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