LONG COUNTY BOARD OF EDUCATION LUDOWICI, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor LONG 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 EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 6 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 9 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 10 H NOTES TO THE BASIC FINANCIAL STATEMENTS 11 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 25 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 26 3 SCHEDULE OF STATE REVENUE 28 4 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 29 LONG COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - 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 SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 June 6, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Long 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 Long County Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Long 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 opm1ons. 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 of the Long County Board of Education, as of June 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2004ARL-11 The Long County Board ofEducation has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements. In accordance with Government Auditing Standards, we have also issued our report dated June 6, 2005, on our consideration of the Long 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 ofour testing of internal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 25 is not a required part of the basic financial statements but is 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 Long County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 4, which includes the Schedule of Expenditures of Federal Awards as required by U. S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code of Georgia Annotated section 506-24. Respectfully submitted, RWH:as 2004ARL-ll State Auditor LONG COUNTY BOARD OF EDUCATION LONG COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004 ASSETS Cash and Cash Equivalents Investments Accounts Receivable. Net Taxes State Government Federal Government Other Inventories Capital Assets Land Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Deposits and Deferred Revenues Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Continuation of Federal Programs Debt Service Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 5,213,023 2,155,820 402,486 984,748 103,334 22,764 15,924 161,440 1,126,429 14,704,286 1,708,823 -5 018 657 $ ======2=1,=58=0=,4=2=0= $ 384,464 1,118,399 77,721 275,000 5,230,000 $ 7 085 584 $ 7,377,873 70,382 1,029,474 6 017 107 $ 14 494 836 $ ===2=1=,5=8=0,=42=0= The notes to the basic financial statements are an integral part of this statement. -3- LONG COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2004 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 Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Sales Taxes Special Purpose Local Option Sales Tax For Debt Services 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 $ 8,276,836 413,458 214,723 203,084 285,978 522,123 158,312 756,861 726,507 244,002 48,581 61,978 $ 960,378 300,922 $ 13 173 743 $ 17,218 170,992 188 210 The notes to the basic financial statements are an integral part of this statement. -4- EXHIBIT "B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 7,872,420 201,924 161,327 174,431 419,779 333,679 389,266 557,086 $ 23,915 39,846 756,137 $ 10 929 810 $ $ 64,910 64 910 $ -404,416 -211,534 -53,396 -28,653 133,801 -188,444 -158,312 -367,595 -104,511 -220,087 -48,581 -4,914 -33,249 -300,922 -1,990,813 $ 1,535,316 280,867 358,911 40,217 19,813 799,662 84,929 230,195 $ 3 349,910 $ 1,359,097 13,135,739 $ 14 494 836 -5- LONG COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2004 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 4,125,819 $ 2,139,643 95,656 984,748 103,334 17,949 15,924 200,552 $ 886,652 $ 16,177 91,176 4,815 5,213,023 2,155,820 186,832 984,748 103,334 22,764 15 924 Total Assets $ 7,483,073 $ 200,552 $ 998,820 $ =====8:!i6=8=2e=4=45= LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Deposits and Deferred Revenue $ 384,464 1,118,399 77 721 Total Liabilities $ 1,580,584 FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund $ 54,458 15,924 $ 5,832,107 Total Fund Balances $ 5,902,489 $ $ 200,552 200,552 $ $ $ $ 998,820 998,820 $ 384,464 1,118,399 77 721 1,580,584 54,458 998,820 15,924 200,552 5 832 107 7,101,861 Total Liabilities and Fund Balances $ 7,483,073 $ 200,552 $ 998,820 $ =====8:!:,6=8=2'6=44=5= The notes to the basic financial statements are an integral part of this statement. -6- LONG COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30. 2004 EXHIBIT "D" Total Fund Balances - Governmental Funds (Exhibit "C") 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. Bonds Payable, which are Long Term Liabilities, are not due and payable in the current period and therefore are not reported as liabilities in the funds. $ 7,101,861 $ 161,440 1,126,429 14,704,286 1,708,823 -5,018,657 12,682,321 215,654 -5,505,000 Net Assets of Governmental Activities (Exhibit "A") $ 14,494,836 The notes to the basic financial statements are an integral part of this statement. -7- LONG COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHAGNES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2004 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Enterprise Operations Community Services Food Services Operation Debt Services Call Premium On Bonds Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Proceeds of Refunding Bonds Par Value Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 1,677,431 54,395 9,711,992 $ 2,223,224 188,210 82,721 230,195 $ 14,168,168 $ $ 0 0 $ 278,197 $ 364,546 2,208 644,951 $ 1,955,628 418,941 9,711,992 2,223,224 188,210 84,929 230,195 14,813,119 $ 8,063,553 $ 402,383 214,723 203,084 283,662 511,145 80,932 745,987 816,776 168,908 48,581 61,978 925,064 $ 12,526,776 $ $ 1,641,392 $ 0 $ $ 39,184 35,300 1,995,000 300,922 0 $ 2,370,406 $ 0 $ -1,725,455 $ 8,063,553 402,383 214,723 203,084 283,662 511,145 120,116 745,987 816,776 168,908 48,581 61,978 925,064 35,300 1,995,000 300,922 14,897,182 -84,063 $ 1,641,392 $ 4,261,097 1,855,000 0 $ 129,545 $ 200,552 869,275 1,855,000 1,770,937 5,330,924 $ 5,902,489 $ 200,552 $ 998,820 $ =====17=10=1e!:8=61= The notes to the basic financial statements are an integral part of this statement. -8- LONG COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2004 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") $ Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense $ 161,530 -433,091 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. Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from: Refunding Bonds Issued Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements 1,770,937 -271,561 -280,279 -1,855,000 1,995,000 Change in Net Assets of Governmental Activities (Exhibit "B") $ ====1=,3=5=9!c=,0=97= The notes to the basic financial statements are an integral part of this statement. -9- LONG COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ ===1=7,=86=9= $ ===1=7,=86=9= The notes to the basic financial statements are an integral part of this statement. - 10 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Long County Board of Education (School District) was established under the laws of the 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 ofthe Long County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting 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. The School District reports the following major governmental funds: - 11 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Bond Proceeds to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. 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 as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities are reported as other financing sources. - 12 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District 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 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 of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and - 13 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (8) Obligations of other political subdivisions of the State of Georgia. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Long County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on October 31, 2003 (levy date). Taxes were due on December 31, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Long County Tax Commissioner bills and collects the property taxes for the School District and remits taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2004, for maintenance and operations amounted to $1,677,431 and for school bonds amounted to $278,197. Tax millage rates levied for the 2003 tax year (calendar year) for the Long County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): School Operations School Bonds 13.50 mills 2.20 mills 15.70 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $358,911 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation 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 - 14 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment Any Amount $ 5,000 $ 5,000 $ 5,000 NIA 60 years 25 to 60 years 10 to 50 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement ofNet Assets. - 15 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case of operating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2004, the bank balances were $6,213,626. The amounts of the total bank balances are classified into three categories of credit risk: - 16 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2004, as follows: Risk Category Bank Balance 1 $ 1,022,754 2 5,190,872 3 0 Total $ 6,213,626 CATEGORIZATION OF INVESTMENTS At June 30, 2004, the carrying value ofthe School District's total investments was $2,155,820 which is materially the same as fair value. This investment consisted entirely offunds 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 ofthe State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description 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, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the 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. - 17 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U. S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2004, was 24 days. The average investment duration for Fund 6 on June 30, 2004, was 0.22 years. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1. 2003 Increases Balances Decreases June 30. 2004 Governmental Activities Capital Assets, Not Being Depreciated: Land $ 161 440 $ 0 $ 0 $ 161 440 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 14,704,286 1,547,293 $ 1,126,429 $ 161,530 0 $ 14,704,286 1,708,823 1,126,429 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 3,321,389 1,038,632 225,545 261,521 98,667 72 903 3,582,910 1,137,299 298,448 Total Capital Assets, Being Depreciated, Net $ 12,792,442 $ -271,561 $ 0 $ 12,520,881 Governmental Activity Capital Assets - Net $ 12,953,882 $ -271,561 $ 0 $ 12,682,321 Current year depreciation expense by function is as follows: - 18 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 5: CAPITAL ASSETS Instruction Support Services Pupil Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Food Services $ 213,283 $ 11,075 2,316 10,978 2,896 10,874 71,261 75 094 184,494 35,314 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds and property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2004, were as follows: District-wide Capital Projects Bond Proceeds Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services $ 886,652 $ 200,552 $ 16,177 Note 7: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. - 19 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 7: RISK MANAGEMENT The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions. 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 of the past three years. The School District has elected to self-insure for all losses related to acts of God. The School District has not experienced any losses related to this risk 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. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2003 2004 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0 $ 14 909 $ 14 909 $ 0 $ 0 $ 5,232 $ 5,232 $ 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 $400,000 loss per occurrence, up to $2,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Employees $ 20,000 $ 20,000 Note 8: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: - 20 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 8: LONG-TERM DEBT Purpose Interest Rates Amount General Government - Series 1997 4.00% - 5.25% General Government - Refunding - Series 2004 3.010% $ 3,650,000 1,855,000 $ 5,505.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows: Balance July 1, 2003 Governmental Funds General Obligation Bonds $ 5,645,000 Additions G.O. Bonds 1,855,000 Deductions Debt Retired 1,995,000 Balance June 30, 2004 Portion of Long-Term Debt Due within One Year $ 5,505,000 $ 275,000 At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2005 2006 2007 2008 2009 2010 - 2014 2015 - 2019 $ 275,000 $ 295,000 310,000 325,000 335,000 1,920,000 2,045,000 235,109 231,652 220,627 209,000 196,607 774,462 276 934 Total Principal and Interest $ 5,505,000 $ 2,144.391 - 21 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 9: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $121,472 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 ofNon-Certified Personnel In the amount of $119,840 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $1,632 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. Note 11: SUBSEQUENT EVENTS In the subsequent fiscal year, the School District issued general obligation refunding bonds in the amount of$3,395,000. The proceeds from these bonds will be used for defeasement ofthe School District's Series 1997 general obligation bonds. Note 12: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. - 22 - LONG COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 12: RETIREMENT PLANS TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2004 2003 2002 100% 100% 100% $ 619,679 $ 664,147 $ 566,263 - 23 - LONG COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2004 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Enterprise Operations Community Services Food Services Operation Total Expenditures Net Change in Fund Balances Fund Balances - Beginning Adjustments NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 1,273,125 $ 1,273,125 $ 1,677,431 330,000 330,000 54,395 9,204,509 9,277,066 9,711,992 1,963,511 2,061,785 2,223,224 138,502 138,502 188,210 70,100 70,100 82,721 25,000 25,000 230,195 $ 13,004,747 $ 13 175,578 $ 14,168,168 $ 8,496,839 $ 8,541,244 $ 8,063,553 265,942 238,143 185,668 323,305 563,138 99,124 786,697 675,883 128,624 68,781 814,977 320,664 256,139 187,668 298,570 570,112 99,124 876,611 691,976 150,941 76,102 820 977 402,383 214,723 203,084 283,662 511,145 80,932 745,987 816,776 168,908 48,581 61,978 925,064 $ 12,647,121 $ 12,890,128 $ 12,526,776 $ 357,626 $ 285,450 $ 1,641,392 4,851,361 4,851,361 4,261,097 -595,932 -595 932 Fund Balances - Ending $ 4613055 $ 4 540 879 $ ===5=9=0=2=4=89== 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 - LONG COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) 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 English Language Acquisition Grants Enhancing Education Through Technology Program Improving Teacher Quality State Grants Rural Education School Renovation - Schools State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Pass-Through From First District Regional Educational Service Agency d/b/a Live Oak Migrant Education Agency Migrant Education Total U. S. Department of Education Total Federal Financial Assistance N/A = Not Available CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 NIA N/A $ $ (2) 827 349 827,349 10.550 N/A $ 39,937 867 286 * 84.027 * 84.173 N/A $ N/A $ 290,686 9 355 300,041 84.041 84.365 84.318 84.367 84.358 84.352 84.298 84.010 84.048 84.011 N/A N/A N/A N/A N/A N/A N/A N/A N/A $ (3) 12,714 13,483 132,980 52,208 106,180 15,542 617,897 31,923 101,060 1,384,028 $===2=25=1=3=1=4 - 26- LONG COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2004 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($192,517) were not maintained separately and are included in the 2004 National School Lunch Program. (3) Funds earned on the Impact Aid Program, in the amount of $140,834, 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 Long 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 - LONG COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004 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 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 English Speakers of Other Languages (ESOL) 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 - Alternative Program Sparsity - Regular Nursing Services Principal Supplements Vocational Supervisors Migrant Education Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Health Insurance Preschool Handicapped Program Special Education Low Incidence Grant Student Information System Office of Treasury and Fiscal Services Public School Employees Retirement See notes to the basic financial statements. - 28 - SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 481.586 501.304 193,200 821,923 588,474 522,208 240,116 1,058,062 663,004 333,000 62,799 94,322 387,883 29,053 71,592 122,574 31,510 73,910 51,045 164,044 51,174 37,743 307,668 298,207 539,834 277,928 64,910 34,907 242,815 54,445 7,415 9,008 5,267 1,377,446 53,728 -356,383 16,078 29,195 119,840 22,464 4,207 20,855 1 632 $ 9 711 992 LONG COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2004 SCHEDULE "4" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 546,268 $ 186,493 917,402 594,970 568,256 256,037 1,140,697 711,707 350,324 701,910 122,260 47,056 79,335 59,640 544,241 $ 152,873 806,696 614,058 530,663 195,921 900,102 589,663 327,818 64,896 98,166 596,223 31,627 15,213 100,027 56,506 51,160 92,541 13,206 $ 60,174 18,420 153 70,823 141,376 6,914 51 149 11,935 116 1,324 557,447 152,873 866,870 614,058 549,083 196,074 970,925 731,039 334,732 64,947 98,315 608,158 31,743 15,213 101,351 56,506 51,160 92 541 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 6,282,355 $ 5,768,394 $ 324,641 $ 6,093,035 Media Center Program Staff and Professional Development 176,376 40 774 164,292 5 082 18,801 10,428 183,093 15,510 TOTAL QBE FORMULA FUNDS $ 6,499,505 $ 5,937,768 $ 353,870 $ ===16,=29=1.,;;,6=38= (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. - 29 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 June 6, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Long 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 Long County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Long County Board ofEducation's basic financial statements and have issued our report thereon dated June 6, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Long County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Long County Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule ofFindings and Questioned Costs as item FS-6911-04-01. 2004YB-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 the reportable condition described above is not a material weakness. Compliance and Other Matters As part ofobtaining reasonable assurance about whether Long County Board ofEducation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the Long County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:as 2004YB-30 State Auditor Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 June 6, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Long 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 Long County Board of Education with the types of compliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2004. Long County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section ofthe accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Long County Board of Education's management. Our responsibility is to express an opinion on Long 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 of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Long County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Long County Board of Education's compliance with those requirements. 2004SA-10 In our opinion, the Long 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, 2004. Internal Control Over Compliance The management ofLong County Board ofEducation 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 Long County Board of Education'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 ofthe management, members ofthe Long 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, ~~~ Russell W. Hinton State Auditor RWH:as 2004SA-10 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS LONG COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6911-03-01 Unresolved - See Corrective Action/Reponses CORRECTIVE ACTION/RESPONSES Revenue/Receivables/Receipts Expenditures/Liabilities/Disbursements Inadequate Internal Control Procedures Finding Control Number: FS-6911-03-01 The deficiencies have been addressed during the 2005 school year in order to establish controls and assign employees' duties in a manner to adequately safeguard assets and promote efficiency in key accounting functions at the various principal account sites. Management has established appropriate policies and procedures to ensure that assets are safeguarded and that the key accounting functions of custody, record keeping and authorization are segregated. SECTION IV FINDINGS AND QUESTIONED COSTS LONG COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Long 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 Long County Board of Education disclosed a financial statement reportable condition related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts Expenditures/Liabilities/Disbursements The reportable condition described above is not considered to be a material weakness. 3. Noncompliance Material to the Financial Statements The audit ofthe Long County Board of Education disclosed no instances ofnoncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Long 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 Long County Board of Education's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .5 lO(a) of 0MB Circular A-133 The Long County Board of Education'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 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Long County Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. - 1- LONG COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENT REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6911-04-01 An examination of the principal's accounts disclosed weaknesses in internal controls as discussed below: Cash and Cash Equivalent The bank reconciliation function was not separated from the record keeping and voucher payment functions. The bank reconciliation was not reviewed by an administrator not directly connected with cash operations. Bank statements were not reconciled in a timely manner. Deposits were not made in a timely manner. Revenues/Receivables/Receipts Cash receipting and deposit preparation were not separated from the record keeping and cash custody functions. Based on a review oftwenty-five items, eighteen receipts lacked supporting documentation. Expenditures/Liabilities/Disbursements The check writing function was not separated from the record keeping function. Based on a review of forty-three vouchers, the following deficiencies were noted: (1) Forty checks were signed using a signature stamp which is prohibited by Board policy. (2) Forty-three vouchers lacked purchase orders and receiving reports. (3) Twenty-one vouchers were issued without authorization and supporting documentation. (4) One voucher was paid from a statement that was 280 days old. These deficiencies were a result ofmanagement's failure to establish controls and assign employees duties in a manner to adequately safeguard assets and promote efficiency in key accounting functions. Management should establish appropriate policies and procedures to ensure that key accounting functions are segregated and that appropriate accounting controls are utilized. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -2- SECTIONV MANAGEMENT'S RESPONSES LONG COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FS-6911-04-01 We have requested of management its views concerning this finding, its conclusions, its recommendations and the planned corrective actions. We have not received management's views as of the release of this audit report.