HANCOCK COUNTY BOARD OF EDUCATION SPARTA, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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 DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 9 H NOTES TO THE BASIC FINANCIAL STATEMENTS 10 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 25 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 26 3 SCHEDULE OF STATE REVENUE 28 HANCOCK COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 29 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 31 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS HANCOCK COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 August 14, 2008 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 ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) ofthe Hancock County Board of Education, as of and for the year ended June 30, 2007, 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 ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Hancock County Board of Education's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. 2007ARL-11X In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Hancock County Board ofEducation, as ofJune 30, 2007, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. The Hancock County Board ofEducation has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States of America has determined is necessary to supplement, although not to be part of, the basic financial statements. As discussed in Note 2 to the basic financial statements, during fiscal year 2007, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements and consolidated its individual school activity accounts for inclusion in the basic financial statements. These changes are in accordance with generally accepted accounting principles. As described in Note 2, the Hancock County Board of Education has implemented a new financial reporting model as required by provisions ofGovernmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2007. In accordance with Government Auditing Standards, we have also issued our report dated August 14, 2008, on our consideration ofthe Hancock County Board ofEducation's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope ofour testing of internal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 25, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Hancock County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. 2007ARL-1 lX A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, ~ ~s::1:l~ R ssell W. Hinton, CPA, CGFM State Auditor RWH:as 2007ARL-1 lX HANCOCK COUNTY BOARD OF EDUCATION HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2007 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries and Benefits Payable Contracts Payable Retainages Payable Deposits and Deferred Revenues Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted (Deficit) Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. -1- EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 2,631,131 158,503 695,091 930,917 506,939 3,550 9,966 162,777 418,507 14,815,920 2,110,984 -7 733 779 $ ===1=4=,7=1=0=,5=06= $ 400,742 1,189,305 172,398 22,569 116,747 380,000 2,255,000 $ 4 536 761 $ 9,623,502 137,745 155,216 48,116 205,083 4 083 $ 10 173 745 $ ===1=4=7,=1=0'=50=6= HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2007 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year {Restated) Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 8,642,316 $ 780,971 478,471 253,723 1,215,806 811,408 477,518 1,064,042 1,086,293 170,974 61,565 966,722 153 425 $ 16,163,234 $ 256,865 35,364 292,229 The notes to the basic financial statements are an integral part of this statement. -2- EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 6,580,952 554,860 257,092 144,755 789,110 357,045 23,206 503,650 641,368 $ 1,934 25,026 914,676 $ 10 793 674 $ $ 136,712 136 712 $ -1,804,499 -226,111 -221,379 -108,968 -426,696 -454,363 -454,312 -560,392 -308,213 -169,040 -36,539 -16,682 -153 425 -4,940,619 $ 4,045,907 596,819 37,720 259,014 69,371 523,728 $ 5,532,559 $ 591,940 9,581,805 $ ===1=0=1=7=30=7=45= -3- HANCOCK COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2007 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Cash Overdraft Accounts Payable Salaries and Benefits Payable Contracts Payable Retainages Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund (Deficit) Total Fund Balances Total Liabilities and Fund Balances GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 2,765,863 $ 158,503 $ 930,917 506,939 3,550 9 966 94,696 0 $ 2,765,863 158,503 94,696 930,917 506,939 3,550 9 966 $ 1,451,372 $ s s 3,010,002 ====o= ===4=4=1.0...,.43=4= $ 134,732 400,742 1,189,305 $ 116 747 $ 1,841,526 $ 172,398 22,569 194 967 $ 134,732 400,742 1,189,305 172,398 22,569 116 747 $ 2,036,493 $ 137,745 145,250 $ 48,116 $ 9,966 2,775,979 -683 115 $ -390,154 $ 2,824,095 $ $ 137,745 145,250 0 48,116 9,966 2,775,979 -683, 115 0 $ 2,433,941 $ 1,451,372 $ 3,010,002 $ =======o $ =====4=4=10===43=4= The notes to the basic financial statements are an integral part of this statement. -4- HANCOCK COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2007 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Net Assets of Governmental Activities (Exhibit "A") $ 2,433,941 $ 162,777 418,507 14,815,920 2,110,984 -7 733 779 9,774,409 600,395 -2,635,000 $ 10,173 745 The notes to the basic financial statements are an integral part of this statement. -5- HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2007 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning (Restated) Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 3,991,755 37,720 $ 7,374,267 3,815,133 292,229 3,526 523 728 $ 16,038,358 $ $ 596,819 65,845 662,664 $ 0 $ 0 $ 3,991,755 634,539 7,374,267 3,815,133 292,229 69,371 523 728 16,701,022 $ 8,429,625 780,971 478,471 253,723 1,212,447 811,408 487,009 1,031,777 1,227,374 170,974 61,565 952,030 $ $ 15,897,374 $ $ 140 984 $ $ 418,507 418 507 $ 244 157 $ $ 1,050 330,000 153,425 484 475 $ -484 475 $ 8,429,625 780,971 478,471 253,723 1,212,447 811,408 488,059 1,031,777 1,227,374 170,974 61,565 952,030 418,507 330,000 153 425 16,800,356 -99 334 $ $ -484 475 484,475 $ 484,475 -484 475 $ -484 475 $ 484 475 $ 0 $ 140,984 $ -240,318 $ 0 $ -99,334 -531 138 3,064,413 0 2,533,275 $ -390 154 $ 2,824,095 $====0= $==2=,4=3=3'=94=1= The notes to the basic financial statements are an integral part of this statement. -6 - HANCOCK COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2007 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay $ Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenue. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements $ 754,543 -447 421 -99,334 307,122 54,152 330,000 Change in Net Assets of Governmental Activities (Exhibit "8") $ ===59=1=-=,9=4=0 The notes to the basic financial statements are an integral part of this statement. -7- (This page left intentionally blank) HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2007 ASSETS Cash and Cash Equivalents LIABILITIES Cash Overdraft Funds Held for Others Total Liabilities EXHIBIT"G" AGENCY FUNDS $====0= $ 17,534 -17 534 $====0= The notes to the basic financial statements are an integral part of this statement. -9 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" 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 District-wide financial statements, fund financial statements and notes to the basic financial statements of the Hancock County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: - 10 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST) and Bond Proceeds to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (sales) legally restricted for the payment of general longterm principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various student club and class accounts. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. - 11 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND Governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been reported within the General Fund for fiscal year ended June 30, 2007. The governmental fund activity of the various school activity accounts had a fund balance of$7,620 at July 1, 2006. This change is in accordance with generally accepted accounting principles. General Fund Balance July 1, 2006 $ -538,758 Add Funds Consolidated with General Fund: School Activity Account - Governmental Activity 7,620 General Fund Balance July 1, 2006 (Restated) $ -531,138 CHANGES IN ACCOUNTING PRINCIPLES The Hancock County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2007. The provisions ofGASB Statement No. 34 require the inclusion of a Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following: General Fund (Restated) July 1, 2006 Capital Projects Fund $ -531,138 3,064,413 Governmental Funds (Restated) July 1, 2006 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Bonds Payable $ 2,533,275 16,753,645 -7,286,358 546,243 -2,965,000 Net Assets Beginning (See Exhibit "B") $ 9,581,805 - 12 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated Section 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks. - 13 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Hancock County Board of Commissioners fixed the property tax levy for the 2006 tax digest year (calendar year) on September 27, 2006 (levy date). Taxes were due on November 30, 2006 (due date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2006 tax digest are reported as revenue in the governmental funds for fiscal year 2007. The Hancock County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance oftaxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2007, for maintenance and operations amounted to $3,810,694. The tax millage rate levied for the 2006 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 14.9 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $596,819 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. - 14 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works ofart. During the fiscal year under review, no events or changes in circumstances affecting a capital asset that may indicate impairment were known to the School District. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Buildings and Improvements Equipment All NIA $ 5,000 40 years $ 5,000 5 to 12 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. NET ASSETS The School District's net assets in the District-wide Statements are classified as follows: Invested in capital assets, net of related debt - This represents the School District's total investment in capital assets, net ofoutstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. - 15 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Restricted net assets - These represent resources for which the School District is legally or contractually obligated to spend resources for bus replacement, continuation of Federal programs, debt service and capital projects in accordance with restrictions imposed by external third parties. Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes. DEFICIT FUND BALANCES Funds reporting a deficit fund balance at June 30, 2007, are as follows: Fund Type/Fund Name Deficit Balances Governmental Fund Type General Fund Fiduciary Funds Agency Funds $ 683,115 $ 17,534 The School District plans to eradicate the deficit through a reduction in spending and an increase in the millage rate. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. 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. 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, - 16 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities 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 ofthe State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2007, the bank balances were $3,890,404. The amounts of the total uninsured bank balances are classified into three categories of custodial credit risk: Category 1 - Uncollateralized, Category 2 - Cash collateralized with securities held by the pledging financial institution, or Category 3 - Cash collateralized with securities held by the pledging financial institution's trust department or agent but not in the School District's name. The School District's uninsured deposits are classified by custodial credit risk category at June 30, 2007, as follows: Custodial Credit Risk Category 1 2 3 Total Bank Balance $ 0 3,690,404 0 $ 3,690,404 CATEGORIZATION OF INVESTMENTS At June 30, 2007, the carrying value ofthe School District's total investments was $158,503, which is materially the same as fair value. This investment consisted entirely offunds invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal - 17 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. Additional information on the Local Government Investment Pool is disclosed in the State of Georgia Comprehensive Annual Financial Report. This audit can be obtained from the Georgia Department ofAudits and Accounts at http://www.audits.state.ga.us/internet/searchRpts.html. The Primary Liquidity Portfolio consists of Georgia Fund 1 which is not registered with the SEC as an investment company but does operate in a manner consistent with the SEC's Rule 2a-7 of the Investment Company Act of 1940. The investment is valued at the pool's share price, $1.00 per share. The pool is an AAAm rated investment pool by Standard and Poor's. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2007, was 15 days. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July I. 2006 Increases Decreases Balances June 30, 2007 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 162,777 $ 0 $ 418,507 0 $ 162,777 418,507 Total Capital Assets Not Being Depreciated $ 162,777 $ 418,507 $ 0 $ 581,284 Capital Assets Being Depreciated Buildings and Improvements Equipment $ 14,815,920 1,774,948 $ $ 336,036 0 $ 14,815,920 2,110,984 Less Accumulated Depreciation for: Buildings and Improvements Equipment 5,965,652 1,320,706 305,398 142,023 6,271,050 1,462,729 Total Capital Assets, Being Depreciated, Net $ 9,304,510 $ -111.385 $ 0 $ 9,193,125 Governmental Activity Capital Assets - Net $ 2,467,287 $ 307,122 $ Q $ 9,114.409 - 18 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 5: CAPITAL ASSETS Current year depreciation expense by function is as follows: Instruction Support Services General Administration $ Business Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 3,359 1,171 48,627 119,983 259,589 173,140 14,692 $=~4==47-4~2-1 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) and general obligation bond proceeds are restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2007, were as follows: District-wide Capital Projects Bond SPLOST Proceeds Restricted Cash and Cash Equivalents: Capital Acquisitions Restricted Investments: Capital Acquisitions Debt Services $ 2,765,863 $ 110,387 $ 48,116 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2007, consisted of the following: Transfer to Transfers From District-wide Capital Projects Debt Service Fund $=~4='='84==4=='7~5 The transfer was used to move SPLOST revenue to the Debt Service Fund for payment of bonds. - 19 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 8: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions,job related illness or injuries to employees and acts ofGod. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability 2006 2007 $ 0 $ 37 630 $ 32,882 $ 4 748 $ 4 748 $ -1 286 $ 0 $ 3 462 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 9: 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 ofthe 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. Short-term debt activity for the fiscal year is as follows: - 20 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 9: SHORT-TERM DEBT Beginning Balance Issued Redeemed Ending Balance Temporary Loans $ 400.000 $ 200.000 $ 600,000 $===-0 Note 10: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 2005 3.15% - 4.10% $ 2,635.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2007, were as follows: Governmental Funds General Obligation Bonds Balance July 1, 2006 $ 2,965,000 Deductions Debt Retired 330.000 Balance June 30, 2007 $ 2,635.000 Portion of Long-Term Debt Due within One Year $ 380,000 At June 30, 2007, payments due by fiscal year which includes principal and interest for these items are as follows: - 21 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 10: LONG-TERM DEBT Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2008 2009 2010 2011 2012 2013 - 2016 $ 380,000 $ 390,000 405,000 420,000 195,000 845,000 96,233 83,693 70,433 56,258 40,928 86,168 Total Principal and Interest $ 2,635,000 $ 433,713 Note 11: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $336,168 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 $333,535 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $2,633 Note 12: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2007, together with funding available: Project Unearned Executed Contracts Funding Available From State M. E. Lewis Addition Hancock Central High School Stadium Complex $ 1,110,962 $ 3,068,990 656,153 $ 4,179,952 $=====6-56-,1~5~3 - 22 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 12: SIGNIFICANT COMMITMENTS The amounts described in this note are not reflected in the basic financial statements. Note 13: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 14: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia {TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.28% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2007 2006 2005 100% 100% 100% $ 682,903 $ 631,621 $ 683,202 - 23 - (This page left intentionally blank) HANCOCK COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2007 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 (under) Expenditures OTHER FINANCING SOURCES Other Sources Net Change in Fund Balances Fund Balances - Beginning (Restated) Adjustments NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 4,155,776 $ 4,155,776 $ 3,991,755 37,720 7,065,223 7,065,223 7,374,267 1,967,652 1,967,652 3,815,133 292,229 1,000 1,000 3,526 145 563 145 563 523 728 $ 13,335,214 $ 13,335,214 $ 16,038,358 $ 8,390,052 $ 8,390,052 $ 8,429,625 783,668 491,042 221,938 1,082,770 10,429 259,980 864,534 1,052,027 119,337 156,340 61 640 783,668 491,042 221,938 1,082,771 10,429 259,980 864,533 1,052,027 119,337 156,340 61 640 780,971 478,471 253,723 1,212,447 811,408 487,009 1,031,777 1,227,374 170,974 61,565 952 030 $ 13 493 757 $ 13 493 757 $ 15 897 374 $ -158,543 $ -158,543 $ 140,984 1 000 1 000 $ -157,543 $ -157,543 $ 140,984 -853,904 -853,904 -531, 138 -152 394 -152 394 Fund Balances - Ending $ -1 163 841 $ -1163 841 $===-=39;;,;;0~1=54= Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 25 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2007 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U.S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U. S. Department of Agriculture 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 Enhancing Education Through Technology Program Improving Teacher Quality State Grants Rural Education Safe and Drug-Free Schools and Communities - State Grants State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Pass-Through From Oconee Regional Educational Service Agency Advanced Placement Grant 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 Temporary Assistance for Needy Families 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 NIA = Not Available - 26 - CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 10.550 N/A N/A $ $ (2) 826 859 826,859 N/A $ 23 525 850 384 94.004 N/A $ 3448 . 84.027 84.173 N/A $ N/A $ 403,753 5 908 409,661 84.318 84.367 84.358 84.186 84.298 84.010 84.048 84.330 N/A NIA NIA N/A N/A NIA N/A N/A $ 9,225 171,817 62,386 5,427 2,914 856,672 27,622 19 705 1565429 93.600 93.558 $ NIA $ 1,295,617 107 145 1 402 762 $ 49 034 $ =====3=87=1=0=5=7 HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2007 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 School Breakfast Program ($232,363) were not maintained separately and are included in the 2007 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 fund financial statements. See notes to the basic financial statements. - 27 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2007 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 Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Amended Formula Adjustment Other State Programs Comprehensive Academic Performance Health Insurance High School Graduation Coaches Middle School Remediation and Intervention Grant Preschool Handicapped Program Pupil Transportation - State Bonds Statewide K-8 Reading and Mathematics Program Office of Treasury and Fiscal Services Public School Employees Retirement See notes to the basic financial statements. - 28- SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 148,446 457,423 -4,211 749,725 84,245 417,365 87,760 834,242 719,249 240,055 27,764 198,080 468,552 206,207 42,379 36,774 59,084 67,344 128,668 41,132 26,443 300,331 324,124 350,856 357,639 36,712 20,000 43,297 4,770 96,441 259,014 46,978 10,672 -129,272 44,441 333,535 26,991 2,089 14,674 100,000 91,616 2633 $ =====7'=37=4=,2=67... HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2007 SCHEDULE "4" PROJECT Renovating, extending, repairing and equipping M.E. Lewis Elementary School, including the acquisition and construction of a ten (10) classroom addition; (ii) acquiring, constructing and equipping new athletic facilities for the School District; (iii) acquiring any property necessary therefore, both real and personal; and (iv) paying costs incident to accomplishing the foregoing. ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 3,000,000 $ 4,429,440 $ 571,932 $ 0 Ongoing (1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax. (2) The School District's current estimate of total cost for the project. Includes all cost from project inception to completion. (3) The voters of Hancock County approved the imposition of a 1% sales tax to fund the above project and retire associated debt. Amounts expended for this project may include sales tax proceeds, state, local property taxes and/or other funds over the life of the project. See notes to the basic financial statements. - 29- (This page left intentionally blank) HANCOCK COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2007 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV 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 $ 533,753 $ 325,820 $ 11,917 $ 337,737 30,354 30,354 920,378 725,754 18,103 743,857 106,942 196,781 196,781 511,817 728,094 11,557 739,651 101,035 1,012,145 872,544 287,000 1,131,358 44,270 66,624 81 067 86,792 1,126,837 945,456 335,774 98,577 617,440 340,630 46 19,959 19 248 136 18,842 39,776 11,359 819 544 86,792 136 1,145,679 985,232 347,133 98,577 617,440 340,630 46 819 19,959 19 792 $ 5,668,933 $ 5,597,562 $ 113,053 $ 5,710,615 155,796 31 915 214,540 17100 23,064 18 309 237,604 35409 TOTAL QBE FORMULA FUNDS $ =======5:e8=5=6.,.6=44= $ 5,829,202 $ 154 426 $ (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State amended formula adjustment. See notes to the basic financial statements. - 31 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 August 14, 2008 Honorable Sonny Perdue, Governor Members ofthe 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 the governmental activities, each major fund, and the aggregate remaining fund information ofHancock County Board ofEducation as ofand for the year ended June 30, 2007, which collectively comprise Hancock County Board of Education's basic financial statements and have issued our report thereon dated August 14, 2008. 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 as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose ofexpressing an opinion on the effectiveness of the Hancock County Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness ofthe Hancock County Board of Education's internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies. 2007YB-40 A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affect the Hancock County Board of Education's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement ofthe Hancock County Board of Education's financial statements that is more than inconsequential will not be prevented or detected by the Hancock County Board of Education's internal control. We consider items FS-6701-07-01, FS-6701-07-02, FS-6701-07-03, FS-6701-07-04, FS-6701-07-05 and FS-6701-07-06 in the accompanying Schedule of Findings and Questioned Costs to be significant deficiencies in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement ofthe financial statements will not be prevented or detected by the Hancock County Board of Education's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph ofthis section and would not necessarily disclose all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, of the significant deficiencies described above, we consider items FS-6701-07-03, FS-6701-07-04, FS6701-07-05 and FS-6701-07-06 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. We noted certain matters that we have reported to management of Hancock County Board of Education in a separate letter dated August 14, 2008. Hancock County Board ofEducation's response to the findings identified in our audit is described in the accompanying Schedule ofManagement's Responses. We did not audit Hancock County Board of Education's response and, accordingly, we express no opinion on it. 2007YB-40 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 2007YB-40 Ru sell W. Hinton, CPA, CGFM State Auditor Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 August 14, 2008 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members ofthe Hancock County Board of Education REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB 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 U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2007. 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 of compliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General 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 of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the 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 of Education's compliance with those requirements. 2007SA-40 In our opinion, the Hancock County Board ofEducation complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2007. The results ofour auditing procedures disclosed an instance ofnoncompliance with those requirements, which is required to be reported in accordance with 0MB Circular A-133 and which is described in the accompanying Schedule ofFindings and Questioned Costs as item FA6701-07-01. 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 ofexpressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Hancock County Board of Education's internal control over compliance. Our consideration ofthe internal control over compliance was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in the Board's internal control that might be significant deficiencies or material weaknesses as defined below. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be significant deficiencies. A control deficiency in an entity's internal control over compliance exists when the design or operation ofa control does not allow management or employees, in the normal course ofperforming their assigned functions, to prevent or detect noncompliance with a type ofcompliance requirement of a Federal program on a timely basis. A significant deficiency is a control deficiency, or combination ofcontrol deficiencies, that adversely affects the entity's ability to administer a Federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a Federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. We consider the deficiencies in internal control over compliance described in the accompanying Schedule ofFindings and Questioned Costs as items FA-6701-07-01 and FA-6701-07-02 to be significant deficiencies. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a Federal program will not be prevented or detected by the entity's internal control. We do not consider any ofthe deficiencies described in the accompanying Schedule ofFindings and Questioned Costs to be material weaknesses. Hancock County Board ofEducation's response to the findings identified in our audit is described in the accompanying Schedule ofManagement's Responses. We did not audit Hancock County Board of Education's response and, accordingly, we express no opinion on it. 2007SA-40 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 2007SA-40 th.~ R ssell W. Hinton, CPA, CGFM 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, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AUDITEE'S RESPONSE/STATUS SEE AUDITOR'S COMMENTS FS-6701-02-03 Further Action Not Warranted (1) FS-6701-02-05 Further Action Not Warranted (1) FS-6701-02-06 Further Action Not Warranted (1) FS-6701-03-06 Unresolved - See Corrective Action/Responses FS-6701-03-07 Partially Resolved - See Corrective Action/Responses FS-6701-03-09 Previously Reported Corrective Action Implemented FS-6701-04-08 Previously Reported Corrective Action Implemented FS-6701-04-09 Partially Resolved - See Corrective Action/Responses FS-6701-04-10 Partially Resolved - See Corrective Action/Responses FS-6701-04-13 Partially Resolved - See Corrective Action/Responses FS-6701-05-01 Further Action Not Warranted FS-6701-05-02 Further Action Not Warranted FS-6701-05-03 Further Action Not Warranted FS-6701-05-04 Further Action Not Warranted FS-6701-05-05 Previously Reported Corrective Action Implemented FS-6701-05-06 Previously Reported Corrective Action Implemented FS-6701-05-07 Previously Reported Corrective Action Implemented FS-6701-05-08 Previously Reported Corrective Action Implemented FS-6701-05-09 Partially Resolved - See Corrective Action/Responses FS-6701-05-10 Previously Reported Corrective Action Implemented FS-6701-05-11 Partially Resolved - See Corrective Action/Responses FS-6701-05-12 Previously Reported Corrective Action Implemented FS-6701-05-13 Unresolved - See Corrective Action/Responses FS-6701-05-14 Further Action Not Warranted FS-6701-05-15 Previously Reported Corrective Action Implemented FS-6701-05-16 Previously Reported Corrective Action Implemented FS-6701-06-01 Further Action Not Warranted (2) FS-6701-06-02 Further Action Not Warranted (2) FS-6701-06-03 Partially Resolved - See Corrective Action/Responses FS-6701-06-04 Unresolved - See Corrective Action/Responses FS-6701-06-05 Further Action Not Warranted (2) FS-6701-06-06 Previously Reported Corrective Action Implemented FS-6701-06-07 Previously Reported Corrective Action Implemented FS-6701-06-08 Partially Resolved - See Corrective Action/Responses FS-6701-06-09 Further Action Not Warranted (2) FS-6701-06-10 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, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AUDITEE'S RESPONSE/STATUS SEE AUDITOR'S COMMENTS FS-6701-06-11 Unresolved - See Corrective Action/Responses FS-6701-06-12 Previously Reported Corrective Action Implemented FS-6701-06-13 Further Action Not Warranted (2) FS-6701-06-14 Previously Reported Corrective Action Implemented FS-6701-06-15 Previously Reported Corrective Action Implemented AUDITOR'S COMMENTS (1) While these findings will not be reported or require follow-up in subsequent years, management still has responsibility for the resolution of these findings. (2) Findings/internal control deficiencies ofthis nature, that are not deemed significant deficiencies or material weaknesses and do not require reporting in the audit report in accordance with Statements on Auditing Standards (SAS) 112 or Governmental Auditing Standards (Yellow Book), will be communicated in a management letter in subsequent periods. CORRECTIVE ACTION/RESPONSES EMPLOYEE COMPENSATION Inaccurate Reporting of Senior Management Compensation Amount: $7,800 Finding Control Number: FS-6701-03-06 These funds will be retrieved through the courts. EMPLOYEE COMPENSATION Payroll Sample Exceptions Amount: $24,620 Finding Control Number: FS-6701-03-07 We concur with this finding. The Hancock County School System currently uses regular and supplemental contracts and has a salary scale in place for all other employees. This finding will be resolved in fiscal year 2008. -2 - HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Corporate Credit Card Expenditures Amount: $34,367 Finding Control Number: FS-6701-04-09 A bookkeeper has been employed to complete a monthly report of the expenditure of funds. EMPLOYEE COMPENSATION Payroll Sample Exceptions Finding Control Number: FS-6701-04-10 The administration has ensured that there are no exceptions to the payroll samples. A new financial program (CSI) has been installed replacing PC Genesis system. The usage of regular and supplemental contracts and salary scales will also guarantee this action. This finding will be cleared in fiscal year 2008. GENERAL LEDGER Failure to Refund Unexpended Funds Amount: $34,226 Finding Control Number: FS-6701-04-13 The Georgia Department of Education was contacted and we are still waiting on a response. Moreover, we have repaid confirmed amounts. EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Follow State Travel Regulations Finding Control Number: FS-6701-05-09 This finding will be resolved in fiscal year 2008. EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Corporate Credit Card Expenditures Amount: $2,291 Finding Control Number: FS-6701-05-11 The Board ofEducation will review these expenditures to determine ifthis amount is due. -3 - HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES GENERAL LEDGER Failure to Refund Unexpended Funds Amount: $97,460 Finding Control Number: FS-6701-05-13 We are currently waiting on a response from the Georgia Department of Education for clearance. CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Finding Control Number: FS-6701-06-03 We concur with this finding. Members of the accounting staffhave been assigned duties that will provide for adequate internal control over accounting functions. Moreover, we have a checklist that the Superintendent checks monthly to ensure that our duties are done in a timely manner in fiscal year 2008. BUDGET PREPARATION/EXECUTION Deficit Fund Balance Finding Control Number: FS-6701-06-04 The Board of Education has put together a deficit elimination plan. Also, the School District receives a report monthly which states total expenses and total revenue to ensure that the expenses do not exceed the revenue. EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Follow Statewide Travel Regulations Finding Control Number: FS-6701-06-08 All travel must be signed by the Superintendent before reimbursements are made in order to ensure that the School District comply with travel regulations ofGeorgia Department of Education. -4 - HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES GENERAL LEDGER Failure to Refund Unexpended Funds Finding Control Number: FS-6701-06-10 The Hancock County School District has implemented procedures to ensure that approved grants are properly expended according to grant guidelines. Also, the amount to be returned is being reviewed by Financial Review Section of the Georgia Department of Education. GENERAL LEDGER Inadequate Accounting Procedures Finding Control Number: FS-6701-06-11 Mr. Alfred Brown, an independent financial consultant, and/or the Superintendent, Dr. Awanna Leslie, will review and approve aJljournal entries in the general ledger. Internal controls have been implemented in fiscal year 2008 by the School District to ensure that all entries are posted, properly documented and reviewed prior to being posted to the general ledger. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AUDITEE'S RESPONSE/STATUS SEE AUDITOR'S COMMENTS FA-6701-02-01 Further Action Not Warranted (1) FA-6701-02-03 Further Action Not Warranted (1) FA-6701-03-01 Partially Resolved - See Corrective Action/Responses FA-6701-03-02 Partially Resolved - See Corrective Action/Responses FA-6701-04-01 Partially Resolved - See Corrective Action/Responses FA-6701-04-02 Partially Resolved - See Corrective Action/Responses FA-6701-04-03 Unresolved - See Corrective Action/Responses FA-6701-04-04 Partially Resolved - See Corrective Action/Responses FA-6701-04-06 Previously Reported Corrective Action Implemented FA-6701-04-07 Unresolved - See Corrective Action/Responses FA-6701-04-08 Unresolved - See Corrective Action/Responses FA-6701-05-01 Partially Resolved - See Corrective Action/Responses FA-6701-05-02 Further Action Not Warranted FA-6701-05-03 Partially Resolved - See Corrective Action/Responses -5- HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AUDITEE'S RESPONSE/STATUS SEE AUDITOR'S COMMENTS FA-6701-05-04 Partially Resolved - See Corrective Action/Responses FA-6701-05-05 Partially Resolved - See Corrective Action/Responses FA-6701-05-06 Partially Resolved - See Corrective Action/Responses FA-6701-05-07 Partially Resolved - See Corrective Action/Responses FA-6701-05-08 Previously Reported Corrective Action Implemented FA-6701-05-09 Unresolved - See Corrective Action/Responses FA-6701-05-10 Previously Reported Corrective Action Implemented FA-6701-05-11 Further Action Not Warranted FA-6701-06-01 Partially Resolved - See Corrective Action/Responses FA-6701-06-02 Partially Resolved - See Corrective Action/Responses FA-6701-06-03 Partially Resolved - See Corrective Action/Responses FA-6701-06-04 Partially Resolved - See Corrective Action/Responses FA-6701-06-05 Partially Resolved - See Corrective Action/Responses FA-6701-06-06 Previously Reported Corrective Action Implemented FA-6701-06-07 Previously Reported Corrective Action Implemented FA-6701-06-08 Partially Resolved - See Corrective Action/Responses FA-6701-06-09 Partially Resolved - See Corrective Action/Responses FA-6701-06-10 Partially Resolved - See Corrective Action/Responses FA-6701-06-11 Previously Reported Corrective Action Implemented FA-6701-06-12 Previously Reported Corrective Action Implemented FA-6701-06-13 Partially Resolved - See Corrective Action/Responses FA-6701-06-14 Partially Resolved - See Corrective Action/Responses FA-6701-06-15 Previously Reported Corrective Action Implemented FA-6701-06-16 Partially Resolved - See Corrective Action/Responses FA-6701-06-17 Unresolved - See Corrective Action/Responses FA-6701-06-18 Further Action Not Warranted (2) FA-6701-06-19 Previously Reported Corrective Action Implemented FA-6701-06-20 Previously Reported Corrective Action Implemented FA-6701-06-21 Previously Reported Corrective Action Implemented AUDITOR'S COMMENTS (1) While this finding will not be reported or require follow-up in subsequent years, management still has responsibility for the resolution of this finding. (2) Findings/internal control deficiencies ofthis nature, that are not deemed significant deficiencies or material weaknesses and do not require reporting in the audit report in accordance with Office ofManagement and Budget (0MB) Circular A-133, will be communicated in a management letter in subsequent periods. -6- HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Amount: $91,168 Finding Control Number: FA-6701-03-01 The Superintendent has assigned the Assistant Superintendent the duties ofmanaging the Title I program to ensure that qualified personnel and all proper expenditures are charged correctly to the program. All expenditures are reviewed and approved by the Assistant Superintendent. CASH MANAGEMENT Excessive Cash Balances Amount: $1,153 Finding Control Number: FA-6701-03-02 We will use the drawdown guidelines suggested by the Georgia Department ofEducation to ensure that interest does not accrue on cash balances. ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Amount: $5,188 Finding Control Number: FA-6701-04-01 The Hancock County Board ofEducation dismissed the fine. We are currently waiting for a response from Georgia Department of Education to see whether payment is due. ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Amount: $29,280 Finding Control Number: FA-6701-04-02 Internal controls have been implemented to ensure that only employees of the Title I program are paid with Title I funds. Time sheets and time logs are submitted and signed by the employee, Title I Director and Superintendent before an employee is paid. Also, the School District is currently waiting on a clearance letter from the Georgia Department of Education. -7- HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Amount: $5,543 Finding Control Number: FA-6701-04-03 We are waiting for a response from John Dunn ofthe Georgia Department ofEducation to resolve this finding. CASH MANAGEMENT Excessive Cash Balances Amount: $159 Finding Control Number: FA-6701-04-04 The School District has corrected cash management so that this does not happen in the future. Also, we are waiting for a response from Georgia Department of Education to see if repayment is due. OTHER - SINGLE AUDIT REPORTING PACKAGE Noncompliance with Audit Report Distribution and Corrective Action Requirements Finding Control Number: FA-6701-04-07 We will mail out this audit to all the necessary stakeholders. REPORTING Inadequate Internal Control Procedures Finding Control Number: FA-6701-04-08 We are working with John Dunn of the Georgia Department of Education to resolve this problem. -8- HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Accounting/Internal Control Deficiencies Unallowable Expenditures Amount: $14,749 Finding Control Number: FA-6701-05-01 We have implemented procedures to correct this finding. We are also waiting on a response from John Dunn of the Georgia Department of Education to determine if repayment is necessary. ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Lack of Internal Controls Regarding Payroll Records Unallowable Expenditures Amount: $442,545 Finding Control Number: FA-6701-05-03 Documentation is available to verify salaries and timesheets necessary to satisfy this finding. We are currently waiting on a response from Mr. John Dunn of the Georgia Department of Education for further guidance on this matter. ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Amount: $276 Finding Control Number: FA-6701-05-04 This money will be returned to Georgia Department ofEducation. We will make sure that expenditures will be made from the correct budget. -9- HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Amount: $50,101 Finding Control Number: FA-6701-05-05 To ensure that this finding will never occur again, all purchase orders must be signed by the program director/manager before they are signed by the Superintendent. Purchase orders will not be processed without the Superintendent's signature. Also, the Head Start program currently has a pay scale and employee timesheet in place. CASH MANAGEMENT Excessive Cash Balances Failure to Refund Interest Amount: $147 Finding Control Number: FA-6701-05-06 This finding is currently under review by Mr. John Dunn of Georgia Department of Education. ELIGIBILITY MATCHING, LEVEL OF EFFORT AND EARMARKING PROCUREMENT Inadequate Internal Control Procedures Amount: $5,197 Finding Control Number: FA-6701-05-07 We have reviewed and implemented internal controls to monitor compliance of Federal guidelines. Also, we are waiting for a response from Georgia Department ofEducation to clear this finding. OTHER - SINGLE AUDIT REPORTING PACKAGE Noncompliance with Audit Report Distribution and Corrective Action Plan Requirements Finding Control Number: FA-6701-05-09 We will mail a copy of the 2004 audit report to the respective entities. - 10 - HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable/Unauthorized/Undocumented Expenditures Finding Control Number: FA-6701-06-01 We are currently waiting on a response from Georgia Department of Education to clear this finding. ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures over Payroll Finding Control Number: FA-6701-06-02 We are currently waiting on a response from the Georgia Department of Education to determine if a reclaim of grant funds is appropriate. ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable/Unauthorized/Undocumented Expenditures Finding Control Number: FA-6701-06-03 We are currently waiting on a response from the Georgia Department of Education to determine if a reclaim of the $13 5 funds is appropriate. ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Finding Control Number: FA-6701-06-04 We are currently waiting on a response from the Georgia Department of Education to determine if a reclaim of the $74,690 funds is appropriate. ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unauthorized/Undocumented Expenditures Finding Control Number: FA-6701-06-05 Awaiting clearance from Department of Health and Human Services. - 11 - HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES CASH MANAGEMENT Excessive Cash Balances Failure to Refund Interest Finding Control Number: FA-6701-06-08 We are currently waiting on a response from Georgia Department of Education to determine if a reclaim of the $1,355 is appropriate. MATCHING, LEVEL OF EFFORT AND EARMARKING Failure to Meet Maintenance of Effort Requirements Finding Control Number: FA-6701-06-09 Awaiting clearance from Georgia Department of Education. PERIOD OF AVAILABILITY Expenditures Outside of Grant Period Finding Control Number: FA-6701-06-10 Awaiting clearance from Georgia Department of Education. OTHER- SINGLE AUDIT REPORTING PACKAGE Noncompliance with Audit Report Distribution and Corrective Action Plan Requirements Finding Control Number: FA-6701-06-13 The School District has implemented procedures to ensure that all reporting requirements of Circular A-133 are met. In addition, we will send a copy of the fiscal year 2005 audit report and corrective action plan to Bright From the Start. REPORTING Failure to File Accurate Completion Report Finding Control Number: FA-6701-06-14 Awaiting clearance from Georgia Department of Education. REPORTING DE-0106 Report not Supported by the DE-0112 and DE-0118 Reports Finding Control Number: FA-6701-06-16 Awaiting clearance from Georgia Department of Education. - 12 - HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES SPECIAL TESTS AND PROVISIONS Fiscal Requirements of a Schoolwide Program Not Fully Implemented Finding Control Number: FA-6701-06-17 The School District will seek the Georgia Department of Education's guidance in implementing fiscal procedures for combining and allocating schoolwide program expenditures to Federal programs. - 13 - SECTION IV FINDINGS AND QUESTIONED COSTS HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 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 unqualified. 2. Significant Deficiencies in Internal Control Disclosed by the Audit ofthe Financial Statements The audit report for the Hancock County Board of Education disclosed financial statement significant deficiencies related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts Capital Assets Budget Preparation/Execution Expenditures/Liabilities/Disbursements General Ledger Financial Reporting Of the significant deficiencies described above, Budget Preparation/Execution, General Ledger, Capital Assets and Financial Reporting 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. Significant Deficiencies in Internal Control Over Major Programs The audit report for the Hancock County Board of Education disclosed significant deficiencies in internal control over major programs for the following compliance requirements. Reporting Special Tests and Provisions None of the significant deficiencies described above 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 unqualified. 6. Audit Findings Required to be Reported by Section .510{a) ofOMB Circular A-133 The Hancock County Board of Education's audit disclosed audit findings required to be reported by section .510(a) ofOMB 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, 2007 I SUMMARY OF AUDITOR'S RESULTS 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.010 Title I Grants to Local Educational Agencies 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 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 ofEducation did not qualify as a low risk auditee as defined by Section .530 of 0MB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS Inadequate Separation of Duties Significant Deficiency Finding Control Number: FS-6701-07-01 Condition: This is a repeat finding (FS-6701-06-03, FS-6701-05-03 andFS-6701-04-03) from the years ended June 30, 2006, June 30, 2005, and June 30, 2004, respectively. The accounting procedures of the School District were insufficient to provide adequate separation of duties over the accounting functions. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide proper separation of duties. Such controls would limit any one individual's access to both physical assets and the related accounting records. Questioned Cost: NIA Information: Cash and Cash Equivalents The bank reconciliation function was not separated from the check preparation or general ledger functions. Four bank accounts were not properly reconciled to the general ledger. -2- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS Inadequate Separation of Duties Significant Deficiency Finding Control Number: FS-6701-07-01 No administrative review was performed to determine that bank reconciliations were correct and that all required adjustments had been made for six bank reconciliations. Cause: The School District has not assigned responsibilities to achieve appropriate separation of duties nor utilized management oversight of the incompatible activities to properly safeguard assets. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: The School District should establish procedures to ensure that cash is reviewed and reconciled to the general ledger on a monthly basis. Also, the School District should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization are separated and/or utilize management oversight of these incompatible activities. In addition, management should ensure that bank reconciliations are prepared for all bank accounts and that proper documentation is maintained for review. CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Significant Deficiency Finding Control Number: FS-6701-07-02 Condition: The accounting procedures ofthe School District were insufficient to provide adequate separation of duties and internal controls over school activity accounts. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide proper separation of duties and provide reasonable assurance that transactions are processed according to established procedures. Such internal controls would limit any one individual's access to both physical assets and the related accounting records. Questioned Cost: NIA -3- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Significant Deficiency Finding Control Number: FS-6701-07-02 Information: Cash and Cash Equivalents The bank reconciliations for M. E. Lewis Elementary and Hancock Central High School were not properly reconciled. The Alternative School's bank account of $855.47 was not recorded on the general ledger. A listing of outstanding checks provided for the high school account was not accurate. Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping function. Based on a review of sixty items, the following deficiencies were noted: 1) Fifty-two receipts were not supported by adequate documentation, and 2) four receipts were not deposited in a timely manner. Expenditures/Liabilities/Disbursements The check writing function was not separated from the record keeping function. Based on a review of sixty items, the following deficiencies were noted: 1) One voucher was not approved, 2) eight vouchers had no documentation indicating approval prior to purchase, 3) thirteen vouchers had no evidence of receipt, and 4) eleven vouchers did not agree with the purchase order or other supporting documentation. Cause: The deficiencies were a result ofmanagement's failure to ensure that internal controls were established, implemented, and functioning at the school level and to assign responsibilities to achieve appropriate separation of duties and utilize management oversight of the incompatible activities to properly safeguard assets. -4- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Significant Deficiency Finding Control Number: FS-6701-07-02 Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: The School District should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures and implement procedures to ensure that the key accounting functions of custody, record keeping and authorization are separated and/or utilize management oversight of these incompatible activities, and implement procedures to ensure that expenditures of schools activity accounts are properly documented and approved prior to payment. BUDGET PREPARATION/EXECUTION Deficit Fund Balance Material Weakness Finding Control Number: FS-6701-07-03 Condition: This is a repeat finding (FS-6701-06-04, FS-6701-05-04 and FS-6701-04-04) from the years ended June 30, 2006, June 30, 2005, and June 30, 2004, respectively. At June 30, 2007, the General Fund and Agency Funds of the Hancock County Board of Education reported deficit fund balances. Criteria: Chapter 25 Reporting for LUAs with General Fund Deficit Balances of the Financial Management for Georgia Local Units of Administration states in part: "The seriousness of fund balance deficits cannot be overstated. The Georgia Department ofEducation requires those LUAs with deficit balances to meet certain reporting requirements." Questioned Cost: NIA Information: The School District's General Fund reported a deficit fund balance in the amount of $683,115. In addition, Agency Funds reported a deficit of $17,534. Cause: The School District failed to adequately budget for the prior year deficit. Effect: A financial statement irregularity in accordance with O.C.G.A. 20-2-67. -5- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS BUDGET PREPARATION/EXECUTION Deficit Fund Balance Material Weakness Finding Control Number: FS-6701-07-03 Recommendation: The School District should establish policies and procedures designed to ensure that in future periods the School District does not report a deficit fund balance. GENERAL LEDGER Inadequate Accounting Procedures Material Weakness Finding Control Number: FS-6701-07-04 Condition: This is a repeat finding (FS-6701-06-11, FS-6701-05-14 and FS-6701-04-15) from the years ended June 30, 2006, June 30, 2005, and June 30, 2004, respectively. A review of internal control procedures revealed that the School District failed to implement controls to ensure that journal entries were properly documented, approved and posted. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are properly approved, documented, processed, and reported in accordance with State law, procedures established by the Georgia Department of Education and School District policies and procedures. Questioned Cost: NIA Information: Weaknesses in internal controls relating to journal entries were noted as follows: Procedures were not in place to ensure that journal entries were approved by someone independent ofthe general ledgerjournal entry function. Procedures were not in place to ensure documentation was available to support journal entries. Procedures were not in place to ensure that prior year audit entries were properly made and posted. -6- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Inadequate Accounting Procedures Material Weakness Finding Control Number: FS-6701-07-04 A review of thirty journal entries revealed the following: Twelve journal entries could not be located for review. None ofthe journal entries were reviewed and approved by someone independent of the general ledger journal entry function. The School District failed to record prior year audit entries in the amount of $861,699. Cause: Management failed to adequately monitor and implement procedures to ensure that all journal entries are properly documented, approved and posted in the accounting records. Effect: The lack of adequate control over the journal entry process may result in material misstatements which would not be detected in a timely manner. Recommendation: The School District should review current internal control procedures to ensure that journal entries are properly approved, documented and posted in the accounting records. CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Material Weakness Finding Control Number: FS-6701-07-05 Condition: The School District failed to adequately maintain the capital assets records. Criteria: Chapter 37 Fixed Assets of the Financial Management for Georgia Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records. Questioned Cost: NIA -7- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Material Weakness Finding Control Number: FS-6701-07-05 Information: A review of the School District's capital asset records noted deficiencies as discussed below: Construction in progress was not recorded by the School District, resulting in a misstatement of $418,507. An audit adjustment was proposed and made to correct this error in the School District's basic financial statements. Equipment meeting the capitalization threshold was not identified on the capital assets listing. This omission resulted in a misstatement of $154,875. An audit adjustment was proposed and made to correct this error. Five equipment items were incorrectly recorded, resulting in an understatement of equipment of$47,478. An audit adjustment was proposed and made to correct this error. Deletions of capital assets were not properly reported. Cause: The School District lacked proper controls to detect significant errors in a timely manner which led to inaccurate reporting of capital assets. Effect: The failure ofthe School District to maintain a complete and accurate capital assets listing can lead to inaccurate internal and external reporting, as well as noncompliance with generally accepted accounting principles. Recommendation: The School District should reassess internal control procedures related to capital assets to ensure that they are in place and operating effectively. An administrative review should be performed to ensure the accuracy ofcapital asset records and to verify that appropriate adjustments are made to the capital asset records to ensure that the capital assets conform to generally accepted accounting principles. - 8- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINANCIAL REPORTING Inadequate Controls over Financial Reporting Material Weakness Finding Control Number: FS-6701-07-06 Condition: The School District did not have adequate controls in place over the financial statement reporting process. Criteria: Management is responsible for having adequate controls over the financial reporting process, which not only includes proper recording oftransactions to the general ledger, but extends to accurate preparation and presentation ofthe financial statements, including note disclosures. Questioned Cost: NIA Information: The Governmental Accounting Standards Board (GASB) Statement 34 reporting model requires the presentation ofboth fund level and entity-wide level statements in the School District's financial statements. The School District was unable to provide both fund level and entity-wide level statements for audit. In addition, audit adjustments were necessary because the School District failed to properly record transactions to the general ledger. Cause: The School District did not implement an adequate system ofinternal control over the financial statement reporting process. Effect: The School District does not have adequate controls in place to ensure that the financial statements were properly prepared in accordance with generally accepted accounting principles. Recommendation: The School District should develop and implement internal controls over the financial statement reporting process to ensure that activity is properly recorded in the general ledger; to verify that financial statements (including note disclosures) properly reflect activity reported in the general ledger; and to include a monitoring process to evaluate the accuracy of the financials presented for audit. -9- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS REPORTING Failure to Refund Unexpended Grants Significant Deficiency Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Special Education - Grants to States (CFDA 84.027) State Grants for Innovative Programs (CFDA 84.298) Vocational Education - Basic Grants to States (CFDA 84.048) Finding Control Number: FA-6701-07-01 Condition: The School District failed to refund unearned grant balances to the Georgia Department of Education. Criteria: The instructions provided by the Georgia Department ofEducation mandate that financial management systems provide for accurate, complete and current disclosure for the financial results of each grant program. Questioned Cost: $15,707 Information: A review ofthe School District's accounting records revealed unearned grant balances for the Federal programs as indicated below: Program Amount Special Education Grants to States State Grants for Innovative Programs Vocational Education - Basic Grants to States $ 6,688 $ 1,259 $ 7,760 Cause: This condition occurred because personnel submitted Federal program completion reports that have over reported the amount of expenditures incurred by the School District. Effect: Failure to refund unearned grant balances results in noncompliance with the requirements of the Federal grants. Recommendation: Appropriate procedures should be implemented to ensure that unexpended grant balances are refunded to the Georgia Department of Education. The School District should refund the unearned Federal grant funds of$ I5,707 to the Georgia Department of Education. - 10 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of Schoolwide Program Not Fully Implemented Significant Deficiency U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (84.010) Finding Control Number: FA-6701-07-02 Condition: This is a repeat finding (FA-6701-06-17, FA-6701-05-11 and FA-6701-0409) from the years ending June 30, 2006, June 30, 2005, and June 30, 2004, respectively. During the year under review, the School District identified all of its schools as participating in a schoolwide program. While Federal provisions prescribe that multiple funding sources (Federal, State, or Local) are required to support a schoolwide program, we noted that the Title I Grants to Local Educational Agencies program (CFDA No. 84.010) was identified as the only funding source supporting the schoolwide program concept at the participating schools and, in contrast with Federal requirements, the School District arbitrarily charged the Title I fund with schoolwide expenditures. Criteria: In accordance with provisions ofU. S. Department ofEducation Instructions and 0MB Circular A-133, 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 schoolwide program, U. S. Department of Education instructions provide that specific schoolwide program costs lose their identity but only in those circumstances when funds are combined in a schoolwide program. In line with 0MB Circular A-87 requirements, schoolwide expenditures should be charged to those Federal funding sources supporting the schoolwide program in a reasonable manner. If there 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 schoolwide program, then schoolwide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support of the schoolwide program. To distribute such costs, provisions of 0MB Circular A-87, Attachment E, F.3 state that a cost allocation plan should be developed, documented, and maintained for audit. - 11 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of Schoolwide Program Not Fully Implemented Significant Deficiency U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (84.010) Finding Control Number: FA-6701-07-02 Questioned Cost: NIA Information: The School District identified all of its schools as participating in a schoolwide program. While Federal provisions prescribe that multiple funding sources (Federal, State, or Local) are required to support a schoolwide program, we noted that the Title I Grants to Local Educational Agencies program (CFDA No. 84.010) was identified as the only funding source supporting the schoolwide program concept at the participating schools and, in contrast with Federal requirements, the School District arbitrarily charged the Title I fund with schoolwide expenditures. Cause: School District personnel were not fully aware ofthese requirements and the School District believed that schoolwide program expenditures lose their identity and therefore any schoolwide program cost could be charged to the Title I program. Effect: Failure to appropriately allocate costs can result in noncompliance with requirements of the Federal grant. Recommendation: The School District should implement procedures to (1) charge costs to the Federal program based on the specific benefits derived from that cost or (2) identify other Federal funding sources for the schoolwide program, combine such funds as prescribed by the U.S. Department of Education, and in line with 0MB Circular A-87 provisions, allocate such schoolwide program costs to the respective Federal funds in a reasonable manner. The School District should seek additional guidance from the Georgia Department ofEducation to implement procedures for combining and allocating schoolwide program expenditures. - 12 - SECTIONV MANAGEMENT'S RESPONSES HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2007 Finding Control Number: FS-6701-07-01 Cash is being reviewed and reconciled to the General Ledger on a more timely basis. The new financial accounting system (went live in January 2007 on CSI plus) provides better separation of duties. The new financial accounting system training has been on-going. Bank reconciliations are easier and more automated so documentation will be improved. Finding Control Number: FS-6701-07-02 Each school started reporting school activity funds in fiscal year 2007 (for the first time) and recorded in the general ledger. The new financial system (CSI plus) has provided training for each school's bookkeeper to record daily transactions, but it is not slated for implementation at the school level until the first quarter offiscal year 2009. In addition, no bookkeeper will reconcile her account (example: the high school bookkeeper will reconcile the elementary bookkeeper's account). Finding Control Number: FS-6701-07-03 In fiscal year 2008, the Hancock County Board of Education planned to reduce the deficit by $200,000; however, due to tighter fiscal controls the deficit has been eliminated and the fiscal year 2009 budget reflects a planned surplus. The Hancock County Board ofEducation has implemented budget controls to ensure there will be a surplus. Finding Control Number: FS-6701-07-04 In fiscal year 2008, all Journal Entries were reviewed by the financial consultant and approved by the Superintendent of Schools. Documentation is attached to each Journal Entry and posted in the accounting records. Finding Control Number: FS-6701-07-05 Hancock County Board of Education hired a CPA firm to do District-wide assessment, inventory evaluation, and depreciation in fiscal year 2007. Unfortunately some items were not identified. Steps have been taken to improve the inventory evaluation to more adequately reflect the real value ofcapital assets. It is planned that in fiscal year 2009 the CSI plus financial reporting system for the fixed assets module will be implemented. All appropriate policies and procedures will be updated to reflect the new fixed assets module. Finding Control Number: FS-6701-07-06 In fiscal year 2007, a new financial system (CSI plus) was purchased and the implementation process began in January 1, 2007. This new system will provide more accurate and up-to-date information that will be properly recorded in the general ledger. Also, the financial statements will be reported correctly. - 1- HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2007 Finding Control Number: FA-6701-07-01 A check will be issued to Georgia Department of Education for unearned Federal grant funds in the amount of $15,707. There will be processes put in place to ensure that expenditures will be done according to the terms and conditions of the grants. Finding Control Number: FA-6701-07-02 We fully agree with this recommendation. In fiscal year 2009 we will develop procedures for combining and allocating schoolwide program expenditures. Contact Person: Dr. Awanna Leslie, Superintendent Phone: (706) 444-5775 Fax: (706) 444-7026 E-mail Address: aleslie@hancock.kl2.ga.us -2 -