Henry County Board of Education, McDonough, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2006

HENRY COUNTY BOARD OF EDUCATION
MCDONOUGH, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
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

1

B

STATEMENT OF ACTIVITIES

2

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

4

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

5

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

6

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

7

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

8

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

9

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

25

HENRY COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

26

3 SCHEDULE OF STATE REVENUE

28

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

30

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

31

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133

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

SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

HENRY COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

Russell W. Hinton
STATE AUDITOR
(404) 856-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
March 26, 2007

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, 2006, 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 op1mons.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Henry County Board of Education, as of June 30, 2006, 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.
2006ARL-11

In accordance with Government Auditing Standards, we have also issued our report dated March 26, 2007, on our consideration ofthe Henry County Board ofEducation's internal control over financial reporting and our tests ofits compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope ofour testing ofinternal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing 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 x and page 25 respectively, are not a required part ofthe 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 of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24.
Respectfully submitted,

RWH:gp 2006ARL-11

ell W. Hinton, CPA, CGFM State Auditor

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
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, 2006. 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 notes to the basic financial statements to enhance their understanding of the School District's financial performance.
This is the fifth year the School District has prepared its annual financial report using the new government financial reporting model. The reporting model is a combination of both government-wide financial statements and fund financial statements. The basic financial statements contain three components:
1) District-wide financial statements including the Statement of Net Assets and the Statement of Activities, which provide both short-term and long-term overviews of the School District's finances.
2) Fund financial statements including the balance sheets that provide a greater level of detail and focus on how well the School District has performed in the short-term in the most significant or major funds.
3) Notes to the Financial Statements.
Financial Highlights
Key financial highlights for fiscal year 2006 are as follows:
On the School District-wide financial statements:
Total assets of the School District exceeded liabilities by over $292.4 million. This represented an increase of$43.0 million in net assets when compared to the prior year.
The School District had $295.2 million in expenses relating to governmental activities; only $166.9 million of these expenses were offset by program specific charges for services, grants and contributions. However, general revenues (primarily property and sales taxes) and Special Items of $171.3 million were adequate to provide for these programs.
As stated above, general revenues and Special Items accounted for $171.3 million or about 51 % of all revenues totaling over $338.2 million. Program specific revenues in the form of charges for services, grants, and contributions accounted for the balance of these revenues.

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
On the fund financial statements:
Among major funds, the General Fund had $273.1 million in revenues and $270.3 million in expenditures. The general fund balance of $18.5 million at June 30, 2006, increased $2.8 million when compared to the prior year.
Another major fund, the Capital Projects Fund, has $48.8 million in reserved fund balance at June 30, 2006. This balance resulted primarily from the issuance of general obligation bonds for new construction during fiscal year 2004, the bulk of which remained unexpended at fiscal year end.
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 and fund financial 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.
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
ii

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
Activities' provides the basis for answering this question. These financial statements include all School District's assets and liabilities and uses the accrual basis of accounting 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 generally accepted accounting principles.
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 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.
iii

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
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 in excess of $292.4 million at June 30, 2006. 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 $292.4 million of net assets, $49.9 million was restricted for continuation of Federal programs, for debt service, and for 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 had in excess $241.1 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 $1.4 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.
IV

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

Table 1 Net Assets

Governmental Activities

Fiscal

Fiscal

Year 2006

Year 2005

Assets Current and Other Assets Capital Assets, Net

$ 145,745,393 $ 199,905,937

416,167,626

350,140,450

Total Assets

$ 561,913,019 $ 550,046,387

Liabilities Current and Other Liabilities Long-Term Liabilities

$ 35,872,372 $ 35,945,620

233,589,814

264,665,583

Total Liabilities

$ 269,462,186 $ 300,611,203

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

$ 241,084,408 49,923,400 1,443,025

$ 200,478,059 41,994,298 6,962,827

Total Net Assets

$ 292,450,833 $ 249,435,184

The comparison (Table 1) reflects that total net assets increased about $43.0 million, while unrestricted net assets decreased $5.5 million.

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

V

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

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 2006

Year 2005

$ 8,991,479 147,933,309 10,003,653

$ 8,033,311 127,231,805 17,653,260

Total Program Revenues

$ 166,928,441 $ 152,918,376

General Revenues:

Taxes

Property Taxes

For Maintenance and Operations

$ 99,233,846

For Debt Service

16,009,590

Railroad Cars

Sales Taxes

Special Purpose Local Option Sales Tax

For Debt Service

28,660,613

Intangible Recording Tax

3,446,566

Real Estate

1,290,342

Alcoholic Beverages

774,257

Grants and Contributions not Restricted to

Specific Programs

1,163,020

Investment Earnings

6,247,578

Miscellaneous

7,872,380

Special Items

Proceeds from Insurance Settlement

6,600,000

$ 87,594,109 14,565,312 57,110
24,564,716 3,849,882
719,923
3,676,176 4,415,666 4,726,016

Total General Revenues and Special Items

$ 171,298,192 $ 144,168,910

Total Revenues

$ 338,226,633 $ 297,087,286

Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and OJ?eration of Plant Student Transportat10n 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

$ 194,645,256
6,843,509 5,804,625 4,661,227 1,669,146 15,062,922 -527,958 21,111,908 13,972,499
880,996 2,974,413
1,071,896 3,241,557 11,121,913 12,677,075

$ 163,364,927
5,805,137 4,853,134 4,319,152 1,298,704 13,458,247 -684,275 17,904,666 9,899,362
672,807 2,312,394
868,401 2,557,933 9,773,721 11,991,587

Total Expenses

$ 295,210,984 $ 248,395,897

Increase in Net Assets

$ 43,015,649 $ 48,691,389

VI

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

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.

Table 3 Governmental Activities

Total Cost of Services

Fiscal

Fiscal

Year 2006 Year 2005

Net Cost of Services

Fiscal

Fiscal

Year 2006 Year 2005

Instruction

$194,645,256 $163,364,927 $ 67,891,645 $46,089,543

Support Services

Pupil Services

6,843,509 5,805,137 5,409,962 4,514,850

Improvement of Instructional Services

5,804,625 4,853,134 3,387,866 2,501,196

Educational Media Services

4,661,227 4,319,152 1,187,641 1,672,236

General Administration

1,669,146 1,298,704 -1,485,290 -1,327,530

School Administration

15,062,922 13,458,247 8,308,194 7,566,997

Business Administration

-527,958 -684,275 -542,671 -684,275

Maintenance and Operation of Plant

21,111,908 17,904,666 11,885,949 9,458,194

Student Transportation Services

13,972,499 9,899,362 11,977,270 8,184,730

Central Support Services

880,996

672,807

868,877

669,352

Other Support Services

2,974,413 2,312,394 2,880,359 2,312,394

Operations ofNon-Instructional Services

Enterprise Operations

1,071,896

868,401 1,071,896

868,401

Community Services

3,241,557 2,557,933 3,236,984 2,557,933

Food Services

11,121,913 9,773,721 -473,214 -898,087

Interest on Short-Term and Long-Term Debt 12,677,075 11,991,587 12,677,075 11,991,587

Total Expenses

$295,210.984 $248.395.897 $128,282,543 $ 95.477.521

The table above shows that the School District did a good job in mitigating the effects of continued reductions in funding by the State of Georgia. Even though the School District's total expenses increased $46.8 million from the prior year, the net costs of services to the School District's taxpayers increased by $32.8 million from the prior year.

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 and Special Items of $339.6 million and total expenditures of $392.4 million in fiscal year 2006. Included in the expenditures of $392.4 million were $82.4 million of capital outlay expenditures which were made to acquire or construct capital assets.

Vll

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
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 2006, no amendments were made to the original budget.
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 $273.0 million exceeded the final budgeted amount of $245.7 million by $27.3 million. This difference (final actual vs. final budget) was primarily due to miscellaneous revenues (school activity accounts and enterprise operations) over budget of $7.6 million and $9.0 million state funds received over budget as a result of the system's growth.
The final actual expenditures of $270.3 million exceeded the final budgeted amount of $248.4 million by $21.9 million. This difference (final actual vs. final budget) was due primarily to expenditures for instruction exceeding the final budget by $14.9 million. Miscellaneous instructional expenditures (school activity accounts and enterprise operations) of $12.7 million were not included in the operating budget. Additionally, expenditures for food service operation exceeded the final budget by $1.8 million and expenditures for other support services exceeded the budget by $1.1 million. With the growth Henry County is experiencing and the uncertain economic conditions its management continues to be extremely conservative.
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
At fiscal year ended June 30, 2006, the School District had $416.2 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.
Vlll

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

Table 4 Capital Assets (Net of Depreciation)

Governmental Activities

Fiscal

Fiscal

Year 2006

Year 2005

Land Construction in Progress Land Improvements Buildings and Improvements Equipment

$ 20,684,704 124,894, 186 10,553,765 248,352,636 11,682,335

$ 20,684,704 97,701,878 7,872,775
211,862,313 12,018,780

Total

$ 416,167,626 $ 350)40,450

Long-Term Liabilities

At fiscal year ended June 30, 2006, the School District had $233.6 million in long-term liabilities outstanding. Table 5 summarizes the School District's liabilities as compared to the prior fiscal year.

Table 5 Long-Term Liabilities at June 30

Governmental Activities

Fiscal

Fiscal

Year 2006

Year 2005

Bonds Payable Unamortized Premiums on Bonds Sold Compensated Absences

$ 228,000,000 4,577,373 1,012,441

$ 257,465,000 6,304,633 895,950

Total

$ 233,589,814 $ 264,665.583

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:

Although State revenue collections increased in fiscal year 2006, educational funding from the State of Georgia is expected to remain at a conservatively low level due to ongoing concerns about smaller projected state tax revenues and increased Medicaid and Health care costs at the State level. The School District will continue to face challenges from the implementation of the A+ Education Reform Act, which mandates lower teacher to student ratios. The School District will also be impacted by the remedial actions

lX

HENRY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
required for under performing schools under the No Child Left Behind Act. In the midst of these challenges, the School District remains confident in the ability to maximize resources to provide the best possible educational experience for all of our students. State QBE Revenue Reductions - The School District's austerity reductions in state funding for education over the past four years have totaled $18.6 million. 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 citizens 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, Assistant Superintendent of Finance and Human Resources, Henry County Board of Education, 33 North Zack Hinton Parkway, McDonough, Georgia, 30253. You may also email your questions to Mr. Allie at jallie@henry.kl2.ga.us.
X

HENRY COUNTY BOARD OF EDUCATION

HENRY COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government 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 Deposits and Deferred Revenues 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. -1-

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

68,941,184

44,238,037

9,498,279 20,983,011
1,811,863 273,019

20,684,704 124,894,186
17,131,331 295,096,460
20,358,031 -61,997,086

$ ===56=1=.9=1=3=,0=19===

$

6,615,008

22,421,036

1,951,043

4,798,405

86,880

34,297,555 199,292,259

$

269,462,186

$

241,084,408

2,221,551 40,206,446
7,495,403 1,443,025

$

292,450,833

$ ===56=1=,9=1-3,..,.01=9=

HENRY COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2006

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
Total Governmental Activities
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
Special Items Proceeds from Insurance Settlement
Total General Revenues and Special Items
Change in Net Assets
Net Assets - Beginning of Year
Net Assets - End of Year

EXPENSES

CHARGES FOR SERVICES

$

194,645,256 $

6,843,509 5,804,625 4,661,227 1,669,146 15,062,922 -527,958 21,111,908 13,972,499
880,996 2,974,413

1,071,896 3,241,557 11,121,913 12 677 075

$

295,210,984 $

3,738,820
111,761 5,140,898 8 991 479

The notes to the basic financial statements are an integral part of this statement. -2-

EXHIBIT"B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

114,216,860 $

1,433,547 2,416,759 3,473,586 3,125,194 6,355,088
14,713 9,054,739 1,738,896
12,119 94,054

4,573 5,993,181

$

147,933,309 $

8,797,931 $
29,242 399,640
59,459 256,333
461,048 10,003,653 $

-67,891,645
-5,409,962 -3,387,866 -1,187,641 1,485,290 -8,308,194
542,671 -11,885,949 -11,977,270
-868,877 -2,880,359
-1,071,896 -3,236,984
473,214 -12,677,075
-128,282,543

$

99,233,846

16,009,590

28,660,613 3,446,566 1,290,342 774,257 1,163,020 6,247,578 7,872,380

6,600,000

$

171,298,192

$

43,015,649

249,435,184

$ ===2=92.,.,4=5=0.,.,8=33=

-3-

HENRY COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2006

EXHIBIT"C"

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

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 25,281,861 $ 42,785,410 $

873,913 $

90,266

10,070,935

34,076,836

1,862,497 18,277,398
1,811,863 273,019

2,705,613

5,409,506

68,941,184 44,238,037
7,272,003 20,983,011
1,811,863 273,019

Total Assets

$ 47,596,904 $ 55,561,958 $ 40,360,255 $===14..,3=,5=1=9,..,1..,17=

LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenue
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

$ 6,615,008

$

22,421,036

$ 1,951,043

4,798,405

86,880

$ 29,122,924 $ 6 749 448

$

$ 1,948,532

$

$ 40,360,255

273,019

$ 48,812,510

130,264

16,122,165

$ 18,473,980 $ 48,812,510 $ 40,360,255 $

6,615,008 22,421,036
1,951,043 4,798,405
86880
35,872,372
1,948,532 40,360,255
273,019 48,812,510
130,264
16,122,165
107,646,745

Total Liabilities and Fund Balances

$ 47,596,904 $ 55,561,958 $ 40,360,255 $===14..,3=,5=1=9,..,1..,17=

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

HENRY COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2006

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
Net Assets of Governmental Activities (Exhibit "A")

$ 107,646,745

$ 20,684,704 124,894,186 17,131,331 295,096,460 20,358,031 -61,997,086

416,167,626

2,226,276

$ -228,000,000 -1,012,441 -4 577 373
$ 292,450,833

The notes to the basic financial statements are an integral part of this statement. -5-

HENRY COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006

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
Excess of Revenues over (under) Expenditures
SPECIAL ITEMS
Proceeds from Insurance Settlement
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 100,323,990 4,857,271
133,683,464 $ 15,669,198 8,991,479 1,591,700 7 974 931

$ 16,163,399 $ 29,314,507
9,747,320

3,242,421

1,413,457

116,487,389 34,171,778
143,430,784 15,669,198 8,991,479 6,247,578 7 974 931

$ 273,092,033 $ 12,989,741 $ 46,891,363 $ 332,973,137

$ 182,124,619

$ 182,124,619

6,844,844 5,781,467 4,661,227 1,614,928 14,317,170 1,192,864 21,006,142 11,417,528
876,289 2,974,413 1,071,896 3,238,922 10,703,125 2,439,461 $

80,009,510

6,844,844 5,781,467 4,661,227 1,614,928 14,317,170 1,192,864 21,006,142 11,417,528
876,289 2,974,413 1,071,896 3,238,922 10,703,125 82,448,971

$ 29,465,000 12,677,075

29,465,000 12,677,075

$ 270,264,895 $ 80,009,510 $ 42,142,075 $ 392,416,480

$ 2,827,138 $ -67,019,769 $ 4,749,288 $ -59,443,343

6,600,000

6,600,000

$ 2,827,138 $ -60,419,769 $ 4,749,288 $ -52,843,343

15,646,842 109,232,279

35,610,967

160,490,088

$ 18,473,980 $ 48,812,510 $ 40,360,255 $ 107,646,745

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 STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006

EXHIBIT "F"

Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")

$ -52,843,343

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

$ 73,649,926 -7,520,199

66,129,727

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.

-1,243,953

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.

-102,551

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

29,465,000

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:

Increase in Compensated Absences Amortization of Bond Premium
Total Additional Expenditures

$

-116,491

1,727,260

1,610,769

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

$ 43,015,649

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

HENRY COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS
FIDUCIARY FUNDS JUNE 30, 2006
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT"G"
AGENCY FUNDS
$ ====19=1=1,=01=
$ ====19=1=1=01=

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

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT"H"

Note I: 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 ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, 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.

-9-

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

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 ofwhen the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and
- 10 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

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.
CASH AND CASH EQUIVALENTS
COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.
INVESTMENTS
COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) 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,
(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,

- 11 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(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.

The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks.

RECEIVABLES

Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.

PROPERTY TAXES

The Henry County Board of Commissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on August 11, 2005 (levy date). Taxes were due on November 15, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. 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, 2006, for maintenance and operations amounted to $100,323,990 and for school bonds amounted to $16,163,399.

Tax millage rates levied for the 2005 tax year (calendar year) for the Henry County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations School Bonds

19.40 mills 3.06 mills

22.46 mills

- 12 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $28,660,613 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 of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art.

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

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

All

NIA

$

10,000 10 to 20 years

$ 100,000 20 to 60 years

$

10,000 5 to 25 years

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

- 13 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL OBLIGATION BONDS

The School District issues general obligation bonds to provide funds for the acquisition and

construction of major capital facilities. Bond issuance costs are recognized in the financial

statements during the fiscal year bonds are issued. 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. Ifa 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.

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 ofthe State of Georgia,

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

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

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

- 14 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS

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

CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $86,128,871. The amounts ofthe total bank balances are classified into four categories of custodial credit risk:

Category 1 - Cash that is insured (e.g., Federal Deposit 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 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.
Category 4 - Uncollateralized.

The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows:

Custodial Credit Risk Category

Bank Balance

1

$ 1,807,254

2

84,296,507

3

25,110

4

0

Total

$ 86,128,871

CATEGORIZATION OF INVESTMENTS At June 30, 2006, the carrying value of the School District's total investments was $44,231,809 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 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:

- 15 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS
The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool. 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 weekly 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 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, 2006, was 28 days.
Note 4: NON-MONETARY TRANSACTIONS
The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories
Note 5: CAPITAL ASSETS
The following is a summary of changes in the Capital Assets during the fiscal year:

- 16 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 5: CAPITAL ASSETS

Balances July 1, 2005

Increases

Balances Decreases June 30. 2006

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

$ 20,684,704

$ 20,684,704

97,701,878 $ 72.703,479 $ 45,511,171 124,894,186

Total Capital Assets Not Being Depreciated $ 118,386,582 $ 72.703.479 $ 45,511,171 $ 145,578.890

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 253,270,005 $ 41,826,455

19,483,472

1,246,340 $

13,746,508

3,384,823

$ 295,096,460 371,781 20,358,031
17,131,331

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

41,407,692 7,464,692 5,873.733

5,336,132 1,480,234
703.833

269,230

46,743,824 8,675,696 6,577,566

Total Capital Assets, Being Depreciated, Net $ 231.753.868 $ 38,937.419 $ 102,551 $ 270.588.736

Governmental Activity Capital Assets - Net $ 350,140,450 $ 111,640,898 $ 45,613,722 $ ~16,167,626

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

$ 5,527,346

$

22,561

308,328

45,873

1,260,385

1,637,147 355,706

$ 7,520,199

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds and property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2006, were as follows:

- 17 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 6: RESTRICTED ASSETS

District-wide Capital Projects Bond Proceeds

Debt Service Funds

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

$ $ 42,785,410

873,913

$ 34,076,836 $ 10,070,935

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 ofGod. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years.

The School District 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$300,000 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 $350,000 loss per occurrence, up to the statutory limit.

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

2005 2006

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End of Year Liability

$

0 $

825,633 $

825,633 $

0

$

0 $

962,152 $

962,152 $

0

- 18 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

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:

2005 2006

Beginning of Year Liability

Claims and Changes in Estimates

$

0 $

22,438 $

$

0 $

9 587 $

Claims Paid

End of Year Liability

22,438 $

0

9 587 $

0

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

Position Covered

Amount

Superintendent All Other Employees

$ 100,000

$

50,000

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 ofGeorgia 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:

Beginning Balance

Issued

Redeemed

Ending Balance

Tax Anticipation Notes

$=====0 $20,000.000 $ 20,000.000 $======0

Note 9: LONG-TERM DEBT

COMPENSATED ABSENCES Compensated absences represent obligations ofthe School District relating to employees' rights to receive compensation for future absences based upon service already rendered. This obligation

- 19 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 9: LONG-TERM DEBT

relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. Typically, the General Fund is the fund used to liquidate this long-term debt. The School District uses the vesting method to compute compensated absences.

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

Purpose

Interest Rates

Amount

General Government - Series 2004

3.50% - 5.00%

General Government - Series 2003

5.00%

General Government - Series 2002

4.50% - 5.00%

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

General Government - Series 2000

5.00% - 5.75%

General Government - Series 1992A

5.60% - 6.45%

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

$ 111,045,000 37,000,000 12,310,000 28,210,000 19,475,000 18,170,000 1,790,000

$ 228,000.000

The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows:

Balance July 1, 2005
Additions Annual Leave Earned
Deductions Annual Leave Utilized Debt Retired Bond Premium Amortized
Balance June 30, 2006
Portion of Long-Term Debt Due within One Year

Governmental Funds

General

Unamortized

Compensated Obligation

Bond

Absences (1)

Bonds

Premium

Total

$

895,950 $ 257,465,000 $ 6,304,633 $ 264,665,583

869,796

869,796

753,305

29,465,000

1,727,260

753,305 29,465,000
1,727,260

$ 1,012.441 $ 228.000.000 $ 4 577.373 $ 233.589.814

$ 32,690,000 $ 1,607,555 $ 34,297,555

(1) The portion of Compensated Absences due within one year has been determined to be immaterial to the basic financial statements.

At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows:

- 20 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 9: LONG-TERM DEBT

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

Unamortized Bond
Premium

2007 2008 2009 2010 2011 2012 - 2016 2017 - 2021 2022 - 2024

$ 32,690,000 $ 11,181,376 $ 1,607,555

35,010,000

9,514,221

863,999

11,165,000

7,711,114

138,845

11,760,000

7,127,479

138,845

12,325,000

6,506,830

138,845

40,490,000

25,912,671

694,227

49,045,000

15,200,350

694,227

35,515,000

2,721,625

300,830

Total Principal and Interest $ 228,000.000 $ 85,875.666 $ 4,577,373

Note 10: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $3,919,552 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $3,673,139

Paid to the Teachers' Retirement System of Georgia For Employer's Cost In the amount of $216,150

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 $30,263

Note 11: SPECIAL ITEMS

During fiscal year 2006, the School District received insurance proceeds of $6,600,000 for a construction contractor's failure to complete the Timber Ridge Elementary School. The proceeds received for the breech of contract are reported as a special item on the Statement of Activities.

- 21 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

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, 2006, together with funding available:

Project

Unearned Executed Contracts

Funding Available From State

06-67 5-03 7/060-675-018 060-675-017 070-675-034 070-675-035 Dutchtown High School New Hope Elementary School Ola High School Woodland High School Walnut Creek Elementary School

$ 2,043,422 $ 646,848

3,620,963

396,758

13,631,255

5,580,912

13,001,722

5,791,512

1,348

561

35,592

5,116,722

6,360,104

$ 43,811.689 $ 12,416.030

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 $13,060,000. The proceeds from these bonds will be used for the costs of acquiring, constructing and equipping five new elementary schools and one new high school.

On March 20, 2007, the voters of Henry County voted in favor of a Special Purpose Local Option Sales Tax referendum for educational purposes. The imposition ofthe tax approved by the voters, as stated in part of the Official Ballot of Henry County, is as follows:

- 22 -

HENRY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 14: SUBSEQUENT EVENTS

"Shall a one percent sales and use tax for educational purposes of the Henry County School District be reimposed within Henry County, upon the termination ofthe one percent sales and use tax for educational purposes presently in effect, for a maximum period of time of 20 calendar quarters, for the purpose of providing funds to pay the cost of acquiring, constructing, and equipping four (4) new elementary schools, two (2) new middle schools, and one (1) new high school, acquiring land for said schools, acquiring school buses, land for future schools, and instructional and administrative technology improvements for existing schools, adding to, renovating, replacing, repairing, improving, and equipping existing school buildings and other buildings and facilities useful or desirable in connection therewith, acquiring any necessary property therefor, both real and personal, and, to the extent funds are available, acquiring, constructing, and equipping one (1) additional high school and one ( 1) additional elementary school and acquiring land for said schools, all at a maximum cost of $300,000,000?

Ifreimposition ofthe tax is approved by the voters, such vote shall also constitute approval of the issuance ofgeneral obligation debt of the Henry County School District in the principal amount of $200,000,000 for the purpose set forth in the above question, to pay capitalized interest incident thereto, and to pay expenses incident to accomplishing the foregoing."

Note 15: 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
2006 2005 2004

Percentage Contributed
100% 100% 100%

Required Contribution
$ 13,548,078 $ 11,988,354 $ 11,120,976

- 23 -

(This page left intentionally blank)

HENRY COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2006

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
Net Change in Fund Balances
Fund Balances - Beginning
Adjustments

NONAPPROPRIATED BUDGETS

ORIGINAL (1}

FINAL (1}

ACTUAL AMOUNTS

$

96,566,580 $

96,566,580 $

100,323,990

3,500,000

3,500,000

4,857,271

124,628,895

124,628,895

133,683,464

11,045,105

11,045,105

15,669,198

9,358,056

9,358,056

8,991,479

200,000

200,000

1,591,700

414 929

414 929

7 974 931

$

245,713,565 $

245,713,565 $

273,092,033

$

167,261,817 $

167,261,817 $

182,124,619

6,638,148 5,029,226 4,520,869 1,553,933 13,873,353 1,030,882 20,244,348 11,499,945
842,611 1,834,995
2,637,327 8,878,719 2,586,599

6,638,148 5,029,226 4,520,869 1,553,933 13,873,353 1,030,882 20,244,348 11,499,945
842,611 1,834,995
2,637,327 8,878,719 2,586,599

6,844,844 5,781,467 4,661,227 1,614,928 14,317,170 1,192,864 21,006,142 11,417,528
876,289 2,974,413 1,071,896 3,238,922 10,703,125 2,439,461

$

248,432,772 $

248,432,772 $

270,264,895

$

-2,719,207 $

-2,719,207 $

2,827,138

25,967,559

25,967,559

15,646,842

-8226

-8 226

Fund Balances - Ending

$

23,240,126 $

23,240,126 $ ====1=8,..,47=3=,9=80...

Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual
(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts.
The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 25-

HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2006

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Donation (1)
Total U.S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Other Programs Direct Fund for the Improvement of Education Pass-Through From Georgia Department of Education Advanced Placement Program English Language Acquisition Grants Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality State Grants Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States
Total U.S. Department of Education
Defense, U.S. Department of Direct Department of the Navy R.O.T.C. Program
Total Federal Financial Assistance
NIA = Not Available

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 10.555

NIA

NIA

$

$

(2) 9,731,965
9,731,965

10.550

NIA
$

309144 10,041,109

* 84.027 * 84.173

NIA

$

NIA

$

4,746,311 107 245
4,853,556

* 84.215
84.282 84.365 84.318 * 84.938 * 84.367 84.186 84.298 * 84.010 84.048

NIA
NIA NIA NIA NIA NIA NIA
NIA
NIA
$

436,000
246 94,591 51,590 (3) 544,950 111,754 76,481 2,804,000 226,202
9,199,370

$

447 637

$ ====1=9'=68=8.!:1, =1=6

- 26 -

HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2006

SCHEDULE "2"

Notes to the Schedule of Expenditures of Federal Awards
(1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year.
(2) Expenditures for the funds earned on the School Breakfast Program ($889,431) were not maintained separately and are included in the 2006 National School Lunch Program.
(3) Funds earned on the Hurricane Education Recovery program, in the amount of $834,725, do not require reporting of expenditures.
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 fund financial statements.

See notes to the basic financial statements.

- 27 -

HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006

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 CategoryV 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 Education Equalization Funding Grant Food Services Agriculture - Extended Day Agriculture - Extended Year Agriculture - Construction Related Career, Technical and Agriculture - Apprenticeship Career, Technical and Agriculture - Extended Day Career, Technical and Agriculture - Extended Year Career, Technical and Agriculture - High Schools that Work Vocational Construction Related Technology/Career Education Virtual Schools Grant Virtual Schools State Grant Austerity Reduction Other State Programs Health Insurance K-8 Statewide Reading and Mathematics Program National Teacher Certification Preschool Handicapped Program School Improvement (CRCT Remediation) Special Education Itinerant Special Education Supplemental Speech Teachers' Retirement
- 28-

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

$ 9,336,715

$

342,406

22,066,477

1,234,886

10,301,591

819,796

83,316

19,681,098

17,938,467

3,098,727

2,202,901 1,547,440 10,691,068 3,321,560
526,860 2,634,755
161,898 1,515,725
409,680 3,006,577
969,489 628,979

2,758,090 5,515,019 8,864,726

1,597,013 256,333 617,290 119,546
1,163,020 587,738 21,693 17,911 18,648 42,750 77,531 21,178 20,000 207,601 63,641 200 2,650
-5,769,344
3,673,139 486,248 210,043 263,671 37,358 13,174 29,773 216,150

TOTAL
9,336,715 342,406
22,066,477 1,234,886
10,301,591 819,796 83,316
19,681,098 17,938,467
3,098,727
2,202,901 1,547,440 10,691,068 3,321,560
526,860 2,634,755
161,898 1,515,725
409,680 3,006,577
969,489 628,979
2,758,090 5,515,019 8,864,726
1,597,013 256,333 617,290 119,546
1,163,020 587,738 21,693 17,911 18,648 42,750 77,531 21,178 20,000 ~07,601 63,641 200 2,650
-5,769,344
3,673,139 486,248 210,043 263,671 37,358 13,174 29,773 216,150

HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Office of Treasury and Fiscal Services Public School Employees Retirement

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$ 9,747,320 $

9,747,320 30.263

$ 133,683.464 $ 9,747.320 $=..,..14=3=.4_3_0,_784-

See notes to the basic financial statements.

-29-

HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2006

SCHEDULE "4"

PROJECT

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT
YEAR (3)

AMOUNT EXPENDED
IN PRIOR YEARS (3)

PROJECT STATUS

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 other buildings and facilities useful or desirable in connection therewith, and acquiring any necessary property, therefor, both real and personal.

$ 130,000,000 $ 133,674,892 $ 24,681,433 $ 108,993,459

Ongoing

(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 project. 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 project and retire associated debt. Amounts expended for this project may include sales tax proceeds, state, local property taxes and/or other funds over the life of the project.

See notes to the basic financial statements.

- 30-

HENRY COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2006

SCHEDULE "5"

DESCRIPTION

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

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

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)

10,962,523 $ 416,636
25,818,091 1,445,644 12,155,551

13,556,672 $ 763,087
28,255,883 1,506,810
17,155,056

978,031 99,734
23,146,373 20,929,947
3,668,988 21,322,240
3,101,143 186,908
1,776,331 478 787

1,134,587 276,178
28,284,081 28,064,463 6,437,069
311,873 967,328 23,969,145 2,179,544 182,558 3,648,715 835,333 2,844,377 1,015,515

228,444 $ 2,957
916,382 6,846
576,736
6,522 256,938 148,555 901,195 48,217
96,192
68,252 6,693 12,406 39 118

13,785,116 766,044
29,172,265 1,513,656 17,731,792
1,141,109 533,116
28,432,636 28,965,658 6,485,286
311,873 1,063,520 23,969,145 2,179,544
182,558 3,716,967
842,026 2,856,783 1,054,633

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

126,486,927 $ 161,388,274 $

3,315,453 $ 164,703,727

Media Center Program Staff and Professional Development

3,532,521 750 379

4,167,887 231,963

977,625 432,792

5,145,512 664,755

TOTAL QBE FORMULA FUNDS

$

130,769,827 $ 165,788,124 $

4.725,870 $ 170,513,994

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

See notes to the basic financial statements.

- 31 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
March 26, 2007

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 INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Henry County Board of Education as of and for the year ended June 30, 2006, which collectively comprise Henry County Board of Education's basic financial statements and have issued our report thereon dated March 26, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Henry County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect Henry County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6751-06-01, FS-6751-06-02, FS-6751-06-03 and FS-6751-06-04.
2006YB-30

A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above are material weaknesses.
Compliance and Other Matters
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 grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of the management and members of the Henry County Board ofEducation and is not intended to be and should not be vsed by anyone other than these specified parties.
Respectfully submitted,
l < l ~ ~~l.lO(... ~11 W. Hinton, CPA, CGFM Sta e Auditor
RWH:gp 2006YB-30

Russell W. Hinton
STATE AUDITOR
(404) 856-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
March 26, 2007

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 CIRCULAR A-133
Ladies and Gentlemen:
Compliance
We have audited the compliance ofHenry County Board ofEducation with the types ofcompliance requirements described in the U.S. 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, 2006. 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 ofcompliance 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 of the United States; and 0MB Circular A133, Audits ofStates, 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 of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Henry County Board ofEducation's compliance with

2006SA-50

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 ofEducation's compliance with those requirements.
As described in item FA-6751-06-02 in the accompanying Schedule of Findings and Questioned Costs, Henry County Board of Education did not comply with requirements regarding Allowable Costs/Cost Principles that is applicable to its Funds for the Improvement of Education program. Compliance with such requirements is necessary, in our opinion, for Henry County Board of Education to comply with requirements applicable to that program.
In our opinion, except for the noncompliance described in the preceding paragraph, the 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, 2006. The results ofour auditing procedures also disclosed a nonmaterial instance ofnoncompliance with those requirements which is described in the accompanying Schedule of Findings and Questioned Costs as item FA-6751-06-03.
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 of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose 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-6751-06-01.
A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe 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.
2006SA-50

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,
~w.4h
Rus 11 W. Hinton, CPA, CGFM State Auditor
RWH:gp 2006SA-50

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, 2006

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-6751-04-02 FS-6751-05-01 FS-6751-05-02

Further Action Not Warranted Unresolved - See Corrective Action/Reponses Partially Resolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6751-05-01

Due to the limited number of support personnel and budget constraints, adequate separation of duties is not possible at this time.

EMPLOYEE COMPENSATION Salary Under/Overpayments Reportable Condition Finding Control Number: FS-6751-05-02

Internal controls have been implemented to ensure that all salary calculations are reviewed and payments to employees are based on approved documentation.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-6751-05-01

Previously Reported Corrective Action Implemented

SECTION IV FINDINGS AND QUESTIONED COSTS

HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

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 Capital Assets

Expenditures/Liabilities/Disbursements Revenues/Receivables/Receipts Accounting Controls (Overall)

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.

Activities Allowed or Unallowed

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 ofEducation's report on compliance with requirements applicable to major programs was unqualified except for Fund for the Improvement of Education (CFDA 84.215) which was qualified.

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

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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

I SUMMARY OF AUDITOR'S RESULTS

7. Major Programs Federal awards audited as major programs are as follows: 84.010 Title I Grants to Local Educational Agencies 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 84.215 Fund for the Improvement of Education 84.367 Improving Teacher Quality State Grants 84.938 Hurricane Education Recovery

8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $615,685.

9. Low Risk Auditee The Henry County Board ofEducation qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133.

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures over School Activity Accounts Reportable Condition Finding Control Number: FS-6751-06-01

Condition:

This is a repeat finding (FS-6751-05-01 and FS-6751-04-02) from the years ended June 30, 2005, and 2004, respectively. The accounting procedures of the School District were insufficient to provide for adequate internal controls and separation of duties over the school activity accounts.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures and provide proper separation of duties. Such internal controls would limit any one individual's access to both physical assets and the related accounting records.

Questioned Cost: NIA

Information:

Cash and Cash Equivalents The bank reconciliation function was not separated from the record keeping and voucher payment function.

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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures over School Activity Accounts Reportable Condition Finding Control Number: FS-6751-06-01

Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions. Receipts tested did not contain adequate supporting documentation. Pre-numbered receipt books were not used consecutively for the two school principal accounts tested. Cash receipts for one School's Athletic events were not reconciled to pre-numbered tickets sold.

Expenditures/Liabilities/Disbursements The check writing function was not separated from record keeping or processing of signed checks. Based on a test of fifty items, four voucher packets did not contain an original invoice, three voucher packages contained no documentation of items being received, eight voucher packages did not have check request forms, four voucher packets did not have supervisor approval and one voucher packet did not have approval on the check request form.

Cause:

These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the school level. Also, the School District has not assigned responsibilities to achieve appropriate separation of duties nor utilized management oversight of the incompatible activities to properly safeguard assets.

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

Management should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures. Also, the School District should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization are separated and/or utilized management oversight of these incompatible activities.

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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls Reportable Condition Finding Control Number: FS-6751-06-02

Condition:

The accounting procedures ofthe School District did not maintain adequate separation of duties in the Financial Accounting System.

Criteria:

Separation of duties involving key accounting functions, both manual and automated, is the basis for achieving an adequate system of internal control.

Questioned Cost: NIA

Information:

Access controls in the Financial Accounting System do not prevent users from accessing accounting functions that are outside of their area of responsibility.

Cause:

The School District's management is responsible for designing and maintaining internal controls that restrict access to programs or data. Management has not limited the access rights of users of the Financial Accounting System.

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

Management should ensure that the access controls in the accounting information system should complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of the employee's duties.

EMPLOYEE COMPENSATION Salary Under/Overpayments Reportable Condition Finding Control Number: FS-6751-06-03

Condition:

This is a repeat finding (FS-6751-05-02) from the year ended June 30, 2005. The accounting procedures ofthe School District were insufficient to ensure that payments made to employees are based on an approved rate ofpay that is adequately documented in the employee's personnel file.

Criteria:

The School District's management is responsible for designing and maintaining accounting procedures that provide a reasonable assurance that employee compensation is calculated based on approved salary schedules and hours worked.
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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EMPLOYEE COMPENSATION Salary Under/Overpayments Reportable Condition Finding Control Number: FS-6751-06-03

Questioned Cost: NIA

Information:

A review of30 payroll records and personnel files were performed to test the validity and accuracy ofthe payroll transactions. The following deficiencies were noted:

Three employees were not paid based on their approved regular or overtime rate.
Five employees were under/overpaid due to an incorrect number of hours being used to calculate payment.

Cause:

The School District failed to adequately monitor and implement procedures to ensure that payments made to employees are based on an approved rate of pay that is adequately documented in the employee's personnel file.

Effect:

The failure of the School District to adequately monitor and implement procedures to ensure that payments made to employees are based on an approved rate of pay that is adequately documented in the employee's personnel file can lead to inaccurate internal and external reporting.

Recommendation:

The School District should implement internal controls to ensure that all salary calculations are adequately reviewed and all payments to employees are based on approved documentation.

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6751-06-04

Condition:

The accounting procedures ofthe School District were insufficient to provide accurate and complete capital asset records.

Criteria:

Chapter 37 Fixed Assets of the Financial Management for Local Units of Administration indicates that School District's must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records.

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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6751-06-04

Questioned Cost: NIA

Information:

Prior year Capital Asset items totaling $3,376,387, which met the capitalization threshold, were erroneously omitted from the capital assets listing. Also, current year items omitted included $1,512,884 of land, $892,318 of land improvements, $332,000 of construction in progress, $3,271,786 of buildings and $12,949 of equipment.

In addition to the above noted omissions, the following problems were identified:

One piece of land had been capitalized twice.

Depreciation expense of three of twenty assets tested was not properly calculated totaling $13,124.

Land donated by the School District during the fiscal year under review was not deleted from the capital asset listing totaling $35,470.

During testing of20 items tracing from site to the capital asset listing, 1 item totaling $11,992 was omitted from the capital asset list.

Many items were added to the listing at an estimated value, when either the actual value was available, or the documentation for the estimate was not available.

One of the nine assets deleted from the Asset Management list was still being used at another location valued at $16,000.

Cause:

The School District failed to properly maintain its capital asset records in accordance with the School District's approved capital assets policy.

Effect:

The failure ofthe School District to maintain a complete and accurate capital assets listing can lead to inaccurate internal and external reporting, as well as noncompliance with generally accepted accounting principles.

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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6751-06-04

Recommendation:

The School District should review and monitor its capital assets records, and make appropriate adjustments to ensure that the capital assets records conform to the School District's approved capital assets policy and generally accepted accounting principles.

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U. S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA No. 84.938) Finding Control Number: FA-6751-06-01

Condition:

The School District did not have procedures in place to ensure that Hurricane Education Recovery Act (HERA) funds provided for displaced students reported as having disabilities were used for the excess costs of providing special education and related services to students with disabilities.

Criteria:

The following guidance applied to the management of Emergency Impact Aid for Displaced Students to include funds made available for displaced students:

1. Section 107(e)(4) ofHERA 2. Volumes "I" and "II" of U. S. Department of Education (USED)
guidelines included in "Frequently Asked Questions, Emergency Impact Aid for Displaced Students" and 3. State of Georgia issued publication titled "Georgia Guidance on Federal Emergency Hurricane Act" (GDOE Guidelines).

Provisions of HERA, USED and GDOE Guidelines state that HERA funds for students with disabilities may only be used to pay for special education and related service consistent with the Individuals with Disabilities Education Act (IDEA). Both Volumes "I" and "II" ofUSED guidance state

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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA No. 84.938) Finding Control Number: FA-6751-06-01

that the funds provide for students with disabilities must be recorded and tracked separately from those HERA funds provided for non-disabled students. This Federal requirement was not specifically included in GDOE Guidelines.

Provisions of HERA and GDOE guidelines state that these funds may become a part of a School District's special education budget to ensure that they are only used to pay for special education and related service consistent with IDEA. The guidelines further stated that since these funds are to be applied and used in a manner as funds made available under Part B ofIDEA, it was also advised to consult with State and local staffwho are cognizant of IDEA requirements.

Questioned Cost: $93,750

Information:

HERA funds received by the School District included $93,750 for students with disabilities. Although required by Federal guidelines, the receipt and expenditure of these funds were not maintained separately.

We further noted that the budget for special education was not modified for the increase in HERA funds designated for special education and related purposes.

Cause:

The School District relied solely on GDOE Guidelines which did not require that the School District provide separate accountability of HERA funds provided for students with disabilities. Consideration had not been given to consulting with local and State special education staff or revising its special education budget to ensure that these HERA funds were applied in line with IDEA.

Effect:

We were unable to determine if the $93,750 of HERA funds earmarked for students with disabilities were used for special education and related purposes.

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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U. S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA No. 84.938) Finding Control Number: FA-6751-06-01

Recommendation:

Management should ensure that procedures are in place to comply with both Federal and State guidelines when administering HERA funds for special education purposes. GDOE should review this matter and determine ifthese funds were used properly or if a refund is appropriate.

ALLOWABLE COSTS/COST PRINCIPLES Failure to Apply the Correct Indirect Cost Rate Material Noncompliance U.S. Department of Education Fund for the Improvement of Education (CFDA No. 84.215) Finding Control Number: FA-6751-06-02

Condition:

The School District incorrectly charged indirect cost to two grants in the Fund for the Improvement of Education Program (CFDA 84.215) based on amounts approved in the grants' budgets.

Criteria:

0MB Circular A-87 and 34CFR 76.563 states that indirect costs should be charged to these grants based on an approved restricted rate multiplied by the total direct costs of the grant minus capital outlay and sub grants.

Questioned Cost: $33,921

Information:

During the period under review, the School District charged $20,000 to the Creating a Nation: Seeds of Democracy grant and $20,000 to the Linking American History: Past to the Present grant. Based on our testing, utilizing the approved restricted rate from the Georgia Department of Education, $1,419 should have been charged to the Creating a Nation: Seeds of Democracy grant and $4,660 should have been charged to the Linking American History: Past to the Present grant.

Cause:

The School District did not use the approved restricted indirect cost rate approved by the Georgia Department ofEducation and received indirect cost funds based on the amounts approved in the grants' budgets.

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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ALLOWABLE COSTS/COST PRINCIPLES Failure to Apply the Correct Indirect Cost Rate Material Noncompliance U.S. Department of Education Funds for the Improvement of Education (CFDA No. 84.215) Finding Control Number: FA-6751-06-02

Effect:

The School District received indirect cost funds in excess ofthe amount due to them determined by their approved indirect cost restricted rate.

Recommendation:

Management should monitor all Federal grants that are charged indirect cost to ensure that these grants are charged the correct amount of indirect cost based on an approved indirect cost rate. The grantor agency should review this matter and determine if a refund is appropriate.

ELIGIBILITY Failure to Maintain Student Documentation Nonmaterial Noncompliance U. S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA No. 84.938) Finding Control Number: FA-6751-06-03

Condition:

The School District could not provide an approved application and supporting documentation for a displaced student to ensure that the student met eligibility requirements for the Hurricane Education Recovery Program (CFDA 84.938).

Criteria:

OMB's Compliance Supplement (CS) Part 4-84.938, IIIE3b. states that the LEA is required to keep records to show compliance with program requirements (34 CFR section 76.731). Therefore, the LEA must document that each reported displaced student was enrolled, or eligible to be enrolled, in a public or non-public school within the disaster areas covered by Hurricane Katrina or Rita.

Questioned Cost: $3,000

Information:

We reviewed the applications and documentation ofthirty displaced students to determine if these students met eligibility requirements of the program. The School District was unable to provide the application and documentation for one public school student in order to verify eligibility.

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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ELIGIBILITY Failure to Maintain Student Documentation Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA No. 84.938) Finding Control Number: FA-6751-06-03

Cause:

The School District did not monitor the applications and documentation required for all displaced students to ensure that there was proper support for student eligibility.

Effect:

We were unable to determine that the student with no application or documentation was eligible to be considered in this program.

Recommendation:

Management should ensure that all applications and documentation for each displaced student is maintained on file as required and is available for examination. The Georgia Department of Education should review this matter and determine if a refund is appropriate.

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SECTIONV MANAGEMENT'S RESPONSES

HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006

Finding Control Number: FS-6751-06-01

We concur with this finding. Per GASB 34, School Activity Accounts maintained at the individual

schools are included in the Basic Financial Statements. Due to the limited number of support

personnel at each school and budget constraints, adequate separation ofduties is not possible at this

time.

-

Finding Control Number: FS-6751-06-02

We concur with this finding. The School District's software provider, Software Systems Unlimited Incorporated (SSUI), is working with our Technology Department to ensure that access controls in the accounting information system complement the system of internal controls by limiting employees' access to only the accounting functions necessary for the performance of those employees' duties. This finding was included in the 2004 audit report and it was not included in the 2005 audit report; however, there were no changes to the Financial Accounting System from 2005 to 2006.

Finding Control Number: FS-6751-06-03

We concur with this finding. The School District's total payroll for fiscal year 2006, was approximately $171 million. The actual net dollar amount associated with the deficiencies noted was $282.38. Staffmembers in Payroll and Human Resources will work mutually to review salary calculations to ensure payments to employees are calculated correctly and based on approved documentation.

Finding Control Number: FS-6751-06-04

We concur with this finding. The School District contracts with American Appraisal Associates to perform the annual inventory and review capital asset records for the school system. The deficiencies noted in the audit report will be discussed with American Appraisal Associates before they begin fieldwork for fiscal year 2008.

Finding Control Number: FA-6751-06-01

We concur with this finding. The School District relied on Georgia Department of Education Guidelines which did not require separate accountability ofHERA funds provided for students with disabilities. Management will review Federal guidelines when administering HERA funds in the future.

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HENRY COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006
Finding Control Number: FA-6751-06-02 We concur with this finding. The School District serves as the fiscal agent for two history grants. The grantor agency approved the Applications for Federal Education Assistance. The Applications included budgets for both grants. The indirect cost charges of $20,000 per year, per grant, were detailed within the budget of the approved applications. Finding Control Number: FA-6751-06-03 We concur with this finding. The application and documentation required for one student from a total of242 students displaced by Hurricane Katrina could not be located. Management will work to ensure that all applications and documentation for each student are maintained on file for examination. Contact Person: Jeff Allie, Assistant Superintendent, Finance and Human Resources Phone: (770) 957-6601; Fax Number: (770) 957-7971 E-mail Address: ja11ie@henry.kl2.ga.us
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