HEARD COUNTY BOARD OF EDUCATION FRANKLIN# GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30# 2004 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor 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 27 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 28 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 29 HEARD COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 April 1, 2005 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, 2004, 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 op1mons. As discussed in Note 2 to the financial statements, management has not properly recorded school activity (principals) accounts agency funds maintained at the individual schools in the fiduciary fund (which comprise a material portion of the aggregate remaining fund information) as appropriate. Accounting principles generally accepted in the United States ofAmerica require that the assets and 2004ARL-20X liabilities of these agency funds be reflected in these financial statements as fiduciary funds rather than including these agency fund amounts in the governmental activities. The aggregate effect on the financial statements of this variance or omission has not been determined, but is believed to be material. In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States ofAmerica, the financial position ofthe aggregate remaining fund information of the Heard County Board of Education, as of June 30, 2004, and the changes in financial position thereof for the year then ended. In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position ofthe governmental activities and each major fund ofthe Heard County Board of Education, as of June 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. The Heard County Board 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 discussed in Note 2 to the basic financial statements, during fiscal year 2004, the Board properly recorded its capital assets for inclusion in the basic financial statements. This change is in accordance with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued our report dated April 1, 2005, on our consideration ofthe Heard County Board ofEducation's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope ofour testing of internal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be 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 2004ARL-20X presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, except for the effects ofthe matters referred to in the third paragraph, such information, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code of Georgia Annotated section 506-24. Respectfully submitted, ~~~ Russell W. Hinton State Auditor RWH:as 2004ARL-20X HEARD COUNTY BOARD OF EDUCATION HEARD COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Inventories Capital Assets Land Construction in Progress Land Improvements Buildings and Building Improvements Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages 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 Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. -3 - EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 14,458,832 1,500,000 1,161,566 957,765 120,527 24,587 883,070 2,966,327 1,306,488 17,336,802 1,871,601 -6,582,152 $ ===3=6=l=,0=0=5l==,4=13~ $ 329,271 1,438,246 614,797 148,365 3,975,000 8,925,000 $ 15,430,679 $ 13,855,385 88,990 145,074 3,808,278 92,171 2,584,836 $ 20 574 734 $ ===3=6;,.;,0;,;;;0,;;;,5,.,,;,4,;,,;13;,. HEARD COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2004 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 Total Governmental Activities 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 (Restated) Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 11,325,722 418,002 110,804 367,104 362,617 993,798 248,183 1,084,219 627,626 17,848 862,248 $ 63137 $ 16 481 308 $ 276,577 276 577 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 $ 7,038,837 $ 114,310 69,141 166,657 384,418 469,531 500,790 361,330 590,739 $ 9,695,753 $ 143,887 $ 201 992 785 88,990 346 12,770 247 971 $ -4,142,998 -303,692 -41,663 -200,246 21,801 -523,275 -248,183 -582,644 -177,306 -17,502 17,838 -63 137 -6,261,007 $ 4,389,621 2,125,819 801,980 115,027 4,764 306,631 116,637 548145 $ 8 408 624 $ 2,147,617 18 427 117 $ =======2=0=5=7=4=7=34= -5- HEARD COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2004 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Inventories Total Assets GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 1,681,006 $ 9,702,662 $ 3,075,164 $ 1,500,000 162,048 957,765 120,527 24 587 733,114 14,458,832 1,500,000 895,162 957,765 120,527 24 587 $ 4,445,933 $ 9,702,662 $ 3,808,278 $ ==~17~9~5~6.;,;8,;,;73;;,. LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Total Liabilities FUND BALANCES Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Designated for Self-Insurance Undesignated Reported in: General Fund Total Fund Balances $ 329,271 $ 1,438,246 $ 614,797 148,365 $ 1 767 517 $ 763,162 $ $ 88,990 $ 120,487 $ 3,808,278 24,587 $ 8,939,500 59,778 2,384,574 $ 2,678,416 $ 8,939,500 $ 3,808,278 $ 329,271 1,438,246 614,797 148,365 2,530,679 88,990 120,487 3,808,278 24,587 8,939,500 59,778 2 384 574 15,426,194 Total Liabilities and Fund Balances $ 4,445,933 $ 9,702,662 $ 3,808,278 $ ==~17,,9~5~6~87~3~ 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. 2004 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress 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 Net Assets of Governmental Activities (Exhibit "A") $ 15,426.194 $ 883,070 2,966,327 1,306,488 17,336,802 1,871,601 -6,582,152 17,782,136 266,404 -12,900,000 $ 20,574,734 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, 2004 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} Accrued Interest on Bonds Sold Proceeds of Long-Term Capital-Related Debt Premiums on Bonds Sold 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 $ 4,241,115 119,791 $ 8,565,033 1,526,341 276,577 17,688 548145 801,980 $ 158,981 $ 2,125,819 92,171 6,778 $ 15,294,690 $ 1,053,132 $ 2,132,597 $ 4,241,115 3,047,590 8,724,014 1,526,341 276,577 116,637 548145 18,480,419 $ 10,758,973 $ 10,758,973 418,002 110,804 366,314 345,996 $ 989,889 118,574 1,081,128 493,639 16,484 811,949 16,621 129,594 $ 3,065,281 418,002 110,804 366,314 362,617 989,889 15 248,183 1,081,128 493,639 16,484 811,949 3,065,281 1,550,000 355,050 1,550,000 355,050 $ 15,511,752 $ 3,211,496 $ 1,905,065 $ 20,628,313 $ -217,062 $ -2,158,364 $ 227,532 $ -2, 147,894 $ $ 11,000,000 274,748 $ 176,884 -176 884 17,165 $ 17,165 11,000,000 274,748 176,884 -176 884 $ 176,884 $ 11,097,864 $ 17,165 $ 11,291,913 $ -40,178 $ 8,939,500 $ 244,697 $ 9,144,019 2,718,594 0 3,563,581 6,282,175 Fund Balances - Ending $ 2,678,416 $ 8,939,500 $ 3,808,278 $ 15,426,194 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. 2004 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 lifes as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District"s fiscal year ends, they are not considered "available" revenues. Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from: General Obligation Bonds Issued 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 $ 9,144,019 $ 2,966,327 -661,236 2,305,091 148,507 -11,000,000 1,550,000 Change in Net Assets of Governmental Activities (Exhibit "B") $ =~2,;,,14,;,;,7,.;;6;.;,,17;,. 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, 2004 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 of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients 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, 2004 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, Special Purpose Local Option Sales Tax 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 ofgeneral longterm principal, interest and paying agent's fees. BASIS OF ACCOUNTING The basis ofaccounting 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 ofgeneral 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, 2004 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 of school 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. RESTATEMENT OF PRIOR YEAR NET ASSETS For fiscal year 2004, the School District restated Capital Assets due to numerous errors and omissions noted during the initial year ofimplementation of GASB Statement No. 34. The School District increased land by $8,625. Additionally, the School District increased, net of accumulated depreciation, buildings and improvements, equipment and land improvements, $7,063,687, $217,631 and $529,640, respectively. The result is an increase in Net Assets at July 1, 2003, of $7,819,583. This change is in accordance with generally accepted accounting principles. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. 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 interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, - 13 - HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"G" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. 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 Heard County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on December 11, 2003 (levy date). Taxes were due on March 1, 2004 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The 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, 2004, for maintenance and operations amounted to $4,241,115. The tax millage rate levied for the 2003 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 13.421 mills - 14 - HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"G" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $2,927,799 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 (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. 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. - 15 - HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "G" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and - 16 - HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"G" Note 3: DEPOSITS (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2004, the bank balances were $16,516,351. The amounts ofthe 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, 2004, as follows: Risk Category Bank Balance 1 $ 4,686,002 2 0 3 11,830,349 Total $ 16,516,351 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: - 17 - HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"G" Note 5: CAPITAL ASSETS Balances July 1, 2003 (Restated) Increases Balances Decreases June 30, 2004 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 883,070 $ 0 $ 2,966,327 0 $ 883,070 2,966,327 Total Capital Assets Not Being Depreciated $ 883,070 $ 2,966,327 $ 0 $ 3,849,397 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 17,336,802 $ 0 $ 0 $ 17,336,802 1,871,601 1,871,601 1,306,488 1,306,488 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 4,460,335 670,353 790,228 87,099 420,329 153,808 4,547,434 1,090,682 944,036 Total Capital Assets, Being Depreciated, Net $ 14,593,975 $ -661,236 $ 0 $ 13,932,739 Governmental Activity Capital Assets - Net $ 15,477,045 $ 2,305,091 $ 0 $ 17,782,136 Current year depreciation expense by function is as follows: Instruction Support Services Educational Media Services School Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Food Services $ 492,976 $ 687 3,400 2,689 116,546 1 186 124,508 43,752 $.=~6~61~,2~3~6 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) and General obligation bond proceeds are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2004, were as follows: - 18 - HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "G" Note 6: RESTRICTED ASSETS District-wide Capital Projects Bond Proceeds Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions $ 3,075,164 $ 9,702,662 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2004, consisted of the following: Transfer to Transfers From District-wide Capital Projects General Fund $=~1-76=,8=8=,4 Transfers are used to reimburse general fund for prior year expenditures transferred in accordance with Board resolution. 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. - 19 - HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"G" Note 8: RISK MANAGEMENT The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End ofYear Liability 2003 2004 $ 0 $ 1 464 $ 1 464 $ 0 $ 0 $ 0 $ 0 $ 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: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End ofYear Liability 2003 2004 $ 41 995 $ 59,839 $ 101,834 $ 0 $ 0 $ 107,130 $ 107,130 $ 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 Amount Superintendent All Other Employees $ 50,000 $ 50,000 -20- HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 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 General Government - Series 2003 4.20% - 4.65% 2.00%- 3.75% $ 1,900,000 11,000,000 $ 12,900,000 The School District has authorized $2,000,000 in Qualified Zone Academy Bonds for facility renovation and repair projects, which were not issued as of June 30, 2004. The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows: Governmental Funds General Obligation Bonds Balance July 1, 2003 $ 3,450,000 Additions G.O. Bonds 11,000,000 Deductions Debt Retired 1,550,000 Balance June 30, 2004 $ 12,900,000 Portion of Long-Term Debt Due within One Year $ 3,975,000 At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows: - 21 - HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "G" Note 9: LONG-TERM DEBT Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2005 2006 2007 2008 2009 $ 3,975,000 $ 2,130,000 2,190,000 2,260,000 2,345,000 382,613 252,763 204,838 150,087 87 937 Total Principal and Interest $ 12,900.000 $ 1,078,238 Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $138,450 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $137,378 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $1,072 Note 11: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2004: Project Unearned Executed Contracts Heard County Elementary School Heard County Middle School Athletic Complex $ 7,711,816 24,971 $ 7,736,787 The amounts described in this note are not reflected in the basic financial statements. -22 - HEARD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "G" 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 ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 13: 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 ofTrustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2004 2003 2002 100% 100% 100% $ 854,247 $ 815,968 $ 763,151 - 23 - HEARD COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30. 2004 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Food Services Operation Capital Outlay 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 NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 4,218,488 $ 4,218,488 $ 4,241,115 14,000 14,000 119,791 8,867,295 8,867,295 8,565,033 1,733,771 1,733,771 1,526,341 258,946 258,946 276,577 20,428 20,428 17,688 69436 69436 548,145 $ 15,182,364 $ 15,182,364 $ 15,294,690 $ 10,757,808 $ 10,757,808 $ 10,758,973 458,096 123,193 374,000 391,049 1,109,318 77,000 1,197,500 611,513 17,000 814,094 120 000 458,096 123,193 374,000 391,049 1,109,318 77,000 1,197,500 611,513 17,000 814,094 120,000 418,002 110,804 366,314 345,996 989,889 118,574 1,081,128 493,639 16,484 811,949 $ 16,050,571 $ 16,050,571 $ 15,511,752 $ -868,207 $ -868 207 $ -217,062 $ 425,000 $ 2,308,392 $ 176,884 -416,000 -2,299,392 $ 9 000 $ 9 000 $ 176,884 $ -859,207 $ -859,207 $ -40,178 3,029,025 3,029,025 2,718,594 Fund Balances - Ending $ 2,169,818 $ 2, 169,818 $ ===2;.,6=7=-8=41=6= 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- HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Pass-Through From Bright From the Start: Georgia Department of Early Care and Learning 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 Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Improving Teacher Quality State Grants State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U. S. Department of Education CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD . 10.553 . 10.555 N/A NIA $ $ (2) 703,531 703,531 10.550 10.558 N/A N/A $ 52,660 (2) 756 191 . 84.027 . 84.173 N/A $ N/A $ 84.318 84.367 84.298 84.010 84.048 N/A N/A N/A N/A N/A $ 283,774 40223 323,997 12,921 121,515 12,862 492,819 27,246 991,360 Total Federal Financial Assistance N/A = Not Available $ ====='1,=74=7=,5=5=1 Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on Child and Adult Care Food Program ($6,392) and the School Breakfast Program ($107,727) were not maintained separately and are included in the 2004 National School Lunch Program. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the 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 fund financial statements. See notes to the basic financial statements. - 26- HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004 SCHEDULE "3" 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 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 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 Apprenticeship Program 4-8 Statewide After School Program Health Insurance K-3 Statewide Reading Program Mentor Teachers Preschool Handicapped Program Student Information System Georgia State Financing and Investment Commission Reimbursement on Construction Projects Office of Treasury and Fiscal Services Public School Employees Retirement GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 522,542 $ 522,542 502,698 101,783 1,214,480 123,017 612,566 80,733 -26,693 1,118,711 674,404 356,399 28,766 81,383 652,435 102,212 6,642 117,377 44,277 77,180 166,657 52,630 34,163 308,496 453,069 500,790 342,655 88,990 62,557 10,920 55,413 7,454 9,008 168,181 55,758 -423,957 2,000 15,563 137,378 43,804 16,735 39,343 25,442 $ 1 072 158,981 502,698 101,783 1,214,480 123,017 612,566 80,733 -26,693 1,118,711 674,404 356,399 28,766 81,383 652,435 102,212 6,642 117,377 44,277 77,180 166,657 52,630 34,163 308,496 453,069 500,790 342,655 88,990 62,557 10,920 55,413 7,454 9,008 168,181 55,758 -423,957 2,000 15,563 137,378 43,804 16,735 39,343 25,442 158,981 1 072 See notes to the basic financial statements. $ 8,565,033 $ 158 981 $ 8 724 014 -27 - HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2004 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 COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) (4) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 9,000,000 $ 13,104,253 $ 906,925 $ 12,197,328 Ongoing 18,000,000 18,000,000 2,481,455 456,462 Ongoing $ 27,000,000 $ 31,104,253 $ 3,388,380 $ 12,653,790 (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. (4) In addition to the expenditures shown above, the School District has incurred interest to provide advance funding for the above projects as follows: Current Year $ =====3=5=5=,0=5.0. See notes to the basic financial statements. - 28- HEARD COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2004 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 $ 609,984 $ 597,434 $ 22,288 $ 619,722 117,058 146,211 146,211 1,474,713 1,825,355 81,643 1,906,998 146,673 69,337 1,865 71,202 743,680 924,647 53,668 978,315 100,845 1,322,791 813,703 428,652 1,035,873 137,096 52,814 93 073 125,299 5,958 1,268,470 1,031,871 366,773 10,512 153,535 735,706 124,380 4 160,458 49,281 87 980 1,438 40 67,499 25,267 39,810 2,124 1,892 18,508 2,262 804 428 1 014 126,737 5,998 1,335,969 1,057,138 406,583 12,636 155,427 754,214 126,642 4 161,262 49,709 88 994 $ 7,076,955 $ 7,683,211 $ 320,550 $ 8,003,761 200,920 40 902 330,677 35,831 27,070 43 723 357,747 79 554 TOTAL QBE FORMULA FUNDS $ 7318777 $ 8,049,719 $ 391,343 $ ===8,=44=1=,0=6=2 (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. - 29 - 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 April 1, 2005 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 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 Heard County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Heard County Board ofEducation's basic financial statements and have issued our report thereon dated April 1, 2005. This report was qualified for a departure from generally accepted accounting principles, as identified in the auditor's report on the basic financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered 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 an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect 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-6741-04-01 and FS-6741-04-02. 2004YB-40 A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, of the reportable conditions described above, we consider item FS-6741-04-02 to be a material weakness. Compliance and Other Matters 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 grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the Heard County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~-~~ Russell W. Hinton State Auditor RWH:as 2004YB-40 Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 April 1, 2005 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 of Education 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 of its major Federal programs for the year ended June 30, 2004. 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. 2004SA-10 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, 2004. 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 of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose ofexpressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider 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, ~~-w ~2:ell W. Hinton .~.~ State Auditor RWH:as 2004SA-10 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, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6741-03-01 FS-6741-03-02 FS-6741-03-03 Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented CORRECTIVE ACTION/RESPONSES REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Finding Control Number: FS-6741-03-01 The Heard County School Administrators are in the process of implementing a plan that will set up policies to segregate duties and have the Principals monitor the duties daily. GENERAL LEDGER Improper Reporting of Fiduciary Type Activities Finding Control Number: FS-6741-03-02 The Heard County Central Office along with the School Administrators are implementing procedures to identify and report agency fund transactions properly as fiduciary funds in accordance with generally accepted accounting principles. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-6741-03-01 Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Finding Control Number: FA-6741-03-01 The Heard County School System is currently implementing guidelines provided by the Georgia Department of Education to set up operational procedures so they can remove fiscal and accounting barriers. SECTION IV FINDINGS AND QUESTIONED COSTS HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Heard County Board of Education's financial statements was qualified for a departure 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. Cash and Cash Equivalents Revenues/Receivables/Receipts Expenditures/Liabilities/Disbursements General Ledger Ofthe reportable conditions described above, General Ledger is considered to be a material weakness. 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 of Education did not disclose any reportable conditions in internal control over major programs. 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 .5 IO(a) of 0MB Circular A-133 The Heard County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. - 1- HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 9. Low Risk Auditee The Heard County Board of Education did not qualify as a low risk auditee as defined by Section .530 of 0MB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Controls over Principal Accounts Reportable Condition Finding Control Number: FS-6741-04-01 Our examination of the principals' account disclosed weaknesses in internal control as discussed below: Cash and Cash Equivalents The School District could not provide June 30, 2004, bank reconciliations for Heard Elementary and Heard High School, which is two of the six principal bank accounts. The variance noted between the bank balance and the general ledger is $5,087. A Centralhatchee Elementary School bank account was discovered during the external bank confirmation procedure that was not included in the Financial Statements. The balance ofthe bank account at June 30, 2004, was $7,748. Revenues/Receivables/Receipts Adequate receipt documentation was not maintained for cash receipt transactions recorded in the General Ledger. Cash receipt transactions for Heard High School were not included on the Financial Statements for the year ended June 30, 2004. Expenditures/Liabilities/Disbursements Cash disbursement transactions for Heard High School were not included on the Financial Statements for the year ended June 30, 2004. General Ledger General Ledgers as presented for audit did not balance for the following schools: Ephesus Elementary, Centralhatchee Elementary, Heard Elementary, Heard Middle, and Heard High. -2- HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Controls over Principal Accounts Reportable Condition Finding Control Number: FS-6741-04-01 These deficiencies were a result of management's failure to adequately communicate, to School Bookkeepers and Principals, controls that should be in place to ensure that Principal Accounts are materially correct. Controls should be reviewed, communicated, 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 Weakness Finding Control Number: FS-6741-04-02 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 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. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -3 - SECTIONV MANAGEMENT'S RESPONSES HEARD COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FS-6741-04-01 The central office staffhas reviewed these findings with current school level administration. School administrators will implement a plan beginning July 1, 2005. In order to resolve this finding, financial duties will be segregated and the principal will monitor these duties. Central office staff will be monitoring and help organize school's financial records on a quarterly basis to assure this is being done. Finding Control Number: FS-6741-04-02 Central office staffreviewed this finding with School administrators. Beginning July 1, 2005, school level accounting will implement procedures to identify and report agency fund transactions properly as fiduciary funds in accordance with generally accepted accounting principles. Contact Person: Sandra Lloyd, Finance Director Phone: (706) 675-3320 Fax Number: (706) 675-3357 E-mail Address: slloyd@heard.kl2.ga.us