HANCOCK COUNTY BOARD OF EDUCATION SPARTA, GEORGIA ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (Including Independent Auditor's Reports) 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 B STATEMENT OF ACTIVITIES FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS H NOTES TO THE BASIC FINANCIAL STATEMENTS SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 3 SCHEDULE OF STATE REVENUE Page 1 2 4 5 6 7 9 10 25 26 28 HANCOCK COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM Page 29 31 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS INDEPENDENT AUDITOR'S 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 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB 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 - SECTION V MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Greg S. Griffin STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 September 10, 2012 Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Hancock County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Hancock County Board of Education, as of and for the year ended June 30, 2011, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Hancock County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit. Except as discussed in the following paragraphs, we conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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. The School District did not properly perform reconciliation procedures for cash and cash equivalents for the fiscal year under review. Errors made during the implementation of the financial accounting system have created reconciling and reporting problems for the School District's cash and cash equivalents, and the School District's records did not provide sufficient information for the application of other auditing procedures to verify the completeness of cash and cash equivalents as reported in the governmental activities, General Fund and the aggregate remaining fund information reflected in the accompanying financial statements as of June 30, 2011. The aggregate effect on the financial statements was not reasonably determinable. 2011ARL-24X In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to examine documentation supporting cash and cash equivalents in the governmental activities, General Fund and the aggregate remaining fund information, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the governmental activities, General Fund and aggregate remaining fund information of the Hancock County Board of Education, as of June 30, 2011, 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. Additionally, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Capital Projects Fund and Debt Service Fund, as of June 30, 2011, and the respective changes in financial position thereof for the year ended in conformity with accounting principles generally accepted in the Unites States of America. The Hancock County Board of Education 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. In accordance with Government Auditing Standards, we have also issued our report dated September 10, 2012, on our consideration of the Hancock County Board of Education'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 of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 25 is not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the 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 financial statements. The accompanying supplementary information consists 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 of States, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the financial statements. The 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 financial statements as a whole. 2011ARL-24X 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, GSG:as 2011ARL-24X Greg S. Griffin State Auditor HANCOCK COUNTY BOARD OF EDUCATION HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2011 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes Intergovernmental State Federal Other Inventory Prepaid Items Deferred Charges Capital Assets, Non-Depreciable Capital Assets, Depreciable (Net of Accumulated Depreciation) Total Assets LIABILITIES Accounts Payable Salaries and Benefits Payable Accrued Interest Payable Contracts Payable Deferred Revenue Bonds Payable, Due Within One Year Bonds Payable, Due in More Than One Year Capital Leases, Due Within One Year Capital Leases, Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets The accompanying notes are an integral part of these financial statements. - 1 - EXHIBIT "A" GOVERNMENTAL ACTIVITIES $ 864,513 86,333 1,960,981 635,029 815,094 4,844 6,626 9,015 31,550 162,777 9,937,670 $ 14,514,432 $ 290,506 1,675,861 17,810 153,582 182,277 195,000 845,000 124,172 492,313 $ 3,976,521 $ 8,443,962 168,807 2,654 124,283 1,798,205 $ 10,537,911 $ 14,514,432 HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 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 Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes, Levied for Maintenance and Operations Sales Taxes, for Capital Projects Intangible Taxes Transfer Taxes Railroad Equipment Tax Unrestricted Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 7,347,769 $ 658,221 643,336 104,636 888,750 902,910 304,987 1,206,431 1,103,912 365,572 232,701 906,389 81,435 $ 14,747,049 $ 215,159 33,293 248,452 The accompanying notes are an integral part of these financial statements. - 2 - EXHIBIT "B" PROGRAM REVENUES OPERATING GRANTS AND CONTRIBUTIONS CAPITAL GRANTS AND CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 5,180,767 508,286 363,960 150,295 628,056 618,638 24,924 645,706 595,394 $ 60,836 901,991 $ 9,678,853 $ $ 152,584 152,584 $ -1,951,843 -149,935 -279,376 45,659 -260,694 -284,272 -280,063 -560,725 -355,934 -365,572 -171,865 28,895 -81,435 -4,667,160 $ 4,992,858 444,975 15,735 6,924 17,493 6,307 214,560 $ 5,698,852 $ 1,031,692 9,506,219 $ 10,537,911 - 3 - HANCOCK COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2011 EXHIBIT "C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes Intergovernmental State Federal Other Due From Other Funds Inventories Prepaid Items Total Assets GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 480,417 $ 1,960,981 594,317 815,094 4,844 212,812 6,626 9,015 384,096 $ 86,333 40,712 0 $ 864,513 86,333 1,960,981 635,029 815,094 4,844 212,812 6,626 9,015 $ 4,084,106 $ 511,141 $ 0 $ 4,595,247 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries and Benefits Payable Contracts Payable Due to Other Funds Deferred Revenue Total Liabilities FUND BALANCES Nonspendable Inventory Prepaid Items Restricted Federal Programs Capital Projects Debt Service Unassigned Total Fund Balances Total Liabilities and Fund Balances $ 290,506 1,675,861 $ 1,874,629 $ 3,840,996 $ 153,582 212,812 366,394 $ 6,626 9,015 162,181 $ 65,288 $ 243,110 $ $ 4,084,106 $ 124,283 20,464 $ 144,747 $ 511,141 $ $ 290,506 1,675,861 153,582 212,812 1,874,629 $ 4,207,390 $ 6,626 9,015 162,181 124,283 0 20,464 65,288 0 $ 387,857 0 $ 4,595,247 The accompanying notes are an integral part of these financial statements. - 4 - HANCOCK COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2011 EXHIBIT "D" Total Fund Balances - Governmental Funds (Exhibit "C") $ 387,857 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: Cost Less Accumulated Depreciation Total Capital Assets $ 19,016,023 -8,915,576 10,100,447 Taxes that are not available to pay for current period expenditures are deferred in the funds. 1,692,352 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 Bond Issuance Costs, Net of Amortization Capital Leases Accrued Interest Total Long-Term Liabilities $ -1,040,000 31,550 -616,485 -17,810 -1,642,745 Net Assets of Governmental Activities (Exhibit "A") $ 10,537,911 The accompanying notes are an integral part of these financial statements. - 5 - HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2011 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 Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Capital Leases Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 5,215,443 40,152 $ 4,936,326 4,895,111 248,452 5,825 212,961 $ 15,554,270 $ $ 444,975 482 1,599 447,056 $ 0 $ 5,215,443 485,127 4,936,326 4,895,111 248,452 6,307 214,560 0 $ 16,001,326 $ 7,101,101 $ 653,543 643,336 104,636 886,900 902,910 332,571 1,155,707 1,752,635 365,572 211,499 900,992 25,290 1,057 $ 15,037,749 $ $ 516,521 $ 0 $ $ 0 $ 447,056 $ 420,000 56,258 476,258 $ -476,258 $ 7,101,101 653,543 643,336 104,636 886,900 902,910 332,571 1,155,707 1,752,635 365,572 211,499 900,992 445,290 57,315 15,514,007 487,319 $ 602,991 $ -68,094 $ 534,897 $ $ 1,051,418 $ -808,308 68,094 $ -476,258 -408,164 $ 38,892 $ 105,855 $ 476,258 476,258 $ 0 $ 0 602,991 544,352 -544,352 602,991 1,090,310 -702,453 $ 243,110 $ 144,747 $ 0 $ 387,857 The accompanying notes are an integral part of these financial statements. - 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, 2011 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 Taxes reported in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. Bond issuance costs, deferred gains on refundings and similar items when debt is first issued are reported as an expenditure in Governmental Funds, but are reported as deferred charges on the Statement of Net Assets and amortized over the term of the debt, using the straight-line method. The details of this difference in the current period are as follows: Deferral of Bond Issuance Costs Amortization of Bond Issuance Costs Total Bond Issuance Costs Issuance of Long-Term Debt provides current financial resources to Governmental Funds, while repayment of the principal of Long-Term Debt consumes the current financial resources of Governmental Funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences in the treatment of Long-Term Debt and related items. Principal Payments - Bonds Principal Payments - Capital Leases Issuance of Capital Leases Total Issuance of Long-Term Debt Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of: Change in Accrued Interest $ 1,090,310 $ 819,589 -511,661 307,928 -222,585 $ 37,860 -6,310 31,550 $ 420,000 25,290 -602,991 -157,701 -17,810 Change in Net Assets of Governmental Activities (Exhibit "B") $ 1,031,692 The accompanying notes are an integral part of these financial statements. - 7 - (This page left intentionally blank) HANCOCK COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2011 ASSETS Cash and Cash Equivalents LIABILITIES Cash Overdraft Funds Held for Others Total Liabilities EXHIBIT "G" AGENCY FUNDS $ 0 $ 52,744 -52,744 $ 0 The accompanying notes are an integral part of these financial statements. - 9 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 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 of Net Assets and the Statement of Activities display information about the financial activities of the 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 of the 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 of internal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds. The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for and reports all financial resources not accounted for and reported in another fund. District-wide Capital Projects Fund accounts for and reports financial resources including Special Purpose Local Option Sales Tax (SPLOST) that are restricted, committed or assigned to the expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Debt Service Fund accounts for and reports financial resources that are restricted, committed, or assigned including taxes (sales) legally restricted for the payment of general long-term principal and interest. - 10 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination of specific 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. The State of Georgia reimburses the School System for teachers' salaries and operating costs through the Quality Basic Education Formula Earnings program (QBE). Generally teachers are contracted for the school year (July 1 June 30) and paid over a twelve month contract period, generally September 1 through August 31. In accordance with the respective rules and regulations of the QBE program, the State of Georgia reimburses the School System over the same twelve month period in which teachers are paid. At June 30, the amount of teachers' salaries incurred but not paid until July and August of the subsequent year are accrued. Since the State of Georgia recognizes its QBE liability for the July and August salaries at June 30, the School System recognizes the same QBE as a receivable and revenue, consistent with symmetrical recognition. NEW ACCOUNTING PRONOUNCEMENTS In fiscal year 2011, the School District adopted the Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The provisions of this Statement establish accounting and financial reporting standards for all governments that report governmental funds. It establishes criteria for classifying fund balances into specifically defined classifications and clarifies definitions for governmental funds. - 11 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" CASH AND CASH EQUIVALENTS Composition of Deposits Cash and cash equivalents consist of cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated Section 45-8-14 authorizes the School District to deposit its funds in one or more solvent banks, insured Federal savings and loan associations or insured chartered building and loan associations. INVESTMENTS Composition of Investments Investments made by the School District in nonparticipating interest-earning contracts (such as certificates of deposit) and repurchase agreements are reported at cost. Participating interestearning contracts and money market investments with a maturity at purchase of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year and equity investments are reported at fair value. The Official Code of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate of return shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: 1. Obligations issued by the State of Georgia or by other states, 2. Obligations issued by the United States government, 3. Obligations fully insured or guaranteed by the United States government or a United States government agency, 4. Obligations of any corporation of the United States government, 5. Prime banker's acceptances, 6. The Georgia Fund 1 administered by the State of Georgia, Office of the State Treasurer, 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 of credit risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Hancock County Board of Commissioners fixed the property tax levy for the 2010 tax digest year (calendar year) on December 29, 2010 (levy date). Taxes were due on March 20, 2011 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2010 tax digest are reported as revenue in the governmental funds for fiscal year 2011. The Hancock County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2011, for maintenance and operations amounted to $5,215,443. - 12 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" Tax millage rates levied for the 2010 tax year (calendar year) for the Hancock Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 13.199 m ills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $444,975 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 of meals 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. PREPAID ITEMS Payments made to vendors for services that will benefit periods subsequent to June 30, 2011, are recorded as prepaid items. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. 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: C a pita liz atio n Estim ate d Policy Useful Life Land Construction in Progress Land Im provem ents Buildings and Im provem ents Equipm e nt Intangible Assets All $ 5 ,0 0 0 $ 5 ,0 0 0 $ 5 ,0 0 0 $ 5 ,0 0 0 $ 3 0 0 ,0 0 0 N/A N/A 50 years 15 to 80 years 3 to 20 years 3 to 20 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives, with the exception of intangible assets which are amortized. - 13 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" Amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, copyrights and internally generated software is computed using the straight-line method over the estimated useful lives of the assets, generally 10 to 20 years. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. In the District-wide financial statements, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method. Bond issuance costs are reported as deferred charges and amortized over the term of the debt. In the fund financial statements, the School District recognizes bond premiums and discounts, as well as bond issuance costs during the fiscal year bonds are issued. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 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 of outstanding 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. 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. FUND BALANCES The School District's fund balances are classified as follows: Nonspendable Amounts that cannot be spent either because they are in a nonspendable form or because they are legally or contractually required to be maintained intact. Restricted Constraints are placed on the use of resources are either (1) externally imposed conditions by creditors, grantors, contributors, or laws and regulations of other governments or (2) imposed by law through constitutional provisions or enabling legislation. Committed Amounts that can be used only for specific purposes pursuant to constraints imposed by formal action of the Board of Education. The Board of Education is the School District's highest level of decision-making authority, and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the Board. Committed fund balance also should incorporate contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements. Assigned Amounts that are constrained by the School District's intent to be used for specific purposes, but are neither restricted nor committed. The intent should be expressed by (1) the Board of Education or (2) the budget or finance committee, or the Superintendent, or designee, to assign amounts to be used for specific purposes. - 14 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" Unassigned The residual classification for the General Fund. This classification represents fund balances that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the General Fund. It is the goal of the School District to achieve and maintain a committed, assigned, and unassigned fund balance in the general fund at fiscal year end of not to exceed 15% of the total budget of the subsequent fiscal year, in compliance with Official Code of Georgia Annotated Section 20-2-167(a)5. If the unassigned fund balance at fiscal year end falls below the goal, the School District shall develop a restoration plan to achieve and maintain the minimum fund balance. When multiple categories of fund balance are available for expenditure, the School District will start with the most restricted category and spend those funds first before moving down to the next category with available funds. DEFICIT FUND BALANCES The fund reporting a deficit fund balance at June 30, 2011, is as follows: Fund Type/Fund Name Deficit Balance Fiduciary Fund: Agency Fund $ 52,744 The School District plans to eradicate the deficit through a reduction in spending. USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. NOTE 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (O.C.G.A.) 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 of the face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent of the public funds being secured after the deduction of the amount of deposit insurance. If a depository elects the pooled method (O.C.G.A. Section 45-8-13.1) the aggregate of the market value of the securities pledged to secure a pool of public funds shall be not less than 110 percent of the 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, 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, - 15 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" 6. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and 7. Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by or securities guaranteed 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 Custodial credit risk is the risk that in the event of a bank failure, the School District's deposits may not be returned to it. At June 30, 2011, the bank balances were $1,146,318. The bank balances were entirely covered by Federal depository insurance or collateralized with securities held by the pledging financial institution in the School District's name. CATEGORIZATION OF INVESTMENTS The School District's investments as of June 30, 2011, are presented below. All investments are presented by investment type and debt securities are presented by maturity. Investment Type M a tu r i ti e s R a ti n g* Fair Value Georgia Fund One Fidelity Institutional Treasury (Money Market Mutual Funds) 59 Day Weighted Average 35 Day Weighted Average AAAm $ AAA 52,800 33,533 Total Investments $ 86,333 *Rating as per Standard and Poor's The Georgia Fund 1, formerly referred to as LGIP, administered by the State of Georgia, Office of the State Treasurer is not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy of the State of Georgia, Office of the State Treasurer for the Georgia Fund 1 (Primary Liquidity Portfolio and Extended Asset Portfolio) does not provide for investment in derivatives or similar investments. Additional information on the Georgia Fund 1 is disclosed in the State of Georgia Comprehensive Annual Financial Report. This audit can be obtained from the Georgia Department of Audits and Accounts at http://www.audits.ga.gov/SGD/cafr.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, 2011, was 59 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 - 16 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" NOTE 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Governmental Activities Capital Assets, Not Being Depreciated: Land Balances July 1, 2010 Increases Decreases Balances June 30, 2011 $ 162,777 $ 0$ 0$ 162,777 Capital Assets, Being Depreciated: Buildings and Improvements Equipment Land Improvements $ 15,284,346 $ 2,440,415 308,896 37,991 $ 781,598 0$ 15,322,337 3,222,013 308,896 Less: Accumulated Depreciation: Buildings and Improvements Equipment Land Improvements 6,566,806 1,805,809 31,300 319,874 170,916 20,871 6,886,680 1,976,725 52,171 Total Capital Assets, Being Depreciated, Net $ 9,629,742 $ 307,928 $ 0$ 9,937,670 Governmental Activity Capital Assets - Net $ 9,792,519 $ 307,928 $ 0$ 10,100,447 Capital assets being acquired under capital leases as of June 30, 2011, are as follows: Governm ental Funds Equipm ent Less: Accum ulated Depreciation $ 7 2 2 ,9 2 3 6 5 ,9 9 6 $ 6 5 6 ,9 2 7 Current year depreciation expense by function is as follows: Instruction Support Services Pupil Services $ General Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Food Services $ 4,678 1,850 10,276 50,724 106,223 21,202 $ 311,311 194,953 5,397 511,661 - 17 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" NOTE 6: INTERFUND ASSETS AND LIABILITIES Due to and due from other funds are recorded for interfund receivables and payables which arise from interfund transactions. Interfund balances at June 30, 2011, consisted of the following: Due From Other Funds Due To Other Funds General Fund District-wide Capital Projects $ 212,812 $ $ 212,812 $ 212,812 212,812 Interfund balances were incurred to repay the General Fund for capital construction project expenditures with future SPLOST receipts. NOTE 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2011, consisted of the following: Transfer to Transfers From District-w id e General C apital Fund Projects District-wide Capital Projects $ 6 8 ,0 9 4 Debt Service Fund $ 4 7 6 ,2 5 8 Total $ 68,094 $ 4 7 6 ,2 5 8 Transfers from the District-wide Capital Projects Fund were used to move SPLOST revenue to the Debt Service Fund for payment of bonds. Transfers from the General Fund were used to fund capital projects. 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 of loss associated with torts, assets, errors or omissions, job related illness or injuries to employees and acts of God. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. - 18 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" 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 2010 $ 2011 $ 22,738 $ 17,604 $ 38,648 $ 41,318 $ 43,782 $ 58,922 $ 17,604 0 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent Finance Director $ 1 0 0 ,0 0 0 $ 5 0 ,0 0 0 NOTE 9: SHORT-TERM DEBT The School District issues tax anticipation notes in advance of property tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution of the State of Georgia limits the aggregate amount of short-term debt to 75 percent of the total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 of the calendar year in which the debt was incurred. Short-term debt activity for the fiscal year is as follows: B e gi n n i n g Balance Issued Redeemed Ending Balance Tax Anticipation Notes $ 500,500 $ 675,500 $ 1,176,000 $ 0 NOTE 10: LONG-TERM DEBT CAPITAL LEASES The Hancock County Board Of Education entered into various lease agreements for buses and copiers. These lease agreements qualify as capital leases for accounting purposes, and, therefore, have been recorded at the present value of the future minimum lease payments as of the date of their inception. GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Am ount General Governm ent - Series 2005 3.15% - 4.10% $ 1 ,0 4 0 ,0 0 0 - 19 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" The changes in Long-Term Debt during the fiscal year ended June 30, 2011, were as follows: Balance July 1, 2010 Additions Governmental Funds Balance Deductions June 30, 2011 Due Within One Year G. O. Bonds Capital Leases $ 1,460,000 38,784 $ $ 602,991 420,000 $ 25,290 1,040,000 $ 616,485 195,000 124,172 $ 1,498,784 $ 602,991 $ 445,290 $ 1,656,485 $ 319,172 At June 30, 2011, payments due by fiscal year which includes principal and interest for these items are as follows: Capital Leases Principal I n te r e st Fiscal Year Ended June 30: 2012 2013 2014 2015 2016 $ 124,172 $ 119,179 119,377 124,152 129,605 19,661 19,588 14,925 10,150 5,197 Total Principal and Interest $ 616,485 $ 69,521 Fiscal Year Ended June 30: General Obligation Debt Principal I n te r e st 2012 2013 2014 2015 2016 $ 195,000 $ 200,000 210,000 215,000 220,000 40,928 33,615 25,915 17,620 9,020 Total Principal and Interest $ 1,040,000 $ 127,098 NOTE 11: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $44,469 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-Certificated Personnel In the amount of $33,614 Office of the State Treasurer Paid to the Public School Employees' Retirement System For Public School Employees' Retirement (PSERS) Employer's Cost In the amount of $10,855 - 20 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" NOTE 12: 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 of routine School District operations. The ultimate disposition of these proceedings is not presently determinable, but is not believed to be material to the basic financial statements. NOTE 13: SUBSEQUENT EVENTS On September 20, 2011, the Hancock County Board of Education issued a $1,175,500 temporary loan in advance of property tax collections. Proceeds from this short-term loan were issued to provide cash for operations until property tax collections were received by the School District. The maturity date of the loan was December 30, 2011. Two draws totaling $1,175,500 were required to meet the cash flow needs for the School District. The note was repaid on December 21, 2011. NOTE 14: POST-EMPLOYMENT BENEFITS GEORGIA SCHOOL PERSONNEL POST-EMPLOYMENT HEALTH BENEFIT FUND Plan Description. The Georgia School Personnel Post-employment Health Benefit Fund (School OPEB Fund) is a cost-sharing multiple-employer defined benefit post-employment healthcare plan that covers eligible former employees of public school systems, libraries and regional educational service agencies. The School OPEB Fund provides health insurance benefits to eligible former employees and their qualified beneficiaries through the State Employees Health Benefit Plan administered by the Department of Community Health. The Official Code of Georgia Annotated (O.C.G.A.) assigns the authority to establish and amend the benefit provisions of the group health plans, including benefits for retirees, to the Board of Community Health (Board). The Department of Community Health, which includes the School OPEB Fund, issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. Funding Policy. The contribution requirements of plan members and participating employers are established by the Board in accordance with the current Appropriations Act and may be amended by the Board. Contributions of plan members or beneficiaries receiving benefits vary based on plan election, dependent coverage, and Medicare eligibility and election. On average, plan members pay approximately 25 percent of the cost of the health insurance coverage. Participating employers are statutorily required to contribute in accordance with the employer contribution rates established by the Board. The contribution rates are established to fund all benefits due under the health insurance plans for both active and retired employees based on projected "pay-as-you-go" financing requirements. Contributions are not based on the actuarially calculated annual required contribution (ARC) which represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The combined active and retiree contribution rates established by the Board for employers participating in the School OPEB Fund were as follows for the fiscal year ended June 30, 2011: - 21 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" For certificated teachers, librarians and regional educational service agencies: July 2010 - April 2011 May 2011 - June 2011 21.955% of covered payroll for August - May Coverage 1.429% of covered payroll for June - July Coverage For non-certificated school personnel: July 2010 - December 2010 January 2011 - May 2011 June 2011 $162.72 per member per month $218.20 per member per month $246.20 per member per month The Department of Education was appropriated an additional $25,081,633 for non-certificated personnel health insurance payments. The amount attributable to the School District is reflected in the On-behalf note disclosure. No additional contribution was required by the Board for fiscal year 2011 nor contributed to the School OPEB Fund to prefund retiree benefits. Such additional contribution amounts are determined annually by the Board in accordance with the School plan for other post-employment benefits and are subject to appropriation. Currently the State is requiring the local Boards of Education to pay only on active employees. The District's contribution to the health insurance plans for the fiscal years ended June 30, 2011, 2010 and 2009 was $1,018,799, $815,163 and $725,674, respectively, which equaled the required contribution. Currently, the State of Georgia has been making the remaining contributions to fund the pay as you go financing on behalf of all local Boards of Education. NOTE 15: RETIREMENT PLANS TEACHERS' RETIREMENT SYSTEM OF GEORGIA (TRS) Plan Description. The TRS is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS. 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. On October 25, 1996, the Board created the Supplemental Retirement Benefits Plan of the Georgia Teachers' Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1, 1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits. TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service. Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 30 years of service. It is also assumed that certain cost-of-living - 22 - HANCOCK COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "H" adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available. Funding Policy. TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 10 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2011, were 5.53% of annual salary. The member contribution rate will increase to 6.00% effective July 1, 2012. Employer contributions required for fiscal year 2011 were 10.28% of annual salary as required by the June 30, 2008, actuarial valuation. The employer contribution rate will increase to 11.41% effective July 1, 2012. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage C o ntrib ute d Required C o ntrib utio n 2011 2010 2009 100% 100% 100% $ 7 3 1 ,3 6 1 $ 7 2 1 ,2 3 5 $ 7 1 7 ,4 2 6 PUBLIC SCHOOL EMPLOYEES' RETIREMENT SYSTEM (PSERS) Bus drivers, lunchroom personnel, and maintenance and custodial personnel are members of the Public School Employees' Retirement System of Georgia. The System is funded by contributions by the employees and by the State of Georgia. The School District makes no contribution to this plan. - 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, 2011 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 Capital Outlay Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Capital Leases Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS VARIANCE WITH FINAL BUDGET $ 5,083,676 $ 5,083,676 $ 5,215,443 $ 13,280 13,280 40,152 4,716,685 4,937,361 4,936,326 2,494,616 5,150,041 4,895,111 248,452 1,000 1,000 5,825 160,000 160,000 212,961 $ 12,469,257 $ 15,345,358 $ 15,554,270 $ 131,767 26,872 -1,035 -254,930 248,452 4,825 52,961 208,912 $ 5,850,464 $ 7,386,414 $ 7,101,101 $ 573,059 332,764 280,029 638,628 933,870 471,103 1,100,175 878,792 274,959 145,349 68,242 250,815 843,830 604,181 289,160 832,730 1,005,390 483,270 1,222,549 1,134,533 276,459 257,171 74,442 310,815 653,543 643,336 104,636 886,900 902,910 332,571 1,155,707 1,752,635 365,572 211,499 900,992 26,347 $ 11,798,249 $ 14,720,944 $ 15,037,749 $ $ 671,008 $ 624,414 $ 516,521 $ -285,313 -190,287 39,155 -184,524 54,170 -102,480 -150,699 -66,842 618,102 89,113 -45,672 826,550 -310,815 26,347 316,805 -107,893 $ 602,991 $ $ 3,000 $ 3,000 -68,094 $ 3,000 $ 3,000 $ 534,897 $ $ 674,008 $ 627,414 $ 1,051,418 $ -808,308 -808,308 -808,308 602,991 -3,000 -68,094 531,897 424,004 0 $ -134,300 $ -180,894 $ 243,110 $ 424,004 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, 2011 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 U. S. Department of Agriculture Education, U. S. Department of Education of Homeless Children and Youth Cluster Pass-Through From Georgia Department of Education Education for Homeless Children and Youth Educational Technology State Grants Cluster Pass-Through From Georgia Department of Education Education Technology State Grants Special Education Cluster Pass-Through From Georgia Department of Education Special Education ARRA - Grants to States ARRA - Preschool Grants Grants to States Preschool Grants Total Special Education Cluster Title I, Part A Cluster Pass-Through From Georgia Department of Education ARRA - Title I Grants to Local Educational Agencies Title I Grants to Local Educational Agencies Total Title I, Part A Cluster Other Programs Pass-Through From Georgia Department of Education Career and Technical Education - Basic Grants to States Education Jobs Fund Improving Teacher Quality State Grants Mathematics and Science Partnerships Rural Education Safe and Drug-Free Schools and Communities - State Grants Twenty-First Century Community Learning Centers Total Other Programs Total U. S. Department of Education CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 N/A N/A $ $ (2) 806,060 (1) 806,060 84.196 N/A $ 13,617 84.318 N/A $ 10,293 * 84.391 * 84.392 * 84.027 * 84.173 N/A $ N/A N/A N/A $ 30,528 1,340 294,381 8,771 335,020 * 84.389 * 84.010 N/A $ N/A $ 74,591 721,539 796,130 84.048 * 84.410 84.367 84.366 84.358 84.186 84.287 N/A $ N/A N/A N/A N/A N/A N/A $ $ 21,907 246,624 145,862 1,521 25,386 2,717 338,701 782,718 1,937,778 - 26 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2011 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Health and Human Services, U. S. Department of Head Start Cluster Direct ARRA - Head Start ARRA - Early Head Start Head Start Total Head Start Cluster Defense, U. S. Department of Direct Department of the Air Force R.O.T.C. Program CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 93.708 * 93.709 * 93.600 $ 24,833 853,714 1,205,946 $ 2,084,493 $ 62,747 Total Expenditures of Federal Awards $ 4,891,078 N/A = Not Available Notes to the Schedule of Expenditures of Federal Awards (1) Includes the Federally assigned value of donated commodities for the Food Donation Program in the amount of $15,943. (2) Expenditures for the funds earned on the School Breakfast Program ($239,270) were not maintained separately and are included in the 2011 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, 2011 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 Program for Intellectually Gifted Students - 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 Sparsity Nursing Services Mid-term Adjustment Hold-Harmless Vocational Supervisors Food Services Vocational Education Amended Formula Adjustment Other State Programs Dual Enrollment Funding Health Insurance Mentoring Program Preschool Handicapped Program Pupil Transportation - State Bonds Special Needs Reimbursement Office of the State Treasurer Public School Employees Retirement OTHER Governors Office of Highway Safety Department of Public Safety Driver Education Grant See notes to the basic financial statements. - 28 - SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 351,876 299,293 -934 630,702 160,756 304,976 79,071 516,225 644,334 88,503 710,754 53,520 112,309 45,623 96,661 30,819 19,277 269,607 279,951 238,018 326,751 35,554 142,843 7,318 19,858 4,463 -778,487 2,160 33,614 6,000 21,516 152,584 876 10,855 19,080 $ 4,936,326 HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2011 SCHEDULE "4" PROJECT Acquiring, constructing and equipping new school buildings and other buildings and facilities useful or desirable in connection therewith, including a new auditorium/performing arts center, (ii) acquiring, constructing and equipping administrative offices, auxiliary education programs, and miscellaneous office space, (iii) acquiring communication equipment, technology, including computers, and other equipment, including buses and transportation equipment, (iv) adding to, renovating, repairing, improving and equipping existing school buildings and grounds, agricultural facilities and athletic facilities, and other buildings and facilities useful or desirable in connection therewith, including but not limited to M.E. Lewis Elementary School and Hancock Central Middle/High School, (v) acquiring land useful or desirable for the purpose of future expansion and associated costs, and (vi) completing any capital outlay projects authorized in connection with the sales and use tax currently in effect Project #1 M.E. Lewis Elementary School renovation/New Athletic facilities Project #2 Debt Service paid on prior Bonds Project #3 Purchase of school buses Project #4 Purchase of Technology Other Various Projects ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEAR (3) PROJECT STATUS $ 195,000 $ 195,000 $ 214,855 Ongoing 1,167,100 1,167,100 $ 476,258 475,433 Ongoing 800,000 600,000 800,000 600,000 Ongoing Ongoing 987,900 Ongoing $ 3,750,000 $ 2,762,100 $ 476,258 $ 690,288 (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 projects. 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 projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. See notes to the basic financial statements - 29 - (This page left intentionally blank) HANCOCK COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2011 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten 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 III 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 $ 427,711 $ 318,211 $ 871,032 276,258 220,224 409,447 405,626 633,671 116,311 747,535 946,723 142,240 1,046,270 73,539 166,909 67,380 74,423 541,301 815,118 210,730 120,008 140,661 171,810 29,932 175,157 92,751 $ 5,231,500 $ 4,009,478 $ 141,376 27,345 225,594 1,399 $ 1,370 1,071 1,214 1,031 15,142 5,457 7,583 1,038 35,305 $ 75 319,610 277,628 410,518 634,885 75,454 556,443 820,575 218,313 120,008 140,661 171,810 30,970 175,157 92,751 4,044,783 225,669 19,479 TOTAL QBE FORMULA FUNDS $ 5,400,221 $ 4,235,072 $ 35,380 $ 4,289,931 (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 Greg S. Griffin STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 September 10, 2012 Honorable Nathan Deal, 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 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ladies and Gentlemen: We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Hancock County Board of Education as of and for the year ended June 30, 2011, which collectively comprise Hancock County Board of Education's basic financial statements and have issued our report thereon dated September 10, 2012. This report was qualified for a scope limitation, as identified in the auditor's report on the basic financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting Management of Hancock County Board of Education is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered Hancock County Board of Education'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 of expressing 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 of the 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 first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses and therefore, there can be no assurances that all deficiencies, significant deficiencies or material weaknesses have been identified. However, as described in the accompanying Schedule of Findings and Questioned Costs, we identified certain deficiencies in internal control over financial reporting that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies. 2011YB-40X A deficiency in internal control 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 and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider items FS-6701-11-01, FS-6701-11-02, FS-6701-11-04, and FS-6701-11-06 to be material weaknesses. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider items FS-6701-11-03, FS-6701-11-05, and FS-6701-11-07 in the accompanying Schedule of Findings and Questioned Costs to be significant deficiencies in internal control over financial reporting. 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 of laws, 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 September 10, 2012. Hancock County Board of Education's response to the findings identified in our audit is described in the accompanying Schedule of Management's Responses. We did not audit Hancock County Board of Education's response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of management, members of the Hancock County Board of Education, others within the entity, 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, GSG:as 2011YB-40X Greg S. Griffin State Auditor Greg S. Griffin STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 September 10, 2012 Honorable Nathan Deal, 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 REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Ladies and Gentlemen: Compliance We have audited Hancock County Board of Education's compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2011. Hancock County Board of Education'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 of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB 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. As described in items FA-6701-11-01 and FA-6701-11-05 in the accompanying Schedule of Findings and Questioned Costs, Hancock County Board of Education did not comply with requirements regarding Activities Allowed or Unallowed, Allowable Costs/Cost Principles and Reporting that are 2011SA-55 applicable to its Title I, Part A Cluster. Compliance with such requirements is necessary, in our opinion, for Hancock County Board of Education to comply with requirements applicable to that program. In our opinion, except for the noncompliance described in the preceding paragraph, the Hancock County Board of Education complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2011. The results of our auditing procedures also disclosed other instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying Schedule of Findings and Questioned Costs as items FA-6701-11-02, FA-6701-11-03, FA-6701-11-04, and FA6701-11-06. Internal Control Over Compliance Management of Hancock County Board of Education is responsible for establishing and maintaining effective internal control over compliance with the 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 the requirements that could have a direct and material effect on a major Federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, 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 of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in internal control over compliance described in the accompanying Schedule of Findings and Questioned Costs as FA-6701-11-01, and FA-6701-11-05 to be material weaknesses. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a Federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. We consider the deficiencies in internal control over compliance described in the accompanying Schedule of Findings and Questioned Costs as items FA-6701-11-02, FA-6701-11-03, FA-6701-11-04, and FA-6701-1106 to be significant deficiencies. 2011SA-55 Hancock County Board of Education's responses to the findings identified in our audit are described in the accompanying Schedule of Management's Responses. We did not audit Hancock County Board of Education's responses and, accordingly, we express no opinion on the responses. This report is intended solely for the information and use of management, members of the Hancock County Board of Education, others within the entity, 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, GSG:as 2011SA-55 Greg S. Griffin 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, 2011 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AUDITEE'S RESPONSE/STATUS SEE AUDITOR'S COMMENTS FS-6701-06-10 Further Action Not Warranted (1) FS-6701-09-01 Previously Reported Corrective Action Implemented FS-6701-09-02 Further Action Not Warranted FS-6701-09-03 Further Action Not Warranted FS-6701-09-04 Further Action Not Warranted FS-6701-09-05 Further Action Not Warranted FS-6701-09-06 Further Action Not Warranted FS-6701-09-07 Previously Reported Corrective Action Implemented FS-6701-10-01 Unresolved - See Corrective Action/Responses FS-6701-10-02 Partially Resolved - See Corrective Action/Responses FS-6701-10-03 Partially Resolved - See Corrective Action/Responses FS-6701-10-04 Partially Resolved - See Corrective Action/Responses FS-6701-10-05 Partially Resolved - See Corrective Action/Responses FS-6701-10-06 Unresolved - See Corrective Action/Responses FS-6701-10-07 Partially Resolved - See Corrective Action/Responses FS-6701-10-08 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. CORRECTIVE ACTION/RESPONSES ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls-Separation of Duties Finding Control Number: FS-6701-10-01 We concur with this finding. The School District will implement procedures to ensure that access control duties are separated. CASH AND CASH EQUIVALENTS Inadequate Internal Control Procedures Finding Control Number: FS-6701-10-02 We concur with this finding. The School District will implement procedures for designing and maintaining internal controls over Cash and Cash Equivalents - 1 - HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Finding Control Number: FS-6701-10-03 The School District will revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures and implement procedures to ensure that key accounting functions of custody, record keeping, and authorization are separated, utilize management oversight of these incompatible activities, and implement procedures to ensure that expenditures of school activity accounts are properly documented and approved prior to payment. BUDGET PREPARATION/EXECUTION Deficit Fund Balance Finding Control Number: FS-6701-10-04 The School District has established policies and procedures designed to ensure that in future periods the School District does not report a deficit fund balance. EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls Finding Control Number: FS-6701-10-05 The School District will develop and implement procedures sufficient to ensure that all expenditures are properly approved, adequately documented, follow State and local procurement policies, and are recorded in the proper accounting period. GENERAL LEDGER Inadequate Accounting Procedures Finding Control Number: FS-6701-10-06 The School District will 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 Finding Control Number: FS-6701-10-07 The School District will reassess internal control procedures related to capital assets to ensure that they are in place and operating effectively. The Finance Director will perform an administrative review to ensure the accuracy of capital asset records and make appropriate adjustments to ensure that capital asset records and procedures for maintaining capital assets and conform to generally accepted accounting principles. - 2 - HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AUDITEE'S RESPONSE/STATUS SEE AUDITOR'S COMMENTS FA-6701-06-01 Further Action Not Warranted (1) FA-6701-06-02 Further Action Not Warranted (1) FA-6701-06-03 Further Action Not Warranted (1) FA-6701-06-04 Further Action Not Warranted (1) FA-6701-06-08 Further Action Not Warranted (1) FA-6701-06-09 Further Action Not Warranted (1) FA-6701-06-10 Further Action Not Warranted (1) FA-6701-06-13 Further Action Not Warranted (1) FA-6701-06-16 Further Action Not Warranted (1) FA-6701-08-02 Previously Reported Corrective Action Implemented FA-6701-09-01 Further Action Not Warranted (1) FA-6701-09-02 Previously Reported Corrective Action Implemented FA-6701-09-03 Previously Reported Corrective Action Implemented FA-6701-10-01 Partially Resolved - See Corrective Action/Responses FA-6701-10-02 Partially Resolved - See Corrective Action/Responses FA-6701-10-03 Unresolved - See Corrective Action/Responses FA-6701-10-04 Previously Reported Corrective Action Implemented FA-6701-10-05 Unresolved - See Corrective Action/Responses FA-6701-10-06 Unresolved - See Corrective Action/Responses 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. CORRECTIVE ACTION/RESPONSES ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES PROCUREMENT, SUSPENSION AND DEBARMENT Inadequate Internal Control Procedures U. S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (CFDA 84.010) Finding Control Number: FA-6701-10-01 The School District will implement procedures to ensure that all expenditures charged to the Federal program are allowable under OMB Circular A-87, approved by the program director and superintendent, and are properly documented. We will contact the Georgia Department of Education to see if a reclaim of funds is appropriate. - 3 - HANCOCK COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES PROCUREMENT, SUSPENSION AND DEBARMENT PERIOD OF AVAILABILITY Inadequate Internal Control Procedures U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Finding Control Number: FA-6701-10-02 The School District will implement internal controls for monitoring compliance with Federal guidelines. The School District will review the internal controls for Federal compliance procedures in place, design procedures which will enhance monitoring compliance with Federal guidelines and implement proper internal controls relative to the findings of School Breakfast Program (CFDA 10.553), and the Food Services National School Lunch Program (CFDA No. 10.555). CASH MANAGEMENT Excessive Cash Balance U. S. Department of Education Through Georgia Department of Education Special Education Cluster (CFDA 84.027, 84.173, 84.391 and 84.392) Title I, Part A Cluster (CFDA 84.010 and 84.389) Finding Control Number: FA-6701-10-03 The School District will implement procedures to accurately forecast cash needs on the required Contract Expenditure Reports. The new procedures will accurately forecast cash needs based on actual expenditures incurred in order to minimize or eliminate the time elapsing between the transfer of funds from the Georgia Department of Education and the disbursement of such funds by the School District. Once the information has been evaluated, the Georgia Department of Education will determine if a reclaim is appropriate and the Hancock County Board of Education will respond to this reclaim. REPORTING Failure to Refund Unexpended Grants U. S. Department of Education Through Georgia Department of Education Career and Technical Education Basic Grants to States (CFDA 84.048) Title I Grants to Local Educational Agencies (CFDA 84.010) Finding Control Number: FA-6701-10-05 Appropriate procedures will be implemented to ensure that unexpended grant balances are refunded to the Georgia Department of Education. The School District will refund the unearned Federal grant funds to the Georgia 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, 2011 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES SPECIAL REPORTING Inadequate Internal Control Procedures U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Finding Control Number: FA-6701-10-06 The School District will review the internal controls for Federal compliance procedures in place, and design procedures which will enhance compliance with Federal guidelines and implement proper internal controls relative to the findings of School Breakfast Program (CFDA No. 10.553), and the Food Services National School Lunch Program (CFDA 10.555). - 5 - SECTION IV FINDINGS AND QUESTIONED COSTS HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 I SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of auditor's report issue: Governmental Activities; General Fund; Aggregate Remaining Fund Information Capital Projects Fund; Debt Service Fund Qualified Unqualified Internal control over financial reporting: Material weaknesses identified? Yes Significant deficiencies identified? Yes Noncompliance material to financial statements noted: No Federal Awards Internal Control over major programs: Material weaknesses identified? Yes Significant deficiencies identified? Yes Type of auditor's report issued on compliance for major programs: Unqualified for all major programs except for Title I, Part A Cluster, which was qualified. Any audit findings disclosed that are required to be reported in accordance with OMB Circular A-133, Section 510(a)? Yes Identification of major programs: CFDA Numbers Name of Federal Program or Cluster 10.553, 10.555 84.010, 84.389 84.027, 84.173, 84.391, 84.392 93.600, 93.708, 93.709 84.410 Child Nutrition Cluster Title I, Part A Cluster Special Education Cluster Head Start Cluster Education Jobs Fund Dollar threshold used to distinguish between Type A and Type B programs: $300,000.00 Auditee qualified as low-risk auditee? No II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls-Segregation of Duties Material Weakness Finding Control Number: FS-6701-11-01 Condition: This is a repeat finding (FS-6701-10-01) from the year ended June 30, 2010. The policies and procedures of the School District were insufficient to provide adequate controls over logical access to the School District's financial system. - 1 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS Criteria: The School District's management is responsible for providing policies and procedures that allow for the granting of proper access to the School District's financial system. Access should be reasonable for the user's job duties and no user should be able to perform conflicting duties within the logical environment in the absence of compensating internal controls outside of the financial system. In addition, finance personnel should not have administrator roles within the financial system. Questioned Cost: N/A Information: A review of access to the School District's financial system revealed that several users were granted access that allowed the user to perform conflicting significant duties. A test of compensating controls outside of the financial system revealed that these controls were not effective, and therefore, the access that allowed for conflicting duties could have an effect on data that is used in the preparation of the financial statements. In addition, financial personnel were granted administrator roles which allows for the addition, modification, and deletion of user access in the financial system. Cause: Management failed to monitor and implement access to the School District's financial system to ensure that each user had appropriate access and that compensating controls outside of the financial system were appropriately functioning. Effect: The lack of adequate controls over the logical access to the School District's financial system may result in errors and/or irregularities not being detected in a timely manner. Recommendation: The School District should review the access to the financial system and determine if the users' access is appropriate for the users' job duties. In addition, users with administrator access should be carefully reviewed to ensure that this access is only granted by IT personnel. CASH AND CASH EQUIVALENTS Inadequate Internal Control Procedures Material Weakness Finding Control Number: FS-6701-11-02 Condition: This is a repeat finding (FS-6701-10-02, FS-6701-09-01 and FS-6701-08-01) from the years ended June 30, 2010, June 30, 2009 and June 30, 2008, respectively. The accounting procedures of the School District were insufficient to provide adequate internal control procedures over the Cash and Cash Equivalents function. Criteria: The School District's management is responsible for designing and maintaining an adequate system of internal controls that ensure that all cash accounts are supported by and reconciled to either cash on hand or bank accounts held at authorized financial institutions. - 2 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS Questioned Cost: N/A Information: The School District failed to reconcile interfund cash activity of $610,606.79 reflected on the general ledger. Cause: These deficiencies were the result of management's failure to ensure that adequate internal control policies and procedures were established, implemented and functioning as intended with regard to Cash and Cash Equivalents. Effect: The lack of adequate control over cash increases the risk for theft, fraud, or misuse of School District resources that may result in errors and/or irregularities which would not be detected in a timely manner. This is a financial statement irregularity in accordance with Official Code of Georgia Annotated 20-2-67. Recommendation: The School District should monitor accounting controls and procedures currently in place, identify weaknesses and implement procedures to strengthen internal controls over cash and cash equivalents to ensure that activity is properly recorded on the general ledger REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Significant Deficiency Finding Control Number: FS-6701-11-03 Condition: This is a repeat finding (FS-6701-10-03, FS-6701-09-02 and FS-6701-08-02) from the year ended June 30, 2010, June 30, 2009, and June 30, 2008, respectively. The accounting procedures of the School District were insufficient to provide adequate internal controls over school activity accounts. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures. Questioned Cost: N/A Information: Revenues/Receivables/Receipts Numerous receipts were not supported by adequate documentation to determine if receipts were deposited in a timely manner or properly recorded. - 3 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS Expenditures/Liabilities/Disbursements Numerous vouchers had no documentation indicating approval prior to purchase. Several vouchers had no evidence of receipt, did not have a purchase order or other supporting documentation. Cause: The deficiencies were a result of management's failure to ensure that internal controls were established, implemented, and functioning at the school level. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: The School District should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures. In addition, management should implement procedures to ensure that adequate documentation is maintained for receipts and deposits are made in a timely manner. Finally, management should monitor expenditures to ensure proper documentation and approval is completed prior to payment. BUDGET PREPARATION/EXECUTION Deficit Fund Balance Failure to Adopt a Balanced Budget Material Weakness Finding Control Number: FS-6701-11-04 Condition: This is a repeat finding (FS-6701-10-04, FS-6701-09-03 and FS-6701-08-03) from the years ended June 30, 2010, June 30, 2009, and June 30, 2008, respectively. At June 30, 2011, the Agency Fund of the Hancock County Board of Education reported a deficit fund balance. In addition, the School District failed to adopt a balanced budget for the General Fund. Criteria: Chapter 25 Reporting for LUAs with Governmental 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 of Education requires those LUAs with deficit balances to meet certain reporting requirements." Chapter 32, Preparing Operating Budgets, of the Financial Management for Georgia Local Units of Administration (FMGLUA) states in part: "The budget must be balanced for all budgeted funds. Total anticipated revenues should equal total estimated expenditures. In the event anticipated revenues are insufficient to fund anticipated essential expenditures, a portion of unreserved fund balance from previous years must be used to fund the shortfall. In the event there is insufficient unreserved fund balance from previous years to fund anticipated expenditures, then such expenditures must be reduced to equal anticipated revenues plus available unreserved fund balance". Questioned Cost: N/A - 4 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS Information: The School District's Agency Fund reported a deficit fund balance in the amount of $52,744. In addition, the School District's original and final budgets for the General Fund budgeted deficit fund balances in the amount of $134,300 and $180,894, respectively. Cause: The School District failed to monitor expenditures to ensure that the School District did not exceed available resources. Additionally, the School District adopted an unbalanced budget for the General Fund. Effect: A financial statement irregularity in accordance with the Official Code of Georgia Annotated 20-267. Recommendation: The School District should establish policies and procedures designed to ensure that expenditures do not exceed availability of resources, so that in future periods the School District does not report a deficit fund balance. In addition, appropriate procedures should be implemented to ensure that the adopted budget for each budgeted fund is balanced as required. EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-6701-11-05 Condition: This is a repeat finding (FS-6701-10-05, FS-6701-09-04 and FS-6701-08-04) from the years ended June 30, 2010, June 30, 2009 and June 30, 2008, respectively. The accounting procedures of the School District were insufficient to provide adequate internal controls over the expenditure process. 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: N/A Information: A review of vouchers revealed the following deficiencies: Several vouchers had no documentation indicating approval prior to purchase. Several vouchers had no invoice or other supporting documentation. Vouchers were identified as not being recorded in the correct period, resulting in a misstatement of $5,790.00. It was noted that $12,271.65 was paid to School District employees for stipends or additional time worked through per diem or other expenditure instead of through the payroll process. Several vouchers were charged to the wrong account. The validity of some accounts payables could not be determined due to inadequate documentation. - 5 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS Cause: Management failed to adequately monitor and implement procedures to ensure that appropriate internal controls were established, implemented and functioning. Effect: The lack of adequate control over expenditures may result in misstatements which would not be detected in a timely manner. Recommendation: The School District should develop and implement procedures sufficient to ensure that all expenditures are properly approved, adequately documented, follow State and local procurement policies, and are recorded in the proper accounts and accounting period. GENERAL LEDGER Inadequate Accounting Procedures Material Weakness Finding Control Number: FS-6701-11-06 Condition: This is a repeat finding (FS-6701-10-06, FS-6701-09-05 and FS-6701-08-06) from the years ended June 30, 2010, June 30, 2009, and June 30, 2008, 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 recorded. 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: N/A 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 of the general ledger journal entry function. Procedures were not in place to ensure documentation was available to support journal entries. A review of journal entries revealed the following: Numerous journal entries could not be located for review. Numerous journal entries were not reviewed and approved by someone independent of the general ledger journal entry function. Numerous journal entries contained no supporting documentation Cause: Management failed to adequately monitor and implement procedures to ensure that all journal entries are properly documented, approved and recorded in the accounting records. - 6 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS 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 maintained, documented and recorded in the accounting records. CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Significant Deficiency Finding Control Number: FS-6701-11-07 Condition: This is a repeat finding (FS-6701-10-07, FS-6701-09-06 and FS-6701-08-07) from the years ended June 30, 2010, June 30, 2009, and June 30, 2008, respectively. The School District failed to adequately maintain the capital assets records. Criteria: Chapter 37 Implementing a Capital Asset Management System 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: N/A Information: A review of the School District's capital asset records noted deficiencies as discussed below: The School District lacked proper internal controls to detect significant errors in a timely manner. The capital asset listing as presented, while inaccurate, was also incomplete and failed to provide all elements of information as required by Chapter 37, of the Financial Management for Georgia Local Units of Administration, such as asset identifiers and location identifiers. Several assets were noted that were on the asset listing but were no longer owned by the School District. Assets had been removed from the assets listing that were still owned by the School District. Assets were noted in prior years that had not been added to the asset listing and were not corrected in the current year. Several additions were noted in the current year that were not added to the asset listing or were added at an incorrect value. Additions were added to the assets listing that were not purchased until the subsequent period. Cause: The School District failed to ensure adequate accounting procedures were in place to process, record and report capital assets and related activity. - 7 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS Effect: The failure of the 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 of capital asset records and make appropriate adjustments to ensure that capital asset records and procedures for maintaining capital assets conform to generally accepted accounting principles. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Material Weakness Material Noncompliance U. S. Department of Education Through Georgia Department of Education Title I, Part A Cluster (CFDA 84.010) Finding Control Number: FA-6701-11-01 Condition: This is a repeat finding (FA-6701-10-01, FA-6701-09-01 and FA-6701-08-01) from fiscal years ended June 30, 2010, June 30, 2009, and June 30, 2008, respectively. A review of expenditures charged to the Title I Grants to Local Educational Agencies (CFDA 84.010) program revealed that the School District failed to implement internal control procedures to ensure expenditures were properly documented, authorized, and in compliance with grant requirements. Criteria: Provisions of OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, require that "to be allowable under Federal awards, costs must be...authorized or not prohibited under state or local laws or regulations" and "be adequately documented". Questioned Cost: $18,367.03 Information: A review of expenditure vouchers for the Title I, Part A Cluster (CFDA 84.010) revealed the following deficiencies: Several voucher packages did not have any documentation of receipt. One voucher package in the amount of $567.03 was never provided. Reimbursement of $17,800.00 was made to the Georgia Department of Education for a questioned cost on FA-6701-09-01, using current grant revenues. - 8 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Cause: Management failed to monitor compliance with Federal guidelines to ensure that expenditures charged to the Federal Program were allowable and properly documented. Effect: Failure to ensure that program expenditures are properly documented can result in noncompliance with the Federal grant. Recommendation: The School District should implement procedures to ensure that all expenditures charged to the Federal program are allowable under OMB Circular A-87 and properly documented. In addition, the Georgia Department of Education should review this matter to determine if a reclaim of grant funds is appropriate. ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Significant Deficiency U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Finding Control Number: FA-6701-11-02 Condition: This is a repeat finding (FA-6701-10-02) from fiscal year ended June 30, 2010. A review of expenditures charged to the Child Nutrition Cluster (CFDA 10.553 and 10.555) program revealed that the School District failed to implement internal control procedures to ensure expenditures were properly documented, authorized, and allowable. Criteria: Provisions of OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, require that "to be allowable under Federal awards, costs must be...authorized or not prohibited under state or local laws or regulations" and "be adequately documented". Questioned Cost: $155.00 Information: A review of expenditure vouchers for the Child Nutrition Cluster (CFDA 10.553 and 10.555) program revealed the following deficiencies: A voucher package had no documentation indicating prior approval of the purchase. A voucher was paid in excess of $5.00 of the invoice amount as a result of noncompliance with the State Travel Guidelines. Unallowable expenditure reimbursements in the amount of $150.00 were made to employees for tennis shoes. Cause: Management failed to monitor compliance with Federal guidelines to ensure that expenditures charged to the Federal Program were allowable and approved. - 9 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Effect: Failure to ensure that program expenditures are allowable and approved can result in noncompliance with the Federal grant. Recommendation: The School District should implement procedures to ensure that all expenditures charged to the Federal program are allowable under OMB Circular A-87 and approved by appropriate management. In addition, the Georgia Department of Education should review this matter to determine if a reclaim of grant funds is appropriate. ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Significant Deficiency U. S. Department of Health and Human Services Head Start Cluster (CFDA 93.600, 93.708 and 93.709) Finding Control Number: FA-6701-11-03 Condition: A review of expenditures charged to Head Start Cluster (CFDA 93.600, 93.708 and 93.709) program revealed that the School District failed to implement internal control procedures to ensure expenditures were properly documented, authorized, and allowable. Criteria: Provisions of OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, require that "to be allowable under Federal awards, costs must be...authorized or not prohibited under state or local laws or regulations" and "be adequately documented". Questioned Cost: $1,020.02 Information: A review of expenditure vouchers for the Head Start Cluster (CFDA 93.600, 93.708 and 93.709) program revealed the following deficiencies: Several voucher packages had no documentation indicating prior approval of the purchase. A voucher in the amount of $88.02 had no supporting documentation. Unallowable travel reimbursements in the amount of $165.00 were made to a non-Head Start employee. Conference expenditures in the amount of $767.00 were made on behalf of a non-Head Start employee. Cause: Management failed to monitor compliance with Federal guidelines to ensure that expenditures charged to the Federal Program were allowable, approved and properly documented. Effect: Failure to ensure that program expenditures are allowable, approved, and properly documented can result in noncompliance with the Federal grant. - 10 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Recommendation: The School District should implement procedures to ensure that all expenditures charged to the Federal program are allowable under OMB Circular A-87, approved by appropriate management, and properly documented. In addition, the Department of Health and Human Services should review this matter to determine if a reclaim of grant funds is appropriate. CASH MANAGEMENT Excessive Cash Balance Significant Deficiency U. S. Department of Education Through Georgia Department of Education Special Education Cluster (CFDA 84.027, 84.173, 84.391 and 84.392) Title I, Part A Cluster (CFDA 84.010 and 84.389) Finding Control Number: FA-6701-11-04 Condition: This is a repeat finding (FA-6701-10-03) from fiscal year ended June 30, 2010. A review of cash management procedures for the Special Education Cluster programs and Title I, Part A Cluster programs disclosed that cash draws were made in advance of immediate cash needs, resulting in the accumulation of excessive cash balances. Criteria: In accordance with 34 CFR 80.21 interest earned on advances by local government grantees is required to be submitted promptly to the Federal grantor agency. Up to $100 per year may be kept for administrative expenses. Questioned Cost: $326.36 Title 1, Part A Cluster (CFDA 84.010 and 84.389) Information: The Special Education Cluster had excessive ending monthly cash balances for five months and the Title I, Part A Cluster programs had excessive ending monthly cash balances for ten months. Title I, Part A Cluster programs earned an estimated $326.36 over the allowed amount of $100 on the excess cash balances. Cause: The School District failed to accurately forecast the actual cash needs of the programs resulting in noncompliance with grant requirements. Effect: Failure to monitor the cash needs of the program can result in material noncompliance with the requirements of the Federal grants. Recommendation: The School District should implement procedures to accurately forecast the actual cash needs of the programs. Management should implement procedures to ensure that funds are not requested for reimbursement grants until after the School District has disbursed its own funds for grant expenditures. The Georgia Department of Education should review this matter to determine if a reclaim of funds is necessary. - 11 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS REPORTING Failure to File Accurate Completion Reports Material Weakness Material Noncompliance U. S. Department of Education Through Georgia Department of Education Title I, Part A Cluster (CFDA 84.010) Education for Homeless Children and Youth (CFDA 84.196) Improving Teacher Quality State Grants (CFDA 84.367) Finding Control Number: FA-6701-11-05 Condition: The School District failed to file accurate completion reports. Criteria: In accordance with provisions of OMB Circular A-133, Part 3 Compliance Supplement, Subpart L Reporting, states in part, "Each recipient must report program outlays and program income....as prescribed by the Federal awarding agency....the reporting requirements for subrecipients are as specified by the pass-through entity." Chapter 41, State and Federal Fiscal Rules and Procedures of the Financial Management for Georgia Local Units of Administration states, "This chapter sets forth the principal requirements that a School District must meet to account for and externally report its budget and financial operations relating to state and Federally funded programs administered by the Georgia Department of Education." Questioned Cost: $60,275.21 Title I, Part A Cluster (CFDA 84.010) $381.67 Education for Homeless Children and Youth (CFDA 84.196) $4,975.18 Improving Teacher Quality State Grants (CFDA 84.367) Information: A review of the School District's accounting records revealed the following: 1) Actual Title 1, Part A expenditures for the Improving the Academic Achievement of the Disadvantage Grant period ending September 30, 2010, totaled $651,347.29 while expenditures were reported on the completion report as $711,622.50, resulting in a variance of $60,275.21. 2) Actual Education for Homeless Children and Youth expenditures for the Grant period ending September 30, 2010, totaled $60,789.33 while expenditures were reported on the completion report as $61,171.00, resulting in a variance of $381.67. 3) Actual Improving Teacher Quality State Grants expenditures for the Grant period ending September 30, 2010, totaled $143,399.82 while expenditures were reported on the completion report as $148,375.00, resulting in a variance of $4,975.18. Cause: Management failed to implement procedures to ensure that amounts reported on the completion report agreed with actual expenditures. - 12 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Effect: Failure to accurately report Federal expenditures can result in inaccurate and incomplete disclosures for Federal grant reporting purposes and can result in excessive claims for reimbursement. Recommendation: Management should implement procedures to ensure that completion reports, submitted to Georgia Department of Education, (1) include all activity of the reporting period, (2) are supported by applicable accounting records and (3) are properly presented in accordance with program requirements. The Georgia Department of Education should review this matter to determine if a reclaim of funds is appropriate. SPECIAL REPORTING Inadequate Internal Control Procedures Significant Deficiency U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Finding Control Number: FA-6701-11-06 Condition: This is a repeat finding (FA-6701-10-06) from fiscal year ended June 30, 2010. A review of the School District's DE-0106 reports submitted to the Georgia Department of Education disclosed that they did not agree with the DE-0112 and DE-0118 Participation Reports for the Child Nutrition Cluster (CFDA 10.553 and 10.555) programs. Criteria: Provisions in 7 CFR 210.7(c) require that the School District "base claims for reimbursement on lunch counts, taken daily at the point of service, which correctly identify the number of free, reduced price and paid lunches served to eligible children" and "correctly record, consolidate and report those lunch and supplemental counts on the Claim for Reimbursement..." Questioned Cost: N/A Information: The DE-0106 reports submitted for the months of May and June 2011 disclosed that meal counts did not agree with the number of meals served on the DE-0112 and DE-0118 Participation Reports. The number of Breakfasts and Lunches reported on the DE-0106 for Free students was less than those reported on the DE-0112 and DE-0118. The number of Breakfasts and Lunches reported on the DE-0106 for Reduced and Paid students was greater than those reported on the DE-0112 and DE-0118. This resulted in an under reimbursement to the School District for the months of May and June, 2011. Cause: These deficiencies are a result of management's failure to monitor compliance with Federal guidelines to ensure reimbursement requests are accurate. - 13 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Effect: Failure to ensure that reimbursement requests accurately report the number of meals served can result in noncompliance of the Federal grant. Recommendation: Management should become familiar with the Federal regulations for the Child Nutrition Cluster program in order to develop procedures to provide accurate reporting of meals served. The Georgia Department of Education should review the reports submitted by the School District to determine the accuracy of all reimbursement requests for the year under review and determine the resolution of this matter. - 14 - SECTION V MANAGEMENT'S RESPONSES HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2011 Finding Control Number: FS-6701-11-01 We concur with this finding. We concur with this finding. The School District will implement procedures to ensure that access control duties are segregated. Contact Person: Title: Telephone: Fax: E-mail: Gwendolyn J. Reeves Superintendent (706) 444-5775 (706) 444-7026 greeves@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Alma D. Harper Finance Director (706) 444-5775 (706) 444-7026 aharper@hancock.k12.ga.us Finding Control Number: FS-6701-11-02 We concur with this finding. The School District will establish policies and procedures to ensure that all required adjustments are made. Contact Person: Title: Telephone: Fax: E-mail: Gwendolyn J. Reeves Superintendent (706) 444-5775 (706) 444-7026 greeves@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Alma D. Harper Finance Director (706) 444-5775 (706) 444-7026 aharper@hancock.k12.ga.us - 1 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2011 Finding Control Number: FS-6701-11-03 We concur with this finding. The School District will revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures and implement procedures to ensure that key accounting functions of custody, record keeping, and authorization are separated, utilize management oversight of these incompatible activities, and implement procedures to ensure that expenditures of school activity accounts are properly documented and approved prior to payment. Contact Person: Title: Telephone: Fax: E-mail: Gwendolyn J. Reeves Superintendent (706) 444-5775 (706) 444-7026 greeves@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Alma D. Harper Finance Director (706) 444-5775 (706) 444-7026 aharper@hancock.k12.ga.us Finding Control Number: FS-6701-11-04 We concur with this finding. The School District will establish policies and procedures to ensure that expenditures do not exceed availability of resources. Appropriate procedures will also be implemented to ensure that the adopted budget for each budgeted fund is balanced as required. Contact Person: Title: Telephone: Fax: E-mail: Gwendolyn J. Reeves Superintendent (706) 444-5775 (706) 444-7026 greeves@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Alma D. Harper Finance Director (706) 444-5775 (706) 444-7026 aharper@hancock.k12.ga.us - 2 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2011 Finding Control Number: FS-6701-11-05 We concur with this finding. The School District will adequately monitor and implement procedures to ensure that appropriate internal controls are established, implemented and functioning. Contact Person: Title: Telephone: Fax: E-mail: Gwendolyn J. Reeves Superintendent (706) 444-5775 (706) 444-7026 greeves@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Alma D. Harper Finance Director (706) 444-5775 (706) 444-7026 aharper@hancock.k12.ga.us Finding Control Number: FS-6701-11-06 We concur with this finding. The School District will review current internal control procedures to ensure that journal entries are properly approved, documented, and posted in the accounting records. Contact Person: Title: Telephone: Fax: E-mail: Gwendolyn J. Reeves Superintendent (706) 444-5775 (706) 444-7026 greeves@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Alma D. Harper Finance Director (706) 444-5775 (706) 444-7026 aharper@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Matthias Jones Assistant Finance Director (706) 444-5775 (706) 444-7026 mjones@hancock.k12.ga.us - 3 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2011 Finding Control Number: FS-6701-11-07 We concur with this finding. The School District will reassess internal control procedures related to capital assets to ensure that they are in place and operating effectively. Contact Person: Title: Telephone: Fax: E-mail: Alma D. Harper Finance Director (706) 444-5775 (706) 444-7026 aharper@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Matthias Jones Assistant Finance Director (706) 444-5775 (706) 444-7026 mjones@hancock.k12.ga.us Finding Control Number: FA-6701-11-01 We concur with this finding. The School District has implemented procedures to ensure that all expenditures charged to Federal programs are allowable under OMB Circular A-87, approved by the program director, and Superintendent or Designee and properly documented. Contact Person: Title: Telephone: Fax: E-mail: Miranda Wilson Title I/Federal Projects Director (706) 444-5775 (706) 444-7026 mwilson@hancock.k12.ga.us Finding Control Number: FA-6701-11-02 We concur with this finding. The School District has implemented procedures to ensure that all expenditures charged to Federal programs are allowable under OMB Circular A-87, approved by the program director, and Superintendent or Designee and properly documented. Contact Person: Title: Telephone: Fax: E-mail: Shirley Harper Nutrition Director (706) 444-5775 (706) 444-7026 sharper@hancock.k12.ga.us Finding Control Number: FA-6701-11-03 We concur with this finding. The School District has implemented procedures to ensure that all expenditures charged to Federal programs are allowable under OMB Circular A-87, approved by the program director, and Superintendent or Designee and properly documented. Contact Person: Title: Telephone: Fax: E-mail: Tanger Ward Head Start Director (706) 444-5775 (706) 444-7026 tward@hancock.k12.ga.us - 4 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2011 Finding Control Number: FA-6701-11-04 We concur with this finding. The Hancock County Board of Education has implemented procedures to accurately forecast cash needs on the required Contract Expenditure Reports. The new procedures will accurately forecast cash needs based on actual expenditures incurred in order to minimize or eliminate the time elapsing between the transfer of funds from the Georgia Department of Education and the disbursement of such funds by the School District. Once the information has been evaluated, the Georgia Department of Education will determine if a reclaim is appropriate and the Hancock County Board of Education will respond to this reclaim. Contact Person: Title: Telephone: Fax: E-mail: Adrienne Harris Special Education Director (706) 444-5775 (706) 444-7026 aharris@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Miranda Wilson Title I/Federal Projects Director (706) 444-5775 (706) 444-7026 mwilson@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Matthias Jones Assistant Finance Director (706) 444-5775 (706) 444-7026 mjones@hancock.k12.ga.us Finding Control Number: FA-6701-11-05 We concur with this finding. The School District will implement procedures to ensure that amounts reported on the completion report agree with actual expenditures. Contact Person: Title: Telephone: Fax: E-mail: Miranda Wilson Title I/Federal Projects Director (706) 444-5775 (706) 444-7026 mwilson@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Alma D. Harper Finance Director (706) 444-5775 (706) 444-7026 aharper@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Matthias Jones Assistant Finance Director (706) 444-5775 (706) 444-7026 mjones@hancock.k12.ga.us - 5 - HANCOCK COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2011 Finding Control Number: FA-6701-11-06 We concur with this finding. The Hancock County Board of Education has implemented internal controls. The School District has reviewed the internal controls for Federal compliance procedures in place, and has designed procedures which will enhance compliance with Federal guidelines and implemented proper internal controls relative to the findings of School Breakfast Program (CFDA No 10.533), and the Food Services - National School Lunch Program (CFDA No 10.555). Contact Person: Title: Telephone: Fax: E-mail: Shirley Harper Nutrition Director (706) 444-5775 (706) 444-7026 sharper@hancock.k12.ga.us Contact Person: Title: Telephone: Fax: E-mail: Alma D. Harper Finance Director (706) 444-5775 (706) 444-7026 aharper@hancock.k12.ga.us - 6 -