HOUSTON COUNTY BOARD OF EDUCATION PERRY, GEORGIA ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30,2010 (Including Independent Auditor's Reports) 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 EXH IBlTS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS B STATEMENT OF ACTIVITIES FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS H NOTES TO THE BASIC FINANCIAL STATEMENTS SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND HOUSTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 3 SCHEDULE OF STATE REVENUE 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS SECTION I1 COMPLIANCE AND INTERNAL CONTROL REPORTS INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MAlTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WlTH GOVERNMENTAUDlTlNG STANDARDS INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WlTH REQUlREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WlTH OMB CIRCULAR A-133 SECTION Ill 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 DEPARTMENOTF AUDITSAND ACCOUNTS 270 Washington Street, S.W., Suite 1- 156 Atlanta, Georgia 30334-8400 February 2 2 , 2 0 1 1 Honorable Nathan Deal, 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 of the governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Houston County Board of Education, as of and for the year ended June 30, 2010, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Houston County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in GovernmentAuditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and the 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 previously present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Houston County Board of Education, as of June 30, 2010, 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. As described in Note 2 to the financial statements, the Board adopted provisions of GASB Statement No. 51,Accounting andReportingfor IntangibleAssets, in 20 10. In accordance with Government Auditing Standards, we have also issued our report dated February 22, 2011, on our consideration of the Houston County Board of Education's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that 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 Standardsand should be considered in assessingthe results of our audit. Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and the Schedule of Revenues, Expendituresand Changes in Fund Balances - Budget and Actual, as presented on pages i through xi and page 27 respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reportingfor placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures, to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Houston County Board of Education's financial statements as a whole. The accompanying supplementary information consists of Schedules 2 through 4, which includes the Schedule of Expenditures of Federal Awards as required by U. S. Office of Management and Budget Circular A-133, Audits of Sbtes, Low1 Governments, and Non-Prom Organiza~ons,are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements 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, ~ u d s e lWl . Hinton, CPA, CGFM State Auditor HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCALYEAR ENDED JUNE 30.2010 The discussion and analysis of Houston County Board of Education's financial performance provides an overall review of the School District's financial activities for the fiscal year ended June 30, 2010. The intent of this discussion and analysis is to look at the School District's financial performance as a whole. Readers should also review the financial statements and the notes to the basic financial statements to enhance their understanding of the School District's financial performance. Financial Highlights Key financial highlights for 2010 are as follows: O On the District-wide financial statements, net assets increased $17.4 million which represents a 6.2 percent increase from 2009. This total increase was due to governmental activities since the School District has no business-type activities. 0 General revenues accounted for $115.0 million in revenue or 42.5 percent of all revenues. Program specific revenues in the form of charges for services and sales, grants and contributions accounted for $155.8 million or 57.5 percent of total revenues of $270.8 million. The School District had $253.4 million in expenses related to governmental activities; only $155.8 million of these expenses were offset by program specific charges for services, grants or contributions. General revenues (primarily taxes) of $115.0 million were adequate to provide for these programs. 0 Among major funds, the General Fund had $246.8 million in revenues and other financing sources, and $241.9 million in expenditures and other financing uses. The General Fund's balance increased to $55.1 million. Usingthe Basic Financial Statements This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the Houston County Board of Education as a financial whole, or as an entire operating entity. The Statement of Net Asset3 and Statement of Activities provide information about the activities of the whole School District, presenting both an aggregate view of the School District's finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. 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 of the Houston County Board of Education, the General Fund is by far the most significant fund. Reporting the School District as a Whale Statement of Net Assets and the Statement of Activities 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 2010?" The Statement of Net Assets and the Statement of Activities answers this question. These statements include all assets and liabilities using the economic resources focus and accrual basis of accounting HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENTS DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30,2010 similar to the accounting used by most private-sector companies. This basis of accountingtakes 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 asseLs 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 of the School District has improved or diminished. The causes of this 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 of Net Assets and the Statement of Activities, the School District has one distinct type of activity: 0 Governmental Activities - All of the School District's programs and services are reported here including instruction, support services, operation and maintenance of plant, 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 of financial 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. Governmenbl Funds: Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using the current financial resources measurement focus and the modified accrual accounting method, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed shod-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are adequate financial resources that can be spent in the near future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements. Fiduciary Funds: The School District is the trustee, or fiducia~yf,or 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. HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30,2010 The School District as a Whole The perspective of the statement of net assets is of the School District as a whole. Table 1provides a summary of the Board's net assets for 2 0 1 0 compared t o fiscal year 2009. Table 1 Net Assets (In Thousands) Governmental Activities Fiscal Fiscal Year 2009 Year 2010 (Restated) Assets Current and Other Assets Capital Assets, Net Total Assets Liabilities Current and Other Liabilities Long-Term Liabilities Total Liabilities Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total Net Assets Total net assets increased $17.4 million t o $299.6 million. Table 2 shows the changes in net assets for fiscal year 2 0 1 0 compared to the changes in net assets for fiscal year 2009. HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30,2010 Table 2 Changes 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 RecordingTax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Total Revenues Governmental Activities Fiscal Fiscal Year 2010 Year 2009 $ 8,693 $ 8,992 144,316 139,610 2,817 8,255 $ 155,826 $ 156,857 $ 48,917 $ 44,260 20,658 20,463 20,658 673 192 20,405 766 186 19,628 25,393 304 1,130 4,008 3,892 $ 115,038 $ 116,495 $ 270,864 $ 273,352 Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Expenses Increase in Net Assets $ 165,888 $ 169,413 8,121 5,568 4,788 1,314 16,376 1,929 15,862 8,652 2,448 2,338 7,856 5,922 4,738 1,300 16,425 2,075 17,794 9,100 2,580 1,928 1,910 2,103 829 889 14,791 14,168 2,595 3,231 $ 253,409 $ 259,522 $ 17,455 $ 13,830 HOUSTON COUNlY BOARD OF EDUCATION MANAGEMENTS DISCUSSION AND ANALYSIS FOR THE F1SCAL YEAR ENDED JUNE 30,2010 FlgureA showsthe fundingsouroes for the revenue. 48.3 percent of the School Districts revenues are derlved from state grants. Proper& Taxes make up B.1percent of the total fundlng, whlle an addMona1 I5.B percent Is earnedfrom the county'ssales taxes. Flgure A Sources of Revenuefor FiscalYear 2010 State Funds / 4m3% Chagssfor Servlma 3,s I Mlscellaneourr 1 A% Federal Funda J 16.3% Propelty Taxes 18.1% 16.6% Investmmt Eamlnos 0.1% As shown In Flgure B, Instruction comprised 65.5 percent of governmental program expnses. Adrninlstmtlon and Other Services (3.2 percent) consist of the central ofnce, business and warehouse, and other central operations of the School District. Interest expense equal to 1percent of total expenses was attributableto capltal leases and the outstandingbondsfor capital projects. HOUSTON COUNlY BOARD OF EDUCATION MANAGEMENTS DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30,2010 Figure 6 Functional Expensesfor FiscalYear 2010 -\ Educational Media 1.9% 2.2% Pupil Services 3.2% 1 .O% Servlces 5.8% I.1% Ad ministration and Other Services School Maintenance and Operation of Plant Student 8.3% Services 3.4% The Statement of Actlvltfes shows the cost of program services and the charges for services and grants offsettingthose sewlces. Table 3 shows, for governmental activities,the total cost of services and the net cost of services comparing fiscal year 2010 with fiscal year 2009. That Is,It ldentifles the cost of these services supported by tax revenue and unrestricted State entitlements. HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30,2010 Table 3 Governmental Activities (In Thousands) Total Cost of Services Fiscal Fiscal Year 2010 Year 2009 Net Cost of Services Fiscal Fiscal Year 2010 Year 2009 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 Operationsof Non-InstructionalServices Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Expenses $ 165,888 $ 169,413 $ 54,222 $ 56,756 8,121 5,568 4,788 1,314 16,376 1,929 15,862 8,652 2,448 2,338 7,856 5,922 4,738 1,300 16,425 2.075 17,794 9,100 2,580 1,928 4,219 2,296 1.697 819 10,230 1,460 8,986 6,717 1,801 1,792 4.814 2,280 1,575 715 10,280 1.581 10,931 6,787 1,927 1,334 1,910 829 14,791 2,595 2,103 889 14.168 3,231 469 829 -549 2,595 707 889 -1,142 3,231 $ 253,409 $ 259,522 $ 97,583 $ 102,665 Although program revenues make up a majority of the funding, the School District is still dependent upon tax revenues for governmental activities. Approximately 32.7 percent of lnstruction activities are supported through taxes and other general revenues, and for all governmental activities general revenue support is 38.5 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 $272.8 million and expenditures and other financing uses of $272.5 million. There was an increase in the fund balance totaling $0.3 million for the governmental funds as a whole. The General Fund increased by $4.9 million due to the School District's decision to drastically reduce expenditures to offset some of the state revenue reductions and other funds were made available earlier than originally intended. The Capital Projects Funds had a decrease of $0.2 million and Debt Service Funds had a decrease of $4.4 million. The Capital Project Funds' decrease was due to the construction and renovations expenses that were funded from the sale of $59.5 million in general obligation bonds during fiscal year 2006 to be repaid by the proceeds of a Special Purpose Local Option Sales Tax (SPLOST) to be collected during fiscal years 2007 to 2012, and from the proceeds of the SPLOST. The Debt Service Funds' decrease was attributable to the interest and principal payments due on the outstanding debt associated with the general obligation bonds. 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. HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30,2010 During the course of fiscal year 2010, 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 $252.8 million was less than the original budgeted amount of $263.0 million by $10.2 million. The overall difference was mainly due to major reductions in state revenues and grants of $16.9 million, partially offset by an increase in Federal grant awards of $7.5 million. The actual revenues and other financing sources of $246.8 million was less than the budgeted amount by $6.0 million due mainly to the elimination of intrafund transfers, resulting in a decrease in other financing sources, and changes in revenue distribution by the Georgia Department of Revenue and Georgia Department of Education. The final budgeted expendituresand other financing uses of $250.0 million was less than the original budgeted amount of $262.7 million by $12.7 million. This difference was due mainly to expenditure reductions enacted by the School District to offset the decreases in state revenues and reductions in employer contributions for employee health insurance requirements enacted by the general assembly during the fiscal year. The actual expenditures and other financing uses of $242.0 million was $8.0 million less than budgeted. The reduced expenditures were mainly a result of an adjustment removing intrafund transfers, further reductions of expenditures by the School District, and the requirement to budget for specific Federal grants in advance of anticipated and actual need. 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 as current and prior year revenues for report purposes. Capital Assets and Debt Administration CapitalA s e & At the end of fiscal year 2010, the School District had $293.8 million invested in capital assets, net of depreciation, all in governmental activities. Table 4 shows fiscal year 2010 balances compared with fiscal year 2009 balances. Table 4 Capital Assets at June 30 (Net of Depreciation, In Thousands) Governmental Activities Fiscal Fiscal Year 2009 Year 2010 (Restated) Land Construction In Progress Buildings and Building Improvements Equipment Land Improvements Intangible Assets $ 10,114 $ 10,114 2,365 46,143 266,963 219,983 7,532 7,805 5,769 4,348 1,089 1,017 Total $ 293,832 $ 289,410 HOUSTON COUNT/ BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCALYEAR ENDED JUNE 30,2010 The overall capital assets increased in fiscal year 2010 by $4.4 million due to the ongoing construction and renovation of several facilities. In fiscal year 2006, the School District sold $59.5 million in general obligation bonds to start a $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 of existing schools and facilities. This program was implemented to ensure adequate classroom space is available for our rapidly growing system. This capital outlay program is almost completed as construction expenses of only $0.8 million are projected for fiscal year 2011. Debt At June 30, 2010, the School District had $48.0 million in bonds outstanding with $11.5 million due within one year, $6.8 million in intergovernmental contract trust certificates with $1.6 million due within one year, $1.6 million in capital leases outstanding with $0.7 million due within one year, $2.1 million in compensated absences earned as of the end of the year, and $3.1 million in unamortized bond premiums with $0.1 million due with one year. Table 5 summarizes the long-term debt outstanding at June 30, 2010, compared to fiscal year 2009 balances. Table 5 Debt at June 30 (In Thousands) Governmental Activities Fiscal Fiscal Year 2010 Year 2009 General Obligation Bonds Intergovernmental Contract Trust Certificates Capital Leases Compensated Absences Unamortized Bond Premiums $ 47,990 6.825 1,649 2,127 3,069 $ 59,490 8,355 2,769 2,241 3,200 $ 61,660 $ 76,055 At June 30, 2010, the School District's overall legal bonding authority was $388.4 million based on the assessed value of taxable property as of December 31, 2009. The School District's bonds have assigned ratings of Aa2 and AA+. In addition, the State of Georgia limits the amount available to be spent each year on multiyear leases, purchase, or lease purchase contracts to 7.5 percent of the 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 $5.2 million threshold. Current Issues The Houston County School District consists of 3 8 campuses located in Houston County, a fastgrowing area with a population of approximately 131,016. Current enrollment is approximately 27,061 students in grades PK-12. Among Georgia's 159 counties, Houston ranks 14th in population, 20th in economics, 1 6 t h in income, and 122" in overall millage rate. HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENTS DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30,2010 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 revenuesto the School District of approximately $2.0 million in 2003, $4.3 million in 2004, $5.1 million in 2005, $5.1 million in 2006, $2.6 million in 2007, $2.2 million in 2008, and $8.4 million in 2009. Original projections by the State of these reductions were to be $11.5 million in 2010; however, in July 2009, the Governor requested additional reductions in State grants between 3 to 8 percent. In January 2010, additional reductions were requested and approved by the legislature increasing the austerity reduction for 2010 to $25.5 million. Reductions in other state grants and programs resulted in the total reduction of state funding for 2010 reaching $38.0 million, partially offset by $13.3 million of American Rehabilitation and Recovery Act (ARRA) funding. For fiscal year 2011, additional austerity reductions of $19.0 million have already been approved by the state for the School District. Additional costs to the School District will be required with the continued implementation of House Bill 1187, which mandates lower student-teacher ratios, requiring additional teachers and classrooms. While Houston County's ratios 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 of state funding. Despite these challenges, the Houston County Board of Education is strong financially, and we remain optimistic about the ability of the School District to maximize all of the financial resources to continue to provide a quality education to our students. In the past, the county has thrived even during recent downturns in the economy. Sales tax revenue growth exceeded many other parts of Georgia, with shoppers paying seven percent tax on purchases. The School District experienced an average increase of 6.5 percent growth each year since 1984 for the System's Local Option Sales Tax collections. However, during the calendar year 2007, the county's sales tax growth slowed tremendously to only 3.6 percent. During calendar year 2008, the School District's collections continued to decrease to a rate of 2.3 percent below that of the prior year, resulting in the lowest growth in 11years. In calendar year 2009, the collections rose to 0.3 percent over the 2008 collections. Although the collections are still well below the average growth rate, the School District remains optimistic and has had numerous conversations with the Georgia Department of Revenue concerning our stagnant growth, and will continue to monitor this situation closely. The unemployment rate was 3.7 percent in 2007, 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 2008 economic impact on the State of Georgia of $3.9 billion, with Houston County being by far the largest beneficiary of that impact. Other large employers located in the county include the Board of Education, 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 of the 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 25 percent in 2010 to 137,528. This growth results in an average school system enrollment increase of approximately 500 students per year. Houston has three municipalities: Centerville with a population of 7,106; Perry with 12,661; and Warner Robins with 60,392. The county also includes the communities of Bonaire, Clinchfield, Elko, Haynesville, Henderson, and Kathleen. HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30,2010 The median household income as of 2004 was $47,134 per year. As of 2005, the per capita income was $28,507. 84.3 percent of the county's adult population is a high school graduate or higher with over 5 1 percent having an education level ranging from some college to professional or doctorate degree. Contacting the School District's Financial Management This financial report is designed to provide our citizens, taxpayers, investors and creditors with a general overview of the School District's finances and to show the School District's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Stephen J. Thublin, Assistant Superintendent for Finance and Business Operations, at the Houston County Board of Education, P.O. Box 1850, 1100 Main Street, Perry, Georgia 31069. You may also email your questions to Stephen.Thublin@hcbe.net. HOUSTON COUNTY BOARD OF EDUCATION HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30.2010 ASSETS Cash and Cash Equivalents Investments Accounts Rece~vableN. et Taxes State Government Federal Government Other Inventories Deferred Charges Capital Assets, Non-Depreciable Capital Assets, Depreciable (Net of Accumulated Depreciation) Total Assets LIABILITIES Accounts Payable Salaries and Benefits Payable Interest Payable Claims Incurred but not Reported (IBNR) 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 Unrestricted Total Net Assets Total Liabil~tiesand Net Assets EXHIBIT "A" GOVERNMENTAL ACTIVITIES The notes to the basic financial statements are an integral part of this statement. - 1- HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30.2010 GOVERNMENTAL ACTIVITIES Instruction Support S e ~ r c e s Pupil Sewices 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-lnstructlonal 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 Spec~alPurpose Local Option Sales Tax For Debt Services For Capital Projects Local Option Sales Tax Other Sales Tax Grants and Contributions not Restrictedto Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year (Restated) Net Assets - End of Year EXPENSES CHARGES FOR SERVICES The notes to the basic financial statements are an integral part of this statement. -2- PROGRAM REVENUES OPERATING GRANTS AND CONTRIBUTIONS CAPITAL GRANTS AND CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS HOUSTON COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30.2010 GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND Cash and Cash Equ~valents Investments Accounts Receivable, Net Taxes State Government Federal Government Local lnventor~es Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Cash Overdraft Accounts Payable Salar~esand Benef~tsPayable Retamages Payable Depos~tsand Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Cont~nuat~oonf Federal Programs Debt Service lnventor~es Unreserved Designated for Subsequent Years' Expenditures Designated for Student Activities Undes~gnatedReported in: General Fund Capltal Projects Total Fund Balances Total Liablllties and Fund Balances DEBT SERVICE FUND TOTAL The notes to the bas~cf~nanciasl tatements are an integral part of t h ~ statement - 4. HOUSTON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30,2010 Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for GovernmentalActivities in the Statement of Net Assets are different because: CapitalAssets used in GovernmentalActivities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Intangible Assets Accumulated Depreciation Total Capital Assets Taxes that are not available to pay for current period expenditures are deferred in the funds. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current perlod and therefore are not reported as liabilities in the funds. Long-Term Liabilities at yearend consist of: Bonds Payable Accrued Interest Trust Certificates Cap~taLl eases Payable Compensated Absences Cap~talizedBond and Other Debt IssuanceCosts Unamortized Bond Premiums Claims and Judgments Total Long-Term Liabilities Net Assets of GovernmentalActivities (Exhibit " A ) EXHIBIT "D" The notes to the basic financial statements are an integral w r t of this statement. -5- HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURESAND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30,2010 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 Servlces 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) Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances- Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL 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 30,2010 Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activit~esin the Statement of Activities are different because: Capltal Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets IS allocated over thelr estimated useful lives as depreciation expense. In the current perlod, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Taxes reported in the Statement of Activit~esthat do not provide current financial resources are not reported as revenues in the funds. The net effect of various miscellaneous transactions involving capital assets (t.e., sales, trade-ins, donations, and disposals) is to decrease net assets. Bond issuance costs, deferred galns on refundings and similar items when debt is first issued are reported as an expenditure In Governmental Funds, but are reported as deferred charges on the Statement of Net Assets and amortized over the term of the debt, usingthe straight-line method. The details of this difference in the current perlod are as follows: Amortization of Bond Issuance Costs 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 Amortization of Bond Premium TOM ~ o n g - ~ e rDmebt Repayments Interest expense reported in the Statement of Activities is recorded as ~ncurred.whereas interest expense in the governmental fund statements is reported when paid. 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 conslst of: Decrease in Compensated Absences Increase in Claims and Judgments Total Additional Expenditures Change in Net Assets of Governmental Actlvitles (Exhib~"t6") 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 30,2010 ASSETS Cash and Cash Equivalents Accounts Receivable, Net Other Total Assets LIABILITIES Accounts Payable Funds Held for Others Total Liabilities EXHIBIT "G" AGENCY FUNDS 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 30,2010 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 of the Houston County Board of Education. The members of the Authority consist of the Chairman of the Houston County Board of Education, Superintendent of the Houston County Board of Education and the Chairman of the Board of Commissioners of Houston County. The Houston County School District Building Authority is a component unit of the Houston County Board of Education 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 of Net Assets and the Statement of Activities display information about the financial activities of the 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 of the School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, includingall taxes, are presented as general revenues. HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30.2010 EXHIBIT "H" 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 of the 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) and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (sales) legally restricted for the payment of general longterm principal, interest and payingagent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt and compensated absences, which are recognized as expenditures to the extent they have matured. HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" 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 of specific 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. The State of Georgia reimburses the School District for teachers' salaries and operating costs through the Quality Basic Education Formula Earnings program (QBE). Generally teachers are contracted for the school year (July 1- June 30) and paid over a twelve month contract period, generally September 1through August 31. In accordance with the respective rules and regulations of the QBE program, the State of Georgia reimburses the School District over the same twelve month period in which teachers are paid. At June 30, the amount of teachers' salaries incurred but not paid until July and August of the subsequent year are accrued. Since the State of Georgia recognizes its QBE liability for the July and August salaries at June 30, the School District recognizes the same QBE as a receivable and revenue, consistent with symmetrical recognition. NEW ACCOUNTING PRONOUNCEMENTS In fiscal year 2010, the School District adopted the Governmental Accounting and Standards Board (GASB) Statement No. 51, Accounting and Reporting for Intangible Assets. The provisions of this Statement generally require retroactive reporting for intangible assets acquired after June 30, 1980, with the exception of those intangible assets that have indefinite useful lives and those that are considered internally generated. In addition, the School District adopted GASB Statement No. 53, Accounting and Financial Repofting for Derivative Instruments. The provisions of this Statement impacts disclosure regarding derivative instruments entered into by the state and local governments. Derivative disclosures, if any, will be identified in Note 3. RESTATEMENT OF PRIOR YEAR NET ASSETS For fiscal year 2010, the School District identified all intangible assets that met the capitalization threshold in their particular category and retroactively included their cost and accumulated amortization in the July 1,2009, beginning balance for capital assets on the financial statement. Beginning net assets for governmental activities have been restated to include intangible assets at July 1,2009, resultingfrom the implementation of GASB Statement No. 51, as follows: Net Assets, July 1,2009, as previously reported $ 281,135,660.20 GASB 5 1Adjustment 1,017,162.80 Net Assets, July 1, 2009, as restated HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" CASH AND CASH EQUIVALENTS Composition of Deposits Cash and cash equivalents consist of cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated Section 45-8-14 authorizes the School District to deposit its funds in one or more solvent banks, insured Federal savings and loan associations or insured chartered building and loan associations. INVESTMENTS Composition of lnvestments lnvestments made by the School District in nonparticipating interest-earning contracts (such as certificates of deposit) and repurchase agreements are reported at cost. Participating interestearning contracts and money market investments with a maturity at purchase of one 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: (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 Georgia Fund 1administered by the State of Georgia, Office of Treasury and Fiscal Services. (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration of credit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" PROPERTY TAXES The Houston County Board of Commissioners fixed the property tax levy for the 2009 tax digest year (calendar year) on July 29, 2009 (levy date). Taxes were due on December 20, 2009 (lien date). Taxes collected within the current fiscal year or within 6 0 days after year-end on the 2009 tax digest are reported as revenue in the governmental funds for fiscal year 2010. The Houston County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2010, for maintenance and operations amounted to $47,762,875.87. The tax millage rate levied for the 2009 tax year (calendar year) for the Houston County Board of Education was as follows (a mill equals $1per thousand dollars of assessed value): School Operations 13.34 mills SALES TAXES Local Option Sales Tax revenue, at the fund reporting level, during the fiscal year amounted to $21,241,855.70 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 $21,241,796.64 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 of meals are reported at their Federallyassigned 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 HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" 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 are not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. During the fiscal year under review, no events or changes in circumstances affecting a capital asset that may indicate impairment were known to the School District. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land lmprovements Buildings and lmprovements Equipment a. Vehicles b. Other Machinery and Equipment Intangible Assets Construction in Progress All N/A All 20 to 25 years All 10 to 50 years All $ 10,000.00 and any item necessary for insurance purposes $100,000.00 to $1.0 million All 5 to 1 4 years 6 to 10years 10to 20 years N/A Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives, with the exception of intangible assets which are amortized. Amortization of intangible assets such as water, timber and mineral rights, easements, patents, trademarks, copyrights and internally generated software is computed using the straight-line method over the estimated useful lives of the assets, generally 10to 20 years. COMPENSATED ABSENCES Members of the Teachers Retirement System of Georgia (TRS) may apply unused sick leave toward early retirement in excess of sixty days. Employees retiring under the Teachers Retirement System of Georgia are eligible to be paid for up to sixty days of leave at a rate of $22.50 per day, upon retirement. Employees retiring under the Public School Employees Retirement System will be eligible to sell all unused leave up to the one hundred day maximum accumulation, at $22.50 per day. The employee must have a minimum of five consecutive years of employment with the School District, contiguous with retirement. Public School Employees Retirement System employees who terminate employment may apply to sell unused leave in excess of forty-five days but not to exceed one hundred days at $22.50 per day. The employee must have a minimum of five consecutive years of employment with the School District, contiguous to a voluntary termination. Accrued vacation leave will be paid to all eligible employees at their daily rate up to a maximum of twenty days. Vacation leave of twelve days is awarded to all full time personnel employed on a HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" twelve month basis. No other employees are eligible to earn vacation leave. Vacation leave not utilized during the fiscal year may be carried over to the next fiscal year, providing such vacation leave does not exceed twenty days. Beginningof Year Liability Increase Decrease End of Year Liability GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. In the District-wide financial statements, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method. Bond issuance costs are reported as deferred charges and amortized over the term of the debt. In the fund financial statements, the School district recognizes bond premiums and discounts, as well as bond issuance costs during the fiscal year bonds are issued. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. N ET ASSETS The School District's net assets in the District-wide Statements are classified as follows: Invested in capital assets, net of related debt -This represents the School District's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restricted net assets-These represent resources for which the School District is legally or contractually obligated to spend resources for bus replacement, continuation of Federal programs, debt service and capital projects in accordance with restrictions imposed by external third parties. Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes. HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" FUND BALANCES Reserved Reserves represent those portions of fund balance equity that are legally segregated for a specific future use. 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. USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate of the face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent of the public funds being secured after the deduction of the amount of deposit insurance. If a depository elects the pooled method (OCGA 45-8-13.1) the aggregate of the market value of the securities pledged to secure a pool of public funds shall be not less than 1 1 0 percent of the daily pool balance. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) lnsurance on accounts provided by the Federal Deposit lnsurance 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 HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" (7) Bonds, bills, notes, certificates of indebtedness, notes, 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 or securities guaranteed 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 MortgageAssociation. Custodial credit risk is the risk that in the event of a bank failure, the School District's deposits may not be returned to it. The School District does not have a deposit policy for custodial credit risk. At June 30, 2010, the bank balances were $42,931,740.23. The bank balances were entirely covered by Federal depository insurance or collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. CATEGORIZATION OF INVESTMENTS The School District's investments as of June 30, 2010, are presented below. All investments are presented by investment type and debt securities are presented by maturity. lnvestment T v ~ e Fair Value lnvestment Maturity Less Than 1Year 1 - 5 Years Certificates of Deposit lnvestment Pools Office of Treasury and Fiscal Services Georgia Fund 1 33,485,157.16 Total Investments $ 34,281,681.92 The Georgia Fund 1,formerly referred to as LGIP, administered by the State of Georgia, Office of Treasury and Fiscal Services is 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 Georgia Fund 1(Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. Additional information on the Georgia Fund 1is disclosed in the State of GeorgiaComprehensive Annual Financial Report. This audit can be obtained from the Georgia Department of Audits and Accounts at htt~://www.audits.qa.aov/SGD/cafr.htrnl. The Primary Liquidity Portfolio consists of Georgia Fund 1which is not registered with the SEC as an investment company but does operate in a manner consistent with the SEC's Rule 2a-7 of the lnvestment Company Act of 1940. The investment is valued at the pool's share price, $1.00 per share. The pool is an AAAm rated investment pool by Standard and Poor's. The weighted average maturity of Georgia Fund 1may not exceed 6 0 days. The weighted average maturity for Georgia Fund 1on June 30,2009, was 46 days. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA)for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Governmental Activities Capital Assets, Not Being Depreciated: Land Construction Work In Progress Balances July 1, 2009 (Restated) Increases Decreases Balances June 30,2010 $ 10,113.474.77 $ 10,113.474.77 Total Capital Assets, Not Being Depreciated $ 56,256,949.33 $ 13,051,959.31 $ 56,830,707.30 $ 12,478,201.34 Capital Assets. Being Depreciated: Buildings and Improvements Equipment Land Improvements Intangible Assets $ 302,659,771.53 $ 55,345,120.30 19,327,387.40 1,302,898.15 $ 5,142,556.85 1,711,403.06 1,683,278.00 252,800.00 $ 358,004,891.83 223,828.50 20,406,457.05 6,853,959.91 1,936,078.00 Less: Accumulated Depreciation: Buildingsand lmprovements Equipment Land Improvements Intangible Assets Total Capital Assets, Being Depreciated, Net $ 233,153,115.99 $ 48,221,811.65 $ 21,296.64 $ 281,353,631.00 GovernmentalActivity CapitalAssets - Net $ 289,410,065.32 $ 61,273.770.96 $ 56,852,003.94 $ 293,831,832.34 Capital assets being acquired under capital leases as of June 30, 2010, are as follows: Governmental Funds Equipment Less: Accumulated Depreciation HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 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 EXHIBIT "H" Note 6: INTERFUND TRANSFERS Interfund transfers for the year ended June 30,2010, consisted of the following: Transfer to Transfers From General Fund Debt Service Fund Transfers are used to provide supplemental funding for the Debt Service Fund to make Trust Certificate payments. Note 7: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk of loss associated with torts, assets, errors or omissions, and acts of God. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the 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. The School District accounts for claims within the General Fund with expenses/expenditures and liabilities 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 $350,000.00 loss per occurrence, up t o the statutory limit. HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" Changes in the workers' compensation claims liability during the last two fiscal years are as follows: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability 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 liabilities being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent Each Principal All Employees (Blanket Bond) Note 8: OPERATING LEASES Houston County Board of Education has entered into various leases as lessee for copiers, servers and mail equipment. These leases are considered for accounting purposes to be operating leases. Lease expenditures for the year ended June 30, 2010, for governmental funds amounted to $237,259.08. Future minimum lease payments for these leases are as follows: Year Ending Governmental Funds Total HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" Note 9: LONG-TERM DEBT CAPITAL LEASES The Houston County Board of Education has entered into various lease agreements for the purchase of buses and athletic equipment. 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: Purpose Interest Rates Amount General Government - Series 2005 General Government - Series 2006 3.60%- 5.25% 3.75%- 5.00% $ 33,500,000.00 14,490,000.00 INTERGOVERNMENTALCONTRACT TRUST CERTIFICATES The debt at June 30, 2010, associated with this agreement was as follows: Purpose Interest Rates General Government - Refunding - Series 1 9 9 8 3.20%- 4.40% Amount HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" The changes in Long-Term Debt during the fiscal year ended June 30,2010, were as follows: Balance July 1,2009 Additions Governmental Funds Deductions Balance June 30,2010 Due Within One Year G. 0. Bonds Trust Certificates Capital Leases Compensated Absences (1) Bond Premium Amortized $ 59,490,000.00 8,355,000.00 2,768,920.31 2,240,333.71 $ 3,200,424.00 $ 11,500,000.00 $ 47,990,000.00 $ 11,500.000.00 1,530,000.00 6,825.000.00 1.600.000.00 1.119.685.36 1,649.234.95 672,733.31 1,626,315.43 1,739,572.28 2,127,076.86 131,826.50 3,068,597.50 131,826.50 (1) The portion of Compensated Absences due within one year has been determined to be immaterial to the basic financial statements. At June 30, 2010, payments due by fiscal year which includes principal and interest for these items are as follows: Intergovernmental Contract Capital Leases Trust Certificates Principal Interest Principal Interest Fiscal Year Ended June 30: Total Principal and lnterest Fiscal Year Ended June 30: General Obl~gationDebt Pr~nc~pal Interest Unamortized Bond Premium Total Princ~paal nd Interest Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $481,557.79 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" Georgia Department of Education Paid to the Georgia Department of Community Health For Health lnsurance of Non-Certified Personnel In the amount of $301,752.00 Paid to the Teachers' Retirement System For Teachers' Retirement System (TRS) Employer's Cost In the amount of $77,276.67 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $102,529.12 Note 11: SIGNIFICANT COMMITMENTS The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2010, together with funding available: Project Unearned Executed Contracts Funding Available From State Houston County Career Academy The amounts described in this note are not reflected in the basic financial statements. Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance of routine School District operations. The ultimate disposition of these proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 13: POST-EMPLOYMENT BENEFITS GEORGIA SCHOOL PERSONNEL EMPLOYEES POST-EMPLOYMENT HEALTH BENEFIT FUND Plan Description. The Georgia School Personnel Post-Employment Health Benefit Fund (School OPEB Fund) is a cost-sharing multiple-employer defined benefit post-employment healthcare plan that covers eligible former employees of public school systems, libraries and regional educational service agencies. The School OPEB Fund provides health insurance benefits to eligible former employees and their qualified beneficiaries through the State Employees Health lnsurance Plan administered by the Department of Community Health. The Official Code of Georgia Annotated (OCGA) assigns the authority to establish and amend the benefit provisions of the group health plans, including benefits for retirees, to the Board of Community Health (Board). HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" Funding Policy. The contribution requirements of plan members and participating employers are established by the Board in accordance with the current Appropriations Act and may be amended by the Board. Contributions of plan members or beneficiaries receiving benefits vary based on plan election, dependent coverage, and Medicare eligibility and election. On average, plan members pay approximately 25 percent of the cost of the health insurance coverage. Participating employers are statutorily required to contribute in accordance with the employer contribution rates established by the Board. The contribution rates are established to fund all benefits due under the health insurance plans for both active and retired employees based on projected "pay-as-you-go" financing requirements. Contributions are not based on the actuarially calculated annual required contribution (ARC) which represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The combined active and retiree contribution rates established by the Board for employers participating in the School OPEB Fund were as follows for the fiscal year ended June 30, 2010: For certificated teachers, librarians and regional educational service agencies: July 2009 August 2009 - October 2009 November 2009 -June 2010 18.534% of covered payroll for August Coverage 14.492% of covered payroll for September - November Coverage 18.534% of covered payroll for December - July Coverage For non-certificatedschool personnel: July 2009 -June 2010 $162.72 per member per month plus Department of Education contribution of $22,838,311.00 No additional contribution was required by the Board for fiscal year 2010 nor contributed to the State OPEB Fund to prefund retiree benefits. Such additional contribution amounts are determined annually by the Board in accordance with the State plan for other post-employment benefits and are subject to appropriation. The School District's combined active and retiree contributions to the health insurance plans, which equaled the required contribution, for the current fiscal year and the preceding two fiscal years were as follows: Percentage Required Fiscal Year Contributed Contribution Note 14: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) Plan Description. The TRS is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS. 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. HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "H" On October 25, 1996, the Board created the Supplemental Retirement Benefits Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1,1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits. TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 3 0 years of creditable service, regardless of age, or after 1 0 years of service and attainment of age 60. A member is eligible for early retirement after 2 5 years of creditable service. Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 6 0 or by 7% for each year or fraction thereof by which the member has less than 3 0 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available. Funding Policy. TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 1 0 years of service. If a member terminates with less than 1 0 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2010, were 5.25% of annual salary. The member contribution rate will increase to 5.53% effective July 1,2010. Employer contributions required for fiscal year 2010 were 9.74% of annual salary as required by the June 30, 2007, actuarial valuation. The employer contribution rate will increase to 10.28% effective July 1,2010. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution (This page left intentionally blank) HOUSTON COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES. EXPENDITURESAND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30,2010 REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Sewlces Pup11Services Improvement of Instruct~onaSl ervices Educational Media Services General Administration School Admlnlstration Bus~nessAdmlnistratlon Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Sewlces Enterprise Operations Community Servlces Food Servlces Operation Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Other Sources Other Uses Total Other FinancingSources (Uses) Net Change In Fund Balances Fund Balances- Beginning Fund Balances - Endlng NONAPPROPRIATED BUDGETS ORIGINAL FINAL Notes to the Schedule of Revenues, ExDenditurESand Chanees In Fund Balances Budqet and Actual The accompanyingschedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basls of accountlng whlch is the basls of accountlng used In the presentation of the fund financial statements. SCHEDULE "1* ACTUAL AMOUNTS See notes to the baslc financial statements HOUSTON COUNiY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDEDJUNE 30,2010 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agnculture, U. S. Department of Child Nutrltion Cluster Pass-Through From Georgia Department of Educat~on Food Senrlces School Breakfast Program National School Lunch Program Total Ch~ldNutrition Cluster Other Programs Pass-Through From Georaa Department of Education Food Services ARRA- Chlld Nutrltion Discretionary Grants Llmlted Avallabillty Total U. S. Department of Agriculture Education, U. S. Department of Impact Aid Cluster Direct Impact Aid Education of Homeless Children and Youth Cluster Pass-Through From Georgla Department of Educatlon Educatlon for Homeless Children and Youth Education Technology State Grants Cluster Pass-Through From Georgia Department of Educatlon Education Technology State Grants Special Education Cluster Pass-Through From Georgla Department of Education Special Education ARRA - Grants to States ARRA - Preschool Grants Grants t o States Preschool Grants Total S~eclaEl ducation Cluster State Fiscal Stabilization Fund Cluster Pass-ThroughFrom Georgla Department of Educatlon ARRA- Education State Grants Title I. Part A Cluster Pass-ThroughFrom Georgla Department of Education ARRA - Title I Grants to Local Educatlonal Agencies T~tleIGrants to Local Educatlonal Agencies Total Title I. Part A Cluster Other Programs Pass-ThroughFrom Georg~aDepartment of Educatlon Career and Technical Education Basic Grants to States Engl~shLanguage A c q u ~ s ~ t i oGnrants Even Start - State Educational Agencies lmprov~ngTeacher Quallty State Grants Mlgrant Educatlon -State Grant Program Safe and Drug-FreeSchools and Communities - State Grants Twenty-First Century Community Learning Centers Total Other Programs Total U. S . Department of Educatlon CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDEDJUNE 30.2010 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Health and Human Services, U. S. Department of Child Care and Development Block Grant Cluster Pass-ThroughFrom Georgla Department of Early Care and Learnlng ARRA - Ch~ldCare and Development Block Grant Other Programs Pass-Through From Georgia Department of Human Resources Temporav Assistance for Needy Families Pass-ThroughFrom Georgia Department of Education Cooperative Agreements to Prevent the Spread of HIV Total Other Programs Total U. S. Department of Health and Human Sewlces Defense, U. S. Department of Direct R.O.T.C. Program P. L. 102-375 CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD Total Federal Flnanc~aAl ssistance N/A = Not Available NOEStP the SChedule of Exoend~turesof Federal Awards (1) Includes the Federally ass~gnedvalue of donated commod~t~efosr the Food Donat~onProgram In the amount of $903,821.58. (2) Expenditures for the funds earned on the School Breakfast Program ($2,177,714.06) were not ma~nta~nesdeparately and are Included In the 2010 Nat~onaSl chool Lunch Program. (3)Funds earned on the Impact Aid Program and P L 102 375,in the amounts of $1,297,249.09 and $572,247.14. respectively, do not requlre reporting of expendltures (4) Expenditures for thls program were supported by $292,509 2 1 In Federal assistance and the balance from State and/or Local Funds. Major Programs are ident~fiedby an asterisk (*) in front of the CFDA number. The School District did not prov~deFederal Ass~stanceto any Subrecipient The accompanying schedule of expendltures of Federal awards ~ncludesthe Federal grant activity Of the Houston County Board of Education and IS presented on the mod~f~eadccrual basis of accountingwhich IS the bass of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. HOUSTON COUNlY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDEDJUNE 30,2010 GRANTS Br~ghFt rom the Stan: Georgla Department of Early Care and Learnlng Pre-K~ndergartenProgram Educabon. Georaa Department of Quallty Bas~cEducation D~recltnstructlonal Cost K~ndergartenProgram Klndergarten Program- Early lnterventlon Program Pr~maryGrades (1-3) Program Pr~maryGrades - Early lntewent~on(1-3) Program Upper Elementary Grades (4-5) Program Upper Elementaly Grades Early lntetventlon (4 5) Program M~ddleGrades (6-8)Program M~ddleSchool (6-8) Program H~ghSchool General Educat~on(9-12) Program Vocat~onalLaboratory (9 12) Program Students with Dlsabllltles Category 1 G~ftedStudent Category Vl Remed~aEl ducatlon Program Alternative Educat~onProgram EngllshSpeakers of Other Languages (ESOL) Med~aCenter Program 20 Days Add~t~onalnlstruct~on Staff and Profess~onaDl evelopment lndlrect Cost Central Adm~nlstratlon School Admlnlstratlon Facil~tyMaintenance and Operations Categorical Grants Pup11Transportation Regular Nursing Services Vocational Superv~sors Migrant Educat~on Education EqualiraUon Fund~ngGrant Food Setv~ces Vocational Educat~on Amended Formula Adjustment Other State Programs Dual Enrollment Funding Georg~aSpec~aNl eeds Scholarsh~pFund Health Insurance National Teacher Certlflcation Preschool Handicapped Program Teachers' Ret~rement Vlrtual Schools Grant Georgia State Financingand Investment Commission Re~mbursemenot n Construction Projects Human Resources, Georg~aDepartment of Famlly Connection Offlce of Treasury and Fiscal Services Public School Employees Ret~rement GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND SCHEDULE "3" TOTAL See notes to the basic financial statements. HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30.2010 PROJECT Provldlngfunds to pay the cost Of acqulrlng. constructing, and equlpplngtwo new elementary schools, two new rn~ddleschools, one new hlgh school. and to the extent funds are ava~lableo, ne addltlonal new elementary school, acqulrlng land for future schools and lnstruct~onaai nd adrnln~stratlvetechnology Improvements for exlstlng schools, addlngto, renovating, repairing, Improving, and equlpplng exlstlng school bu~ld~ngs and other bulld~ngsand faclilbes useful or deslrable In connection therewfih, and acqulringany necessary property therefore, both real and personal, to pay capltallzed Interest, and to pay expenses all at a maxlmum cost of $123,000,000.00 ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) (4) AMOUNT EXPENDED IN PRIOR YEARS (3) (4) PROJECT STATUS $ 123.000.000.00 $ 110.546.549 00 $ 12,495,782.39 $ 98,050,765.76 Ongolng (1) The School Dlstrlct's or~g~ncaolst estlrnate as speclfled In the resolution calllngfor the lmposltlon of the Local Opt~on Sales Tax. (2) The School D~str~ctc'surrent estlrnate of total cost for the project. Includes all cost from project Inception to cornplet~on. (3) The voters of Houston County approved the lmposlt~onof a 1%sales tax to fund the above project and retire associated debt. Amounts expended for this project may Include sales tax proceeds, state, local property taxes and/or other funds over the llfe of the project. (4) In addit~onto the expenditures shown above, the School District has incurred interestto provide advance funding for the above projects as follows: Prior Years $ 8,902,366.67 Current Year 2,505,925.00 Total $ 11.408.291.67 See notes to the baslc financial statements. SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENOTF AUDITSAND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 February 22, 2 0 1 1 Honorable Nathan Deal, 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 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MAlTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ladies and Gentlemen: We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Houston County Board of Education as of and for the year ended June 30, 2010, which collectively comprise Houston County Board of Education's basic financial statements and have issued our report thereon dated February 22, 2011. 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 of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Houston County Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Houston County Board of Education's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A mateual weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether Houston County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards, This report is intended solely for the information and use of management, members of the Houston County Board of Education, others within the entity, 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, ~ u s d lWl . Hinton, CPA, CGFM State Auditor Russell W. Hinton STATE AUDITOR (404) 6563174 DEPARTMENOTF AUDITSAND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 February 22,2011 Honorable Nathan Deal, 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 REPORT ON COMPLIANCE WlTH REOUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJORPROGRAM AND ON INTERNALCONTROL OVER COMPLIANCE IN ACCORDANCE WlTH OM6 CIRCULAR A-133 Ladies and Gentlemen: We have audited Houston County Board of Education's compliance with the types of compliance requirements described in the OM6 Ciicular A-133 Compliance Supplement that could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2010. 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 of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audifs o f States, Local Governments, and Nun-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 t o 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. In our opinion, the Houston County Board of Education complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major Federal programs for the year ended June 30,2010. Internal Control Over Com~liance Management of Houston County Board of Education is responsible for establishing and maintaining effective internal control over compliance with the 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 the requirements that could have a direct and material effect on a major Federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Houston County Board of Education's internal control over compliance. A deficiency in internal control over compl,43nceexists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses,as defined above. This report is intended solely for the information and use of management, members of the Houston County Board of Education, others within the entity, 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, usd dell W. Hinton, CPA, CGFM State Auditor SECTION Ill 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 30.2010 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 30,2010 I SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of auditor's report issue: Governmental Activities; General Fund; Capital Projects Fund; Debt Service Fund; Aggregate Remaining Fund Information Internal control over financial reporting: Material weakness identified? Significant deficiency identified? Noncompliance material to financial statements noted: Federal Awards Internal Control over major programs: Material weakness identified? Significant deficiency identified? Type of auditor's report issued on compliance for major programs: All major programs Any audit findings disclosed that are required to be reported in accordance with OMB Circular A-133, Section 510(a)? Identification of major programs: CFDA Number(s) Name of Federal Program or Cluster Title I, Part A Cluster Special Education Cluster State Fiscal Stabilization Fund Cluster Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? II FINANCIALSTATEMENT FINDINGS AND QUESTIONEDCOSTS No matters were reported. Ill FEDERALAWARD FINDINGSAND QUESTIONEDCOSTS No matters were reported. Unqualified No None Reported No None Reported Unqualified