LAMAR COUNTY BOARD OF EDUCATION BARNESVILLE, 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 LAMAR COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 9 H NOTES TO THE BASIC FINANCIAL STATEMENTS 10 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 23 LAMAR COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 24 3 SCHEDULE OF STATE REVENUE 25 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 26 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 27 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 LAMAR 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 January 2, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Lamar County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Lamar County Board of Education, as of and for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Lamar 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 of the Lamar County Board of Education, as of June 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-11 In accordance with Government Auditing Standards, we have also issued our report dated January 2, 2007, on our consideration ofthe Lamar County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope ofour testing of internal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through x and page 23 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 Lamar County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U. S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, RWH:gp 2006ARL-11 Rus 11 W. Hinton, CPA, CGFM State Auditor LAMAR COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Introduction Our discussion and analysis of the Lamar County School District's financial performance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2006. The intent of this discussion and analysis is to look at the School District's financial performance as a whole. Readers should also review the financial statements and the notes to the statements to enhance their understanding of the School District's financial performance. This is the fourth year the School District has prepared its annual financial report using the government financial reporting model. The reporting model is a combination of both government-wide financial statements and fund financial statements. The basic financial statements contain three components: 1) District-wide financial statements including the Statement of Net Assets and the Statement of Activities, which provide both short-term and long-term overviews of the School District's finances. 2) Fund financial statements including the balance sheets, which provide a greater level of detail and focus on how well the School District has performed in the short-term in the most significant or major funds. 3) Notes to the Financial Statements. Financial Highlights Key financial highlights for fiscal year 2006, are as follows: On the District-wide financial statements: Total assets of the School District exceeded liabilities by over $23 million. This represented an increase of $0.5 million in net assets when compared to the prior year. Of this amount, $6.0 million is unrestricted and available for spending at the School District's discretion. The School District had $21.5 million in expenses relating to governmental activities; only $13 .3 million of these expenses were offset by program specific charges for services, grants, and contributions. However, general revenues (primarily property and other taxes) of $8.7 million were adequate to provide for these programs. As stated above, general revenues accounted for $8.7 million or about 39.6% of all revenues, which totaled slightly under $22.0 million. Program specific revenues in the form of charges for services, grants, and contributions accounted for the balance of these revenues. LAMAR COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 On the fund financial statements: Among major funds, the General Fund had over $20.1 million in revenues and $20.4 million in expenditures. The general fund balance of $6.0 million at June 30, 2006, decreased $0.3 million when compared to the prior year. The Capital Projects Fund's balance at June 30, 2006, was just $731. This fund balance decreased over $1.8 million during the year with funds spent on renovations and repairs to existing facilities in the summer and fall of 2005, and the development of the Trojan Athletic Complex adjacent to the Middle School. The fund balance of the Debt Service Fund increased to almost $2.3 million. The local option sales tax for education and interest revenue on the funds exceeded the payments due on the principal and interest on the bonds during the year by $146,299. Overview of the Financial Statements This annual report consists of several parts including management's discussion and analysis (this section), the basic financial statements and required supplementary information. The basic financial statements include two levels of statements that present different views of the School District. These include the District-wide and fund financial statements. The District-wide financial statements include the Statement of Net Assets and Statement of Activities. These statements provide information about the activities of the School District, presenting both short-term and long-term information about the School District's overall financial status. The fund financial statements focus on individual parts of the School District, reporting the School District's operation in more detail. The Governmental Funds statements disclose how basic services are financed in the short-term as well as what remains for future spending. The Fiduciary Funds statement provides information about the financial relationships in which the School District acts as a trustee or agent for the benefit of others. The fund financial statements reflect the School District's most significant funds. In the case of the Lamar County School District, the General Fund, District-wide Capital Projects Funds, and Debt Service Funds are all considered to be major funds. The School District has no nonmajor funds as defined by GASB Statement 34 for the purposes of this report. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information which further explains and supports the financial statements. Additionally, other supplementary information (not required) is also presented that further supplements understanding of the financial statements. 11 LAMAR COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 District-wide Statements Since Lamar County School District has no operations that have been classified as "Business Activities", the District-wide financial statements are basically a consolidation of all of the School District's operating funds into one column called governmental activities. In reviewing the District-wide financial statements, a reader might ask the question, are we in a better financial position now than last year? The Statement ofNet Assets and the Statement ofActivities provide the basis for answering this question. These financial statements include all School District's assets and liabilities and use the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid. These two statements report the School District's net assets and any changes in those assets. The change in net assets is important because it tells the reader that, for the School District as a whole, the financial position of the School District has improved or diminished. The causes of this change may be the result of many factors, including those not under the School District's control, such as the property tax base, facility conditions, required educational programs, student-teacher ratios, and other factors. The Statement of Net Assets and the Statement of Activities reflect the School District's governmental activities. Fund Financial Statements The School District uses many funds to account for a multitude of financial transactions during the fiscal year. The fund financial statements presented in this report provide detailed information about the School District's significant or major funds. As discussed previously, the School District has no nonmajor Funds as defined by generally accepted accounting principles. Governmental Funds: Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at yearend available for spending in future periods. These funds are reported using the modified accrual method of accounting which measures cash and all other financial assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The differences between government activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds are reconciled in the financial statements. Fiduciary Funds: The School District is the trustee, or fiduciary, for assets that belong to 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. Because it cannot use these assets to finance its operations, these activities are excluded from the District-wide financial statements. 111 LAMAR COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Financial Analysis of the School District as a Whole Recall that the Statement ofNet 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 Lamar County School District, assets exceeded liabilities by $23.0 million on 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 $23.0 million of net assets, $2.5 million was restricted for continuation of Federal programs and debt service. Accordingly, these funds were not available to meet the School District's ongoing obligations to citizens and creditors. In addition, the School District had over $14.5 million (net of related debt) invested in capital assets (e.g., land, buildings, and equipment). These capital assets are used to provide educational services to students served by the School District. Because of the nature and continuing use of the assets reported in this component of net assets, it must be recognized that this portion of the net assets is not available for future spending. The remaining balance of unrestricted net assets of $6.0 million may be used to meet the School District's ongoing obligations to citizens and creditors. Table 1 provides a summary of the School District's net assets for this fiscal year as compared to the prior fiscal year. IV LAMAR COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table 1 Net Assets Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Assets Current and Other Assets Capital Assets, Net $ 10,629,478 $ 12,264,969 20,972,452 19,811,421 Total Assets $ 31,601,930 $ 32,076,390 Liabilities Current and Other Liabilities Long-Term Liabilities $ 2,111,512 $ 1,895,405 6,440,000 7,635,000 Total Liabilities $ 8,551,512 $ 9,530,405 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 14,532,452 2,481,038 6,036,928 $ 12,176,421 4,010,883 6,358,681 Total Net Assets $ 23,050,418 $ 22,545.985 The above comparison reflects that although total net assets increased about $0.5 million, the unrestricted net assets decreased $0.3 million for the fiscal year. This decrease in unrestricted net assets shows that portions of the fiscal year's expenditures were funded by accumulated earnings from prior years. Table 2 shows the Change in Net Assets for this fiscal year as compared to the prior fiscal year and summarizes the revenues and expenses that caused the increase. V LAMAR 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 $ 503,163 12,695,869 81,278 $ 312,915 12,101,450 312,179 Total Program Revenues $ 13,280,310 $ 12,726,544 General Revenues: Taxes Property Taxes For Maintenance and Operations $ 5,566,950 $ 5,518,805 For Debt Service 1 Railroad Cars 27,801 Sales Taxes Special Purpose Local Option Sales Tax 1,528,254 1,367,721 Intangible Recording Tax 148,659 113,721 Real Estate 59,802 49,020 Grants and Contributions not Restricted to Specific Programs 400,059 527,498 Investment Earnings 356,515 222,906 Miscellaneous 635,046 748,924 Total General Revenues $ 8,695,285 $ 8,576,397 Total Revenues $ 21,975,595 $ 21,302,941 Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt $ 13,191,445 788,485 844,462 371,367 345,869 1,006,147 151,634 1,354,133 1,159,526 491,687 224,715 1,273,859 267,833 $ 12,060,606 790,850 895,885 351,694 382,981 891,024 200,818 1,226,661 1,146,748 215,859 133,140 74,093 14,972 1,237,794 553,882 Total Expenses $ 21,471,162 $ 20,177,007 Increase in Net Assets $==5==0==4=-=,4==3==3 $ 1,125.934 VI LAMAR COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Governmental Activities The Statement ofActivities 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. It identifies the cost of these services supported by tax revenue and unrestricted state entitlements. The net cost reflects the financial burden on the School District's taxpayers by each activity as compared to the prior fiscal year. Table 3 Governmental Activities Total Cost of Services Fiscal Fiscal Year 2006 Year 2005 Net Cost of Services Fiscal Fiscal Year 2006 Year 2005 Instruction $ 13,191,445 $ 12,060,606 $ Support Services Pupil Services 788,485 790,850 Improvement of Instructional Services 844,462 895,885 Educational Media Services 371,367 351,694 General Administration 345,869 382,981 School Administration 1,006,147 891,024 Business Administration 151,634 200,818 Maintenance and Operation of Plant 1,354,133 1,226,661 Student Transportation Services 1,159,526 1,146,748 Central Support Services 491,687 215,859 Other Support Services 224,715 133,140 Operations ofNon-Instructional Services Enterprise Operations 74,093 Community Services 14,972 Food Services 1,273,859 1,237,794 Interest on Short-Term and Long-Term Debt 267,833 553,882 4,622,030 $ 442,145 318,659 170,413 -157,360 528,509 151,634 751,923 451,787 481,961 37,181 124,137 267,833 4,056,120 467,319 274,443 152,556 -96,986 416,139 200,818 608,202 581,054 204,951 -133,363 74,093 14,972 76,263 553,882 Total Expenses $ 21,471.162 $ 20,177.007 $ 8,190,852 $ 7,450,463 The table above shows that the net cost of services increased more than $0.7 million. Continuing cost increases and reductions in funding by the State of Georgia for program expenses increases the local cost of providing programs. Financial Analysis of the School District's Funds Information about the School District's governmental funds is presented starting on Exhibit "C" of this report. Governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of $21.8 million and total expenditures of $23.8 million in fiscal year 2006. Revenues increased slightly from almost all sources, but expenditures increased significantly from fiscal year 2005 in capital outlay and instruction. vu LAMAR COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 General Fund Budget Highlights The School District's budget is prepared according to Georgia Law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2006, the School District amended its general fund budget as needed. The School District budget is adopted at the functional level and maintained at the program, function, object, and site levels to facilitate budgetary control. The budgeting systems are designed to control the total budget, but provide flexibility to meet the ongoing programmatic needs. The budgeting systems are also designed to control total site budgets but provide flexibility for site management as well. For the General Fund, the final actual revenues of $20.2 million exceeded the final budgeted amount of $18.9 million by about $1.3 million. This difference was primarily due to higher than expected interest income, the unbudgeted taxpayer relief credit from the state, and miscellaneous unbudgeted revenues. The final actual expenditures of $20.4 million were greater than the final budgeted amount by less than $0.1 million. Capital Assets At fiscal year ended June 30, 2006, the School District had $21.0 million invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances net of accumulated depreciation as compared to the prior fiscal year. Table 4 Capital Assets (Net of Depreciation) Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Land Construction in Progress Buildings and Improvements Equipment Land Improvements $ 521,056 17,835,051 1,185,368 1,430,977 $ 521,056 148,055 17,847,196 1,171,633 123,481 Total $ 20!972!452 $ 19!811!421 The overall increase in capital assets is due to the summer and fall 2005 capital projects. The largest project, the construction of the Trojan Athletic Complex, is reported in the category of land improvements. vm LAMAR COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Debt At fiscal year ended June 30, 2006, the School District had $6.4 million in bonds outstanding. There was no other long-term debt. Table 5 summarizes the School District's debt as compared to the prior fiscal year. Table 5 Debt at June 30 Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Bonds Payable $ 6,440.000 $ 7,635.000 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: Funding Reductions - In fiscal year 2006, the State of Georgia continued the reductions in funding of the QBE revenue formula for all state school districts with amended formula adjustments. These 2006 reductions were in addition to QBE and state grant funding reductions made in prior fiscal years. The state austerity reductions in funding, coupled with mandated class size reductions, state and Federal program requirements, and remediation requirements continued the need for more funding from local taxpayers. Rather than raising the millage rate in fiscal year 2006, the additional funding was taken from existing fund balance. Educational funding from the State of Georgia is expected to remain at a conservatively low level. Continued formula funding reductions by the state and partially funded programs forced the School District to raise the millage rate for fiscal year 2007, in addition to taking funding from existing fund balance. Despite these reductions, the system remains confident in its ability to maximize resources to provide the best possible educational experience for all Lamar County 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. Development in the county as residents move farther south from the Atlanta metro area is expected to increase the student population in future years. Specific long-term capital expenditure plans are formalized in conjunction with individual general obligation bond issues and anticipated annual receipts of capital outlay funds from the State of Georgia Department of Education. Bond repayment requirements are continuing to be met by local option sales tax for education collections. IX LAMAR COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Contacting the School District's Financial Management This financial report is designed to provide our citizen's taxpayers, investors, and creditors with a general overview 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. Deborah Johnston, Director of Finance, Lamar County Board of Education, 3 Trojan Way, Barnesville, Georgia, 30204. You may also email your questions to Ms. Johnston at djohnstn@lamar.kl2.ga.us. X LAMAR COUNTY BOARD OF EDUCATION LAMAR COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Continuation of Federal Programs Debt Service Unrestricted Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. - 1- EXHIBIT "A" GOVERNMENTAL ACTIVITIES $ 479,643 8,105,575 586,155 1,223,410 163,698 46,166 24,831 521,056 1,726,994 21,752,352 3,155,294 -6, 183,244 $ ===3=1=,6=0=1='9=30= $ 161,218 1,950,294 1,390,000 5,050,000 $ 8,551,512 $ 14,532,452 216,690 2,264,348 6,036,928 $ 23,050,418 $ ===31=,6=0=1=9'=30= LAMAR COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 EXPENSES CHARGES FOR SERVICES GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Food Services Interest on Short-Term and Long-Term Debt $ 13,191,445 $ 788,485 844,462 371,367 345,869 1,006,147 151,634 1,354,133 1,159,526 491,687 224,715 1,273,859 267,833 200,357 6,848 295,958 Total Governmental Activities 21 471 162 $ 503 163 General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Debt Services Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year The notes to the basic financial statements are an integral part of this statement. -2 - EXHIBIT "B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 8,369,058 346,340 525,803 200,954 503,229 477,638 602,210 626,461 $ 9,726 180,686 853,764 $ 12 695 869 $ $ 81,278 81 278 $ -4,622,030 -442, 145 -318,659 -170,413 157,360 -528,509 -151,634 -751,923 -451,787 -481,961 -37,181 -124,137 -267,833 -8,190,852 $ 5,566,950 1,528,254 148,659 59,802 400,059 356,515 635,046 $ 8,695,285 $ 504,433 22,545,985 $ ====2=3"=0=50=====41=8= -3 - LAMAR COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 EXHIBIT "C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Unreserved Undesignated Reported in: General Fund Capital Projects Total Fund Balances Total Liabilities and Fund Balances GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 431,557 $ 6,163,025 59,386 1,223,410 163,698 46,166 24 831 731 $ 47,355 $ 479,643 1,942,550 8,105,575 274,443 333,829 1,223,410 163,698 46,166 24 831 $ 8,112 073 $ ===73=1= $ 2,264,348 $ 10,377 152 $ 161,218 1,950,294 $ 2,111,512 $ 161,218 1,950,294 $ 2111,512 $ 191,859 24,831 5,783,871 $ $ 6,000,561 $ $ 191,859 $ 2,264,348 2,264,348 24,831 5,783,871 731 731 731 $ 2,264,348 $ 8,265,640 $ 8,112,073 $===73=1=$ 2,264,348 $ 10,377,152 The notes to the basic financial statements are an integral part of this statement. -4 - LAMAR COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT" " 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 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 $ 8,265,640 $ 521,056 1,726,994 21,752,352 3,155,294 -6,183,244 20,972,452 252,326 -6,440,000 Net Assets of Governmental Activities (Exhibit "A") $ 23,050,418 The notes to the basic financial statements are an integral part of this statement. -5- LAMAR COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES {USES) Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 5,424,113 208,461 10,292,609 2,884,597 503,163 263,372 $ 584 316 $ 20,160,631 $ $ 12,265 50 730 $ 1,528,254 80,878 5,424,113 1,736,715 10,292,609 2,884,597 503,163 356,515 635 046 62,995 $ 1,609,132 $ 21,832,758 $ 12,522,473 $ 12,522,473 788,485 844,462 371,367 345,869 1,006,147 151,634 1,377,734 1,082,751 491,687 224,715 1,216,409 $ 1,940,627 788,485 844,462 371,367 345,869 1,006,147 151,634 1,377,734 1,082,751 491,687 224,715 1,216,409 1,940,627 $ 1,195,000 267,833 1,195,000 267,833 $ 20,423,733 $ 1,940,627 $ 1,462,833 $ 23,827,193 $ -263, 102 $ -1,877,632 $ 146 299 $ -1,994,435 $ 66,040 $ -66 040 $ 66,040 -66 040 $ -66 040 $ 66 040 $ 0 $ -329, 142 $ -1,811,592 $ 146,299 $ -1,994,435 6,329,703 1,812,323 2 118 049 10,260,075 $ 6 000 561 $=======7=31= $ 2,264,348 $ 8,265,640 The notes to the basic financial statements are an integral part of this statement. -6 - LAMAR 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. 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 $ -1,994,435 $ 1,806,643 -645,612 1,161,031 142,837 1,195,000 Change in Net Assets of Governmental Activities (Exhibit "B") $ ===50=4=,4""'3=3 The notes to the basic financial statements are an integral part of this statement. -7 - (This page left intentionally blank) LAMAR 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 $ ===1=5=1,=07= $ ===15='=10=7= The notes to the basic financial statements are an integral part of this statement. -9 - LAMAR 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 Lamar County Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Lamar County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement of Activities 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 of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting of internal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. - 10 - LAMAR 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) and Bond Proceeds to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (sales) legally restricted for the payment of general longterm principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized - 11 - LAMAR COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates of deposit) 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 ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, - 12 - LAMAR COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Lamar County Board of Commissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on July 26, 2005 (levy date). Taxes were due on November 15, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Lamar County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $5,424,113. The tax millage rate levied for the 2005 tax year (calendar year) for the Lamar County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 14.48 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $1,528,254 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. - 13 - LAMAR COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation of meals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value 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: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment All NIA $ 5,000 10 to 60 years $ 5,000 20 to 60 years $ 5,000 3 to 15 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 - 14 - LAMAR COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 of deposit insurance. If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. - 15 - LAMAR COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $1,532,787. 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 $ 402,805 2 145,013 3 984,969 4 0 Total $ 1,532,787 CATEGORIZATION OF INVESTMENTS AtJune 30, 2006, the carrying value ofthe School District's total investments was $7,619,122 which is materially the same as fair value. This investment consisted entirely offunds invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe 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 - 16 - LAMAR COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U.S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2005 Increases Decreases Balances June 30, 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 521,056 $ 148,055 0 $ 521,056 $ 148,055 0 Total Capital Assets Not Being Depreciated $ 669 111 $ 0 $ 148 055 $ 521.056 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 21,387,234 $ 2,934,289 358,419 365,118 $ 221,005 1,368,575 0 $ 21,752,352 3,155,294 1,726,994 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 3,540,038 1,762,656 234.938 377,263 207,270 61 079 3,917,301 1,969,926 296,017 Total Capital Assets, Being Depreciated, Net $ 19,142,310 $ 1,309,086 $ 0 $ 20,451,396 Governmental Activity Capital Assets - Net $ 19.811.421 $ 1,309.086 $ 148.055 $ 20,972.452 - 17 - LAMAR COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 5: CAPITAL ASSETS Current year depreciation expense by function is as follows: Instruction Support Services Maintenance and Operation of Plant Student Transportation Services Food Services $ 431,637 $ 11,665 165,242 176,907 37 068 Note 6: RESTRICTED ASSETS $==6-45-,6=1=2 Special Purpose Local Option Sales Tax (SPLOST) proceeds are reported as restricted assets in the Statement of Net Assets because their use is limited by statutory provisions. Restricted assets at June 30, 2006, were as follows: Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Restricted Investments: Debt Services $ 47,355 $ 1,942,550 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2006, consisted of the following: Transfer to Transfers From General Fund District-wide Capital Projects Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund supplemental funding source for capital construction projects. Note 8: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. - 18 - LAMAR COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 8: RISK MANAGEMENT The School District has obtained commercial insurance for risk ofloss associated with torts, assets and errors or omissions. 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. The School District has not experienced any losses related to this risk in the past three years. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability 2005 2006 $ 0 $ 5 041 $ 5 041 $ 0 $ 0 $ 0 $ 0 $ 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 of workers' 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 $ 25,000 $ 100,000 - 19 - LAMAR COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 9: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 2002 General Government - Refunding - Series 2005 3.82% 3.33% $ 2,355,000 4,085,000 $ 6,440,000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: Governmental Funds General Obligation Bonds Balance July 1, 2005 $ 7,635,000 Deductions Debt Retired 1,195,000 Balance June 30, 2006 $ 6,440,000 Portion of Long-Term Debt Due within One Year $ 1,390,000 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 General Obligation Debt Principal Interest 2007 2008 2009 2010 2011 2012 - 2016 $ 1,390,000 $ 1,650,000 365,000 380,000 395,000 2,260,000 225,991 174,535 113,220 101,066 88,412 231,934 Total Principal and Interest $ 6,440,000 $ 935,158 - 20 - LAMAR COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 10: PRIOR YEAR DEFEASEMENT OF DEBT In fiscal year 2005, the School District defeased certain general obligation bonds by placing the proceeds ofnew bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the School District's basic financial statements. The 1995 bonds were paid off on February 1, 2006. At June 30, 2006, none of the bonds are outstanding or considered defeased. Note 11: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 12: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. 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% $ 971,201 $ 898,284 $ 866,872 - 21 - (This page left intentionally blank) LAMAR 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 Food Services Operation Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING USES Other Uses Net Change in Fund Balances Fund Balances - Beginning NONAPPROPRIATED BUDGETS ORIGINAL {1) FINAL {1) ACTUAL AMOUNTS $ 5,000,000 $ 5,000,000 $ 5,424,113 208,461 10,121,919 10,245,323 10,292,609 1,736,573 3,120,310 2,884,597 319,965 319,965 503,163 115,900 115,900 263,372 51 375 51 375 584 316 $ 17,345,732 $ 18,852,873 $ 20,160,631 $ 11,438,557 $ 12,455,525 $ 12,522,473 762,214 569,919 373,872 379,758 911,428 154,590 1,370,003 1,058,821 489,171 117,539 1,227,079 836,448 874,430 373,872 418,805 917,885 154,590 1,370,003 1,089,687 500,199 167,339 1,228,359 788,485 844,462 371,367 345,869 1,006,147 151,634 1,377,734 1,082,751 491,687 224,715 1216409 $ 18,852,951 $ 20,387,142 $ 20,423,733 $ -1,507,219 $ -1,534,269 $ -263,102 -66 040 -66 040 $ -1,507,219 $ -1,600,309 $ -329, 142 6 160 706 6 160 706 6,329,703 Fund Balances - Ending $ 4 653487 $ 4 560 397 $ ===6'=,0==00='=56=1= Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 23 - LAMAR 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 Enhancing Education Through Technology Program Improving Teacher Quality State Grants Hurricane Education Recovery Reading First State Grants Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U. S. Department of Education CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 NIA N/A $ $ (2) 1017727 1,017,727 10.550 N/A $ 52459 1070186 84.027 84.173 NIA $ NIA $ 470,710 12 540 483,250 84.318 84.367 84.938 84.357 84.186 84.298 84.010 84.048 N/A N/A N/A N/A N/A N/A N/A N/A $ 109,470 155,867 (3) 439,667 17,771 9,628 816,336 35 772 2 067 761 Total Federal Financial Assistance N/A = Not Available $ ====3=13=7=9=4=7 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 ($177,267) were not maintained separately and are included in the 2006 National School Lunch Program. (3) Funds earned on the Hurricane Education Recovery program in the amount of $37,237 do not require reporting of expenditures. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Lamar 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. - 24 - LAMAR COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 AGENCY/FUNDING GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Gifted Student - Category VI Remedial Education Program Alternative Education Program 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 Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs K-3 Statewide Reading Program National Teacher Certification Preschool Handicapped Program See notes to the basic financial statements. - 25 - SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 402,717 680,928 6,158 1,289,232 284,946 581,620 237,175 1,319,681 1,271,189 289,217 1,078,954 92,819 18,504 105,184 200,186 66,471 42,034 346,707 463,549 594,977 456,411 81,278 35,802 60,073 8,006 5,246 61,042 606,088 68,452 -546,980 46,036 6,587 32 320 $ ===1=0=,2=9=2,=6=09= LAMAR COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 SCHEDULE "4" PROJECT Remodeling, renovating, improving and equipping existing classrooms, instructional and support space and grounds at existing School District facilities, including re-roofing and replacing HVAC system at the high school, acquiring and necessary personal property, including technology equipment and furnishings for the middle school and paying any expenses incident thereto. Payment of a portion of the principal and interest on the Lamar County School District's General Obligation School Bonds, Series 1995. Acquisition, construction, equipping and furnishing of a new school and additions, renovations and improvements at existing schools and facilities, including the acquisition of any property necessary or desirable therefor. ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) (4) AMOUNT EXPENDED IN PRIOR YEARS (3) (4) PROJECT STATUS $ 4,000,000 $ 4,000,000 $ 3,087,196 Completed 2,443,930 2,443,930 $ 469,638 488,986 Ongoing 5,056,070 9,713,709 1,940,627 7,773,082 Ongoing $ 11,500,000 $ 16,157,639 $ 2,410,265 $ 11,349,264 (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 Lamar 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 $ 422,747 Current Year 123,195 Total $ =====54=5=9' =4=2 See notes to the basic financial statements. - 26 - LAMAR COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2006 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category II Category Ill Gifted Student - Category VI Remedial Education Program Alternative Education Program TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 792,638 $ 824,354 $ 23,710 $ 848,064 29,013 66,691 142 66,833 1,530,129 1,718,682 113,675 1,832,357 336,723 302,146 521 302,667 700,390 979,292 95,676 1,074,968 288,519 1,587,435 1,511,181 345,972 1,252,845 105,789 21,977 126 290 265,025 1,795,950 1,831,380 370,589 103,325 891,775 112,676 21,370 51 413 1,967 49,322 133,129 24,165 9,062 2,148 78 203 266,992 1,845,272 1,964,509 394,754 103,325 900,837 114,824 21,370 129 616 $ 8,628,901 $ 9,334,668 $ 531,720 $ 9,866,388 238,706 50 128 350,443 16 836 20,174 24 922 370,617 41 758 TOTAL QBE FORMULA FUNDS $ 8917735 $ 9 701 947 $ 576 816 $ =~1;:;,;0,;;;,27;,,;;8;.;7~6~3 (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. - 27 - 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 January 2, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Lamar 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 Lamar County Board of Education as of and for the year ended June 30, 2006, which collectively comprise Lamar County Board of Education's basic financial statements and have issued our report thereon dated January 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 Lamar County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect Lamar County Board of Education's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6851-06-01 and FS-6851-06-02. 2006YB-30 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, we believe none of the reportable conditions described above are material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether Lamar 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 Lamar County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~~.~ ' Russell W. Hinton, CPA, CGFM State Auditor RWH:gp 2006YB-30 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 January 2, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Lamar 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 Lamar County Board ofEducation with the types of compliance requirements described in the U.S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2006. Lamar County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Lamar County Board of Education's management. Our responsibility is to express an opinion on Lamar County Board of Education's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 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 Lamar County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the 2006SA-10 circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Lamar County Board of Education's compliance with those requirements. In our opinion, the Lamar County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2006. Internal Control Over Compliance The management of Lamar 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 Lamar 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 ofthe management, members ofthe Lamar County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:gp 2006SA-10 Ru sell W. Hinton, CPA, CGFM State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS LAMAR 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-6851-04-01 FS-6851-04-02 FS-6851-05-01 FS-6851-05-02 FS-6851-05-03 Further Action Not Warranted Further Action Not Warranted Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented CORRECTIVE ACTION/RESPONSES ACCOUNTING CONTROLS (OVERALL) EMPLOYEE COMPENSATION Inadequate Separation of Duties Finding Control Number: FS-6851-05-01 All business office employees continue to have access to the various components of GENESIS because of limited staff. With only one payroll clerk in the system, the other business staff members must be able to assist in times of absence or heavy work load. A compensating control has been implemented in payroll for the addition ofnew employees. The Personnel Department is maintaining the manual log of employee numbers and assigning the next number to a new employee when approved for hire. The number is written on the employee's file by the Personnel Department before it is given to the Payroll Clerk for entry to the payroll system. Pay adjustments are approved by the Personnel Director or Superintendent. CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Finding Control Number: FS-6851-05-02 No corrective action was planned in the fiscal year 2005 schedule ofresponses. There are still no funds available for additional clerical staffing necessary for adequate separation of duties at each school. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION IV FINDINGS AND QUESTIONED COSTS LAMAR 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 Lamar 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 Lamar County Board of Education disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts Accounting Controls (Overall) Expenditures/Liabilities/Disbursements Employee Compensation None ofthe reportable conditions described above are considered to be material weaknesses. 3. Noncompliance Material to the Financial Statements The audit ofthe Lamar County Board of Education disclosed no instances ofnoncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Lamar 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 Lamar County Board ofEducation's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .5 IO(a) of 0MB Circular A-133 The Lamar County Board of Education's audit did not disclose audit findings required to be reported by section .510(a) ofOMB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Lamar County Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. - 1- LAMAR COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS ACCOUNTING CONTROLS (OVERALL) EMPLOYEE COMPENSATION Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-6851-06-01 Condition: This is a repeat finding (FS-6851-05-01 and FS-6851-04-01) from the years ended June 30, 2005, and 2004, respectively. The accounting procedures of the School District were insufficient to provide for adequate internal controls over the Financial Accounting System. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures and that there is adequate separation of duties involving key accounting functions, both manual and automated. Questioned Cost: NIA Information: An examination of the internal accounting control procedures revealed that the School District did not maintain adequate separation of duties for the following accounting functions and related procedures: ACCOUNTING CONTROLS (OVERALL) Access controls in the Financial System do not prevent users from accessing accounting functions that are outside of their area of responsibility. EMPLOYEE COMPENSATION The personnel and payroll functions were not separated. The same individual enters employee information in the personnel system, enters salary and accounting information into the payroll system, processes payroll transactions, posts information to the general ledger and reconciles salary expense at fiscal year-end. Cause: These deficiencies were a result ofthe School District's decision to limit the number ofadministrative staffmade responsible for accounting functions and failure to ensure established controls were functioning as designed. Effect: Errors and/or irregularities may not be detected in a timely manner. -2 - LAMAR COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS ACCOUNTING CONTROLS (OVERALL) EMPLOYEE COMPENSATION Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-6851-06-01 Recommendation: Management should periodically review this decision to determine if employee duties can be reassigned to achieve a higher degree of internal control with the existing staff and should also implement procedures to ensure that the key accounting functions of custody, record keeping and authorization are separated. Additionally, management should ensure that the access controls in the accounting information system complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance ofthat employee's duties. CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-6851-06-02 Condition: This is a repeat finding (FS-6851-05-02 and FS-6851-04-02) from the years ended June 30, 2005, and 2004, respectively. The accounting procedures of the School District were insufficient to provide adequate separation of duties over the school activity accounts. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide proper separation of duties. Such internal controls would limit any one individual's access to both physical assets and the related accounting records. Questioned Cost: NIA Information: Cash and Cash Equivalents The bank reconciliation function was not separated from the record keeping and voucher payment functions. Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions. -3- LAMAR COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-6851-06-02 Expenditures/Liabilities/Disbursements The check writing function was not separated from record keeping or processing of signed checks. Thirteen ofthe twenty vouchers tested were disbursed without proper approvals. Cause: These deficiencies were a result ofthe School District's decision to limit the number of clerical staff made responsible, at the various principal sites, for accounting functions and failure to ensure established controls were functioning as designed. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: The School District should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization are separated and/or utilize management oversight of these incompatible activities. GENERAL LEDGER Excessive Unreserved Fund Balance Nonmaterial Noncompliance Finding Control Number: FS-6851-06-03 Condition: The School District did not comply with provisions ofO.C.G.A. 20-2-167 as defined by Chapter 32 of the Financial Management for Local Units of Administration (FMGLUA). "The purpose of this paragraph is to prohibit local school systems from accumulating surplus funds through taxation without accounting to the taxpayers for how such funds will be expended, and this paragraph shall be liberally construed to accomplish this purpose." The School District's General Fund had an excessive unreserved, undesignated fund balance at fiscal year end. -4- LAMAR COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED GENERAL LEDGER Excessive Fund Balance Nonmaterial Noncompliance Finding Control Number: FS-6851-06-03 Criteria: O.C.G.A. 20-2-167 states in part: "The budget of each local school system shall designate all of such anticipated revenues among the several funds or accounts of the system and shall not leave any anticipated revenues undesignated. (Except as otherwise provided in this paragraph, all amounts allocated to each fund or account and any existing balance in each fund or account shall be intended for expenditure within the budget year for the purposes of that fund or account.) There shall be no fund or account in the nature of a "surplus" or "unobligated surplus" fund or account. Each local school system may, however, establish a single reserve fund or reserve account intended to cover unanticipated deficiencies in revenue or unanticipated expenditures, provided that the budget for any year shall not allocate to such reserve fund or reserve account any amounts which, when combined with the existing balance in such fund or account, exceed 15 percent of that year's total budget". Questioned Cost: NIA Information: The School District's General Fund reported an unreserved, undesignated fund balance that exceeded 15 percent of the 2007 fiscal year budgeted general fund expenditures. Cause: The School District neglected the specific limitations imposed by the provisions set forth in O.C.G.A. 20-2-167, as defined by the Georgia Department of Education. Effect: Nonmaterial noncompliance with respect to Chapter 32 of the FMGLUA. Recommendation: The School District should ensure that in future periods the School District complies with the provisions of O.C.G.A. 20-2-167. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -5- SECTION V MANAGEMENT'S RESPONSES LAMAR COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-6851-06-01 We concur with this finding. Primary areas of responsibility are divided among the three business office users ofthe GENESIS system, but the three also have the responsibility of assisting each other in times ofextremely heavy work load and absence. Due to the constraints ofthe GENESIS system and the limited staff, the ability to access all ofthe accounting function modules is necessary for the performance of the business employees' duties. GENESIS system limitations also require the payroll clerk to enter new employees instead of the personnel department. When the Georgia Department of Education delivers a new fund accounting system to the school systems, access controls should be more sophisticated. Some compensating controls have been implemented in fiscal year 2007. The personnel department now maintains the manual log of employee numbers and assigns the next number to a new employee when approved for hire. This employee number is written on the employee's personnel file before it is given to payroll for entry to the GENESIS payroll system. Salary calculations, based on Board approved pay scales, are prepared by the Personnel Director and account codes are assigned by the Finance Director. Any pay reductions on the monthly pay run are approved by the Superintendent. The Finance Director reviews the reconciliation of salaries at the end of the year for the salary and travel report and approves any adjustments that may be necessary. Administration is attempting to add personnel to the fiscal year 2008 budget whose primary function would be to review and verify salary calculations and payments. This person would not have access to the GENESIS system. This additional oversight and a further delineation of responsibilities of personnel and payroll staffmembers would improve internal control over accounting and employee compensation. Finding Control Number: FS-6851-06-02 We concur with this finding. Adequate separation of duties in the school principal accounts is not possible due to limited clerical staff in each location. There are no funds available at this time for the additional clerical staffing necessary for adequate separation of duties at each school. Oversight ofthe school activity account bank reconciliations will be increased in the second half of fiscal year 2007. The Finance Director currently reviews a copy of each school's activity account bank reconciliation and the summary of receipts and payments that is given to the Board each month. Now the Finance Director will go to a school each quarter and trace the items on the reconciliation to the source documents. - 1- LAMAR COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-6851-06-03 We concur with this finding. Funds that are being accumulated for future capital outlay needs will be designated by the Board and transferred to an appropriate capital outlay fund. This procedure will be followed in the current fiscal year. Contact Person: Deborah Johnston, Director of Finance Phone: (770) 358-5891 Fax Number: (770) 358-5897 E-mail Address: djohnstn@lamar.k12.ga.us -2-