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. - 1- 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. -2- 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. -3- 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. -4 - 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. -5- 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. -6-