Hancock County Board of Education, Sparta, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2002

STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
I
HANCOCK COUNTY BOARD OF EDUCATION
SPARTA, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2002
Russell W. Hinton State Auditor

HANCOCK COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON GENERAL-PURPOSE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

EXHIBITS

GENERAL-PURPOSE FINANCIAL STATEMENTS

COMBINED STATEMENTS - OVERVIEW

A

COMBINED BALANCE SHEET

ALL FUND TYPES AND ACCOUNT GROUP

2

B

COMBINED STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES

ALL GOVERNMENTAL FUND TYPES

4

C

COMBINED STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES - BUDGET AND ACTUAL

(NON-GAAP BASIS)

GENERAL AND SPECIAL REVENUE FUNDS

6

D NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

7

ADDITIONAL FINANCIAL INFORMATION

COMBINING STATEMENTS

SPECIAL REVENUE FUND

E

COMBINING BALANCE SHEET

18

F

COMBINING STATEMENT OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCES

20

SCHEDULES

1 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

22

2 SCHEDULE OF STATE REVENUE

25

HANCOCKCOUNTYBOARDOFEDUCATION - TABLE OF CONTENTS -
SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 CIRCULARA-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

SECTION I FINANCIAL

RUSSELL W. HINTON
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
March 10, 2004

Honorable Sonny Perdue, Governor Members ofthe General Assembly Members ofthe State Board of Education
and Superintendent and Members of the Hancock County Board of Education
INDEPENDENT AUDITOR'S COMBINED REPORT ON GENERAL-PURPOSE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Ladies and Gentlemen:
We have audited the accompanying general-purpose financial statements of the Hancock County Board of Education, as of and for the year ended June 30, 2002, as listed in the table of contents. These general-purpose financial statements are the responsibility of the Hancock County Board of Education's management. Our responsibility is to express an opinion on these general-purpose 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 opinion.
As described in the notes to the general-purpose financial statements, the Board of Education's financial statements have been prepared using certain accounting practices and policies which, in our opinion, vary in some respects from generally accepted accounting principles. These variances are described as follows:

2002ARL-13

* The general-purpose financial statements of the Board of Education did not contain a
General Fixed Assets Account Group to account for property and equipment owned by the Board of Education which should be included to conform to generally accepted accounting principles.
* School activity accounts maintained at the individual schools are not included in the general-purpose financial statements. To conform to generally accepted accounting principles, these accounts should be included in the general-purpose financial statements.
* The Board of Education did not recognize as expenditures, in the year ended June 30, 2002, a portion of salaries and the corresponding employer's cost of related benefits earned for contractual services completed prior to June 30, 2002. Also funds received, subsequent to June 30, 2002, from the Georgia Department of Education for the State's share ofthese unrecorded salaries and related benefits were not recorded as revenue in the year under review. Conversely, the similar expenditures and related revenues for contractual services completed prior to June 30, 2001, were improperly recorded in the year ended June 30, 2002. To conform to generally accepted accounting principles, revenues should be recorded when available and measurable and expenditures should be recorded when incurred, rather than when funds are received or disbursed.
The aggregate effects on the general-purpose financial statements of these variances or omissions have not been determined, but are believed to be material.
In our opinion, except for the effects on the general-purpose financial statements of the matters referred to in the preceding paragraph, the general-purpose financial statements referred to above present fairly, in all material respects, the financial position of the Hancock County Board of Education as ofJune 30, 2002, and the results of its operations for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report dated March 10, 2004, on our consideration of the Hancock County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. 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.
Our audit was performed for the purpose of forming an opinion on the general-purpose financial statements of the Hancock County Board of Education taken as a whole. The accompanying combining statements (Exhibits E and F) and the financial schedules (Schedules 1 and 2), which includes the Schedule ofExpenditures ofFederal Awards as required by U.S. Office ofManagement and Budget Circular A-133, Audits ofStates, Local Governments, andNon-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the general-purpose
2002ARL-13

financial statements. Such information has been subjected to the auditing procedures applied in the audit of the general-purpose financial statements and in our opinion, except for the effects of the matters referred to in the third paragraph, such information is fairly stated, in all material respects, in relation to the general-purpose 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 ofGeorgia Annotated Section 506-24.
Respectfully submitted,

RWH:as 2002ARL-13

State Auditor

HANCOCK COUNTY BOARD OF EDUCATION

HANCOCK COUNTY BOARD OF EDUCATION COMBINED BALANCE SHEET
ALL FUND TYPES AND ACCOUNT GROUP JUNE 30 2002

Cash and Cash Equivalents
Accounts Receivable
Due from Other Funds
Inventories Food Donated Commodities Purchased Food
Amount Available in Debt Service Fund
Amount to be Provided in Future Years For Payment of Capital Lease Agreements

GOVERNMENTAL FUND

SPECIAL

GENERAL

REVENUE

FUND

FUND

$

427,740.70

110,503.79 $ 314,965.46

5,092.13 2,461.39

Total Assets

$

536,244.49 $==3,..2_2.,.,5..,19..,.0,..0=

LIABILITIES AND FUND EQUITY
LIABILITIES
Cash Overdraft Accounts Payable Salaries Payable Expired Grant Balances Payable Due to Other Funds Deferred Revenue Capital Lease Agreements General Obligation Bonds Payable
Total Liabilities
FUND EQUITY
Fund Balances Reserved For Bus Replacement Funds For Debt Service For Expired Grant Balances/Questioned Costs For Inventories Food Donated Commodities Purchased Food Unreserved Undesignated Deficit
Total Fund Equity

$ 140,674.66

$

3,532.43

116,446.66

270,921.73

3,361.56

16.47

99,766.60

$

3,550.90 $ 633,191.23

$

94,695.74

$

19,494.02

5,092.13 2,461.39

439,997.65

0.00 -337, 719. 77

$

534,693.59 $ -310,672.23

Total Liabilities and Fund Equity
The notes to the general-purpose financial statements are an integral part of this statement. -2-

$

536,244.49 $ ~-3_2_2=,s=19=.o=o=

EXHIBIT"A"

TYPES DEBT
SERVICE FUND

$

890,069.39

16,059.34

18.47

ACCOUNT GROUP GENERAL
LONG-TERM DEBT

TOTALS

(Memorandum Onll)

JUNE 30, 2002

JUNE 30, 2001

$ 1,317,810.09 $ 1,934,661.79

441,528.61

934,108.47

18.47

735.99

5,092.13 2,461.39

16,596.13 4,989.84

$

265,000.00

265,000.00

525,000.00

114,058.91

$

906,147.20 $

265,000.00 $ 2,031,910.69 $ 3,530,151.13

$

140,674.68 $

108,582.77

121,979.09

124,811.51

270,921.73

294,570.47

3,361.56

15,733.08

18.47

735.99

99,786.60

114,058.91

$

265,000.00

265,000.00

525,000.00

$

265,000.00 $

901,742.13 $ 1,183,492.73

$

270,763.75

635,383.45

$

906,147.20

$

94,695.74 $

43,480.41

270,763.75

547,816.25

19,494.02

8,345.49

5,092.13 2,461.39

16,596.13 4,989.84

1,075,381.30 -337,719.77

1,725,430.28

$ 1,130,168.56 $ 2,346,658.40

$

906,147.20 $

265,000.00 $ 2,031,910.69 $ 3,530,151.13

-3-

HANCOCK COUNTY BOARD OF EDUCATION COMBINED STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES
ALL GOVERNMENTAL FUND TYPES YEAR ENDED JUNE 30. 2002

REVENUES
State Funds Federal Funds Taxes Other Funds
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 Food Services Operation
Capital Outlay Debt Service
Principal Interest Paying Agent Fees
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES {USES)
Operating Transfers In Operating Transfers Out
Total Other Financing Sources (Uses)
Excess of Revenues and Other Financing Sources over (under) Expenditures and Other Financing Uses
FUND BALANCE JULY 1
Adjustments Food Inventory - Net Change in Period
Donated Commodities Purchased Food
FUND BALANCE JUNE 30

GENERAL FUND

SPECIAL REVENUE
FUND

$ 7,893,106.64 $ 33,982.21
2,336,594.78 223,710.93
$ 10,487,394.56 $

197,196.98 3,184,522.23
170,572.05
3,552,291.26

$ 6,782,204.44 $ 1,348,077.86

174,674.44 530,068.47

261,152.31 158,427.25

778,061.46 815,879.05 225,560.23 894,973.19 704,201.63
12,318.83 136.52
138,211.51

305,977.29
54,459.66 67,814.81 146,256.00 173,696.26 1,172,740.53

114,058.91 9,417.21

$ 11,179,765.89 $

$

-692,371.33 $

3,688,601.97 -136,310. 71

$

-692,371.33 $

1,227,064.92

-136,310.71 317,890.38 -478,219.45
-11,504.00 -2,528.45

$

534,693.59 $ ==-;;.31;,;;0.;,6;.;,7,;;;;2-=23;;..

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

EXHIBIT"B"

DEBT SERVICE
FUND

TOTALS

(Memorandum Only)

YEAR ENDED

JUNE 30, 2002

JUNE 30, 2001

$ 8,090,303.62 $ 8,088,043.47

3,218,504.44

2,829,861.14

$

382,889.03

2,719,483.81

2,708,348.31

394,282.98

265,092.88

$

382,889.03 $ 14,422,574.85 $ 13,891,345.80

$ 8,130,282.30 $ 7,568,309.63

435,826.75 688,495.72
1,084,038.75 815,879.05 280,019.89 962,788.00 850,457.63 186,015.09
1,172,877.05 138,211.51

384,942.62 256,744.90 253,143.66 1,021,893.33 744,991.89 209,608.93 873,761.55 691,994.80 152,715.98 1, 168,576.41

$

260,000.00

17,769.93

675.00

374,058.91 27,187.14 675.00

350,359.98 45,716.14

$

278,444.93 $ 15,146,812.79 $ 13,722,759.82

$

104,444.10 $

-724,237.94 $

168,585.98

$

96,009.87

-96,009.87

$

0.00

$

104,444.10 $

-724,237.94 $

168,585.98

801,703.10

2,346,658.40

2,202,856.70

-478,219.45

-7,563.21

-11,504.00 -2,528.45

-17,818.87 597.80

$

906,147.20 $ 1,130,168.56 $ 2,346,658.40

-5-

HANCOCK COUNTY BOARD OF EDUCATION COMBINED STATEMENT OF REVENUES EXPENDITURES AND CHANGES IN FUND BALANCES
BUDGET AND ACTUAL - (NON-GAAP BASIS) GENERAL AND SPECIAL REVENUE FUNDS
YEAR ENDED JUNE 30. 2002

EXHIBIT"C"

REVENUES
State Funds Federal Funds Taxes Other Funds
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 Food Services Operation Community Services Operations
Capital Outlay Debt Service
Total Expenditures
Excess of Revenues over (under) Expenditures
FUND BALANCE JULY 1 2001
Adjustments

GENERAL FUND

BUDGET

ACTUAL

$ 7,643,091.83 $
2,525,096.00 27,848.00

7,893,106.64 33,982.21
2,336,594.78 223,710.93

$ 10,196,035.83 $ 10,487,394.56

$ 6,399,166.27 $ 6,782,204.44

177,774.00 184,189.00 277,354.80 699,074.12 797,546.00 200,126.00 746,646.00 602,356.79
35,932.00 4,432.00

174,674.44 530,068.47
778,061.46 815,879.05 225,560.23 894,973.19 704,201.63
12,318.83 136.52

164,000.00 123,500.00

138,211.51 123,476.12

$ 10,412,096.98 $ 11,179,765.89

$ -216,061.15 $ -692,371.33

1,132,622.74

1,227,064.92

SPECIAL REVENUE FUND

BUDGET

ACTUAL

$

47,652.00 $ 197,196.98

2,305,308.00

3,184,522.23

170,572.05

$ 2,352,960.00 $ 3,552,291.26

$ 1,202,505.98 $ 1,348,077.86

305,436.29 151,054.00

261,152.31 158,427.25

267,313.18

305,977.29

36,031.36 74,204.94 152,981.25 62,522.00 21,900.00
4,000.00

54,459.66 67,814.81 146,256.00 173,696.26 1,172,740.53

$ 2,277,949.00 $ 3,688,601.97

$

75,011.00 $ -136,310.71

-353,990.47

296,304.41

-478,219.45

FUND BALANCE JUNE 30 2002

$ 916,561.59 $====534.......,,6..,9...,3....,5.9..

$ -278,979.47 $ -318,225.75

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

HANCOCK COUNTY BOARD OF EDUCATION

EXHIBIT "D"

NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

JUNE 30, 2002

Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY
The Hancock County Board of Education (School District) was established under the laws of the State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The School District 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.
FUND ACCOUNTING
The School District uses funds and an account group to report on its financial position and the results ofits 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. An account group is a financial reporting device designed to provide accountability for certain assets and liabilities that are not recorded in the funds because they do not directly affect expendable available financial resources.
General Fixed Assets are recorded as expenditures in the various funds at the time of purchase. A General Fixed Assets Account Group is not presently maintained by the School District. To conform to generally accepted accounting principles, a General Fixed Assets Account Group should be maintained for reporting the cost of assets acquired by governmental fund types.
Although "school activity accounts" are maintained at the individual schools, neither the assets, liabilities and fund equity, nor the revenues, expenditures and changes in fund balances of these accounts are reflected in these financial statements. To conform to generally accepted accounting principles, these accounts should be recorded in the general-purpose financial statements.
The general-purpose financial statements account for all State, Federal, Taxes and Other funds under control of the School District, in compliance with generally accepted accounting principles applicable to governmental units, unless otherwise disclosed in these notes. Funds and the account group presented in this report are as follows:
GOVERNMENTAL FUND TYPES- are used to account for all or most of the School District's educational activities. Governmental Fund Types include:
GENERAL FUND - the fund used to account for all financial resources of the School District except those required to be accounted for in another fund. These transactions relate to resources obtained and used for services provided by a board of education.

-7-

HANCOCK COUNTY BOARD OF EDUCATION

EXHIBIT "D"

NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

JUNE 30, 2002

Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SPECIAL REVENUE FUND - the fund used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. These funds are received primarily from the Georgia Department ofEducation and from the Federal government to accomplish specific educational objectives.
DEBT SERVICE FUND - the fund used to account for the accumulation ofresources for, and the payment of, general long-term principal, interest and paying agent fees.
ACCOUNT GROUP
GENERAL LONG-TERM DEBT ACCOUNT GROUP - A financial reporting device used to account for general obligation debt outstanding.
BASIS OF ACCOUNTING
The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. Operating statements ofthese funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. Their reported fund balance is considered a measure of available spendable resources.
Liabilities which are expected to be financed from available spendable resources are reported as liabilities in the governmental funds. Other liabilities, which are not expected to be financed from available spendable resources, are reported in the General Long-Term Debt Account Group.
Governmental funds are accounted for using the modified accrual basis ofaccounting under which:
Revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The School District considers receivables collected within sixty days after yearend to be available. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, intergovernmental grants and donations. Revenue for property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
Expenditures are generally recognized when the related fund liability is incurred.

-8-

HANCOCK COUNTY BOARD OF EDUCATION

EXHIBIT "D"

NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

JUNE 30, 2002

Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A departure from the above definitions is the accounting treatment afforded the final two payments on General Fund teachers' and bus drivers' contracts, and the resources available from the Georgia Department of Education for the State's share of these contracts. During fiscal year 2002, a substantial number ofpersonnel ofthe School District were employed for a one hundred and ninety day period beginning in August 2001 and ending in early June 2002. Personnel contracts for this employment period specify that compensation be paid in twelve equal monthly payments beginning in September 2001 and ending in August 2002. State grants to fund the State's share of these contracts were disbursed from the Georgia Department of Education to the School District in the same twelve months. As of June 30, 2002, compensation under these employment contracts had been earned, but two of the twelve monthly payments, due for July and August 2002, had not been made. Payments for these two months were made and recorded as expenditures by the School District subsequent to June 30, 2002. Also, the State's portion ofthe compensation paid in July and August 2002 was received and recorded as revenue in the fiscal year subsequent to June 30, 2002. Conversely, the similar expenditures and related revenues for contractual services completed prior to June 30, 2001, were recorded in the year ended June 30, 2002. Generally accepted accounting principles require that revenues be recorded when available and measurable and that expenditures be recorded when incurred, rather than when funds are received or disbursed.
BUDGET
The Hancock County Board of Education's budget is a complete financial plan for the School District's fiscal year and is based upon estimates of expenditures together with probable funding sources. There is no statutory prohibition regarding overexpenditure ofthe budget at any level. The budget for all governmental funds is prepared by fund, function and object. The legal level of budget control was established by the Board at the aggregate level. The budget for governmental funds was prepared on a basis other than generally accepted accounting principles.
The budget process begins when the School District's administration prepares a tentative budget for the Board's approval. After approval ofthis tentative budget by the Board, such budget is advertised at least once in a newspaper ofgeneral circulation in the locality. At the next regular meeting ofthe Board after advertisement, the Board receives comments on the tentative budget, makes revisions as necessary and adopts a final school budget. This final budget is then submitted, in accordance with provisions of the Quality Basic Education Act, OCGA Section 20-2-167(c), to the Georgia Department of Education. The Board may increase or decrease the budget at any time during the year. All unexpended budget authority lapses at fiscal year-end.
The Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual presents actual and budgeted data for the Special Revenue Fund. To facilitate comparison with the budget, the following adjustments have been made to fund balance as reflected on Exhibit "B" ofthis report:

-9-

HANCOCK COUNTY BOARD OF EDUCATION

EXHIBIT "D"

NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

JUNE 30, 2002

Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Special Revenue
Fund

FUND BALANCE JULY 1, 2001

$ 317,890.38

Adjustments Inventories - July 1, 2001 Food Donated Commodities Purchased Foods

-16,596.13 -4,989.84

Fund Balance July 1, 2001 (Budget Basis)

$ 296,304.41

Excess of Revenues and Other Financing Sources over (under) Expenditures and Other Financing Uses

-136,310.71

Adjustments

-478,219.45

FUND BALANCE JUNE 30, 2002 (Budget Basis)

$ -318.225.75

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.

RECEIVABLES

Receivables consist of 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 general-purpose financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.

- 10-

HANCOCK COUNTY BOARD OF EDUCATION

EXHIBIT "D"

NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

JUNE 30, 2002

Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PROPERTY TAXES

The Hancock County Board of Commissioners fixed the property tax levy for the 2001 tax digest year (calendar year) on September 20, 2001 (levy date). Taxes were due on November 20, 2001 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2001 tax digest are reported as revenue in fiscal year 2002. The Hancock 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 during the fiscal year ended June 30, 2002 for maintenance and operations amounted to $2,336,594.78 and for school bonds amounted to $382,889.03.

Tax millage rates levied for the 2001 tax year (calendar year) for the Hancock County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations School Bonds

13.63 mills 2.20 mills

15.83 mills

INVENTORIES

FOOD INVENTORIES Inventories of donated food commodities used in the preparation of meals are reported on the Combined Balance Sheet at their Federally assigned value. Purchased foods inventories are reported on the Combined Balance Sheet at cost (first-in, first-out). Donated food commodities are recorded as revenues and expenditures at the time commodity items are received. Purchased foods inventories are recorded as expenditures at the time ofpurchase. The inventories reported on the balance sheet for donated food commodities and for purchased foods are equally offset by reservations of fund balance which indicates that these amounts do not constitute "available spendable resources" even though they are a component of net current assets.

GENERAL OBLIGATION BONDS

The School District issues general obligation bonds to provide funds for the acquisition and construction ofmajor capital facilities. Bond premiums and discounts, as well as issuance costs, are recognized in the financial statements during the year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit ofthe government. The outstanding amount of these bonds is recorded in the General Long-Term Debt Account Group.

- 11 -

HANCOCK COUNTY BOARD OF EDUCATION

EXHIBIT "D"

NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

JUNE 30, 2002

Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FUND BALANCE ADJUSTMENT
In the prior fiscal year, certain Federal revenues were accrued to cover excess expenditures rather than when earned as required by generally accepted accounting principles. A fund balance adjustment of$478,219.45 was made to correctly reflect Federal program activity in the current year.

INTERFUND TRANSACTIONS

The School District has the following types of interfund transactions:

Reimbursements ofexpenditures initially made from a fund that are properly applicable to another fund are recorded as expenditures in the reimbursing fund and as reductions of expenditures in the fund that is reimbursed.

Operating transfers are recorded for all interfund transactions other than reimbursements.

MEMORANDUM ONLY -TOTAL COLUMNS

Total columns on the general-purpose financial statements are captioned "Memorandum Only" to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position or results ofoperations in conformity with generally accepted accounting principles. Neither are such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data.

DEFICIT FUND BALANCES

Funds reporting a deficit fund balance position at June 30, 2002, are as follows:

Fund Type/Fund Name

Deficit Balances

Special Revenue Fund Federal Programs Comprehensive School Reform Demonstration Project Title II Title VI Vocational Education Head Start

$

42.53

720.25

3,790.94

95.24

497,707.81

$ 5022356.77

The School District plans to liquidate the deficits either through transfers from the General Fund or through requests of funds from the respective grantor.

- 12 -

HANCOCK COUNTY BOARD OF EDUCATION

EXHIBIT "D"

NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

JUNE 30, 2002

Note 2: 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. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts.
Acceptable security for deposits consists of any one of or any combination ofthe 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 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 of the bonds for this purpose,
(6) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia, and
(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.
CATEGORIZATION OF DEPOSITS At June 30, 2002, the bank balances were $2,035,918.55. The amounts ofthe total bank balances are classified into three categories of credit risk:

- 13 -

HANCOCK COUNTY BOARD OF EDUCATION

EXHIBIT "D"

NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

JUNE 30, 2002

Note 2: DEPOSITS

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, 2002, as follows:

Risk Category

Bank Balance

1

$ 1,090,744.39

2

878,334.31

3

66,839.85

Total

$2,035,918.55

Note 3: 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 1 - Inventories

Note 4: 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 ofthe past three years.

The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the same fund that the employee's salary and benefits were paid. Claims are accounted for with expenditure 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:

- 14 -

HANCOCK COUNTY BOARD OF EDUCATION

EXHIBIT "D"

NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

JUNE 30, 2002

Note 4: RISK MANAGEMENT

2001 2002

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End ofYear Liability

$

0.00 $

0.00 $

0.00 $

0.00

$

0.00 $

1,157.62 $

1,157.62 $

0.00

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

Position Covered

Amount

Superintendent All Other Employees

$ 50,000.00 $ 50,000.00

Note 5: GENERAL LONG-TERM DEBT

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

Purpose

Interest Rates

Amount

General Government - Refunding - Series 1994 2.60% - 4.35% $ 265,000.00

The changes in General Long-Term Debt during the fiscal year ended June 30, 2002, were as follows:

General Obligation
Bonds

Balance July 1, 2001

$ 525,000.00

Deductions Debt Retired

260,000.00

Balance June 30, 2002

$ 265,000.00

At June 30, 2002, payments due by fiscal year which includes principal and interest for these items are as follows:

- 15 -

HANCOCK COUNTY BOARD OF EDUCATION

EXHIBIT "D"

NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

JUNE 30, 2002

Note 5: GENERAL LONG-TERM DEBT

Fiscal Year Ended June 30

General Obligation
Bonds

2003

$ 270,763.75

Note 6: ON-BEHALF PAYMENTS

The School District has recognized revenues and expenditures in the amount of $242,738.00 for health insurance and retirement contributions paid on the School District's behalfby 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$219,254.00

Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $23,484.00

Note 7: 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 expenditures 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 general-purpose financial statements.

Note 8: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)

TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school districts 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

- 16 -

HANCOCK COUNTY BOARD OF EDUCATION

EXHIBIT "D"

NOTES TO THE GENERAL-PURPOSE FINANCIAL STATEMENTS

JUNE 30, 2002

Note 8: RETIREMENT PLANS

survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

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

Fiscal Year

Percentage Contributed

Required Contribution

2002

100%

$ 691,785.30

2001

100%

$ 782,197.54

2000

100%

$ 762,004.48

- 17 -

HANCOCK COUNTY BOARD OF EDUCATION COMBINING BALANCE SHEET SPECIAL REVENUE FUND JUNE 30. 2002

ASSETS
Cash and Cash Equivalents
Accounts Receivable
Inventories Food Donated Commodities Purchased Food

SCHOOL FOOD
SERVICES FUND

LOTTERY PROGRAMS

$

261,954.81 $

16,353.25

12,428.00

5,092.13 2,461.39

Total Assets

$

269,508.33 $===28='=,7=8=1.=25=

LIABILITIES AND FUND EQUITY
LIABILITIES
Cash Overdraft Accounts Payable Salaries Payable Expired Grant Balances Payable Deferred Revenue
Total Liabilities
FUND EQUITY
Fund Balances Reserved For Expired Grant Balances/Questioned Costs For Inventories Food Donated Commodities Purchased Food Unreserved Undesignated Deficit
Total Fund Equity

$

18,866.74 $

78,451.07

1,573.00 6,014.36

7,137.66

$

97,317.81 $

14,725.02

$

$

5,092.13

2,461.39

164,637.00

$

172,190.52 $

14,056.23
0.00 14,056.23

Total Liabilities and Fund Equity

$

269,508.33 $===28='=,7=8=1.=25=

See notes to the general-purpose financial statements.

-18-

EXHIBIT"E"

FEDERAL PROGRAMS

TOTALS

JUNE 30, 2002

JUNE 30, 2001

$

278,308.06 $

376,734.68

$

302,537.48

314,965.48

786,147.93

5,092.13 2,461.39

16,596.13 4,989.84

$

302,537.48 $

600,827.06 $ 1,184,468.58

$

418,982.74 $

418,982.74 $

485,317.45

98,006.92

118,446.66

77,160.83

186,456.30

270,921.73

294,570.47

3,361.56

3,361.56

9,529.45

92,648.94

99,786.60

$

799,456.46 $

911,499.29 $

866,578.20

$

5,437.79 $

19,494.02 $

8,345.49

5,092.13 2,461.39

0.00 -502,356. 77

164,637.00 -502,356.77

$ -496,918.98 $ -310,672.23 $

16,596.13 4,989.84 287,958.92
317,890.38

$

302,537.48 $

600,827.06 $ 1,184,468.58

- 19 -

HANCOCK COUNTY BOARD OF EDUCATION COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
SPECIAL REVENUE FUND YEAR ENDED JUNE 30, 2002

REVENUES
State Funds Federal Funds Other Funds
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services General Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Food Services Operation
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES
Operating Transfers In
Excess of Revenues and Other Financing Sources over (under) Expenditures
FUND BALANCE JULY 1
Adjustments Food Inventory - Net Change in Period
Donated Commodities Purchased Food

SCHOOL FOOD
SERVICES FUND

LOTTERY PROGRAMS

$

61,280.00 $

809,932.62

141,186.84

$ 1,012,399.46 $

135,916.98 135,916.98

$

129,647.54

$ 1,155,178.58

$ 1,155,178.58 $

$

-142,779.12 $

129,647.54 6,269.44

$

-142,779.12 $

309,544.89

19,457.20

-11,504.00 -2,528.45

6,269.44 2,907.70 4,879.09

FUND BALANCE JUNE 30

$

172,190.52 $===1;,,,;4~,0;,;;;5,;;;6.~23;;.,

See notes to the general-purpose financial statements.

- 20-

EXHIBIT"F"

FEDERAL PROGRAMS

TOTALS

YEAR ENDED

JUNE 30, 2002

JUNE 30, 2001

$

197,196.98 $

154,837.80

$ 2,374,589.61

3, 184,522.23

2,829,861.14

29,385.21

170,572.05

174,588.10

$ 2,403,974.82 $ 3,552,291.26 $ 3,159,287.04

$ 1,218,430.32 $ 1,348,077.86 $ 1,292,159.06

261,152.31 158,427.25 305,977.29
54,459.66 67,814.81 146,256.00 173,696.26 17,561.95

261,152.31 158,427.25 305,977.29
54,459.66 67,814.81 146,256.00 173,696.26 1,172,740.53

213,051.83 21,459.02
325,506.46 51,244.64 61,369.64 70,816.68
133,629.50 1, 165,999.81

$ 2,403,775.85 $ 3,688,601.97 $ 3,335,236.64

$

198.97 $

-136,310.71 $

-175,949.60

96,009.87

$

198.97 $

-136,310.71 $

5,437.79

317,890.38

-502,555.74

-478,219.45

-11,504.00 -2,528.45

-79,939.73 392,418.40
22,632.78 -17,818.87
597.80

$

-496,918.98 $

-310,672.23 $

317,890.38

- 21 -

HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30. 2002

SCHEDULE "1"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U.S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food and Nutrition Program Food Services School Breakfast Program National School Lunch Program Pass-Through From Office of School Readiness Food and Nutrition Program Summer Food Service Program for Children
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Distribution Program (1)
Total U.S. Department of Agriculture
Education, U.S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Individuals with Disabilities Education Act Part B - Special Education Flow Through Preschool Capacity Building Improvement
Total Special Education Cluster
Other Programs Pass-Through From Georgia Department of Education Comprehensive School Reform Demonstration Project Elementary and Secondary Education Act Title I Grants to Local Educational Agencies Title II Eisenhower Professional Development TitleV Innovative Education Program Strategies Title VI Class Size Reduction Safe and Drug-Free Schools and Communities Vocational Education - Basic Grants to States High School Program Basic Grant
Total U.S. Department of Education
Defense, U. S. Department of Direct Department of the Air Force R.O.T.C. Program

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 10.555
10.559

N/A

(2)

N/A

$

1,118,880.70 (3)

N/A

(2)

$

1,118,880.70

10.550

N/A

36,297.88

$

1,155,178.58

84.027 84.173 84.027

N/A

$

N/A

N/A

$

213,705.56 8,039.70 8,056.00
229,801.26

84.332
* 84.010 84.281 84.298 84.340 84.186
84.048

NIA

78,792.53 (3)

N/A

556,461.11

N/A

18,665.25

N/A

17,471.00

N/A

99,141.94 (3)

N/A

7,027.24 (3)

N/A

59,404.24 (3)

$

1,066,764.57

$

33,982.21

- 22 -

HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2002

SCHEDULE "1"

FUNDING AGENCY PROGRAM/GRANT
Health and Human Services, U. S. Department of Direct Head Start Pass-Through From Georgia Department of Human Resources Child Care and Development Block Grant
Total U.S. Department of Health and Human Services

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

93.600 93.575

$

1,123,200.12 (3)

N/A

213,811.16 (3)

$ ----'1-'-',3;...:;.3.;....,7,-"-01.;...c1...c.;;.2=-8

Total Federal Financial Assistance
N/A = Not Available

$ ====3=,5=9=2,=93=6=.64=

Notes to the Schedule of Expenditures of Federal Awards

(1) The amount shown for the Food Distribution Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the system during the current fiscal year.
(2) Expenditures for the Summer Food Service Program for Children ($16,863.19) and the School Breakfast Program ($220,609.71) were not maintained separately and are included in the 2002 National School Lunch Program.
(3) Expenditures for this program include State, and/or Other Funds. Expenditures are not maintained by fund source.

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 Hancock 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 general-purpose financial statements.

See notes to the general-purpose financial statements.

-23-

HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2002

SCHEDULE "2"

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 Gifted Student - Category VI Remedial Education Program Media Center Program Staff and Professional Development Indirect Cost 20 Days Additional Instruction Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Vocational Supervisors Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Alternative Program Health Insurance Preschool Handicapped Program Lottery Programs Assistive Technology Computers in the Classroom
Office of School Readiness Pre-Kindergarten Program
Office of Treasury and Fiscal Services Public School Employees Retirement
CONTRACTS Education, Georgia Department of Middle School After School Program Student Achievement NCEE Contract

GOVERNMENTAL FUND TYPES

SPECIAL

GENERAL

REVENUE

FUND

FUND

TOTAL

$ 436.348.00 18,219.00
952,758.00 77,582.00
482,481.00 73,594.00
909,918.00 677,182.00 350,186.00
799,296.00 39,343.00 34,436.00
152,653.00 28,852.00
1,051,418.00 47,093.00

$

436,348.00

18,219.00

952,758.00

77,582.00

482,481.00

73,594.00

909,918.00

677,182.00

350,186.00

799,296.00 39,343.00 34,436.00
152,653.00 28,852.00
1,051,418.00 47,093.00

331,184.00 104,201.00
20,000.00 50,243.00
6,880.00 14,376.00 78,669.00 684,744.00
$ 2,048.00
19,666.00 33,009.83 71,958.00 219,254.00 27,257.00

61,280.00
11,504.00 69,580.34

331,184.00 104,201.00
20,000.00 50,243.00
6,880.00 14,376.00 78,669.00 684,744.00 61,280.00
2,048.00
19,666.00 33,009.83 71,958.00 219,254.00 27,257.00
11,504.00 69,580.34

54,832.64

54,832.64

23,484.00

23,484.00

30,681.81 44,092.00

30,681.81 44,092.00

$ 7,893,106.64 $ 197,196.98 $ 8,090,303.62

See notes to the general-purpose financial statements.

- 25 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

RUSSELL W. HINTON
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
March 10, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Hancock County Board of Education
REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited the financial statements of Hancock County Board of Education as of and for the year ended June 30, 2002, and have issued our report thereon dated March 10, 2004. This report was qualified for various departures from generally accepted accounting principles, as identified in the auditor's report on the general-purpose financial statements. 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.
Compliance
As part of obtaining reasonable assurance about whether Hancock 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 grants, noncompliance with which could have a direct and material effect on the determination offinancial statement amounts. However, providing an opinion on compliance with those provisions was not an objective ofour audit, and accordingly, we do not express such an opinion. The results ofour tests disclosed no instances ofnoncompliance that are required to be reported under Government Auditing Standards.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Hancock County Board ofEducation'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 assurance on the internal
2002YB-40

control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Hancock 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 ofFindings and Questioned Costs as items FS-6701-02-02, FS-6701-02-03, FS-6701-02-04, FS-6701-02-06, FS-6701-02-07, FS-6701-02-09, FS-6701-02-10, FS-6701-02-11 and FS-6701-02-12.
A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements 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, ofthe reportable conditions described above, we consider items FS-6701-0203, FS-6701-02-06, FS-6701-02-11 and FS-6701-02-12 to be material weaknesses.
This report is intended solely for the information and use of the management, members of the Hancock County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

RWH:as 2002YB-40

State Auditor

RUSSELL W. HINTON
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
March 10, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members ofthe Hancock 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 Hancock County Board of Education with the types of compliance requirements described in the US. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2002. Hancock County Board ofEducation's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Hancock County Board of Education's management. Our responsibility is to express an opinion on Hancock County Board of Education's compliance based on our audit.
We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types 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 Hancock 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 Hancock County Board ofEducation's compliance with those requirements.
2002SA-65

As described in item FA-6701-02-01 in the accompanying Schedule of Findings and Questioned Costs, Hancock County Board ofEducation did not comply with requirements regarding Activities Allowed or Unallowed and Allowable Costs/Cost Principles that are applicable to its Title I Program. Compliance with such requirements is necessary, in our opinion, for Hancock County Board of Education to comply with requirements applicable to that program.
In our opinion, except for the noncompliance described in the preceding paragraph, the Hancock 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, 2002.
Internal Control Over Compliance
The management of Hancock 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 Hancock County Board of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
We noted certain matters involving the internal control over compliance and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Hancock County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FA-6701-02-01, FA-6701-02-02, FA-6701-02-03 andFA-6701-0204.
A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level of risk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, ofthe reportable conditions described above, we consider item FA-6701-02-01 to be a material weakness.
2002SA-65

This report is intended solely for the information and use of the management, members of the Hancock 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,
~-~
ell W. Hinton State Auditor
RWH:as 2002SA-65

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

HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2002

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-6701-99-02 FS-6701-00-01 FS-6701-00-02 FS-6701-00-03 FS-6701-00-04 FS-6701-00-06 FS-6701-01-01 FS-6701-01-02 FS-6701-01-03 FS-6701-01-04 FS-6701-01-05 FS-6701-01-06 FS-6701-01-07 FS-6701-01-08 FS-6701-01-09

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

CORRECTIVE ACTION/RESPONSES

EXPENDITURES/LIABILITIES/DISBURSEMENTS Overpayment of Board Member Per Diem Amount: $4,100.00 Finding Number: FS-6701-00-04

Several ofthe Board members have reimbursed the School District for the overpayments. Some filed Chapter 13.

CASH AND CASH EQUIVALENTS Inadequate Cash Management Procedures Finding Number: FS-6701-01-01

A consultant was hired to eliminate these problems.

EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Expenditures/Inadequate Documentation Finding Number: FS-6701-01-02

A new voucher package has been designed to eliminate this finding, which includes package slips, purchase orders, invoices and getting proper approval from the Finance Department prior to signing off on purchase orders.

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HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2002
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTION/RESPONSES
EXPENDITURES/LIABILITIES/DISBURSEMENTS Overpayment of Board Member Per Diem Amount: $15,650.00 Finding Number: FS-6701-01-03
Several ofthe Board members have reimbursed the School District for the overpayments. Some filed Chapter 13.
EMPLOYEE COMPENSATION Payroll Sample Exceptions Finding Number: FS-6701-01-04
The personnel department has been restructured and all deficiencies will be corrected.
GENERAL LEDGER Inadequate Accounting Procedures Finding Number: FS-6701-01-05
Internal control has been established to ensure that no journal entry adjusting fund balance is made without proper documentation and review prior to recording to the general ledger. This finding will be resolved in fiscal year 2003.
GENERAL LEDGER Detail Listing of Salary and Travel Not Reconciled to the General Ledger Finding Number: FS-6701-01-06
A new consultant was hired to help eliminate this problem.
GENERAL LEDGER Failure to Refund Unexpended Lottery funds Amount: $2,907.70 Finding Number: FS-6701-01-08
A corrected project completion report supported by the accounting records will be submitted to the Office of School Readiness along with a check for $2,907.70 to repay the unexpended lottery funds. This finding will be resolved in fiscal year 2003.
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HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2002

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CORRECTIVE ACTION/RESPONSES

GENERAL FIXED ASSETS Failure to Maintain a General Fixed Assets Account Group Finding Number: FS-6701-01-09

Management will begin implementing the fixed asset accounting software provided by GADOE. Even though the software is available, due to severe budget cuts, the School District cannot afford all of the additional charges associated with maintaining general fixed assets.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-6701-00-01 FA-6701-01-01 FA-6701-01-02 FA-6701-01-03

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

CORRECTIVE ACTION/RESPONSES

ALLOWABLE COSTS/COST PRINCIPLES Failure to Maintain Adequate Documentation Finding Number: FA-6701-01-01

Internal accounting control procedures are being implemented to ensure that all expenditure vouchers contain the requisition request, purchase order, receiving report and an original invoice before payments are disbursed.

REPORTING Claims for Reimbursements Not Supported by Accounting Records Finding Number: FA-6701-01-02

These invoices were misclassified and did not reflect proper expenditures for the Summer Feeding Program. Expenditures for Summer Feeding are now being expensed in a designated fund.

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HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2002
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES REPORTING Unexpended Grant Balance Amount: $5,437.79 Finding Number: FA-6701-01-03 The U. S. Department ofHealth and Human Services will be contacted as to the disposition
ofthe unexpended grant balance. It has been the policy ofU. S. Department ofHealth and
Human Services to reduce the current year allotment to resolve any unexpended grant funds. This finding should be resolved in fiscal year 2003.
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SECTION IV FINDINGS AND QUESTIONED COSTS

HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002

I SUMMARY OF AUDITOR'S RESULTS

1. Type of Report Issued on the Financial Statements The auditor's opinion on the Hancock County Board ofEducation's financial statements was qualified for various departures from generally accepted accounting principles.

2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Hancock County Board of Education disclosed financial statement reportable conditions related to the following control categories.

Cash and Cash Equivalents Employee Compensation Revenues/Receivables/Receipts

Expenditures/Liabilities/Disbursements General Ledger General Fixed Assets

All of the reportable conditions described above, except for Employee Compensation and Cash and Cash Equivalents are considered to be material weaknesses.

3. Noncompliance Material to the Financial Statements The audit of the Hancock 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 Hancock County Board ofEducation disclosed reportable conditions in internal control over major programs for the following compliance requirements.

Activities Allowed or Unallowed Allowable Costs/Cost Principles Special Tests and Provisions

Reporting Cash Management

Of the reportable conditions described above, Activities Allowed or Unallowed and Allowable Costs/Cost Principles are considered to be material weaknesses.

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

6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Hancock County Board of Education's audit disclosed audit findings required to be reported by section .510(a) of 0MB Circular A-133. These audit findings are included in section IV of this report.

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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002
I SUMMARY OF AUDITOR'S RESULTS
7. Major Programs Federal awards audited as major programs are as follows: 84.010 Elementary and Secondary Education Act - Title I - Grants to Local Educational Agencies 93.575 Child Care and Development Block Grant 93.600 Head Start
8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.00.
9. Low Risk Auditee The Hancock County Board ofEducation did not qualify as a low risk auditee as defined by Section .530 of 0MB Circular A-133.
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
BOARD MEETINGS Board Meeting Minutes Exceptions Nonmaterial Noncompliance Finding Control Number: FS-6701-02-01
An examination ofthe minutes ofthe regular and called meetings ofthe Hancock County Board of Education from July 2, 2001 through March 1, 2004 revealed the following exceptions:
Minutes from six meetings could not be provided.
Minutes for meetings for the months of July 2, 2001 through March 1, 2004 were not prepared nor approved in a timely manner.
Minutes did not contain the signatures necessary to document approved copies ofofficial Board minutes.
Official Code of Georgia Annotated Section 20-2-57(a) states in part:
"The superintendent or the board's nominee shall record in a book, to be provided for the purpose, all official proceedings ofthe local board, which shall be a public record open to the inspection ofany person interested therein; and all such proceedings, when so recorded, shall be signed by the chairperson and countersigned by the secretary."
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
BOARD MEETINGS Board Meeting Minutes Exceptions Nonmaterial Noncompliance Finding Control Number: FS-6701-02-01
These conditions were a result of the Board's apparent disregard for their fiduciary duty to the citizens ofHancock County. The current Board should implement procedures so that all minutes are properly recorded, documented and executed in a timely manner.
CASH AND CASH EQUIVALENTS Inadequate Cash Management Procedures Reportable Condition Repeated From Prior Year Finding Control Number: FS-6701-02-02
An examination ofthe internal control procedures revealed that the School District did not provide for adequate cash management procedures as follows:
Bank reconciliations were not prepared in a timely manner.
The bank reconciliation for the payroll account reflected an adjustment for an unidentifiable variance.
These conditions were a result ofmanagement's decision to limit the number ofadministrative staff made responsible for accounting functions. The School District should review the accounting procedures in place, design procedures that will enhance cash management procedures relative to the above control category, and implement those procedures to strengthen the internal control over accounting functions.
BUDGET PREPARATION EXECUTION REVENUES/RECEIVABLES/RECEIPTS Failure to Request Necessary Grant Funds Reportable Condition - Material Weakness Amount: $497,707.81 Finding Control Number: FS-6701-02-03
An examination of the School District's accounting records for the Head Start Program (CFDA 93.600) revealed that the program was in a deficit position of$497,707.81 at the end ofthe current fiscal year. This condition was due to the failure ofthe School District to request.available Federal grant funds necessary to cover grant expenditures.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
BUDGET PREPARATION EXECUTION REVENUES/RECEIVABLES/RECEIPTS Failure to Request Necessary Grant Funds Reportable Condition - Material Weakness Amount: $497,707.81 Finding Control Number: FS-6701-02-03
The School District should contact the U.S. Department of Health and Human Services to obtain information regarding the current availability of Federal grant funds to resolve this deficit.
EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Expenditures/Inadequate Documentation Reportable Condition Nonmaterial Noncompliance Amount: $1,949.50 Finding Control Number: FS-6701-02-04
An examination offifty-six expenditure vouchers was performed to test the validity and accuracy of the expenditure transactions. The following deficiencies were noted:
One expenditure voucher in the amount of $1,949.50 was noted for the improper purchase of trophies and awards.
Fourteen expenditure vouchers could not be located.
Ten vouchers were determined to be related to fraudulent activity. These vouchers are also part of those noted in Finding Control Number FS-6701-02-06.
The Official Code of Georgia Annotated Section 20-2-411 provides, in part, as follows:
"... school funds shall be used for educational purposes and may be used to pay the salaries of personnel and to pay for the utilization of school facilities, including school buses; for extracurricular and interscholastic activities, including literary events, music, and athletic programs within individual schools and between schools in the same or different school systems when such activities are sponsored by local boards ofeducation as an integral part of the total school program; and for no other purpose... ".
These conditions were a result of management's failure to adequately monitor and implement procedures to ensure that all school funds are expended for educational purposes and that adequate documentation ofthese expenditures is maintained. Internal controls should be implemented by the School District to ensure that school funds are utilized only for educational purposes and that voucher packages are properly prepared, reviewed and retained.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EXPENDITURES/LIABILITIES/DISBURSEMENTS Overpayment of Board Member Per Diem Nonmaterial Noncompliance Amount: $1,250.00 Repeated from Prior Year Finding Control Number: FS-6701-02-05
The Chairman ofthe Hancock County Board ofEducation, Earnest Carswell, was paid $1,250.00 per diem in excess of that authorized by local Legislation which states in part:
"... the chairperson ofthe Board shall be compensated in the amount of $400.00 per month. The chairperson and each member of the Board shall also receive a per diem of$50.00 for each called meeting of the Board within the Hancock County School District and for each day while meeting and traveling outside the Hancock County School District as a member of a committee of the Board, plus reimbursement for actual expenses necessarily incurred in connection therewith."
This overpayment was the result of the School District compensating the Chairman for signing School District checks. The presence of the Board Chairman at the School District offices for the purposes ofsigning checks does not constitute a board meeting. Reimbursement of$1,250.00 should be secured from the Chairman and deposited into School District's General Fund.
EXPENDITURES/LIABILITIES/DISBURSEMENTS Theft of Funds Reportable Condition - Material Weakness Amount: $63,228.01 Finding Control Number: FS-6701-02-06
Accounting records examined in connection with the Federal Bureau of Investigation's (FBI) investigation into alleged improprieties committed by Dr. Melvin Williams, the former Superintendent of the Hancock County Board of Education, revealed evidence supporting those allegations. Procedures performed in connection with the FBl's investigation identified school system funds totaling $45,803.05 and $17,424.96 in fiscal years 2002 and 2003 respectively were diverted by Dr. Williams and deposited into his personal banking accounts. Based on charges brought by the U.S. Attorney's Office, the Board suspended Dr. Williams without pay on September 8, 2003. Dr. Williams plead guilty in Federal court to theft of School District funds on January 22, 2004. Subsequent to completion ofaudit field work, on April 28, 2004, Dr. Williams was sentenced to serve six months in Federal prison and six months in house confinement and to pay restitution to the Board in the amount of $26,389.83. The Board should seek to recover $36,838.18 from the former Superintendent's indemnity bond for amounts diverted in excess ofrestitution ordered repaid by the court.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EMPLOYEE COMPENSATION Payroll Sample Exceptions Reportable Condition Repeated From Prior Year Finding Control Number: FS-6701-02-07
A sample of thirty-three employee payroll records and personnel files was performed to test the validity and accuracy of the payroll transactions. The following deficiencies were noted:
Extra pay for two employees could not be documented.
The personnel files for six employees contained inadequate documentation to support the employee's rate of pay. These included the two employees paid under the superintendent's code during the year.
Leave records for twenty-eight employees could not be produced.
These conditions were a result of management's failure to adequately monitor and implement procedures to ensure that payments made to employees are based on an approved rate of pay that is adequately documented in the employee's personnel file. Internal controls should be implemented by the School District to ensure that personnel files are properly maintained and all payments to employees are based on an approved rate of pay.
GENERAL LEDGER Detail Listing of Salary and Travel Not Reconciled to the General Ledger Nonmaterial Noncompliance Repeated From Prior Year Finding Control Number: FS-6701-02-08
The detailed listing of salary and travel payments made to employees as submitted to the Georgia Department ofAudits by the School District was not reconciled to the general ledger as presented for audit. Unidentifiable variances of$17,822.53 for salaries and $1,893.52 for travel remained between the detail and the general ledger.
This condition occurred because management did not ensure that amounts submitted to the Georgia Department of Audits were reconciled to the School District's general ledger. Administrative procedures should be implemented to ensure that the detailed listing of salaries and travel is reconciled to the School District's general ledger prior to submission to the Georgia Department of Audits.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Failure to Refund Unexpended Lottery Funds Reportable Condition Nonmaterial Noncompliance Amount: $14,056.23 Repeated From Prior Year Audit Control Number: FS-6701-02-09
An examination of the School District's compliance with regulations for the Lottery Program, PreKindergarten Program revealed that the School District failed to return unearned Lottery funds. An unearned balance of $14,056.23 remained at June 30, 2002 per the School District's accounting records.
This deficiency occurred because personnel failed to accurately record expenditures on the completion report. Appropriate procedures should be implemented to ensure that completion reports are submitted with accurate data. The School District should submit corrected completion reports with documentation supporting expenditures and return any unearned Pre-Kindergarten Program funds to the Office of School Readiness.
GENERAL LEDGER Failure to Transmit DE046 Financial Report Timely Reportable Condition Finding Control Number: FS-6701-02-10
The Hancock County Board of Education failed to transmit their DE046 Financial Report to the Georgia Department of Education in a timely manner. Consequently, the Georgia Department of Audits and Accounts was unable to prepare Quality Basic Education Program Schedules of Allotments and Expenditures by program and site that are normally included as additional financial information to the general-purpose financial statements.
This condition was the result of management's failure to adhere to procedures to ensure that the accounting records were closed in a timely manner. Internal controls should be implemented by the School District to ensure that the accounting records are closed soon enough after the end of the fiscal year that the DE046 can be submitted timely and additional financial information can be prepared.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition - Material Weakness Repeated From Prior Year Finding Control Number: FS-6701-02-11

An examination of the accounting procedures revealed that journal entries were not reviewed by someone outside of the accounting function and inadequate documentation was maintained to support journal entries. Consequently, undocumented adjustments made to fund balances in the Special Revenue Fund are reflected by this report as follows:

Special Revenue Fund School Food Services Fund Lottery Fund Federal Programs Fund Head Start Fund

$ 19,457.20 $ 4,879.09
$ -24,336.29

These conditions were a result ofmanagement's decision to limit the number ofadministrative staff made responsible for accounting functions. Internal controls should be implemented by the School District to ensure that all entries posted are properly documented and reviewed prior to recording to the general ledger.

GENERAL FIXED ASSETS Failure to Maintain General Fixed Assets Account Group Reportable Condition - Material Weakness Repeated From Prior Year Finding Control Number: FS-6701-02-12

The Hancock County Board of Education failed to maintain a system-wide General Fixed Assets Account Group within the formal accounting records as required by generally accepted accounting principles. This results in the general-purpose financial statements of the School District being incomplete and not in accordance with generally accepted accounting principles. Appropriate action should be taken by the School District to establish accounting controls and procedures to provide for maintenance ofa General Fixed Assets Account Group. These subsidiary records should include an . inventory of land, buildings, and equipment owned by the School District and should include, but may not be limited to, date acquired, acquisition cost, estimated replacement cost, location, and description. Detailed records should be maintained of all additions and deletions to the General Fixed Assets Account Group.

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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Reportable condition - Material Weakness Material Noncompliance U.S. Department of Education Through Georgia Department of Education Questioned Costs: $92,139.63 Finding Control Number: FA-6701-02-01
During the year in review, the School District expended $92,139.63 in E.S.E.A. Title I Program funds (CFDA No. 84.010) to support costs that were not related to the Title I program. Of this amount, $89,754.04 was incurred for personnel service costs and $2,385.59 for other costs. This occurred because accounting policies and procedures did not exist to properly confirm and document that expenditures charged to the Title I program were for allowable program purposes. These questioned costs represent 15% ofthe $611,972.00 in Federal funding made available to the Title I program in fiscal year 2002.
Provisions of 0MB Circular A-87, Cost Principles for Determining Allowable Costs, require that personnel who work solely on a Federal program confirm their activity through a certification that is to be prepared at least semi-annually. For those personnel who work on more than one Federal program or other activities, a monthly personnel activity report or similar documentation is required to confirm their work. Such documentation reflects after-the-fact certification oftheir actual activity and serves as a basis for the compensation that may be charged to a Federal program. The School District had no procedures in place to conform to these requirements and thus no documentation existed to verify activities of Title I personnel.
Our review ofpersonnel costs charged to the Title I program disclosed$ 80,240.92 in salaries offour employees who had no involvement with the Title I program. Three of these employees held administrative positions in the central office. It was further noted that a portion ofanother employee's salary amounting to $ 9,513.12 was charged to the Title I program although the Title I Director was not familiar with the employee and could not verify that the employee worked in a Title I activity. Our review of non-personal service costs also disclosed 12 instances in which$ 2,385.59 in Title I funds were either (1) used to support non-Title I costs, (2) related to the previous fiscal year, or (3) the School District did not have documentation to support the expenditure. We found that the Title I Director, who was responsible for overseeing the Title I program, was not responsible for approving such costs.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Reportable condition - Material Weakness Material Noncompliance U.S. Department of Education Through Georgia Department of Education Questioned Costs: $92,139.63 Finding Control Number: FA-6701-02-01
The School District should implement procedures to ensure that all personnel salary costs charged to the Title I program are for only those personnel whose time has been confirmed as expended on Title I program activities. Measures should be initiated to include the Title I Director in the process of approving expenditures that are related and allowable to the Title I program. The School District should refund $92,139.63 to the Georgia Department of Education.
CASH MANAGEMENT Excessive Cash Balances Reportable Condition U.S. Department of Health and Human Services Through Georgia Department of Human Resources Finding Control Number: FA-6701-02-02
A review ofcash management procedures for the Child Care and Development Block Grant (CFDA 93.575) disclosed that cash draws were made in advance of immediate cash needs, resulting in the accumulation ofexcessive cash balances. The Child Care and Development Block Grant maintained excessive ending monthly cash balances for six months of the year under review.
This condition occurred because the School District did not have procedures in place to accurately forecast cash needs on the required "Contract Budget and Monthly Cumulative Contract Expenditure Report". Procedures should be implemented to accurately forecast cash needs based on actual expenditures incurred in order to minimize or eliminate the time elapsing between the transfer of funds from the Georgia Department ofHuman Resources and the disbursement of such funds by the School District.
REPORTING Failure to Comply With Single Audit Report Distribution Requirements Reportable Condition Finding Control Number: FA-6701-02-03
The School District did not comply with audit report distribution requirements as contained in 0MB Circular A-133, Audits ofStates, Local Governments and Non-Profit Organizations. The School
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
REPORTING Failure to Comply With Single Audit Report Distribution Requirements Reportable Condition Finding Control Number: FA-6701-02-03
District's Fiscal year 2001 Single Audit contained two findings which dealt with the Head Start program that was funded directly by the U. S. Department ofHealth and Human Services (HHS) and another Federal finding involved the Summer Food Service Program for Children (SFS Program) which was funded through the Office ofSchool Readiness (OSR). Since the School District did not have procedures in place to meet its report distribution requirements, we found that these two governmental agencies did not receive a copy of the School District's audit report and related corrective action plan to coordinate the resolution of the findings.
Provisions of the Circular require that a reporting package be provided to the Federal Audit Clearinghouse upon issuance of the School District's Single Audit Report. The Clearinghouse receives and maintains information based on the results of Single Audits. It also furnishes Single audits and related corrective action plans to Federal Departments when Single Audits include findings dealing with Federal assistance programs that were funded directly by a Federal Department to the School District. We noted that the School District had no documentation on file indicating that the required reporting package had been forwarded to the Federal Audit Clearinghouse or that HHS had received a copy ofthe audit report and corrective action plan reflecting the resolution ofthe two Head Start program findings.
According to the provisions ofthe Circular, the School District was also responsible for forwarding a copy of an audit report and a corrective action plan to the OSR. There was no documentation provided that a report and corrective action plan addressing the resolution of the SFS program finding was furnished to OSR as required.
The School District needs to implement procedures to ensure that reporting requirements ofCircular A-133 are met to include the submission of needed copies of its Single Audit report and required related information to the Federal Audit Clearinghouse and other applicable grantor organizations. To satisfy its reporting obligations for the fiscal year 2001 Single Audit, the School District should (1) contact the Clearinghouse and ascertain the required components of the reporting package that need to be forwarded to the Clearinghouse and (2) provide a copy ofthe report and corrective action plan to the Georgia Office of School Readiness.
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HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Failure to Meet Comparability Requirements Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6701-02-04 The School District was unable to substantiate that it met the comparability requirements for the E.S.E.A. Title I program (CFDA No. 84.010) as prescribed under 20 USC 6321. By meeting these requirements, the School District ensures that schools receiving Title I services receive comparable services provided with State and local funds. In an October 19, 1998 memo to the School Districts, the Georgia Department of Education provided guidance and instructions relative to documenting compliance with comparability requirements. While the memo advised the School Districts that such documentation should be made available for audit purposes, the School District was unable to produce documentation that it met these requirements. The School District has two elementary schools that serve the same grade span and thus were subject to meeting comparability requirements. The School District needs to implement procedures to meet comparability requirements as specified by Federal and State provisions and ensure that documentation ofsuch is maintained on file for audit purposes.
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