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

HENRY COUNTY BOARD OF EDUCATION
MCDONOUGH, 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

HENRY 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

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

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

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

10

H

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

27

HENRY COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

28

3 SCHEDULE OF STATE REVENUE

30

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

31

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

33

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
September 10, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Henry County Board of Education
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Ladies and Gentlemen:
We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Henry 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 Henry 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 opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective position ofthe governmental activities, each major fund, and the aggregate remaining fund information of the Henry County Board of Education, as of June 30, 2003, 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.
2003-34ARL-l 1

In accordance with Government Auditing Standards, we have also issued our report dated September 10, 2004, on our consideration of the Henry County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, 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.
Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through ix and page 27 respectively, are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. 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 Henry 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.
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,
~~.J~
Russell W. Hinton State Auditor
RWH:gp 2003-34ARL-11

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
Introduction
Our discussion and analysis of the Henry County School District's financial performance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2003. The intent of this discussion and analysis is to look at the School District's financial performance as a whole; readers should also review the transmittal letter, notes to the basic financial statements and financial statements to enhance their understanding of the School District's financial performance.
Financial Highlights
Key financial highlights for fiscal year 2003 are as follows:
On the district-wide financial statements, the assets of the School District exceeded liabilities by over $173.3 million. This represented an increase of $18.3 million in net assets when compared to the prior year.
The School District had $210.4 million in expenses relating to governmental activities; only $116.3 million of these expenses were offset by program specific charges for services, grants and contributions. However, general revenues (primarily property and sales taxes) of $112.4 million were adequate to provide for these programs.
As stated above, general revenues accounted for $112.4 million or about 49% of all revenues totaling almost $228.7 million. Program specific revenues in the form of charges for services, grants, and contributions accounted for the balance of these revenues.
Among major funds, the General Fund had $193.8 million in revenues and $195.9 million in expenditures. The general fund balance of almost $8.3 million at June 30, 2003 decreased about $2.1 million when compared to the prior year.
Overview of the Financial Statements
This annual report consists of three parts; management's discussion and analysis (this section), the basic financial statements and required supplementary information. The basic financial statements include two levels of statements that present different views of the School District. These include the district-wide andfundfinancial statements.
The district-wide financial statements include the Statement of Net Assets and Statement of Activities. These statements provide information about the activities of the School District presenting both short-term and long-term information about the School District's overall financial status.
1

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
The fund financial statements focus on individual parts of the School District, reporting the School District's operation in more detail. The Governmental Funds statements disclose how basic services are financed in the short-term as well as what remains for future spending. The Fiduciary Funds statements provide information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. In the case of the Henry County School District, the General Fund, Capital Projects Funds, and Debt Service Funds are all considered to be major funds. The School District has no nonmajor funds as defined by GASB Statement 34 for the purposes of this report.
The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. Additionally, other supplementary information (not required) is also presented that further supplements understanding of the financial statements.
District-Wide Statements
Since Henry County School District has no operations that have been classified as "Business Activities", the district-wide financial statements are basically a consolidation of all of the School District's operating funds into one column called governmental activities. In reviewing the district-wide financial statements, a reader might ask the question, are we in a better financial position now than last year? The Statement of Net Assets and the Statement of Activities provides the basis for answering this question. These financial statements include all School District's assets and liabilities and uses the accrual basis ofaccounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid.
These two statements report the School District's net assets and any changes in those assets. The change in net assets is important because it tells the reader that, for the School District as a whole, the financial position of the School District has improved or diminished. The causes of this change may be the results of many factors, including those not under the School District's control, such as the property tax base, facility conditions, required educational programs, student-teacher ratios, and other factors.
The Statement of Net Assets and the Statement of Activities reflects 100% of the School District's governmental activities.
Fund Financial Statements
The School District uses many funds or sub-funds to account for a multitude of financial transactions during the fiscal year. The fund financial statements presented in this report provide detail information about the School District's significant or major funds. As discussed previously, the School District has no nonmajor funds as defined by GASB Statement 34.
11

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
Governmental Funds: Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at yearend available for spending in future periods. These funds are reported using the modified accrual method of accounting which measures cash and all other financial assets that can be readily be converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The differences between government activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds are reconciled in the financial statements.
Fiduciary Funds: The School District is the trustee, or fiduciary, for assets that belong to clubs, organizations and others within the principals' accounts. The School District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The School District excludes these activities from the districtwide financial statements because it cannot use these assets to finance its operations.
Financial Analysis of the School District as a Whole
Recall that the Statement of Net Assets provides the perspective of the School District as a whole. The reader can think of the School District's net assets as the difference between its assets (i.e., what the School District owns) and its liabilities (i.e., what the School District owes) at the end of a fiscal year. This balance represents one way to measure the School District's financial health or its financial position. In the case of the Henry County School District, assets exceeded liabilities by $173.3 million at June 30, 2003.
To better understand the School District's actual financial position and ability to deliver services in future periods, the reader will need to review the various components of the net asset category. For example, of the $173 .3 million of net assets, $23 .5 million was restricted for continuation of Federal programs, debt service and completion of capital projects. Accordingly, these funds were not available to meet the School District's ongoing obligations to citizens and creditors.
In addition, the School District also had $145.7 million (net of related debt) invested in capital assets (e.g., land, buildings, and equipment). The School District uses these capital assets to provide educational services to students within geographic boundaries served by the School District. Because of the very nature and on-going use of the assets being reported in this component of net assets, it must be recognized that this portion of the net assets is not available for future spending.
The remaining balance of unrestricted net assets of $4.1 million may be used to meet the School District's ongoing obligations to citizens and creditors.
Table 1 provides a summary of the School District's net assets for this fiscal year as compared to the prior fiscal year.
111

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Table 1 Net Assets

Governmental Activities

Fiscal

Fiscal

Year 2003

Year 2002

Assets Current and Other Assets Capital Assets, Net

$ 86,887,079 $ 132,872,268

270,867,265

230,407,698

Total Assets

$ 357,754,344 $ 363,279,966

Liabilities Current and Other Liabilities Long-Term Liabilities

$ 28,972,227 $ 25,603,457

155,448,789

182,611,015

Total Liabilities

$ 184,421,016 $ 208,214,472

Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted

$ 145,705,454 23,497,201 4,130,673

$ 104,069,301 40,989,951 10,006,242

Total Net Assets

$ 173,333.328 $ 155,065,494

The above comparison reflects that although total net assets increased almost $18.3 million, total unrestricted net assets decreased $5.9 million. The decreased General Fund unrestricted net assets balance of $4.1 million at June 30, 2003 will result in less financial flexibility for the School District going forward.

Table 2 shows the Changes in Net Assets for this fiscal year as compared to the prior fiscal year.

lV

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Table 2 Change in Net Assets

Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions
Capital Grants and Contributions

Governmental Activities

Fiscal

Fiscal

Year 2003

Year 2002

$ 7,114,572 107,053,002 2,100,702

$ 6,973,068 95,868,741 21,444,695

Total Program Revenues

$ 116,268,276 $ 124,286,504

General Revenues:

Taxes

Property Taxes

For Maintenance and Operations

$

For Debt Service

Railroad Cars

Sales Taxes

Special Purpose Local Option Sales Tax

For Debt Service

Intangible Recording Tax

Real Estate

Alcoholic Beverages

Grants and Contributions not Restricted to

Specific Programs

Investment Earnings

Miscellaneous

66,527,346 11,901,096
19,702,374 3,979,481
726,474 757,443
3,330,586 1,196,947 4,261,948

$ 58,833,427 10,821,687 25,964
18,497,851 2,865,860
615,723 512,177
4,167,356 1,317,220 4,288,644

Total General Revenues

$ 112,383,695 $ 101,945,909

Total Revenues

$ 228,651,971 $ 226,232,413

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

$ 141,457,444
4,041,444 4,139,292 3,700,725 1,260,683 11,625,200
224,809 14,281,334 8,559,384
779,492 798,876
931,407 2,297,403 8,053,647 8,232,995

$ 123,407,612
3,608,826 3,773,720 3,776,031 1,155,670 10,900,848 1,877,620 12,928,271 7,464,416
801,861 242,850
1,324,403 2,311,778 7,039,076 6,682,742

Total Expenses

$ 210,384,135 $ 187,295,724

Increase in Net Assets

$ 18,267,836 $ 38,936,689

V

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Governmental Activities

The Statement of Activities shows the cost of program services and the charges for services and grants offsetting these services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services. Net cost of services can be defined as the total cost less fees generated by the activities and intergovernmental revenue provided for specific programs. The net cost reflects the financial burden on the School District's taxpayers by each activity as compared to the prior fiscal year.

Table3 Governmental Activities

Total Cost of Services

Fiscal

Fiscal

Year 2003 Year2002

Net Cost of Services

Fiscal

Fiscal

Year2003 Year2002

Instruction

$141,457,444 $123,407,612 $ 53,890,275 $ 33,389,310

Support Services

Pupil Services

4,041,444 3,608,826 2,674,064 2,556,906

Improvement of Instructional Services

4,139,292 3,773,720 2,564,582 2,644,141

Educational Media Services

3,700,725 3,776,031 1,443,813 1,544,455

General Administration

1,260,683 1,155,670 -957,703 -1,663,333

School Administration

11,625,200 10,900,848 7,222,151 5,965,580

Business Administration

224,809 1,877,620

224,809 1,877,620

Maintenance and Operation of Plant

14,281,334 12,928,271 7,112,902 6,212,656

Student Transportation Services

8,559,384 7,464,416 6,474,277 2,921,937

Central Support Services

779,492

801,861

779,155

801,861

Other Support Services

798,876

242,850

796,595

240,850

Operations ofNon-Instructional Services

Enterprise Operations

931,407 1,324,403

931,407 1,324,403

Community Services

2,297,403 2,311,778 2,297,403 -497,272

Food Services

8,053,647 7,039,076

429,134 -992,636

Interest on Short-Term and Long-Term Debt 8,232,995 6,682,742 8,232,995 6,682,742

Total Expenses

$210,384.135 $187,295.724 $ 94,115.859$ 63,009,220

The table above shows that continued reductions in funding by the State of Georgia is forcing School Districts to more and more locally fund its programs. For example, as shown in the above table, even though the total cost of services for instruction increased $18 million from the prior year, the School District's costs for that same program increased a little over $20.5 million.

Financial Analysis of the School District's Funds

Information about the School District's governmental funds is presented starting on Exhibit "C" of this report. Governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of $229.3 million and total expenditures of $278.3 million in fiscal year 2003. Total governmental fund balances of $56 million at

VI

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
June 30, 2003, decreased $49 million from the prior year. This decrease occurred primarily because Capital Projects reserves of $44.7 million that had been accumulated in prior years were expended in the current fiscal year.
General Fund Budget Highlights
The School District's budget is prepared according to Georgia Law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2003, the School District amended its general fund budget as needed.
The School District budget is adopted at the aggregate level and maintained at the program, function, object, and site levels to facilitate budgetary control. The budgeting systems are designed to control the total budget, but provide flexibility to meet the ongoing programmatic needs. The budgeting systems are also designed to control total site budgets but provide flexibility for site management as well.
For the General Fund, the final actual revenues of $193.8 million were over the final budgeted amount of $185.6 million by $8.2 million. This difference (final actual vs. final budget) was due primarily due to sales tax revenue over final budget of $4.3 million and State Funds revenues over final budget of almost $3.6 million.
The final actual expenditures of almost $195.9 million exceeded the final budgeted amount of $186.2 million by $9.7 million. This difference (final actual vs. final budget) was due primarily to expenditures for instruction over budget of $6.7 million, expenditures for student transportation over budget of $1.4 million, and expenditures for enterprise operations over budget of $.9 million. These budget over expenditures occurred primarily because school activity accounts, the After School Program, and the net effect of the July and August salary accruals were not included in the budget. Additionally, student enrollment, caused by rapid population growth of the County, was greater than anticipated.
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
At fiscal year ended June 30, 2003, the School District had almost $270.9 million invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances net of accumulated depreciation as compared to the prior fiscal year.
Vll

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Table 4 Capital Assets (Net of Depreciation)

Governmental Activities

Fiscal

Fiscal

Year 2003

Year 2002

Land Construction in Progress Land Improvements Buildings and Improvements Equipment

$ 13,809,423 29,411,809 10,029,417 203,407,613 14,209,003

$ 12,820,033 49,764,316 8,455,419 147,079,487 12,288,443

Total

$ 270,867,265 $ 230,407,698

Due to the continued growth in the county, the School District has numerous ongoing construction projects including new buildings, additions and renovations.

Debt

At fiscal year ended June 30, 2003, the School District had $151.9 million in bond debt outstanding and just under $3 .6 million in other long term debt. Table 5 summarizes the School District's debt for general obligation bonds, unamortized premiums on bonds sold, and compensated absences outstanding as compared to the prior fiscal year.

Table 5 Debt at June 30

Governmental Activities

Fiscal

Fiscal

Year 2003

Year 2002

Bonds Payable Unamortized Premiums on Bonds Sold Compensated Absences

$ 151,885,000 2,753,217 810,572

$ 178,465,000 3,471,448 674,567

Total

$ 155,448.789 $ 182.611,015

At June 30, 2003, the School District's assigned bond rating was "Aa3" as determined by Moody's Investors Services, Inc.

Vlll

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
Current Issues
Currently known facts, decisions or conditions that are expected to have a significant effect on financial positions or results of operations in future years are as follows:
As was the case in the prior year, the State of Georgia is suffering from the effects of the prevailing unfavorable economic conditions. Total revenue collections for the State for the 2003 fiscal year were down roughly 3% compared to the previous period. This forced the State's Office of Planning and Budget to reduce the budgets of the various government agencies.
State QBE Revenue Reductions - During fiscal year 2003, the State of Georgia implemented a 2.5% QBE revenue formula funding reduction to all State School Districts. This funding reduction carried forward into the fiscal year 2004. Additionally, because state revenues are falling well below the projected amounts, all State School Districts have been warned to expect a 5% reduction of revenues for fiscal year 2005. Considering the stagnant economy of the past few years, these formula funding reductions challenge the long-term financial stability of the School District. However, despite these conditions, the Henry County School District is strong financially and we remain optimistic about the ability of the School District to maximize all of the financial resources to provide a quality education to our students.
Capital Improvements - The School District plans capital improvements as future capital needs arise due to increased student population and facility repair and maintenance needs. Specific capital expenditure plans are formalized in conjunction with individual general obligation bond issues and anticipated annual receipts of capital outlay funds from the State of Georgia Department of Education.
Contacting the School District's Financial Management
This financial report is designed to provide our citizen's taxpayers, investors and creditors with a general overview of the School District's finances and to show the School District's accountability for the money it receives. If you have questions about this report or need additional financial information contact Mr. Jeff Allie, Comptroller, Henry County School District, 33 N. Zack Hinton Parkway, McDonough, Georgia 30253. You may also email your questions to Mr. Allie atjallie@henry.k-12.ga.us.
IX

HENRY COUNTY BOARD OF EDUCATION

HENRY COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2003
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings 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
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

$

12,768,587

48,077,542

8,382,741 17,343,426
86,816 182
227,785

13,809,423 29,411,809 16,920,902 235,479,789 24,160,526 -48,915, 184

$ ==3=5=7=7,=54='=34=4=

$

4,759,770

17,244,149

3,790,414

3,177,894

21,337,005 134,111,784

$

184,421,016

$

145,705,454

1,398,417 21,315,777
783,007 4,130 673

$

173,333,328

$ ===35=7=,7=5,..4,=34=4=

HENRY 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 Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt

$

141,457.444 $

4,041,444 4,139,292 3,700,725 1,260,683 11,625,200
224,809 14,281,334
8,559,384 779,492 798,876

931,407 2,297,403 8,053,647 8,232,995

Total Governmental Activities

$ ======2==1=0=,=3=8=4==,1==3=5== $

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

2,968,508
89,398 4,056,666 7 114,572

Total General Revenues

Change in Net Assets

Net Assets - Beginning of Year

Net Assets - End 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

$

82,986,832 $

1,367,380 1,574,710 2,256,912 2,189,712 4,349,580

7,066,968 1,814,959
337 2,281

3,443,331

$

107,053,002 $

1,611,829 $
28,674 53,469 12,066 270,148
124,516 2,100,702 $

-53,890,275
-2,674,064 -2,564,582 -1,443,813
957,703 -7,222,151
-224,809 -7,112,902 -6,474,277
-779,155 -796,595
-931,407 -2,297,403
-429,134 -8,232,995
-94, 115,859

$

66,527,346

11,901,096

19,702,374 3,979,481 726,474 757,443 3,330,586 1,196,947 4 261 948

$

112,383,695

$

18,267,836

155,065,492

$ ===1=73=,3=3=3=,3=28=

-5-

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

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Cash Overdraft Accounts Payable Salaries Payable Contracts Payable Retainages Payable
Total Liabilities
FUND BALANCES
Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects
Unreserved Designated for Self-Insurance Undesignated Reported in: General Fund
Total Fund Balances
Total Liabilities and Fund Balances

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 6,437.408

$ 6,592,024 $ 13,029,432

7,270,946 $ 29,793,143

11,013.453

48,077,542

2,726,011 13,503,804
86,816 182
227,785

3,839,622

3,766,612

6,492,623 17,343.426
86,816 182
227,785

$ 30,252,952 $ 33,632,765 $ 21,372,089 $ 85,257,806

$ $ 4,749,570
17,244,149

260,845 10,200
3,790.414 3,177,894

$ 21,993,719 $ 7,239,353

$ 260,845 4,759,770 17,244,149 3,790.414 3,177,894
$ 29,233,072

$ 1,170,632

$ 1,170,632

$ 21,372,089

21,372,089

227,785

227,785

$ 26,393,412

26,393,412

301,565

301,565

6,559,251

6,559,251

$ 8,259,233 $ 26,393,412 $ 21,372,089 $ 56,024,734

$ 30,252,952 $ 33,632,765 $ 21,372,089 $ 85,257,806

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

HENRY 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 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 Compensated Absences Unamortized Bond Premiums
Total Long-Term Liabilities

$ 56,024.734

$ 13,809,423 29,411,809 16,920,902
235,479,789 24,160,526 -48,915,184

270,867,265

1,890,118

$ -151,885,000 -810,572
-2,753,217

-155,448,789

Net Assets of Governmental Activities (Exhibit "A")

$ 173,333,328

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

HENRY 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 Other Support Services Enterprise Operations Community Services Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 66,766,770 4,762,455
101,781,280 $ 8,602,308 7,114,572 240,901 4,568,526

$ 2,100,702
777,632

11,957,408 $ 20,403,317
178,414

78,724,178 25,165,772 103,881,982
8,602,308 7,114,572 1,196,947 4,568,526

$ 193,836,812 $ 2,878,334 $ 32,539,139 $ 229,254,285

$ 133,812,054

$ 133,812,054

4,034,993 4,134,422 3,700,725 1,116,305 11,327,964
945,330 14,445,688
8,832,194 777,599 845,631 931,407
2,296,784 7,461,312 1,240,096 $

47,597,007

4,034,993 4,134,422 3,700,725 1,116,305 11,327,964
945,330 14,445,688
8,832,194 777,599 845,631 931,407
2,296,784 7,461,312 48,837,103

$ 26,580,000 8,232,995

26,580,000 8,232,995

$ 195,902,504 $ 47,597,007 $ 34,812,995 $ 278,312,506

$ -2,065,692 $ -44, 718,673 $ -2,273,856 $ -49,058,221

10,324,925

71,112,085

23,645,945

105,082,955

Fund Balances - Ending

$ 8,259,233 $ 26,393,412 $ 21,372,089 $ 56,024,734

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

HENRY 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, 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.
In the Statement of Activities, only the gain on the sale of the equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold.
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
Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of:
Decrease in Compensated Absences Amortization of Bond Premium
Total Additional Expenditures

$ -49,058,221

$ 47,577,619 -6 811 474

40,766,145

-295,736

-306,578

26,580,000

$

-136,005

718 231

582,226

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

$ 18,267,836

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

HENRY COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS
FIDUCIARY FUNDS JUNE 30, 2003
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT"G"
AGENCY FUNDS
$ ==4=9=1,=29=3=
$ ==4=91='=29=3=

The notes to the basic financial statements are an integral part of this statement. - 10 -

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

EXHIBIT"H"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Henry 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 Henry County Board of Education.
District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.

- 11 -

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

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District reports the following major governmental funds:
General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund.
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 (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governments or individuals.
BASIS OF ACCOUNTING
The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and
- 12 -

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

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources.
The School District funds certain programs by a combination 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.
A substantial number of personnel of the School District were employed for a one hundred and ninety day period beginning in August 2002 and ending in early June 2003. Employment contracts for these employment periods typically specify that compensation be paid in twelve equal monthly payments beginning in September 2002 and ending in August 2003. State grants to fund the State's share of these contracts are disbursed to the School District in the same twelve month period. In accordance with generally accepted accounting principles, salary and fringe benefit costs and the related revenue from the State to fund these contracts are recorded in the fiscal period covered by these financial statements.
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.
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 -

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

EXHIBIT "H"

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 Henry County Board of Commissioners fixed the property tax levy for the 2002 tax digest year (calendar year) on October 30, 2002 (levy date). Taxes were due on December 30, 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 Henry 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 $66,766,770 and for school bonds amounted to $11,957,408.
Tax millage rates levied for the 2002 tax year (calendar year) for the Henry County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value):

- 14 -

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

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

School Operations School Bonds

17.65 mills 3.06 mills

20.71 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $19,702,374 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

INVENTORIES

FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.

CAPITAL ASSETS

Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time ofpurchase. 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 fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art.

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

- 15 -

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

All

NIA

$

5,000 10 to 20 years

$ 100,000 20 to 60 years

$

5,000 5 to 25 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. In addition, general obligation bonds have been issued to refund existing general obligation bonds. 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 AND INVESTMENTS

COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. If a depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. 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,

- 16 -

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

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS

(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,

(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,

(6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and

(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.

CATEGORIZATION OF DEPOSITS AtJune 30, 2003, the bank balances were $21,646,848. 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, 2003, as follows:

Risk Category

Bank Balance

1

$ 2,125,124

2

13,673,149

3

5,848,575

Total

$ 21,646,848

CATEGORIZATION OF INVESTMENTS At June 30, 2003, the carrying value of the School District's total investments was $48,077,542 which is materially the same as fair value. This investment consisted entirely of funds invested in the Local Government Investment Pool administered by the State ofGeorgia, Office ofTreasury and

- 17 -

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

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS
Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State of Georgia, Office of Treasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description ofthe Primary Liquidity Portfolio is as follows:
The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund.
Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U. S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2003, was 30 days. The average investment duration for Fund 6 on June 30, 2003, was 0.39 years.
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:

- 18 -

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

EXHIBIT"H"

Note 5: CAPITAL ASSETS

Balances July 1, 2002

Increases

Balances Decreases June 30, 2003

Governmental Activities Capital Assets, Not Being Depreciated:
Land Construction in Progress

$ 12,820,033 $ 989,390

$ 13,809,423

49,764,316 41,536,188 $ 61,888,695 29,411,809

Total Capital Assets Not Being Depreciated $ 62,584,349 $ 42,525,578 $ 61,888,695 $ 43,221,232

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 175,103,159 $ 60,376,630

20,761,602

4,279,904 $

14,659,133

2,284,202

$ 235,479,789 880,980 24,160,526 22,433 16,920,902

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

28,023,672 8,473,159 6,203,714

4,048,504 2,052,766
710 204

574,402 22,433

32,072,176 9,951,523 6,891,485

Total Capital Assets, Being Depreciated, Net $ 167,823,349 $ 60,129,262 $ 306,578 $ 227,646,033

Governmental Activity Capital Assets - Net $ 230,407,698 $ 102,654,840 $ 62,195,273 $ 270,867,265

Current year depreciation expense by function is as follows:

Instruction Support Services
General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Food Services

$ 5,226,314

$

92,974

173,373

39,126

875,948

1,181,421 403,739

$ 6,811.474

Note 6: RESTRICTED ASSETS

General obligation bond proceeds and property tax levied specifically for retirement ofoutstanding bond principal, interest and paying agent's fees (Debt Service Funds) 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, 2003, were as follows:

- 19 -

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

EXHIBIT "H"

Note 6: RESTRICTED ASSETS

District-wide Capital Projects Bond Proceeds

Debt Service Funds

Restricted Cash and Cash Equivalents: Debt Services
Restricted Investments: Debt Services Capital Acquisitions

$ 29,793,143

$ 6,592,024 $ 11,013,453

Note 7: RISK MANAGEMENT

The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation.

The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions and acts of God. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the Board's insurance coverage in any of the past three years.

The School District has established a limited risk management program for workers' compensation claims. In connection with this program, a self-insurance reserve has been established within the General Fund by the School District. The School District accounts for claims within the General Fund. The General Fund contributes a budgeted amount of$250,000 and the School Food Services Fund contributes actual amounts paid during the year. The School District accounts for claims with expenditure and liability being reported when it is probable that a loss has occurred, and the amount ofthat loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported if any. An excess coverage insurance policy covers individual claims in excess of $250,000 loss per occurrence, up to the statutory limit.

Changes in the workers' 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 of Year Liability

$

0 $

405 018 $

405 108 $

0

$

0 $

562,430 $

562,430 $

0

- 20 -

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

EXHIBIT"H"

Note 7: 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 of Year Liability

2002 2003

$

0 $

7 233 $

7 233 $

0

$

0 $

18 776 $

18 776 $

0

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

Position Covered
Superintendent All Other Employees

Amount
$ 100,000 $ 100,000

Note 8: SHORT-TERM DEBT

The School District issues tax anticipation notes in advance of property tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution ofthe State of Georgia limits the aggregate amount ofshort-term debt to 75 percent ofthe total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 of the calendar year in which the debt was incurred.

Short-term debt activity for the fiscal year is as follows:

Tax Anticipation Notes

Beginning Balance

Issued

Redeemed

Ending Balance

$_ _----"'-0 $15,000,000 $15,000,000 $_ _----=-0

Note 9: LONG-TERM DEBT

COMPENSATED ABSENCES Compensated absences represent obligations of the School District relating to employees' rights to receive compensation for future absences based upon service already rendered. This obligation relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. The School District uses the vesting method to compute compensated absences.

- 21 -

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

EXHIBIT "H"

Note 9: LONG-TERM DEBT

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

Purpose

Interest Rates

Amount

General Government - Series 2002

4.50% - 5.00% $ 60,000,000

General Government - Refunding - Series 2001 3.70% - 5.125%

35,760,000

General Government - Series 2000

5.00%- 5.75%

28,825,000

General Government - Series 1992A

5.60% - 6.45%

24,005,000

General Government - Refunding - Series 1992B 3.75% - 6.30%

3,295,000

$ 151 !885!000

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

Balance July I, 2002
Additions Annual Leave Earned
Deductions Annual Leave Utilized Debt Retired Bond Premium Amortized
Balance June 30, 2003
Portion of Long-Term Debt Due within One Year

Governmental Funds

General

Unamortized

Compensated

Obligation

Bond

Absences

Bonds

Premium

Total

$

674,567 $ 178,465,000 $ 3,471,448 $ 182,611,015

711,004

711,004

574,999

26,580,000

718,231

574,999 26,580,000
718,231

$ 810.572 $ 151,885.000 $ 2,753,217 $ 155 448 789

$

528 774 $ 20,090,000 $

718,231 $ 21,337,005

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

-22 -

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

EXHIBIT"H"

Note 9: LONG-TERM DEBT

Fiscal Year Ended June 30
2004 2005 2006 2007 2008 2009 - 2013 2014 - 2018
Total Principal and Interest

General Obligation

Debt

Principal

Interest

Unamortized Bond
Premium

$ 20,090,000 $ 22,375,000 29,465,000 21,275,000 9,425,000 42,045,000 7,210,000

7,741,540 $ 6,521,451 5,402,249 3,908,676 2,812,271 6,433,244
374 125

718,231 718,231 718,231 598,524

$ 151,885,000 $ 33,193,556 $ 2,753,217

Note 10: PRIOR YEAR DEFEASEMENT OF DEBT

In fiscal year 2001, the School District defeased certain general obligation bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the School District's basic financial statements. At June 30, 2003, $33,965,000 ofbonds are outstanding and are considered defeased.

Note 11: ON-BEHALF PAYMENTS

The Board has recognized revenues and costs in the amount of $1,491,498 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 of Non-Certified Personnel In the amount of $1,229,741

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 $261,757

Note 12: SIGNIFICANT COMMITMENTS

The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2003, together with funding available:

- 23 -

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

EXHIBIT "H"

Note 12: SIGNIFICANT COMMITMENTS

Project

Unearned Executed Contracts

Funding Available From State

SA0lS-675-022 GSFIC 02/0lS-675-048 GSFIC
02G/01 S-675-027 Lottery SA0lS-675-021 GSFIC 04-675-038 GSFIC 04G-675-025 GSFIC 04G-675-024 GSFIC SA0lS-675-193 GSFIC Dutchtown High School HCHS Track and Athletic Field Renovations Maintenance Building McDonough Primary/Administrative Office
Complex Renovations Oakland Elementary School Timber Ridge Elementary School

$

9,839

79,781

275,275

8,737,436 $ 4,605,146

3,206,906

4,288,091

6,837,063

1,950,592

5,956,410

5,781,972

10,463,345

9,703

15,194

1,906,664 1,074,249 8,861,740

$ 47,433.605 $ 16.625.801

The amounts described in this note are not reflected in the basic financial statements.

Note 13: SIGNIFICANT CONTINGENT LIABILITIES

Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position.

The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements.

Note 14: SUBSEQUENT EVENTS

In the subsequent fiscal year, the School District issued general obligation bonds in the amount of $37,000,000 dated November 1, 2003. The proceeds from these bonds will be used for the cost of acquiring, constructing, and equipping new schools, acquiring land for future schools, and adding to, renovating, and improving existing school facilities.

- 24 -

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

EXHIBIT "H"

Note 14: SUBSEQUENT EVENTS

In the subsequent fiscal year, the School District issued general obligation bonds in the amount of $111,045,000 dated June 1, 2004. The proceeds from these bonds will be used for the cost of acquiring, constructing, and equipping new schools, acquiring system-wide technology improvements, and acquiring land for future schools.

Note 15: ACCUMULATED EMPLOYEES' LEAVE

The School District's personnel policies provide for payments to employees for accumulated lave at retirement or termination of employment as follows: See Note 9 - Compensated Absences

Vacation Leave: Twelve month employees earn 10 days of vacation leave per year and may accrue a maximum of 20 days. Upon retirement or termination of employment, twelve month employees will be compensated at their current daily rate for any accrued unused vacation leave up to the maximum accumulation.

Note 16: 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:

Fiscal Year

Percentage Contributed

Required Contribution

2003 2002 2001

100% 100% 100%

$ 9,952,279 $ 8,707,647 $ 9,059,133

- 25 -

HENRY 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 Other Support Services Enterprise Operations Community Services Food Services Operation
Capital Outlay
Total Expenditures
Excess of Revenues over (under) Expenditures
Fund Balances - Beginning

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

67,723,283 $

68,290,745 $

66,766,770

475,000

475,000

4,762,455

98,448,203

98,224,826

101,781,280

7,607,330

7,949,314

8,602,308

7,096,411

7,096,411

7,114,572

374,024

374,024

240,901

170 000

3 173,923

4,568,526

$

181894251 $

185,584,243 $

193,836,812

$

126,318,720 $

127,118,753 $

133,812,054

3,936,618 4,445,982 3,650,411 1,379,286 10,659,606
790,093 13,269,057
7,870,703 1,006,970 1,207,953
6,843,620 1180514

4,203,336 4,071,593 3,834,964 1,409,764 10,858,838
857,953 14,488,315
7,415,309 920,586 327,625
2,288,194 6,843,620 1 610 676

4,034,993 4,134,422 3,700,725 1,116,305 11,327,964
945,330 14,445,688
8,832,194 777,599 845,631 931,407
2,296,784 7,461,312 1,240 096

$

182,559,533 $

186,249,526 $

195,902,504

$

-665,282 $

-665,283 $

-2,065,692

15 237 642

15,237,642

10,324,925

Fund Balances - Ending

$

14 572 360 $

14,572,359 $ ===8=,2=5=9=,2=33=

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.

- 27 -

HENRY 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) Fresh Produce Program (1)
Total U. S. Department of Agriculture
Corporation for National and Community Service Pass-Through From Georgia Department of Education Learn and Serve America School and Community Based Programs
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education 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 School Improvement Title II Eisenhower Professional Development Enhancing Education Through Technology Improving Teacher Quality Title IV Safe and Drug-Free Schools and Communities TitleV Innovative Education Program Strategies Vocational Education - Basic Grants to States High School Program Basic Grant
Total U. S. Department of Education
- 28 -

CFDA NUMBER

PASS-
THROUGH ENTITY ID NUMBER

EXPENDITURES IN PERIOD

* 10.553 10.555

N/A N/A $
$

(2) 6 419 862
6,419,862

* 10.550 10.550

N/A N/A
$

443,330 63 233
6 926 425

94.004

N/A $

1 000

84.027 84.173 84.027

N/A $ N/A N/A
$

2,640,440 101,408 89 664
2,831,512

84.010 84.010
84.281 84.318 * 84.367
84.186
84.298
84.048

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

1,527,718 49,613 66,647 47,780
544,631
102,029 104,732
135 139 5 409 801

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

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Defense, U.S. Department of Direct Department of the Navy R.O.T.C. Program

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

$ -----"2'-'--7-'-6"'-3-"-58c...

Total Federal Financial Assistance N/A = Not Available

$ ===1=2=,6=1=3,..,5=84=

Notes to the Schedule of Expenditures of Federal Awards

(1) The amounts shown for the Food Distribution Program and Fresh Produce Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year.
(2) Expenditures for the funds earned on the School Breakfast Program ($364,824) were not maintained separately and are included in the 2003 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 Henry 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.

- 29 -

HENRY 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 Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 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 Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Apprenticeship Program Health Insurance K-3 Statewide Reading Program Mentor Teachers National Teacher Certification Outdoor Classrooms State Grant Preschool Handicapped Program 4-8 Statewide After School Program Technology Integration Standards Professional Development Lottery Programs Assistive Technology Computers in the Classroom Post Secondary Options
Georgia State Financing and Investment Commission Reimbursement on Construction Projects
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

$

6,941,338

361,525

16,490,629

1,179,252

8,856,303

732,992

42,643

15,055,667

12,561,511

2,273,911

1,468,724 1,289,669 6,796,105 1,809,842
117,608 2,152,676
237,655 1,103,668
258,297 2,290,922
767,034 472,868

2,067,301 4,069,955 7,066,968

1,505,339 307,613 489,947 106,780 91,534
1,819,088 528,182 131,405
-2,637,282
42,750 1,229,741
280,183 49,800 79,374 2,000
244,372 180,436
1,500
32,986 541,044
7,668

$

6,941,338

361,525

16,490,629

1,179,252

8,856,303

732,992

42,643

15,055,667

12,561,511

2,273,911

1,468,724 1,289,669 6,796,105 1,809,842
117,608 2,152,676
237,655 1,103,668
258,297 2,290,922
767,034 472,868

2,067,301 4,069,955 7,066,968

1,505,339 307,613 489,947 106,780 91,534
1,819,088 528,182 131,405
-2,637,282
42,750 1,229,741
280,183 49,800 79,374 2,000
244,372 180,436
1,500
32,986 541,044
7,668

$ 261,757

2,100,702

2,100,702 261,757

20 000

20 000

See notes to the basic financial statements.

$

101 781 280 $

2 100 702 $

103 881 982

- 30 -

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

SCHEDULE "4"

PROJECT
The cost of acquiring, constructing and equipping three new elementary schools, two new middle schools and one new high school, acquiring land for future schools, adding to, renovating, replacing repairing, improving and equipping existing schools buildings and other buildings and facilities useful or desirable in connection therewith and acquiring any necessary property, therefor, both real and personal.
The cost of acquiring, constructing and equipping five new elementary schools, two new middle schools and one new high school, acquiring land for future schools, adding to, renovating, replacing repairing, improving and equipping existing schools buildings and other buildings and facilities useful or desirable in connection therewith and acquiring any necessary property, therefor, both real and personal.

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED
COST (2)

AMOUNT EXPENDED IN CURRENT YEAR (3) (4)

AMOUNT EXPENDED
IN PRIOR YEARS (3) (4)

PROJECT STATUS

$ 95,000,000 $ 100,081,094 $

287,650 $ 99,432,001 Completed

130,000,000 129,595,926

34,371,565

2,820,493 Ongoing

$ 225,000,000 $ 229,677,020 $ 34,659,215 $ 102,252,494

(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 Henry 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:

Prior Years

$ 9,777,917

Current Year

3,345,204

Total

$ 13,123,121

See notes to the basic financial statements.

- 31 -

HENRY 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 English Speakers of Other Languages (ESOL)
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

$

8,021,587 $ 8,386,081 $

110,150 $

8,496,231

417,970

454,688

114,112

568,800

19,133,836

21,532,168

841,244

22,373,412

1,359,765

1,100,334

58,427

1,158,761

10,229,670

12,600,456

566,670

13,167,126

829,648 49,222
17,346,793 14,501,113
2,632,428 13,149,816
2,513,984 282,945
1,273,755 291,879

810,455 51,609
19,321,351 17,953,792
3,269,168
258,194 251,980 12,112,035 917,611
2,142 2,307,788
397,075 1,204,684
504,236

8,429 1,033,672 1,400,788
284,206
220,397
78,964 6,888
36,687

818,884 51,609
20,355,023 19,354,580
3,553,374
258,194 472,377 12,112,035 917,611
2,142 2,386,752
403,963 1,204,684
540,923

$

92,034,411 $ 103,435,847 $

4,760,634 $ 108,196,481

2,653,037 557,759

TOTAL QBE FORMULA FUNDS

$

95,245,207 $ 103,435,847 $

4,760,634 $ 108,196,481

(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.

- 33 -

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
September 10, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Henry 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 Henry County Board of Education as of and for the year ended June 30, 2003, which collectively comprise Henry County Board ofEducation's basic financial statements and have issued our report thereon dated September 10, 2004. 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 Henry 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-30

Internal Control Over Financial Reporting
In planning and performing our audit, we considered Henry 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 our judgment, could adversely affect Henry 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 of Findings and Questioned Costs as items FS-6751-03-01 and FS-6751-03-02.
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, we believe none of the reportable conditions described above is a material weakness.
This report is intended solely for the information and use ofthe management, members ofthe Henry County Board of Education, 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,
il,.~

RWH:gp 2003-34YB-30

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
September 10, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Henry 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 ofHenry 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. Henry 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 Henry County Board of Education's management. Our responsibility is to express an opinion on Henry County Board of Education's compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types 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 Henry 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 Henry County Board of Education's compliance with those requirements.
2003SA-30

In our opinion, the Henry County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2003.

Internal Control Over Compliance

The management of Henry 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 Henry 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 Henry 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-6751-03-01.

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 not a material weakness.

This report is intended solely for the information and use ofthe management, members ofthe Henry 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,

~Jsell ~ J7Q W. Hinton

k

)

.

~

State Auditor

RWH:gp 2003SA-30

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

HENRY 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-6751-02-01

Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Finding Control Number: FS-6751-02-01

Per GASB 34, School Activity Accounts maintained at the individual schools are now included in the General-Purpose Financial Statements. Due to the limited number of clerical personnel at each school, adequate separation of duties is not possible at this time.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

F A-6751-02-01

Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

CASH MANAGEMENT Excessive Cash Balances Finding Control Number: FA-6751-02-01

Internal Controls have been developed to provide for the achievement of compliance objectives. The Henry County Board of Education will no longer request a cash draw in advance of immediate cash needs. Cash will be requested on a reimbursement basis. Cash requests in the current month will be for total expenditures from the previous month.

SECTION IV FINDINGS AND QUESTIONED COSTS

HENRY 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 Henry County Board of Education's financial statements was unqualified.

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

Cash and Cash Equivalents Employee Compensation

Expenditures/Liabilities/Disbursements Revenues/Receivables/Receipts

None ofthe reportable conditions described above are considered to be material weaknesses.

3. Noncompliance Material to the Financial Statements The audit ofthe Henry 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 Henry County Board ofEducation disclosed a reportable condition in internal control over major programs for the following compliance requirement.

Cash Management

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 Henry County Board of Education's report on compliance with requirements applicable to major programs was unqualified.

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

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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
I SUMMARY OF AUDITOR'S RESULTS
7. Major Programs Federal awards audited as major programs are as follows: 10.550 Food and Nutrition Program - Food Distribution Program 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 84.010 Elementary and Secondary Education Act - Title I - School Improvement 84.367 Elementary and Secondary Education Act - Title II - Improving Teacher Quality
8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $378,408.
9. Low Risk Auditee The Henry County Board of Education qualified 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 Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-6751-03-01
Our examination of the principals' accounts disclosed weaknesses in internal control as discussed below:
Cash and Cash Equivalents
(1) The bank reconciliation function was not separated from the record keeping and voucher payment functions.
(2) Bank reconciliations were not reconciled to the total cash listed on the general ledger as presented for audit.
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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-6751-03-01
Revenues/Receivables/Receipts
(1) Deposit preparation was not separated from the record keeping and cash custody functions.
(2) Cash receipts for Athletic events were not reconciled to pre-numbered tickets sold.
(3) Based on a sample of 60 items, forty-seven receipts did not contain supporting documentation and four receipts were not deposited to the bank account in a timely manner.
(4) Pre-numbered receipt books were not used consecutively for the three school principal accounts tested. Duplicate receipt numbers were used at one of the schools tested.
Expenditures/Liabilities/Disbursements
(1) The check writing function was not separated from record keeping or processing of signed checks.
(2) Based on a sample of 75 items, the following deficiencies were noted:
(1) Twenty-eight voucher packets reviewed were not approved by appropriate personnel.
(2) Six voucher packets included sales tax.
(3) Eleven voucher packets did not contain an mvo1ce or other supporting documentation.
These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible for accounting functions and failure to ensure established controls were functioning as designed at the various principal account locations. 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.
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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EMPLOYEE COMPENSATION EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6751-03-02
During the fiscal year ended June 30, 2003, the School District entered into a contract with Live Oak Consulting, Inc. (LOC). The firm assists local school boards in reducing employer cost associated with health insurance plans administered by the Georgia Department ofCommunity Health (DCH). LOC is paid a fee equal to 50 percent ofthe first year employer cost savings identified by LOC. The School District, following the recommendations of LOC, moved 55 employees from the Health Insurance Plan for Public School Teachers (See OCGA Title 20, Chapter 2, Article 17, Part 6, Sub Part 1) to the Health Insurance Plan for Public School Employees (See OCGA Title 20, Chapter 2, Article 17, Part 6, Sub Part 2).
According to DCH, School District employees who are to be included as members of the Health Insurance Plan for Public School Teachers (PST) are either:
1. Employed in a professionally certificated position; employee holds a valid certification; employee is assigned to a position that requires a certification as a qualification; employee's compensation is determined, at least in part, based upon the certificate; and employee is a member of the Teachers Retirement System or other public school retirement system.
Or:
2. Employed in a professionally certificated capacity; employee holds a valid certification; employee is not assigned to a position that requires a certification as a qualification; employee's compensation is determined, at least in part, based upon the certificate; and employee is a member ofthe Teachers Retirement System or other public school retirement system.
With respect to membership in the Health Insurance Plan for Public School Employees (PSE) Georgia Laws OCGA 20-2-910 and 47-4-2 (20) provide that the definition of public school employee, for the purpose ofmembership in the Health Insurance Plan for Public School Employees, means classroom aides, paraprofessionals, noncertified administrative and clerical employees, school bus drivers, school lunchroom personnel, school maintenance personnel and school custodial personnel. Generally, in order to determine which School District employees are eligible for the PSE or for the PST insurance plans, a comparison should be made ofthe employee's position and DCH's criteria listed above. Ifthe employee meets either test, then the employee is eligible for the Health Insurance Plan for Public School Teachers. If the employee fails both of the above tests, the employee is eligible for the Health Insurance Plan for Public School Employees.
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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EMPLOYEE COMPENSATION EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6751-03-02
From information provided by the School District, it is not clear that all ofthese 55 employees who were moved from the PST plan to the PSE plan are eligible for membership in the PSE plan under DCH's criteria.
In addition, the School District ceased paying employer contributions on 8 additional employees which had elected not to have State insurance coverage. However, the employer contribution rates associated with School District employees covered by the Health Insurance Plan for Public School Teachers is calculated by multiplying the total payments for salaries ofall such teachers employed by the School District by the percentage rate established by the Governor and the DCH Board, see OCGA 20-2-892 (b).
As of June 30, 2003, the School District made payments totaling $34,159 to Live Oak Consulting, Inc. Subsequent to the fiscal year end, additional payments in the amount of$102,478 were made to the consultant.
The School District should establish policies and procedures to ensure that employer contributions for employee health insurance plans are paid in accordance with State Laws. In addition, the School District should contact the Georgia Department of Community Health to determine whether the employees who were moved from the PST plan were moved in error. Ifemployees were moved in error the affected employees should be returned to the PST plan and the School District should make payment to DCH for those employees. Ifall above referenced employees should have remained in the PST plan the amount due to DCH would be $273,274. Additionally, the School District should consult with its legal counsel regarding obtaining a refund for those employees who should not have been moved to the PSE plan. The amount of the refund from LOC could be as much as $136,637.
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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
CASH MANAGEMENT Excessive Cash Balances Reportable Condition Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Amount: $3,519.96 Finding Control Number: FA-6751-03-01
A review ofcash management procedures for the Elementary and Secondary Education Act - Title I Grants to Local Educational Agencies (CFDA 84.010) and the Title II- Improving Teacher Quality (CFDA 84.367) programs at Henry County Board ofEducation disclosed that cash draws were made in advance of immediate cash needs, resulting in the accumulation of excessive cash balances. During fiscal year 2003, the Title I program had an average cash balance of $197,240.16 with excessive ending monthly cash balances during nine out oftwelve months. The Title II program had an average cash balance of$63,840.45 with excessive ending monthly cash balances during six out of nine months.
In accordance with A-102 Common Rule paragraph 21 (h)2(I), interest earned on advances by local government grantees is required to be submitted promptly to the Federal grantor agency. Up to $100.00 per year may be kept for administrative expenses. The Title I program earned interest amounting to $2,903.24 ofwhich $2,803.24 should have been submitted to the Georgia Department of Education. The Title II program earned interest amounting to $816.72 ofwhich $716.72 should have been submitting to the Georgia Department of Education. The interest earned on these programs was recorded in the School District's General Fund.
Management should become familiar with the Federal regulations for the Title I and Title II programs in order to develop adequate control procedures designed to provide for the achievement of compliance objectives. In addition, excessive interest earnings totaling $3,519.96 should be refunded to the Georgia Department of Education.
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