HOUSTON COUNTY BOARD OF EDUCATION PERRY, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor HOUSTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 6 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 9 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 11 H NOTES TO THE BASIC FINANCIAL STATEMENTS 12 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 31 HOUSTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 32 3 SCHEDULE OF STATE REVENUE 34 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 35 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 37 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 FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 March 21, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Houston 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) ofthe Houston County Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Houston County Board ofEducation'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 opm1ons. 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 ofthe Houston County Board ofEducation, as ofJune 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2004ARL-11 In accordance with Government Auditing Standards, we have also issued our report dated March 21, 2005, on our consideration of the Houston County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. 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 31 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 Houston County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code ofGeorgia Annotated section 506-24. Respectfully submitted, ~ltl-~ State Auditor RWH:gp 2004ARL-11 HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 The discussion and analysis ofHouston County Board ofEducation's financial performance provides an overall review ofthe School District's financial activities for the fiscal year ended June 30, 2004. The intent ofthis discussion and analysis is to look at the School District's financial performance as a whole. Readers should also review the financial statements and the notes to the basic financial statements to enhance their understanding of the School District's financial performance. Financial Highlights Key financial highlights for 2004 are as follows: D On the District-wide financial statements, net assets increased $35 million which represents a 22 percent increase from 2003. This total increase was due to governmental activities since the School District has no business-type activities. D General revenues accounted for $91.2 million in revenue or 41 percent ofall revenues. Program specific revenues in the form of charges for services and sales, grants and contributions accounted for $130.6 million or 59 percent of total revenues of$221.8 million. D The School District had $186.7 million in expenses related to governmental activities; only $130.6 million ofthese expenses were offset by program specific charges for services, grants or contributions. General revenues (primarily taxes) of$91.2 million were adequate to provide for these programs. D Among major funds, the General Fund has $189.6 million in revenues and $179.9 million in expenditures, other financing uses and the change in inventory. The General Fund's balance increased to $44.6 million from $34 million. Using the Basic Financial Statements This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the Houston County Board ofEducation as a financial whole, or as an entire operating entity. The Statement ofNet Assets and Statement ofActivities provide information about the activities of the whole School District, presenting both an aggregate view ofthe School District's finances and a longer-term view ofthose finances. Fundfinancial statements provide the next level ofdetail. For governmental funds, these statements tell how services were financed in the short-term as well as what remains for future spending. The fund financial statements also look at the School District's most significant funds. In the case ofthe Houston County Board of Education, the General Fund is by far the most significant fund. 1 HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Reporting the School District as a Whole Statement ofNet Assets and the Statement ofActivities While this document contains the large number of funds used by the School District to provide programs and activities for the schools, the view of the School District as a whole looks at all financial transactions and asks the question, "How did we do financially during 2004?" The Statement of Net Assets and the Statement of Activities answers this question. These statements include all assets and liabilities using the economic resources focus and accrual basis ofaccounting similar to the accounting used by most private-sector companies. This basis ofaccounting takes into account all of the current year's revenues and expenses regardless of when the cash is received or paid. These two statements report the School District's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the School District as a whole, the financial position ofthe School District has improved or diminished. The causes ofthis change may be the result of many factors, some financial, some not. Nonfinancial factors include the School District's property tax base, facility conditions, required educational programs and other factors. In the Statement ofNet Assets and the Statement of Activities, the School District has one distinct type of activity: Governmental Activities - All of the School District's programs and services are reported here including instruction, support services, operation and maintenance ofplant, pupil transportation, food service, after school program, principal's accounts and various others. Reporting the School District's Most Significant Funds Fund Financial Statements Fund financial reports provide detailed information about the School District's major funds. The School District uses many funds to account for a multitude offinancial transactions. However, these fund financial statements focus on the School District's most significant funds. The School District's major governmental funds are the General Fund, Capital Projects Fund and the Debt Service Fund. Governmental Funds: Most ofthe 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 year-end available for spending in future periods. These funds are reported using the current financial resources measurement focus and the modified accrual accounting method, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there is adequate financial resources that can be spent in the near future to finance educational programs. 11 HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 The relationship (or differences) between governmental activities (reported in the Statement ofNet Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements. Fiduciary Funds: The School District is the trustee, orfiduciary, for assets that belong to others, such as the employee benefit programs, and school clubs and organizations 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 District-wide financial statements because it cannot use these assets to finance its operations. The School District as a Whole The perspective ofthe statement ofnet assets is ofthe School District as a whole. Table 1 provides a summary of the School District's net assets for 2004 compared to fiscal year 2003. Table 1 Net Assets (in Thousands) Assets Current and Other Assets Capital Assets, Net Total Assets Liabilities Current and Other Liabilities Long-Term Liabilities Total Liabilities Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total Net Assets Governmental Activities Fiscal Fiscal Year2004 Year2003 $ 116,359 164,399 $ 280,758 $ 109,964 134,637 $ 244,601 $ 21,970 67,525 $ 89,495 $ 21,459 66,926 $ 88,385 $ 117,558 44,084 29,621 $ 191~263 $ 107,143 28,508 20,565 $ 156~216 Total net assets increased $35 million to $191.2 million. Table 2 shows the changes in net assets for fiscal year 2004 compared to the changes in net assets for fiscal year 2003. 111 HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Table 2 Change in Net Assets (in Thousands) Revenues Program Revenues: Charges for Services Operating Grants and Contributions Capital Grants and Contributions Total Program Revenues General Revenues: Taxes Property Taxes For Maintenance and Operations Railroad Cars Sales Taxes Local Option Sales Tax Special Purpose Local Option Sales Tax For Debt Service Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Total Revenues Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Expenses Increase in Net Assets Governmental Activities Fiscal Fiscal Year 2004 Year 2003 $ 8,039 107,826 14,762 $ 130,627 $ 6,606 105,713 3,982 $ 116,301 $ 35,492 17,157 17,096 951 433 15,675 1,167 3,193 $ 91,164 $ 221,791 $ 126,058 4,949 4,249 4,032 818 10,559 1,402 11,186 5,683 1,887 1,068 1,643 816 9,675 2,719 $ 186,744 $ 35,047 $ 27,089 14 15,708 15,505 1,153 245 12,428 2,150 3,679 $ 77 971 $ 194,272 $ 123,613 4,442 4,505 4,616 778 10,766 1,331 10,972 5,525 2,227 1,227 1,577 802 9,239 4,508 $ 186,128 $ 8 144 lV HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Figure A shows the funding sources for the revenues. 55 percent of the School District's revenues are derived from state grants. Property Taxes make up 16 percent of the total funding, while an additional 15 percent is earned from the county's sales taxes. Figure A Sources of Revenue for Fiscal Vear 2004 Federal Funds 8% Property Sales Taxes Charges for Other 2% State Funds 55% As shown in Figure B, Instruction comprised 67.5 percent of governmental program expenses. Administration and Other Services (4.1 percent) consist of the central office, business and warehouse, community services and other operations ofthe School District. Interest expense equal to 1.5 percent of total expenses was attributable to capital leases and the outstanding bonds for capital projects. Figure B Functional Expenses for Fiscal Year 2004 Educational M e dia 2.2% Improvement of Instructional 2.3% Pupil Services 2.7% Interest on Debt 1.5% Instruction 67.5% / Administration & Other Services - -----Administration 5.7% Maintenance and Operation of Student Transportation Rant 6.0% Services 3.0% V HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Governmental Activities The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. Table 3 shows, for governmental activities, the total cost ofservices and the net cost ofservices comparing fiscal year 2004 with fiscal year 2003. That is, it identifies the cost of these services supported by tax revenue and unrestricted State entitlements. Table 3 Governmental Activities (in Thousands) Total Cost of Services Fiscal Fiscal Year 2004 Year 2003 Net Cost of Services Fiscal Fiscal Year 2004 Year 2003 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 $ 126,058 $ 123,613 $ 34,633 $ 39,689 4,949 4,249 4,032 818 10,559 1,402 11,186 5,683 1,887 1,068 4,442 4,505 4,616 778 10,766 1,331 10,972 5,525 2,227 1,227 2,854 1,329 54 336 5,432 934 4,778 3,766 1,223 404 2,537 1,856 2,090 620 6,197 1,029 4,957 3,120 1,740 662 1,643 816 9,675 2,719 1,577 802 9,239 4,508 -1,816 816 -1,345 2,719 8 802 11 4,508 Total Expenses $ 186.744 $ 186 128 $ 56 117 $ 69 826 Although program revenues make up a majority ofthe funding, the School District is still dependent upon tax revenues for governmental activities. Over 27.5 percent of Instruction activities are supported through taxes and other general revenues, and for all governmental activities general revenue support is 30.1 percent. The School District's Funds The School District's governmental funds are accounted for using the modified accrual basis of accounting. Total governmental funds had revenues and other financing sources of$223.6 million and expenditures and other financing uses of $217.7 million. There was an increase in the fund balance totaling $6 million for the governmental funds as a whole. The General Fund had an increase of$10.6 million, the Capital Projects Funds had a decrease of$19 million and Debt Service Funds had an increase of $14.4 million. The Capital Project Funds' excess was attributable to the Vl HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 construction and renovation expenses that were funded by the proceeds ofthe sale of $50 million in general obligation bonds in fiscal year 2002. The positive change in the fund balance ofthe general fund and the positive ending fund balances ofthe other governmental funds for the year reflects that the School District was able to meet current costs. General Fund Budgeting Highlights The School District's budget is prepared in accordance with Georgia law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2004, the School District amended its General Fund budget as needed. The School District uses site-based budgeting. The budgeting systems are designed to tightly control total site budgets but provide flexibility for site management. For the General Fund, the final budgeted revenues and other financing sources of $190.4 million exceeded the original budgeted amount of $174.1 million by $16.3 million. The overall difference was due to an increase in state revenues and grants of$1 million, an increase in Federal grant awards of$2.l million and an increase of$13.2 million forlocal and other sources duemainlyto an increase in property taxes and the inclusion of the individual school and principal accounts. The actual revenues and other financing sources of $190.9 million exceeded the budgeted amount by $0.5 million. The additional revenues were mainly the result ofthe School District obtaining additional state grants and conservative budgeting for sales taxes. The final budgeted expenditures and other financing uses of $182.5 million exceeded the original budgeted amount of$173.6 million by $8.9 million. This difference was due mainly to an increase in state and Federally funded grant expenditures and the inclusion of the aforementioned school accounts. The actual expenditures and other financing uses of $180.4 million was $2.1 million less than budgeted. The reduced expenditures were a result of an adjustment removing intrafund transfers. The differences in the budgeted and actual fund balances is the result of the School District's decision to include the individual school activity accounts and the inclusion of Local Option Sales Taxes that had previously been reported as deferred. Capital Assets and Debt Administration Capital Assets At the end of fiscal year 2004, the School District had $164.4 million invested in capital assets, net of depreciation, all in governmental activities. Table 4 shows fiscal year 2004 balances compared with fiscal year 2003 balances. Vll HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Table 4 Capital Assets at June 30 (Net of Depreciation, in Thousands) Governmental Activities Fiscal Fiscal Year 2004 Year 2003 Land Construction in Progress Buildings and Building Improvements Equipment Land Improvements $ 4,921 18,441 130,529 9,311 1,197 $ 3,092 21,424 100,644 8,839 638 Total $ 164~399 $ 134~637 The overall capital assets increased in fiscal year 2004 by $29.8 million due to the purchase of additional school sites and the ongoing construction and renovation ofseveral schools. In fiscal year 2002, the School District began an aggressive $113 million capital outlay program funded by the issuance of the general obligation bonds, Special Purpose Local Option Sales Tax proceeds, local funding and state capital outlay grants. This program included the construction of two new elementary schools and two new middle schools, as well as, several additions and the renovation of another twenty-one schools. This program was implemented to ensure adequate classroom space is available for our rapidly growing system. Construction expenses in excess of $26 million are projected for fiscal year 2005. Debt At June 30, 2004, the School District had $50 million in bonds outstanding, $11.2 million in intergovernmental contract trust certificates with $0.3 million due within one year, and $2.7 million in capital leases outstanding with $0.7 million due within one year. Table 5 summarizes the long-term debt outstanding at June 30, 2004, compared to fiscal year 2003 balances. vm HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Table 5 Debt at June 30 (in Thousands) Governmental Activities Fiscal Fiscal Year 2004 Year 2003 General Obligation Bonds Intergovernmental Contract Trust Certificates Capital Leases Compensated Absences Unamortized Bond Premiums $ 50,000 11,160 2,700 1,840 1,824 $ 50,000 11,460 1,877 1,765 1,824 Total $ 67.524 $ 66,926 At June 30, 2004, the School District's overall legal bonding authority was $250.1 million based on the assessed value of taxable property as of December 31, 2003. The School District's bonds have assigned ratings of A2 and A+. In addition, the State of Georgia limits the amount available to be spent each year on multiyear leases, purchase, or lease purchase contracts to 7.5 percent ofthe locally generated taxes for the maintenance and operation of the school system. Both the current year payments and subsequently scheduled payments are well below the $3 .9 million threshold. Current Issues The Houston County School System consists of 34 campuses located in Houston County, a fast- growing area with a population of approximately 120,424. Current enrollment is approximately 23,998 students in grades PK-12. Among Georgia's 159 counties, Houston ranks 14th in population, 19th in economics, 15th in income, and 119th in overall millage rate. The State of Georgia has experienced serious financial hardship over the past two years, and as a result, more pressure is being placed on the local school systems to prioritize their instructional programs and to fund them with additional locally generated revenues. In fiscal year 2003, the State enacted Austerity Reductions for the State allotments, resulting in a reduction of state revenues of approximately $2.4 million in 2003, $5 million in 2004, and projected reductions of $5 million in 2005. Additional costs to the School District will be required with the continued implementation of House Bill 1187, which mandates lower student-teacher ratios, requiring additional teachers and classrooms. While Houston County's ratios are currently below these mandates, continued reductions in state funding combined with a rapidly growing system required an increase to the 2003 millage rate to help offset this loss of state funding. Despite these challenges, the Houston County Board of Education is strong financially, and we remain optimistic about the ability of the School District to maximize all of the financial resources to continue to provide a quality education to our students. IX HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 The county has thrived even during the recent downturn in the economy. Sales tax revenue growth remains better than other parts ofGeorgia, with shoppers paying seven percent tax on purchases. In calendar year 2004, the System's Local Option Sales Tax rose 9.7 percent over the prior year's collections. The unemployment rate was 3.1 percent in 2003, down from a ten-year high of 4.6 percent in 1994 and continues to be well below the state and national rates. Houston County is home to Robins Air Force Base, Georgia's largest single industry. Robins Air Force Base had an estimated fiscal year 2003 economic impact on the State of Georgia of $4.1 billion, with Houston County being by far the largest beneficiary of that impact. Other large employers located in the county include the Board ofEducation, Frito-Lay Company, Anchor Glass, Cagle Foods Inc., the Houston County Hospital Authority, and Wal-mart Associates. OfHouston's employed residents, 62.8% work in county. Houston is Georgia's sixty-fifth largest county in total area. As one ofthe fastest growing counties in Georgia, Houston had a 15% population increase from 1980-1990 and a 24% increase from 19902000. The population is projected to grow by 14% by 2010 to 136,986. This growth results in an average school system enrollment increase of approximately 600 students per year. Houston has three municipalities: Centerville with a population of 5,268; Perry with 10,566; and Warner Robins with 54,264. The county also includes the communities of Bonaire, Elko, Haynesville, Clinchfield, and Henderson. The median household income as of 2000 was $44,794 per year. As of 2002, the per capita income was $25,876. Over 52 percent ofthe county's adult population has an education level ranging from some college to professional or doctorate degree. Contacting the School District's Financial Management This financial report is designed to provide our citizen's, taxpayers, investors and creditors with a general overview ofthe 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 Stephen J. Thublin, CPA, Comptroller, at the Houston County Board of Education, P.O. Box 1850, 1100 Main Street, Perry, Georgia 31069. You may also email your questions to sthublin@hcbe.net. X HOUSTON COUNTY BOARD OF EDUCATION HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2004 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Retainages Payable Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. -3- EXHIBIT "A" GOVERNMENTAL ACTIVITIES $ 8,671,349 83,980,147 6,615,944 13,294,458 1,522,296 333,728 1,940,725 4,920,950 18,441,667 1,332,851 181,810,971 17,567,706 -59,674,863 $ ===28=0=,7==5=7'=92=9= $ 4,829,349 15,776,705 1,363,912 1,024,160 66,500,552 $ 89,494,678 $ 117,557,680 1,706,678 39,645,357 2,732,109 29,621,427 $ 191,263,251 $ ==2=8=0=7,::::5:::!7':::::92=9= HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30 2004 EXPENSES CHARGES FOR SERVICES GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt $ 126,057,781 $ 4,949,173 4,249,075 4,032,037 817,720 10,559,363 1,402,577 11,185,600 5,682,960 1,887,442 1,067,902 1,643,010 815,945 9,674,904 2 718 614 454,520 3,459,593 4,125,301 Total Governmental Activities $=====1=8=6=,=7=44=,=1=0=3= $ General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Local Option Sales Tax Special Purpose Local Option Sales Tax For Debt Services Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous 8,039,414 Total General Revenues Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year The notes to the basic financial statements are an integral part of this statement. -4- EXHIBIT "B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 80,765,001 $ 2,070,564 2,879,911 2,081,825 481,568 4,741,967 320,797 6,053,611 1,616,936 460,198 663,479 5,690,152 $ 10718261009 $ 10,205,417 $ 24,526 39,730 1,896,429 385,424 147,269 354,209 299,492 204,249 1,204,881 14,761,626 $ -34,632,843 -2,854,083 -1,329,434 -53,783 -336,152 -5,431,972 -934,511 -4,777,780 -3,766,532 -1,222,995 -404,423 1,816,583 -815,945 1,345,430 -2718614 -56, 117,054 $ 35,491,941 17,157,309 17,095,761 951,070 433,354 15,674,492 1,167,309 31192,960 $ 9U64I196 $ 35,047,142 156,2161109 $ 191,263,251 -5- HOUSTON COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2004 EXHIBIT "C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 4,620,698 $ 2,875,723 $ 1,174,928 $ 8,671,349 40,378,324 8,119,362 35,482,461 83,980,147 4,100,230 12,360,800 1,522,296 333,728 11940}25 933,658 2,987,968 7,088,198 13,294,458 1,522,296 333,728 119401725 Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Claims Payable Retainages Payable Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Designated for Self-Insurance Designated for Subsequent Years' Expenditures Undesignated Reported in: General Fund Capital Projects Total Fund Balances $ 4,509,417 15,776,705 319,932 $ 1,363,912 $ 2016061054 $ \3631912 $ 4,509,417 15,776,705 319,932 1,363,912 $ 2119691966 $ 1,105,532 $ 1,105,532 $ 39,645,357 39,645,357 601,146 601,146 $ 10,474,413 10,474,413 260,233 27,710,458 260,233 27,710,458 14,973,378 90,418 14,973,378 90 418 $ 44,6501747 $ 101564,831 $ 391645,357 $ 9418601935 Total Liabilities and Fund Balances The notes to the basic financial statements are an integral part of this statement. -6- HOUSTON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30 2004 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Trust Certificates Capital Leases Compensated Absences Unamortized Bond Premiums Total Long-Term Liabilities $ 94,860,935 $ 4,920,950 18,441,667 1,332,851 181,810,971 17,567,706 -59,674,863 164,399,282 -472,254 $ -50,000,000 -11, 160,000 -2,700,235 -1,840, 109 -1,824,368 -67,524,712 Net Assets of Governmental Activities (Exhibit "A") $ 191,263,251 The notes to the basic financial statements are an integral part of this statement. -7- HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30 2004 EXHIBIT "E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES} Capital Leases Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Inventory - Net Change in Period GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 33,144,714 18,541,733 108,459,656 $ 17,765,735 8,039,414 409,084 31215z757 $ 33,144,714 $ 17,095,761 35,637,494 14,462,134 122,921,790 17,765,735 8,039,414 514,557 243,668 1,167,309 600 312161357 $ 18915761093 $ 1419771291 $ 17,339,429 $ 22118921813 $ 121,863,323 $ 121,863,323 4,939,274 4,233,041 3,477,658 817,720 10,403,810 1,324,194 11,132,309 6,121,132 1,805,009 1,067,902 1,643,010 815,945 9,695,467 $ $ 34,432,256 18,947 4,939,274 4,233,041 3,477,658 817,720 10,403,810 1,343,141 11,132,309 6,121,132 1,805,009 1,067,902 1,643,010 815,945 9,695,467 34,432,256 509,201 88 719 300,000 2,629,895 809,201 2,7181614 $ 1791937?14 $ 3414321256 $ 219481842 $ 21713181812 $ 916381379 $ -1914541965 $ 1413901587 $ 415741001 $ 1,331,992 $ -4011329 401,329 $ 1,331,992 401,329 -4011329 $ 9301663 $ 4011329 $ 113311992 $ 10,569,042 $ -19,053,636 $ 14,390,587 $ 5,905,993 34,026,281 29,618,467 25,254,770 88,899,518 55A24 55,424 Fund Balances - Ending $ 441650z747 $ 1015641831 $ 3916451357 $ 94,8601935 The notes to the basic financial statements are an integral part of this statement. -8- HOUSTON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30. 2004 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. In the Statement of Activities, only the loss on the disposal of the building/equipment is reported, whereas in the Governmental Funds, the entire proceeds from the disposal decrease financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the building/equipment disposed. Some of the Capital Assets acquired this year were financed with capital leases. In Governmental Funds, a capital lease arrangement is considered a source of financing, but in the Statement of Net Assets, the lease obligation is reported as a Long-Term Liability. 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: Capital Lease Payments Trust Certificate Retirements Total Long-Term Debt Repayments Food Inventories are expensed on the District-wide Statements using the consumption method while on the fund level Food Inventories are recorded as expenditures when purchased. In the current period this difference amounts to. 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 $ 5,905,993 $ 35,512,617 -5,726,871 29,785,746 -78,171 -23,397 -1,331,992 $ 509,201 300,000 809,201 55,424 -75,662 Change in Net Assets of Governmental Activities (Exhibit "B") $ 35,047,142 The notes to the basic financial statements are an integral part of this statement. -9- HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ ======8=3=8,=89=4= $ ======8=3=8,=89=4= The notes to the basic financial statements are an integral part of this statement. - 11 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Houston County Board of Education (School District) was established under the laws of the 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. The Houston County School District Building Authority was created by House Bill 203 8 during the 1994 session of the Georgia General Assembly. The purpose of the Authority is to acquire, construct, own and convey real property and personal property for the benefit ofthe Houston County Board ofEducation. The members ofthe Authority consist ofthe Chairman ofthe Houston County Board ofEducation, Superintendent ofthe Houston County Board ofEducation and the Chairman of the Board of Commissioners of Houston County. The Houston County School District Building Authority is a component unit ofthe Houston County Board ofEducation and as such the Authority's financial activity has been blended with the Houston County Board of Education's basic financial statements. 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 Houston 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. - 12 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. 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 of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. - 13 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and 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 of cash 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: - 14 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Houston County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on October 21, 2003 (levy date). Taxes were due on December 31, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Houston County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2004, for maintenance and operations amounted to $33,144,714. The tax millage rate levied for the 2003 tax year (calendar year) for the Houston County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 13.67 mills - 15 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SALES TAXES Local Option Sales Tax revenue, at the fund reporting level, during the fiscal year amounted to $17,157,309 and was recorded in the General Fund. Local Option Sales Tax is to be used for the maintenance and operation of the School District. Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $17,095,761 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 District-wide 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 (weighted average). 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. SUPPLY INVENTORY Inventories of consumable supplies and materials are reported on the Balance Sheet at cost (weighted average). The School District uses the consumption method to account for inventories of consumable supplies whereby an asset is recorded when supplies are purchased and expenditures are recorded at the time the supplies are consumed. On the fund statements, inventories of governmental funds are reported act cost (weighted average). The School District uses the consumption method to account for inventories whereby expenditures are recorded when inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time ofpurchase. On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at 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 of assets or materially extend the useful lives ofthe assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize works of art. - 16 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Land Land Improvements Buildings and Improvements Equipment a. Vehicles b. Other Machinery and Equipment Construction in Progress Library Collections Capitalization Policy Estimated Useful Life ALL NIA ALL NIA ALL 10 to 50 years ALL $10,000 and any item necessary for insurance purposes ALL ALL 5 to 14 years 6 to 10 years NIA 10 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. FUND BALANCES UNRESERVED - DESIGNATED Local Option Sales Tax collections were recorded as revenue in the fiscal year received or susceptible to accrual. To ensure these funds will remain available for use in the subsequent period, a Designated for Subsequent Period Expenditures fund balance will be shown on the fund statements. 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 ofmoney 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. - 17 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case of operating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2004, the bank balances were $18,455,175. The amounts ofthe total bank balances are classified into three categories of credit risk: Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. - 18 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2004, as follows: Risk Category Bank Balance 1 $ 1,207,026 2 17,248,149 3 0 Total $ 18,455.175 CATEGORIZATION OF INVESTMENTS Investments are classified as to risk by the three categories described below: Category 1 - Insured or registered, or securities held by the School District or the School District's agent in the School District's name. Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the School District's name. Category 3 - Uninsured or unregistered, with securities held by the counterparty, or by its trust department or agent but not in the School District's name. Funds invested in an investment pool managed by another government are not required to be categorized unless the investing entity owns specific, identifiable investment securities in the pool. At June 30, 2004, the carrying value of the School District's total investments was $83,115,380 which is materially the same as fair value. The investments are classified as to risk categories as follows: Type of Investment U.S. Government Local Government Investment Pools Total Investments Risk Categories 2 $ 19,659 153 $ 0 $ Carrying Fair 3 Amount Value 0 $ 19,659,153 $ 19,659,153 63,456,227 63,456,227 $ 83 115 380 $ 83 115,380 The carrying amounts shown above includes amounts maintained in an investment pool by the State of Georgia, Office of Treasury and Fiscal Services in which the School District owns no identifiable securities. The investment policy ofthe State of Georgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio and Extended Term Portfolio) - 19 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS does not provide for investment in derivatives or similar investments. A description ofthe Primary Liquidity Portfolio is as follows: The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the Securities and Exchange Commission (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 ofGeorgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2004, was 24 days. The average investment duration for Fund 6 on June 30, 2004, was 0.22 years. The Extended Term Portfolios consist of Fund 3 "Georgia Extended Asset Pool", Fund 7 and Fund 8. The Georgia Extended Asset Pool is a variable net asset value investment pool which follows Standard and Poor's criteria for AAAfmoney market rated funds. The pool is not registered with the SEC as an investment company. The pool's primary objective is the prudent management ofpublic funds on behalf of the State of Georgia and local governments seeking income higher than money market rates. Net Asset Value (NAV) is calculated daily to determine current share price. NAV is calculated by taking the closing fair value of securities owned plus other assets and subtracting liabilities. The remainder is then divided by the total number ofshares outstanding to compute NAV per share (current share price). The pool distributes earnings (net of management fees) which are reinvested as shares in the pool on a monthly basis and determines participant's shares sold and redeemed based on the current share price, which at June 30, 2004, was at $1.99 per share. The Office of Treasury and Fiscal Services has hired a third party bank, Investors Bank and Trust, to perform custody and valuation services to include calculation ofthe NAV on a daily basis. Pooled cash and cash equivalents and investments are reported at fair value. 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 State agencies, and current operating funds of the State's General Fund. - 20 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Investments in the Georgia Extended Asset Pool consist generally of 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 duration at June 30, 2004, was 0.78 years. Investments in Fund 7 consist generally of repurchase agreements and certain U. S. Government Securities. The average investment duration for Fund 7 on June 30, 2004, was 1.57 years. Investments in Fund 8 consist generally ofmortgage-backed securities issued by U. S. Corporations (reported as Corporate Obligations in the disclosure of custodial risk), repurchase agreements and certain U.S. Government Securities, which include mortgage-backed securities such as collateralized mortgage obligations and adjustable rate mortgages. These mortgage-backed securities are reported as U. S. Government Securities in the disclosure of custodial risk. Investments in Fund 8 are transacted by an external investment management firm under direction of investment advisory agreements executed between the Office of Treasury and Fiscal Services and the investment management firm. The agreement directs the investment firm to utilize the Merrill Lynch 1-3 year Treasury Index in managing the average duration of the overall portfolio, excluding cash, to within plus or minus 6 months ofthe duration ofthe Index. The average investment duration for Fund 8 on June 30, 2004, was 1.55 years. In addition, the investment advisory agreements place limitations on individual security purchases and holdings as follows: 1) Limits the duration of any security at the time ofpurchase to a maximum offive (5) years. 2) Requires any mortgage-backed security, at the time of purchase and periodically, thereafter, to pass a "stress test" which provides for a duration profile not to exceed 7 years given an instantaneous and permanent interest yield increase of 300 basis points. 3) With the exception ofU. S. Treasury securities, limits individual security investments to no more than the greater of $5 million or 10% ofthe separate portfolio's total investments. 4) Prohibits investments in interest only strips, principal only strips, inverse floaters, and Z tranche securities. 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 - 21 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2003 Increases Balances Decreases June 30, 2004 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 3,092,268 $ 1,828,682 $ 4,920,950 21,424,409 35,100,626 $ 38,083,368 18,441,667 Total Capital Assets Not Being Depreciated $ 24,516,677 $ 36,929,308 $ 38,083,368 $ 23,362,617 Capital Assets Being Depreciated Building and Building Improvements Equipment Land Improvements $ 147,617,071 $ 34,232,900 $ 16,224,835 1,840,343 739,417 593,434 39,000 $ 181,810,971 497,472 17,567,706 1,332,851 Less Accumulated Depreciation for: Buildings and Building Improvements Equipment Land Improvements 46,973,069 7,386,593 101,405 4,347,761 1,344,487 34,623 39,000 474,075 51,281,830 8,257,005 136,028 Total Capital Assets, Being Depreciated, Net $ 110,120,256 $ 30,939,806 $ 23,397 $ 141,036,665 Governmental Activity Capital Assets - Net $ 134 636.933 $ 67 869,114 $ 38,106.765 $ 164,399.282 Capital assets being acquired under capital leases as of June 30, 2004, are as follows: Governmental Funds Equipment Less: Accumulated Depreciation $ 3,798,362 930,424 $ 2~867~938 Current year depreciation expense by function is as follows: - 22 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 5: CAPITAL ASSETS Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Food Services Operation $ 3,636,249 $ 8,739 14,156 675,708 137,329 52,473 126,207 573,929 72,775 1,661,316 429,306 $ 5.726.871 Note 6: RESTRICTED ASSETS General obligation bond proceeds and property tax levied specifically for retirement ofoutstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2004, were as follows: District-wide Capital Projects Bond Proceeds Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions $ 1,174,928 $ 3,255,235 $ 35,482,461 $ 8,119,362 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2004, consisted of the following: - 23 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 7: INTERFUND TRANSFERS Transfer to Transfers From General Fund District-wide Capital Projects $==4====0='=='1.'===32====9 Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as required match or supplemental funding source for capital construction projects. Note 8: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions and acts of God. However, the errors or omissions policy excludes coverage for sexual harassment and discrimination. 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 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. An excess coverage insurance policy covers individual claims in excess of$300,000 loss per occurrence, up to the statutory limit. Changes in the workers' compensation claims liability during the last two fiscal years are as follows: 2003 2004 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End ofYear Liability $ 601,198 $ 349,259 $ 403,549 $ 546,908 $ 546,908 $ 8,623 $ 235,599 $ 319,932 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. - 24 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 8: RISK MANAGEMENT Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2003 2004 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End ofYear Liability $ 0 $ 28,934 $ 28,934 $ 0 $ 0 $ 25,590 $ 25,590 $ 0 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Employees (Blanket Bond) $ 50,000 $ 250,000 - $ 500,000 Note 9: LONG-TERM DEBT CAPITAL LEASES The Houston County Board of Education has entered into various lease agreements as lessee for buses, vehicles, equipment and computers. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value ofthe future minimum lease payments as of the date of their inception. COMPENSATED ABSENCES Compensated absences represent obligations of the School District relating to employees' rights to receive compensation for future absences based upon service already rendered. This obligation relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. 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 2002 3.00%- 5.00% $ 50.000.000 Intergovernmental Contract Trust Certificates - The debt at June 30, 2004, associated with this agreement was as follows: - 25 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 9: LONG-TERM DEBT Purpose Interest Rates Amount General Government - Series 1994 4.20% - 6.00% General Government - Refunding - Series 1998 3.20% - 4.40% $ 2,405,000 8,755,000 $ 11,160.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows: Capital Leases Governmental Funds General Compensated Trust Obligation Absences (1) Certificates Bonds Unamortized Bond Premium Total Balance July 1, 2003 $ 1,877,444 $ 1,764,447 $ 11,460,000 $ 50,000,000 $ 1,824,368 $ 66,926,259 Additions Capital Leases Annual Leave Earned 1,331,992 1,335,639 1,331,992 1,335,639 Deductions Annual Leave Utilized Debt Retired 509,201 1,259,977 300,000 1,259,977 809,201 Balance June 30, 2004 $ 2 700 235 $ 1840109 $ 11 160,000 $ 50,000,000 $ 1824368 $ 67,524 712 Portion of Long-Term Debt Due within One Year $ 709,160 $ 0 $ 315 000 $ 0 $ 0 $ 1Q24160 (1) The portion of Compensated Absences due within one year has been determined to be immaterial to the basic financial statements. At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 2005 2006 2007 2008 2009 2010 - 2014 Total Principal and Interest Cagital Leases Princigal Interest Intergovernmental Contract Trust Certificates Principal Interest $ 709,160 $ 725,421 573,727 224,679 230,591 236,657 99,767 $ 70,944 41,446 18,205 12,293 6,227 315,000 $ 330,000 340,000 360,000 1,460,000 8,355,000 511,045 495,235 478,173 460,372 441,255 1,114,270 $ 2!700!235 $ 248!882 $ l 1!160!000 $ 3!500!350 - 26 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 9: LONG-TERM DEBT Fiscal Year Ended June 30 2005 2006 2007 2008 Total Principal and Interest General Obligation Debt Principal Interest Unamortized Bond Premium $ $ 14,000,000 16,000,000 20,000,000 2,104,000 1,834,000 $ 1,249,000 467 000 510,823 583,798 729 747 $ 50 000 000 $ 5 654 000 $ 1 824 368 Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $1,056,982 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 $1,043,488 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 $13,494 Note 11: SIGNIFICANT COMMITMENTS The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2004, together with funding available: - 27 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 11: SIGNIFICANT COMMITMENTS Project Unearned Executed Contracts Funding Available From State 040-676-027/040-676-039 04O-676-029/SA-015-676-188 050-676-017 050-676-030 Bonaire Elementary Renovation Centerville Elementary Addition Houston County High RMA Tucker Elementary Warner Robins Middle School Renovation $ 6,950,031 $ 2,290,835 1,079,159 721,806 8,186,285 1,457,877 4,392,990 862,854 517,579 1,152,768 761,865 171,725 3,152,069 $ 26~364~471 $ 5~333~372 The amounts described in this note are not reflected in the basic financial statements. Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 13: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. - 28 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 13: RETIREMENT PLANS TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2004 2003 2002 100% 100% 100% $ 9,560,298 $ 9,326,805 $ 8,524,515 - 29 - HOUSTON COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2004 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES} Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Inventory - Net Change in Period NONAPPROPRIATED BUDGETS ORIGINAL FINAL ACTUAL AMOUNTS $ 26,700,000 $ 34,200,000 $ 33,144,714 15,830,704 16,023,389 18,541,733 106,279,000 107,331,373 108,459,656 16,650,337 18,730,047 17,765,735 4,612,060 8,425,060 8,039,414 618,100 436,100 409,084 11535,500 2,442,888 3,215,757 $ 172,225,701 $ 187,588,857 $ 189,576,093 $ 117,692,633 $ 122,049,891 $ 121,863,323 4,724,173 4,511,550 3,359,272 822,351 10,323,056 1,258,078 10,930,623 5,101,098 1,385,961 1,995,613 795,000 9,567,539 5,027,662 4,925,746 3,407,427 810,894 10,432,524 1,317,073 11,131,753 5,348,856 1,793,166 1,777,637 1,643,000 795,000 9,567,539 4,939,274 4,233,041 3,477,658 817,720 10,403,810 1,324,194 11,132,309 6,121,132 1,805,009 1,067,902 1,643,010 815,945 9,695,467 5971920 $ 1721466,947 $ 180,028,168 $ 179,937,714 $ -241,246 $ 715601689 $ 916381379 $ 1,895,000 $ 2,811,000 $ 1,331,992 -11140,000 -2,455,000 -4011329 $ 755,000 $ 356,000 $ 930,663 $ 513,754 $ 7,916,689 $ 10,569,042 6,503,186 6,503,186 34,026,281 55424 Fund Balances - Ending $ 710161940 $ 1414191875 $ 44 650 747 Notes to the Schedule of Revenues Expenditures and Changes in Fund Balances Budget and Actual 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. - 31 - HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) 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 Impact Aid Pass-Through From Georgia Department of Education English Language Acquisition Grants Enhancing Education Through Technology Program Even Start Improving Teacher Quality State Grants Reading Excellence - Local Reading Improvement 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 R.O.T.C. Program P. L. 102-484 Total Federal Financial Assistance N/A = Not Available CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 N/A N/A $ $ (2) 81327?42 8,327,742 10.550 N/A $ 614 854 819421596 * 84.027 * 84.173 N/A $ N/A $ 2,940,134 137 767 3,077,901 84.041 84.365 84.318 84.213 84.367 84.338 84.186 84.298 84.010 84.048 N/A N/A N/A N/A N/A N/A N/A N/A N/A $ (3) 16,870 108,264 168,092 974,875 866,380 147,235 127,723 4,355,344 1961626 1010391310 (4) (3) $ ===1=8=19=8=1=19=06= - 32 - HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2004 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 ($945,664) were not maintained separately and are included in the 2004 National School Lunch Program. (3) Funds earned on the Impact Aid program and P.L. 102-484, in the amounts of $2,058,211 and $367,187 respectively, do not require reporting of expenditures. (4) Expenditures for this program were supported by $213,679 in Federal assistance and the balance from State and/or Local Funds. 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 Houston 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. - 33 - HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30 2004 SCHEDULE "3" AGENCY/FUNDING GRANTS Bright from the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Nursing Services Principal Supplements Vocational Supervisors Migrant Education Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs 4-8 After School Reading Program K-3 Statewide Reading Program Apprenticeship Program Health Insurance Mentor Teachers National Teacher Certification Preschool Handicapped Program Student Information System Georgia State Financing and Investment Commission Reimbursement on Construction Projects Office of Treasury and Fiscal Services Public School Employees Retirement CONTRACT Human Resources, Georgia Department of Family Connection OTHER Children's Trust Fund of Georgia Second Step Violence Prevention GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 3,355,941 $ 3,355,941 5,717,863 499,168 13,458,173 2,122,169 7,082,503 997,038 126,081 13,741,414 11,774,769 2,443,912 11,680,462 2,971,353 96,353 1,044,387 237,039 2,050,146 651,211 416,769 2,069,798 4,478,451 6,037,369 1,506,915 299,492 419,684 84,595 93,678 12,880 14,621,589 602,804 195,672 -4,629,847 148,815 301,908 80,750 1,043,488 24,212 51,913 317,554 155,658 5,717,863 499,168 13,458,173 2,122,169 7,082,503 997,038 126,081 13,741,414 11,774,769 2,443,912 11,680,462 2,971,353 96,353 1,044,387 237,039 2,050,146 651,211 416,769 2,069,798 4,478,451 6,037,369 1,506,915 299,492 419,684 84,595 93,678 12,880 14,621,589 602,804 195,672 -4,629,847 148,815 301,908 80,750 1,043,488 24,212 51,913 317,554 155,658 $ 14,462,134 13,494 14,462,134 13,494 50,000 50,000 12 033 12 033 See notes to the basic financial statements. - 34 - $ 108,459,656 $ 14,462,134 $ 122,921,790 HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30 2004 SCHEDULE "4" PROJECT Providing funds to pay the cost of adding to, renovating, repairing, improving and equipping existing school buildings and other buildings and facilities useful or desirable in connection therewith, acquiring instructional and administrative technology improvements for existing schools, acquiring, constructing and equipping one new elementary school and two new middle schools and acquiring any necessary property therefore, both real and personal, all at a maximum cost of $88,000,000 and provide for the issuance of the Houston County School District general obligation debt in the aggregate principal amount of $50,000,000 ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 8810001000 $ 8810001000 $ 3414381012 $ 2617411233 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 Houston 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. - 35 - HOUSTON COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2004 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION {1) {2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 6,359,291 $ 7,599,474 $ 223,191 $ 7,822,665 563,891 297,650 44,568 342,218 15,103,796 18,835,907 574,087 19,409,994 2,306,928 1,065,741 106,144 1,171,885 7,922,907 11,373,335 290,567 11,663,902 1,139,605 138,579 15,367,448 13,143,406 2,746,317 13,093,049 3,327,704 113,157 1,166,199 254,713 526,441 454,715 17,641,475 15,617,525 2,781,032 2,259,848 1,653,182 5,699,900 2,443,876 354,937 3,531,918 291,014 979,634 393,246 52,042 11,194 1,003,979 590,184 279,714 58,611 20,574 122,992 24,064 4,486 148,248 7,212 118,847 18,377 578,483 465,909 18,645,454 16,207,709 3,060,746 2,318,459 1,673,756 5,822,892 2,467,940 359,423 3,680,166 298,226 1,098,481 411,623 $ 82,746,990 $ 93,800,850 $ 3,699,081 $ 97,499,931 2,286,784 467,136 3,048,321 148,294 373,079 213!003 3,421,400 361!297 TOTAL QBE FORMULA FUNDS $ 85,500,910 $ 96,997,465 $ 4,285,163 $ 101 !282,628 (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. - 37 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 March 21, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Houston 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 Houston County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Houston County Board of Education's basic financial statements and have issued our report thereon dated March 21, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Houston County Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. 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. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. 2004YB-10 Compliance and Other Matters As part of obtaining reasonable assurance about whether Houston County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, 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 Houston County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:gp 2004YB-10 State Auditor Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 March 21, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Houston 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 of Houston County Board of Education with the types of compliance requirements described in the US. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2004. Houston County Board ofEducation'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 Houston County Board of Education's management. Our responsibility is to express an opinion on Houston 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 of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Houston County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Houston County Board of Education's compliance with those requirements. 2004SA-10 In our opinion, the Houston 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, 2004. Internal Control Over Compliance The management of Houston 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 Houston County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the management, members of the Houston County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:gp 2004SA-10 State Auditor SECTION III FINDINGS AND QUESTIONED COSTS HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Houston County Board ofEducation's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Houston County Board ofEducation did not disclose any reportable conditions related to the financial statements. 3. Noncompliance Material to the Financial Statements The audit of the Houston County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Houston County Board ofEducation did not disclose any reportable conditions in internal control over major programs. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Houston County Board of Education's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Houston County Board of Education's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $648,629. 9. Low Risk Auditee The Houston County Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. - 1- HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -2 -