LIBERTY COUNTY BOARD OF EDUCATION HINESVILLE, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor LIBERTY COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 6 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 9 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 11 H NOTES TO THE BASIC FINANCIAL STATEMENTS 12 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 25 LIBERTY COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 26 3 SCHEDULE OF STATE REVENUE 28 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 29 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 31 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 LIBERTY 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 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 April 29, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education and Superintendent and Members ofthe Liberty County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Liberty County Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Liberty County Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Liberty County Board ofEducation, as ofJune 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2004ARL-11 In accordance with Government Auditing Standards, we have also issued our report dated April 29, 2005, on our consideration ofthe Liberty County Board ofEducation'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 ofinternal 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 read in conjunction with this report in considering the results of our audit. Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through vii and page 25 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 Liberty County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code of Georgia Annotated section 506-24. Respectfully submitted, RWH:gp 2004ARL-11 State Auditor LIBERTY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 The discussion and analysis of Liberty County Board of Education's financial performance provides an overall review of the Board's financial activities for the fiscal year ended June 30, 2004. The intent of this discussion and analysis is to review the Board's financial position as a whole; readers should also review the notes to the basic financial statements to enhance their understanding of the Board's financial performance. Financial Highlights Key financial highlights for 2004 are as follows: In total, net assets increased $10.3 million which represents a 9.75 percent increase from 2003. This total increase was due to governmental activities since the Board has no business type activities. General revenues accounted for $39.8 million in revenue or 42.3 percent of all revenues. Program specific revenues in the form of charges for services and sales, grants, and contributions accounted for $52.9 million or 57.7 percent of total revenues of $94.2 million. The Board had $83.9 million in expenses related to governmental activities; only $54.4 million of these expenses were offset by program specific charges for services, grants or contributions. General revenues of $39.8 million were adequate to provide for these programs. Among major funds the general fund has $86.8 million in revenues, $82.3 million in expenditures and $4.7 million in other financing uses. The general fund's fund balance decreased to $15.9 million from $16.l million. Using the Basic Financial Statements This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the Liberty County Board of Education as a financial whole, or as an entire operating entity. The Statement ofNet Assets and Statement ofActivities provide information about the activities of the whole Board, presenting both an aggregate view of the Board's finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term as well as what remains for future spending. In the case of the Liberty County Board of Education, the general fund is by far the most significant fund. 1 LIBERTY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Reporting the Board as a Whole Statement ofNet Assets and the Statement ofActivities While this document contains a number of funds used by the Board to provide programs and activities, the view of the Board as a whole looks at all financial transactions and asks the question, "How did we do financially during fiscal year 2004?" The Statement ofNet Assets and the Statement of Activities answers this question. These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting method used by most private-sector companies. The accrual basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid. These two statements report the Board's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the Board as a whole, the financial position of the Board has improved or diminished. The causes of this change may be the result of many factors, some financial, some not. Nonfinancial factors include the Board's property tax base, facility conditions, required educational programs, and other additional factors. In the Statement of Net Assets and the Statement of Activities, the Board has one distinct type of activity: Governmental Activities - All of the Board's programs and services are reported here including instruction, support services, operation and maintenance of plant, pupil transportation, food services, principal's accounts, and various others. Reporting the Board's Most Significant Funds Fund Financial Statements Fund financial reports provide detailed information about the Board's major funds. The Board uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the Board's most significant funds. The Board's major governmental funds are the general fund and the capital projects fund. Governmental Funds: Most of the Board's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual 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 Board's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to provide educational programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and Statement of Activities) and governmentalfunds is reconciled in the financial statements. 11 LIBERTY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Fiduciary Funds: The Board is the trustee, or fiduciary, for assets that belong to others, such as the school clubs and organizations within the principals' accounts. The Board is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The Board excludes these activities from the District-wide financial statements because it cannot use these assets to finance its operations. The Board as Whole The perspective of the statement of net assets is of the Board as a whole. Table 1 provides a summary of the Board's net assets for fiscal year 2004 compared to fiscal year 2003. Table 1 Net Assets (in Thousands) Governmental Activities Fiscal Fiscal Year2004 Year 2003 Assets Current and Other Assets Capital Assets, Net $ 35,662 90,269 $ 33,855 82,421 Total Assets $ 125,931 $ 116,276 Liabilities Current and Other Liabilities Long-Term Liabilities $ 10,080 0 $ 10,713 0 Total Liabilities $ 10,080 $ 10,713 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 90,269 8,546 17,036 $ 82,422 5,138 18,003 Total Net Assets $ 115!851 $ 1052563 Total net assets increased $10.3 million in fiscal year 2004. 111 LIBERTY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Table 2 Change in Net Assets (in Thousands) Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions Total Program Revenues General Revenues: Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Total Revenues Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations ofNon-Instructional Services Enterprise Operations Community Services Food Services Total Expenses Increase in Net Assets Governmental Activities Fiscal Fiscal Year2004 Year 2003 $ 1,466 52,529 391 $ 54,386 $ 1,529 52,198 2,007 $ 55,734 $ 18,923 6,483 312 127 12,698 253 1,030 $ 39,826 $ 94,212 $ 54,658 3,295 2,908 1,896 936 5,216 388 5,024 3,970 347 696 179 4,411 $ 83,924 $ 10,288 $ 18,687 5,124 258 24 10,617 334 733 $ 35,777 $ 91,511 $ 53,997 3,068 3,008 1,702 928 5,076 285 5,573 3,666 416 555 439 4,698 $ 83,411 $ 8.100 Table 2 shows the changes in net assets for fiscal year 2004 compared to the changes in net assets associated with fiscal year 2003. lV LIBERTY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Governmental Activities Governmental program expenses are comprised of the following: Instruction 65 .1 percent, Support Services 29.4 percent and Operations of Non-Instructional Services 5.5 percent. The Statement of Activities shows the cost of the program services and the charges for services and grants offsetting those services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services comparing fiscal year 2004 with fiscal year 2003. That is, it identifies the cost of these services supported by tax revenue and unrestricted State entitlements. Table3 Governmental Activities (in Thousands) Total Cost of Services Fiscal Fiscal Year 2004 Year 2003 Net Cost of Services Fiscal Fiscal Year 2004 Year 2003 Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations ofNon-lnstructional Services Enterprise Operations Community Services Food Services $ 54,658 $ 53,997 $ 16,229 $ 13,908 3,295 2,908 1,896 936 5,216 388 5,024 3,970 347 696 3,068 3,008 1,702 928 5,076 285 5,573 3,666 416 555 2,620 1,305 888 731 3,207 387 1,879 2,611 -800 199 2,434 1,341 686 710 3,060 280 2,467 1,803 399 68 179 4 411 439 4,698 179 32 103 488 Total Expenses $ 83.924 $ 83.411 $ 29,538 $ 27,676 Although program revenues make up a majority of the revenues, the Board is still de'pendent upon tax revenues for governmental activities. Over 29.7 percent of instruction activities are supported through taxes and other general revenues; for all governmental activities general revenue support is 35.2 percent. The Board's Funds The Board's governmental funds are accounted for using the modified accrual basis of accounting. Total governmental funds had revenues and other financing sources of $98.5 million and expenditures and other financing uses of $96.5 million. The overall increase of $2.0 million reflects the Board was able to meet its overall current costs. V LIBERTY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 General Fund Budgeting Highlights The Board's budget is prepared according to Georgia law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2004, the Board amended its general fund budget as needed. The Board uses site based budgeting. The budgeting systems are designed to tightly control total site budgets but provide flexibility for site management. For the General Fund, the final budgeted revenues and other financing sources of $83.1 million exceeded the original budgeted amount of $79.6 million by $3.5 million. The increase in miscellaneous revenues is mainly attributable to the inclusion of the principal's accounts on the financial statements of the Board. The actual revenues of $86.8 million exceeded the final budgeted amount by $3.7 million. The final budgeted expenditures and other financing uses of $91.6 million exceeded the original budgeted amount of $89.9 million by $1.7 million. As mentioned earlier, the majority of this increase was due to increases in expenditures through inclusion of the activity of the principal's accounts. Capital Assets and Debt Administration Capital Assets At the end of fiscal year 2004, the Board had $90.3 million invested in capital assets, all in governmental activities. Table 4 shows fiscal year 2004 balances compared with fiscal year 2003 balances. Table 4 Capital Assets at June 30 (Net of Depreciation, in Thousands) Governmental Activities Fiscal Fiscal Year 2004 Year 2003 Land Construction in Progress Buildings and Building Improvements Equipment Land Improvements $ 2,485 8,789 74,056 3,864 1,074 $ 2,485 13,777 61,247 3,678 1,234 Total $ 90,268 $ 82i421 The primary increases occurred in construction in progress due to ongoing construction projects and buildings and building improvements due to completed construction. VI LIBERTY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Debt At June 30, 2004, the Board had no outstanding long-term liabilities. Current Issues The austerity reductions issued by the state of Georgia continue to force local school districts to provide additional local funding and prioritize educational programs. Additional costs to the Board will be required with the continued implementation of House Bill 1187. This bill mandates lower teacher to student ratios, requiring additional teachers and additional classrooms. Despite these challenges the Liberty County School District is strong financially and we remain optimistic about the ability of the Board to maximize all of the financial resources to provide a quality education to our students. The Liberty County School District benefits from the proceeds of a Special Purpose Local Option Sales Tax (SPLOST). The mobility and deployment of the 3rd Infantry Division to Iraq causes fluctuations of spending within the community. These fluctuations produce uneven tax streams that require careful budgeting and monitoring of the capital outlay projects within the Board. Contacting the Board's Financial Management This report is designed to provide our citizens and taxpayers with a general overview of the Board's finances and to show the Board's accountability for the money it receives. If you have questions about this report or require additional information, contact Linda Hodges, Director of Finance, at the Liberty County Board of Education, 110 South Gause Street, Hinesville, Georgia 31313. You may also email your questions to Linda Hodges at lhodges@liberty.k12.ga.us. Vll LIBERTY COUNTY BOARD OF EDUCATION LIBERTY COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004 ASSETS Cash and Cash Equivalents Investments Accounts Receivable. Net Taxes State Government Federal Government Other Prepaid Items Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Retainages Payable Deposits and Deferred Revenues Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Continuation of Federal Programs Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 15,346,949 11,282,353 2,016,795 5,772,050 1,071,543 3,434 107,793 60,989 2,485,385 8,789,355 3,639,945 88,937,073 8,901,750 -22,484,672 $ ===12=5=,9=3=0,.,.74=2= $ 1,990,744 7,249,642 797,797 41 597 $ 10,079,780 $ 90,268,836 364,990 8,181,330 17,035,806 $ 115,850,962 $ ===12..5.,..,9=3=0=,7=42== The notes to the basic financial statements are an integral part of this statement. -3- LIBERTY COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2004 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 54,658,665 $ 3,294,787 2,908,049 1,896,260 935,889 5,216,583 387,682 5,023,749 3,969,987 347,188 696,017 178,688 4 410 906 $ 83,924,450 $ 275,176 1,190,654 1,465,830 The notes to the basic financial statements are an integral part of this statement. -4- EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 38,034,542 $ 672,294 1,602,483 1,001,035 204,495 2,004,535 3,138,812 1,138,765 1,147,020 481,168 3103 874 $ 52,529,023 $ 119,714 $ 2,851 443 7,552 839 4,741 369 5,710 219,757 170 15,587 13197 390,930 $ -16,229,233 -2,619,642 -1,305,123 -887,673 -730,555 -3,207,307 -387,313 -1,879,227 -2,611,465 800,002 -199,262 -178,688 -103 181 -29,538,667 $ 18,922,975 6,482,752 312,127 127,328 12,698,097 252,661 1,030,848 $ 39,826,788 $ 10,288,121 105,562,841 $ ===1=15,.;,8=5=0-=,9=62= -5- LIBERTY COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2004 EXHIBIT "C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Prepaid Items Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Retainages Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Inventories Capital Projects Unreserved Undesignated Reported in: General Fund Capital Projects Total Fund Balances Total Liabilities and Fund Balances GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND TOTAL $ 6,719,183 $ 11,282,353 310,556 5,772,050 900,370 3,434 107,793 60,989 8,627,766 $ 1,208,034 171,173 15,346,949 11,282,353 1,518,590 5,772,050 1,071,543 3,434 107,793 60 989 $ 25,156,728 $ 10,006,973 $===3~5~1=6=3!,;,7=01= $ 1,990,744 7,249,642 $ 41 597 $ 9,281,983 $ $ 797,797 797 797 $ 1,990,744 7,249,642 797,797 41 597 10 079 780 $ 304,001 $ 60,989 $ 8,181,330 15,509,755 $ 15,874,745 $ 1,027,846 9,209,176 $ 304,001 60,989 8,181,330 15,509,755 1027846 25,083,921 $ 25,156,728 $ 10,006,973 $===3=5="'1=6=3-=7=01= The notes to the basic financial statements are an integral part of this statement. -6- LIBERTY COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30. 2004 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Net Assets of Governmental Activities (Exhibit "A") $ 25.083,921 $ 2,485,385 8,789,355 3,639,945 88,937,073 8,901,750 -22,484,672 90,268,836 498,205 $ 115,850,962 The notes to the basic financial statements are an integral part of this statement. -7- LIBERTY COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2004 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation Capital Outlay 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 GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND TOTAL $ 10,203,293 $ 439,455 $ 6,482,752 56,150,824 17,357,642 388,485 1,465,830 175,176 77,485 1,030,848 10,203,293 6,922,207 56,150,824 17,746,127 1,465,830 252,661 1,030,848 $ 86,823,068 $ 6,948,722 $ 93,771,790 $ 53,395,889 $ 34,370 $ 53,430,259 3,264,392 2,903,313 1,815,745 926,741 5,166,030 402,648 4,988,444 4,101,940 345,290 529,829 178,688 4,270,283 235 9,448,067 3,264,392 2,903,313 1,815,745 926,976 5,166,030 402,648 4,988,444 4,101,940 345,290 529,829 178,688 4,270,283 9,448,067 $ 82,289,232 $ 9,482,672 $ 91,771,904 $ 4,533,836 $ -2,533,950 $ 1,999,886 $ 4,761,000 $ $ -4,761,000 4,761,000 -4,761,000 $ -4,761,000 $ 4,761,000 $ 0 $ -227,164 $ 2,227,050 $ 1,999,886 16,101,909 6,982,126 23,084,035 Fund Balances - Ending $ 15,874,745 $ 9,209,176 $ 25,083,921 The notes to the basic financial statements are an integral part of this statement. -8- LIBERTY COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30. 2004 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School Districts fiscal year ends, they are not considered "available" revenues. $ 1,999,886 $ 10,116,160 -2,268,706 7,847,454 440 781 Change in Net Assets of Governmental Activities (Exhibit "B") $ 10,288,121 The notes to the basic financial statements are an integral part of this statement. -9- LIBERTY COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ =====1=4::!1,=21=0= $ ====14=1 =21=0= The notes to the basic financial statements are an integral part of this statement. - 11 - LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Liberty 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 Liberty County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds. - 12 - LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District 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 Proceeds, grants from U.S. Department of Education, Federal grants from Georgia Department of Education and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation of major capital facilities. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless ofwhen the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred. Capital asset acquisitions are reported as expenditures in governmental funds. - 13 - LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year 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, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and - 14 - LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (8) Obligations of other political subdivisions of the State of Georgia. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Liberty County Board ofCommissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on November 28, 2003 (levy date). Taxes were due on February 4, 2004 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Liberty 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, 2004, for maintenance and operations amounted to $10,203,293. The tax millage rate levied for the 2003 tax year (calendar year) for the Liberty County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 16.00 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $6,482,752 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories ofdonated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods - 15 - LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 ofassets 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 $ 10,000 up to 60 years $ 10,000 up to 60 years $ 10,000 10 to 50 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts. - 16 - LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS AtJune 30, 2004, the bank balances were $19,925,399. The amounts ofthe total bank balances are classified into three categories of credit risk: Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2004, as follows: - 17 - LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Risk Category Bank Balance 1 $ 222,074 2 13,926,176 3 5,777,149 Total $ 19,925.399 CATEGORIZATION OF INVESTMENTS At June 30, 2004, the carrying value of the School District's total investments was $11,226,738 which is materially the same as fair value. This investment consisted entirely of funds invested in the Local Government Investment Pool administered by the State ofGeorgia, Office ofTreasury 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 of Treasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description ofthe Primary Liquidity Portfolio is as follows: The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U. S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2004, was 24 days. The average investment duration for Fund 6 on June 30, 2004, was 0.22 years. - 18 - LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" 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, 2003 Increases Decreases Balances June 30, 2004 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 2,485,385 $ 2,485,385 13,777,214 $ 9,272,155 $ 14,260,014 8,789,355 Total Capital Assets Not Being Depreciated $ 16,262,599 $ 9,272,155 $ 14,260,014 $ 11,274,740 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 74,677,059 $ 14,260,014 8,247,688 796,060 $ 3,592,000 47,945 $ 88,937,073 141,998 8,901,750 3,639,945 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 13,430,991 4,568,756 2,358,217 1,450,355 611,094 207,257 141,998 14,881,346 5,037,852 2,565,474 Total Capital Assets, Being Depreciated, Net $ 66,158,783 $ 12,835,313 $ 0 $ 78,994,096 Governmental Activity Capital Assets - Net $ 82,421,382 $ 22,107,468 $ 14,260,014 $ 90,268,836 Current year depreciation expense by function is as follows: Instruction Support Services Pupil Services Improvements of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services $ 1,184,506 $ 28,208 4,395 74,721 8,272 46,915 3,651 56,495 575,049 1,761 154,229 953,696 130,504 $ 2,268,706 - 19 - LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable statutory provisions. Restricted assets at June 30, 2004, were as follows: District-wide Capital Projects SPLOST Restricted Cash and Cash Equivalents: Capital Acquisitions $ 7,180,452 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2004, consisted of the following: Transfer to Transfers From General Fund District-wide Capital Projects $ 4,761,000 Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as required match or supplemental funding source for capital construction projects. Note 8: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with torts, assets and job related illness or injuries to employees. 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. In addition, the School District has elected to self-insure for errors or omissions, which includes, among other risks, risks for sexual harassment and discrimination. The School District has not experienced any losses related to these risks in the past three years. -20- LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 8: RISK MANAGEMENT The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims 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 ofYear Liability Claims and Changes in Estimates Claims Paid End ofYear Liability 2003 2004 $ 0 $ 24 947 $ 24 947 $ 0 $ 0 $ 17 693 $ 17 693 $ 0 The School District has purchased a surety bond to provide additional insurance coverage as follows: Position Covered Amount All Employees (Per Loss) $ 50,000 Note 9: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $499,993 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $492,515 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $7,478 Note 10: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2004, together with funding available: - 21 - LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30. 2004 EXHIBIT"H" Note 10: SIGNIFICANT COMMITMENTS Project Unearned Executed Contracts Funding Available From State SAO 1S-689-116 SAO 1-689-318/SA0 1-689-319/ SA0l-689-320 Board of Education Building Bradwell Institute Phase I Button Gwinnett Electrical Liberty County High Athletic Complex Pre-K Center Building Snelson Golden Practice Field $ 4,712,322 $ 55,255 3,805,662 8,329,634 81,987 14,244 199,883 5,029,720 6 776 1,272,726 $ 22!1801228 $ 113271981 The amounts described in this note are not reflected in the basic financial statements. Note 11: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. 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: -22- LIBERTY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 12: RETIREMENT PLANS Fiscal Year 2004 2003 2002 Percentage Contributed 100% 100% 100% Required Contribution $ 4,318,759 $ 4,208,422 $ 3,937,341 - 23 - LIBERTY COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30. 2004 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES} Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL ACTUAL AMOUNTS $ 10,875,172 $ 10,875,172 $ 10,203,293 439,455 54,352,802 56,133,379 56,150,824 13,151,597 13,648,755 17,357,642 951,697 951,697 1,465,830 205,500 205,500 175,176 78645 1094645 1,030,848 $ 79,615,413 $ 82,909,148 $ 86,823,068 $ 55,448,273 $ 55,863,070 $ 53,395,889 2,799,173 2,848,389 1,755,282 1,254,566 5,303,537 363,041 6,426,012 4,236,812 428,783 235,706 4,100,000 3,130,173 3,265,389 1,853,060 1,183,187 5,214,672 438,041 6,431,012 4,217,140 428,783 510,706 4,125,000 3,264,392 2,903,313 1,815,745 926,741 5,166,030 402,648 4,988,444 4,101,940 345,290 529,829 178,688 4,270,283 $ 85,199,574 $ 86,660,233 $ 82,289,232 $ -5,584,161 $ -3,751,085 $ 4,533,836 $ $ -4,761,000 $ -4,761,000 $ $ -10,345,161 $ 18,189,799 225,000 -4,986,000 $ -4,761,000 $ -8,512,085 $ 17,890,267 -4,761,000 -4,761,000 -227,164 16,101,909 Fund Balances - Ending $ 7,844,638 $ 9,378,182 $ 15,874,745 Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual (1) Original 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. -25- LIBERTY COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U. S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Direct Impact Aid Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Improving Teacher Quality State Grants Reading Excellence - Local Reading Improvement Rural Education Safe and Drug-Free Schools and Communities School Renovation - Schools State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U.S. Department of Education Defense, U. S. Department of Direct Department of the Army R.O.T.C. Program Total Federal Financial Assistance N/A = Not Available - 26 - CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 NIA NIA $ $ (2) 3,495,003 3,495,003 10.550 N/A $ 201 806 3,696,809 84.027 84.173 N/A $ N/A $ 1,305,894 80 350 1,386,244 84.041 84.318 84.367 84.338 84.358 84.186 84.352 84.298 84.010 84.048 N/A N/A N/A N/A N/A N/A N/A N/A N/A $ (3) 75,602 531,225 518,496 101,301 84,951 171,173 24,681 3,139,328 128 703 6161 704 $ 484 243 $ ===1==0,=34=2=,7=5===6 LIBERTY COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2004 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($637.493) were not maintained separately and are included in the 2004 National School Lunch Program. (3) Funds earned on the Impact Aid Program, in the amount of $8,278,901, 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 Liberty 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. -27- LIBERTY COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2004 AGENCY/FUNDING GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Health Insurance National Teacher Certification Preschool Handicapped Program Residential and Reintegration Services Student Information System Office of Treasury and Fiscal Services Public School Employees Retirement See notes to the basic financial statements. - 28 - SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 1,229,965 3,201,735 502,060 6,868,860 639,261 3,493,081 509,913 92,451 6,891,639 5,468,465 1,394,422 219,749 950,193 2,954,660 236,557 94,286 448,274 -1,576 512,103 89,939 1,001,035 323,410 206,865 1,147,020 1,934,934 3,102,806 987,459 219,757 218,451 40,920 36,030 11,629,737 310,522 225,763 -2,141,753 81,718 137,783 492,515 21,228 289,581 32,365 49,163 7 478 $ ===5=6=,1=5=0=,8=24= LIBERTY COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30. 2004 SCHEDULE "4" PROJECT New Middle School New Addition to Liberty County High School Paving at Bradwell Institute Construction of Storage Buildings at Taylor"s Creek. Frank Long, Snelson-Golden and Lewis Frazier Schools Adding to, renovating, repairing, improving and equipping existing school buildings or other buildings or facilities useful or desirable in connection therewith, including the Bradwell Institute and Liberty County High School; acquiring, constructing and equipping new buildings or facilities useful or desirable in connection therewith, including additional classrooms and a school vehicle maintenance facility; acquiring new school buses; acquiring any property necessary or desirable therefore, both real and personal, including system-wide technology, the maximum amount of the projects to be paid with sales and use tax proceeds will be $35,000,000 ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS(2) AMOUNT EXPENDED IN CURRENT YEAR(3) AMOUNT EXPENDED IN PRIOR YEARS(3) PROJECT STATUS $ 6,835,876 $ 13,900,000 $ 23,219 $ 13,782,376 Completed 952,380 2,014,000 163,175 1,850,076 Completed 390,000 429,000 11,999 390,000 Completed 442,000 810,000 539,246 88,927 Ongoing 35,000,000 41,682,000 6,689,501 81029,821 Ongoing $ 43,620,256 $ 58,835,000 $ 7 427140 $ 24,141.200 (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 Liberty County approved the imposition of a 1% sales tax to fund the above projects. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. See notes to the basic financial statements. -29- LIBERTY COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2004 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 3,272,237 $ 1,927,426 $ 42,267 $ 1,969,693 690,147 1,937,098 50,509 1,987,607 7,343,307 7,634,152 160,424 7,794,576 791,052 3,244,751 127,594 3,372,345 3,729,300 4,634,831 94,475 4,729,306 592,645 97,446 7,443,070 5,942,844 1,512,002 4,771,944 524,227 554,286 93 981 1,482,374 155,301 9,333,875 8,733,023 2,208,886 474,696 1,329,898 3,037,265 407,209 100,422 676,995 4,952 660,475 164,999 82,574 319,933 641,017 297,235 6,612 10,169 43,725 541 12,766 1 507 1,564,948 155,301 9,653,808 9,374,040 2,506,121 481,308 1,340,067 3,080,990 407,750 100,422 689,761 4,952 660,475 166,506 $ 37,358,488 $ 48,148,628 $ 1,891,348 $ 50,039,976 1,076,582 224,009 1,582,136 53,372 300,303 147 651 1,882,439 201,023 TOTAL QBE FORMULA FUNDS $ 38,659,079 $ 49,784,136 $ 2,339,302 $ =~5,;;,2,~12~3~,4;,;:3~8 (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. - 31 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 April 29, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Liberty 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 Liberty County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Liberty County Board of Education's basic financial statements and have issued our report thereon dated April 29, 2005. 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 Liberty County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Liberty County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule ofFindings and Questioned Costs as item FS-6891-04-01. 2004YB-30 A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. 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 the reportable condition described above is not a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether Liberty 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 Liberty County Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:gp 2004YB-30 State Auditor Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 April 29, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education and Superintendent and Members of the Liberty 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 ofLiberty County Board ofEducation with the types ofcompliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2004. Liberty 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 Liberty County Board of Education's management. Our responsibility is to express an opinion on Liberty County Board of Education's compliance based on our audit. We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits ofStates, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Liberty County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Liberty County Board of Education's compliance with those requirements. 2004SA-30 In our opinion, the Liberty County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2004. Internal Control Over Compliance The management of Liberty 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 Liberty 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. We noted a certain matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Liberty County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FA-6891-04-01. A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements of laws, 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. Our consideration ofthe internal control over compliance 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 the reportable condition described above is not a material weakness. This report is intended solely for the information and use ofthe management, members ofthe Liberty 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, tO~~ RWH:gp 2004SA-30 State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS LIBERTY COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6981-03-01 Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION GENERAL LEDGER Accounting/Internal Control Deficiencies Finding Control Number: FS-6981-03-01 Principal's Accounts The Liberty County School District recognized the importance of separating key accounting functions. Due to limitations in funding, it is not always feasible to have separate persons assigned to different accounting functions. The Liberty County School District has instituted compensating controls to adequately safeguard the assets of the School District. Specifically, the following compensating controls have been implemented: The School District actively monitors individual schools in order to ensure that all schools are following the policies and procedures as outlined in the Liberty County School Internal Accounting Handbook. Based on this handbook, the principal is ultimately responsible for maintaining accurate and complete financial records and assuring proper control and use of all school generated funds. Although a large number of responsibilities are delegated to one secretary, the principal serves as the compensating control by opening and reviewing the bank statement, reviewing disbursement documentation, signing checks, reviewing and signing the end ofthe quarter Activity Summary and related monthly bank reconciliations. For fiscal year 2005, the School District has purchased new software that allows the assistant directors offinance to more closely monitor these accounts on a routine basis. In addition, the School District contracts with an external auditor to review all receipts, all disbursements and related documentation at each school. - 1- LIBERTY COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION GENERAL LEDGER Accounting/Internal Control Deficiencies Finding Control Number: FS-6981-03-01 School Food Service During fiscal year 2004, School Food Service underwent a major reorganization. A new school nutrition director was hired in September 2003. The school food service bookkeeping function has been brought under the direction and supervision ofthe finance department. The duties ofthe bookkeeper have been reviewed and reassigned in order to ensure efficiency and timeliness within the school nutrition department. The school nutrition director reviews and approves all invoices,journal entries, employee timesheets and bank reconciliations. Lunchroom cashiers complete a cashier report before remitting their collections to the lunchroom clerks. Monthly closings are performed in a timely manner and the Georgia Department of Education reporting deadlines are being met. In addition, the assistant directors of finance review the monthly financial statements. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-6981-03-01 FA-6981-03-02 FA-6981-03-03 FA-6981-03-04 Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES SPECIAL TESTS AND PROVISIONS Accounting/Internal Control Deficiencies Finding Control Number: FA-6891-03-04 The Liberty County School District recognized the importance ofparticipating in complete and accurate verification process. For fiscal year 2004, management in the school nutrition office review master lists for each school on a monthly basis. The verification -2 - LIBERTY COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES SPECIAL TESTS AND PROVISIONS Accounting/Internal Control Deficiencies Finding Control Number: FA-6891-03-04 process is completed by the school nutrition record keeper and all procedures of the verification process are reviewed by the school nutrition director. Once the verification process is complete, the school nutrition record keeper updates the status of students within the point of sale system. In order to ensure that the school nutrition record keeper has completed all ofthe necessary changes in status, the school nutrition director compares the completed record ofaction to the master lists ofthe individual schools. In addition, the school nutrition director reviews all student changes for adequate documentation. In fiscal year 2005, the Liberty County School District began utilizing family applications. The institution offamily applications will aid in the process of system-wide sibling eligibility status changes that are necessitated through the verification process. -3- SECTION IV FINDINGS AND QUESTIONED COSTS LIBERTY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Liberty 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 Liberty County Board of Education disclosed a financial statement reportable condition related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts General Ledger Expenditures/Liabilities/Disbursements Employee Compensation The reportable condition described above is not considered to be a material weakness. 3. Noncompliance Material to the Financial Statements The audit of the Liberty County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Liberty County Board ofEducation disclosed a reportable condition in internal control over major programs for the following compliance requirement. Special Tests and Provisions The reportable condition described above is not considered to be a material weakness. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Liberty County Board ofEducation's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Liberty County Board of Education's audit disclosed an audit finding required to be reported by section .510(a) ofOMB Circular A-133. Thisauditfindingisincludedinsection IV of this report. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.041 Impact Aid - 1- LIBERTY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $558,650. 9. Low Risk Auditee The Liberty County Board ofEducation qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION GENERAL LEDGER Accounting/Internal Control Deficiencies Reportable Condition Finding Control Number: FS-6891-04-01 During the year under review, our examination ofthe internal control procedures disclosed that the School District did not provide adequate internal controls in the performance of the following accounting and related procedures: Principal's Accounts: Bank reconciliations were not reviewed and approved by an individual independent ofcash operations. Cash custody and receipting functions were not separated from cash disbursement and general ledger functions. Check writing function was not separated from the record keeping or processing of signed checks. School Food Service: Payroll check preparation functions were not separated from maintenance of employee personnel records, bank reconciliation and general ledger functions. Journal entries, payroll salary adjustments and timesheets were not reviewed and approved by someone independent of general ledger function. These deficiencies were the result of management's decision to limit the number of administrative staff made responsible for the accounting functions and their failure to establish compensating controls for internal control weaknesses. Management should implement additional procedures to ensure that the key accounting functions are segregated or that compensating controls are utilized. -2 - LIBERTY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Deficiencies Over Verification Process U. S. Department of Agriculture Through Georgia Department of Education Reportable Condition Finding Control Number: FA-6891-04-01 A review of the School District's verification procedures for the Child Nutrition Cluster (CFDA 10.553 and 10.555) revealed the following deficiencies: One student selected for verification was not on the master list. An eligibility status change was not made on the master list as recorded on the Record of Action resulting in one student receiving reduced meals instead of paid. The status change for a sibling identified on the free and reduced meal application selected for verification was not made resulting in one student receiving reduced meals instead of paid. These conditions were the result of management's failure to implement appropriate internal controls to ensure compliance in accordance with Federal guidelines. The School District should implement policies and procedures to ensure that all students affected in the verification process are properly updated. The School District should contact the Georgia Department ofEducation for resolution of this finding. -3 - SECTIONV MANAGEMENT'S RESPONSES LIBERTY COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FS-6891-04-01 Principal's Accounts: We concur with this finding. In fiscal year 2005, all bank reconciliations were completed on a separate bank reconciliation form. The process of having the principal review and approve this separate form should make it more clear to the reviewer that an individual independent of cash operations has reviewed and approved the bank reconciliation. In addition, all bank reconciliations are forwarded to the central office. The Assistant Directors ofFinance review the reconciliations as part ofthe process ofpreparing the quarterly activity summary reports for distribution to members of the Board of Education. All funds received and deposited into the principal accounts must initially be received and receipted by an individual other than the school activity accounting secretary. The school activity accounting secretary reviews the receipt documentation and verifies the amount of cash being deposited. All receipt documentation is kept on file for review. Before the school activity accounting secretary prepares a check, the principal must first review and approve a request for payment form. After the principal approves the request for payment form, the secretary prepares the check and forwards the check, along with the complete voucher package to the principal. The principal compares the payee and amount listed on the check back to the documentation in the voucher package. The principal then manually signs the check if all components are correct. No signature stamps or electronic signers are allowed. School Food Service: In order to enhance the separation of duties, all School Food Service payroll functions have been transferred to a payroll secretary. All payroll functions are now completely separated from the maintenance ofpersonnel records, preparation of bank statements, and general ledger functions. In addition, all journal entries, salary adjustments, and timesheets are reviewed and approved by the School Nutrition Director and/or the Assistant Directors of Finance. Contact Person: Linda J. Hodges, Director of Finance Telephone: (912) 876-4979, Fax: (912) 876-7374 Email: lhodges@liberty.kl2.ga.us - 1- LIBERTY COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FA-6891-04-01 We concur with this finding. The verification process is completed by the school nutrition record.keeper. All procedures related to the verification process are reviewed by the school nutrition director. Once the verification process is deemed to be complete, the school nutrition record.keeper updates the status of the students on the master list and consequently in the point of sale system. In order to ensure that the necessary changes have been made, the school nutrition director compares the completed record of action to the master lists ofthe individual schools. In addition, the school nutrition director reviews all student status changes for adequate documentation. In fiscal year 2005, the Liberty County School District began utilizing family applications. The institution of family applications will aid in the process of system-wide sibling eligibility status changes that are necessitated through the verification process. Contact Person: Melissa L. Mabry, Director of School Nutrition Telephone: (912) 876-2162, Fax: (912) 876-6097 Email: mmabry@liberty.kl2.ga.us -2-