Heard County Board of Education, Franklin, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2003

HEARD COUNTY BOARD OF EDUCATION
FRANKLIN, GEORGIA REPORT ON AUDIT
Of THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

HEARD 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

3

B

STATEMENT OF ACTIVITIES

4

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

6

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

7

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

8

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

9

G

NOTES TO THE BASIC FINANCIAL STATEMENTS

11

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

25

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

26

3 SCHEDULE OF STATE REVENUE

28

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

30

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

31

HEARD COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB 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

SECTION I FINANCIAL

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
February 19, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Heard County Board of Education
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Ladies and Gentlemen:
We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through G) of the Heard County Board of Education, as of and for the year ended June 30, 2003, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Heard County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm10ns.
As discussed in Note 2 to the financial statements, management has not:

2003-34ARL-21

* Recorded current year capital asset additions or deletions in governmental activities and, accordingly, has not properly recorded current year depreciation expense on capital assets or accumulated depreciation. Accounting principles generally accepted in the United States of America require that capital assets be capitalized and depreciated, which would increase the assets, net assets and expenses ofthe governmental activities.
* Recognized properly in the governmental activities and general fund a portion ofsalaries and corresponding employer's cost ofrelated benefits which were earned for contractual services. For fiscal year 2003, the School District changed its method ofaccounting for the final two payments on one hundred and ninety day employment contracts and the related revenue due from the State to fund these contracts. Adjustments have been made in the fiscal year 2003 financial statements to record expenditures for salaries and fringe benefits earned by employees through June 30, 2003, (even though paid in July and August 2003) and the related revenue due from the State to fund these contracts. No adjustment was made for the similar salaries and benefits earned in fiscal year 2002 but recorded in fiscal year 2003 as this information was not readily available. The net effect of the above accounting treatment resulted in the accompanying financial statements reflecting fourteen months ofexpenditures for a majority of General Fund salaries and fringe benefits and fourteen months of revenue from the State to fund these contracts. Generally accepted accounting principles require that expenditures be recorded when incurred, rather than when funds are received or disbursed.
* Properly recorded school activity (principals) account agency funds maintained at the individual schools in the fiduciary fund (which comprise the aggregate remaining fund information) as appropriate. Accounting principles generally accepted in the United States ofAmerica require that the assets and liabilities ofthese agency funds be reflected in these financial statements as fiduciary funds rather than including these agency fund amounts in the governmental activities and general fund.
The aggregate effect on the financial statements of these variances or omissions have not been determined, but are believed to be material.
In our opinion, because of the effects of the matters discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States ofAmerica, the financial position ofthe aggregate remaining fund information ofthe Heard County Board of Education, as ofJune 30, 2003, and the changes in financial position thereof for the year then ended.
In addition, in our opinion, except for the effects of not properly recognizing capital assets and depreciations cost in the governmental activities and except for the effects of not properly recognizing revenues and expenditures for certain salaries in the governmental activities and general fund as described in the third paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities and general fund of the Heard County Board ofEducation, as ofJune 30, 2003, and the changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
2003-34ARL-21

In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the district-wide capital projects fund and the debt service fund of the Heard County Board of Education, as of June 30, 2003, and the respective changes in financial position thereoffor the year then ended in conformity with accounting principles generally accepted in the United States of America.
The Heard County Boci!d ofEducation has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements.
As described in Note 2, the Heard County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003.
In accordance with Government Auditing Standards, we have also issued our report dated February 19, 2004, on our consideration ofthe Heard County Board ofEducation's internal control over financial reporting and our tests of its compliance with certain provisions oflaws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.
The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 25, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Heard County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
2003-34ARL-21

A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code ofGeorgia Annotated section 506-24.
Respectfully submitted,
w.~~

RWH:gp 2003-34ARL-21

State Auditor

HEARD COUNTY BOARD OF EDUCATION

HEARD COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2003
ASSETS
Cash and Cash Equivalents Accounts Receivable, Net
Taxes State Government Federal Government Inventories Capital Assets Land Land Improvements Buildings and Building Improvements Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Debt Service Unrestricted
Total Net Assets
Total Liabilities and Net Assets

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

6,274,991

754,218 1,031,812
104,130 11,716

874,445 844,652 9,054,600 6,504,851 -9,621,086

$ ======15=,8=3=4=,3=2=9

$

331,921

1,444,874

1,550,000 1,900,000

$

5,226,795

$

4,207,463

83,609 3,563,581 2,752,881

$

10,607,534

$ ==~15;;,i,,8;;;,;3~4,i,;;,3~2~9

The notes to the basic financial statements are an integral part of this statement. -3 -

HEARD COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2003

EXPENSES

CHARGES FOR SERVICES

GOVERNMENTAL ACTIVITIES

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

$

12,750,066

470,828 120,761 448,511 359,926 1,180,092 114,770 1,060,413 644,611
14,984

835,442 $ 226,002

257,715

Total Governmental Activities

$

18,226,406 $===2=5=7=,7=15=

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

Total General Revenues

Change in Net Assets

Net Assets - Beginning of Year

Net Assets - Ending of Year

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

EXHIBIT"B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

8,510,811 $

123,925 77,224
174,635 402,563 501,727

518,842 458,013

534,700

$

11,302,440 $

21,993 $ 21 993 $

-4,217,262
-346,903 -43,537
-273,876 42,637
-678,365 -114,770 -541,571 -186,598
-14,984
-43,027 -226,002
-6,644,258

$

3,989,027

2,533,236 891,441 91,149 14,750 366,272 44,061 842 778

$

8 772 714

$

2,128,456

8 479 078

$ ======1o=,6=0=7'=53,.,.4..,

-5-

HEARD COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS
JUNE 30. 2003

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Accounts Receivable, Net
Taxes State Government Federal Government Inventories

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 3,228,667
126,057 1,024,819 $
104,130 11 716

$ 3,053,317 $ 6,281,984

6,993

510,264

636,321 1,031,812
104,130 11 716

Total Assets

$ 4,495,389 $===6=,9=93..,, $ 3,563,581 $ 8,065,963

LIABILITIES AND FUND BALANCES
LIABILITIES
Cash Overdraft Accounts Payable Salaries Payable
Total Liabilities
FUND BALANCES
Reserved for: Continuation of Federal Programs Debt Service Inventories
Unreserved Designated for Self-Insurance Undesignated Reported in: General Fund
Total Fund Balances

$

$

331,921

1444874

$ 1,776,795 $

$

71,893

11,716

53,410

2,581,575

$ 2,718,594 $

6,993 6,993

$

6,993

331,921

1444874

$ 1,783,788

$

71,893

$ 3,563,581

3,563,581

11,716

53,410

2,581,575

0 $ 3,563,581 $ 6,282,175

Total Liabilities and Fund Balances

$ 4,495,389 $===6=,9=93..,, $ 3,563,581 $ 8,065,963

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

HEARD COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30. 2003

EXHIBIT"D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land Land Improvements Buildings Equipment Accumulated Depreciation
Total Capital Assets
Some of the School District's property tax revenues will be collected after year end but are not available soon enough to pay for the current period's expenditures.
Long-Term Liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable

$

6,282,175

$

874,445

844,652

9,054,600

6,504,851

-9,621,086

7,657,462

117,897

-3,450,000

Net Assets of Governmental Activities (Exhibit "A")

$ 10,607,534

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

HEARD COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2003

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 Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Transfers In Transfers Out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 4.029,194 105,899 $
10,227,322 1,456,390 257,715 31,523 842 778
$ 16,950,821 $

891,441 $ 6,993
189

$ 4,029,194

2,533,236

3,530,576

10,234,315

1,456,390

257,715

12,349

44,061

842,778

898,623 $ 2,545,585 $ 20,395,029

$ 11,942,495

$ 11,942,495

470,828 120,761 448,511 359,926 1,180,092 114,770 1,060,413 644,611
14,984 835,442
81,958 $

1,168,788

470,828 120,761 448,511 359,926 1,180,092 114,770 1,060,413 644,611
14,984 835,442 1,250,746

15,151 2 681

$ 1,480,000 224,736

1,495,151 227,417

$ 17,292,623 $ 1,168,788 $ 1,704,736 $ 20,166,147

$

-341,802 $ -270,165 $

840,849 $

228,882

$

$

-270,165

$

-270,165 $

$

-611,967 $

3,330,561

270,165

$ 270,165 -270, 165

270,165

$

0

0 $

840,849 $ 228,882

0

2,722,732

6,053,293

Fund Balances - Ending

$ 2,718,594 $====0= $ 3,563,581 $ 6,282,175

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

HEARD 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. 2003

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. this amount is:
Capital Outlay
Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues.
Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of:
Bond Principal Retirements Capital Lease Payments
Total Long-Term Debt Repayments

$

228,882

444,590 -40,167

$ 1,480,000 15 151

1,495,151

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

$ ====-2,=12=8=,4=5=6

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

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"G"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Heard County Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Heard County Board of Education.
District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities of the overall School District. 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 ofActivities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds. Eliminations have been made to minimize the double counting of internal activities. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.
The School District reports the following major governmental funds:
- 11 -

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "G"

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

- 12 -

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"G"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
The assets and liabilities ofschool activity (principals) account agency funds, which are maintained at the individual schools, are reflected in these financial statements as governmental activities within the general fund. To conform to generally accepted accounting principles, these agency funds should be reflected in these financial statements as fiduciary funds.
For fiscal year 2003, the School District changed its method of accounting for the final two payments on one hundred and ninety day contracts and for the related revenue due from the State to fund these contracts. Adjustments have been made in the fiscal year 2003 financial statements to record costs for salaries and fringe benefits earned by employees through June 30, 2003, (even though paid in July and August 2003) and the related revenue due from the State to fund these contracts. This change is in accordance with generally accepted accounting principles. No adjustment was made for the similar salaries and benefits earned in fiscal year 2002 but recorded in fiscal year 2003 as this information was not readily available.
The net effect ofthe above accounting treatment resulted in the accompanying financial statements reflecting fourteen months of costs for a majority of General Fund salaries and fringe benefits and the related revenue due from the State to fund these contracts. Generally accepted accounting principles require that revenues be recorded when earned or available and measurable as appropriate and that expenditures or expenses as appropriate be recorded when incurred, rather than when funds are received or disbursed.
RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND
In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of $105,372 at July 1, 2002. For fiscal year 2003, these funds have been reported as part of the General Fund. In addition, governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been reported within the General Fund for fiscal year ended June 30, 2003. The governmental fund activity ofthe various school activity accounts had a fund balance of $86,795 at July 1, 2002. This change is in accordance with generally accepted accounting principles.

- 13 -

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"G"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Fund Balance July 1, 2002

$ 3,138,394

Add Funds Consolidated with General Fund: School Food Services Fund School Activity Account - Governmental Activity

105,372 86,795

General Fund Balance July 1, 2002 (Restated)

$ 3,330,561

CHANGES IN ACCOUNTING PRINCIPLES

The Heard County Board ofEducation has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003.

The provisions of GASB Statement No. 34 require the inclusion of a Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following:

General Fund (Restated) July 1, 2002 Debt Service Fund

$ 3,330,561 2,722,732

Governmental Funds (Restated) July 1, 2002 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Bonds Payable Capital Leases Payable

$ 6,053,293 16,833,958 -9,621,086 158,064 -4,930,000 -15,151

Net Assets Beginning (See Exhibit "B")

$ 8i479!078

CASH AND CASH EQUIVALENTS

COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the Board to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.

RECEIVABLES

Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue

- 14 -

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "G"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 Heard County Board ofCommissioners fixed the property tax levy for the 2002 tax digest year (calendar year) on October 8, 2002 (levy date). Taxes were due on December 20, 2002 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2002 tax digest are reported as revenue in the governmental funds for fiscal year 2003. The Heard County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2003, for maintenance and operations amounted to $4,029,194.

The tax millage rate levied for the 2002 tax year (calendar year) for the Heard County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

15.174 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $3,424,677 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 ofdonated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.

CAPITAL ASSETS

Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase. On the District-wide financial statements, purchased capital assets are valued at cost where historical records are available and at estimated historical cost

- 15 -

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30. 2003

EXHIBIT"G"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost ofnormal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. The School District does not capitalize book collections or works ofart. Material current year additions and depreciation expenses are not reported in the Statement of Net Assets and the Statement of Activities. To conform to generally accepted accounting principles, current year capital asset additions and depreciation expense should be reported in the basic financial statements.

Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows:

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

All

NIA

$

5,000

15 years

$

5,000 10 to 40 years

$

5,000 5 to 15 years

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

GENERAL OBLIGATION BONDS

The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets.

Note 3: DEPOSITS

COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts.

- 16 -

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "G"

Note 3: DEPOSITS
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,
(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,
(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,
(6) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia, and
(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.
CATEGORIZATION OF DEPOSITS At June 30, 2003, the bank balances were $6,881,525. The amounts of the total bank balances are classified into three categories of credit risk:
Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name.
Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name.
Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.)
The School District's deposits are classified by risk category at June 30, 2003, as follows:

- 17 -

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"G"

Note 3: DEPOSITS

Risk Category

Bank Balance

1

$ 3,601,337

2

0

3

3,280,188

Total

$ 6,881.525

Note 4: NON-MONETARY TRANSACTIONS

The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories

Note 5: CAPITAL ASSETS

The following is a summary of changes in the Capital Assets during the fiscal year:

Balances July 1, 2002

Increases

Balances Decreases June 30, 2003

Governmental Activities Capital Assets, Not Being Depreciated:
Land

$ 429,855 $ 444,590 $

0 $ 874,445

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 9,054,600 $

0 $

0 $ 9,054,600

6,504,851

6,504,851

844,652

844,652

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

3,241,820 5,833,243
546,023

3,241,820 5,833,243
546,023

Total Capital Assets, Being Depreciated, Net $ 6,783,017 $

0 $

0 $ 6,783,017

Governmental Activity Capital Assets - Net $ 7,212,872 $ 444,590 $

0 $ 7,657,462

Current year depreciation expenses were not recorded in the Statement of Activities. See Note 2.

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST), specifically for retirement ofoutstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2003, were as follows:

- 18 -

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"G"

Note 6: RESTRICTED ASSETS

Debt Service Funds

Restricted Cash and Cash Equivalents: Debt Services

$ 3,053.317

Note 7: INTERFUND TRANSFERS

Interfund transfers for the year ended June 30, 2003, consisted of the following:

Transfer to

Transfers From General Fund

District-wide Capital Projects

$====2==70""',"""16==5

Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as required match or supplemental funding source for capital construction projects.

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; unemployment compensation and dental claims.

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

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.

- 19 -

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"G"

Note 8: RISK MANAGEMENT

Changes in the unemployment compensation claims liability during the last two fiscal years are as follows:

2002 2003

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End ofYear Liability

$

0 $

0 $

0 $

0

$

0 $

1464 $

I 464 $

0

The School District is self-insured with regard to dental claims. The School District accounts for claims with expenditures and liability being reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated.

Changes in the dental claims liability during the last two fiscal years are as follows:

2002 2003

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End ofYear Liability

$

27,103 $

106,862 $

91 970 $

41 995

$

41 995 $

59,839 $

101,834 $

0

The School District participates in the Georgia Education Workers' Compensation Trust, a public entity risk pool organized on December 1, 1991, to develop, implement and administer a program of workers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Trust for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Trust with the Midwest Employers Casualty Company to provide coverage for potential losses sustained by the Trust in excess of $400,000 loss per occurrence, up to $2,000,000.

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

Position Covered
Superintendent All Other Employees

Amount

$

50,000

$

50,000

Note 9: LONG-TERM DEBT

CAPITAL LEASES The Heard County Board ofEducation has entered into various lease agreements as lessee for mobile classroom units. 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.

-20-

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"G"

Note 9: LONG-TERM DEBT

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

Purpose

Interest Rates

Amount

General Government - Series 1999

4.20% - 4.65% $ 3,450.000

Voters have authorized $11,000,000 in general obligation debt for acquiring, constructing, and equipping new schools; acquiring miscellaneous new equipment, fixtures and furnishings, adding to, renovating, repairing, equipping, and improving existing school facilities; acquiring computers and computer technology equipment; and acquiring land for additional schools which was not issued as of June 30, 2003.

The changes in Long-Term Debt during the fiscal year ended June 30, 2003, were as follows:

Governmental Funds

General

Capital

Obligation

Leases

Bonds

Total

Balance July 1, 2002

$

15,151 $ 4,930,000 $ 4,945,151

Deductions Debt Retired

15,151

1,480,000

1,495,151

Balance June 30, 2003

$

0 $ 3,450,000 $ 3,450.000

Portion of Long-Term Debt

Due within One Year

$

0 $ 1,550,000 $ 1,550,000

At June 30, 2003, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

2004 2005

$ 1,550,000 $ 1,900,000

158,875 88,350

Total Principal and Interest

$ 3,450,000 $ 247,225

- 21 -

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"G"

Note 10: ON-BEHALF PAYMENTS
The Board has recognized revenues and costs in the amount of$145,030 for health insurance and retirement contributions paid on the Board's behalf by the following State Agencies.
Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $123,119
Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $21,911
Note 11: 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.
Note 12: RETIREMENT PLANS
TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)
TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.
TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

-22 -

HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "G"

Note 12: RETIREMENT PLANS
Fiscal Year 2003 2002 2001

Percentage Contributed
100% 100% 100%

Required Contribution
$ 815,968 $ 763,151 $ 875,020

- 23 -

HEARD COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30. 2003

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 Food Services Operation
Capital Outlay Debt Service
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Other Sources Other Uses
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning Adjustments

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

3,951,295 $

3,951,295 $ 4,029,194

10,000

10,000

105,899

9,259,984

9,259,984

10,227,322

1,561,573

1,561,573

1,456,390

271,380

271,380

257,715

90,917

90,917

31,523

55,698

55,698

842 778

$

15,200,847 $

15,200,847 $ 16,950,821

$

10,211,915 $

10,211,915 $ 11,942,495

459,522 119,946 419,457 401,305 1,161,000
77,000 1,151,000
735,437 16,000
818,214 410,000

459,522 119,946 419,457 401,305 1,161,000
77,000 1,151,000
735,437 16,000
818,214 410,000

470,828 120,761 448,511 359,926 1,180,092 114,770 1,060,413 644,611
14,984 835,442
81,958 17 832

$

15,980,796 $

15,980,796 $ 17,292,623

$

-779 949 $

-779 949 $

-341,802

$

12,000 $

12,000

$

-270,165

$

12 000 $

12,000 $

-270, 165

$

-767,949 $

-767,949 $

-611,967

3,516,794 -8 909

3,516,794 -8 909

3,330,561

Fund Balances - Ending

$

2,739,936 $

2,739,936 $ 2,718,594

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.

See notes to the basic financial statements.

- 25-

HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30. 2003

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food and Nutrition Program Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Distribution Program (1) Pass-Through From Office of School Readiness Food and Nutrition Program Child and Adult Care Food Program
Total U. S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Individuals with Disabilities Education Act Part B - Special Education Flow Through Preschool Capacity Building Improvement
Total Special Education Cluster
Other Programs Pass-Through From Georgia Department of Education Elementary and Secondary Education Act Title I Grants to Local Educational Agencies Title II Enhancing Education Through Technology Improving Teacher Quality TitleVI Innovative Education Program Strategies Rural and Low Income Schools Vocational Education - Basic Grants to States High School Program Basic Grant
Total U. S. Department of Education

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

* 10.553 * 10.555

N/A

N/A

$

$

(2) 806,395 (3)
806,395

10.550 10.558

N/A
N/A
$

28,945
(2} 835,340

84.027 84.173 84.027

N/A

$

NIA

N/A

$

258,336 13,142 8000
279,478

* 84.010 84.318 84.367 84.298 84.358
84.048

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

483,817 15,125
118,466 14,500 42,379
28 371 982 136

Total Federal Financial Assistance
N/A = Not Available

-26-

$ ======1,=81=7=4=7=6

HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2003

SCHEDULE "2"

Notes to the Schedule of Expenditures of Federal Awards
(1) The amounts shown for the Food Distribution Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year.
(2) Expenditures for the funds earned on the Child and Adult Care Food Program ($3,902) and the School Breakfast Program ($102,178) were not maintained separately and are included in the 2003 National School Lunch Program.
(3) Expenditures for this program include State, and/or Other Funds. Expenditures are not maintained by fund source.
Major Programs are identified by an asterisk (*) in front of the CFDA number.
The School District did not provide Federal Assistance to any Subrecipient.
The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Heard County Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the basic financial statements.

See notes to the basic financial statements.

-27-

HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2003

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Gifted Student - Category VI Remedial Education Program Alternative Education Program Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Extended Day - Technology/Career Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs Health Insurance National Teacher Certification Preschool Handicapped Program School Snack Statewide After School Program Statewide Reading Program Lottery Programs Assistive Technology Computers in the Classroom
Georgia Institute ofTechnology Lottery Programs State Data and Research Center

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$

637,623

83,061

1,528,777

135,704

783,549

120,312

188,884

1,157,633

808,062

414,473

26,617 144,592 619,610 122,380 109,792
49,002 92,469 200,623 68,762 34,643

336,704 491,805 518,842

350,899 88,660 61,745 15,817 57,539 7,820 14,488
249,043 58,378
-221,785
123,119 7,073
39,343 2,118
18,165 43,436
5,820 43,218

21,202

$

637,623

83,061

1,528,777

135,704

783,549

120,312

188,884

1,157,633

808,062

414,473

26,617 144,592 619,610 122,380 109,792
49,002 92,469 200,623 68,762 34,643

336,704 491,805 518,842

350,899 88,660 61,745 15,817 57,539 7,820 14,488
249,043 58,378
-221,785
123,119 7,073
39,343 2,118
18,165 43,436
5,820 43,218

21,202

- 28-

HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2003

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Office of School Readiness Pre-Kindergarten Program
Office of Treasury and Fiscal Services Public School Employees Retirement
OTHER Community Affairs, Georgia Department of Local Assistance Grant

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$

$

530,394

21,911

6,993 $

6,993

530,394

21,911

15,000

15,000

$ 10,227,322 $====,;6;;,i,;9~9~3 $ 10,234,315

See notes to the basic financial statements.

- 29-

HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30. 2003

SCHEDULE "4"

PROJECT
Construction and equipping of a new middle school, parking areas and grounds, including the acquisition of any necessary real property; the acquisition, construction and equipping of additional classroom, instructional, administrative and support space and the remodeling, renovation, furnishing and equipping of such spaces at existing school district facilities; the construction and equipping of a new bus garage, including the acquisition of any necessary real property; the acquisition of any necessary personal property, including computers and other technology; and the payment of expenses incident thereto.
Acquiring, constructing and equipping new schools, including one new elementary school; acquisition of land for additional schools; acquiring computers and computer technology equipment for the school system; acquiring miscellaneous new equipment, fixtures and furnishings for the school system, including school buses and other vehicles; adding to, renovating, repairing, improving and equipping existing school system buildings and facilities; paying any general obligation debt of the School District in conjunction with the imposition of such sales and use tax and paying the expenses incident to accomplish the foregoing.

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED
COST (2)

AMOUNT EXPENDED IN CURRENT
YEAR (3)

AMOUNT EXPENDED
IN PRIOR YEARS (3)

PROJECT STATUS

$ 9,000,000 $ 12,520,716 $

712,326 $ 11,485,002 Ongoing

18,000,000 18,000,000

456,462

Ongoing

$ 27,000,000 $ 30,520,716 $ 1,168,788 $ 11,485,002

(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 Heard 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.

- 30-

HEARD COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2003

SCHEDULE "5"

DESCRIPTION
Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program
TOTAL DIRECT INSTRUCTIONAL PROGRAMS
Media Center Program Staff and Professional Development

ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2)

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

$

642,344 $

628,982 $

10,573 $

639,555

83,645

126,246

126,246

1,541,641

1,837,350

64,391

1,901,741

136,712

40,160

40,160

790,113

729,846

43,102

772,948

121,152 190,503 1,167,117 817,122 422,966 924,408
110,687 49,350 93,178

80,995 133,174 1,214,694 1,014,177 358,846
62,438 167,057 715,702
72,678 15,725 138,746 48,606 78,797

57,329
49,591 59,317
64 1,064 11,789
470
1,072 199 680

80,995 190,503 1,214,694 1,063,768 418,163
62,502 168,121 727,491
73,148 15,725 139,818 48,805 79,477

$

7,090,938 $ 7,464,219 $

299,641 $

7,763,860

205,119 40,690

316,190 51,010

75,782 19,556

391,972 70,566

TOTAL QBE FORMULA FUNDS

$

7,336,747 $ 7,831,419 $

394,979 $ ==='8,=22=6=,3=9=8

(1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction.

See notes to the basic financial statements.

- 31 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
February 19, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Heard County Board of Education
REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Heard County Board of Education as of and for the year ended June 30, 2003, which collectively comprise Heard County Board ofEducation's basic financial statements and have issued our report thereon dated February 19, 2004. This report was qualified for various departures from generally accepted accounting principles, as identified in the auditor's report on the general-purpose financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Compliance
As part of obtaining reasonable assurance about whether Heard County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination offinancial statement amounts. However, providing an opinion on compliance with those provisions was not an objective ofour audit, and accordingly, we do not express such an opinion. The results ofour tests disclosed no instances ofnoncompliance that are required to be reported under Government Auditing Standards.

2003-34YB-40

Internal Control Over Financial Reporting
In planning and performing our audit, we considered Heard County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Heard County Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6741-03-01, FS-6741-03-02 and FS-6741-03-03.
A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, ofthe reportable conditions described above, we consider items FS-6741-0302 and FS-6741-03-03 to be material weaknesses.
This report is intended solely for the information and use ofthe management, members ofthe Heard County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

RWH:gp 2003-34YB-40

State Auditor

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
February 19, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Heard County Board of Education
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULARA-133
Ladies and Gentlemen:
Compliance
We have audited the compliance ofHeard County Board ofEducation with the types ofcompliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2003. Heard 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 Heard County Board of Education's management. Our responsibility is to express an opinion on Heard County Board of Education's compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Heard 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 Heard County Board of Education's compliance with those requirements.
2003SA-30

In our opinion, the Heard County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2003.
Internal Control Over Compliance
The management of Heard County Board of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered Heard County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
We noted a certain matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Heard County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FA-6741-03-01.
A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level of risk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is a material weakness.
This report is intended solely for the information and use ofthe management, members ofthe Heard County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
c:;,_.Respectfully submitted, .Jll 4.J.~~ ::tell W. Hinton State Auditor
RWH:gp 2003SA-30

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

HEARD COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-6741-01-01 FS-6741-02-01

Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented

SECTION IV FINDINGS AND QUESTIONED COSTS

HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

I SUMMARY OF AUDITOR'S RESULTS

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

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

Expenditures/Liabilities/Disbursements Revenues/Receivables/Receipts

General Ledger Capital Assets

Of the reportable conditions described above, General Ledger and Capital Assets are considered to be material weaknesses.

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

4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Heard County Board ofEducation disclosed a reportable condition in internal control over major programs for the following compliance requirement.

Special Tests and Provisions

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

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

6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Heard County Board of Education's audit disclosed an audit finding required to be reported by section .5 lO(a) ofOMB Circular A-133. This audit finding is included in section IV of this report.

7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food and Nutrition Program - Food Services - School Breakfast Program 10.555 Food and Nutrition Program - Food Services - National School Lunch Program 84.010 Elementary and Secondary Education Act - Title I - Grants to Local Educational Agencies

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HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
I SUMMARY OF AUDITOR'S RESULTS
8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.
9. Low Risk Auditee The Heard County Board of Education qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133.
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-6741-03-01
Our examination of the principals' accounts disclosed weaknesses in internal control as discussed below:
Revenues/Receivables/Receipts - Deposit preparation was not separated from the record keeping functions.
Expenditures/Liabilities/Disbursements - Based on a test of 40 items, nineteen voucher packets included purchase request forms which were dated and approved after the invoice date.
These deficiencies were a result of management's decision to limit the number of administrative staff, managing the various principal accounts, made responsible for account functions and failure to ensure established controls were functioning as designed. Management should implement procedures to ensure that the key accounting functions ofcustody, record keeping and authorization be segregated. Additionally, controls should be revised and monitored to provide reasonable assurance that transactions are processed according to established procedures.
GENERAL LEDGER Improper Reporting of Fiduciary Type Activities Reportable Condition - Material Weaknesses Finding Control Number: FS-6741-03-02
The School District failed to properly report school activity (principals) account agency funds maintained at the individual schools in the fiduciary fund, which comprises a material portion ofthe aggregate remaining fund information. The assets and liabilities ofthese agency funds were reflected in these financial statements as governmental activities within the general fund. Accounting
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HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Improper Reporting of Fiduciary Type Activities Reportable Condition - Material Weaknesses Finding Control Number: FS-6741-03-02
principles generally accepted in the United States ofAmerica require that the assets and liabilities of agency funds be reflected in the financial statements as fiduciary funds. This omission of material amounts, by the School District's management, is considered to be a financial irregularity in accordance with O.C.G.A. 20-2-67 and results in the basic financial statements ofthe School District being incomplete and not in accordance with generally accepted accounting principles.
This condition occurred because management failed to adequately identify and properly report agency fund transaction. Management should implement procedures to identify and report agency fund transactions properly as fiduciary funds in accordance with generally accepted accounting principles.
CAPITAL ASSETS Failure to Maintain Capital Assets and Report Depreciation Cost Reportable Condition - Material Weakness Finding Control Number: FS-6741-03-03
The Heard County Board of Education did not maintain up to date district-wide Capital Assets records or report current year depreciation cost within its basic financial statements at June 30, 2003 as required by generally accepted accounting principles. Capital Assets as reported by the School District do not include material current year additions, disposals or depreciation cost. This omission of material amounts, by management, is considered to be a financial irregularity in accordance with O.C.G.A. 20-2-67 and this condition results in the basic financial statements ofthe School District being incomplete and not in accordance with generally accepted accounting principles. The School District should establish appropriate polices and procedures designed to ensure that Capital Assets and depreciation cost are complete and reported accurately within its basic financial statements as required.
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HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6741-03-01
The School District identified three schools that participated in a school-wide program. Federal provisions prescribe that multiple funding sources (Federal, State or Local) are required to support a school-wide program. The Title I program and the Title II program supported the school-wide program at three ofthe District's schools. Although required by U. S. Department ofEducation and 0MB Circular A-133 Compliance Supplement provisions, we found that the School District had not consolidated the different Federal funds for each ofthose schools that participated in a school-wide program. Furthermore, we noted that the School District arbitrarily charged each Federal fund with individual school-wide expenditures rather than using a prescribed cost allocation plan to distribute school-wide program expenditures to each funding source.
In accordance with provisions of U. S. Department of Education Instructions and 0MB Circular A-133, Compliance Supplement provisions, eligible schools are able to use their Title I, Part A funds, in combination with other Federal, State and local funds, in order to upgrade the entire educational program of the school and to raise academic achievements for all students. By combining funds from Title I and other eligible U.S. Department of Education funded programs in support of a school-wide program, U. S. Department of Education Instructions provide that specific school-wide program costs lose their identity but only in those circumstances when funds are combined in a school-wide program. In line with 0MB Circular A-87 requirements, school-wide expenditures should be charged to those Federal funding sources supporting the school-wide program in a reasonable manner. When more than one Federal program supports a school-wide program, then school-wide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support ofthe school-wide program. To distribute such costs, provisions of 0MB Circular A-87, Attachment E, F.3 state that a cost allocation plan should be developed, documented, and maintained for audit. The School District personnel were unaware ofthese requirements and it was the School District's understanding that school-wide program expenditures lose their identity and therefore any school-wide program cost can be charged to Title I and other Federal funding programs.
The School District should implement procedures to (1) combine such funds as prescribed by U. S. Department of Education and (2) in line with 0MB Circular A-87 provisions allocate such school-wide program costs to the respective Federal fund in a reasonable manner. The
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HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6741-03-01 Board should seek Georgia Department of Education guidance in implementing fiscal procedures for combining and allocating school-wide program expenditures to Federal programs.
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