Lincoln County Board of Education, Lincolnton, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2004

LINCOLN COUNTY BOARD OF EDUCATION
LINCOLNTON, 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

LINCOLN COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

Page

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

10

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

11

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

25

LINCOLN 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

LINCOLN COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 29, 2005

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, 2004, 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm10ns.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Lincoln County Board of Education, as of June 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 July 29, 2005, 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 grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be 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 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.
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

Russell W. Hinton State Auditor

Lincoln County Board of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2004
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, 2004. 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 2004 are as follows:
The Board implemented GASB34 for 2003. The 2004 financial statements are the first to include comparisons.
In total, net assets increased $1.14 million, which represents an increase of 19.2 percent over 2003. All of this increase is for governmental activities. The Board has no business-type activities.
General revenues accounted for $4.1 million. This represents 31.1 percent of all revenues. Program specific revenues in the form of grants and contributions and charges for services accounted for $9.1 million or 68.9 percent of total revenues.
The Board had $12.0 million in expenses related to governmental activities. Program specific grants and contributions and charges for services offset $9.1 million of these expenses. General revenues, primarily property taxes and sales taxes, of $4.1 million were adequate to provide for other expenses for these programs.
Among major funds, the General Fund, had $12.0 million in revenues and $11.8 million in expenditures. The fund balance for the General Fund increased to $1.1 million.
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 School District 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.

Lincoln County Board of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2004
Reporting the Board as a Whole (District-wide)
The Statement ofNet Assets and the Statement ofActivities
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 2004?" 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 statement 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, 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. 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 fiscal year 2004 compared to fiscal year 2003.

Table 1 Net Assets

Governmental Activities

Fiscal

Fiscal

Year 2004

Year 2003

Assets Current and Other Assets Capital Assets, Net

$ 3,874,108 $ 3,329,052

8,796,218

8,464,451

Total Assets

$ 12,670,326 $ 11,793,503

Liabilities Current and Other Liabilities Long-Term Liabilities

$ 2,054,163 $ 1,990,073

3,538,457

3,866,562

Total Liabilities

$ 5,592,620 $ 5,856,635

Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted

$ 6,717,417 $ 6,057,545

933,428

1,070,793

-573,139

-1,191,470

Total Net Assets

$ 7,077.706 $ 5,936,868

Total net assets increased $1,140,838 in fiscal year 2004.

Table 2 shows the changes in net assets for fiscal year 2004 compared to the changes in net assets for fiscal year 2003.

111

Lincoln County Board of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2004

Table 2 Change in Net Assets

Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions
Capital Grants and Contributions

Governmental Activities

Fiscal

Fiscal

Year 2004

Year 2003

$ 475,136 $ 265,808

8,196,425

8,596,207

421,684

Total Program Revenues

$ 9,093,245 $ 8,862,015

General Revenues:

Taxes

Property Taxes

$ 2,930,991 $ 2,400,118

Sales Taxes

562,809

532,952

Grants and Contributions not Restricted to

Specific Programs

493,657

471,547

Investment Earnings

25,881

51,311

Miscellaneous

95,836

187,417

Total General Revenues

$ 4,109,174 $ 3,643,345

Total Revenues

$ 13,202,419 $ 12,505,360

Program Expenses

Instruction

$ 7,956,547 $ 8,220,135

Support Services

Pupil Services

507,473

462,864

Improvement of Instructional Services

264,310

171,921

Educational Media Services

218,670

215,541

General Administration

343,607

321,939

School Administration

642,228

695,651

Business Administration

125,852

172,034

Maintenance and Operation of Plant

694,629

652,396

Student Transportation Services

425,701

710,233

Other Support Services

37,297

88,681

Operations of Non-Instructional Services

Food Services

755,407

777,244

Interest on Short-Term and Long-Term Debt

89,860

149,725

Total Expenses

$ 12,061,581 $ 12,638,364

Increase (Decrease) in Net Assets

$ 1,140.838 $ -133.004

Governmental Activities

The Board is dependent upon operating grants and property taxes to support governmental activities. Instruction comprises 66 percent, Support Service 27 percent, Food Services 6.3 percent, and Interest 0.7 percent of government program expenses.

IV

Lincoln County Board of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2004

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 comparing fiscal year 2004 with fiscal year 2003. It identifies the cost of these services supported by tax revenue and unrestricted State entitlements.

Table 3 Governmental Activities

Total Cost of Services

Fiscal

Fiscal

Year2004 Year2003

Net Cost of Services

Fiscal

Fiscal

Year2004 Year 2003

Instruction

$ 7,956,547 $ 8,220,135 $ 1,974,815 $ 2,089,176

Support Services

Pupil Services

507,473

462,864

-7,150

165,603

Improvement of Instructional Services

264,310

171,921

105,344

75,694

Educational Media Services

218,670

215,541

76,895

84,967

General Administration

343,607

321,939

-43,445

-53,603

School Administration

642,228

695,651

279,412

328,356

Business Administration

125,852

172,034

125,852

172,034

Maintenance and Operation of Plant

694,629

652,396

284,495

233,220

Student Transportation Services

425,701

710,233

49,616

346,043

Other Support Services

37,297

88,681

26,108

81,961

Operations ofNon-Instructional Services

Food Services

755,407

777,244

6,534

103,173

Interest on Short-Term and Long-Term Debt

89,860

149,725

89,860

149,725

Total Expenses

$ 12,061.581 $ 12,638.364 $ 2,968,336 $ 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 24.8 percent of instruction activities are supported through taxes, interest, and other general revenues; for all governmental activities, general revenue support is over 24.6 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 of $12.9 million and expenditures of $12.7 million. The general fund reflected an increase of $228 thousand, the debt service fund basically remained the same, and the District-wide capital projects funds decreased $55 thousand. The decrease in the capital projects funds was due to the spending of QZAB funds received in the previous year and state capital outlay projects. The positive change 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

V

Lincoln County Board of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2004

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 $11.48 million exceeded the original budgeted amount of $11.03 million by $.45 million. This difference was due to an increase in state revenues of $130 thousand, and increase of $325 thousand in Federal revenues. The actual revenue and other financing sources exceeded the budgeted amount by $523 thousand.

The final budgeted expenditures and other financing uses of $11.79 million exceed the original budget of $11.36 million by $.43 million. The difference was due to an increase of instruction by $196 thousand, and an increase in support services of $238 thousand. The actual expenditures and other financing uses were $11 thousand less than the budgeted amount. Conservative spending on the part of administrators account for the difference in actual expenditures.

General fund revenues exceeded expenditures by $228 thousand.

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

At the end of fiscal year 2004, the Board had capital assets of $8.8 million, net of accumulated depreciation. Table 4 shows fiscal year 2004 balances compared with fiscal year 2003 balances.

Table 4 Capital Assets (Net of Depreciation)

Governmental Activities

Fiscal

Fiscal

Year 2004

Year 2003

Land Construction in Progress Buildings and Building Improvements Equipment Land Improvements

$

199,713 $

199,713

166,847

2,056

7,230,243

7,112,391

1,134,203

1,084,312

65,212

65 979

Total

$ 8,796.218 $ 8,464.451

The primary increases occurred in building improvements and equipment.

Vl

Lincoln 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 $2.04 million in general obligation bonds, with $335 thousand due within one year, $1.5 million in qualified zone academy bonds with no payment due within one year, and capital leases of $.39 million, with $19 thousand due within one year. Table 5 shows fiscal year 2004 balances compared with fiscal year 2003 balances.

Table 5 Debt at June 30

Governmental Activities

Fiscal

Fiscal

Year 2004

Year 2003

General Obligation Bonds Capital Leases Qualified Zone Academy Bonds

$ 2,040,000 $ 2,350,000

38,801

56,906

1,459,656

1,459,656

Total

$ 3.538.457 $ 3,866.562

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 years 2003 and 2004, the State of Georgia has implemented an austerity reduction for instructional and non-instructional programs. Additional austerity reductions have been proposed by the governor for fiscal year 2005.

Lincoln County's tax digest was reassessed in 2002. 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. Although the millage remained at 12 for fiscal year 2004, 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 O Box 39, Lincolnton, Georgia 30817.

vii

LINCOLN COUNTY BOARD OF EDUCATION

LINCOLN 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 Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenues Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
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

$

721,724

1,560,782

438,832 942,966 171,506
10,189 28,109

199,713 166,847
69,048 8,155,147 2,034,618 -1,829, 155

$ =====12=,6=7=01=,3=26=

$

828,842

1,119,975

49,185

16,815

39,346

353,955 3 184 502

$

5,592,620

$

6,717,417

8,373 237,777 231,671 455,607 -573139

$

7 077 706

$ =====12=1,,6;;,;7.,;;0.,;;,3~26=

LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30. 2004

EXPENSES

CHARGES FOR SERVICES

GOVERNMENTAL ACTIVITIES

Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Operations of Non-Instructional Services Food Services Interest on Short-Term and Long-Term Debt

$

7,956,547 $

507,473 264,310 218,670 343,607 642,228 125,852 694,629 425,701
37,297

755,407 89860

96,149 184,447
28,413 166,127

Total Governmental Activities

$===:1!2,;,0~6!1:,5::8:1= $

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

475,136

Total General Revenues

Change in Net Assets

Net Assets - Beginning of Year

Net Assets - End of Year

The notes to the basic financial statements are an integral part of this statement. -4-

EXHIBIT"B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

5,573,972 $

330,176 158,966 135,780 387,052 362,816

390,944 288,088
11,189

557,442

$

8,196,425 $

311,611 $
5,995
19,190 59,584 25,304 421,684 $

-1,974,815
7,150 -105,344
-76,895 43,445 -279,412 -125,852 -284,495 -49,616 -26,108
-6,534 -89 860
-2,968,336

$

2,931,050

-59

397,185 119,821
27,102 18,701 493,657 25,881 95 836

$

4 109 174

$

1,140,838

5,936,868

$ ===7=,0=7=7!::,70=6=

-5-

LINCOLN 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 Inventories

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 524.860 $
1,454,166
101,843 791,631 171,506
10,189 28,109

194.618 $
106,106
100,236 151,335

2,246 $ 721,724

510

1,560,782

207

202,286

942,966

171,506

10,189

28,109

Total Assets

$ 3,082,304 $ 552,295 $

2,963 $ 3,637,562

LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenue
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
Total Liabilities and Fund Balances

$ 799,389 $
1,119,975
39,346
$ 1,958,710 $

29,453 49,185 16,815
95,453

$ 828,842
1,119,975 49,185 16,815 39,346
$ 2,054,163

$

8,373

209,668

228,915

28,109

$

$
455,607

$
2,963

8,373 209,668 231,878
28,109 455,607

648,529
$ 1,123,594 $

1 235
456,842 $

648,529 1 235
2,963 $ 1,583,399

$ 3,082,304 $ 552,295 $

2,963 $ 3,637,562

The notes to the basic financial statements are an integral part of this statement. -6-

LINCOLN 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")

$

1,583,399

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

$

199,713

166,847

69,048

8,155,147

2,034,618

-1,829, 155

8,796,218

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.

236,546

Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:

Bonds Payable Capital Leases
Total Long-Term Liabilities

$ -2,040,000 -1,498,457

-3,538,457

Net Assets of Governmental Activities (Exhibit "A")

$ ====-7,=07=7=7,=06=

The notes to the basic financial statements are an integral part of this statement. -7-

LINCOLN 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 Other Support Services Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 2,368,484 45,803 $
7,097,883 1,892,453
475,136 18,414
109,834
$ 12,008,007 $

$ 119,821 297,122 64,978
7,451

606 $ 397,185
16

2,369,090 562,809
7,395,005 1,957,431
475,136 25,881
109,834

489,372 $ 397,807 $ 12,895,186

$ 7,648,200 $ 218,462

$ 7,866,662

507,473 264,310 211,830 340,686 642,228 125,320 702,437 493,543
37,297 786,254

2,921

$

532

322,709

507,473 264,310 211,830 343,607 642,228 125,852 702,437 493,543
37,297 786,254 322,709

18,105 2674

310,000 87,186

328,105 89,860

$ 11,780,357 $ 544,092 $ 397 718 $ 12,722,167

$

227,650 $

-54,720 $

89 $

173,019

895,944

511,562

2 874

1,410,380

$ 1,123,594 $ 456,842 $

2,963 $ 1,583,399

The notes to the basic financial statements are an integral part of this statement. -8-

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, 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 District's fiscal year ends, they are not considered "available" revenues.
Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of:
Bond Principal Retirements Capital Lease Payments
Total Long-Term Debt Repayments

$

$

586,942

-255, 175

$

310,000

18 105

173,019
331,767 307,947 328 105

Change in Net Assets of Governmental Activities (Exhibit "B")

$ ==1=14=0=-=8=3=8

The notes to the basic financial statements are an integral part of this statement. -9-

LINCOLN 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
$ ===44='=68=3=
$ ===44='=68=3=

The notes to the basic financial statements are an integral part of this statement. - 10 -

LINCOLN 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 Lincoln County Board of Education (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 of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofintemal 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, 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, grants from Georgia State Financing and Investment Commission and Federal grants from Georgia Department of Education 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 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 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, 2004

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.
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,

- 13 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services,

(7) Repurchase agreements, and

(8) Obligations of other political subdivisions of the State of Georgia.

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 of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on October 2, 2003 (levy date). Taxes were due on December 20, 2003 (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 Lincoln County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2004, for maintenance and operations amounted to $2,368,484 and for school bonds amounted to $606.

The tax millage rate levied for the 2003 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 $517,006 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

INVENTORIES

FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation of meals are reported at their Federally assigned value and purchased foods inventories are reported

- 14 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.

CAPITAL ASSETS

Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value 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

$

20,000 20 to 80 years

$ 100,000 50 to 80 years

$

5,000 5 to 50 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.

- 15 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

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 of operating 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 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 At June 30, 2004, the bank balances were $2,510,010. The amounts of the total bank balances are classified into three categories of credit risk:

- 16 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

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, 2004, as follows:

Risk Category

Bank Balance

1

$ 201,210

2

2,308,800

3

0

Total

$ 2,510.010

CATEGORIZATION OF INVESTMENTS Investments are classified as to risk by the three categories described below:

Category 1 - Insured or registered, or securities held by the School District or the School District's agent in the School District's name.
Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the School District's name.
Category 3 - Uninsured or unregistered, with securities held by the counterparty, 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, 2004, the carrying value ofthe School District's total investments was $233,337 which is materially the same as fair value. The investments are classified as to risk categories as follows:

Type of Investment

U.S. Government

$

Local Government Investment Pools

Total Investments

Risk Categories

2

3

$

228.915 $

Carrying Amount

Fair Value

$ 228,915 $ 228,915

4422

4422

$ 233 331 $ 233 337

- 17 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS
The carrying amounts shown above includes amounts maintained in an investment pool by the State of Georgia, Office ofTreasury and Fiscal Services in which the School District owns no identifiable securities. The investment policy ofthe State of Georgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description 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 (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 ofGeorgia'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.
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:

- 18 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT"H"

Note 5: CAPITAL ASSETS

Balances July 1, 2003

Increases

Balances Decreases June 30, 2004

Governmental Activities

Capital Assets, Not Being Depreciated:

Land

$

Construction in Progress

Total Capital Assets Not Being Depreciated $

199,713 2,056 $
201,769 $

164 791 $ 164,791 $

$ 199,713

0

166,847

0 $ 366,560

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 7,949,068 $ 1,818,546 69,048

206,079 $ 216,072

0 $ 8,155,147 2,034,618 69,048

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

836,677 734,234
3 069

Total Capital Assets, Being Depreciated, Net $ 8,262,682 $

Governmental Activity Capital Assets - Net $ 8,464.451 $

88,227 166,181
767
166,976 $
331,767 $

924,904 900,415
3,836
0 $ 8,429,658
0 $ 8,796.218

Capital assets being acquired under capital leases as of June 30, 2004, are as follows:

Governmental Funds

Land Improvements Equipment Less: Accumulated Depreciation

$

69,048

154,212

23,011

$=~2~00~,2~4~9

Current year depreciation expense by function is as follows:

Instruction Support Services
Educational Media Services Maintenance and Operation of Plant Student Transportation Services Food Services

$ 146,377

$

4,225

13,523

73,218

90,966 17,832

- 19 -

LINCOLN 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), General Fund escrow account for payment of Qualified Zone Academy Bonds (QZAB), Georgia State Financing and Investment Commission (GSFIC) funds and property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory prov1s1ons. Restricted assets at June 30, 2004, were as follows:

Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions
Restricted Investments: Debt Services Capital Acquisitions

General Fund

District-wide Capital Projects

SPLOST

GSFIC

Debt Service Funds

$

$

8,302 $

185,081

$ 228,915

$

$

106,106

2,246 510

Note 7: RISK MANAGEMENT

The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation.

The School District has obtained commercial insurance for risk of loss associated with torts and assets. 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 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 of that 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

-20-

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 7: RISK MANAGEMENT

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 loss per occurrence, up to $2,000,000.

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 8: 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 of the date of their inception.

GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows:

Purpose

Interest Rates

Amount

General Government - Refunding - Series 2002

3.71%

$ 2,040,000

The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows:

Governmental Funds

General

Capital

Obligation

Leases

Bonds

Total

Balance July 1, 2003

$ 1,516,562 $ 2,350,000 $ 3,866,562

Deductions Debt Retired

18,105

310,000

328,105

Balance June 30, 2004

$ 1,498,457 $ 2,040,000 $ 3.538,457

Portion of Long-Term Debt Due within One Year

$

18 955 $ 335,000 $ 353,955

- 21 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT"H"

Note 8: LONG-TERM DEBT

At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30

Capital Leases

Principal

Interest

2005 2006 2010 - 2014

$

18,955 $

19,846

1,459,656

1,824 933

Total Principal and Interest

$ 1,498,457 $

2 757

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

2005 2006 2007 2008 2010 - 2014

$ 335,000 $ 375,000 405,000 445,000 480,000

75,684 63,256 49,343 34,318 17,808

Total Principal and Interest

$ 2,040,000 $ 240,409

Note 9: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $134,382 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 $132,994

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 $1,388

- 22-

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT"H"

Note 10: SIGNIFICANT COMMITMENTS

The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2004, together with funding available:

Project

Unearned Executed Contracts

Funding Available From State

04-690-043

$ 107,760 $===='4=='4==68==4

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:

Fiscal Year

Percentage Contributed

Required Contribution

2004 2003 2002

100% 100% 100%

$ 601,872 $ 604,266 $ 581,536

- 23 -

LINCOLN 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 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

$

2,318,396 $

2,318,396 $

2,368,484

6,800

6,800

45,803

6,919,608

7,049,639

7,097,883

1,567,842

1,893,119

1,892,453

164,325

164,325

203,890

11,800

11,800

18,414

24 000

24 000

381,080

$

11012771 $

11468079 $

12,008,007

$

7,562,292 $

7,758,268 $

7,648,200

379,151 117,583 195,813 337,290 624,403 127,215 704,686 470,286
34,594 710,271
76305

476,594 223,874 207,088 348,160 631,558 127,215 704,686 477,374
32,594 710,271

507,473 264,310 211,830 340,686 642,228 125,320 702,437 493,543
37,297 786,254
20 779

$

11,339,889 $

11,697,682 $

11,780,357

$

-327118 $

-229,603 $

227,650

$

17,336 $

17,336

-17 336

-93 641

$

0 $

-76 305

$

-327,118 $

-305,908 $

227,650

672,792

672,792

895,944

25 981

25 981

Fund Balances - Ending

$

371 655 $

392,865 $

1,123,594

Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual
(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts.
The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 25 -

LINCOLN 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) Pass-Through From Bright from the Start: Georgia Department of Early Care and Learning 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 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 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
Justice, U. S. Department of Pass-Through From Children and Youth Coordinating Council Juvenile Justice and Delinquency Prevention
Total Federal Financial Assistance
N/A = Not Available
-26-

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

* 10.553 * 10.555

N/A N/A $
$

(2) 688,497
688,497

10.550 10.558

N/A N/A
$

68,266
(2} 756 763

84.027 84.173

N/A $ N/A
$

354,412 55 500
409,912

84.041
84.318 84.367 84.358 84.186 * 84.352 84.298 84.010 84.048

N/A N/A N/A NIA N/A NIA N/A N/A
$

(3)
42,697 90,393 21,190 13,291 132,528 10,221 414,454 26 706
1,161,392

16.540

N/A $

41 261

$ ====='1=95=9=4=1==6

LINCOLN 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 fund earned on Child and Adult Care Food Program ($3,742) and the School Breakfast Program ($130,438) 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 $239,956, 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 fund financial statements.

See notes to the basic financial statements.

- 27 -

LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Bright from the Start: Georgia Department of Early Care and Leaming Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities 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 Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs K-3 Statewide Reading Program 4-8 Statewide After School Program Apprenticeship Program Health Insurance Mentor Teachers Pay for Performance Preschool Handicapped Program Student Information System Lottery Program Student Information System
Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Office of Treasury and Fiscal Services Public School Employees Retirement

See notes to the basic financial statements.

- 28-

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$

280,545

$

280,545

314,721 26,315
738,168 107,862 429,628
81,762 875,268 700,193 302,071
36,799 141,372 500,954
89,653 276,394
24,560 1M08 69,566 125,573 40,518 25,199
315,689 333,407 360,269
254,803 59,584
115,617 44,395 5,241
359,275 42,620 32,901
-330,731
15,556 12,000
1,900 132,994
168 68,735 33,961 15,192
18,990

314,721 26,315
738,168 107,862 429,628
81,762 875,268 700,193 302,071
36,799 141,372 500,954
89,653 276,394
24,560 16,808 69,566 125,573 40,518 25,199
315,689 333,407 360,269
254,803 59,584
115,617 44,395 5,241
359,275 42,620 32,901
-330,731
15,556 12,000
1,900 132,994
168 68,735 33,961 15,192
18,990

$
1 388

297,122

297,122 1 388

$

7,097,883 $

297,122 $

7,395,005

LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30. 2004

SCHEDULE "4"

PROJECT
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

$ 2,166,690 $ 2,166,690 $

397,186 $

309,765 Ongoing

136,000

270,500

174,206

2,056 Ongoing

70,000

70,000

Ongoing

132,600

147,079

147,079

Completed

550,000

550,000

Ongoing

$ 3,055,290 $ 3,204,269 $

718 471 $

311,821

(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 projects.

See notes to the basic financial statements.

-29-

LINCOLN COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE}
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2004

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 I

Category II

Category Ill

Category IV

Category V

Gifted Student - Category VI

Remedial Education Program

Alternative Education Program

366,095 $ 30,348
858,098 122,497 497,773
99,947 1,014,126
799,938 354,373 1,174,118
34,065 19,384 80 194

431,620 $ 48,300
950,278 156,921 531,658
97,460 1,121,360 1,168,866
427,846
61,954 97,054 218,725 55,842 164,913 93,408 24,409 72,513

33,294 $ 48,411 38,904
96,733 86,688 37,739
14,988
1,742 4 141

464,914 48,300
998,689 156,921 570,562
97,460 1,218,093 1,255,554
465,585
61,954 112,042 218,725
55,842 164,913
95,150 24,409 76654

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

5,450,956 $ 5,723,127 $

362,640 $

6,085,767

Media Center Program Staff and Professional Development

144,705 28889

165,206 1 463

26,207 20 167

191,413 21,630

TOTAL QBE FORMULA FUNDS

$

5,624,550 $ 5,889,796 $

409 014 $===16,=29=8;.;,8=1=0

(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
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 29, 2005

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 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 Lincoln County Board of Education as ofand for the year ended June 30, 2004, which collectively comprise Lincoln County Board of Education's basic financial statements and have issued our report thereon dated July 29, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered 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 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 Lincoln 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-6901-04-01.

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 Lincoln County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of the management and members of the Lincoln 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
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 29, 2005

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 WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULARA-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 of its major Federal programs for the year ended June 30, 2004. Lincoln 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 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 of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types 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.
2004SA-65

As described in item FA-6901-04-01 in the accompanying Schedule of Findings and Questioned Costs, Lincoln County Board of Education did not comply with requirements regarding Matching, Level of Effort and Earmarking that are applicable to its School Renovation - Schools program. Compliance with such requirements is necessary, in our opinion, for Lincoln County Board of Education to comply with requirements applicable to that program.
In our opinion, except for the noncompliance described in the preceding paragraph, the Lincoln 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 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.
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 Lincoln 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-6901-04-01.
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, the reportable condition noted above is also considered to be a material weakness.
2004SA-65

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,
~~-~ Russell W. Hinton State Auditor
RWH:gp 2004SA-65

SECTION III 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, 2004
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.

SECTION IV FINDINGS AND QUESTIONED COSTS

LINCOLN 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 Lincoln 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 Lincoln County Board ofEducation disclosed a financial statement reportable condition related to the following control categories.

Cash and Cash Equivalents Revenues/Receivables/Receipts

Expenditures/Liabilities/Disbursements

The reportable condition described above is not considered to be a material weakness.

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 disclosed a reportable condition in internal control over major programs for the following compliance requirement.

Matching, Level of Effort and Earmarking

The reportable condition described above is considered to be a material weakness.

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 qualified.

6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Lincoln County Board of Education's audit disclosed an audit finding required to be reported by section .510(a) ofOMB Circular A-133. This audit finding is included in section 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 84.352 School Renovation - Schools

- 1-

LINCOLN 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 $300,000.
9. Low Risk Auditee The Lincoln County Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133.
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6901-04-01
Our examination of the school activity accounts (Principal's Accounts) disclosed weaknesses in internal control as discussed below:
Cash and Cash Equivalents No administrative review of bank reconciliations was performed to determine that bank reconciliations were correct and all required adjustments had been made.
Revenues/Receivables/Receipts A test of twenty-five receipts disclosed that twenty-two receipts did not contain adequate supporting documentation and two receipts were not deposited to the bank account in a timely manner.
Expenditures/Liabilities/Disbursements A test of twenty-five disbursements disclosed that three vouchers did not contain adequate supporting documentation such as invoices.
These deficiencies were a result ofmanagement's failure to ensure adequate controls over the school activity accounts were in place. Management should ensure transactions are authorized and establish controls and procedures to ensure that adequate documentation is maintained for school activity account transactions.
-2 -

LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
MATCHING, LEVEL OF EFFORT AND EARMARKING Failure to Meet Supplement, Not Supplant, Requirements Reportable Condition - Material Weakness Material Noncompliance U.S. Department of Education Through Georgia Department of Education Amount: $56,281 Finding Control Number: FA-6901-04-01
Our examination of the School Renovation - Schools program (CFDA No. 84.352) revealed the School District did use School Renovation - Schools funds to supplant Federal funds. 34 CFR section 300.230 requires that School Renovation - Schools funds be used to supplement State, local and other Federal funds and not to supplant these funds. In addition, provision of the Georgia Department of Education approved application state that funds are to be used to supplement and not supplant state, local and other Federal funds. The following deficiency was noted in relation to the School Renovation - Schools program:
The School District used School Renovation - Schools funds to pay for salaries and benefits for six paraprofessionals, a school psychologist, bus driver and secretary which were funded in the prior year and subsequent to the grant period with other Federal funds. The School District initially paid these salaries and benefits from September 2003 through December 2003 from Special Education Grants to States (CFDA No. 84.027). Upon becoming aware that the School Renovation - Schools funds could not be expended past December 31, 2003, the School District received instructions from Georgia Department of Education to transfer expenditures from Special Education Grants to States to the School Renovation - Schools funds in order to maintain funds available to the School District.
This situation occurred because management failed to follow requirements set forth by 34 CFR section 300.230 of Supplement, not Supplant. The School District should implement procedures to ensure program expenditures from Federal funds meet the Supplement, not Supplant, requirement as outlined in 34 CFR section 300.230. The Georgia Department of Education should review this matter to determine if a refund is appropriate.
-3 -

SECTIONV MANAGEMENT'S RESPONSES

LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2004
Finding Control Number: FS-6901-04-01
We concur with this finding. The Board will establish procedures necessary to insure adequate controls over the school activity accounts. An administrative review ofall bank reconciliations will be performed for the fiscal year 2005 school year. Club sponsors and classroom teachers will be issued receipt books for accurate supporting documentation for all deposits starting in August 2005. Principals and bookkeepers have been advised to make all deposits on a timely basis. Principals have been advised not to authorize or sign checks unless adequate documentation is attached.
Finding Control Number: FA-6901-04-01
We disagree with this finding though the facts as stated are correct. Although the grant was used to pay for salaries during the school year, the savings were used to fund a summer school which would not have been possible without the additional Federal funds. The grant as approved by the state was for a period ending December 31, 2004. We made our plans to spend the grant money on a June 2004 summer school for special education children to receive additional instruction in reading for which no other funds were available. In December of 2003, the Georgia Department of Education notified us by telephone that the grant monies had to be spent by December 31, 2003. We kept our plans and funded the summer school with the money we saved by paying school year salaries with the grant money. We were advised by the Georgia Department of Education that this was an acceptable use of the grant funds. Since we were acting on advice from the state department of education, we do not feel that the local system should be charged with a material weakness. However, in the future, we will make every effort to ensure program expenditures from Federal funds meet the supplement, not supplant, requirement.
Contact Person: Kaye Bufford, Comptroller Telephone: (706) 359-3742 Fax: (706) 359-7938 E-mail: kbufford@lincoln.kl2.ga.us