HANCOCK COUNTY BOARD OF EDUCATION SPARTA, 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 HANCOCK 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 FUND FINANCIAL STATEMENTS A BALANCE SHEET GOVERNMENTAL FUNDS 3 B STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 5 C NOTES TO THE BASIC FINANCIAL STATEMENTS 6 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 15 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 16 3 SCHEDULE OF STATE REVENUE 18 4 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 19 HANCOCK COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - 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 SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 June 16, 2005 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 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 of each major fund, and the aggregate remaining fund information (Exhibits A through C) ofthe Hancock County Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Hancock County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm1ons. Management has not presented district-wide financial statements to display the financial position and changes in financial position of its governmental activities. Accounting principles generally accepted in the United States of America require presentation of district-wide financial statements. The amounts that would be reported in district-wide financial statements for the Hancock County Board of Education's governmental activities are not reasonably determinable. 2004ARL-22 In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the Hancock County Board ofEducation, as ofJune 30, 2004, or the changes in financial position for the year then ended. In accordance with Government Auditing Standards, we have also issued our report dated June 16, 2005, 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 grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 15, 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 Hancock County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 4, 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, except for the effects of the matter referred to in the third paragraph, such information, 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:as 2004ARL-22 State Auditor HANCOCK COUNTY BOARD OF EDUCATION HANCOCK COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2004 EXHIBIT"A" ASSETS Cash and Cash Equivalents Accounts Receivable, Net Taxes State Government Federal Government Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Short-Term Debt Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Bus Replacement Inventories Unreserved Undesignated Reported in: General Fund (Deficit) Total Fund Balances Total Liabilities and Fund Balances GENERAL FUND DEBT SERVICE FUND TOTAL $ 378,313 $ 252,059 $ 97,950 820,400 463,564 11 594 7,923 630,372 105,873 820,400 463,564 11 594 $ 1 771 821 $ 259,982 $ ======2='=,0=3=1'e:80=3= $ 546,191 $ 1,149,766 850,100 583 944 $ 3,130,001 $ 259,982 $ 259,982 $ 806,173 1,149,766 850,100 583,944 3,389,983 $ 159,891 11,594 -1,529,665 $ -1,358,180 $ 159,891 11,594 -1,529,665 $ -1 358 180 $ 1 771 821 $ 259,982 $ ======2='=,0=3=1''=8=03= The notes to the basic financial statements are an integral part of this statement. -3 - HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2004 EXHIBIT "B" 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 Food Services Operation Total Expenditures Excess of Revenues over Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning (Restated) Adjustments Fund Balances - Ending GENERAL FUND DEBT SERVICE FUND TOTAL $ 3,123,386 $ 15,250 7,417,843 3,637,124 123,591 4,296 380,948 $ 14,702,438 $ 16,376 $ 1,038 17,414 $ 3,139,762 15,250 7,417,843 3,637,124 123,591 5,334 380,948 14,719,852 $ 7,626,348 $ 562,362 371,608 267,263 1,473,477 706,493 214,183 836,700 911,566 84,207 198,474 1,182,326 $ 14 435,007 $ $ 267,431 $ 0 $ 0 $ 17,414 $ 7,626,348 562,362 371,608 267,263 1,473,477 706,493 214,183 836,700 911,566 84,207 198,474 1,182,326 14,435,007 284,845 $ 670,761 $ $ 670,761 $ $ 938,192 $ -2,231,580 -64,792 $ -670,761 -670,761 $ -653,347 $ 653,347 670,761 -670,761 0 284,845 -1,578,233 -64,792 $ -1 358 180 $ 0 $ ==-=1=3=5=8=18=0= The notes to the basic financial statements are an integral part of this statement. -5- HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "C" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY 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 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 fund financial statements and notes to the basic financial statements of the Hancock County Board of Education. Fund Financial Statements: The fund financial statements provide information about the School District's funds. Eliminations have been made to minimize the double counting of internal activities. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. Debt Service Fund accounts for taxes (property) legally restricted for the payment of general long-term principal, interest and paying agent's fees. BASIS OF ACCOUNTING The District-wide governmental financial statements (Statement of Net Assets, Statement of Activities, Reconciliation ofthe Governmental Funds Balance Sheet to the Statement ofNet Assets, and Reconciliation ofthe Governmental Funds Statement ofRevenues, Expenditures and Changes in Fund Balance to the Statement ofActivities) are not presented in the basic financial statements. To conform to generally accepted accounting principles, District-wide financial statements should be reported in the basic financial statements. 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. -6- HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"C" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred. Capital asset acquisitions are reported as expenditures in governmental funds. 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. Although "school activity accounts" are maintained at the individual schools, neither the assets, liabilities and fund balances, nor the revenues, expenses/expenditures and changes in net assets/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 basic financial statements. RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND A prior period adjustment of$431,398 was made to reduce Fund Balance July 1, 2003, for prior year expenditures not reported in the School District's financial statements. 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. -7- HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "C" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PROPERTY TAXES The Hancock County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on November 7, 2003 (levy date). Taxes were due on January 15, 2004 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The 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, at the fund reporting level, during the fiscal year ended June 30, 2004, for maintenance and operations amounted to $3,110,848 and for school bonds amounted to $16,376. The tax millage rate levied for the 2003 tax year (calendar year) for the Hancock County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 12.78 mills 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. DEFICIT FUND BALANCES Funds reporting a deficit fund balance at June 30, 2004, are as follows: Fund Type/Fund Name Deficit Balances General Fund $ 1,529,665 The School District plans to liquidate the deficit through an increase in the millage rate, through requests from respective grantors, the closure of one school and reductions in workforce. -8- HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"C" 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 (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 $1,077,691. The amounts of the total bank balances are classified into three categories of credit risk: -9- HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"C" Note 3: 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, 2004, as follows: Risk Category Bank Balance 1 $ 186,786 2 890,905 3 0 Total $ 1,077,691 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: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2004, consisted of the following: Transfer to Transfers From Debt Service Fund General Fund $====6=='70-,7==6==1 Transfers are used to move the Debt Service Fund unreserved fund balance to the General Fund. Note 6: 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. - 10 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "C" Note 6: RISK MANAGEMENT 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 of God. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2003 2004 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0 $ 0 $ 0 $ 0 $ 0 $ 30 429 $ 19 897 $ 10 532 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Employees $ 100,000 $ 50,000 Note 7: SHORT-TERM DEBT The School District obtains temporary loans in advance of property tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution of the State of Georgia limits the aggregate amount of short-term debt to 75 percent of the total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 of the calendar year in which the debt was incurred. The School District was unable to repay an outstanding loan balance of$500,100 at December 31, 2003. Short-term debt activity for the fiscal year is as follows: Beginning Balance Issued Redeemed Ending Balance Temporary Loans $===0 $ 2,150,200 $ 1,300.100 $ 850.100 - 11 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"C" Note 8: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $213,594 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $211,913 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 $1,681 Note 9: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 10: 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: - 12 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "C" Note 10: RETIREMENT PLANS Fiscal Year 2004 2003 2002 Percentage Contributed 100% 100% 100% Required Contribution $ 691,114 $ 751,421 $ 691,785 - 13 - HANCOCK 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 Food Services Operation Total Expenditures Excess of Revenues over Expenditures OTHER FINANCING SOURCES Other Sources Net Change in Fund Balances Fund Balances - Beginning (Restated) Adjustments Fund Balances - Ending NONAPPROPRIATED BUDGETS ORIGINAL FINAL ACTUAL AMOUNTS $ 3,402.359 $ 3.402.359 $ 3,123,386 15,250 7,253,227 7,577,726 7,417,843 4,038,103 4,934,067 3,637,124 123,591 4,296 380 948 $ 14 693 689 $ 15914152 $ 14 702 438 $ 7,692,989 $ 7,778,170 $ 7,626,348 652,676 464,005 300,933 1,155,100 874.702 212.069 868.220 930,160 323.000 121.860 1 011 503 647,901 630,870 308,420 1,149,056 872,594 211.069 873.220 922.714 323.000 129.297 997 780 562,362 371,608 267,263 1,473,477 706,493 214,183 836,700 911,566 84,207 198.474 1 182 326 $ 14 607 217 $ 14 844 091 $ 14 435 007 $ 86.472 $ 1.070.061 $ 267.431 670 761 $ 86.472 $ 1.070.061 $ 938,192 -1,939,227 -1,939,227 -2.231.580 -243 083 -243 083 -64 792 $ -2,095,838 $ -1112 249 $ -1 358 180 Notes to the Schedule of Revenues Expenditures and Changes in Fund Balances Budget and Actual 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. -15- HANCOCK 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 and Nutrition Program Food Services School Breakfast Program National School Lunch Program Seamless Summer Nutrition Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Donation (1) Total U.S. Department of Agriculture Corporation for National and Community Service Pass-Through From Georgia Department of Education Learn and Serve America School and Community Based Programs 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 Comprehensive School Reform Demonstration Education for Homeless Children and Youth Enhancing Education Through Technology Program Improving Teacher Quality State Grants Rural Education Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U.S. Department of Education 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 Defense, U. S. Department of Direct Department of the Air Force R.O.T.C. Program Total Federal Financial Assistance N/A = Not Available - 16 - CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD . 10.553 . 10.555 . 10.555 N/A N/A $ N/A $ (2) 960,334 (2) 960,334 10.550 N/A $ 49 247 1 009 581 94.004 NIA $ 4 631 84.027 84.173 NIA $ N/A $ 214,582 7 256 221,838 84.332 84.196 84.318 84.367 84.358 84.186 . 84.298 84.010 84.048 . 93.600 93.575 N/A N/A N/A N/A N/A NIA N/A N/A N/A $ 76,426 7,213 24,002 108,174 20,313 2,850 18,527 768,200 42 449 1,289,992 $ N/A $ 1,084,380 37 314 1 121 694 $ 43 531 $ 3 469 429 HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30 2004 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($193,584) and for the Seamless Summer Nutrition Program ($15,987) were not maintained separately and are included in the 2004 National School Lunch Program. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the 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 basic financial statements. See notes to the basic financial statements. - 17 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30 2004 AGENCY/FUNDING GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program 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 Vocational Supervisors Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Agriculture-Extended Day Agriculture-Extended Year Alternative Program Health Insurance Mentor Teachers Preschool Handicapped Program School Improvement (Georgia's Choice) Special Education Low Incidence Grant Student Information System (SIS) Technology/Career Education-Extended Day Vocational Construction Related Equipment-State Bonds Office of Treasury and Fiscal Services Public School Employees Retirement See notes to the basic financial statements. - 18 - SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 67,408 404,617 42,242 975,875 84,757 449,149 62,442 834,285 683,772 306,663 12,703 268,545 316,192 146,242 76,808 49,608 35,911 -809 134,407 43,048 28,307 298,729 327,280 413,016 317,395 64,546 19,500 47,827 5,879 9,008 174,706 571,591 55,828 -343,244 14,165 14,378 1,913 806 67,468 211,913 5,044 28,493 60,000 5,714 15,865 4,920 1,250 1 681 $ 7 417 843 HANCOCK COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2004 SCHEDULE "4" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category II Category Ill 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 $ 463,280 $ 495,722 $ 20,576 $ 516,298 44,633 64,329 64,329 1,125,015 1,037,074 44,407 1,081,481 101,254 64,435 64,435 523,167 929,774 24,563 954,337 75,706 966,147 781,804 361,617 934,975 53,122 42,293 76 963 93,089 1,132,052 1,103,051 490,210 590,031 290,581 18,434 137,502 36,051 16,358 28,017 42,689 93,365 1,337 239 93,089 36,051 1,148,410 1,131,068 532,899 683,396 290,581 1,337 18,434 137,741 $ 5,549,976 $ 6,446,284 $ 307,602 $ 6,753,886 154,546 32,291 247,317 5 098 49,853 28,735 297,170 33,833 TOTAL QBE FORMULA FUNDS $ 5,736,813 $ 6,698,699 $ 386190 $===7,=08=4=,8=8===9 (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. - 19 - 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 June 16, 2005 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 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 each major fund and the aggregate remaining fund information of Hancock County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Hancock County Board of Education's basic financial statements and have issued our report thereon dated June 16, 2005. This report was qualified for various departures from generally accepted accounting principles, as identified in the auditor's report on the basic financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered 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 an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Hancock County Board ofEducation's ability to record, process, summarize and report financial data 2004YB-40 consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6701-04-01, FS-6701-04-03, FS-6701-04-04, FS-6701-04-05, FS-6701-04-06, FS-6701-04-07, FS-6701-04-08, FS-6701-04-09, FS-6701-04-10, FS-6701-04-13, FS-6701-04-14, FS-6701-04-15, FS-6701-04-16 and FS-6701-04-17. 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, of the reportable conditions described above, we consider items FS-6701-04-01, FS-6701-04-03, FS-6701-04-05, FS-6701-04-09, FS-670104-15 and FS-6701-04-17 to be material weaknesses. Compliance and Other Matters 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 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 Hancock County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~in~~~ State Auditor RWH:as 2004YB-40 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 June 16, 2005 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 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 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 of its major Federal programs for the year ended June 30, 2004. 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 of America; 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. 2004SA-65 As described in item FA-6701-04-02 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 - Grants to Local Educational Agencies Program (CFDA 84.010). 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, 2004. 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-6701-04-01, FA-6701-04-02, FA-6701-04-03, FA-6701-04-04, FA-6701-04-05, FA-6701-04-06, FA-6701-04-07, FA-6701-04-08 and FA-6701-04-09. A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, ofthe reportable conditions described above, we consider items FA-6701-04-01 and FA6701-04-02 to be material weaknesses. 2004SA-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, RWH:as 2004SA-65 State Auditor SECTION III 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, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6701-00-04 FS-6701-01-02 FS-6701-01-03 FS-6701-01-04 FS-6701-01-05 FS-6701-01-08 FS-6701-02-01 FS-6701-02-02 FS-6701-02-03 FS-6701-02-04 FS-6701-02-05 FS-6701-02-06 FS-6701-02-07 FS-6701-02-08 FS-6701-02-09 FS-6701-02-10 FS-6701-02-11 FS-6701-02-12 FS-6701-03-01 FS-6701-03-02 FS-6701-03-03 FS-6701-03-04 FS-6701-03-05 FS-6701-03-06 FS-6701-03-07 FS-6701-03-08 FS-6701-03-09 FS-6701-03-10 FS-6701-03-11 FS-6701-03-12 FS-6701-03-13 Partially Resolved - See Corrective Action/Responses Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses Further Action Not Warranted Further Action Not Warranted Unresolved - See Corrective Action/Responses Further Action Not Warranted Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Further Action Not Warranted Unresolved - See Corrective Action/Responses Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Further Action Not Warranted Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses - 1- HANCOCK 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 CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS Overpayment of Board Member Per Diem Amount: $4,100.00 Finding Control Number: FS-6701-00-04 Management has implemented procedures in fiscal year 2005 to help eliminate this finding. EXPENDITURES/LIABILITIES/DISBURSEMENTS Overpayment of Board Member Per Diem Amount: $15,650.00 Finding Control Number: FS-6701-01-03 Some of the Board members have reimbursed the School District for the overpayments. Some filed Chapter 13. EMPLOYEE COMPENSATION Payroll Sample Exceptions Finding Control Number: FS-6701-01-04 Management has implemented procedures in fiscal year 2005 to help eliminate this finding. GENERAL LEDGER Failure to Refund Unexpended Lottery Funds Amount: $2,907.70 Finding Control Number: FS-6701-01-08 The Board of Education hired a new management team in fiscal year 2005. Management began to address all unresolved findings. BUDGET PREPARATION/EXECUTION REVENUES/RECEIVABLES/RECEIPTS Failure to Request Necessary Grant Funds Amount: $497,707.81 Finding Control Number: FS-6701-02-03 Management has contacted the Department of Health and Human Services. The Department of Health and Human Services has requested additional information ofwhat made up the amount and in what fiscal years this occurred. Management has been unable to locate sufficient evidence to support the request for this Federal funding. -2- HANCOCK 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 CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS Overpayment of Board Member Per Diem Amount: $1,250 Finding Control Number: FS-6701-02-05 The Hancock County Board of Education has not secured the reimbursement of $1,250. However, Hancock County Board of Education has enacted procedures to prevent the overpayment of Board member per diem. EXPENDITURES/LIABILITIES/DISBURSEMENTS Theft of Funds Amount: $63,228.01 Finding Control Number: FS-6701-02-06 The Hancock County Board of Education is currently receiving repayment. EMPLOYEE COMPENSATION Payroll Sample Exceptions Finding Control Number: FS-6701-02-07 The finding for fiscal year 2002 is unresolved. However, management established procedures in fiscal year 2005 which eliminated this finding. GENERAL LEDGER Failure to Refund Unexpended Lottery Funds Amount: $14,056.23 Audit Control Number: FS-6701-02-09 The Hancock County Board of Education is under new management in fiscal year 2005. Management has begun to assess the unresolved finding. GENERAL LEDGER Inadequate Accounting Procedures Finding Control Number: FS-6701-02-11 Management has begun to have someone review journal entries along with supporting documentation in the 2005 fiscal year. -3- HANCOCK 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 CORRECTIVE ACTION/RESPONSES BOARD MEETINGS Board Meetings/Minutes Exceptions Finding Control Number: FS-6701-03-01 Management has begun to follow up on Board meeting minutes to ensure minutes are approved in a timely manner. CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS Inadequate Cash Management Procedures Finding Control Number: FS-6701-03-02 In fiscal year 2005, management began to implement procedures to correct this finding. BUDGET PREPARATION/EXECUTION Deficit Fund Balance Finding Control Number: FS-6701-03-03 In fiscal year 2005, management implemented a reduction-in-force plan. REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Report School Activity Accounts Finding Control Number: FS-6701-03-04 In fiscal year 2005, management implemented school activity financial reporting system. EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Documentation Finding Control Number: FS-6701-03-05 Management has taken steps to eliminate the finding. EMPLOYEE COMPENSATION Inaccurate Reporting of Senior Management Compensation Amount: $7,800.00 Finding Control Number: FS-6701-03-06 Management has implemented procedures to eliminate this finding in fiscal year 2005. -4- HANCOCK 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 CORRECTIVE ACTION/RESPONSES EMPLOYEE COMPENSATION Payroll Sample Exceptions Amount: $24,620.00 Finding Control Number: FS-6701-03-07 Management began to implement procedures in fiscal year 2005 to resolve this finding. A new Superintendent was hired as of July 1, 2004. GENERAL LEDGER Detail Listing of Salary and Travel Not Reconciled to the General Ledger Finding Control Number: FS-6701-03-08 For fiscal year 2004, management reconciled ten out of a total of fifteen program fund sources. The ten program source funds (including the General Fund) represent 89%, $8,150,665.00, of the salary for fiscal year 2004. Total salaries for fiscal year 2004 were $9,224,599.00. GENERAL LEDGER Failure to Refund Unexpended Funds Amount: $71,212.00 Finding Control Number: FS-6701-03-09 The Hancock County Board of Education is under new management in fiscal year 2005. Management has begun to assess the unresolved finding. GENERAL LEDGER Failure to Transmit DE046 Financial Report Timely Finding Control Number: FS-6701-03-10 Management has implemented procedures to eliminate this finding in fiscal year 2005. GENERAL LEDGER Inadequate Accounting Procedures Finding Control Number: FS-6701-03-11 The Hancock County Board of Education is under new management in fiscal year 2005. Management has begun to assess the accounting procedures. -5- HANCOCK 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 CORRECTIVE ACTION/RESPONSES GENERAL LEDGER Inadequate Control Over Subsidiary Ledgers Finding Control Number: FS-6701-03-12 The Hancock County Board of Education is under new management in fiscal year 2005. Management has begun to assess the accounting procedures. CAPITAL ASSETS Failure to Maintain Capital Assets and Report Depreciation Cost Finding Control Number: FS-6701-03-13 Management has implemented procedures to resolve this finding in fiscal year 2005. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-6701-01-03 FA-6701-02-01 FA-6701-02-03 FA-6701-03-01 FA-6701-03-02 FA-6701-03-03 FA-6701-03-04 Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented CORRECTIVE ACTION/RESPONSES REPORTING Unexpended Grant Balance Amount: $5,437.79 Finding Control Number: FA-6701-01-03 The Hancock County Board of Education is under new management in fiscal year 2005. Management has begun to assess the unresolved finding. -6- HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Questioned Costs: $92,139.63 Finding Control Number: FA-6701-02-01 The Hancock County Board of Education is under new management in fiscal year 2005. Management has begun to assess the unresolved finding. REPORTING Failure to Comply With Single Audit Report Distribution Requirements Finding Control Number: FA-6701-02-03 The Hancock County Board of Education is under new management in fiscal year 2005. Management has begun to assess the unresolved finding. ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Amount: $91,168 Finding Control Number: FA-6701-03-01 The Hancock County Board of Education is under new management in fiscal year 2005. Management has begun to assess the accounting procedures. CASH MANAGEMENT Excessive Cash Balances Amount: $1,153 Finding Control Number: FA-6701-03-02 The Hancock County Board of Education is under new management in fiscal year 2005. Management has begun to assess the accounting procedures. -7- HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES CASH MANAGEMENT Failure to Refund Interest Amount: $290 Finding Control Number: FA-6701-03-03 The Hancock County Board of Education is under new management in fiscal year 2005. Management has begun to assess the accounting procedures. -8- SECTION IV FINDINGS AND QUESTIONED COSTS HANCOCK 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 Hancock County Board ofEducation's financial statements was adverse due to material 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 Accounting Controls (Overall) Expenditures/Liabilities/Disbursements Capital Assets General Ledger Budget Preparation/Execution All of the reportable conditions described above except for Employee Compensation and Budget Preparation/Execution 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 Cash Management Reporting Allowable Costs/Cost Principles Program Income Special Tests and Provisions 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. - 1- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 10.559 Food Services - Summer Food Service Program for Children 84.010 Title I Grants to Local Educational Agencies 93.600 Head Start 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Hancock County Board of Education 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 ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls Reportable Condition - Material Weakness Finding Control Number: FS-6701-04-01 An examination of the internal accounting control procedures revealed that the School District did not maintain adequate general controls over the Financial Accounting System. Access controls in the Financial Accounting System do not prevent unauthorized users from accessing critical accounting information or prevent employees from accessing accounting functions that are outside oftheir area of responsibility. Access controls, both manual and automated, are the basis for achieving security over the financial system. Further, separation of duties involving key accounting functions, both manual and automated, is the basis for achieving an adequate system of internal control. The deficiencies noted were as a result of management's decision not to implement standard access controls thereby increasing the risk of unauthorized access to the financial system by individuals both internal and external to the School District. Management should ensure that the access controls over the accounting information system limit access to the financial system to only employees with a need for access for the performance of their job duties. -2- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS BOARD MEETINGS Board Meeting Minutes Exceptions Nonmaterial Noncompliance Repeated from Prior Year Finding Control Number: FS-6701-04-02 An examination ofthe minutes ofthe regular and called meetings ofthe Hancock County Board of Education from July 29, 2004, through May 10, 2005, revealed the following exceptions: Minutes from three meetings could not be provided. Minutes for meetings for the months of July 29, 2004, through May 10, 2005, 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 of the local board, which shall be a public record open to the inspection of any person interested therein; and all such proceedings, when so recorded, shall be signed by the chairperson and countersigned by the secretary." These conditions were a result of the Board's apparent disregard for their fiduciary duty to the citizens of Hancock County. The current Board should implement procedures to ensure that all minutes are properly recorded, documented and executed in a timely manner. CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition - Material Weakness Finding Control Number: FS-6701-04-03 A review of the School District's internal control policies and procedures noted deficiencies in providing for adequate internal control over the following accounting functions: -3 - HANCOCK 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 - Material Weakness Finding Control Number: FS-6701-04-03 CASH AND CASH EQUIVALENTS The bank reconciliation function was not separated from the check preparation or general ledger function. The reconciliation ofthe operating account was not performed by someone independent of the general ledger function. No administrative review was performed to determine that bank reconciliations were correct and that all required adjustments had been made. Bank reconciliations were not prepared for four of seven bank accounts. Bank account reconciliations had unidentified variances of $2,392,362 for the operating account and $2,513 for the Head Start bank account. This condition results in a material misstatement in the School District's financial statements for the General Fund. A listing of outstanding checks, voided checks and non-sufficient fund checks was not available for testing. REVENUES/RECEIVABLES/RECEIPTS Deposits included on the bank statements, including property taxes of$12,079, were not recorded on the general ledger. This condition results in a material misstatement in the School District's financial statements for the Debt Service Fund. EXPENDITURES/LIABILITIES/DISBURSEMENTS The duty of approving vouchers for payment for all funds was not adequately separated from the duty of writing checks. Separation of duties involving key accounting functions is the basis for achieving an adequate system of internal control. These deficiencies were a result ofmanagement's decision to limit the number of administrative staff made responsible for accounting functions. Management should periodically review this decision to determine if employee duties can be reassigned to achieve a higher degree of internal control with existing staff. Internal controls should be implemented by the School District to ensure that all bank accounts are reconciled to the general ledger. -4- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS BUDGET PREPARATION/EXECUTION Deficit Fund Balance Reportable Condition Repeated from Prior Year Finding Control Number: FS-6701-04-04 At June 30, 2004, the General Fund of the Hancock County Board of Education reported a deficit fund balance in the amount of$1,529,665 which is considered to be an irregularity in the accordance with O.C.G.A. 20-2-67. This condition occurred because management approved expenditures in excess of funds available in the General Fund. The School District should establish appropriate policies and procedures designed to ensure that in future periods the School District does not report a deficit. REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Report School Activity Accounts Reportable Condition - Material Weakness Repeated from Prior Year Finding Control Number: FS-6701-04-05 The Hancock County Board ofEducation did not report assets, liabilities and fund balances, nor the revenues, expenses/expenditures and changes in net assets/fund balances of the school activity accounts which are maintained at the individual schools within its basic financial statements. This intentional omission ofmaterial amounts, by management, is considered to be a financial irregularity in accordance with O.C.G.A 20-2-67 and this condition results in the basic financial statements of the School District being incomplete and not in accordance with generally accepted accounting principles. The School District should establish appropriate policies and procedures designed to ensure that all financial activity ofthe various school activity accounts are reported within its basic financial statements as required. EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Documentation Reportable Condition Repeated from Prior Year Finding Control Number: FS-6701-04-06 An examination offifty-one expenditure vouchers was performed to test the validity and accuracy of the expenditure transactions. The following deficiencies were noted: -5- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Documentation Reportable Condition Repeated from Prior Year Finding Control Number: FS-6701-04-06 Twenty-six vouchers contained no indication of administrative approval prior to payment. Four vouchers could not be located. Four vouchers contained no receipt, for purchases made with credit cards. These conditions were a result of management's failure to adequately monitor and implement procedures to ensure that all expenditure voucher packages are reviewed for accuracy, proper documentation and correctness of classification prior to payment and recording of expenditures in the financial records. Appropriate action should be taken by the School District to ensure that voucher packages are properly prepared, reviewed and retained. EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Follow State Travel Regulations Reportable Condition Nonmaterial Noncompliance Finding Control Number: FS-6701-04-07 For the year under review, an examination of the School District's travel expenditures were performed to test the validity and accuracy ofthe expenditure transactions. The School District did not comply with travel regulations of the Georgia Department of Education as set forth in the Financial Management for Georgia Local Units of Administration. In addition, the School District failed to comply with the requirements of the Georgia Department of Audits and Accounts for reporting travel on the detail listing of salary and travel. The expenditures examined revealed the following deficiencies: Meal limitations of $28 per day were not adhered to. Employee travel vouchers did not always include odometer readings, explanation for the purpose of the trip, receipts for lodging, supplies or registration fees and were not always properly approved. Travel expenses for the Board Members are not included on the detail listing of salary and travel submitted to the Georgia Department of Audits and Accounts. -6- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Follow State Travel Regulations Reportable Condition Nonmaterial Noncompliance Finding Control Number: FS-6701-04-07 Travel expenses were posted to the incorrect expense account on the general ledger. This condition resulted from the School District's failure to implement internal controls to ensure that employee travel expenses are in compliance with state travel regulations and are properly reported to the Georgia Department of Audits and Accounts. Internal controls should be implemented by the School District to ensure that all travel expenditures are in compliance with state travel regulations, accurately recorded in the general ledger and properly reported. EXPENDITURES/LIABILITIES/DISBURSEMENTS QBE Allotments and Expenditures Reports Not Supported by Accounting Records Reportable Condition Finding Control Number: FS-6701-04-08 A comparison ofthe School District's Quality Basic Education (QBE) Allotments and Expenditures Report by Program to the accounting records revealed that the expenditures reported were not supported by the accounting records. Chapter 24 of the Financial Management for Georgia Local Units of Administration, as published by the Georgia Department of Education, requires that program expenditures in the accounting records agree with the QBE Allotments and Expenditures Report by Program. This condition resulted from the School District's failure to implement controls to ensure compliance with Georgia Department of Education requirements. The School District should establish and implement procedures to ensure that the reports are supported by the accounting records. EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Corporate Credit Card Expenditures Reportable Condition - Material Weakness Amount: $37,155 Finding Control Number: FS-6701-04-09 A review ofcredit card billings paid by the School District during the period July 1, 2003, to the end of audit field work noted deficiencies in internal controls over the use of corporate credit cards assigned to the management of Hancock County Board of Education. These billings included charges which were undocumented and in some cases appear to be for personal use and not for educational purposes. This condition is considered to be an irregularity in accordance with O.C.G.A. 20-2-67. -7- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Corporate Credit Card Expenditures Reportable Condition - Material Weakness Amount: $37,155 Finding Control Number: FS-6701-04-09 A review of Board Members' credit card billings paid by the School District noted the following: Payments for lodging totaling $14,785 did not include copies of motel bills. Payments were made in excess of allowable meal limits in the amount of$533. Payments were made for gasoline charges of$69. Employees ofthe School District are only entitled to be reimbursed for the actual mileage incurred from the point of departure to the travel destination. Payments were made for additional undocumented charges of $4,222. These charges were identified on the statements as cell phone charges, office supplies, engineering and construction, and school board membership fees. Payments in the amount of $7,438 were made by the School District for billings that only included a total account balance instead of an itemized listing of the charges. No documentation for the charges was included with the payment. A review of credit card billings paid by the School District for the Superintendent effective July 1, 2004, noted the following: Payments for lodging totaling $819 did not include copies of motel bills. One statement identified charges in the amount of $934 on March 23, 2005, for food and beverage at the Ritz Carlton in Greensboro, Georgia. Management stated that these charges were for a one day executive session attended by the Board Members, the Superintendent and the Finance Director. No documentation for these charges was included with the payment. A payment was made in the amount of $308 for a non-refundable airline ticket for the Superintendent's spouse. In addition, a $50 cancellation charge for the ticket was paid by the School District. The Superintendent reimbursed the School District $358 subsequent to the end of audit field work for these charges. -8- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Corporate Credit Card Expenditures Reportable Condition - Material Weakness Amount: $37,155 Finding Control Number: FS-6701-04-09 Payments were made for additional charges of $210 which were undocumented and do not appear to be for educational purposes. These charges were identified on the statements as office supplies and bed and bath accessories. The Superintendent was unable to provide an explanation for all of these charges. Payments in the amount of $2,599 were made by the School District for billings that only included a total account balance instead of an itemized listing of the charges. No documentation for these charges was included with the payment. A review of the Food Services Director's credit card billings paid by the School District noted the following: Total payments in the amount of $5,188 did not include appropriate approval and documentation such as purchase orders and receipts. In addition, the account statements identified numerous purchases that appear to be for personal use and not for educational purposes. See Finding Control Number FA-6701-04-01 This condition resulted from the School Districts failure to implement adequate internal controls to ensure that purchases made with corporate credit cards are properly documented and adhere to established Board policies. Internal controls should be implemented by the School District to ensure that school funds are utilized only for educational purposes, properly documented and adhere to Board policies. In addition, the School District should review the questioned costs noted above, determine the amount ofreimbursement due from the individuals involved, and take any other action determined to be appropriate. -9- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EMPLOYEE COMPENSATION Payroll Sample Exceptions Reportable Condition Finding Control Number: FS-6701-04-10 A review of twenty employee payroll records and personnel files was performed to test the validity and accuracy of the payroll transactions. The following deficiencies were noted: The interim superintendent was overpaid salary in the amount of$7,544. The School District was unable to provide official School District minutes formally approving this increase over the approved contract between the interim superintendent and the School District. A salary overpayment in the amount of$954 was made to one employee which resulted from the School District using the incorrect base pay rate in calculating the employee's salary as specified in the employee's approved salary contract. A salary underpayment in the amount of $741 was made to one employee. The School District was unable to provide documentation to support the reduction of the employee's approved salary contract. The personnel files for fourteen employees contained inadequate documentation to support the employee's rate of pay. These included a total of $210,918 in salary payments. Variances in the total amount of$1,138 were noted between the Earnings History Report and amounts reported on the detail listing of salary and travel submitted to the Georgia Department of Audits and Accounts for five employees which included a $408 variance for the interim Superintendent. This indicates that all compensation paid to employees is not being accurately reported on the detail listing of salary and travel. 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 and accurately reported to the Georgia Department ofAudits and Accounts. 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. The School District should seek reimbursement for the overpayments for deposit to the School District's General Fund and review the underpayment to determine ifadditional compensation is due to the employee involved. - 10 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Detail Listing of Salary and Travel Not Reconciled to the General Ledger Nonmaterial Noncompliance Repeated from Prior Year Finding Control Number: FS-6701-04-11 The detailed listing of salary and travel payments made to employees as submitted to the Georgia Department of Audits and Accounts by the School District was not reconciled to the general ledger as presented for audit. Unidentifiable variances of $28,120 for salaries and $9,124 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 and Accounts 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 and Accounts. GENERAL LEDGER Outstanding Loan Nonmaterial Noncompliance Finding Control Number: FS-6701-04-12 On December 31, 2003, the General Fund had an unpaid loan outstanding in the amount of $500,100. Article IX, Section V, Paragraph V ofthe Constitution ofthe State ofGeorgia provides, in part, as follows: "The governing authority ofany county, municipality or other political subdivision ofthis state may incur debt by obtaining temporary loans in each year to pay expenses... Such loans shall be payable on or before December 31 of the calendar year in which such loan is made. No such loan may be obtained when there is a loan then unpaid obtain in any prior year." This condition occurred because of management's failure to retire the entire loan on December 31, 2003 as required. Repayment ofloans should be made in conformity with constitutional limitations. - 11 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Failure to Refund Unexpended Funds Reportable Condition Nonmaterial Noncompliance Repeated from Prior Year Amount: $303,816 Audit Control Number: FS-6701-04-13 An examination of the School District's compliance with regulations for the State, Lottery and Federal Programs revealed that the School District failed to return unearned grant funds. An unearned balance remained at June 30, 2004, per the School District's accounting records as follows: State Program Local Assistance Grants $ Lottery Programs Computers in the Classroom $ Pre-Kindergarten Program $ Federal Programs Special Education Grants to States (CFDA No. 84.027) $ Improving Teacher Quality State Grants (CFDA No. 84.367) $ State Grants for Innovative Programs (CFDA No. 84.298) $ Title I Grants to Local Educational Agencies (CFDA No. 84.010) $ 34,000 7,288 226 73,853 85,340 10,564 92,545 This deficiency occurred because personnel failed to accurately record expenditures on the completion reports. 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 Local Assistance Grants to the Georgia Department of Community Affairs, Pre-Kindergarten Program funds to the Bright From the Start: Georgia Department of Early Care and Leaming and Computers in the Classroom grant and unearned Federal grants to the Georgia Department of Education. - 12 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Failure to Transmit DE046 Financial Report Timely Reportable Condition Repeated from Prior Year Finding Control Number: FS-6701-04-14 The Hancock County Board of Education failed to transmit their DE046 Financial Report to the Georgia Department of Education in a timely manner. The DE046 Financial Report for the year ended June 30, 2004, was due October 15, 2004, but was not transmitted to the Georgia Department of Education until June 1, 2005. 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. GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition - Material Weakness Repeated from Prior Year Finding Control Number: FS-6701-04-15 An examination ofthe School District's internal control procedures revealed that the School District did not provide for adequate accounting procedures as follows: Journal entries were not reviewed and approved by someone independent of the general ledger journal entry function. Journal entry documentation and descriptions were not adequate for two of the ten journal entries reviewed. 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 are posted, properly documented and reviewed prior to recording to the general ledger. - 13 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Inadequate Control over Subsidiary Ledgers Reportable Condition Repeated from Prior Year Finding Control Number: FS-6701-04-16 Our examination ofthe accounting records ofthe Hancock County Board ofEducation revealed that the School District did not provide for adequate general ledger procedures as follows: The accounts payable listing varied from the general ledger by $753. The School District was unable to provide a reconciliation ofthis general ledger balances to the subsidiary report. The School District's failure to ensure that subsidiary records are reconciled with the general ledger causes internal reports to management, generated from the subsidiary reports, to be inaccurate and misleading. This condition can lead to erroneous decisions by the School District management and result in inaccurate reporting of financial information. This condition was the result of management's decision to limit the number of administrative staff made responsible for accounting functions. Internal controls should be implemented by the School District to ensure that all subsidiary reports are properly reconciled to the general ledger. CAPITAL ASSETS Failure to Maintain Capital Assets and Report Depreciation Cost Reportable Condition - Material Weakness Repeated from Prior Year Finding Control Number: FS-6701-04-17 The Hancock County Board of Education did not report district-wide Capital Assets records and depreciation cost within its basic financial statements at June 30, 2004, as required by generally accepted accounting principles. This intentional omission of material amounts by management is considered to be a financial irregularity in accordance with O.C.G.A 20-2-67 and this condition results in the basic financial statements of the School District being incomplete and not in accordance with generally accepted accounting principles. The School District should establish appropriate policies and procedures designed to ensure that Capital Assets and depreciation cost are reported within its basic financial statements as required. - 14 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Reportable Condition - Material Weakness Nonmaterial Noncompliance U.S. Department of Agriculture Through Georgia Department of Education Amount: $5,188 Finding Control Number: FA-6701-04-01 A review of the School District's policies and procedures noted deficiencies in providing for adequate internal control over the Food Services - School Breakfast Program (CFDA No. 10.553), Food Services - National School Lunch Program (CFDA No. 10.555) and the Food Services Seamless Summer Nutrition Program (CFDA No. 10.555). A review ofcontrols over expenditures revealed that the School District official responsible for costs of these programs did not properly approve expenditures as required by the Office ofManagement and Budget Circular A-87 and A-133 Compliance Supplement. A review of the Food Services Director's credit card billings paid by the School District noted payments in the amount of$5,188 that did not include appropriate approval and documentation such as purchase orders and receipts. In addition, the account statements identified numerous purchases that appear to be for personal use and not for program purposes. See Finding Control Number FS6701-04-09. This condition was a result of management's failure to implement internal controls for monitoring compliance with Federal guidelines. The School District should review the Federal compliance procedures in place, design procedures which would enhance monitoring compliance with Federal guidelines and proper internal controls relative to the above Federal compliance requirements and implement those procedures to strengthen the internal control over Federal programs. The School District should review the questioned costs noted above to determine the amount of reimbursement due from the Food Services Director and take any other action determined to be appropriate. - 15 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 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 Amount: $29,280 Repeated from Prior Year Finding Control Number: FA-6701-04-02 A review of the Title I Grants to Local Educational Agencies program (CFDA No. 84.010) noted expenditures in the amount of $29,280 for personal services that were not related to the Title I program. This amount was incurred for personnel service costs. This condition occurred because management failed to implement internal controls for monitoring compliance with Federal guidelines to ensure that expenditures charged to the Title I program were for allowable program purposes. These questioned costs represent 4% ofthe $775,279 in Federal funding made available to the Title I program in Fiscal Year 2004. 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 of personnel costs charged to the Title I program disclosed $28,326 in salaries of six employees who had no involvement with the Title I program. It was further noted that a portion of one other employee's salary amounting to $954 was charged to the Title I program although the Title I Director could not verify that the employee worked in a Title I activity. 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. The School District should refund $29,280 to the Georgia Department of Education for the unallowable expenditures. - 16 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Reportable Condition U.S. Department of Agriculture/U. S Department of Education Through Georgia Department of Education Amount: $5,543 Finding Control Number: FS-6701-04-03 During the year under review, the School District's Title I Grants to Local Educational Agencies program (CFDA No. 84.010) reimbursed the Food Services - National School Lunch Program (CFDA No. 10.555) and the Food Services - Seamless Summer Nutrition Program (CFDA No. 10.555) for costs associated with school snacks in the amount of$5,543. Pursuantto 7 CFR Chapter 11, Subpart B, Section 210.4, the School District receives reimbursement for the Food Services program for serving meal supplements to children enrolled in the After School program. Therefore, the School District received reimbursement for the After School program from the Georgia Department of Education, as well as the Title I program. This condition was the result ofmanagement's failure to implement internal controls for monitoring compliance with Federal guidelines. The School District should implement procedures to ensure that all costs charged to the above Federal programs are for only those costs that are allowable for each Federal program. The School District should contact the Georgia Department of Education to determine which Federal program should refund the above questioned costs. - 17 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CASH MANAGEMENT Excessive Cash Balances Failure to Refund Interest Reportable Condition U.S. Department of Education Through Georgia Department of Education Amount: $159 Repeated from Prior Year Finding Control Number: FA-6701-04-04 A review of cash management procedures for the Title I Grants to Local Educational Agencies Program funds (CFDA No. 84.010) disclosed that cash draws were made in advance of immediate cash needs, resulting in the accumulation of excessive cash balances. The Title I program maintained excessive ending monthly cash balances for nine months of the year under review. In addition, the School District earned $159 in interest revenue which was not refunded to the Georgia Department of Education. 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 of Education and the disbursement of such funds by the School District. The School District should refund $159 to the Georgia Department of Education for unallowable interest proceeds. CASH MANAGEMENT Failure to Refund Interest Reportable Condition U.S. Department of Health and Human Services Amount: $136 Repeated from Prior Year Finding Control Number: FA-6701-04-05 A review of the cash management procedures for the Head Start program (CFDA No. 93.600) disclosed that interest earned in the amount of $136 was not refunded to the U.S. Department of Health and Human Services. This condition was the result ofmanagement's failure to implement internal controls for monitoring compliance with Federal guidelines. The School District should review the Federal compliance procedures in place, design procedures which would enhance monitoring compliance with Federal guidelines and proper internal controls relative to the above Federal compliance requirement and implement those procedures to strengthen the internal control over Federal programs. - 18 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS PROGRAM INCOME SPECIAL REPORTING SPECIAL TESTS AND PROVISIONS Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6701-04-06 A review of the School District's internal control policies and procedures noted deficiencies in providing for adequate internal control over the Food Services - School Breakfast Program (CFDA No. 10.553), the Food Services- National School Lunch Program (CFDA No. 10.555) and the Food Services - Seamless Summer Nutrition Program (CFDA No. 10.555) for the following compliance requirements. PROGRAM INCOME A review ofthe internal control procedures over the collection ofcash from meal sales revealed that deposits are not made in a timely manner. Cash receipts were held at one school for one month during May 2004. There is no reconciliation of cash deposits to the amount posted to the Point of Sale meal service system. SPECIAL REPORTING A review ofthe internal control procedures over the reporting ofaccurate meal counts revealed that there is no administrative review of meal counts reported by each school to the actual amount of meals served reported on the daily Point of Sale meal count reports. This deficiency could result in the inaccurate reporting ofmeal counts by category and type as required by 7 CFR sections 210.7(c), 210.8(c) and 225.9(d). SPECIAL TESTS AND PROVISIONS A test ofthe process for the transfer ofFederal reimbursement payments revealed that in April 2004, the Federal reimbursement was held up to 7 days before being credited to the School Food Services account, and in June 2004, the Federal reimbursement was held up to 13 days. If funds are not transferred timely, any interest earned on these funds should be used in furtherance of the Food Services Program. These conditions were a result ofmanagement's failure to implement internal controls for monitoring compliance with Federal guidelines. The School District should review the internal controls for Federal compliance procedures in place, design procedures which would enhance monitoring compliance with Federal guidelines and implement proper internal controls relative to the above Federal compliance requirements and procedures to strengthen the internal control over Federal programs. - 19 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS OTHER- SINGLE AUDIT REPORTING PACKAGE Noncompliance with Audit Report Distribution and Corrective Action Plan Requirements Reportable Condition Finding Control Number: FA-6701-04-07 The School District did not comply with audit report distribution requirements as contained in 0MB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. The School District's Fiscal Year 2003 Single Audit Report included four Federal award findings and questioned costs. 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 the Federal Department to the School District. Two ofthe four Federal Award findings involved the Head Start Program (CFDA 93.600) which was funded directly to the School District by the U. S. Department of Health and Human Services (HHS). 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 and that HHS received a copy ofthe report and the School District's corrective action plan addressing the two findings included in the report. We noted that the prior year audit report included a status of the School District's corrective action on prior year findings dealing with several Federal program awards. The Federal awards were funded through the Georgia Department of Human Resources and Bright From the Start: Georgia Department of Early Care and Learning. According to the provisions of the Circular, the School District was required to furnish a copy ofthe report and corrective action plan to these two respective State agencies so that an assessment could be made as to whether the School District's planned corrective action on the findings would be sufficient to resolve the findings. However, there was no documentation provided that the School District fulfilled its reporting responsibilities to the two State grantor organizations. The School District should implement procedures to ensure that all reporting requirements of Circular 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 2003 Single Audit, the School District should (1) contact the Clearinghouse and ascertain the required components ofthe reporting package that need to be forwarded to the Clearinghouse, (2) provide, as applicable, a copy of the report and corrective action plan to the Bright from the Start: Georgia Department ofEarly Care and Learning and the Georgia Department of Health and Human Services. - 20 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS REPORTING Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6701-04-08 A comparison ofthe completion report for the Title I Grants to Local Educational Agencies program (CFDA No. 84.010) to the accounting records revealed that the project completion report was not supported by total expenditures recorded for this program in the accounting records. The completion report should have reflected an approved grant and grant expenditures totaling $775,277; however, $823,460 in grant revenues and expenditures were included in the completion report. The instructions provided by the Georgia Department of Education mandate that financial management systems provide for accurate, complete and current disclosure for the financial results ofeach grant program. This condition was a result of management's failure to implement internal controls for monitoring compliance with Federal guidelines. The School District should review the Federal compliance procedures in place, design procedures which would enhance monitoring compliance with Federal guidelines and proper internal controls relative to the above Federal compliance requirement and implement those procedures to strengthen the internal control over Federal programs. The School District should submit a corrected completion report and return any unearned funds to the Georgia Department of Education. SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U. S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6701-04-09 For the year under review, there were two schools that the School District identified as participating in a school-wide program. While Federal provisions prescribe that multiple funding sources (Federal, State or Local) are required to support a school-wide program, we noted that Title I program (CFDA No. 84.010) was identified as the only funding source supporting the school-wide program concept. There were ninety three computers in the amount of $99,201 purchased at one school using Title I funds. Based on a physical inspection of these computers it was noted that the computers were used by both Title I and non Title I students. There was no allocation plan to properly allocate the costs of the computers based on the number of non-Title I children and frequency ofuse for the computer labs. Title I should not have been the sole funding source for these computers. - 21 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6701-04-09 In accordance with provisions ofU. S. Department of Education Instructions and 0MB Circular A133, Compliance Supplement provisions, eligible schools are able to use their Title I, Part A funds, in combination with other Federal, State and local funds, in order to upgrade the entire educational program of the school and to raise academic achievements for all students. By combining funds from Title I and other eligible U. S. Department of Education funded programs in support of a school-wide program, U.S. Department ofEducation Instructions provide that specific school-wide program costs lose their identity but only in those circumstances when funds are combined in a school-wide program. In line with 0MB Circular A-87 requirements, school-wide expenditures should be charged to those Federal funding sources supporting the school-wide program in a reasonable manner. Ifthere is only one Federal funding source, then costs should be charged to the Federal program based on the specific benefits derived from that cost. When more than one Federal program supports a school-wide program, then school-wide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support of the school-wide program. It was the School District's understanding that costs related to a school-wide program lose their identity and therefore any school-wide program cost can be charged to the Title I program. They were unaware that this was only applicable when there is more than one funding source supporting the school-wide program. The School District should implement procedures to assure that ifthe Title I program continues to be the only funding source in support of a school-wide program, only those costs that specifically relate to the Title I program will be charged to the Title I fund. If more than one funding source is to support the school-wide program in the future, then procedures should be developed to (1) combine such funds as prescribed by U.S. Department ofEducation and (2), in line with 0MB Circular A-87 provisions, allocate such school-wide program costs to the respective Federal fund in a reasonable manner. The School District should seek Georgia Department of Education guidance to determine how much of the $99,201 should be refunded to the Title I program. - 22 - SECTION V MANAGEMENT'S RESPONSES HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FS-6701-04-01 through FS-6701-04-17 We have requested of management its views concerning these findings, its conclusions, its recommendations and the planned corrective actions. We have not received management's views as of the release of this audit report. Finding Control Number: FA-6701-04-01 through FA-6701-04-09 We have requested of management its views concerning these findings, its conclusions, its recommendations and the planned corrective actions. We have not received management's views as of the release of this audit report.