LINCOLN COUNTY BOARD OF EDUCATION LINCOLNTON, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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 8 H NOTES TO THE BASIC FINANCIAL STATEMENTS 9 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 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 30 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 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 February 26, 2008 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) ofthe Lincoln County Board of Education, as of and for the year ended June 30, 2007, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Lincoln County Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Lincoln County Board of Education's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. 2007ARL-11 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 ofEducation, as ofJune 30, 2007, 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. In accordance with Government Auditing Standards, we have also issued our report dated February 26, 2008, on our consideration of the Lincoln County Board of Education's internal control over financial reporting and on 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 ofthe 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. ~:A Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2007ARL-11 LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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, 2007. 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 2007 are as follows: In total, net assets increased $1.3 million, which represents an increase of 14.74 percent over 2006. All of this increase is for governmental activities. The Board has no business-type activities. General revenues accounted for $5.4 million. This represents 35.67 percent of all revenues. Program specific revenues in the form of grants and contributions and charges for services accounted for $9.6 million or 64.33 percent of total revenues. The Board had $13.7 million in expenses related to governmental activities. Program specific grants and contributions and charges for services offset $9.6 million of these expenses. General revenues, primarily property taxes and sales taxes, of $5.4 million were adequate to provide for other expenses for these programs. Among major funds, the General Fund had $14.1 million in revenues and $13.5 million in expenditures. The fund balance for the General Fund increased to $2.4 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. - I- LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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 2007?" 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, 2007 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 2007 compared to fiscal year 2006. Table 1 Net Assets Governmental Activities Fiscal Fiscal Year 2007 Year 2006 Assets Current and Other Assets Capital Assets, Net $ 5,808,780 8,685.628 $ 4,618,188 8.771.812 Total Assets $ 14,494.408 $ 13,390.000 Liabilities Current and Other Liabilities Long-Term Liabilities $ 2,071,270 2,384.656 $ 1,851,279 2.789.656 Total Liabilities $ 4,455,926 $ 4,640,935 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 7,760,628 2,001,643 276,211 $ 7,441,812 1,337,780 -30,527 Total Net Assets $ 10,038,482 $ 8,749.065 Total net assets increased $1,289,417 in fiscal year 2007. Table 2 shows the changes in net assets for fiscal year 2007 compared to the changes in net assets for fiscal year 2006. - lll - LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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 2007 Year 2006 $ 436,856 9,085,798 135,713 $ 439,511 8,230,386 59 043 Total Program Revenues $ 9,658,367 $ 8,728,940 General Revenues: Taxes Property Taxes Sales Taxes Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous $ 3,388,038 895,887 740,952 86,089 245,454 $ 3,454,063 927,824 574,230 11,921 160,600 Total General Revenues $ 5,356,420 $ 5,128,638 Total Revenues $ 15,014,787 $ 13,857,578 Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Operations of Non-Instructional Services Community Services Food Services Interest on Short-Term and Long-Term Debt $ 8,935,174 429,247 130,302 244,691 416,301 764,361 141,432 884,635 642,509 23,818 347,199 716,358 49 343 $ 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 Total Expenses $ 13,725,370 $ 12,530,095 Increase in Net Assets $ 1,289,417 $ 1,327,483 Governmental Activities The Board is dependent upon operating grants and property taxes to support governmental activities. Instruction comprises 65.1 percent, Support Services 29.3 percent, Food Services 5.2 percent, and Interest 0.4 percent of government program expenses. - IV - LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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 2007 with fiscal year 2006. 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 2007 Year 2006 Net Cost of Services Fiscal Fiscal Year 2007 Year 2006 Instruction $ 8,935,174 $ 8,060,872 $ 2,587,533 $ 2,207,642 Support Services Pupil Services 429,247 416,481 184,517 242,960 Improvement of Instructional Services 130,302 98,406 42,129 24,011 Educational Media Services 244,691 237,374 73,940 100,959 General Administration 416,301 356,143 -77,334 -49,031 School Administration 764,361 699,868 308,570 327,893 Business Administration 141,432 127,057 138,981 127,057 Maintenance and Operation of Plant 884,635 825,333 466,650 436,620 Student Transportation Services 642,509 550,550 174,174 179,344 Other Support Services 23,818 37,260 14,728 26,474 Operations ofNon-Instructional Services Community Services 347,199 263,934 79,901 24,423 Food Services 716,358 792,628 23,871 88,614 Interest on Short-Term and Long-Term Debt 49 343 64,189 49,343 64,189 Total Expenses $ 131725,370 $12,530,025 $ 4,Q67,QQ3 $ 3,801,155 Although program revenues make up a majority of the revenues, the Board is still dependent upon tax revenues for governmental activities. Over 28.9 percent of instruction activities are supported through taxes, interest, and other general revenues; for all governmental activities, general revenue support is over 29.6 percent. THE BOARD'S FUNDS The Board's governmental funds are accounted for using the modified accrual basis of accounting. Total governmental funds had revenues and other financing sources of $15.20 million and expenditures and other financing uses of $14.3 million. The general fund reflected an increase of $360 thousand, the debt service fund basically remained the same, and the District-wide capital projects funds increased $568 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, 2007 GENERAL FUND HIGHLIGHTS The Board's budget is prepared according to Georgia law. The most significant budgeted fund is the General Fund. Site-based budgeting is used by the Board and is designed to tightly control total site budgets but allow some management flexibility. The Board's top management monitors a detailed report comparing actual revenues and expenditures to budget on a monthly basis. Site management has access to this information by requesting a report available using the Board's accounting software. For the general fund, the final budgeted revenues and other financing sources of $13.27 million exceeded the original budgeted amount of $13 .15 million by $0.12 million. This difference was due to an increase in state revenues of $69 thousand, and an increase of $51 thousand in Federal revenues. The actual revenues exceeded the budgeted amount by $858 thousand. The final budgeted expenditures and other financing uses of $13.96 million exceed the original budget of $13 .83 million by $0.13 million. The difference was due to various adjustments including an increase of instruction by $103 thousand, and an increase in maintenance and operation of plant of $28 thousand. The actual expenditures and other financing uses were $188 thousand less than the budgeted amount. General fund revenues and other financing sources exceeded expenditures by $360 thousand. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At the end of fiscal year 2007, the Board had capital assets of $8.7 million, net of accumulated depreciation. Table 4 shows fiscal year 2007 balances compared with fiscal year 2006 balances. Table 4 Capital Assets (Net of Depreciation) Governmental Activities Fiscal Fiscal Year 2007 Year 2006 Land Construction in Progress Buildings and Improvements Equipment Land Improvements $ 199,713 16,155 7,439,717 967,133 62 910 $ 199,713 7,480,250 1,028,171 63 678 Total $ 826852628 $ 827712812 - VI - LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 The increases in building improvements and equipment were more than offset by the yearly depreciation expense. Debt At June 30, 2007, the Board had $925 thousand in general obligation bonds, with $445 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 2007 balances compared with fiscal year 2006 balances. Table 5 Debt at June 30 Governmental Activities Fiscal Fiscal Year 2007 Year 2006 General Obligation Bonds Qualified Zone Academy Bonds $ 925,000 $ 1,330,000 1,459.656 1,459.656 Total $ 2,384.656 $ 2,789.656 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. Sales tax collections are growing. A referendum passed on March 20, 2007, approving the continuation of the current SPLOST and $25,150,000 in bonds to be used to build a new school building. Plans are being made to start construction in fiscal year 2008 with a projected completion date of June 2010. 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 non-instructional programs. Additional austerity reductions were made by the governor and legislature for fiscal years 2005, 2006, 2007, and 2008. At this time, it is not known if this will continue for fiscal year 2009. The millage rate for the Board of Education for the fiscal year 2008 was 12.882, which is well below the state average. 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. - Vll - LINCOLN COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 Contacting the Board's Financial Management This financial report is designed to provide our citizens, taxpayers, investors, and creditors with a general overview of the Board's finances and to reflect the Board's accountability for the monies it receives. Questions about this report or for additional financial information, please contact Kaye Bufford, Comptroller, Lincoln County Board of Education, 423 Metasville Road, P. 0. Box 39, Lincolnton, Georgia 30817. - viii - LINCOLN COUNTY BOARD OF EDUCATION LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2007 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries and Benefits Payable Payroll Withholdings 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 Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. - 1- EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 923,524 3,618,217 259,295 963,954 14,360 16,476 12,954 199,713 16,155 69,048 8,689,159 2,229,747 -2,518,194 $ ===1=4=,4=9=4=,4=08=== $ 661,654 1,172,755 236,861 445,000 1,939,656 $ 4,455,926 $ 7,760,628 115,960 519,843 1,365,840 276 211 $ 10,038,482 $ ===1=4:!=,4=94::i:!'=40=8= LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2007 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 $ 8,935,174 $ 429,247 130,302 244,691 416,301 764,361 141,432 884,635 642,509 23,818 347,199 716,358 49 343 $ 13 725 370 $ 5,380 267,298 164,178 436 856 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 $ 6,342,261 244,730 88,173 170,751 493,635 455,791 2,451 417,985 332,622 $ 9,090 528,309 $ 9,085,798 $ $ 135,713 135 713 $ -2,587,533 -184,517 -42,129 -73,940 77,334 -308,570 -138,981 -466,650 -174,174 -14,728 -79,901 -23,871 -49 343 -4,067,003 $ 3,388,038 454,343 348,577 56,417 36,550 740,952 86,089 245 454 $ 5,356,420 $ 1,289,417 8,749,065 $ ======1=0'=03=8!.=,4=82= -3- LINCOLN COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2007 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories I Total Assets GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 740,895 $ 182,044 $ 2,576,954 1,040,689 126,789 963,954 14,360 16,476 12 954 143,107 585 $ 574 923,524 3,618,217 269,896 963,954 14,360 16,476 12 954 $ 4,452,382 $ 1,365,840 $ 1 159 $ 5,819,381 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries and Benefits Payable Payroll Withholdings Payable Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Designated for Student Activities Undesignated Reported in: General Fund Total Fund Balances $ 661,654 1,172,755 236,861 $ 2,071,270 $ 103,006 518,684 $ 12,954 $ 1,365,840 135,114 1,611,354 $ 2,38\112 $ 1,365,840 $ $ $ $ 1,159 1 159 $ 661,654 1,172,755 236 861 2 071 270 103,006 519,843 12,954 1,365,840 135,114 1611354 3748111 Total Liabilities and Fund Balances $ 4.452,382 $ 1,365,840 $ 1159 $===5=8=1=9=38=1= 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, 2007 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Capital Leases Total Long-Term Liabilities $ 3,748,111 $ 199,713 16,155 69,048 8,689,159 2,229,747 -2,518,194 8,685,628 -10,601 $ -925,000 -1,459,656 -2,384,656 Net Assets of Governmental Activities (Exhibit "A") $ 10,038,482 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, 2007 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) Sale of Equipment 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 $ 3,344,938 92,967 $ 8,487,995 1,474,468 436,856 44,211 246,442 $ 14 127 877 $ 348,577 $ 41,840 390 417 $ $ 454,343 38 454 381 $ 3,344,938 895,887 8,487,995 1,474,468 436,856 86,089 246 442 14,972,675 $ 8,713,278 429,247 130,302 239,093 416,301 764,361 140,893 880,733 716,554 23,818 347,199 699,590 $ $ 13,501,369 $ $ 626,508 $ $ 90,224 90,224 $ 300,193 $ $ 539 405,000 49 343 454,882 $ -501 $ 8,713,278 429,247 130,302 239,093 416,301 764,361 141,432 880,733 716,554 23,818 347,199 699,590 90,224 405,000 49 343 14,046,475 926,200 $ 1,300 $ -267,888 $ -266,588 $ $ 359,920 $ 2,021,192 267,888 267,888 568,081 $ 797 759 $ $ -501 $ 1 660 1,300 267,888 -267,888 1 300 927,500 2,820,611 $ 2,381,112 $ 1,365,840 $ 1 159 $ ==3=7=4=8=1=1=1 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, 2007 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 Change in Net Assets of Governmental Activities (Exhibit "B") $ 927,500 $ 196,150 -280,040 -83,890 43,101 -2,294 405,000 $ =====1=,2=8=9,=4=17= The notes to the basic financial statements are an integral part of this statement. -7- LINCOLN COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2007 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ ===47-61=0= $ ====4=7=61=0= The notes to the basic financial statements are an integral part of this statement. -8- LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 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 ofActivities 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. -9- LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 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 ofgeneral 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 ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless ofwhen the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized - 10 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 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. Official Code of Georgia Annotated Section 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (I) 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, - 11 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 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 ofcredit 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 2006 tax digest year (calendar year) on October 20, 2006 (levy date). Taxes were due on December 20, 2006 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2006 tax digest are reported as revenue in the governmental funds for fiscal year 2007. The Lincoln County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2007, for maintenance and operations amounted to $3,344,938. The tax millage rate levied for the 2006 tax year (calendar year) for the Lincoln County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 12.833 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $802,920 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. - 12 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories ofdonated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first in, first out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works ofart. During the fiscal year under review, no events or changes in circumstances affecting a capital asset that may indicate impairment were known to the School District. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment NIA NIA $ 20,000 20 to 80 years $ 100,000 50 to 80 years $ 5,000 5 to 50 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. - 13 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement ofNet Assets. NET ASSETS The School District's net assets in the District-wide Statements are classified as follows: Invested in capital assets, net of related debt - This represents the School District's total investment in capital assets, net ofoutstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restricted net assets - These represent resources for which the School District is legally or contractually obligated to spend resources for bus replacement, continuation of Federal programs, debt service and capital projects in accordance with restrictions imposed by external third parties. Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit 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: - 14 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS (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 ofthe State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2007, the bank balances were $4,826,101. The amounts of the total uninsured bank balances are classified into three categories of custodial credit risk: Category 1 - Uncollateralized, Category 2 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent in the School District's name, Category 3 - Cash collateralized with securities held by the pledging financial institution's trust department or agent but not in the School District's name. The School District's uninsured deposits are classified by custodial credit risk category at June 30, 2007, as follows: - 15 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Custodial Credit Risk Category Bank Balance 1 $ 0 2 4,500,560 3 0 Total $ 4,500.560 CATEGORIZATION OF INVESTMENTS The School District's investments as of June 30, 2007, are presented below. All investments are presented by investment type and debt securities are presented by maturity. Investment Type Fair Value Investment Maturi!)'. Less Than 6 - 10 1 Year Years Debt Securities U. S. Treasuries U. S. Agencies Implicitly Guaranteed Repurchase Agreements Explicitly Guaranteed Other Investments Equity Mutual Funds $ 334,932 $ 334,932 152,456 $ 152,456 28,000 28,000 $ 515,388 $ 152.456 $ 362.932 3,296 Investment Pools Office of Treasury and Fiscal Services Georgia Fund 1 4 969 Total Investments $===5==23'='=.6==5==3 The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services is not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State of Georgia, Office of Treasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. Additional information on the Local Government Investment Pool is disclosed in the State of Georgia Comprehensive Annual Financial Report. This audit can be obtained from the Georgia Department of Audits and Accounts at http://www.audits.state.ga.us/internet/searchRpts.html. - 16 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS The Primary Liquidity Portfolio consists of Georgia Fund 1 which is not registered with the SEC as an investment company but does operate in a manner consistent with the SEC's Rule 2a-7 of the Investment Company Act of 1940. The investment is valued at the pool's share price, $1.00 per share. The pool is an AAAm rated investment pool by Standard and Poor's. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2007, was 15 days. Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value ofan investment. The School District does not have a formal policy for managing interest rate risk. Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of the failure ofthe counterparty to a transaction, the School District will not be able to recover the value ofthe 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. At June 30, 2007, $515,388 ofthe School District's applicable investments were uninsured, are not registered in the name of the School District and are held by either the counterparty or the counterparty's trust department or agent, but not in the School District's name. 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 investments subject to credit quality risk are reflected below: Rated Debt Investments Fair Value Quality Ratings Unrated Debt Securities U. S. Agencies $ 152,456 $====1=52=,4="=5="=6 Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The School District does not have a formal policy for managing concentration of credit risk. More than 5% of the School District's investments are in the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. These investments are 14.6% and 14.8%, respectively, of the School District's total investments. - 17 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"H" Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1. 2006 Increases Balances Decreases June 30, 2007 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 199,713 0 $ $ 16.155 0 $ 199,713 16.155 Total Capital Assets Not Being Depreciated $ 199,713 $ 16,155 $ 0 $ 215,868 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 8,616,889 $ 2,199,492 69,048 72,270 107,725 $ $ 77,470 8,689,159 2,229,747 69,048 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 1,136,639 1,171,321 5,370 112,803 166,469 768 75,176 1,249,442 1,262,614 6138 Total Capital Assets, Being Depreciated, Net $ 8,572,099 $ -100,045 $ 2,294 $ 8,469,760 Governmental Activity Capital Assets - Net $ 8.771.812 $ -83.890 $ 2,294 $ 8,685.628 Capital assets being acquired under capital leases as of June 30, 2007, are as follows: Governmental Funds Buildings and Improvements Equipment Less: Accumulated Depreciation $ 69,048 48,002 26,004 Current year depreciation expense by function is as follows: $====91-,0==4===6 - 18 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 5: CAPITAL ASSETS Instruction Support Services Educational Media Services Maintenance and Operation of Plant Student Transportation Services Food Services $ 169,175 $ 4,224 2,944 91 043 98,211 12,654 $ 2801040 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), Georgia State Financing and Investment Commission (GSFIC) funds and Qualified Zone Academy Bonds (QZAB) escrow account are 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, 2007, were as follows: Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions General Fund District-wide Capital Projects SPLOST GSFIC Debt Service Funds $ 585 $ 79,083 $ 518,684 $ 1,040,689 $ 574 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2007, consisted of the following: Transfer to Transfers From General Fund District-wide Capital Projects $==2-67-,8=8-8 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. - 19 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" 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. The School District has elected to self-insure for all losses related to acts of God. In addition, the School District has elected to self-insure for errors or omissions, which includes, among other risks, risks for sexual harassment and discrimination. The School District has not experienced any losses related to these risks in the past three years. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount ofthat loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2006 2007 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0 $ 0 $ 0 $ 0 $ 0 $ 2,772 $ 2,772 $ 0 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 -20- LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 9: LONG-TERM DEBT CAPITAL LEASES The Lincoln County Board of Education has entered into various lease agreements as lessee for equipment and renovation. 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% $====9-25-,0-0="=0 Voters have authorized $25,150,000 in general obligation debt for building a new school and equipment which was not issued as of June 30, 2007. The changes in Long-Term Debt during the fiscal year ended June 30, 2007, were as follows: Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2006 $ 1,459,656 $ 1,330,000 $ 2,789,656 Deductions Debt Retired 405,000 405,000 Balance June 30, 2007 $ 1,459.656 $ 925,000 $ 2,384,656 Portion of Long-Term Debt Due within One Year $_ _ _~0 $ 445 000 $ 445 000 At June 30, 2007, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 2008 2009 2016 Total Principal and Interest Capital Leases Principal Interest General Obligation Debt Principal Interest $ $ I 459 656 $_ _ _ _ _0 445,000 $ 480,000 34,318 17,808 $ I 459 656 $=====0 $ 925.000 $=====52==-12"=6 - 21 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $292,578 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $282,221 Paid to the Teachers Retirement System of Georgia For Teachers Retirement (TRS) Employer's Cost In the amount of $8,016 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $2,341 Note 11: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2007, together with funding available: Project Unearned Executed Contracts Funding Available From State 08-690-044 $ 422,969 $==5==67-,6=9=2 The amounts described in this note are not reflected in the basic financial statements. Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. - 22 - LINCOLN COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "H" Note 13: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.28% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2007 2006 2005 100% 100% 100% $ 661,903 $ 623,799 $ 611,204 - 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, 2007 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 Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Inventory - Net Change in Period NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 3,249,321 $ 3,249,321 $ 3,344,938 19,000 19,000 92,967 8,070,396 8,140,215 8,487,995 1,578,169 1,629,312 1,474,468 189,725 189,725 436,856 16,800 16,800 44,212 25 000 25 000 246 441 $ 13 148 411 $ 13 269 373 $ 14 127 877 $ 8,815,075 $ 8,917,706 $ 8,713,278 439,199 136,175 235,101 386,940 723,390 131,568 919,585 763,669 38,719 789 612 440,486 143,856 233,698 387,610 708,758 141,915 948,095 758,636 29,623 789 612 429,247 130,302 239,093 416,301 764,361 140,893 880,733 716,554 23,818 347,199 699 590 $ 13 379 033 $ 13 499 995 $ 13501369 $ -230 622 $ -230 622 $ 626 508 $ 1,300 $ -457 750 $ -457 750 -267 888 $ -457 750 $ -457 750 $ -266 588 $ -688,372 $ -688,372 $ 359,920 1,620,554 1,620,554 2,021,192 331 331 Fund Balances - Ending $ 932 513 $ 932 513 $===2=3=8='1=11=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, 2007 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 State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U. S. Department of Education CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 N/A NIA $ $ (2) 637 363 637,363 10.550 10.558 N/A N/A $ 23,966 {2) 661 329 84.027 84.173 NIA $ N/A $ 288,759 50 345 339,104 84.041 84.318 84.367 84.358 84.186 84.298 84.010 84.048 N/A N/A N/A NIA N/A N/A N/A $ (3) 4,188 91,184 32,519 7,560 2,422 402,104 26 280 905 361 Total Federal Financial Assistance N/A = Not Available $ =====1,==56=6=,6=9==0 - 26 - LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2007 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on Child and Adult Care Food Program ($4,245) and the School Breakfast Program ($132,598) were not maintained separately and are included in the 2007 National School Lunch Program. (3) Funds earned on the Impact Aid program, in the amount of $79,430, 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, 2007 AGENCY/FUNDING GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Kindergarten - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program Media Center Program 20 Days Additional Instruction Staff Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Grant Sparsity-Alternative Program Nurses Principal Supplements Mid-term Adjustment Hold-Harmless Vocational Supervisors Equalization Grant Food Services Vocational Education Amended Formula Adjustment K-8 Statewide Reading and Math Grants Preschool Handicapped Program - 28 - SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 301,019 446,713 61,516 831,965 33,618 465,060 20,021 896,609 869,431 381,186 77,900 153,979 645,366 95,511 167,013 66,609 4,551 81,637 141,699 46,181 25,926 353,596 376,528 347,253 288,882 35,713 22,949 20,000 41,854 4,450 41,795 9,429 661,523 38,592 84,991 -138,479 22,500 21,451 LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2007 AGENCY/FUNDING GRANTS Education, Georgia Department of Pupil Transportation-State Bonds Graduation Coaches Middle School Summer Remedial Program Virtual Schools State Grant Total Grants from Georgia Department of Education On Behalf Payments On Behalf Payments - Health Insurance On Behalf Payments - Teachers Retirement On Behalf Payments - Public School Employees Retirement Total Children's Intervention Services Funds from Other State Agencies Grand Total SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 100,000 34,180 1,089 825 $ _ _ _....:.8..,..1....:.8_2'-'6-'-3_1 $ 282,221 8,016 2 341 $ _ _ _ _29_2~5_7_8 $ _ _ _ __,;1..;;;;;2.c.;.7....:,8~6 $ ===8='=48=7=,9=9==5 See notes to the basic financial statements. - 29 - LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2007 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 High School, baseball fields, softball fields, multipurpose 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) PROJECT STATUS $ 2,166,690 $ 2,166,690 $ 454,343 $ 1,555,891 Ongoing 550,000 550,000 9 000 Ongoing $ 2,716,690 $ 2,716,690 $ 463,343 $ 1,555,891 (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. - 30 - LINCOLN COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2007 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle 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 Remedial Education Program Alternative Education Program TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 498,944 $ 461,314 $ 59,349 $ 520,663 69,494 70,896 70,896 938,382 1,069,921 86,214 1,156,135 44,811 57,806 57,806 525,779 563,600 87,041 650,641 25,544 1,025,536 986,454 418,279 1,285,117 72,683 4,458 92 203 28,815 1,309,815 1,419,918 373,225 123,728 264,850 32,948 498,126 112,117 102 157 148,526 203,129 78,659 233 23,681 496 2,374 2 788 28,815 1,458,341 1,623,047 451,884 123,961 288,531 32,948 498,622 114,491 104 945 $ 5,987,684 $ 6,489,236 $ 692,490 $ 7,181,726 160,601 29 658 196,037 30,704 226,741 29 836 TOTAL QBE FORMULA FUNDS $====6=1=7=7=9=43.. $ 6,685,273 $ 723 194 $ ===7'=43=8=!:3=0=3 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State amended formula adjustment. See notes to the basic financial statements. - 31 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 658-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 February 26, 2008 Honorable Sonny Perdue, Governor Members ofthe General Assembly Members ofthe 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 ofLincoln County Board ofEducation as ofand for the year ended June 30, 2007, which collectively comprise Lincoln County Board of Education's basic financial statements and have issued our report thereon dated February 26, 2008. 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 ofEducation's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose ofexpressing an opinion on the effectiveness of the Lincoln County Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Lincoln County Board of Education's internal control over financial reporting. A control deficiency exists when the design or operation ofa control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affect the Lincoln County Board ofEducation's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted 2007YB-10 accounting principles such that there is more than a remote likelihood that a misstatement of the Lincoln County Board ofEducation's financial statements that is more than inconsequential will not be prevented or detected by the Lincoln County Board of Education's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement ofthe financial statements will not be prevented or detected by the Lincoln County Board of Education's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph ofthis section and would not necessarily disclose all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 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. We noted certain matters that we have reported to management of Lincoln County Board of Education in a separate letter dated February 26, 2008. This report is intended solely for the information and use of the management, members of the Lincoln County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~~H~ W,~$ Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2007YB-10 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 February 26, 2008 Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education and Superintendent and Members ofthe Lincoln County Board of Education REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULARA-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, 2007. 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 ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits ofStates, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types 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 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. 2007SA-10 In our opinion, the Lincoln County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2007. 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 ofexpressing our opinion on compliance, but not for the purpose ofexpressing an opinion on the effectiveness ofinternal control over compliance. Accordingly, we do not express an opinion on the effectiveness ofthe Lincoln County Board of Education's internal control over compliance. A control deficiency in an entity's internal control over compliance exists when the design or operation ofa control does not allow management or employees, in the normal course ofperforming their assigned functions, to prevent or detect noncompliance with a type ofcompliance requirement of a Federal program on a timely basis. A significant deficiency is a control deficiency, or combination ofcontrol deficiencies, that adversely affects the entity's ability to administer a Federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a Federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a Federal program will not be prevented or detected by the entity's internal control. Our consideration ofthe internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the management, members of the Lincoln County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~~~~ Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2007SA-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, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6901-06-01 FS-6901-06-02 FS-6901-06-03 Previously Reported Corrective Action Implemented 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 Further Action Not Warranted - See Responses 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 ofEducation. 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 ofEffort 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. - 1- LINCOLN COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS RESPONSES MATCHING LEVEL OF EFFORT AND EARMARKING Failure to Meet Supplement, Not Supplant, Requirements Amount: $56,281 Finding Control Number: FA-6901-04-01 AUDITOR'S NOTE Given the differences in this Department's and GDOE's view pertaining to this fiscal year 2004 finding, we have recommended in each audit of this Board for the periods ended June 30, 2005, and June 30, 2006, that GDOE consult with the U. S. Department of Education concerning the resolution ofthis finding. No documentation has been presented indicating that any discussion has been held with the Federal Agency. Since there is no evidence that GDOE has considered our recommendation, no further follow-up by this Department on this finding is deemed necessary. -2- SECTION IV FINDINGS AND QUESTIONED COSTS LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Lincoln County Board ofEducation's financial statements was unqualified. 2. Significant Deficiencies in Internal Control Disclosed by the Audit ofthe Financial Statements The audit report for the Lincoln County Board ofEducation did not disclose any significant deficiencies related to the financial statements. 3. Noncompliance Material to the Financial Statements The audit of the Lincoln County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements. 4. Significant Deficiencies in Internal Control Over Major Programs The audit report for the Lincoln County Board ofEducation did not disclose any significant deficiencies 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) ofOMB Circular A-133 The Lincoln County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Lincoln County Board of Education qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133. - 1- LINCOLN COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -2-