,364,080 910
$ 7,104,592

$ 130,259

$ 130,259

$ 2,068,043

2,068,043

40,505

40,505

$ 660,520

660,520

1,207,158

1,207,158

$ 1,377,922 $ 660,520 $ 2,068,043 $ 4,106,485

$ 5,802,944 $ 3,340,090 $ 2,068,043 $ 11,211,077

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

FANNIN 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.
Long-Term liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term liabilities at year-end consist of:
Bonds Payable Capital Leases Compensated Absences
Total Long-Term Liabilities

$

4,106,485

$

1,325,369

390,713

1,029,698

29,075,172

3,012,402

-11,628,672

23,204,682

-38,823

$

-6,970,000

-214, 143

-513 937

-7,698,080

Net Assets of Governmental Activities (Exhibit "A")

$ 19,574,264

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

FANNIN COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2004

EXHIBIT"E"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES}
Capital Leases Transfers In Transfers Out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 8,673,557

197,053 $ 2,855,755

13,357,874

117,869

2,530,907

919,657

89,542

44,217 $

822,886

$ 26,591,476 $ 3,017,841 $

$
795 795 $

8,673,557 3,052,808 13,475,743 2,530,907
919,657 134,554 822,886
29,610,112

$ 16,792,446

$

772,002 443,954 531,563 387,314 1,960,435 193,077 2,046,878 1,249,430
43,111 5,871
52,172 1,557,063
$

5,461,349

164,439 15,243

$ 1,405,000 367,905

$ 26,214,998 $ 5,461,349 $ 1,772,905 $

$

376 478 $ -2,443,508 $ -1,772, 110 $

16,792,446
772,002 443,954 531,563 387,314 1,960,435 193,077 2,046,878 1,249,430
43,111 5,871
52,172 1,557,063 5,461,349
1,569,439 383,148
33,449,252
-3,839,140

$

109,396

$

$ 1,556,379 $ 3,835,185

-1,556,379

-3,835,185

$ -1,446,983 $ -2,278,806 $ 3,835,185 $

$ -1,070,505 $ -4,722,314 $ 2,063,075 $

2,448 427

5,382,834

4 968

109,396 5,391,564 -5 391 564
109,396
-3,729,744
7,836,229

Fund Balances - Ending

$ 1,377,922 $ 660,520 $ 2,068,043 $ ====-4=10;,;;6.,,;4.;;;85;;,,.

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

FANNIN 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.
In the Statement of Activities, only the gain on the sale of the equipment is reported. whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus. the change in net assets differs from the change in fund balances by the carrying value of the equipment sold.
Some of the capital assets acquired this year were financed with capital leases. In Governmental Funds. a capital lease arrangement is considered a source of financing. but in the Statement of Net Assets. the lease obligation is reported as a Long-Term Liability.
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
Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of:
Increase in Compensated Absences

$ -3,729,744

$ 5,348,385 -761,357

4,587,028 -191,577

-3,223

-109,396

$ 1,405,000 164,439

1,569,439

-12,186

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

$ ==2=1=1=0=34=1=

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

FANNIN 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
$ ===34::,!'=26=8=

The notes to the basic financial statements are an integral part of this statement.
- 10 -

FANNIN 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 Fannin 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 Fannin County Board of Education.
District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.

- 11 -

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

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District reports the following major governmental funds:
General Fund is the School District's primary operating fund. It accounts for all financial resources of the 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 and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation of major capital facilities.
Debt Service Fund accounts for taxes (sales) legally restricted for the payment of general longterm principal, interest and paying agent's fees.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governments or individuals.
BASIS OF ACCOUNTING
The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt and compensated
- 12 -

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

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources.

The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.

CASH AND CASH EQUIVALENTS

COMPOSITION OF DEPOSITS Cash and cash equivalents consist of cash 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.

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 Fannin County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on September 12, 2003 (levy date). Taxes were due on December 20, 2003 (lien date and due 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 Fannin 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 $8,673,557.

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

School Operations

13.95 mills

- 13 -

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

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $2,855,755 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 of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.

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 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

All

NIA

$

20,000 20 to 80 years

$

50,000 20 to 80 years

$

5,000 3 to 20 years

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

- 14 -

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

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 of Net Assets.
Note 3: DEPOSITS
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. If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts.
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,
(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,
(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,
(6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and

- 15 -

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

EXHIBIT "H"

Note 3: DEPOSITS

(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 $6,743,048. The amounts of the 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

$ 205,763

2

0

3

6,537,285

Total

$ 6,743,048

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:

- 16 -

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

EXHIBIT "H"

Note 5: CAPITAL ASSETS

Balances July 1, 2003

Increases

Balances Decreases June 30, 2004

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

$ 1,325,369

$ 1,325,369

7,837,103 $ 5,238,989 $ 12,685,379

390 713

Total Capital Assets Not Being Depreciated $ 9,162,472 $ 5,238,989 $ 12,685,379 $ l,716,082

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 16,389,793 $ 12,685,379

2,953,622

109,396 $

1,029,698

$ 29,075,172

50,616

3,012,402

1,029,698

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

7,934,840 2,055,766
924,102

559,245 189,866
12,246

47,393

8,494,085 2,198,239
936,348

Total Capital Assets, Being Depreciated, Net $ 9,458,405 $ 12,033,418 $

3,223 $ 21,488,600

Governmental Activity Capital Assets - Net $ 18,620.877 $ 17,272.407 $ 12,688.602 $ 23,204.682

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

Governmental Funds

Equipment Less: Accumulated Depreciation

$ 523,732 130,051

Current year depreciation expense by function is as follows:

$=====3=="93=,6=8=1

Instruction Support Services
Educational Media Services General Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Food Services

$ 556,335

$

2,867

1,213

7,687

175,724

6 000

193,491 11 531

$ 761,357

- 17 -

FANNIN 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), general obligation bond proceeds and Georgia State Financing and Investment Commission (GSFIC) funds are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory prov1s1ons. Restricted assets at June 30, 2004, were as follows:

Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions

District-wide Ca)'.lital Projects

Bond

SPLOST

Proceeds

GSFIC

Debt Service Funds

$ 1,881,478 $

73,622 $

$ 491,052

5,763

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, 2004, consisted of the following:

Due From Other Funds

Due To Other Funds

General Fund District-wide Capital Projects Debt Service Funds

$ 301,800

$ 301,800

2,062,280

2,062,280

$ 2!364!080 $ 2!364!080

Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as required match or supplemental funding source for capital construction projects and to move SPLOST collections to the Debt Service Fund to pay current year Bond Principal and Interest as required in the Bond Resolution.

Note 8: INTERFUND TRANSFERS

Interfund transfers for the year ended June 30, 2004, consisted of the following:

Transfer to

Transfers From

District-wide

General

Capital

Fund

Projects

District-wide Capital Projects Debt Service Funds

$ 1,556,379 $ 3,835,185

Total

$ L556379 $ 3!835)85

- 18 -

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

EXHIBIT "H"

Note 8: INTERFUND TRANSFERS

Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as required match or supplemental funding source for capital construction projects and to move SPLOST collections to the Debt Service Fund to pay current year Bond Principal and Interest as required in the Bond Resolution.

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 participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members ofthe system. The School District pays an annual premium to the system for its general insurance coverage. Coverage is provided for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse). Additional coverage with other companies is provided for automobile risks.

The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims 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 ofYear Liability

2003 2004

$

0 $

988 $

988 $

0

$

0 $

5 700 $

5 700 $

0

The School District participates in the Georgia School Boards Association Workers' Compensation Fund, a public entity risk pool organized on July 1, 1992, to develop, implement, and administer a program ofworkers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Fund for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Fund with the Safety National Casualty Corporation to provide coverage for potential losses sustained by the Fund in excess of $400,000 loss per occurrence, up to $1,000,000.

- 19 -

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

EXHIBIT "H"

Note 9: RISK MANAGEMENT

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

Position Covered

Amount

Superintendent All Other Employees

$ 100,000 $ 100,000

Note 10: LONG-TERM DEBT

CAPITAL LEASES The Fannin County Board of Education has entered into various lease agreements as lessee for buses. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of the future minimum lease payments as of the date of their inception.

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

GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows:

Purpose

Interest Rate

Amount

General Government - Series 2000

4.80%

$ 6,970,000

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

- 20 -

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

EXHIBIT "H"

Note 10: LONG-TERM DEBT

Capital Leases

Governmental Funds

General

Compensated Obligation

Absences ( 1)

Bonds

Total

Balance July I, 2003

$

269,186 $

501,751 $ 8,375,000 $ 9,145,937

Additions Capital Leases Annual Leave Earned

109,396

138,290

109,396 138,290

Deductions Annual Leave Utilized Debt Retired

164 439

126,104

1,405,000

126,104 1,569,439

Balance June 30, 2004

$

214 143 $

513 937 $ 6,970.000 $ 7,698.080

Portion of Long-Term Debt Due within One Year

$

105,662 $

0 $ 1,895,000 $ 2,000,662

(I) The portion of Compensated Absences due within one year has been determined to be immaterial to the basic financial statements.

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

CaJ!ital Leases

Principal

Interest

2005 2006 2007 2008

$ 105,662 $ 63,932 21,847 22,702

10,401 4,817 1,742
888

Total Principal and Interest

$ 214,143 $

17 848

Fiscal Year Ended June 30

General Obligation

Debt

PrinciJ!al

Interest

2005 2006 2007

$ 1,895,000 $ 2,390,000 2,685,000

289,080 186,240 64 440

Total Principal and Interest

$ 6,970,000 $ 539,760

- 21 -

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

EXHIBIT "H"

Note 11: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $296,020 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $293,755

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 $2,265

Note 12: SIGNIFICANT COMMITMENTS

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

Project

Unearned Executed Contracts

Funding Available From State

SA 0lS-655-245 SA 0lS-655-347

$ 516,975 $ 157,889

425,949

155,244

$ 942!924 $ 313!133

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

Note 13: SIGNIFICANT CONTINGENT LIABILITIES

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

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

-22 -

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

EXHIBIT "H"

Note 14: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)

TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2004 2003 2002

100% 100% 100%

$ 1,309,504 $ 1,331,216 $ 1,202,874

- 23 -

FANNIN COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30. 2004

SCHEDULE "1"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation
Capital Outlay Debt Service
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Other Sources Other Uses
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning
Adjustments
Fund Balances - Ending

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

8,048,252 $

8,048,252 $

8,673,557

197,053

13,413,058

13,413,058

13,357,874

2,646,103

2,646,103

2,530,907

450,000

450,000

919,657

85,000

85,000

89,542

30,000

30,000

822,886

$

24,672,413 $

24,672,413 $

26,591,476

$

16,516,155 $

16,516,155 $

16,792,446

729,584 452,452 549,255 417,668 1,627,818 160,053 2,264,863 1,396,388
75,000
1,559,000 450,000

729,584 452,452 549,255 417,668 1,627,818 160,053 2,264,863 1,396,388
75,000
1,559,000

772,002 443,954 531,563 387,314 1,960,435 193,077 2,046,878 1,249,430
43,111 5,871
52,172 1,557,063
179 682

$

26,198,236 $

25,748,236 $

26,214,998

$

-1,525,823 $

-1,075,823 $

376,478

$

260,000 $

260,000 $

109,396

-634 000

-1,084,000

-1,556,379

$

-374 000 $

-824,000 $

-1 446,983

$

-1,899,823 $

-1,899,823 $

-1,070,505

2,902,951

2,902,951

2,448,427

-6,577

-6,577

$

996,551 $

996 551 $

1,377,922

Notes to the Schedule of Revenues. ExQenditures 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.

- 25-

FANNIN 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) Pass-Through From Office of Treasury and Fiscal Services National Forest Reserve Funds
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 Improving Teacher Quality State Grants Rural Education Safe and Drug-Free Schools and Communities School Renovation - Schools State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States
Total U. S. Department of Education
Total Federal Financial Assistance
N/A = Not Available

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 * 10.555

NIA NIA $
$

(2) 1402801
1,402,801

10.550 10.665

N/A N/A
$

72,904 (3) 1475705

84.027 84.173

N/A $ NIA
$

441,545 38 368
479,913

84.318 84.367 84.358 84.186 84.352 84.298 84.010 84.048

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

19,401 229,888
2,606 16,317 50,044 19,543 831,275 32 316
1 681 303

$ ===='3~15;;,;7,.;;,0;,;;0~8

- 26 -

FANNIN 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 fund earned on the School Breakfast Program ($268,319) were not maintained separately and are included in the 2004 National School Lunch Program.
(3) Funds earned on this program in the amount of $50,686 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 Fannin 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.

- 27 -

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

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program 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 Sparsity Nursing Services Principal Supplements Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Apprenticeship Program At-Risk Summer School Program Health Insurance Limited School Choice Program Mentoring Program National Teacher Certification Preschool Handicapped Program Special Education Low Incidence Grant Lottery Program Technology Installation
Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Office of Treasury and Fiscal Services Public School Employees Retirement

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$

590,732

313,479

1,599,902

812,515

1,049,732

119,421

1,764,401

1,367,389

735,669

135,792 201,360 878,513 190,672
64,463 79,353 14,139 146,606 277,922 90,914 53,269

406,196 621,692 772,199

478,229 123,314
34,907 74,422 11,557 256,371 236,067 79,314 46,587 -720,469
1,900 6,258 293,755 38,617 1,850 29,160 35,983 20,628
20,829

$

590,732

313,479

1,599,902

812,515

1,049,732

119,421

1,764,401

1,367,389

735,669

135,792 201,360 878,513 190,672
64,463 79,353 14,139 146,606 277,922 90,914 53,269

406,196 621,692 772,199

478,229 123,314
34,907 74,422 11,557 256,371 236,067 79,314 46,587 -720,469
1,900 6,258 293,755 38,617 1,850 29,160 35,983 20,628
20,829

$ 2,265

117,869

117,869 2,265

See notes to the basic financial statements.

$ 13,357,874 $

117 869 $ 13,475 743

- 28 -

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

SCHEDULE "4"

PROJECT
Acquisition of land and the construction and equipping thereon of a new auditorium and multi-purpose facility complex and the construction of additional classrooms and the adding to, remodeling, renovation, improving and equipping of classrooms, physical education, instructional and support space and grounds of Blue Ridge Elementary School. West Fannin Elementary School, East Fannin Elementary School, Fannin County Middle School and Fannin County High School, including lunchrooms, equipment, fixtures for such schools and other existing facilities within the School District and the purchase of copiers, energy management systems, heating and air conditioning systems, lighting and similar equipment and computers and other technology and the remodeling and retrofitting of existing facilities to accommodate computers and other technology

ORIGINAL ESTIMATED
COST(1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT
YEAR (3)

AMOUNT EXPENDED
IN PRIOR YEAR (3)

PROJECT STATUS

$

16 950 000 $

16 950 000 $

5 829 254 $

9 560 122 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 Fannin 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.

- 29 -

FANNIN COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2004

SCHEDULE "5"

DESCRIPTION
Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program
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

$

719,671 $

622,383 $

11,688 $

634,071

385,862

348,395

1,992

350,387

1,922,972

1,850,279

58,022

1,908,301

978,796

1,009,080

6,538

1,015,618

1,251,347

1,621,583

26,054

1,647,637

145,854 2,126,542 1,663,282
867,285 1,760,109
98,320 23,501 175,535

207,927 2,422,896 2,195,143
591,230
322,515 952,408 107,874 279,269 215,307
38,388 136,390

575 24,446 46,760 67,162
22,373
2,318 61,643

208,502 2,447,342 2,241,903
658,392
322,515 974,781 107,874 279,269 217,625
38,388 198,033

$

12,119,076 $ 12,921,067 $

329,571 $

13,250,638

333,281 63,562

434,652 15,807

30,402 51,848

465,054 67,655

TOTAL QBE FORMULA FUNDS

$

12 515,919 $ 13,371,526 $

411 821 $ =~1,;;;.3,.;,,78;;;,;3;.;,3;;,;4.;,_7

(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
July 7, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Fannin 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 Fannin County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Fannin County Board of Education's basic financial statements and have issued our report thereon dated July 7, 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 Fannin 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 a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Fannin County Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FS-6551-04-01.

2004YB-30

A material weakness is a reportable condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Fannin 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 Fannin 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:gp 2004YB-30

State Auditor

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
July 7, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Fannin County Board of Education
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULARA-133
Ladies and Gentlemen:
Compliance
We have audited the compliance ofFannin County Board ofEducation with the types ofcompliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2004. Fannin County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section ofthe accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Fannin County Board of Education's management. Our responsibility is to express an opinion on Fannin 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 of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular 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 Fannin 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 Fannin County Board of Education's compliance with those requirements.
2004SA-10

In our opinion, the Fannin County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2004.
Internal Control Over Compliance
The management of Fannin 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 Fannin County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses.
This report is intended solely for the information and use ofthe management, members ofthe Fannin County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

RWH:gp 2004SA-10

State Auditor

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

FANNIN 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-6551-03-01

Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6551-03-01

Corrective action has been implemented to correct all internal control weaknesses in this finding. Due to the timing of the fiscal year 2003 audit, these corrections were not implemented until fiscal year 2005.

SECTION IV FINDINGS AND QUESTIONED COSTS

FANNIN 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 Fannin 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 Fannin County Board of Education disclosed a financial statement reportable condition related to the following control categories.

Cash and Cash Equivalents Revenues/Receivables/Receipts

Expenditures/Liabilities/Disbursements

The reportable condition described above is not considered to be a material weakness.

3. Noncompliance Material to the Financial Statements The audit ofthe Fannin County Board ofEducation disclosed no instances ofnoncompliance that were deemed to be material to the financial statements.

4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Fannin County Board of Education did not disclose any reportable conditions in internal control over major programs.

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

6. Audit Findings Required to be Reported by Section .51 0(a) of 0MB Circular A-133 The Fannin County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133.

7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program

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

9. Low Risk Auditee The Fannin County Board ofEducation qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133.

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FANNIN 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 Repeated From Prior Year Finding Control Number: FS-6551-04-01
Our examination of the principal's accounts disclosed weaknesses in internal control as discussed below:
Cash and Cash Equivalents The bank reconciliation function is not separated from the record keeping and voucher payment functions.
Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions. Six receipts were not made in a timely manner. The individual receipts could not be traced to the deposit slips.
Expenditures/Liabilities/Disbursements The check writing function was not separated from the record keeping or processing of signed checks. None of the vouchers had a purchase order. Nineteen vouchers did not have the proper approval for payment. One voucher did not agree to the amount paid per the check register.
These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible, at the various principal accounts sites, for the accounting functions and their failure to ensure established controls were functioning as designed. Management should implement additional procedures to ensure that the key accounting functions of custody, record keeping, and authorization are segregated.
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
No matters were reported.
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SECTION V MANAGEMENT'S RESPONSES

FANNIN COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2004

Finding Control Number: FS-6551-04-01

We concur with this finding. However, due to the fact our fiscal year 2003 audit was not completed until after fiscal year 2005 began, we were unable to implement the following corrections until fiscal year 2005. The School District implemented the following in fiscal year 2005:

Area of Concern

Concern

Solution

Cash and Cash Equivalents

The bank reconciliation function is not separated from the record keeping and voucher payment functions.

The bank reconciliation function has now been separated from the record keeping and voucher payment functions at all schools.

Revenues/Receivables/ Receipts

Deposit preparation was not separated from the record keeping and cash custody functions.

Deposit preparation has now been separated from the record keeping and cash custody functions at all schools.

Six receipts were not made in a timely manner.

Principals and secretaries issuing receipts have been instructed to issue receipts within 24-hours of acceptance of funds.

The individual receipts could not be traced to the deposit slips.

All deposit slips will now show the details of checks and cash that make up each deposit at all schools.

Expenditures/Liabilities/ Disbursements

The check writing function was not separated from the record keeping or processing of signed checks.

The check writing function has now been separated from the record keeping or processing of signed checks at all schools.

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FANNIN COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2004

Area of Concern

Concern
None of the vouchers had a purchase order.

Nineteen vouchers did not have the proper approval for payment.
One voucher did not agree to the amount paid per the check register.
Contact Person: Susan Jackson, Finance Director Phone: (706) 632-3771 Ext. 228 Fax Number: (706) 632-7583 E-mail Address: sjackson@fannin.kl2.ga.us

Solution
Accounting procedures involving purchase orders have been reviewed and revised on the school level. The new procedure does not require a purchase order for expenditures.
Principals have been advised that all vouchers and/or invoices must be initialed showing approval prior to payment.
Principals and bookkeepers have been advised that check amounts must match voucher/invoice amounts.

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