LINCOLN COUNTY BOARD OF EDUCATION LINCOLNTON, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor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ashington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 March 22, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Lincoln 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 Lincoln County Board of Education, as of and for the year ended June 30, 2003, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Lincoln 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 op1mons. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective position ofthe governmental activities; each major fund, and the aggregate remaining fund information of the Lincoln County Board of Education, as of June 30, 2003, and the respective changes in financial position thereoffor the year then ended in conformity with accounting principles generally accepted in the United States of America. 2003-34ARL-11 As discussed in Note 2 to the basic financial statements, during fiscal year 2003, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements, consolidated its individual school activity accounts for inclusion in the basic financial statements and changed its method of accounting for the salaries of certain ten-month employees from a cash basis to a basis that is generally accepted. These changes are in accordance with generally accepted accounting principles. As described in Note 2, the Lincoln County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003. In accordance with Government Auditing Standards, we have also issued our report dated March 22, 2004, on our consideration of the Lincoln County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. 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 viii and page 29 respectively, are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Lincoln 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. 2003-34ARL-11 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 ofGeorgia Annotated section 506-24. Respectfully submitted, ~4~ RWH:as 2003-34ARL-11 State Auditor LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 The discussion and analysis of the Lincoln County Board of Education's financial performance provides an overall review of the Board's financial activities for the fiscal year ended June 30, 2003. The intent of this discussion and analysis is to look at the Board's financial performance as a whole. Readers are encouraged to review the basic financial statements, and the accompanying notes to the basic financial statements to enhance their understanding of the Board's financial performance. FINANCIAL HIGHLIGHTS Key financial highlights for 2003 are as follows: The Board implemented GASB34 for 2003. As a result of this being the implementation year, many comparisons will not be available until 2004. In total, net assets decreased $133 thousand, which represents a decrease of 2.2 percent over 2002. All of this decrease is for governmental activities. The Board has no business-type activities. General revenues accounted for $3.6 million. This represents 29.1 percent of all revenues. Program specific revenues in the form of grants and contributions and charges for services accounted for $8.86 million or 70.9 percent of total revenues. The Board had $12.6 million in expenses related to governmental activities. Program specific grants and contributions and charges for services offset $8.86 million of these expenses. General revenues, primarily property taxes and sales taxes, of $3.6 million, along with a small reduction in net assets, were adequate to provide for other expenses for these programs. Among major funds, the General Fund, had $12 million in revenues and $11.7 million in expenditures. The fund balance for the General Fund increased to $895 thousand. USING THE BASIC FINANCIAL STATEMENTS This annual report consists of a series of financial statements, the district-wide, and fund statements. The district-wide financial statements, the Statement of Net Assets, and the Statement of Activities are designed to illustrate the Board as an aggregate of its financial activities and present a longer-term view of its finances. The next level of detail is provided by the fund financial statements. These statements reflect the short-term finances as well as the balances available for future needs. For the Lincoln County Board of Education, the General Fund, District-wide Capital Projects Funds and the Debt Service Funds are the most significant funds. 1 LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 REPORTING THE BOARD AS A WHOLE (DISTRICT-WIDE) The Statement of Net Assets and the Statement of Activities While this document includes a number of funds used by the Board to provide programs and activities, a view of the Board as a whole requires a look at all financial transactions to ask the question "How did we do financially during 2003?" The Statement of Net 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 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 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 a result of many factors, some financial, some not. Nonfinancial factors include the Board's property tax base, facility conditions, required educational programs, and other factors. The Statement of Net Assets and the Statement of Activities is normally divided into two distinct types of activities, governmental and business type activities. All of the Board's activities are reflected as governmental activities. This includes instruction, pupil services, improvement of instructional services, educational media services, general administration, school administration, business administration, maintenance and operation of plant, student transportation services, other support services, food services, and interest on short-term and long-term debt. REPORTING THE BOARD'S MOST SIGNIFICANT FUNDS (FUND FINANCIALS) The fund financial statements provide detailed information about the Board's major funds. The Board's major governmental funds are the General Fund, District-wide Capital Projects Funds, and the Debt Service Funds. 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 financial assets that can readily be converted to cash. The governmental fund statements offer a short-term view of the Board's financial activities. A reconciliation of net changes in governmental fund balances to the governmental activities changes in net assets illustrate the relationships (or differences) between the governmental activities reported in the Statement of Net Assets and the Statement of Activities to the governmental funds presented in the fund financial statements. 11 LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 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. These activities are reported in a separate Statement of Fiduciary Net Assets. The Board has excluded these activities from the district-wide financial statements because the Board cannot use these assets to finance its operations. THE BOARD AS A WHOLE The Statement of Net Assets provides the perspective of the Board as a whole. Table 1 provides a summary of the Board's net assets for 2003. Since this is the first year the Board has prepared financial statements following GASB Statement 34, net assets comparisons to fiscal year 2002 are not available. Table 1 Net Assets (in Thousands) Governmental Activities Fiscal Year 2003 Assets Current and Other Assets Capital Assets, Net $ 3,329,052 8,464,451 Total Assets $11,793,503 Liabilities Current and Other Liabilities Long-Term Liabilities $ 1,990,073 3,866,562 Total Liabilities $ 5,856,635 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 6,057,545 1,070,793 -1,191,470 Total Net Assets $ 5,936,868 111 LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Table 2 shows the changes in net assets for fiscal year 2003. Revenues and expense comparisons for fiscal year 2002 are not available since this is the first year the Board has prepared financial statements in accordance with GASB Statement 34. Table 2 Change in Net Assets (in Thousands) Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Total Program Revenues General Revenues: Taxes Property Taxes Sales Taxes Grants and Contributions not Restricted 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 Other Support Services Operations ofNon-Instructional Services Food Services Interest on Short-Term and Long-Term Debt Total Expenses Decrease in Net Assets Governmental Activities Fiscal Year 2003 $ 265,808 8,596,207 $ 8,862,015 $ 2,400,118 532,952 471,547 51,311 187,417 $ 3,643,345 $12,505,360 $ 8,220,135 462,864 171,921 215,541 321,939 695,651 172,034 652,396 710,233 88,681 777,244 149,725 $12,638,364 $ -133.004 lV LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Governmental Activities The Board is dependent upon operating grants and property taxes to support governmental activities. Instruction comprises 65 percent, Support Service 27.6 percent, Food Services 6.2 percent and Interest 1.2 percent of government program expenses. The Statement of Activities details the cost of program services and the charges for services and grants offsetting those services. Table 3 shows the total cost of services and the net cost of services for governmental activities. It identifies the cost of these services supported by tax revenue and unrestricted State entitlement. Cost of service comparisons to fiscal year 2002 are not available since fiscal year 2003 is the first year the Board has prepared financial statements in accordance with GASB Statement 34. Table3 Governmental Activities (in Thousands) Total Cost of Services Fiscal Year2003 Net Cost of Services Fiscal Year2003 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 Other Support Services Operations ofNon-Instructional Services Food Services Interest on Short-Term and Long-Term Debt $ 8,220,135 $ 2,089,176 462,864 171,921 215,541 321,939 695,651 172,034 652,396 710,233 88,681 165,603 75,694 84,967 -53,603 328,356 172,034 233,220 346,043 81,961 777,244 149,725 103,173 149,725 Total Expenses $12!638!364 $ 3!776!349 Although program revenues make up a majority of the revenues, the Board is still dependent upon tax revenues for governmental activities. Over 25 percent of instruction activities are supported through taxes, interest, and other general revenues; for all governmental activities, general revenue support is over 38.2 percent. V LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 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 $15.1 million and expenditures and other financing uses of $15.6 million. The Board received $2.58 million proceeds from bonds issued for refunding previous general obligation bonds. The general fund reflected an increase of $315 thousand, the debt service fund decreased $1.8 thousand, and the district-wide capital projects funds decreased $797 thousand. The decrease in the capital projects funds was due to spending of QZAB funds received in the previous year. The increase in the fund balance of the general fund indicates the Board was able to meet current costs. GENERAL FUND HIGHLIGHTS The Board's budget is prepared according to Georgia law. The most significant budgeted fund is the General Fund. Site-based budgeting is used by the Board and is designed to tightly control total site budgets but allow some management flexibility. The Board's top management monitors a detailed report comparing actual revenues and expenditures to budget on a monthly basis. Site management has access to this information by requesting a report available using the Board's accounting software. For the general fund, the final budgeted revenues and other financing sources of $11.6 million exceeded the original budgeted amount of $11.2 million by $.43 million. This difference was due to an increase in state revenues of $130 thousand, and increase of $301 thousand in federal revenues. The actual revenue exceeded the budgeted amount by $473 thousand. The final budgeted expenditures and other financing uses of $11.86 million exceed the original budget of $11.43 million by $.43 million. The difference was due to an increase of instruction by $455 thousand, and a decrease in support services of $24 thousand. The actual expenditures and other financing uses were $128 thousand less than the budgeted amount. Conservative spending on the part of administrators account for the difference in actual expenditures. General fund revenues and other financing sources exceeded expenditures by $315 thousand. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At the end of fiscal year 2003, the Board had capital assets of $8.46 million, net of accumulated depreciation. Table 4 shows only fiscal year 2003 balances since this is the first fiscal year the Board has prepared financial statements in accordance with GASB Statement 34. Vl LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Table 4 Capital Assets (Net of Depreciation, in Thousands) Governmental Activities Fiscal Year 2003 Land Construction in Progress Buildings and Improvements Equipment Land Improvements Total $ 199,713 2,056 7,112,391 1,084,312 65,979 $ 8,464.451 The primary increases occurred in building and improvements and equipment. Debt At June 30, 2003, the Board had $2.35 million in general obligation bonds, with $310 thousand due within one year, $1 million in qualified zone academy leases with no payment due within one year, and capital leases of $57 thousand, with $18 thousand due within one year. During the year, general obligation bonds of $2,545,000 were refunded and new bonds of $2,580,000 were issued at a lower interest rate. Debt comparisons to fiscal year 2002 are not available since this is the first year that the Board has presented financial statements in accordance with the GASB Statement 34. Table 5 Debt at June 30 (in Thousands) Governmental Activities Fiscal Year 2003 General Obligation Bonds Capital Leases Qualified Zone Academy Leases $ 2,350,000 56,906 1,459,656 Total $ 3,866.562 vu LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 CURRENT ISSUES The Lincoln County Board of Education has maintained its economic stability by budgeting conservatively and monitoring its expenditures. The economy in Lincoln County was negatively impacted by the closing of two major factories in the past five years, as well as the general economy in the State of Georgia. Sales tax collections and state revenues have dropped. For fiscal year 2003, the State of Georgia has implemented an austerity reduction for instructional and noninstructional programs. Additional austerity reductions have been proposed by the governor for fiscal year 2004 and 2005. Lincoln County's tax digest was reassessed in fiscal year 2002. The collections for fiscal year 2003 were delayed due to the reassessment and the late date for passing the various tax millages. The school tax millage was rolled back as a result of the reassessment but an increase to a millage rate of 12 was needed to offset state revenue reductions. It is anticipated that the millage rate will be increased in the future to offset further state revenue reductions. These issues are of concern to the Board as they could have a negative impact on its financial health. Contacting the Board's Financial Management This financial report is designed to provide our citizens, taxpayers, investors, and creditors with a general overview of the Board's finances and to reflect the Board's accountability for the monies it receives. Questions about this report or for additional financial information, please contact Kaye Bufford, Comptroller, Lincoln County Board of Education, 423 Metasville Road, P. 0. Box 39, Lincolnton, Georgia 30817. vm LINCOLN COUNTY BOARD OF EDUCATION LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2003 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Deferred Revenue Retainages Payable Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted (Deficit) Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. -3- EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 1,454,582 555,054 145,361 847,719 300,489 11,580 14,267 199,713 2,056 69,048 7,949,068 1,818,546 -1,573,980 $ ===1=1=,7=9=3..,,5=03= $ 832,639 1,119,883 32,551 5,000 328,104 3,538,458 $ 5,856,635 $ 6,057,545 109,816 294,697 155,942 510,338 -1 191 470 $ 5,936,868 $ ===1=1'=79=3=,5=03= LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2003 EXHIBIT"B" EXPENSES PROGRAM REVENUES OPERATING CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS 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 Other Support Services Operations of Non-Instructional Services Food Services Interest on Short-Term and Long-Term Debt $ 8,220,135 $ 462,864 171,921 215,541 321,939 695,651 172,034 652,396 710,233 88,681 777,244 149,725 3,990 $ 76,559 25,261 159,998 6,126,969 $ 220,702 96,227 130,574 375,542 367,295 419,176 338,929 6,720 514,073 -2,089,176 -165,603 -75,694 -84,967 53,603 -328,356 -172,034 -233,220 -346,043 -81,961 -103,173 -149 725 Total Governmental Activities $ 12,638,364 $ 265,808 $ ======8=,5=96=,2=0=7= $ -3,776,349 General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous $ 2,399,689 429 375,510 109,321 41,285 6,836 471,547 51,311 187 417 Total General Revenues Change in Net Assets $ -133,004 Net Assets - Beginning of Year 6,069,872 Net Assets - Ending of Year $ ===5=''=93.,.6,..,8..,68.,. The notes to the basic financial statements are an integral part of this statement. -4- LINCOLN COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2003 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 1,204,600 $ 358,969 129,650 847,719 300,489 11,580 14 267 247,613 $ 195,580 87,112 2,369 $ 505 1,454,582 555,054 216,762 847,719 300,489 11,580 14 267 Total Assets $ 2,867,274 $ 530,305 $ 2 874 $ ======3==,4=0=0!:,4=53= LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable $ Salaries Payable Deferred Revenue Retainages Payable Total Liabilities $ FUND BALANCES Reserved for: Bus Replacement $ Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund Capital Projects Total Fund Balances $ 818,896 $ 1,119,883 32,551 1,971,330 $ 109,816 280,430 152,610 14,267 $ 338,821 895,944 $ 13,743 5000 18 743 $ 510,338 1 224 511,562 $ $ $ $ 2,874 2 874 $ 832,639 1,119,883 32,551 5000 1,990,073 109,816 280,430 155,484 14,267 510,338 338,821 1 224 1,410,380 Total Liabilities and Fund Balances $ 2,867,274 $ 530,305 $ 2 874 $ ======3==,4=0=0!:,4=53= The notes to the basic financial statements are an integral part of this statement. -5- LINCOLN COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30. 2003 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District"s property tax revenues will be collected after year end but are not available soon enough to pay for the current period"s expenditures. Long-Term Liabilities. including Bonds Payable. are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds and Notes Payable Capital Leases Total Long-Term Liabilities $ 1.410.380 $ 199.713 2.056 69.048 7.949.068 1.818.546 -1,573,980 8.464.451 -71.401 $ -2.350.000 -1,516,562 -3,866,562 Net Assets of Governmental Activities (Exhibit "A") $ 5,936,868 The notes to the basic financial statements are an integral part of this statement. -6- LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2003 EXHIBIT E 11 11 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 Other Support Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Payments to Bond Escrow Agent - Called Bonds Proceeds of Refunding Bonds Refunding Bond Issuance Costs Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 2,302,120 48,121 $ 7,547,188 1,654,077 189,249 9,284 299,281 $ 12,049,320 $ $ 109,321 30,641 139,962 $ 340 $ 375,510 11,386 387,236 $ 2,302,460 532,952 7,547,188 1,654,077 189,249 51,311 299,281 12,576,518 $ 7,897,486 462,864 148,218 215,541 321,939 695,651 123,440 660,233 402,523 88,681 660,058 $ 36,388 4214 $ 11,717,236 $ $ 332,084 $ $ 953,837 953,837 $ -813,875 $ $ 2,319 230,000 145,511 377,830 $ 9406 $ 7,897,486 462,864 148,218 215,541 321,939 695,651 125,759 660,233 402,523 88,681 660,058 953,837 266,388 149,725 13,048,903 -472,385 $ -2,545,000 $ -2,545,000 2,580,000 2,580,000 -46,275 -46,275 $ 16,822 16,822 $ -16,822 -16,822 $ -16,822 $ 16,822 $ -11 275 $ -11 275 $ 315,262 $ -797,053 $ -1,869 $ -483,660 580,682 1,308,615 4 743 1,894,040 Fund Balances - Ending $ 895,944 $ 511,562 $ The notes to the basic financial statements are an integral part of this statement. -7- 2 874 $ ====-1,4=1=01=,3=80= LINCOLN 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. 2003 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. In the Statement of Activities, only the gain on the sale of the (land/building/equipment) is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the (cost of the land/carrying value of the building/equipment) sold. Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from: Refunding Bonds Issued Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements Capital Lease Payments Payments to Bond Refunding Agent Total Long-Term Debt Repayments $ -483,660 $ 396,876 -206,450 190,426 -47,471 -23,687 -2,580,000 $ 230,000 36,388 2,545,000 2,811,388 Change in Net Assets of Governmental Activities (Exhibit "B") $ ==-=1=33=0=0=4 The notes to the basic financial statements are an integral part of this statement. -8- LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2003 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ ==4=2:!::::,6=28= $ ===42='=62=8= The notes to the basic financial statements are an integral part of this statement. -9- LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Lincoln 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 Lincoln County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. - 11 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 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 Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund types: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. 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 - 12 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. For fiscal year 2003, the School District changed its method of accounting for the final two payments on one hundred and ninety day contracts and for the related revenue due from the State to fund these contracts. Adjustments have been made in the fiscal year 2003 financial statements to record costs for salaries and fringe benefits earned by employees through June 30, 2003, (even though paid in July and August 2003) and the related revenue due from the State to fund these contracts. Adjustments were also made for the similar salaries, benefits and related State revenues earned in fiscal year 2002 and recorded in fiscal year 2003. The net effect of the above accounting treatment results in the accompanying financial statements reflecting costs for those salaries and benefits earned by employees during fiscal year 2003 and the related State revenue to fund these contracts. In addition, both the net assets and fund balance at July 1, 2002, have been restated for salaries and benefits earned by employees in fiscal year 2002 but not paid until July and August 2002 and for the related State revenue for these contracts. This change is in accordance with generally accepted accounting principles. See Restatement of Prior Year Fund Balance. RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of $273,080 at July 1, 2002. For fiscal year 2003, these funds have been reported as part of the General Fund. In addition, governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been reported within the General Fund for fiscal year ended June 30, 2003. The governmental fund activity of the various school activity accounts had a fund balance of $69,817 at July 1, 2002. This change is in accordance with generally accepted accounting principles. - 13 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund Balance July 1, 2002 $ 536,558 Add Funds Consolidated with General Fund: School Food Services Fund School Activity Account - Governmental Activity 273,080 69,817 Add: State Revenue Related to July and August 2002 Salary Payments Earned by Employees in Fiscal Year 2002 826,007 Deduct: July and August 2002 Salary Payments Earned by Employees in Fiscal Year 2002 1,124,780 General Fund Balance July 1, 2002 (Restated) $ 580.682 CHANGES IN ACCOUNTING PRINCIPLES The Lincoln County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003. The provisions of GASB Statement No. 34 require the inclusion ofa Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following: General Fund (Restated) July 1, 2002 Capital Projects Fund Debt Service Fund $ 580,682 1,308,615 4 743 Governmental Funds (Restated) July 1, 2002 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Bonds and Notes Payable Capital Leases Payable $ 1,894,040 9,713,555 -1,415,843 -23,930 -2,545,000 -1,552,950 Net Assets Beginning (See Exhibit "B") $ 6,069.872 - 14 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 Board 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 of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. - 15 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 Lincoln County Board ofCommissioners fixed the property tax levy for the 2002 tax digest year (calendar year) on January 31, 2003 (levy date). Taxes were due on April 24, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2002 tax digest are reported as revenue in the governmental funds for fiscal year 2003. The Lincoln 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 oftaxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2003, for maintenance and operations amounted to $2,302,120 and for school bonds amounted to $340. The tax millage rate levied for the 2002 tax year (calendar year) for the Lincoln County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 12.00 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $484,831 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 are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. - 16 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time ofpurchase. 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 fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost ofnormal 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 $ 5,000 NIA $ 5,000 90 years $ 5,000 90 years $ 5,000 5 to 20 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement ofNet 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 ofmoney which has not been secured by surety bond, by guarantee ofinsurance, 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 - 17 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS 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. 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 ofthe State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities ofthe 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 ofthe bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2003, the bank balances were $2,185,216. The amounts of the total bank balances are classified into three categories of credit risk: - 18 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS 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, 2003, as follows: Risk Category Bank Balance 1 $ 202,999 2 1,982,217 3 0 Total CATEGORIZATION OF INVESTMENTS Investments are classified as to risk by the three categories described below: $ 2,185.216 Category 1 - Insured or registered, or securities held by the School District or the School District's agent in the School District's name. Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the School District's name. Category 3 - Uninsured or unregistered, with securities held by the counterparty, or by its trust department or agent but not in the School District's name. Funds invested in an investment pool managed by another government are not required to be categorized unless the investing entity owns specific, identifiable investment securities in the pool. At June 30, 2003, the carrying value ofthe School District's total investments was $156,987 which is materially the same as fair value. The investments are classified as to risk categories as follows: Tme of Investment U.S. Government $ Local Government Investment Pools Total Investments Risk Categories 2 0 $ 152.610 $ Carrying Fair 3 Amount Value 0 $ 152,610 $ 152,610 4377 4377 $ 156 28:Z $ 15628:Z - 19 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30. 2003 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS The carrying amounts shown above includes amounts maintained in an investment pool by the State ofGeorgia, Office ofTreasury and Fiscal Services in which the School District owns no identifiable securities. The investment policy ofthe State ofGeorgia, 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 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 Securities and Exchange Commission as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 ofthe Investment Company Act ofl 940. The pool's primary objectives are safety ofcapital, 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 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, 2003, was 30 days. The average investment duration for Fund 6 on June 30, 2003, was 0.39 years. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories -20- LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July l, 2002 Increases Decreases Balances June 30, 2003 Governmental Activities Capital Assets, Not Being Depreciated: Land $ Construction in Progress Total Capital Assets Not Being Depreciated $ 199,713 0 $ 199,713 $ 2,056 $ 2,056 $ $ 199,713 0 2,056 0 $ 201,769 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 7,949,068 1,495,726 $ 69,048 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 748,097 665,444 2,302 Total Capital Assets, Being Depreciated, Net $ 8,097,999 $ Governmental Activity Capital Assets - Net $ 8,297.712 $ 394,820 $ 88,580 117,103 767 188,370 $ 190.426 $ $ 72,000 7,949,068 1,818,546 69,048 48,313 836,677 734,234 3 069 23,687 $ 8,262,682 23.687 $ 8,464.451 Capital assets being acquired under capital leases as of June 30, 2003, are as follows: Governmental Funds Land Improvements Equipment Less: Accumulated Depreciation $ 69,048 94,740 7 016 $.====1:1~56g,,7!=47~2 Current year depreciation expense by function is as follows: Instruction Support Services Improvements of Instructional Services Maintenance and Operation of Plant Student Transportation Services Food Services $ 108,842 $ 4,225 760 71,735 76,720 20,888 $.===2~06g,,4~5~0 - 21 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds, Lottery funds and property tax levied specifically for retirement ofoutstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2003, were as follows: District-wide Capital Projects General Fund SPLOST Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions $ $ 5,162 $ 152,610 $ $ 195,580 2,369 505 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2003, consisted of the following: Transfer to Transfers From General Fund District-wide Capital Projects $====16...,8.==2"'=2 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. - 22 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 8: RISK MANAGEMENT The School District has obtained commercial insurance for risk of loss associated with torts and assets. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the Board's insurance coverage in any ofthe 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. 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 ofthat loss can be reasonably estimated. The Lincoln County Board of Education has not incurred any liabilities for unemployment compensation during the last two fiscal years. The School District participates in the Georgia Education Workers' Compensation Trust, a public entity risk pool organized on December 1, 1991, 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 Trust for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Trust with the Midwest Employers Casualty Company to provide coverage for potential losses sustained by the Trust in excess of $400,000.00 loss per occurrence, up to $2,000,000.00. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Other Employees $ 50,000 $ 1,000,000 Note 9: LONG-TERM DEBT CAPITAL LEASES The Lincoln County Board of Education has entered into various lease agreements as lessee for equipment and renovations. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of the future minimum lease payments as ofthe date oftheir inception. - 23 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 9: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rate Amount General Government - Refunding - Series 2002 3.71% $ 2,350,000 The changes in Long-Term Debt during the fiscal year ended June 30, 2003, were as follows: Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2002 $ 1,552,950 $ 2,545,000 $ 4,097,950 Additions G.O. Bonds 2,580,000 2,580,000 Deductions Debt Retired 36,388 2,775,000 2,811,388 Balance June 30, 2003 $ 1,516.562 $ 2,350.000 $ 3,866.562 Portion of Long-Term Debt Due within One Year $ 18,105 $ 310,000 $ 328,105 At June 30, 2003, payments due by fiscal year which includes principal and interest for these items are as follows: -24- LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 9: LONG-TERM DEBT Fiscal Year Ended June 30 2004 2005 2006 2007 2008 2009 - 2013 2014 - 2018 Total Principal and Interest Capital Leases Principal Interest $ 18,105 $ 18,955 19,846 2,674 1,824 933 1,459,656 $ 1,516.562 $ 5 431 Fiscal Year Ended June 30 2004 2005 2006 2007 2008 2009 - 2013 2014 - 2018 Total Principal and Interest General Obligation Debt Principal Interest $ 310,000 $ 335,000 375,000 405,000 445,000 480,000 87,184 75,684 63,256 49,343 34,318 17,808 $ 2,350.000 $ 327,593 Note 10: ON-BEHALF PAYMENTS The Board has recognized revenues and costs in the amount of $155,793 for health insurance and retirement contributions paid on the Board's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $130,361 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 $25,432 - 25 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 11: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2003, together with funding available: Project Unearned Executed Contracts Funding Available From State Lincoln County High School 04-690-043 $ 26,252 $ 341,796 $ 26!252 $ 341!796 The amounts described in this note are not reflected in the basic financial statements. Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. Note 13: 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: -26 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 13: RETIREMENT PLANS Fiscal Year 2003 2002 2001 Percentage Contributed 100% 100% 100% Required Contribution $ 604,266 $ 581,536 $ 662,649 -27 - LINCOLN COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30. 2003 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 Other Support Services Food Services Operation Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Adjustments NONAPPROPRIATED BUDGETS ORIGINAL (1} FINAL (1} ACTUAL AMOUNTS $ 2.080.679 $ 2,080,679 $ 2,302,120 37,250 37,250 48,121 7,412,121 7,542,038 7,547,188 1,402,819 1,704,411 1,654,077 153,475 153,475 189,249 38,800 38,800 9,284 19 000 19000 299,281 $ 11144144 $ 11,575,653 $ 12,049,320 $ 7,634,488 $ 8,089,881 $ 7,897,486 523,919 83,539 194,974 297,474 610,144 121,214 709,403 425,236 45,526 657,293 76305 386,632 113,535 199,584 332,474 660,256 121,214 709,403 425,716 39,006 657,293 76 305 462,864 148,218 215,541 321,939 695,651 123,440 660,233 402,523 88,681 660,058 40 602 $ 11,379,515 $ 11,811,299 $ 11,717,236 $ -235,371 $ -235,646 $ 332,084 $ 32,545 $ 32,545 $ 0 -50 895 -50 895 -16,822 $ -18 350 $ -18 350 $ -16,822 $ -253,721 $ -253,996 $ 315,262 687,525 286 687,800 -237,530 580,682 0 Fund Balances - Ending $ 434,090 $ 196 274 $===8=9=5,=94=4= 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. See notes to the basic financial statements. - 29- LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2003 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food and Nutrition Program Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Distribution Program (1) Pass-Through From Office of School Readiness Food and Nutrition Program Child and Adult Care Food Program Total U.S. Department of Agriculture Education, U.S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Individuals with Disabilities Education Act Part B - Special Education Capacity Building Improvement Grant Flow Through Preschool Project Winning Team Total Special Education Cluster Other Programs Direct Impact Aid Pass-Through From Georgia Department of Education Elementary and Secondary Education Act Title I Grants to Local Educational Agencies School Improvement Title II Eisenhower Professional Development Enhancing Education Through Technology Improving Teacher Quality Title VI Innovative Education Program Strategies Rural and Low Income Schools Safe and Drug-Free Schools and Communities CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 N/A N/A $ $ (2) 629,453 (3) 629,453 10.550 10.558 N/A NIA $ 35,511 (2) 664 964 84.027 84.027 84.173 84.027 N/A $ N/A N/A N/A $ 8,576 217,644 55,478 112 553 394,251 84.041 (4) * 84.010 N/A 84.010 N/A 84.281 N/A 84.318 N/A 84.367 N/A 84.298 NIA 84.358 NIA 84.186 N/A 381,185 14,977 98 86,800 89,642 11,598 29,758 10,013 - 30- LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2003 SCHEDULE 211 11 FUNDING AGENCY PROGRAM/GRANT Education, U. S. Department of Other Programs Pass-Through From Georgia Department of Education Vocational Education - Basic Grants to States High School Program Basic Grant Total U.S. Department of Education CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 84.048 N/A $ _ _ _ _3"'"'3""0""-7~5 $ --~1,~05_1~,3_9_7 Total Federal Financial Assistance N/A = Not Available $ ======1,=71=6=,3=6=1 Notes to the Schedule of Expenditures of Federal Awards (1) The amounts shown for the Food Distribution 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 Child and Adult Care Food Program ($4,135) and the School Breakfast Program ($120,602) were not maintained separately and are included in the 2003 National School Lunch Program. (3) Expenditures for this program include State, and/or Other Funds. Expenditures are not maintained by fund source. (4) Funds earned on the Impact Aid Program, in the amount of $133,511 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 Lincoln 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 basic financial statements. See notes to the basic financial statements. - 31 - LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2003 AGENCY/FUNDING GRANTS Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV 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 Vocational Education Vocation Related Construction Equipment Austerity Reduction SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 334,206 24,573 809,697 89,600 447,632 126,593 940,532 655,437 343,893 158,837 176,558 456,641 43,837 26,292 59,057 19,957 70,626 130,574 44,849 25,330 319,702 340,333 370,390 264,140 65,598 54,267 46,631 5,462 14,039 173,187 340,091 44,720 22,320 99,361 -175,647 - 32- LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2003 AGENCY/FUNDING GRANTS Education, Georgia Department of Other State Programs K-3 Statewide Reading Program 4-8 Statewide After School Program Health Insurance Mentor Teachers Preschool Handicapped Program Lottery Programs Assistive Technology Computers in the Classroom Student Information Systems Georgia Institute of Technology Student Information System Office of School Readiness Pre-Kindergarten Program Office of Treasury and Fiscal Services Public School Employees Retirement CONTRACT Labor, Georgia Department of Vocational Rehabilitation SCHEDULE 311 11 GOVERNMENTAL FUND TYPE GENERAL FUND $ 14,767 11,969 130,361 1,494 33,961 5,516 30,660 22,788 18,990 280,171 25,432 1 764 $ ======7=5=47==18=8= See notes to the basic financial statements. - 33- LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30 2003 SCHEDULE "4" PROJECT Retiring in part of previously incurred general obligation debt Retiring in part of previously incurred general obligation debt Constructing and adding new choral music classroom at Lincoln County High School Constructing and adding band canopy and loading area Constructing and improving new roof for vocational building Constructing, improving, furnishing and equipping the following: maintenance and storage facilities for the Lincoln County Elementary School, maintenance and storage facilities for the Lincoln County Middle School and Lincoln County High School, baseball fields, softball fields, multi-purpose fields, including a track for track and field events, and also including access drives and parking facilities, all of which shall be used as a facility of the physical education programs of the Lincoln County School District ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 1,790,035 $ 4,335,035 $ 2,610,746 $ 1,407,632 Completed 2,166,690 2,166,690 309,765 Ongoing 136,000 136,000 2,056 Ongoing 70,000 70,000 Ongoing 132,600 132,600 Ongoing 550,000 550,000 Ongoing $ 4,845,325 $ 7,390,325 $ 2,922,567 $ 1,407,632 (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 Lincoln 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 project. See notes to the basic financial statements. - 34- LINCOLN COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2003 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (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 Category IV Gifted Student - Category VI Remedial Education Program Alternative Education Program 383,024 $ 30,203 895,078 110,834 509,667 132,629 1,037,997 752,308 392,773 968,319 67,807 19,293 79 813 436,535 $ 34,386 952,189 123,942 661,742 108,947 1,080,674 1,212,328 388,169 164,183 332,158 104,537 92,925 11,323 74 054 35,181 $ 39,145 44,018 92,673 91,977 77,170 35,939 243 2,376 428 4299 471,716 34,386 991,334 123,942 705,760 108,947 1,173,347 1,304,305 465,339 200,122 332,158 104,780 95,301 11,751 78 353 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 5,379,745 $ 5,778,092 $ 423,449 $ 6,201,541 Media Center Program Staff and Professional Development 146,640 28572 164,115 20,442 31,474 19170 195,589 39612 TOTAL QBE FORMULA FUNDS $ 5,554,957 $ 5,962,649 $ 474,093 $ ===6,.,;,43=6='=,7=4=2 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 35- SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS RUSSELL W. HINTON STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 March 22, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Lincoln County Board of Education REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 Lincoln County Board of Education as of and for the year ended June 30, 2003, which collectively comprise Lincoln County Board of Education's basic financial statements and have issued our report thereon dated March 22, 2004. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether Lincoln 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 grants, noncompliance with which could have a direct and material effect on the determination offinancial statement amounts. However, providing an opinion on compliance with those provisions was not an objective ofour audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances ofnoncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered Lincoln 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 assurance on the internal 2003-34YB-10 control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation ofone or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the management, members of the Lincoln 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:as 2003-34YB-10 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 March 22, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members ofthe Lincoln 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 ofLincoln 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, 2003. Lincoln County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section ofthe 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 Lincoln County Board of Education's management. Our responsibility is to express an opinion on Lincoln 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 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 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 Lincoln 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 Lincoln County Board of Education's compliance with those requirements. 2003SA-10 In our opinion, the Lincoln County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2003. Internal Control Over Compliance The management of Lincoln 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 Lincoln 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 condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level of risk that noncompliance with applicable requirements of laws, regulations, contracts and grants 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 ofperforming their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the management, members of the Lincoln 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, ~w.~ RWH:as 2003SA-10 State Auditor SECTION ill AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS LINCOLN COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2003 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6901-01-01 FS-6901-02-02 Further Action Not Warranted Previously Corrective Action Implemented SECTIONN FINDINGS AND QUESTIONED COSTS LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Lincoln County Board ofEducation's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Lincoln County Board ofEducation did not disclose any reportable conditions related to the financial statements. 3. Noncompliance Material to the Financial Statements The audit of the Lincoln 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 Lincoln County Board ofEducation did not disclose any reportable conditions in internal control over major programs. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Lincoln 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 Lincoln County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food and Nutrition Program - Food Services - School Breakfast Program 10.555 Food and Nutrition Program - Food Services - National School Lunch Program 84.010 Elementary and Secondary Education Act - Title I - Grants to Local Educational Agencies 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Lincoln County Board ofEducation qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. - 1- LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -2-