Lincoln County Board of Education, Lincolnton, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2006

LINCOLN COUNTY BOARD OF EDUCATION
LINCOLNTON, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2006
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

LINCOLN COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

1

B

STATEMENT OF ACTIVITIES

2

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

4

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

5

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

6

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

7

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

9

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

10

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

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 -
SECTION V 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
March 7, 2007

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, 2006, 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 of Education's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
2006ARL-11

In accordance with Government Auditing Standards, we have also issued our report dated March 7, 2007, 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 considered in assessing the results of our audit.
Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through viii 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 of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24.
Respectfully submitted,

RWH:as 2006ARL-11

ell W. Hinton, CPA, CGFM State Auditor

LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
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, 2006. 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 2006 are as follows:
In total, net assets increased $1.3 million, which represents an increase of 17.89 percent over 2005. All of this increase is for governmental activities. The Board has no business-type activities.
General revenues accounted for $5 .1 million. This represents 37 percent of all revenues. Program specific revenues in the form of grants and contributions and charges for services accounted for $8.7 million or 63 percent of total revenues.
The Board had $12.5 million in expenses related to governmental activities. Program specific grants and contributions and charges for services offset $8.7 million of these expenses. General revenues, primarily property taxes and sales taxes, of $5.1 million were adequate to provide for other expenses for these programs.
Among major funds, the General Fund had $13.0 million in revenues and $12.3 million in expenditures. The fund balance for the General Fund increased to $2.0 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 Project Funds and the Debt Service Funds are the most significant funds.
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LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
REPORTING THE BOARD AS A WHOLE (DISTRICT-WIDE)
The Statement of Net Assets and the Statement of Activities
While this document includes a number of funds used by the Board to provide programs and activities, a view of the Board as a whole requires a look at all financial transactions to ask the question "How did we do financially during 2006?" The Statement of Net Assets and the Statement of Activities answers this question. These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid.
These two statements report the Board's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the Board as a whole, the financial position of the Board has improved or diminished. The causes of this change may be a result of many factors, some financial, some not. Nonfinancial factors include the Board's property tax base, facility conditions, required educational programs, and other factors.
The Statement of Net Assets and the Statement of Activities is normally divided into two distinct types of activities, governmental and business type activities. All of the Board's activities are reflected as governmental activities. This includes instruction, pupil services, improvement of instructional services, educational media services, general administration, school administration, business administration, maintenance and operation of plant, student transportation services, central support services, other support services, community 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 Project 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, 2006

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 2006 compared to fiscal year 2005.

Table 1 Net Assets

Governmental Activities

Fiscal

Fiscal

Year 2006

Year 2005

Assets Current and Other Assets Capital Assets, Net

$ 4,618,188 $ 3,499,699

8,771,812

8,843,656

Total Assets

$ 13,390,000 $ 12,343,355

Liabilities Current and Other Liabilities Long-Term Liabilities

$ 1,851,279 2,789,656

$ 1,737,271 3,184,502

Total Liabilities

$ 4,640,935 $ 4,921,773

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

$ 7,441,812 1,337,780 -30,527

$ 7,118,810 1,044,110 -741,338

Total Net Assets

$ 8,749,065 $ 7,421,582

Total net assets increased $1,327,483 in fiscal year 2006.

Table 2 shows the changes in net assets for fiscal year 2006 compared to the changes in net assets for fiscal year 2005.

- 111 -

LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

Table 2 Change in Net Assets

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

Governmental Activities

Fiscal

Fiscal

Year 2006

Year 2005

$ 439,511 8,230,386
59 043

$ 366,791 8,029,787 108,412

Total Program Revenues

$ 8,728,940 $ 8,504,990

General Revenues:

Taxes

Property Taxes

$

Sales Taxes

Grants and Contributions not Restricted to

Specific Programs

Investment Earnings

Miscellaneous

3,454,063 927,824
574,230 11,921
160,600

$ 2,258,986 658,443
473,053 88,710
256,403

Total General Revenues

$ 5,128,638 $ 3,735,595

Total Revenues

$ 13,857,578 $ 12,240,585

Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and OJ?eration of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Community Services Food Services Interest on Short-Term and Long-Term Debt

$ 8,060,872
416,481 98,406
237,374 356,143 699,868 127,057 825,333 550,550
37,260
263,934 792,628
64 189

$ 7,640,005
456,184 93,567
221,068 344,959 677,053 125,782 783,276 502,491
3,040 57,020
149,048 765,708
77 508

Total Expenses

$ 12,530,095 $ 11,896,709

Increase in Net Assets

$ 1,327,483 $ 343,876

Governmental Activities

The Board is dependent upon operating grants and property taxes to support governmental activities. Instruction comprises 64.4 percent, Support Services 26. 7 percent, Community Services 2.1 percent, Food Services 6.3 percent, and Interest 0.5 percent of government program expenses.

- lV -

LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

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 2006 with fiscal year 2005. 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

Year 2006 Year 2005

Net Cost of Services

Fiscal

Fiscal

Year 2006 Year2005

Instruction

$ 8,060,872 $ 7,640,005 $ 2,207,642 $ 1,973,773

Support Services

Pupil Services

416,481

456,184

242,960

205,329

Improvement of Instructional Services

98,406

93,567

24,011

17,742

Educational Media Services

237,374

221,068

100,959

89,588

General Administration

356,143

344,959

-49,031

-44,630

School Administration

699,868

677,053

327,893

318,011

Business Administration

127,057

125,782

127,057

125,782

Maintenance and Operation ofPlant

825,333

783,276

436,620

417,656

Student Transportation Services

550,550

502,491

179,344

117,615

Central Support Services

3,040

3,040

Other Support Services

37,260

57,020

26,474

26,464

Operations of Non-Instructional Services

Community Services

263,934

149,048

24,423

Food Services

792,628

765,708

88,614

63,841

Interest on Short-Term and Long-Term Debt

64,189

77,508

64,189

77,508

Total Expenses

$ 12,530.095 $ 11.896.709 $ 3,801,155 $ 3,391.719

Although program revenues make up a majority of the revenues, the Board is still dependent upon tax revenues for governmental activities. Over 27.3 percent of instruction activities are supported through taxes, interest, and other general revenues; for all governmental activities, general revenue support is over 30.3 percent.

THE BOARD'S FUNDS

The Board's governmental funds are accounted for using the modified accrual basis of accounting. Total governmental funds had revenues and other financing sources of $13.9 million and expenditures and other financing uses of $12.9 million. The general fund reflected an increase of $726 thousand, the debt service fund basically remained the same, and the Districtwide capital projects funds increased $321 thousand. The increase in the capital projects funds was due to the collection of SPLOST funds in excess of the debt service requirements. The positive change in the fund balance of the general fund indicates the Board was able to meet current costs.

- V-

LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

GENERAL FUND HIGHLIGHTS

The Board's budget is prepared according to Georgia law. The most significant budgeted fund is the General Fund. Site-based budgeting is used by the Board and is designed to tightly control total site budgets but allow some management flexibility. The Board's top management monitors a detailed report comparing actual revenues and expenditures to budget on a monthly basis. Site management has access to this information by requesting a report available using the Board's accounting software.

For the general fund, the final budgeted revenues of $12.3 5 million exceeded the original budgeted amount of $12.14 million by $0.21 million. This difference was due to an increase in state revenues of $37 thousand, and an increase of $170 thousand in Federal revenues. The actual revenue exceeded the final budgeted amount by $740 thousand.

The final budgeted expenditures and other financing uses of $12.53 million exceeded the original budget of $12.23 million by $0.30 million. The difference was due to an increase of instruction by $172 thousand, and an increase in support services of $123 thousand. The actual expenditures and other financing uses were $163 thousand less than the budgeted amount.

General fund revenues and other financing sources exceeded expenditures by $726 thousand.

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

At the end of fiscal year 2006, the Board had capital assets of $8.8 million, net of accumulated depreciation. Table 4 shows fiscal year 2006 balances compared with fiscal year 2005 balances.

Table 4 Capital Assets (Net of Depreciation)

Governmental Activities

Fiscal

Fiscal

Year 2006

Year 2005

Land Construction in Progress Buildings and Improvements Equipment Land Improvements

$ 199,713
7,480,250 1,028,171
63 678

$ 199,713 76,432
7,418,840 1,084,226
64 445

Total

$ 8)71,812 $ 8,843,656

The increases in building improvements and equipment were more than offset by the yearly depreciation expense.

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LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

Debt

At June 30, 2006, the Board had $1.3 million in general obligation bonds, with $405 thousand due within one year, and $1.5 million in qualified zone academy bonds with no payment due within one year. Table 5 shows fiscal year 2006 balances compared with fiscal year 2005 balances.

Table 5 Debt at June 30

Governmental Activities

Fiscal

Fiscal

Year 2006

Year 2005

General Obligation Bonds Capital Leases Qualified Zone Academy Bonds

$ 1,330,000 1,459,656

$ 1,705,000 19,846
1,459,656

Total

$ 2,789.656 $ 3,184.502

CURRENT ISSUES

The Lincoln County Board of Education has maintained its economic stability by budgeting conservatively and monitoring its expenditures. Although the economy in Lincoln County was negatively impacted by the closing of two major factories within the past ten years, the economic outlook appears to be on the upswing. Nine new subdivisions have been approved within the county. Sales tax collections are growing. A bond and SPLOST referendum scheduled for March 20, 2007, will determine whether a new school will be built. Although the local economy is improving, the contributions from the state do not reflect the improving state economy. For fiscal years 2003 and 2004, the State of Georgia implemented an austerity reduction for instructional and noninstructional programs. Additional austerity reductions were made by the governor and legislature for fiscal years 2005, 2006, and 2007.

The millage rate for the Board of Education was decreased from 15 mills for the fiscal year 2006 fiscal year to 12.833 mills for the fiscal year 2007 fiscal year due to rollbacks from reassessments. However, it is anticipated that local tax increases will be necessary due to requirements by the state and Federal governments which are passed with insufficient funds available. Proposed decreased class sizes and increased salaries and benefits without sufficient state funding are a major concern for the Board.

These issues are of concern to the Board as they could have a negative impact on its financial health.

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LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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.
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LINCOLN COUNTY BOARD OF EDUCATION

LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Inventories Capital Assets Land Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Debt Service Capital Projects Unrestricted (Deficit)
Total Net Assets
Total Liabilities and Net Assets

EXHIBIT "A"

GOVERNMENTAL ACTIVITIES

$

2,381,276

1,030,276

135,196 1,023,795
35,023 12,622

199,713 69,048
8,616,889 2,199,492 -2,313,330

$ ===1=3=l=,3=9=0!a:,O=OO=

$

459,653

1,391,626

405,000 2,384,656

$

4 640 935

$

7,441,812

117,629 422,392 797,759 -30,527

$

8 749 065

$ ===1=3=l=,3=9=0!a:,O=OO=

The notes to the basic financial statements are an integral part of this statement. -1-

LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2006

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 Community Services Food Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations 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
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year
Net Assets - End of Year

EXPENSES

CHARGES FOR SERVICES

$

8,060,872 $

416,481 98,406
237,374 356,143 699,868 127,057 825,333 550,550
37,260

263,934 792,628
64189

$

12,530,095 $

9,150
24,089 239,511 166,761 439 511

The notes to the basic financial statements are an integral part of this statement. -2-

EXHIBIT "B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

5,842,325 $

173,521 74,395
136,385 405,174 371,975

364,602 314,061
10,786

537,162

$

8,230,386 $

1,755 $
30
22 57,145
91
59 043 $

-2,207,642
-242,960 -24,011
-100,959 49,031
-327,893 -127,057 -436,620 -179,344
-26,474
-24,423 -88,614 -64 189
-3,801,155

$

3,454,063

438,256 370,354
82,001 37,213 574,230 11,921 160 600

$

5 128 638

$

1,327,483

7 421 582

$

8 749 065

-3-

LINCOLN COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2006

EXHIBIT "C"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Inventories
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries Payable
Total Liabilities
FUND BALANCES
Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects
Unreserved Undesignated Reported in: General Fund
Total Fund Balances
Total Liabilities and Fund Balances

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 2,379,616 421,415 $
1,023,795 35,023 12 622

$ 608,861
188,898

1,660 $

2,381,276 1,030,276
188,898 1,023,795
35,023 12 622

$ 3 872 471 $

797,759 $

1,660 $==4=6=71='=89=0=

$ 459,653 1,391,626
$ 1 851 279

$

459,653

1,391,626

$ 1 851 279

$ 105,007 420,732 12,622 $

$ 797,759

$ 1,660

105,007 422,392
12,622 797,759

1,482,831 $ 2,021,192 $

797 759 $

1 660 $

1 482 831 2,820,611

$ 3,872,471 $

797,759 $

1,660 $ ==4=6=71='=89=0=

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

LINCOLN COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2006

EXHIBIT"D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land Land Improvements Buildings Equipment Accumulated Depreciation
Total Capital Assets
Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures.
Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:
Bonds Payable Capital Leases
Total Long-Term Liabilities

$ 2,820,611

$

199,713

69,048

8,616,889

2,199,492

-2,313,330

8,771,812

-53,702

$ -1,330,000 -1,459,656

-2,789,656

Net Assets of Governmental Activities (Exhibit "A")

$ ====8,=74=9=,0=6=5

The notes to the basic financial statements are an integral part of this statement. -5-

LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006

EXHIBIT "E"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Community Services Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Transfers In Transfers Out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 3,215,432 119,214 $
7,265,206 1,860,479
439,511 1,240
189 296
$ 13 090 378 $

370,354 $ 1,898
10,646
382 898 $

$ 438,256
35 438 291 $

3,215,432 927,824
7,267,104 1,860,479
439,511 11,921
189 296
13 911 567

$ 7,893,381

419,006 98,406
233,153 356,143 699,868 126,218 822,135 574,530
37,260 263,934 779,574
$

19,846 933

$ 12,324,387 $

$

765 991 $

$
101,990 101 990 $ 280 908 $

$
839
375,000 63 256
439 095 $ -804 $

7,893,381
419,006 98,406
233,153 356,143 699,868 127,057 822,135 574,530
37,260 263,934 779,574 101,990
394,846 64189
12,865,472
1 046 095

$

$

-39 695

$

-39 695 $

$

726,296 $

1 294 896

39,695
39 695 320,603 $ 477 156

$
$ -804 $ 2 464

39,695 -39 695
0 1,046,095 1 774 516

$ 2,021,192 $

797 759 $

1,660 $ ==2=,8=2==0,==6=11=

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 STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006

EXHIBIT"F"

Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")
Amounts reported for Governmental Activities in the Statement of Activities are different because:
Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are:
Capital Outlay Depreciation Expense
Excess of Capital Outlay over Depreciation Expense
Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues.
In the Statement of Activities, only the gain on the sale of the equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold.
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

$
$ 211,365 -270,834
$ 375,000 19 846

1,046,095
-59,469 -41,614 -12,375 394 846

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

$ =====1'=32=7=,4=8=3

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

(This page left intentionally blank)

LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS
FIDUCIARY FUNDS JUNE 30, 2006
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT"G"
AGENCY FUNDS
$ ==4=0=,9=80=
$ ===40='=98=0=

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

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Lincoln County Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Lincoln County Board of Education.
District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.

- 10 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District reports the following major governmental funds:
General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund.
District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST) and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation ofmajor capital facilities.
Debt Service Fund accounts for taxes (sales) legally restricted for the payment of general longterm principal, interest and paying agent's fees.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governments or individuals.
BASIS OF ACCOUNTING
The basis of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless ofwhen the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized
- 11 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources.
The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
CASH AND CASH EQUIVALENTS
COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.
INVESTMENTS
COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:
(1) Obligations issued by the State of Georgia or by other states,
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,
(4) Obligations of any corporation of the United States government,
(5) Prime banker's acceptances,

- 12 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

(7) Repurchase agreements, and

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

The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration of credit risks, interest rate risks or foreign currency risks.

RECEIVABLES

Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.

PROPERTY TAXES

The Lincoln County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on October 6, 2005 (levy date). Taxes were due on December 20, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Lincoln County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $3,215,432.

The tax millage rate levied for the 2005 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

15.00 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $808,610 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

- 13 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES

FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.

CAPITAL ASSETS

Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art.

Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows:

Land Land Improvements Buildings and Improvements Equipment

Capitalization Policy

NIA

$

20,000

$ 100,000

$

5,000

Estimated Useful Life
NIA 20 to 80 years 50 to 80 years
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 of Net Assets.
- 14 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

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 of money which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount of deposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance.
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,
(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,
(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,
(6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and
(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.
CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $3,336,076. The amounts of the total bank balances are classified into four categories of custodial credit risk:

- 15 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS

Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name.
Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name.
Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.
Category 4 - Uncollateralized.

The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows:

Custodial Credit Risk Category

Bank Balance

1

$ 226,631

2

3,109,445

3

0

4

0

Total

$ 3,336,076

CATEGORIZATION OF INVESTMENTS Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the School District will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The School District does not have a formal policy for managing custodial credit risk.

Investments are classified as to custodial credit risk by the 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's 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.

- 16 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS
At June 30, 2006, the carrying value ofthe School District's total investments was $425,445 which is materially the same as fair value. These investments included funds in the amount of $4,713 invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy of the State of Georgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows:
The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund.
Investments in Georgia Fund 1 are directed toward short-term instruments such as U. S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U.S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days.
At June 30, 2006, the carrying value of the School District's investments was $425,445 which is materially the same as fair value. Fair value is based on quoted market prices, unless otherwise noted. The investments are classified as to custodial credit risk categories as follows:

- 17 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS

Type oflnvestment

Risk Categories

2

3

Debt Securities

U.S. Treasuries

$

Money Market Mutual Funds

Repurchase Agreements

0 $ 390,202 $ 2,530
28,000

$===""" $ 420,:232 $
Investment Pools Office of Treasury and Fiscal Services Georgia Fund I

Total Investments

Carrying Amount

0 $

390,202 2,530
28,000

4 713 $ 425,445

Fair Value
$ 390,202 2,530 28,000
4 713 $ 425 445

Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value of an investment. The School District does not have a formal policy for managing interest rate risk.

Investments are classified as to investment maturity as follows:

Investment Type

Fair Value

Less Than 1 Year

Investment Maturi!X 6 - 10 Years

More than 10 Years

Debt Securities U.S. Treasuries Money Market Mutual Fund Repurchase Agreements
Totals by Maturity

$ 390,202 $ 2,530
28,000
$ 42Q,132 $

76,107 $ 2,530
78,631 $

314,095 $
314 Q95 $

28,000 28 QQQ

Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The School District does not have a formal policy for managing credit quality risk.

The money market mutual fund is unrated.

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, 2006

EXHIBIT "H"

Note 5: CAPITAL ASSETS

Balances July 1, 2005

Increases

Decreases

Balances June 30, 2006

Governmental Activities Capital Assets, Not Being Depreciated:
Land Construction in Progress

$ 199,713 $ 76,432

0

$ 199,713

$

76,432

0

Total Capital Assets Not Being Depreciated $ 276,145 $

0 $

76 432 $ 199 713

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 8,446,267 $ 2,131,317 69,048

170,622 117,175 $

$ 49,000

8,616,889 2,199,492
69,048

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

1,027,427 1,047,091
4 603

109,212 160,855
767

36,625

1,136,639 1,171,321
5 370

Total Capital Assets, Being Depreciated, Net $ 8.567.511 $

16,963 $

12,375 $ 8,572,099

Governmental Activity Capital Assets - Net $ 8.843.656 $

16.963 $

88.807 $ 8.771.812

Capital assets being acquired under capital leases as of June 30, 2006, are as follows:

Governmental Funds

Buildings and Improvements Equipment Less: Accumulated Depreciation

$

69,048

154,212

52,391

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

$
4,221 3,198 82,870

167,491
90,289 13,054

$==2~7~0,-83_4

- 19 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT"H"

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST) and Qualified Zone Academy Bonds (QZAB) escrow account are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2006, were as follows:

General Fund

District-wide Capital Projects
SPLOST

Debt Service Funds

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

$
$ 420,732 $ 608,861

1,660

Note 7: INTERFUND TRANSFERS

Interfund transfers for the year ended June 30, 2006, consisted of the following:

Transfer to

Transfers From General Fund

District-wide Capital Projects

$==='39-,6==9==5

Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as required match or supplemental funding source for capital construction projects.

Note 8: RISK MANAGEMENT

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

The School District has obtained commercial insurance for risk 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.

- 20 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 8: RISK MANAGEMENT

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 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 $500,000 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 9: LONG-TERM DEBT

CAPITAL LEASES The Lincoln County Board of Education has entered into various lease agreements as lessee for equipment and renovations. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of the future minimum lease payments as of the date of their inception.

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

Purpose

Interest Rate

Amount

General Government - Refunding - Series 2002

3.71%

$ 1,330,000

The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows:

- 21 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 9: LONG-TERM DEBT

Governmental Funds

General

Capital

Obligation

Leases

Bonds

Total

Balance July 1, 2005

$ 1,479,502 $ 1,705,000 $ 3,184,502

Deductions Debt Retired

19 846

375,000

394,846

Balance June 30, 2006

$ 1,459,656 $ 1,330,000 $ 2,789,656

Portion of Long-Term Debt

Due within One Year

$

0 $ 405,000 $ 405,000

At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30

Cagital Leases

Princigal

Interest

2016

$ 1,459.656 $

0

Fiscal Year Ended June 30

General Obligation

Debt

Princigal

Interest

2007 2008 2009

$ 405,000 $ 445,000 480,000

49,343 34,318 17,808

Total Principal and Interest

$ 1,330,000 $ 101,469

Note 10: 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.

- 22 -

LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT"H"

Note 11: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)

TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2006 2005 2004

100% 100% 100%

$ 623,799 $ 611,204 $ 601,872

- 23 -

(This page left intentionally blank)

LINCOLN COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2006

SCHEDULE "1"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Community Services Food Services Operation
Debt Service
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING USES
Other Uses
Net Change in Fund Balances
Fund Balances - Beginning
Inventory - Net Change in Period

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

3,188,236 $

3,188,236 $

3,215,432

20,000

20,000

119,214

7,055,154

7,091,926

7,265,206

1,658,938

1,829,390

1,860,479

184,575

184,575

439,511

11,800

11,800

1,240

24 000

24 000

189 296

$

12,142,703 $

12,349,927 $

13,090,378

$

7,851,168 $

8,023,645 $

7,893,381

428,436 106,482 226,921 360,495 684,569 125,759 802,720 603,896
36,852
781,234

419,661 139,458 227,090 365,045 688,139 125,759 862,350 630,963
40,334
781,234

419,006 98,406
233,153 356,143 699,868 126,218 822,135 574,530
37,260 263,934 779,574
20 779

$

12,008,532 $

12,303,678 $

12,324,387

$

134,171 $

46,249 $

765,991

-223,803

-223,803

-39 695

$

-89,632 $

-177,554 $

726,296

953,858

953,858

1,294,896

-14 579

-14 579

Fund Balances - Ending

$

849 647 $

761725 $===2=,0=2=1,=19=2=

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, 2006

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Donation (1) 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 State Grants for Innovative Programs Title I Grants to Local Educational Agencies Twenty-First Century Community Learning Centers
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
NIA = Not Available

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

. 10.553 . 10.555

N/A

N/A

$

$

(2) 697,822
697,822

10.550 10.558

N/A
N/A
$

41,375
(2) 739 197

84.027 84.173

N/A

$

NIA

$

355,500 50 674
406,174

84.041
84.318 84.367 84.358 84.186
. 84.298 84.010 84.287

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

(3)
4,599 101,777
17,152 14,290 6,475 485,034 27 236
1 062 737

16.540

NIA

$

37 033

$ =====1=83=8-=9=6=7

- 26-

LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2006

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 ($4,082) and the School Breakfast Program ($131,192) were not maintained separately and are included in the 2005 National School Lunch Program.
(3) Funds earned on the Impact Aid Program, in the amount of $263,924, 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, 2006

SCHEDULE "3"

AGENCY/FUNDING

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

GRANTS

Bright From the Start:

Georgia Department of Early Care and Learning

Pre-Kindergarten Program

$

295,535

$

Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs K-8 Statewide Reading and Math Program Preschool Handicapped Program Virtual Schools State Grant

384,795 60,308
755,374 66,231
432,083 33,859
895,630 835,328 319,078
106,366 138,872 527,065 100,029 163,156
44,790 -2,343 75,045 129,919 43,488 25,163
334,622 353,576 350,732
275,312 57,145 76,601 42,805 4,627 4,546
574,252 40,246 21,816
-362,688
25,000 36,643
200

Georgia State Financing and Investment Commission Reimbursement on Construction Projects

$

1 898

TOTAL
295,535
384,795 60,308
755,374 66,231
432,083 33,859
895,630 835,328 319,078
106,366 138,872 527,065 100,029 163,156
44,790 -2,343 75,045 129,919 43,488 25,163
334,622 353,576 350,732
275,312 57,145 76,601 42,805 4,627 4,546
574,252 40,246 21,816
-362,688
25,000 36,643
200
1 898

See notes to the basic financial statements.

$

7,265,206 $

- 28 -

1 898 $ ===7,1:,2~6,;,.7,.,;,10;;,4;,,,

LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2006

SCHEDULE "4"

PROJECT
Retiring in part of previously incurred general obligation debt.
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 tract 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)

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

438,256 $ 1,117,635

550,000

550,000

PROJECT STATUS Ongoing
Ongoing

$ 2,716,690 $ 2,716,690 $

438,256 $ 1,117,635

(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 -

(This page left intentionally blank)

LINCOLN COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2006

SCHEDULE "5"

DESCRIPTION

ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2)

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

Direct Instructional Programs

Kindergarten Program

$

Kindergarten Program-Early Intervention Program

Primary Grades (1-3) Program

Primary Grades-Early Intervention (1-3) Program

Upper Elementary Grades (4-5) Program

Upper Elementary Grades-Early Intervention (4-5)

Program

Middle School (6-8) Program

High School General Education (9-12) Program

Vocational Laboratory (9-12) Program

Students with Disabilities

Category II

Category Ill

Category IV

Category V

Gifted Student - Category VI

Alternative Education Program

431,130 $ 64,895
867,313 83,567
493,538
41,675 1,035,406
947,749 363,551 1,181,927
52,150 85 972

475,943 $ 66,770
899,651 119,422 527,121
37,262 1,258,948 1,253,363
382,214
163,520 254,943
31,170 327,166
85,839 87 508

34,381 $ 54,412 41,854
108,947 138,739
69,429 8,977
13,948
2,000 10 546

510,324 66,770
954,063 119,422 568,975
37,262 1,367,895 1,392,102
451,643
172,497 268,891
31,170 327,166
87,839 98 054

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

5,648,873 $

5,970,840 $

483,233 $

6,454,073

Media Center Program Staff and Professional Development

148,841 28 970

185,775 2 763

31,731 22 403

217,506 25166

TOTAL QBE FORMULA FUNDS

$

5,826,684 $

6,159,378 $

537 367 $===6=69=6=7=4==5

(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
March 7, 2007

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 of and for the year ended June 30, 2006, which collectively comprise Lincoln County Board of Education's basic financial statements and have issued our report thereon dated March 7, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Lincoln County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect Lincoln County Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule of Findings and Questioned Costs as items FS-6901-06-01 and FS-6901-06-02.
2006YB-30

A material weakness is a reportable condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above are material weaknesses.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Lincoln County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and 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 of Education and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
i,J~
Ru sell W. Hinton, CPA, CGFM State Auditor
RWH:as 2006YB-30

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

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
March 7, 2007

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 CIRCULAR A-133
Ladies and Gentlemen:
Compliance
We have audited the compliance of Lincoln County Board of Education with the types of compliance requirements described in the U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Lincoln County Board ofEducation'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 of compliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Lincoln County Board ofEducation's compliance with those requirements and performing such other procedures as we considered necessary in the

2006SA-10

circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Lincoln County Board of Education's compliance with those requirements.
In our opinion, the Lincoln County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2006.
Internal Control Over Compliance
The management of Lincoln County Board of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered Lincoln County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses.
This report is intended solely for the information and use of the management, members of the Lincoln County Board of Education, 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,
~~
Rusell W. Hinton, CPA, CGFM State Auditor
RWH:as 2006SA-10

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, 2006

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-6901-04-01 FS-6901-05-01

Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

F A-6901-04-01

Unresolved - See Corrective Action/Reponses

CORRECTIVE ACTION/RESPONSES

MATCHING LEVEL OF EFFORT AND EARMARKING Failure to Meet Supplement, Not Supplant, Requirements Amount: $56,281 Finding Control Number: FA-6901-04-01

We continue to disagree with this finding and consider it resolved. The finding has been closed by Financial Review and the Division of Exceptional Students of the Georgia Department of Education. The facts are as follows: 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 ofEducation that this was an acceptable use ofthe grant funds. This finding was reviewed by the Georgia Department of Education's Special Education Section and they determined that since Maintenance of Effort had been met for fiscal year 2003 and fiscal year 2004, the supplant rule was not applicable. Since we were acting on advice from the State Department ofEducation, we do not feel that the local system should be charged with a material weakness. However, we continue to make every effort to ensure program expenditures from Federal funds meet the supplement, no supplant, requirement.

Auditor's Note: We do not concur with GDOE's conclusion that the findings should be resolved because the local Board met its Special Education Maintenance of Effort requirement for fiscal year 2003 and fiscal year 2004. The finding related solely with the Board using

- 1-

LINCOLN COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
MATCHING LEVEL OF EFFORT AND EARMARKING Failure to Meet Supplement, Not Supplant, Requirements Amount: $56,281 Finding Control Number: FA-6901-04-01
Renovation funds to supplant Title VI-B funded positions. According to Sections E4 and E5 ofU. S. Department ofEducation's "School Renovation, IDEA, and Technology Grants Program Guidelines for Fiscal Year 200 l ", Renovation funds that are used to support activities under Part B of the IDEA are required to be used for excess costs of providing special education and related services to students with disabilities, as well as maintenance of effort and supplement, not supplant, requirements. Furthermore, the guidelines state that Federal regulations to include 34 CRF 300.230 (c) apply to administering Renovation funds in support of these IDEA activities. This regulation states that a local Board must demonstrate that amounts provided by the State agency to the local Board will be used to supplement State, local and other Federal funds and not to supplant these funds. Our finding disclosed that as of the termination of the Renovation Grant award on December 31, 2003, the Board had charged salary costs to the Renovation program for the cited Board personnel who performed special education activities. These personnel were supported with Title VI-B funds prior to and subsequent to the renovation grant period. Accordingly, the Board's use of $56,281 in Renovation grant funds in this manner is in nonconformity with the aforementioned supplement, not supplant, regulations.
To resolve this finding, the School District should implement procedures to ensure that program expenditures supported with Federal funds met the Supplement not Supplant requirements included in 34 CFR 300.230. Furthermore, Georgia Department of Education, in consultation with U. S. Department ofEducation, should review this matter to determine if a refund is appropriate.
-2 -

SECTION IV FINDINGS AND QUESTIONED COSTS

LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006
I SUMMARY OF AUDITOR'S RESULTS
1. Type of Report Issued on the Financial Statements The auditor's opinion on the 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 of Education disclosed financial statement reportable conditions related to the following control category.
Expenditures/Liabilities/Disbursements
None ofthe reportable conditions described above are considered to be material weaknesses.
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 of Education did not disclose any reportable conditions in internal control over major programs.
5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Lincoln County Board ofEducation's report on compliance with requirements applicable to major programs was unqualified.
6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Lincoln County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) ofOMB Circular A-133.
7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.010 Title I Grants to Local Educational Agencies
8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.
9. Low Risk Auditee The Lincoln County Board of Education did not qualify as a low risk auditee as defined by Section .530 ofOMB Circular A-133.
- 1-

LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6901-06-01

Condition:

School District personnel did not ensure that expenditures were approved by authorized personnel prior to purchase.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are properly approved and processed according to established procedures and reported in accordance with State law.

Questioned Cost: NIA

Information:

Weaknesses m internal controls related to expenditures were noted as follows:

Based on a review of thirty vouchers, eight expenditures were not approved by authorized personnel prior to initiating purchases.
Procedures were not in place to ensure charges made by School District personnel properly excluded State of Georgia sales tax at the point of purchase. Two expenditures, from the thirty reviewed, included sales tax charges.

Cause:

These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning with regard to expenditures.

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

The School District should establish policies and procedures to ensure that expenditures are properly approved and that sales tax is not paid on purchases.

-2-

LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures over School Activity Accounts Reportable Condition Finding Control Number: FS-6901-06-02

Condition:

The accounting procedures ofthe School District were insufficient to provide adequate internal controls over school activity accounts.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are properly approved and processed according to established procedures and reported in accordance with State law.

Questioned Cost: NIA

Information:

Weaknesses in internal controls relating to expenditures were noted as follows:

Based on a review of twenty-five vouchers, seventeen expenditures were not approved by authorized personnel prior to initiating purchases.
Procedures were not in place to ensure charges made by School District personnel properly excluded State ofGeorgia sales tax at the point of purchase. Seven of the twenty-five expenditures included sales tax charges.

Cause:

These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the school level with regard to expenditures.

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

The School District should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures and State law.

-3-

LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EMPLOYEE COMPENSATION Inaccurate Reporting of Senior Management Compensation Nonmaterial Noncompliance Finding Control Number: FS-6901-06-03

Condition:

Our examination of compensation paid to senior management ofthe School District revealed an error in the amount reported as salary to the Department of Audits and Accounts.

Criteria:

O.C.G.A 50-6-27 states in part: "Each ... local board ofeducation is required and directed to submit to the state auditor, in a format prescribed by the state auditor, a listing of all personnel of such... local board of education showing name, title or functional area, salary and travel expense for each individual."

Questioned Cost: NIA

Information:

The School District failed to include $4,272 for a tax sheltered annuity paid on the Superintendent's behalf. This payment was in accordance with the contract between the Superintendent and the School District.

The School District reported a salary of $106,794 for Superintendent Dr. Randall Edmunds in its salary and travel report for the period ended June 30, 2006. The actual compensation for Dr. Edmunds totaled $111,066, which includes the $4,272 payment referenced above.

Cause:

Management failed to implement procedures to ensure that all employee compensation is reported as salary to the Department of Audits and Accounts.

Effect:

The failure of the School District to submit total compensation paid to employees leads to inaccurate external reporting.

Recommendation:

The School District should implement procedures to ensure that all employee compensation is included in the salary total reported to the Department of Audits and Accounts.

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

-4 -

SECTION V MANAGEMENT'S RESPONSES

LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006
Finding Control Number: FS-6901-06-01
We concur with this finding. The Board will establish procedures necessary to ensure adequate controls over the expenditure process. Maintenance and School Food Service Managers were given responsibility for their own budgets, but all expenditures will now be subject to preapproval from the appropriate supervisor unless an emergency exists. The Accounts Payable Manager has been instructed to not pay nor reimburse for any sales tax. These procedures will be completely implemented by April 15, 2007.
Finding Control Number: FS-6901-06-02
We concur with this finding. The Board will establish procedures necessary to ensure adequate controls over the expenditure process. Class sponsors and athletic sponsors were given responsibility for their own accounts, but all expenditures will now be subject to preapproval from the appropriate principal. All bookkeepers have been instructed to not pay nor reimburse for any sales tax. These procedures will be completely implemented by April 15, 2007.
Finding Control Number: FS-6901-06-03
We concur with this finding. The 403(B) employer contribution paid by the Board will be added to the Superintendent's salary reported for the year ending June 30, 2007. The Comptroller is currently researching the proper method of entering this information in the accounting system so the report will be automatic.
Contact Person: Kaye Bufford, Comptroller Phone: (706) 359-3742 Fax Number: (706) 359-7938 E-mail Address: kbufford@lincoln.k12.ga.us