HOUSTON COUNTY BOARD OF EDUCATION PERRY, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor 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 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 8 H NOTES TO THE BASIC FINANCIAL STATEMENTS 9 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 27 HOUSTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 28 3 SCHEDULE OF STATE REVENUE 30 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 31 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 33 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 June 8, 2007 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, 2006, 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 opinions. 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, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-11 In accordance with Government Auditing Standards. we have also issued our report dated June 8, 2007. 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 considered in assessing the results of our audit. Management's Discussion and Analysis and the Schedule ofRevenues. Expenditures and Changes in Fund Balances - Budget and Actual. as presented on pages i through x and page 27 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 of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State. as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted. ~-~ ell W. Hinton. CPA. CGFM State Auditor RWH:gp 2006ARL-11 HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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, 2006. 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 ofthe School District's financial performance. Financial Highlights Key financial highlights for 2006 are as follows: On the District-wide financial statements, net assets increased $24.3 million which represents a 12 percent increase from 2005. This total increase was due to governmental activities since the School District has no business-type activities. General revenues accounted for $110.3 million in revenue or 46 percent of all revenues. Program specific revenues in the form ofcharges for services and sales, grants and contributions accounted for $130.1 million or 54 percent oftotal revenues of$240.4 million. The School District had $216.1 million in expenses related to governmental activities; only $130.1 million ofthese expenses were offset by program specific charges for services, grants or contnbutions. General revenues (primarily taxes) of$110.3 million were adequate to provide for these programs. Among major funds, the General Fund has $215.8 million in revenues and other financing sources, and $215.8 million in expenditures and other financing uses. The General Fund's balance remained unchanged at $51 .4 million. Using the Basic Financial Statements This annual report consists ofa series offinancial 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 ofEducation, the General Fund is by far the most significant fund. i HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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 2006?" The Statement ofNet 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 ofActivities, the School District has one distinct type of activity: Governmental Activities -All ofthe 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 otherfinancial 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. The 11 HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 relationship (or differences) between governmental activities (reported in the Statement ofNet Assets and the Statement ofActivities) and governmental/undv 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 ofthe School District's net assets for 2006 compared to fiscal year 2005. 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 ofRelated Debt Restricted Unrestricted Total Net Assets Governmental Activities Fiscal Fiscal Year2006 Year 2005 $ 160,405 212,620 $ 373,025 $ 117,514 182,607 $ 300,121 $ 29,186 110,660 $ 139,846 $ 23,347 67,910 $ 91,257 $ 164,936 29,002 39,241 $ 233.112 $ 127,800 44,613 36,451 $ 208.864 Total net assets increased $24.3 million to $233.2 million. Table 2 shows the changes in net assets for fiscal year 2006, compared to the changes in net assets for fiscal year 2005. m HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table2 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 Sales Taxes Local Option Sales Tax Special Purpose Local Option Sales Tax For Debt Service and Capital Projects 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 ofNon-Instructional Services Enterprise Operations Commurtity Services Food Services Interest on Short-Term and Long-Term Debt Total Expenses Increase in Net Assets IV Governmental Activities Fiscal Fiscal Year 2006 Year 2005 $ 8,443 118,907 2.817 $ 130.167 $ 8,216 110,181 2.765 $ 121.162 $ 38,486 20,343 20,244 800 455 21,911 4,397 3.634 $ 110.270 $ 240.437 $ 143,092 6,425 5,440 3,873 1,302 13,829 1;840 14,470 7,275 2,200 1,210 2,257 985 12,331 -407 $ 216.122 $ 24,315 $ 37,552 18,176 18,146 1,270 425 19,502 2,091 3.223 $ 100.385 $ 221.547 $ 129,640 6,062 4,024 4,534 1,153 14,239 1,793 12,520 5,817 2,287 1,059 1,922 834 11,930 2.715 $ 200.529 $ 211018 HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Figure A shows the funding sources for the revenues. 53 percent ofthe School District's revenues are derived from state grants. Property Taxes make up 15 percent of the total funding, while an additional 17 percent is earned from the county's sales taxes. Figure A Sources of Revenue for Fiscal Vear 2006 Property Taxes "15% Federal Funds 8% Sales Taxes '17% Charges for Services 4% Other 3% State Funds 53% As shown in Figure B, Instruction comprised 66.0 percent of governmental program expenses. Administration and Other Services (4.5 percent) consist ofthe central office, business and warehouse, community services and other operations ofthe School District. Interest expense equal to 0.2 percent of total expenses was attributable to capital leases and the outstanding bonds for capital projects. Figure B Functional Expenses for Fiscal Year 2006 Educational !Vledia 1 .8% L Improvement of Instructional 2.5% R.Jpil Services 3 .0% Instruction 66.0% Administration & Other Services 4 .5% Food Serv'ices 5 .7% Schoo l - - - - - - Administration 6.4% Student Transportation Servic es 3 .4% l'v1aintenance a nd Operation of Plant 6 .7 % V HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Governmental Activities The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. Table 3 shows, for governmental activities, the total cost ofservices and the net cost ofservices comparing fiscal year 2006, with fiscal year 2005. That is, it identifies the cost ofthese services supported by tax revenue and unrestricted State entitlements. Table3 Governmental Activities (in Thousands) Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation ofPlant Student Transportation Services Central Support Services Other Support Services Operations ofNon-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Expenses Total Cost ofServices Fiscal Fiscal Year 2006 Year 2005 Net Cost ofServices Fiscal Fiscal Year 2006 Year 2005 $ 143,092 $ 129,640 $ . 49,343 $ 44,228 6,425 5,440 3,873 1,302 13,829 1,840 14,470 7,275 2,200 1,210 6,062 4,024 4,534 1,153 14,239 1,793 12,520 5,817 2,287 1,059 3,597 2,575 1,541 954 8,919 1,566 8,110 4,988 1,128 880 3,361 1,893 2,315 900 9,626 1,467 6,268 3,560 1,532 862 2,257 985 12,331 -407 1,922 834 11,930 2,715 575 986 1,200 -407 -1,708 834 1,514 2,715 $ 216.122 $ 200.529 $ 85,955 $ 79.367 Althoughprogram revenues make up a majority ofthe funding, the School District is still dependent upon tax revenues for governmental activities. Over 34.3 percent of Instruction activities are supported through taxes and other general revenues, and for all governmental activities general revenue support is 39.8 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$310.8 million and expenditures and other financing uses of $274.3 million. There was an increase in the fund balance totaling $36.4 million for the governmental funds as a whole. The General Fund basically remained unchanged reflecting that the School District was able to meet current costs. The Capital Projects Funds had an increase of $44.2 million and Debt Service Funds had a decrease of $7.8 million. The Capital Project Funds' increase was mainly due to the sale of$59.5 million in general vi HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 obligation bonds during the fiscal year to be funded from the proceeds of a Special Purpose Local Option Sales Tax to be collected during fiscal years 2007 to 2012. The Debt Service Funds' decrease was attnbutable to the repayment ofgeneral obligation bonds and interest funded from the proceeds ofthe Special Purpose Local Option Sales Tax that had been collected during the year and in prior years. 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 2006, 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 $216.6 million exceeded the original budgeted amount of$210.6 million by $6.0 million. The overall difference was due to an increase in state revenues and grants of$1.3 million, an increase in Federal grant awards of $2.4 million and an increase of$1.3 million for local and other sources due mainly to an increase in property taxes and projected interest earnings. The actual revenues and other financing sources of $215.8 million was less than the budgeted amount by $0.8 million due mainly to a decrease in other financing sources. The final budgeted expenditures and other financing uses of$219.0 million exceeded the original budgeted amount of$211.0 million by$8.0 million. This difference was due mainly to an increase in State and Federally funded grant expenditures and a decision to fund certain capital improvements from existing fund balance. The actual expenditures and other financing uses of$215.8 million was $3.2 million less than budgeted. The reduced expenditures were mainly a result of an adjustment removing intrafund transfers. The differences in the beginning and ending fund balances is the result of the School District's decision to include the Local Option Sales Taxes that had previously been reported as deferred. Capital Assets and Debt Administration Capital Assets At the end offiscal year 2006, the School District had $212.6 million invested in capital assets, net of depreciation, all in governmental activities. Table 4 shows fiscal year 2006, balances compared with fiscal year 2005 balances. HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table4 Capital Assets at June 30 (Net of Depreciation, in Thousands) Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Land Construction in Progress Buildings and Building Improvements Equipment Land Improvements $ 7,869 41,537 154,527 7,102 1,585 $ 5,993 22,777 145,659 6,688 1,490 Total $ 212,620 $ 182,607 The overall capital assets increased in fiscal year 2006, by $30.0 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 $116.0 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. In fiscal year 2006, the School District sold $59.5 million in general obligation bonds to start another $123.0 million capital outlay program including the construction of two new elementary schools, two new middle schools and a new high school, as well as, several additions and renovations ofexisting schools and facilities. This program was implemented to ensure adequate classroom space is available for our rapidly growing system. Construction expenses in excess of$44.0 million are projected for fiscal year 2007. Debt At June 30, 2006, the School District had $95.5 million in bonds outstanding with $16.0 million due within one year, $8.6 million in intergovernmental contract trust certificates with $0.1 million due within one year, and $3.3 million in capital leases outstanding with $1.0 million due within one year. Table 5 summarizes the long-term debt outstanding at June 30, 2006, compared to fiscal year 2005 balances. viii HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table5 Debt at June 30 (in Thousands) Governmental Activities Fiscal Fiscal Year 2006 Year 2005 General Obligation Bonds Intergovernmental Contract Trust Certificates Capital Leases Compensated Absences Unamortized Bond Premium $ 95,490 8,605 3,284 1,967 1,314 $ 50,000 10,845 3,238 2,003 1,824 Total $ 110,660 $ 67,910 At June 30, 2006, the School District's overall legal bonding authority was $297.0 million based on the assessed value oftaxable property as ofDecember 31, 2005. The School District's bonds have assigned ratings ofAa2 and AA+. In addition, the State ofGeorgia 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 $4.3 million threshold. Current Issues The Houston County School System consists of 34 campuses located in Houston County, a fastgrowing area with a population of approximately 123,753. Current enrollment is approximately 25,193 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 experienced serious financial hardship over the past few 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 $2.0 million in 2003, $4.3 million in 2004, $5.1 million in 2005, $5.2 million in 2006, and projected reductions of $2.6 million in 2007. Additional costs to the School District will be required with the continued implementation of House Bill 1187, which mandates lower studentteacher ratios, requiring additional teachers and classrooms. While Houston County's ratios remain below these mandates, continued reductions in State funding combined with a rapidly growing system place a heavier burden on the locally generated taxes to help offset this loss ofState funding. Despite these challenges, the Houston County Board of Education is strong financially, and we remain optimistic about the ability ofthe School District to maximize all ofthe financial resources to continue to provide a quality education to our students. HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 The county has thrived even during the recent downturn in the economy. Sales tax revenue growth has exceeded many other parts ofGeorgia, with shoppers paying seven percent tax on purchases. In calendar year 2006 the System's Local Option Sales Tax rose 11 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 ofGeorgia 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, Houston County Hospital Authority, Perdue Farms, Frito-Lay Company, Anchor Glass, and Wal-Mart Associates. Of Houston's employed residents, 62.8 percent 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 percent population increase from 1980-1990 and a 24 percent increase from 1990-2000. The population is projected to grow by 14 percent 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 ofBonaire, Clinchfield, Elko, Haynesville, Henderson, and Kathleen. The median household income as of2000, was $44,794 per year. As of2002, 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 dodorate 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, Assistant Superintendent for Finance and Business Operations, at the Houston County Board ofEducation, P. 0. 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, 2006 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress land Improvements Buildings Equipment less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable long-Term liabilities Due Within One Year Due in More Than One Year Total liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. - 1- EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 27,943,220 103,752,631 8,486,283 14,253,570 2,809,865 146,567 3,012,665 7,869,465 41,536,667 1,840,253 215,781,679 15,200,961 -69,608,582 $ ===37=3=,0=2=5'=2=44= $ 818,123 23,669,030 2,484,890 2,213,778 17,666,006 92,994,208 $ 139,846,035 $ 164,936,047 1,037,044 27,811,461 153,085 39,241,572 $ 233, 179,209 $ ==3=7=3,=02=5=,2=44= HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Local Option Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year EXPENSES CHARGES FOR SERVICES $ 143,091,775 $ 6,424,746 5,440,296 3,873,173 1,302,562 13,828,831 1,840,488 14,470,001 7,274,708 2,199,957 1,210,330 2,256,755 985,533 12,330,736 -407 650 $ 216,122,241 $ 2,526,190 1,681,432 4,235,475 8 443 097 Net Assets - End of Year The notes to the basic financial statements are an integral part of this statement. -2- EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 89,174,867 $ 2,823,800 2,858,656 2,256,174 347,488 4,822,557 249,712 6,306,396 2,042,662 1,034,973 330,394 6,659,088 $ 118,906,767 $ 2,047,259 $ 3,969 6,429 76,519 872 86,825 25,059 53,175 243,677 36,633 236,432 2,816,849 $ -49,343,459 -3,596,977 -2,575,211 -1,540,480 -954,202 -8,919,449 -1,565,717 -8,110,430 -4,988,369 -1, 128,351 -879,936 -575,323 -985,533 -1,199,741 407 650 -85,955,528 $ 38,485,794 20,342,638 7,244,029 13,000,000 799,748 455,597 21,910,896 4,397,502 3,634,576 $ 110,270,780 $ 24,315,252 208,863,957 $ ===2=33.,..,=17=9..,,2=09= -3- HOUSTON COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Total Assets GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 13,113,489 $ 10,588,137 $ 4,241,594 $ 27,943,220 38,264,133 45,553,185 19,935,313 103,752,631 4,289,978 14,253,570 2,809,865 146,567 3,012,665 3,634,554 7,924,532 14,253,570 2,809,865 146,567 3,012,665 $ 75,890,267 $ 56,141,322 $ 27,811,461 $ 159,843,050 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Claims Payable Contracts Payable Retainages Payable Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Designated for Self-Insurance Designated for Subsequent Years' Expenditures Undesignated Reported in: General Fund Capital Projects Total Fund Balances $ 490,467 23,669,030 327,656 $ $ 24,487,153 $ 2,484,890 2,213,778 4,698,668 $ 490,467 23,669,030 327,656 2,484,890 2,213,778 $ 29,185,821 $ 281,247 $ 281,247 $ 27,811,461 27,811,461 755,797 755,797 $ 50,051,618 50,051,618 419,532 32,662,710 419,532 32,662,710 17,283,828 1,391,036 17,283,828 1,391,036 $ 51,403,114 $ 51,442,654 $ 27,811,461 $ 130,657,229 Total Liabilities and Fund Balances $ 75,890,267 $ 56,141,322 $ 27,811,461 $ 159,843,050 The notes to the basic financial statements are an integral part of this statement. -4- HOUSTON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Trust Certificates Capital Leases Compensated Absences Unamortized Bond Premiums Total Long-Term Liabilities $ 130,657,229 $ 7,869,465 41,536,667 1,840,253 215,781,679 15,200,961 -69,608,582 212,620,443 561,751 $ -95,490,000 -8,605,000 -3,284,500 -1,967, 169 -1313545 -110,660,214 Net Assets of Governmental Activities (Exhibit "A") $ 233,179,209 The notes to the basic financial statements are an integral part of this statement. -5- HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Accrued Interest on Bonds Sold Proceeds of Long-Term Capital Related Debt Premiums on Bonds Sold Capital Leases Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 36,338,836 21,597,983 $ 122,298,490 20,294,062 8,443,097 2,173,948 3,621,750 13,000,000 $ 2,573,172 1,404,000 15494 $ 214,768,166 $ 16,992,666 $ $ 36,338,836 7,244,029 41,842,012 124,871,662 20,294,062 8,443,097 819,554 4,397,502 3,637,244 8,063,583 $ 239,824,415 $ 137,928,985 $ 137,928,985 6,414,574 5,423,819 3,677,069 1,319,533 13,606,315 1,843,604 $ 14,637,565 7,567,318 2,140,863 1,210,330 2,256,755 985,533 11,854,254 441,127 $ 35,770,219 14,776 6,414,574 5,423,819 3,677,069 1,319,533 13,606,315 2,299,507 14,637,565 7,567,318 2,140,863 1,210,330 2,256,755 985,533 11,854,254 35,770,219 961,070 106,280 16,240,000 2,880,181 17,201,070 2,986,461 $ 211,933,867 $ 36,211,346 $ 19,134,957 $ 267,280,170 $ 2,834,299 $ -19,218,680 $ -11 071 374 $ -27,455,755 $ $ 59,490,000 3,200,424 $ 1,007,552 3,914,111 -3914111 -3, 120,341 193,687 $ 3,120,341 193,687 59,490,000 3,200,424 1,007,552 7,034,452 -7,034,452 $ -2,906,559 $ 63,484,194 $ 3,314,028 $ 63,891,663 $ -72,260 $ 44,265,514 $ -7,757,346 $ 36,435,908 51,475,374 7 177 140 35,568,807 94,221,321 Fund Balances - Ending $ 51,403,114 $ 51,442,654 $ 27,811,461 $ 130,657,229 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 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. In the Statement of Activities, only the gain on the sale of the building/equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the cost of the carrying value of the building/equipment sold. Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from: General Obligation Bonds Issued 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: Bond Principal Retirements Capital Lease Payments Trust Certificate Retirements Bond Premiums Amortized Total Long-Term Debt Repayments Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of: Decrease in Compensated Absences Change in Net Assets of Governmental Activities (Exhibit "B") $ 36,435,908 $ 36,421,891 -6,405,360 30,016,531 615,746 -2,668 -59,490,000 -1,007,552 $ 14,000,000 961,070 2,240,000 510,823 17,711,893 35 394 $ 24,315,252 The notes to the basic financial statements are an integral part of this statement. -7- HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ ==7=78='=59=0= $ ===7=7=8,.5.9....,0= The notes to the basic financial statements are an integral part of this statement. -8- HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 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 2038 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. -9- HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting of internal 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 Special Purpose Local Option Sales Tax (SPLOST), Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation ofmajor capital facilities. Debt Service Fund accounts for taxes (sales) legally restricted for the payment ofgeneral longterm principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments, or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. - IO - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year and equity investments are reported at fair value. The Official Code of Georgia 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 of return shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: - 11 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 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 2005 tax digest year (calendar year) on July 27, 2005 (levy date). Taxes were due on December 20, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Houston County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $36,338,836. The tax millage rate levied for the 2005 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 13.48 mills - 12 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 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 $20,342,638 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 $20,244,029 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (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 On the basic financial statements, inventories of consumable supplies and materials are reported 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. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: - 13 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment: a. Vehicles b. Other Machinery and Equipment Construction in Progress All NIA All NIA All 10 to 50 years All $10,000 and any item necessary for insurance purposes All 5 to 14 years 6 to 10 years NIA 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 ofNet 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 ofinsurance, or by collateral. The aggregate ofthe face value ofsuch surety bond and the market value ofsecurities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. At June 30, $12,951,343 of deposits were not secured by surety bond, insurance or - 14 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS collateral as specified above. The School District is working with the affected financial institutions to ensure appropriate levels of collateral are maintained for all of the School District's deposits. 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, 2006, the bank balances were $37,952,296. The amounts of the total bank balances are classified into four categories of custodial credit risk: Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name. Category 4 - Uncollateralized. - 15 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows: Custodial Credit Risk Category Bank Balance 1 $ 5,213,432 2 19,787,521 3 0 4 12,951,343 Total $ 37,952,296 CATEGORIZATION OF INVESTMENTS Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure ofthe counterparty to a transaction, the School District will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The School District does not have a formal policy for managing custodial credit risk. Investments are classified as to custodial credit risk by the 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's 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, 2006, the carrying value of the School District's total investments was $102,963,056 which is materially the same as fair value. These investments included funds in the amount of $100,145,970 invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy of the State of Georgia, Office of Treasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows: - 16 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U.S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days. At June 30, 2006, the carrying value ofthe School District's investments was $102,963,056 which is materially the same as fair value. Fair value is based on quoted market prices, unless otherwise noted. The investments are classified as to custodial credit risk categories as follows: Type oflnvestment Risk Categories 2 3 Carrying Amount Fair Value Debt Securities U.S. Treasuries $ 28)7086 $====" $ 2,817,086 $ 2,8 I 7,086 Investment Pools Office of Treasury and Fiscal Services Georgia Fund I I 00,145,970 I 00,145,970 Total Investments $ 102 963 056 $ )02 963 056 Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value ofan investment. The School District does not have a formal policy for managing interest rate risk. Investments are classified as to investment maturity as follows: - 17 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Investment Type Fair Value Investment Maturity Less Than 1 Year Debt Securities U. S. Treasuries $ 2,817.086 $ 2,817.086 Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2005 Increases Balances Decreases June 30, 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 5,992,733 $ 1,876,732 $ 7,869,465 22,776,542 32,931,060 $ 14,170,935 41,536,667 Total Capital Assets Not Being Depreciated $ 28,769,275 $ 34,807,792 $ 14,170,935 $ 49,406,132 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 201,717,500 $ 14,170,935 $ 13,872,762 1,453,698 1,679,852 160,401 106,756 $ 215,781,679 125,499 15,200,961 1,840,253 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 56,058,574 7,184,933 189,302 5,300,415 1,038,986 65 959 104,088 125,499 61,254,901 8,098,420 255,261 Total Capital Assets, Being Depreciated, Net $ 153,837,305 $ 9,379,674 $ 2 668 $ 163,214,311 Governmental Activity Capital Assets - Net $ 182,606.580 $ 44,187,466 $ 14,173.603 $ 212,620,443 Capital assets being acquired under capital leases as of June 30, 2006, are as follows: - 18 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 5: CAPITAL ASSETS Governmental Funds Equipment Less: Accumulated Depreciation $ 5,377,025 1,245,481 $ 4,131,544 Current year depreciation expense by function is as follows: Instruction Support Services Pupil Services Improvements of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Food Services $ 4,507,668 $ 8,739 14,156 168,480 1,921 191,171 55,174 117,082 739,734 80,658 1,377,115 520,577 $ 6,405.360 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) funds and general obligation bond proceeds are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2006, were as follows: District-wide Canital Projects Bond SPLOST Proceeds SPLOST Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions $ 4,241,594 $ 3,631,110 $ 5,565,991 $ 19,935,313 $ 45,553,185 - 19 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2006, consisted of the following: Transfer to Transfers From District-wide General Capital Fund Projects District-wide Capital Projects Debt Service Fund Total $ 3,914,111 $ 3,120,341 $ 3,914.111 $ 3,120.341 Transfers are used to (1) move property tax revenues collected by the General Fund to the Districtwide Capital Projects Fund as required match or supplemental funding source for capital construction projects, (2) move capitalized interest from the sale ofbonds from the Capital Projects Fund to the Debt Service Fund, and (3) to move excess funds from the sale of bonds from Capital Projects to the Debt Service Fund to pay any additional bond issuance costs. 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 ofGod. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years. The School District has established a limited risk management program for workers' compensation claims. In connection with this program, a self-insurance reserve has been established within the General Fund by the School District. The School District accounts for claims within the General Fund 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: 2005 2006 Beginning of Year Liability Claims and Changes in Estimates Claims Paid EndofYear Liability $ 319,932 $ 265,046 $ 331,259 $ 253,719 $ 253,719 $ 464,559 $ 390,622 $ 327,656 - 20- HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 8: RISK MANAGEMENT The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2005 2006 Beginning of Year Liability Claims and Changes in Estimates Claims Paid EndofYear Liability $ 0 $ 9 901 $ 9 901 $ 0 $ 0 $ 2 114 $ 2 114 $ 0 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent Each Principal All Employees (Blanket Bond) $ 50,000 $ 50,000 $ 250,000 - $ 500,000 Note 9: LONG-TERM DEBT CAPITAL LEASES The Houston County Board ofEducation has entered into various lease agreements as lessee for the purchase of buses. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of the 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: - 21 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 9: LONG-TERM DEBT Purpose Interest Rates Amount General Government - Series 2002 General Government - Series 2005 General Government - Series 2006 3.00% - 5.00% 3.60% - 5.25% 3.75%- 5.00% $ 36,000,000 45,000,000 14,490,000 $ 95A20,ooo INTERGOVERNMENTAL CONTRACT TRUST CERTIFICATES The debt at June 30, 2006, associated with this agreement was as follows: Purpose Interest Rates Amount General Government- Refunding- Series 1998 3.20% - 4.40% $ 8,605.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: Capital Leases Governmental Funds General Compensated Trust Obligation Absences (1) Certificates Bonds Unamortized Bond Premium Total Balance July I, 2005 $ 3,238,018 $ 2,002,563 $ 10,845,000 $ 50,000,000 $ 1,824,368 $ 67,909,949 Additions Capital Leases Annual Leave Earned G.O.Bonds 1,007,552 1,459,733 59,490,000 1,007,552 1,459,733 59,490,000 Deductions Annual Leave Utilized Debt Retired Bond.Premiums Amortized 961,070 1,495,127 2,240,000 14,000,000 510,823 1,495,127 17,201,070 510,823 Balance June 30, 2006 $ 3,28~,500 $ l 126.7.116.2 $ 8,6.05,000 $ 25,420,000 $ 1,313,5~5 $ 110,6.6.0,2 H Portion of Long-Term Debt Due within One Year $ 1,002,208 $ 0 $ 80,000 $ 16,000,000 $ 583,798 $ 17,666,006 (1) The portion of Compensated Absences due within one year has been determined to be immaterial to the basic financial statements. At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows: -22 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 9: LONG-TERM DEBT Fiscal Year Ended June 30 2007 2008 2009 2010 2011 2012 - 2014 Total Principal and Interest Fiscal Year Ended June 30 2007 2008 2009 2010 2011 2012 - 2013 Total Principal and Interest Capital Leases Principal Interest Intergovernmental Contract Trust Certificates Principal Interest $ 1,002,208 $ 668,064 688,004 708,676 217,548 107,872 $ 69,727 49,787 29,115 7,874 80,000 $ 85,000 85,000 1,530,000 1,600,000 5,225.000 368,875 365,635 362,193 358,750 294,490 461,030 $ 3,284.500 $ 264.375 $ 8.605.000 $ 2.210.973 General Obligation Debt Principal Interest Unamortized Bond Premium $ 16,000,000 $ 20,000,000 11,500,000 11,500,000 36,490,000 3,767,954 $ 3,237,100 2,770,100 2,505,925 1,975,250 2,261,750 583,798 729,747 $ 95,490.000 $ 16,518.079 $ 1,313.545 Note 10: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2006, together with funding available: - 23 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 10: SIGNIFICANT COMMITMENTS Project Unearned Executed Contracts Funding Available From State 0SG-676-017 0?G-676-036' Houston County High School Parking Lot New Elementary #8 Lake Joy New Elementary #9 Hill Top Northside High School RMA Northside Middle School Competition Field Perry High School RMA Perry High School Stadium Expansion Warner Robins High School RMA $ 780,879 $ 146,122 11,963,635 2,620,007 467,000 7,248,829 10,430,706 705,740 163,000 157,558 257,350 327,291 $ 32,501,988 $ 2,766,129 The amounts described in this note are not reflected in the basic financial statements. Note 11: 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 12: 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. - 24 - HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 12: 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 2006 2005 2004 100% 100% 100% $ 10,774,651 $ 10,052,735 $ 9,560,298 - 25 - (This page left intentionally blank) HOUSTON COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2006 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation 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 Adjustments Fund Balances - Ending NONAPPROPRIATED BUDGETS ORIGINAL FINAL ACTUAL AMOUNTS $ 37,440,000 $ 37,800,000 $ 36,338,836 17,715,403 17,770,403 21,597,983 120,985,885 122,255,253 122,298,490 18,951,389 21,335,483 20,294,062 8,698,485 8,798,485 8,443,097 1,051,000 2,173,000 2,173,948 2,587,500 3,176,500 3,621,750 $ 207,429,662 $ 213,309,124 $ 214,768,166 $ 138,718,982 $ 137,873,027 $ 137,928,985 6,642,847 5,149,262 3,674,460 1,250,340 13,021,980 1,831,488 13,244,994 7,067,094 1,836,579 2,180,100 1,860,000 835,000 11,101,416 6,518,999 6,182,689 3,684,120 1,320,990 13,606,800 1,850,488 14,639,994 7,666,135 2,141,579 2,474,191 2,135,000 986,000 11,653,916 6,414,574 5,423,819 3,677,069 1,319,533 13,606,315 1,843,604 14,637,565 7,567,318 2,140,863 1,210,330 2,256,755 985,533 11,854,254 1,067,350 $ 208,414,542 $ 212,733,928 $ 211,933,867 $ -984 880 $ 575 196 $ 2,834,299 $ 3,191,500 $ 3,321,500 $ 1,007,552 -2,544,000 -6,293,110 -3914111 $ 647,500 $ -2,971,610 $ -2,906,559 $ -337,380 $ -2,396,414 $ -72,260 21,695,711 21,695,711 51,475,374 -187 880 -187,880 $ 21,170,451 $ 19111417 $ 51403114 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. - 27 - HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U.S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Direct Impact Aid Fund for the Improvement of Education Pass-Through From Georgia Department of Education Advanced Placement Testing Comprehensive School Reform Demonstration English Language Acquisition Grants Enhancing Education Through Technology Program Even Start Hurricane Education Recovery Improving Teacher Quality State Grants Mathematics and Science Partnerships Migrant Education 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 Labor, U. S. Department of Pass-Through from Georgia Department of Education Workforce Investment Act Adult Programs Defense, U.S. Department of Direct R.O.T.C. Program P.L. 102-375 Total Federal Financial Assistance N/A = Not Available - 28- CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD . 10.553 . 10.555 10.550 N/A N/A $ $ (2) 10,485,734 10,485,734 NIA $ 683127 11,168,861 84.027 84.173 N/A $ N/A $ 4,577,119 136 746 4,713,865 84.041 84.215 84.330 84.332 84.365 84.318 84.213 . 84.938 . 84.367 84.366 84.011 84.186 84.298 84.010 84.048 N/A N/A N/A N/A N/A NIA NIA NIA NIA N/A N/A N/A NIA $ (3) 65,111 164 582,610 67,194 78,374 180,701 (3) 951,792 306,246 103,515 122,336 66,714 4,280,676 232,611 11,751,909 17.258 N/A $ 5 000 (4) (3) $ ===2=2'=92=5=7' =7=0 HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($1,231,173) were not maintained separately and are included in the 2006 National School Lunch Program. (3) Funds earned on the Impact Aid program, Hurricane Education Recovery program, and P.L. 102-375, in the amounts of $1,531,212, $344,729 and $356,315 respectively, do not require reporting of expenditures. (4) Expenditures for this program were supported by $248,507 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. - 29 - HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 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 K-3 Statewide Reading Program National Teacher Certification Preschool Handicapped Program Virtual Schools Georgia State Financing and Investment Commission Reimbursement on Construction Projects Human Resources, Georgia Department of Family Connection GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 3,498,463 $ 3,498,463 6,693,632 403,836 15,484,919 1,067,863 7,941,344 596,928 139,400 14,780,976 13,526,301 2,588,352 12,247,239 3,750,209 72,516 1,156,297 582,311 2,244,247 724,941 447,099 2,249,272 4,698,436 6,306,335 1,671,320 243,677 421,116 80,171 18,183 2,163 21,568,581 602,698 814,765 -5,192,077 355,567 106,877 342,633 900 6,693,632 403,836 15,484,919 1,067,863 7,941,344 596,928 139,400 14,780,976 13,526,301 2,588,352 12,247,239 3,750,209 72,516 1,156,297 582,311 2,244,247 724,941 447,099 2,249,272 4,698,436 6,306,335 1,671,320 243,677 421,116 80,171 18,183 2,163 21,568,581 602,698 814,765 -5, 192,077 355,567 106,877 342,633 900 $ 2,573,172 61 000 2,573,172 61 000 See notes to the basic financial statements. $ 122,298,490 $ 2,573,172 $ 124,871,662 - 30- HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 SCHEDULE "4" PROJECT ORIGINAL ESTIMATED COST(1l CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3)(4) AMOUNT EXPENDED IN PRIOR YEARS (3) (4) PROJECT STATUS 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. $ 88,000,000 $ 113,145,721 $ 26,007,611 $ 80,650,777 Ongoing Providing funds to pay the cost of acquiring, constructing and equipping two new elementary schools, two new middle schools, one new high school and to the extent funds are available, one additional new elementary school, acquiring land for future schools and instructional and administrative technology improvements for existing schools, adding to, renovating, repairing, improving and equipping existing school buildings and other buildings and facilities useful or desirable in connection therewith and acquiring any necessary property therefore, both real and personal, to pay capitalized interest and to pay expenses all at a maximum cost of $123,000,000. 123,000,000 123,000,000 10,133,305 Ongoing $ 211,000,000 $ 236,145,721 $ 36,140,916 $ 80,650,777 (1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax. (2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion. (3) The voters of Houston County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. (4) In addition to the expenditures shown above, the School District has incurred interest to provide advance funding for the above projects as follows: Prior Years $ 6,487,333 Current Year 2,375,838 Total $ 8,863,171 See notes to the basic financial statements. - 31 - (This page left intentionally blank) HOUSTON COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2006 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1 l (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 7,432,045 $ 8,673,774 $ 353,058 $ 9,026,832 465,735 336,105 11,326 347,431 17,247,073 19,999,105 1,424,711 21,423,816 1,251,834 1,949,657 42,241 1,991,898 8,885,965 12,251,969 859,884 13,111,853 665,403 156,916 16,514,814 15,034,809 2,906,151 13,704,714 4,159,543 95,993 1,288,445 625 372 643,841 644,840 19,695,706 17,619,821 3,171,326 4,163,060 1,477,674 8,115,629 395,110 331,582 4,451,746 185,674 1,034,789 703,782 59,688 37,222 1,339,190 2,063,614 349,969 7,424 21,515 106,144 22,812 2,285 144,011 949 135,826 16456 703,529 682,062 21,034,896 19,683,435 3,521,295 4,170,484 1,499,189 8,221,773 417,922 333,867 4,595,757 186,623 1,170,615 720,238 $ 90,434,812 $ 105,845,190 $ 6,998,325 $ 112,843,515 2,506,492 503,526 3,368,976 231,454 292,848 287,852 3,661,824 519,306 TOTAL QBE FORMULA FUNDS $ 93,444,830 $ 109,445,620 $ 7,579,025 $ 117,024,645 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 33 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 June 8, 2007 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 ofHouston County Board ofEducation as ofand for the year ended June 30, 2006, which collectively comprise Houston County Board of Education's basic financial statements and have issued our report thereon dated June 8, 2007. 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 opinions 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. 2006YB-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 oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the 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, --=i:_) ~ l0 .~:::h;._ 1 ~sell W. Hinton, CPA, CGFM State Auditor RWH:gp 2006YB-10 Russell W. Hinton STATE AUDITOR (404) 658-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 June 8, 2007 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 U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Houston County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of 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 ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits ofStates, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the 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. 2006SA-10 In our opinion, the Houston County Board ofEducation complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2006. 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 of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. 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 2006SA-10 sell W. Hinton, CPA, CGFM State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS HOUSTON COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION IV FINDINGS AND QUESTIONED COSTS HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the 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) ofOMB Circular A-133 The Houston County Board of Education's audit did not disclose audit findings required to be reported by section .510(a) ofOMB 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 84.367 Improving Teacher Quality State Grants 84.938 Hurricane Education Recovery 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $762,196. 9. Low Risk Auditee The Houston County Board of Education qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133. - 1- HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -2-