JACKSON COUNTY BOARD OF EDUCATION JEFFERSON, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor JACKSON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION -SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENTOFNETASSETS 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 10 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 11 H NOTES TO THE BASIC FINANCIAL STATEMENTS 12 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 29 JACKSON 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 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM Page 30 32 34 35 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS JACKSON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 February 2, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Jackson County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Jackson County Board of Education, as of and for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Jackson County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm10ns. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Jackson County Board ofEducation, as of June 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-11 In accordance with Government Auditing Standards, we have also issued our report dated February 2, 2007, on our consideration ofthe Jackson County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through ix and page 29 respectively, are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Jackson County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, ~~w~ Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2006ARL-11 JACKSON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 INTRODUCTION Our discussion and analysis of the Jackson County School District's financial performance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2006. The intent of this discussion and analysis is to look at the School District's financial performance as a whole. We encourage our readers to also review the notes to the basic financial statements and financial statements to enhance their understanding of the School District's financial performance. FINANCIAL HIGHLIGHTS Key financial highlights for fiscal year 2006 are as follows: Bonds, from the bond referendum passed by voters of Jackson County in September 2004, were sold on September 21, 2005, the proceeds of which are being used to construct a new high school, middle school, and additional classrooms at three schools. Donors established an endowment to support the fine arts programs at the middle school and high school levels. Growth of retail establishments and economic recovery of the region has resulted in an increase in SPLOST revenue which is used to supplement and equip the new construction. On the District-wide financial statements, the assets of the School District exceeded liabilities by $67,735,686. Of this amount, $316,710 is unrestricted and is available for spending at the School District's discretion. The School District had $58,096,873 in expenses relating to governmental activities; only $37,461,457 of these expenses is offset by program specific charges for services, grants and contributions. General revenues (primarily property and sales taxes) of $34,894,214 were adequate to provide the remaining funding for these programs. As stated above, general revenues accounted for $34,894,214 or 48.2% of all revenues totaling $72,355,671. Program specific revenues in the form of charges for services, grants and contributions accounted for the rest. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of three parts; management's discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two levels of statements that present different views of the School District. These include the District-wide and fund financial statements. - I- JACKSON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 The District-wide financial statements include the 'Statement of Net Assets' and 'Statement of Activities'. These statements provide information about the activities of the School District presenting both short-term and long-term information about the School District's overall financial status. The fund financial statements focus on individual parts of the School District, which reports the School District's operation in more detail. The 'Governmental Funds' statements disclose how basic services are financed in the short-term as well as what remains for future spending. The 'Fiduciary Funds' statements provide information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. In the case of the Jackson County School District, the General Fund, Capital Projects Funds, and Debt Service Funds are all considered to be major funds. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. Additional supplementary information (not required) is presented to facilitate understanding of the financial statements. District-wide Statements Given that Jackson County School District has no operations that have been classified as "Business Activities," the District-wide financial statements are basically a consolidation of all of the School District's operating funds into one column called governmental activities. In reviewing the District-wide financial statements, a reader might ask the question, are we in a better financial position than last year? The 'Statement of Net Assets' and the 'Statement of Activities' provides the basis for answering this question. These financial statements include all of the School District's assets and liabilities. The School District uses the accrual basis of accounting similar to the accounting used by most private-sector companies. The "accrual basis of accounting" takes into account all of the current year's revenues and expenses regardless of when cash is received or paid. These two statements report the School District's net assets and any changes in those assets. The change in net assets is important because it tells the reader that, for the School District as a whole, the financial position of the School District has improved or diminished. The causes of this change may be the results of many factors, including those not under the School District's control, such as the property tax base, status of facility availability, required educational programs, student-teacher ratios, fluctuation in state and Federal funding, and other factors. The 'Statement of Net Assets' and the 'Statement of Activities' reflects 100% of the School District's governmental activities. -11- JACKSON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Fund Financial Statements The School District uses many funds or sub-funds to account for a multitude of financial transactions during the fiscal year. The fund financial statements presented in this report provide detail information about only the School District's significant or major funds. Governmental Funds - Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at yearend available for spending in future periods. These funds are reported using the modified accrual method of accounting which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds are reconciled within the financial statements. Fiduciary Funds - The School District is the trustee, or fiduciary, for assets that belong to others, such as 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. FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE Recall that the Statement of Net Assets provides the perspective of the School District as a whole. The reader can think of the School District's net assets as the difference between its assets (i.e., what the School District owns) and its liabilities (i.e., what the School District owes) at the end of a fiscal year. This balance represents one way to measure the School District's financial health or its financial position. In the case of the Jackson County School District, assets exceeded liabilities by $67,735,686 at June 30, 2006. To better understand the School District's actual financial position and ability to deliver services in future periods, the reader will need to review the various components of the net asset category. For example, of the $67,735,686 of net assets, $9,935,217 was restricted for debt service, completion on certain ongoing capital projects, continuation of Federal programs and permanent fund. Accordingly, these funds were not available to meet the School District's ongoing obligations to citizens and creditors. In addition, the School District also had $57,483,759 (net of related debt) invested in capital assets (e.g., land, buildings, and equipment). The School District uses these capital assets to provide educational services to students within geographic boundaries served by the School District. Because of the very nature and on-going use of the assets being reported in this component of net assets, it must be recognized that this portion of the net assets is not available for future spending. - 111 - JACKSON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 The remaining balance of unrestricted net assets of $316,710 may be used to meet the School District's ongoing obligations to citizens and creditors. Table 1 provides a summary of the School District's net assets for this fiscal year and a comparison to last year (fiscal year 2005). Table 1 Net Assets Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Assets Current and Other Assets Capital Assets, Net $ 61,732,114 99,771,535 $ 11,114,720 62,403,419 Total Assets $ 161,503,649 $ 73,518,139 Liabilities Current and Other Liabilities Long-Term Liabilities $ 8,526,499 85,241,464 $ 5,557,404 14,483,847 Total Liabilities $ 93,767,963 $ 20,041,251 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 57,483,759 9,935,217 316 710 $ 48,670,418 1,229,627 3,576,843 Total Net Assets $ 67,735,686 $ 53,476,888 Table 2 shows the Changes in Net Assets for this fiscal year comparing it to the previous year. - IV - JACKSON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table 2 Change in Net Assets Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions Governmental Activities Fiscal Fiscal Year 2006 Year 2005 $ 2,057,596 30,207,187 5,196,674 $ 2,139,662 27,550,969 169 441 Total Program Revenues $ 37,461,457 $ 29,860,072 General Revenues: Taxes Property Taxes For Maintenance and Operations $ 20,126,611 For Debt Service 4,170,643 Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Debt Service 822,309 For Capital Pr~ects 5,170,348 Intangible Recor ing Tax 1,156,886 Real Estate 494,110 Grants and Contributions not Restricted to Specific Programs 996,862 Investment Earnings 1,457,500 Miscellaneous 498 945 $ 18,550,147 1,087,977 42,338 2,311,522 2,566,703 755,948 309,444 1,244,025 129,515 239,961 Total General Revenues $ 34,894,214 $ 27,237,580 Total Revenues $ 72,355,671 $ 57,097,652 Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and OJ?eration of Plant Student Transportation Services Central Support Services Other Support Services Operations ofNon-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt $ 34,123,752 1,570,485 2,134,550 1,313,916 1,031,691 3,981,518 666,929 4,836,389 3,132,764 788,253 275,774 257,587 329,662 3,406,115 247,488 $ 30,665,096 1,396,568 1,947,875 1,062,881 838,384 3,375,398 324,925 4,320,424 2,420,671 497,042 356,320 287,741 316,799 3,026,753 663,838 Total Expenses $ 58,096,873 $ 51,500,715 Increase in Net Assets $ 14,258.798 $ 5,596.937 - V- JACKSON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Governmental Activities The Statement of Activities shows the cost of program services and the charges for services and grants offsetting these services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services. Net cost of services can be defined as the total cost less fees generated by the activities and intergovernmental revenue provided for specific programs. The net cost reflects the financial burden on the School District's taxpayers by each activity. Table 3 Governmental Activities Total Cost of Services Fiscal Fiscal Year 2006 Year 2005 Net Cost of Services Fiscal Fiscal Year 2006 Year 2005 Instruction $ 34,123,752 $ 30,665,096 $ Support Services Pupil Services 1,570,485 1,396,568 Improvement of Instructional Services 2,134,550 1,947,875 Educational Media Services 1,313,916 1,062,881 General Administration 1,031,691 838,384 School Administration 3,981,518 3,375,398 Business Administration 666,929 324,925 Maintenance and Operation of Plant 4,836,389 4,320,424 Student Transportation Services 3,132,764 2,420,671 Central Support Services 788,253 497,042 Other Support Services 275,774 356,320 Operations ofNon-Instructional Services Enterprise Operations 257,587 287,741 Community Services 329,662 316,799 Food Services 3,406,115 3,026,753 Interest on Short-Tenn and Long-Tem1 Debt 247 488 663 838 8,900,272 $ 11,238,742 1,189,854 981,561 562,130 167,262 2,551,587 645,919 3,110,982 1,984,579 711,905 17,551 959,809 798,374 572,998 94,292 2,241,505 324,925 2,862,084 1,344,583 497,042 2,064 -191,149 20,155 -264,680 247 488 23,335 10,784 6,268 663,838 Total Expenses $ 58,096,873 $ 51,500.715 $ 20,635.416 $ 21,640.643 FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT'S FUNDS The School District's governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of $72,814,922 and total expenditures of $99,987,667 during fiscal year 2006. Included in the $99,987,667 of expenditures was $38,471,832 of capital outlay expenditures. These expenditures were funded through bond proceeds and through SPLOST revenue, for which proceeds were received monthly. General Fund Budgeting Highlights The School District's budget is prepared according to Georgia Law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2006, the School District made amendments to its original General Fund budget. - Vl - JACKSON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 For the General Fund, the final actual revenues of $56,143,905 exceeded the final budgeted amounts of $53,737,998 by $2,405,907. This difference (final actual vs. final budget) was due to an increase in state revenues over final budget of $1,743,570, a decrease in property taxes collected less than budget of $441,614; an increase in sales taxes collected in excess of budget of $438,930, a decrease in Federal revenues less than final budget of $48,744, an increase in charges for services over final budget of $684,931; an increase in investment earnings in excess of budget of $55,115; and a decrease in miscellaneous revenues over final budget of $26,281. The final actual expenditures of $56,925,773 exceeded the final budgeted amount of$56,707,936 by $217,837. This difference was due to expenditures for Pupil Services, Media Services, General Administration, School Administration, Student Transportation, Enterprise Operations, Community Services, Food Services Operations, Capital Outlay, and Debt Service collectively exceeding the budget by $1,981,633 and expenditures for Instruction, Improvement of Instruction Services, Business Administration, Maintenance and Operation of Plant, Central Support Services, and Other Support Services collectively being less than the budget by $1,763,796. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At fiscal year ended June 30, 2006, the School District had $99,771,535 invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances. Table 4 Capital Assets Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation $ 5,382,325 38,280,915 2,142,526 67,382,616 7,464,443 -20,881,290 $ 5,382,325 2,335,984 2,115,833 64,869,522 6,649,189 -18 949 434 Total $ 99 771 535 $ 62,403,419 Additional information on the School District's Capital Assets can be found in the Notes to the Financial Statements. - Vll - JACKSON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Due to the ongoing growth in the county, at June 30, 2006, the School District completed renovation of a teacher support office, addition of two high school vocational classrooms, and classroom additions at one elementary school. Construction in progress consisted of a new high school and fieldhouse, classroom additions at one elementary school, a new middle school, renovations of kitchen and auditorium at existing high school, renovation of existing and construction of additional athletic fields at existing high school, addition of office space, clinic, teacher work space and canopy for bus loading to one elementary school, and site preparation for one new elementary school. Debt At fiscal year ended June 30, 2006, the School District had $85,241,464 in long-term liabilities. Of this amount, $556,145 represents capital leases, compensated absences, and unamortized bond premium due within one year; $84,685,319 represents capital leases, compensated absences, general obligation bonds, and unamortized bond premium due in more than one year. Table 5 summarizes the School District's long-term liabilities. Table 5 Debt at June 30 Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Bonds Payable Promissory Notes Capital Leases Compensated Absences Unamortized Bond Premium $ 81,450,000 247,366 182,109 3,361,989 $ 12,630,000 1,103,002 584,532 166,313 Total $ 85,241,464 $ 14,483,847 Additional information can be found on the School District's debt in the Notes to the Financial Statements. CURRENT ISSUES Currently known facts, decisions or conditions that are expected to have a significant effect on financial positions or results of operations in future years are as follows: - Vlll - JACKSON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 For the period under review, State funding for education remained stagnant. It appears the State of Georgia is currently recovering from the previous economic downturn. School Districts have been told not to expect recovery of prior year cuts in state funds and are hopeful there will be no additional cuts. However, the State mandated 4% pay increase has the potential to offset any recovery. Despite these challenges, the Jackson County School District is strong financially and we remain optimistic about the ability of the School District to maximize all of the financial resources to provide a quality education to our students. Capital Improvements - The School District plans capital improvements as future capital needs arise due to increased student population and facility repair and maintenance needs. Bonds, from the $70 million capital outlay bond referendum approved in September 2004, were sold on September 21, 2005. Specific capital expenditure plans have been formalized in conjunction with bond proceeds, receipt of capital outlay funds from the State of Georgia Department of Education, and special local option sales tax revenue for construction of a minimum of three new schools and classroom additions to a minimum of four others. The School District regularly monitors anticipated capital outlay needs. SPLOST Referendum - In a referendum held September 19, 2006, the voters of Jackson County approved a 5-year 1% local option sales tax for capital project purposes and repayment of bond indebtedness. The tax is projected to begin April 1, 2007. 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 Ms. Betty Varnadore, Accountant for the Jackson County School District, 1660 Winder Highway, Jefferson, GA 30549-5458. You may also email your question to Ms. Varnadore at bvarnadore@jackson.kl2.ga.us. - lX - JACKSON COUNTY BOARD OF EDUCATION JACKSON COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006 Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Prepaid Items Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenues Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Continuation of Federal Programs Debt Service Capital Projects Permanent Fund Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 3,122,883 52,118,181 1,971,079 3,501,518 576,325 267,722 93,494 80,912 5,382,325 38,280,915 2,142,526 67,382,616 7,464,443 -20,881,290 $ ===16=1=,5=0=3=64=9= $ 2,308,067 3,715,226 90,473 2,403,619 9,114 556,145 84 685 319 $ 93 767 963 $ 57,483,759 327,238 2,970,429 6,611,916 25,634 316 710 $ 67 735 686 $ ===1=6=1=50=3=,6=4=9= The notes to the basic financial statements are an integral part of this statement. -1- JACKSON COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 34,123,752 $ 1,570,485 2,134,550 1,313,916 1,031,691 3,981,518 666,929 4,836,389 3,132,764 788,253 275,774 257,587 329,662 3,406,115 247 488 $ 58 096 873 $ 20,231 448,736 308,991 1,279,638 2 057 596 The notes to the basic financial statements are an integral part of this statement. -2- EXHIBIT "B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 21,593,327 $ 376,808 1,152,271 534,091 781,637 1,214,089 1,507,564 978,412 26,411 258,223 516 1,783,838 $ 30 207 187 $ 3,609,922 $ 3,823 718 217,695 82,792 215,842 21,010 217,843 169,773 49,937 607,319 5 196 674 $ -8,900,272 -1, 189,854 -981,561 -562, 130 -167,262 -2,551,587 -645,919 -3, 110,982 -1,984,579 -711,905 -17,551 191,149 -20, 155 264,680 -247 488 -20,635,416 $ 20,126,611 4,170,643 822,309 5,170,348 1,156,886 494,110 996,862 1,457,500 498 945 $ 34 894 214 $ 14,258,798 53 476 888 $ ===6=7=,7=3=5=6=86= -3- JACKSON COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Prepaid Items Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND $ 2,147,940 $ 965,723 1,940,540 47,332,492 744,919 3,501,473 576,325 267,722 93,494 80,912 1,068,282 45 Total Assets $ 9,353,325 $ 49,366,542 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects Permanent Fund Unreserved Undesignated Reported in: General Fund Capital Projects Total Fund Balances $ 2,306,560 $ 1,507 3,715,226 90,473 2,403,619 9,114 $ 6,030,900 $ 2,495,599 $ 261,584 80,912 $ 46,867,257 2,979,929 3,686 $ 3,322,425 $ 46 870,943 Total Liabilities and Fund Balances $ 9,353,325 $ 49,366,542 The notes to the basic financial statements are an integral part of this statement. -4 - EXHIBIT "C" DEBT SERVICE FUND NONMAJOR GOVERNMENTAL FUND TOTAL $ 9,220 2,819,515 $ 126,683 $ 25,634 3,122,883 52,118,181 1,939,884 3,501,518 576,325 267,722 93,494 80 912 $ 2,955,418 $ 25 634 $ ===6=1=7=0=0=9==19= $ 2,308,067 3,715,226 90,473 2,403,619 9 114 $ 8 526 499 $ 2,955,418 $ $ 2,955,418 $ $ 2,955,418 $ $ 25,634 25 634 $ 261,584 2,955,418 80,912 46,867,257 25,634 2,979,929 3,686 53,174 420 25 634 $ ===6=1=7=0=0=9==19= -5- (This page left intentionally blank) JACKSON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT "D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Capital Leases Compensated Absences Unamortized Bond Premiums Total Long-Term Liabilities Net Assets of Governmental Activities (Exhibit "A") $ 53,174,420 $ 5,382,325 38,280,915 2,142,526 67,382,616 7,464,443 -20,881,290 99,771,535 31,195 $ -81,450,000 -247,366 -182,109 -3 361 989 -85 241 464 $ 67,735,686 The notes to the basic financial statements are an integral part of this statement. -7- JACKSON COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006 REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES Accrued Interest on Bonds Sold Proceeds of Long-Term Capital Related Debt - Par Value Premiums on Bonds Sold Total Other Financing Sources Net Change in Fund Balances Fund Balances - Beginning GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND $ 20,528,823 1,523,930 $ 26,501,333 4,872,489 2,057,596 140,315 519 419 5,170,348 5,026,901 1,211,927 $ 56,143,905 $ 11409176 $ 34,013,439 1,583,927 2,139,434 1,113,192 996,961 3,778,841 420,454 $ 4,919,570 2,960,402 743,781 275,774 257,587 329,662 3,004,191 27,132 237,027 38,444,700 337,166 24,260 300,000 $ 56,925,773 $ 38,981,727 $ -781,868 $ -27,572,551 $ 70,000,000 3,492,976 $ 73,492,976 $ -781,868 $ 45,920,425 4,104,293 950 518 Fund Balances - Ending The notes to the basic financial statements are an integral part of this statement. -8- $ 3,322,425 $ 46,870,943 EXHIBIT"E" DEBT SERVICE FUND NONMAJOR GOVERNMENTAL FUND TOTAL $ 4,182,208 949,375 104,624 $ $ 5,236,207 $ $ 634 25 000 25 634 $ 24,711,031 7,643,653 31,528,234 4,872,489 2,057,596 1,457,500 544,419 72,814,922 $ $ 1,105 1,983,002 2,096,060 $ 4,080,167 $ $ 1,156,040 $ 0 $ 34,013,439 1,583,927 2,139,434 1,113,192 996,961 3,778,841 658,586 4,919,570 2,960,402 743,781 275,774 257,587 329,662 3,004,191 38,471,832 2,620,168 2,120,320 0 $ 99,987,667 25,634 $ -27,172,745 $ 1,741,845 $ 1 741 845 $ 2,897,885 $ 57,533 $ $ 25,634 $ 1,741,845 70,000,000 3,492,976 75,234,821 48,062,076 5,112,344 $ 2,955,418 $====2=5,=63=4= $ 53,174,420 -9- JACKSON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006 EXHIBIT "F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. In the Statement of Activities, only the gain on the sale of the equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold. Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from: General Obligation Bonds Issued, Including a Premium of $3,492,976 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 Promissory Note Retirements Capital Lease Payments Amortization of Bond Premium Total Long-Term Debt Repayments Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of: Increase in Compensated Absences Change in Net Assets of Governmental Activities (Exhibit "B'') $ 48,062,076 $ 39,521,703 -2 108 113 37,413,590 -413,777 -45,474 -73,492,976 $ 1,180,000 1,103,002 337,166 130 987 2,751,155 -15 796 $ 14 258 798 The notes to the basic financial statements are an integral part of this statement. -10 - JACKSON COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT "G" AGENCY FUNDS $ ==2=3=3,=1=14= $ ==2=3=3,=1=14= The notes to the basic financial statements are an integral part of this statement. - 11 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Jackson 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. 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 Jackson County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. - 12 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST), Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation ofmajor capital facilities. Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, clubs, 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 ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and - 13 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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, promissory notes and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist of cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase 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 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 ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, - 14 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Jackson County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on October 25, 2005 (levy date). Taxes were due on December 30, 2005 (due date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Jackson 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, 2006, for maintenance and operations amounted to $20,528,823 and for school bonds amounted to $4,182,208. Tax millage rates levied for the 2005 tax year (calendar year) for the Jackson County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): School Operations School Bonds 18.4 mills 3.7 mills 22.1 mills - 15 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $5,992,657 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. CONSUMABLE SUPPLIES INVENTORY Inventories of consumable supplies are reported on the Combined Balance Sheet at cost (weighted average). The School District uses the consumption method to account for consumable supplies in accordance with which an asset is recorded when purchased and expenses/expenditures are recorded as the inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: - 16 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment Any Amount $ 5,000 $ 5,000 $ 5,000 NIA 20 years 15 to 50 years 5 to 20 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate of the face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, - 17 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $4,337,211. The amounts of the total bank balances are classified into four categories of custodial credit risk: Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name. Category 4 - Uncollateralized. The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows: Custodial Credit Risk Category Bank Balance 1 $ 548,877 2 3,788,334 3 0 4 0 Total $ 4~337~211 - 18 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS CATEGORIZATION OF INVESTMENTS Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the School District will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The School District does not have a formal policy for managing custodial credit risk. Investments are classified as to custodial credit risk by the categories described below: Category 1 - Insured or registered, or securities held by the School District or the School District's agent in the School District's name. Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the School District's name. Category 3 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent, but not in the School District's name. Funds invested in an investment pool managed by another government are not required. to be categorized unless the investing entity owns specific, identifiable investment securities in the pool. At June 30, 2006, the carrying value of the School District's total investments was $52,092,547 which is materially the same as fair value. These investments included funds in the amount of $8,952,374 invested in the Local Government Investment Pool administered by the State ofGeorgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy of the State of Georgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows: The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. - 19 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U.S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days. At June 30, 2006, the carrying value ofthe School District's investments was $52,092,547 which is materially the same as fair value. Fair value is based on quoted market prices, unless otherwise noted. The investments are classified as to custodial credit risk categories as follows: Type of Investment Risk Categories 2 3 Debt Securities Repurchase Agreements $43140173 $=====0 $=======0 Investment Pools Office of Treasury and Fiscal Services Georgia Fund I Total Investments Carrying Amount $ 43,140,173 8,952,374 $ 52,092 547 Fair Value $ 43,140,173 8,952,374 Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value of an investment. The School District does not have a formal policy for managing interest rate risk. At June 30, 2006, the School District's investment consisted ofrepurchase agreements which have an investment maturity of 6 - 10 years. Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The School District does not have a formal policy for managing credit quality risk. The repurchase agreements have a credit quality rating ofAAA by Moody's and Standard and Poor's. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The School District does not have a formal policy for managing concentration of credit risk. 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 - 20 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2005 Increases Balances Decreases June 30, 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 5,382,325 $ 5,382,325 2,335,984 $ 37,999,895 $ 2,054,964 38,280,915 Total Capital Assets Not Being Depreciated $ 7,718,309 $ 37,999,895 $ 2,054,964 $ 43,663,240 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 64,869,522 $ 6,649,189 2,115,833 2,513,094 1,036,985 $ 26,693 $ 67,382,616 221,731 7,464,443 2,142,526 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 13,881,203 3,583,805 1,484,426 1,360,725 668,305 79 083 176,257 15,241,928 4,075,853 1,563,509 Total Capital Assets, Being Depreciated, Net $ 54,685,110 $ 1,468,659 $ 45 474 $ 56,108,295 Governmental Activity Capital Assets - Net $ 62.403.419 $ 39,468,554 $ 2,100.438 $ 99,771,535 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 $ 1,149,170 $ 1,603 301 91,294 34,720 90,517 8,811 91,356 364,710 20,942 704,254 254,689 $ 2!108!113 - 21 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds, and property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Donations for the repair, lease and/or purchase of appropriate band instruments for the band program at the middle and high school levels (Permanent Fund) are reported as restricted assets in the Statement ofNet Assets because use is limited by the trust agreement. Restricted assets at June 30, 2006, were as follows: Restricted Cash and Cash Equivalents: Debt Service Capital Acquisitions Restricted Investments: Debt Service Capital Acquisitions Private Purpose Trust Fund District-wide Capital Projects Bond SPLOST Proceeds Debt Service Funds Permanent Fund $ $ 18,305 $ 943,732 9,220 $ 2,819,515 $ 4,429,065 $ 42,903,427 $ 25,634 Note 7: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions, earthquake, flood, mudslide and mud flow. 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 elected to self-insure for all losses related to acts of God other than earthquake, flood, mudslide and mud flow. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the same fund that the employee's salary and benefits were paid. Claims are accounted for with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: - 22 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 7: RISK MANAGEMENT Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability 2005 2006 $ 0 $ $ 3 000 $ 7 800 $ 0 $ 4 800 $ 3 000 $ 3 000 0 The School District participates in the Georgia School Boards Association Workers' Compensation Fund, a public entity risk pool organized on July 1, 1992, to develop, implement, and administer a program ofworkers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Fund for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Fund with the Safety National Casualty Corporation to provide coverage for potential losses sustained by the Fund in excess of $400,000 loss per occurrence, up to $1,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Employees $ 50,000 $ 100,000 Note 8: SHORT-TERM DEBT The School District issues tax anticipation notes in advance of property tax collections, depositing the proceeds in its General Fund and Capital Projects Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V ofthe Constitution ofthe State of Georgia limits the aggregate amount ofshort-term debt to 75 percent of the total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 ofthe calendar year in which the debt was incurred. Short-term debt activity for the fiscal year is as follows: Beginning Balance Issued Redeemed Ending Balance Tax Anticipation Notes $======"'=0 $ 8,530,600 $ 8,530.600 $=====""0 - 23 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 9: LONG-TERM DEBT CAPITAL LEASES The Jackson County Board of Education has entered into various lease agreements as lessee for computer equipment and copiers. 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 - Refunding - Series 1998 General Government - Refunding - Series 2003 General Government - Series 2005 3.50% - 4.75% 2.04% 3.25% - 5.00% $ 10,730,000 720,000 70,000,000 $ 81!450!000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: - 24 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 9: LONG-TERM DEBT Capital Leases Governmental Funds General Compensated Promissory Obligation Absences Notes Bonds Balance July I, 2005 $ 584,532 $ 166,313 $ 1,103,002 $ 12,630,000 Additions Annual Leave Earned General Obligation Bonds Unamortized Bond Premium 204,772 70,000,000 Deductions Annual Leave Utilized Capital Leases Debt Retired Notes Unamortized Bond Premium 337,166 188,976 1,103,002 1,180,000 Balance June 30, 2006 $ 247,366 $ 182,102 $ 0 $ 81,450,000 Portion of Long-Term Debt Due Within One Year $ 247,366 $ 134,130 $ 0 $ 0 Unamortized Bond Premium Total $ 0 $ 14,483,847 3,492,976 204,772 70,000,000 3,492,976 130 987 188,976 337,166 1,180,000 1,103,002 130 987 $ 3,361,989 $ 85,241,464 $ 174 649 $ 556 145 At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 CaQital Leases PrinciQal Interest 2007 $ 247,366 $ 6 424 Fiscal Year Ended June 30 General Obligation Debt PrinciQal Interest Unamortized Bond Premium 2007 2008 2009 2010 2011 2012 - 2016 2017 - 2021 2022 - 2026 $ 3,469,229 $ $ 1,220,000 3,469,229 1,290,000 3,461,885 1,340,000 3,461,885 1,415,000 3,461,885 16,120,000 16,904,710 27,020,000 12,586,000 33,045,000 4,315,500 174,649 174,649 174,649 174,649 174,649 873,243 873,243 742,258 Total Principal and Interest $ 81,450,000 $ 51,130,323 $ 3,361,989 During fiscal year 2006, the Jackson County Board ofEducation failed to use proceeds ofthe Series 2005 General Obligation Bonds in accordance with the Bond covenants. - 25 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $996,864 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $988,922 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 $7,942 Note 11: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2006, together with funding available: Project Unearned Executed Contracts Funding Available From State 06-678-038 and 06G-678-019 Maysville Elementary School Renovation Kingsbridge Middle School West Jackson Primary School $ 16,022,377 $ 28,955 16,026,009 748 949 558,545 $ 32,826.290 $===5-58-,5-4~5 The amounts described in this note are not reflected in the basic financial statements. Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. - 26 - JACKSON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 13: SUBSEQUENT EVENTS In the subsequent fiscal year, on September 19, 2006, the voters of Jackson County authorized the continuance of a one percent sales tax (SPLOST) to raise no more than $100,000,000 or to be collected for 20 consecutive quarters, whichever occurs first, for the purpose of paying all or a portion of the debt on outstanding Series 2005 General Obligation Bonds previously issued by Jackson County School District, (the "Outstanding Jackson School Debt"), the maximum amount of debt service to be paid with sales tax proceeds will be $10,000,000 and acquiring, constructing and equipping new school buildings and other buildings or facilities useful or desirable in connection therewith; acquiring a portion of a psychoeducational facility; acquiring land, and acquiring any property necessary or desirable therefore, both real and personal (the Jackson School Projects), the maximum amount of the Jackson School Projects to be paid with sales tax proceeds will be $63,015,000 less the amount of Jackson School Districts share of such proceeds used to pay the Outstanding Jackson School Debt. Note 14: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2006 2005 2004 100% 100% 100% $ 2,500,692 $ 2,320,909 $ 2,200,705 - 27 - (This page left intentionally blank) JACKSON COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2006 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Capital Outlay Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES Other Sources Net Change in Fund Balances Fund Balances - Beginning NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL(1) ACTUAL AMOUNTS $ 20,970,437 $ 20,970,437 $ 20,528,823 1,085,000 1,085,000 1,523,930 24,573,822 24,757,763 26,501,333 4,441,944 4,921,233 4,872,489 1,372,665 1,372,665 2,057,596 85,200 85,200 140,315 545 700 545 700 519419 $ 53 074 768 $ 53 737 998 $ 56143 905 $ 33,688,097 $ 34,280,356 $ 34,013,439 1,476,626 2,364,644 971,180 961,256 3,473,059 620,300 5,039,070 2,269,126 1,309,756 514,094 264,000 2,922,807 1,492,373 2,589,878 946,097 987,175 3,475,549 640,400 4,928,319 2,341,195 1,555,665 281,630 264,000 2,925,299 1,583,927 2,139,434 1,113,192 996,961 3,778,841 420,454 4,919,570 2,960,402 743,781 275,774 257,587 329,662 3,004,191 27,132 361 426 $ 55 874 015 $ 56 707 936 $ 56,925,773 $ -2,799,247 $ -2,969,938 $ -781,868 156 307 156 307 $ -2,642,940 $ -2,813,631 $ -781,868 4 512 961 4 626 797 4 104 293 Fund Balances - Ending $ 1 870 021 $ 1 813 166 $ 3,322,425 Notes to the Schedule of Revenues, Exgenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 29- JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U.S. Department of Agriculture Education, U.S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Advance Placement Test Grant English Language Acquisition Grants Enhancing Education Through Technology Program Improving Teacher Quality State Grants Mathematics and Science Partnerships Migrant Education Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U.S. Department of Education Labor, U. S. Department of Pass-Through From Northeast Georgia Regional Development Center Northeast Georgia Workforce Development Partnership Workforce Investment Act Youth Activities National Science Foundation Pass-Through From University of Georgia Education and Human Resources Defense, U.S. Department of Direct Department of the Army R.O.T.C. Program CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 NIA NIA $ $ (2) 2 569,194 2,569,194 10.550 N/A $ 114 698 2 683 892 84.027 84.173 NIA $ NIA $ 1,146,226 55 871 1,202,097 84.330 84.365 84.318 84.367 84.366 84.011 84.186 84.298 * 84010 84.048 NIA NIA NIA NIA NIA NIA N/A NIA NIA NIA $ 492 35,580 20,915 272,688 66,833 39,131 27,944 17,602 1,251,705 69,756 3 004 743 17.259 N/A $ 47.076 N/A $ 15 273 138 955 $ 85 284 Total Federal Financial Assistance N/A = Not Available - 30 - $ ===5===92==8==1,=4=7 JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($367,143) were not maintained separately and are included in the 2006 National School Lunch Program. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Jackson County Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 31 - JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program $ 821,203 $ Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Vocational Supervisors Food Services Vocational Education Austerity Reduction Other State Programs Health Insurance National Teacher Certification Preschool Handicapped Program Statewide K-8 Reading and Mathematics Program Virtual Schools Grant Vocational Construction Related Equipment 1,593,058 347,200 3,597,579 625,588 1,783,731 388,709 3,513,967 2,415,742 1,115,605 175,758 408,656 1,886,455 673,898 328,231 429,189 42,971 258,588 145,512 534,091 170,230 110,566 721,211 1,174,514 1,507,544 931,160 169,773 20,000 123,540 21,392 18,183 155,604 267,643 -1,258,937 988,922 5,829 69,895 97,117 1,125 110,000 Georgia State Financing and Investment Commission Reimbursement on Construction Projects $ 5,026,901 TOTAL 821,203 1,593,058 347,200 3,597,579 625,588 1,783,731 388,709 3,513,967 2,415,742 1,115,605 175,758 408,656 1,886,455 673,898 328,231 429,189 42,971 258,588 145,512 534,091 170,230 110,566 721,211 1,174,514 1,507,544 931,160 169,773 20,000 123,540 21,392 18,183 155,604 267,643 -1,258,937 988,922 5,829 69,895 97,117 1,125 110,000 5,026,901 - 32 - JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING GRANTS Human Resources, Georgia Department of 2nd Step Grant Office of Treasury and Fiscal Services Public School Employees Retirement GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 2,349 7 942 $ 2,349 7 942 $ 26,501,333 $ 5,026,901 $ ===3=1,=52=8=,2=3=4= See notes to the basic financial statements. - 33 - JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 SCHEDULE "4" PROJECT Paying all or portion of the debt service on outstanding Series 1993 General Obligation Bonds, unrefunded Series 1994 General Obligation Bonds previously issued and Series 1998 Refunding General Obligation Bonds. Acquiring, constructing and equipping new school buildings and other buildings or facilities useful or desirable in connection therewith, acquiring new school equipment, adding to, renovating, repairing, improving, and equipping existing school buildings or other buildings or facilities useful or desirable in connection therewith, and acquiring any property necessary or desirable therefor, both real and personal. ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) (4) AMOUNT EXPENDED IN PRIOR YEARS (3) (4) PROJECT STATUS $ 8,835,838 $ 9,830,561 $ 1,718,138 $ 4,909,000 Ongoing 27 765 100 98,558,433 38 444 700 7 160 883 Ongoing $ 36,600,938 $ 108,388,994 $ 40,162,838 $ 12,069,883 (1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax. (2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion. (3) The voters of Jackson County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. (4) In addition to the expenditures shown above, the School District has incurred interest to provide advance funding for the above projects as follows: Prior Years $ 327,042 Current Year 19 306 Total $ ===3=4==6=,3=48== See notes to the basic financial statements. - 34 - JACKSON COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2006 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category II Category Ill Category IV Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 1,891,940 $ 438,220 4,341,749 732,249 440,233 2,166,507 4,207,808 2,912,378 1,338,865 4,205,276 498,876 52,481 310,177 174417 1,820,101 $ 567,260 4,505,358 507,885 415,961 2,450,043 4,163,803 4,185,583 1,226,139 695,796 3,711,412 60,259 43,619 467,384 57,330 347,715 247 841 44,719 $ 4,223 318,377 6,564 2,905 212,835 398,619 341,429 593,713 1,197 228,216 112,462 10,543 198 1,390 4 123 1,864,820 571,483 4,823,735 514,449 418,866 2,662,878 4,562,422 4,527,012 1,819,852 696,993 3,939,628 172,721 43,619 477,927 57,528 349,105 251 964 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 23,711,176 $ 25,473,489 $ 2,281,513 $ 27,755,002 Media Center Program Staff and Professional Development 642,695 134 457 901,260 67 037 188,808 64 598 1,090,068 131 635 TOTAL QBE FORMULA FUNDS $ 24 488 328 $ 26 441 786 $ 2 534 919 $ ===2=8"=9=7=6==7=0=5 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 35 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 February 2, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Jackson County Board of Education REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ladies and Gentlemen: We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Jackson County Board of Education as of and for the year ended June 30, 2006, which collectively comprise Jackson County Board of Education's basic financial statements and have issued our report thereon dated February 2, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Jackson County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters corning to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect Jackson County Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule of Findings and Questioned Costs as items FS-6781-06-01, FS-6781-06-02, FS-6781-06-03 and FS-6781-06-04. 2006YB-40 A material weakness is a reportable condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, of the reportable conditions described above, we consider item FS-6781-06-02 to be a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether Jackson County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the Jackson County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:as 2006YB-40 Russell W. Hinton, CPA, CGFM State Auditor Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 February 2, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Jackson County Board of Education REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 Ladies and Gentlemen: Compliance We have audited the compliance of Jackson County Board of Education with the types of compliance requirements described in the U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Jackson County Board ofEducation's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Jackson County Board of Education's management. Our responsibility is to express an opinion on Jackson County Board of Education's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Jackson County Board ofEducation's compliance with 2006SA-10 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 Jackson County Board of Education's compliance with those requirements. Internal Control Over Compliance The management of Jackson County Board of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered Jackson County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the management, members of the Jackson County Board of Education, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, . ~~- GQ_ 1.0~--=t;. Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2006SA-10 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS JACKSON COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6781-05-01 Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Finding Control Number: FS-6781-05-01 The Board is working with its software vendor to exclude retired asset totals in the fixed asset module. During fiscal year 2006, the Board reclassified donated items from nondepreciable to depreciable and recorded prior year accumulated depreciation. Procedures are being implemented to record and verify serial numbers with related decal numbers and to perform physical inventories. In order to capitalize correct amounts, a review of construction work in progress for fiscal year 2006 has been conducted and procedures for clarifying and coding invoices have been given to personnel responsible for approving payments. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-6781-04-01 Previously Reported Corrective Action Implemented SECTION IV FINDINGS AND QUESTIONED COSTS JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Jackson County Board of Education's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Jackson County Board of Education disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Revenues/Recei vab Ies/Receipts Capital Assets Expenditures/Liabilities/Disbursements General Ledger Of the reportable conditions described above, Revenues/Receivables/Receipts and Expenditures/Liabilities/Disbursements are considered to be material weaknesses. 3. Noncompliance Material to the Financial Statements The audit of the Jackson County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Jackson County Board of Education did not disclose any reportable conditions in internal control over major programs. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Jackson County Board of Education's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .5 lO(a) of 0MB Circular A-133 The Jackson County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) ofOMB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.010 Title I Grants to Local Educational Agencies 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. - 1- JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 9. Low Risk Auditee The Jackson County Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS GENERAL LEDGER Unallowable Expenditures Paid from Bond Proceeds Reportable Condition Finding Control Number: FS-6781-06-01 Condition: The School District failed to ensure that expenditures, paid from Bond proceeds, met allowable criteria as identified in the Bond Covenants. Criteria: The Jackson County School District's Series 2005 General Obligation Bonds state, "The Bonds are being issued to provide funds, together with other available funds of the Jackson County School District to finance the costs of acquiring, constructing, and equipping new school buildings and other buildings and properties and facilities useful or desirable in connection therewith, bond insurance premium, and the costs of issuance ofthe Bonds". The resolution authorizing the Jackson County School District's 2002 General Obligation Sales Tax Note (Promissory Note) indicates that, "The Note is being issued for the purpose of paying all or a portion of the costs of the acquisition, construction and equipping of certain school facilities (the "Projects")". The voters of Jackson County authorized a SPLOST referendum on September 18, 2001. "The Projects" were identified as "(i) paying all or a portion of the debt service on outstanding Series 1993 General Obligation Bonds previously issued by the Issuer, unrefunded Series 1994 General Obligation Bonds previously issued by the Issuer and Series 1998 Refunding General Obligation Bonds previously issued by the Issuer and (ii) (A) acquiring, constructing and equipping new school buildings and other buildings or facilities useful or desirable in connection therewith, (B) acquiring new school equipment, (C) adding to, renovating, repairing, improving and equipping existing school buildings or other buildings or facilities useful or desirable in connection therewith, and (D) acquiring any property necessary or desirable therefore, both real and personal". Questioned Cost: $300,000 -2 - JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS GENERAL LEDGER Unallowable Expenditures Paid from Bond Proceeds Reportable Condition Finding Control Number: FS-6781-06-01 Information: The School District decided to commence capital outlay projects prior to the receipt of proceeds from the issuance of the Series 2005 General Obligation bonds; therefore, the School District had inadequate cash for capital outlay expenditures incurred totaling $300,000. The School District funded this cash flow shortage from funds available on a promissory note that was originated in fiscal year 2002. Additionally, when the 2002 Promissory Note became due on August 31, 2005, proceeds from the Series 2005 General Obligation (GO) Bonds were used to pay this outstanding debt. Payment of outstanding debt was not an allowable use of the Series 2005 GO Bonds. Cause: School District management failed to adequately plan capital projects activity and anticipate cash flow needs. Effect: The School District violated bond covenants. Bond proceeds were utilized for purposes that did not meet the definition of allowable expenditures in the bond covenants. Recommendation: The School District should implement procedures to ensure that all future bond proceeds are expended in accordance with Bond Covenants. The $300,000 of unallowable expenditures should be refunded to the Bond Capital Projects Fund for future use and/or funding of allowable bond project activity. -3 - JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Properly Record Accounting Transactions Reportable Condition - Material Weakness Finding Control Number: FS-6781-06-02 Condition: Accounting procedures of the School District were insufficient to provide adequate controls over material activity affecting the General Ledger. Criteria: Chapter 22 Annual Financial Reporting of the Financial Management for Local Units of Administration indicates that School Districts must prepare their financial statements in accordance with generally accepted accounting principles. Questioned Cost: NIA Information: A review of current year activity disclosed the following weaknesses: Revenues/Receivables/Receipts Based on a review oflnvestment activity, it was noted that the School District failed to record material interest earned totaling $1,092,090. Expenditures/Liabilities/Disbursements Based on a review of significant commitments, auditors noted that the School District failed to record a contract payable of $90,473 and several retainages payable totaling $2,430,619. Audit adjustments were made to correct these deficiencies. Cause: School District management failed to implement adequate controls and procedures to ensure (1) proper recognition of revenues when measurable and available and (2) proper recording of expenditures when the liability is incurred in accordance with generally accepted accounting principles. Effect: The failure ofthe School District to maintain a complete and accurate general ledger can lead to inaccurate internal and external reporting. Recommendation: The School District should review the accounting procedures in place and implement additional procedures to ensure that financial transactions are properly recorded. -4 - JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-6781-06-03 Condition: The School District failed to maintain its general ledger activity in a clear and concise manner. Criteria: Chapter 6 Fund Accounting ofthe Financial Management for Local Units of Administration identifies a fund as "a separate set of accounting records segregated for carrying on a specific activity". Chapter 1 Introduction to LUA Accounting ofthe Financial Management for Local Units of Administration states in part: "Accounting records must provide meaningful, reliable, accurate and timely information.... When maintaining records in an orderly manner, it is possible to trace information on individual transactions to supporting source documents....Quality recordkeeping provides an effective audit trail." Questioned Cost: NIA Information: During the year under review, the School District sold general obligation bonds. The receipt of the bond proceeds was split and recorded in three separate funds, one of which had historically been used to account for Regular Capital project activity. Additionally, a review ofjournal entries within the numerous capital projects funds identified several instances of funds being transferred in and out of various funds making a review of transactions difficult to trace during audit procedures. Cause: School District management failed to ensure that separate fund accounting was maintained consistently and that journal entries provided a clear audit trail for review purposes. -5- JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-6781-06-03 Effect: The School District's financial records, as presented for audit, were not maintained in a manner that provided for an effective audit trail. Failure to adequately maintain activity for capital projects, by either not adequately identifying funds or through numerous and, potentially unnecessary journal entries, could result in potential misuse of funds or misappropriation of assets. Recommendation: The School District should establish procedures to ensure that accounting records are maintained in a manner that provides a clear audit trail and establishes separate fund accountability. CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6781-06-04 Condition: This is a repeat finding (FS-6781-05-01) from fiscal year 2005. The School District failed to adequately maintain its capital assets listing. Criteria: Chapter 37 Fixed Assets of the Financial Management for Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records. Questioned Cost: NIA Information: Various School Food Service equipment items totaling $85,520 were found to have been omitted from the capital assets listing. A review of capital assets revealed some items failed to have bar-coded decals as prescribed in the School District's capital assets policy. The fixed asset listing included several assets at various locations which did not have a decal number. -6- JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6781-06-04 As was noted in the prior year, the acquisition cost and related accumulated depreciation of assets identified as retired in the fixed asset module were included on the fixed asset listing. The fixed asset module was erroneously calculating and applying depreciation expense for those retired assets which were not fully depreciated. Cause: The School District failed to properly maintain its capital assets records in accordance with the School District's approved capital assets policy. Effect: Without satisfactory accounting procedures and controls in place over the general ledger, the School District placed itself in a position where potential misappropriation of assets could occur. In addition, the lack of controls could impact reporting its financial position and results of operations. Recommendation: The School District should establish policies and procedures designed to ensure that adequate control is maintained over capital assets records and that capital assets records conform to the School District's approved capital assets policy and generally accepted accounting principles. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -7- SECTION V MANAGEMENT'S RESPONSES JACKSON COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-6781-06-01 We concur with this finding. The Board will transfer $300,000 of SPLOST proceeds to the Bond Capital Projects Fund for future use. Finding Control Number: FS-6781-06-02 We concur with this finding. Investment interest was recorded in the general ledger in the subsequent period. Procedures are being implemented to record contracts and retainages payable with regard to significant commitments. Finding Control Number: FS-6781-06-03 We concur with this finding. The Board will document a procedure to record initial receipt of future bond proceeds into one fund. The accounting software used by the Board allows mapping of only one bank account to each fund requiring multiple journal entry transfers to record the movement of funds from the investment bank account to the money market bank account to the sweep account (checking account) and finally to expenditures that are recorded in the separate capital projects funds. The Board maintains documentation showing movement of all assets. Finding Control Number: FS-6781-06-04 We concur with the finding. During fiscal year 2007, the Board identified, tagged, and recorded all capital assets in its capital assets records. It is working with its software vendor to obtain a report that excludes retired asset totals in the fixed asset module and to correct the calculation of depreciation expense for retired assets which were not fully depreciated. Contact Person: Betty Varnadore, Accountant Phone: (706) 367-5151 Fax Number: (706) 367-9457 E-mail Address: bvarnadore@jackson.k12.ga.us