McDuffie County Board of Education, Thomson, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2003

MCDUFFIE COUNTY BOARD OF EDUCATION
THOMSON, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2003
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

MCDUFFIE 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

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

11

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

12

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

27

MCDUFFIE COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

28

3 SCHEDULE OF STATE REVENUE

30

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

32

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

33

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
July 28, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the McDuffie County Board of Educ31tion
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 of the governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) ofthe McDuffie County Board of Education, as of and for the year ended June 30, 2003, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe McDuffie 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 of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm10ns.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective position ofthe governmental activities, each major fund, and the aggregate remaining fund information of the McDuffie County Board of Education, as of June 30, 2003, and the respective changes in financial position thereoffor the year then ended in conformity with accounting principles generally accepted in the United States of America.
2003-34ARL-11

As discussed in Note 2 to the basic financial statements, during fiscal year 2003, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements, consolidated its individual school activity accounts for inclusion in the basic financial statements and changed its method of accounting for the salaries of certain ten-month employees from a cash basis to a basis that is generally accepted. These changes are in accordance with generally accepted accounting principles.
As described in Note 2, the McDuffie County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003.
In accordance with Government Auditing Standards, we have also issued our report dated July 28, 2004, on our consideration of the McDuffie County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.
Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through vii and page 27 respectively, are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the McDuffie 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.
2003-34ARL-11

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 ofGeorgia Annotated section 506-24.

RWH:as 2003-34ARL-11

State Auditor

MCDUFFIE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
The discussion and analysis of the McDuffie County Board of Education's financial performance provides an overall review of the Board's financial activities for the fiscal year ended June 30, 2003. The intent of this discussion and analysis is to look at the Board's financial performance as a whole; readers should also review the financial statements and the notes to the basic financial statements to enhance their understanding of the Board's financial performance.
Financial Highlights
Key financial highlights for fiscal year 2003 are as follows:
The Governmental Accounting Standards Board (GASB) issued GASB Statement 34 on June 30, 1999, requiring governments to comply with a new reporting model for financial statements. Based upon total revenues, the McDuffie County Board of Education was a Phase Two implementer, and was required to implement GASB Statement 34 beginning in fiscal year 2003.
Due to this being the implementation year for GASB Statement 34, many comparisons are not available that will be available for fiscal year 2004.
The Board's financial status remained stable during fiscal year 2003. In total, net assets increased more than $1.7 million, which represents a small increase from fiscal year 2002. This total increase was due to governmental activities since the Board has no business-type activities.
General revenues accounted for $12.0 million in revenue or 34.6 percent of all revenues. Program specific revenues in the form of charges for services and sales, grants and contributions accounted for $22.6 million or 65.4 percent of total revenues. Total revenues were $34.6 million.
The Board had $32.9 million in expenses related to governmental activities; only $22.6 million of these expenses were offset by program specific charges for services, grants or contributions. General revenues, primarily taxes, of $12.0 million were adequate to provide for these programs.
Among major funds, the general fund had $31.5 million in revenues and $31.9 million in expenditures. The general fund's balance decreased to $4.6 million from $5.0 million.
Using the Basic Financial Statements
This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the McDuffie County Board of Education as a financial whole, or as an entire operating entity.
1

MCDUFFIE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
The Statement ofNet Assets and Statement ofActivities provide information about the activities of the whole Board, presenting both an aggregate view of the Board's finances and a longer-term view of those finances. The fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term as well as what remains for future spending. The fund financial statements also look at the Board's most significant funds with all other nonmajor funds presented in total in one column. In the case of the McDuffie County Board of Education, the general fund is by far the most significant fund.
Reporting the Board as a Whole
Statement ofNet Assets and Statement ofActivities
While these documents contain the large number of funds used by the Board to provide programs and activities, the view of the Board as a whole looks at all financial transactions and asks the question, "How did we do financially during fiscal year 2003?" The Statement ofNet Assets and the Statement of Activities answer this question. These statements include all assets and all liabilities using the accrual basis of accounting similar to the accounting used by most privatesector 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 whether, for the Board as a whole, the financial position of the Board has improved or diminished. The causes of this change may be the 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.
In the Statement of Net Assets and the Statement of Activities, the Board has one distinct type of activity:
Governmental Activities - All of the Board's programs and services are reported here including instruction, support services, operation and maintenance of plant, pupil transportation, food service, after school program, school activity accounts and various others.
Reporting the Board's Most Significant Funds
Fund Financial Statements
Fund financial reports provide detailed information about the Board's major funds. The Board uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the Board's most significant funds. The Board's major governmental funds are the general fund and the District-wide capital projects fund.
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
11

MCDUFFIE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the Board's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmentalfunds is reconciled in the financial statements.

Fiduciary Funds The Board is the trustee, or fiduciary, for assets that belong to others, such as school clubs and organizations within the school activity 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. The Board excludes these activities from the District-wide financial statements because it cannot use these assets to finance its operations.

The Board as a Whole

The perspective of the Statement of Net Assets is of the Board as a whole. Table 1 provides a summary of the Board's net assets for fiscal year 2003. Since this is the first year the Board has been required to prepare financial statements following GASB Statement 34, net asset comparisons to fiscal year 2002 are not available.

Table 1 Net Assets

Governmental Activities Fiscal Year 2003

Assets Current and Other Assets Capital Assets, Net

$ 12,286,889 25,209,178

Total Assets

$37,496,067

Liabilities Current and Other Liabilities Long-Term Liabilities

$ 3,860,681 39,101

Total Liabilities

$ 3,899,782

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

$25,209,178 4,573,405 3,813,702

Total Net Assets

$ 33,596.285

111

MCDUFFIE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Table 2 shows the changes in net assets for fiscal year 2003. Since this is the first year the Board has been required to prepare financial statements following GASB 34, revenue and expense comparisons to fiscal year 2002 are not available. The total net assets increased $1.7 million.

Table 2 Change in Net Assets

Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions
Total Program Revenues
General Revenues: Taxes Property Taxes Sales Taxes Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Total General Revenues
Total Revenues
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 Central Support Services Other Support Services Operations of Non-Instructional Services Community Services Food Services

Governmental Activities Fiscal Year 2003
$ 786,722 21,796,889 55,152
$ 22,638,763
$ 5,911,942 3,218,561
2,128,375 84,578
625,799
$ 11,969,255
$ 34,608,018
$ 21,887,447
710,802 831,843 626,257 679,350 1,819,112 286,023 2,089,504 1,341,820 105,509
54,429
671,439 1,758,877

Total Expenses Increase in Net Assets

$32,862,412 $ 1,745.606

lV

MCDUFFIE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Governmental Activities

Instruction comprises 66.7 percent of governmental program expenses.

The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services. That is, it identifies the cost of these services supported by tax revenue and unrestricted State entitlements. Since this is the first year the Board has been required to prepare financial statements following GASB Statement 34, cost of service comparisons to fiscal year 2002 are not available.

Table 3 Governmental Activities

Total Cost of Services Fiscal Year 2003

Net Cost of Services Fiscal Year 2003

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 Central Support Services Other Support Services Operations of Non-Instructional Services Community Services Food Services

$21,887,447 $ 5,762,931

710,802 831,843 626,257 679,350 1,819,112 286,023 2,089,504 1,341,820 105,509
54,429

476,418 632,524 247,660
57,571 1,007,494
284,971 874,271 595,283 99,383 52,505

671,439 1,758,877

-57,354 189,992

Total Expenses

$ 32!862,412 $ 10,223,649

Although program revenues make up a majority of the revenues, the Board is still dependent upon tax revenues for governmental activities. Over 26.3 percent of instruction activities are supported through taxes and other general revenues; for all governmental activities general revenue support is 31.1 percent.

V

MCDUFFIE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

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 $34.7 million and expenditures of $34.8 million. There was an increase of $0.3 million in the capital projects fund due to additional unspent revenues. The general fund had a decrease of $0.4 million due to austerity deductions in state funding.

General Fund Budgeting Highlights

The Board's budget is prepared according to Georgia law. The most significant budgeted fund is the General Fund.

During the course of fiscal year 2003, the Board amended its general fund budget as needed. The Board uses function-based budgeting. The budgeting systems are designed to tightly control total function budgets but provide flexibility for site management.

For the General Fund, Budgeted revenues essentially remained the same. Budgeted expenditures increased from $30.1 million to $31.6 million. These changes were caused by the need for additional employees and materials deemed necessary during the year.

Capital Assets and Debt Administration

Capital Assets

At the end of fiscal year 2003, the Board had $25.2 million invested in capital assets, all in governmental activities. Table 4 indicates balances at June 30, 2003. Since this is the first year the Board has been required to prepare financial statements following GASB Statement 34, capital asset comparisons to fiscal year 2002 are not available.

Table 4 Capital Assets (Net of Depreciation)

Governmental Activities Fiscal Year 2003

Land Construction in Progress Buildings and Improvements Equipment Land Improvements

$ 748,996 1,305,107
20,392,138 2,615,160 147 777

Total

$ 25,209.178

vi

MCDUFFIE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
The primary increases occurred in Buildings and Improvements. SPLOST has allowed the Board to continue to maintain and improve its facilities. Debt The Board has no General Long-Term Debt outstanding other than $0.039 million for compensated absences. Current Issues McDuffie County, and the McDuffie County School System, has suffered economic setbacks in line with a state and national economy that is declining in growth. Sales tax revenue growth is higher than anticipated, and no shortfall is expected in total collections under the current Special Purpose Local Option Sales Tax initiative. However, in spite of the economy, the county's economic outlook continuous to be healthy. The tax digest increased by 5 percent in 2003. Population growth is continuing at a very slow rate for families with school age children. 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 show the Board's accountability for the money it receives. If you have questions about this report or need additional information, contact Tom Smalley, Comptroller at the McDuffie County Board of Education, 716 N. Lee Street, Thomson, Georgia 30824. You may also email your questions to tom@mcduffie.kl2.ga.us
Vll

MCDUFFIE COUNTY BOARD OF EDUCATION

MCDUFFIE COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2003
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 and Building Improvements Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenues Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets. Net of Related Debt Restricted for
Continuation of Federal Programs 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. -3-

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

5.943.367

16.434

490.313 3.379.311 2.423.062
8.112 26.290

748.996 1,305.107
150.000 23,387.569
4,291.488 -4,673,982

$ ===3=7aea.4=96==06=7=

$

606.251

2,842.060

303.513

106.611

2.246

8.076 31 025

$

3,899,782

$

25,209.178

997.855 3,575.550 3 813 702

$

33,596,285

$ ===3=7=,4=9=6-=,0=67=

MCDUFFIE COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30. 2003

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 Central Support Services Other Support Services Operations of Non-Instructional Services Community Services Food Services
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax 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

$

21,887,447 $

710,802 831,843 626,257 679,350 1,819,112 286,023 2,089,504 1,341,820 105,509
54,429

671,439 1 758,877

$

32,862,412 $

51,026
85,249
351,080 299,367 786 722

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

$

16,045,498 $

234,384 199,319 377,590 621,779 811,070

1,129,192 729,120 6,126 1,924

376,902 1,263,985

$

21,796,889 $

27,992 $
1,007 548
1,052 792
17,417
811 5,533 55152 $

-5,762,931
-476,418 -632,524 -247,660
-57,571 -1,007,494
-284,971 -874,271 -595,283
-99,383 -52,505
57,354 -189,992
-10,223,649

$

5,911,942

3,046,717 157,233 14,611
2,128,375 84,578
625 799

$

11,969,255

$

1,745,606

31,850,679

$ =======33=,5=9=6=,2=85==

-5-

MCDUFFIE COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30. 2003

EXHIBIT"C"

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

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

TOTAL

$ 2,707,404 $ 3,235,963 $ 16,434

234,355 2,629,600 2,423,062
8,112 26,290

749,711

5,943,367 16,434
234,355 3,379,311 2,423,062
8,112 26 290

$ 8,045,257 $ 3,985,674 $ ===1=2'"",0=3=0,~93=1=

$

606,251

2,842,060

$

2,246

$ 3,450,557 $

$ 303,513 106.611
410,124 $

606,251 2,842,060
303,513 106.611
2 246
3.860,681

$

971,565

$

26,290

$ 3,575,550

3,596,845 $ 4,594,700 $ 3,575,550 $

971,565 26,290 3,575,550
3 596 845 8,170,250

$ 8,045,257 $ 3,985,674 $=====12'"",0=3=0,~9=31=

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

MCDUFFIE COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2003

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

$ 748,996 1,305,107 150,000
23,387,569 4,291,488 -4,673,982

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 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:

Compensated Absences

8,170,250
25,209,178 255,958 -39, 101

Net Assets of Governmental Activities (Exhibit "A")

$ 33,596,285

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

MCDUFFIE COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2003

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 Central Support Services Other Support Services Community Services Food Services Operation
Capital Outlay
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES
Sale of Equipment
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

TOTAL

$ 5,979,381 171,844 $
19,869,917 4,050,913
786,722 46,352
625,436
$ 31,530,565 $

$ 3,046,717
55,152
38,226
3,140,095 $

5,979,381 3,218,561 19,925,069 4,050,913
786,722 84,578
625,436
34,670,660

$ 21,056,519 $

710,802 831,788 604,938 675,461 1,807,509 352,097 2,062,599 1,311,510 105,393
54,429 654,264 1,744,452
4469

$ 31,976,230 $

$

-445,665 $

300,111 $
8,809 48,535
2,461,550 2,819,005 $
321,090 $

21,356,630
710,802 831,788 604,938 675,461 1,807,509 352,097 2,071,408 1,360,045 105,393
54,429 654,264 1,744,452 2,466,019
34,795,235
-124,575

16,459

$

-429,206 $

321,090 $

5,023,906

3,254,460

16,459 -108, 116 8,278,366

$ 4,594,700 $ 3,575,550 $

8,170,250

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

MCDUFFIE 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. 2003

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

$ 2,479,252 -540,451

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.

Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of:

Change in Compensated Absences

-108,116
1,938,801 -68.458 -10,643 -5 978

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

$ =====1,=74=5=6, =0=6

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

MCDUFFIE COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2003
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT"G"
AGENCY FUNDS
$ ===69='=58=4=
$ ===69=,5=8=4=

The notes to the basic financial statements are an integral part of this statement. - 11 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "H"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The McDuffie County Board of Education (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the McDuffie 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 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:
- 12 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

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 grants from Georgia State Financing and Investment Commission and Special Purpose Local Option Sales Tax proceeds to be used for the acquisition, construction or renovation of major capital facilities.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governments or individuals.
BASIS OF ACCOUNTING
The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for claims and judgments and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds.
The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
- 13 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

For fiscal year 2003, the School District changed its method of accounting for the final two payments on one hundred and ninety day contracts and for the related revenue due from the State to fund these contracts. Adjustments have been made in the fiscal year 2003 financial statements to record costs for salaries and fringe benefits earned by employees through June 30, 2003, (even though paid in July and August 2003) and the related revenue due from the State to fund these contracts. Adjustments were also made for the similar salaries, benefits and related State revenues earned in fiscal year 2002 and recorded in fiscal year 2003.

The net effect of the above accounting treatment results in the accompanying financial statements reflecting costs for those salaries and benefits earned by employees during fiscal year 2003 and the related State revenue to fund these contracts. In addition, both the net assets and fund balance at July 1, 2002, have been restated for salaries and benefits earned by employees in fiscal year 2002 but not paid until July and August 2002 and for the related State revenue for these contracts. This change is in accordance with generally accepted accounting principles. See Restatement of Prior Year Fund Balance.

RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND

In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of$1,112,317 at July 1, 2002. For fiscal year 2003, these funds have been reported as part of the General Fund. In addition, governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been reported within the General Fund for fiscal year ended June 30, 2003. The governmental fund activity ofthe various school activity accounts had a fund balance of$244,256 at July 1, 2002. This change is in accordance with generally accepted accounting principles.

General Fund Balance July 1, 2002

$ 4,307,675

Add Funds Consolidated with General Fund: School Food Services Fund School Activity Account - Governmental Activity

1,112,317 244,256

Add: State Revenue Related to July and August 2002 Salary Payments Earned by Employees in Fiscal Year 2002

2,318,579

Deduct: July and August 2002 Salary Payments Earned by Employees in Fiscal Year 2002

2,958,921

General Fund Balance July 1, 2002 (Restated)

$ 5,023.906

- 14 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CHANGES IN ACCOUNTING PRINCIPLES

The McDuffie County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003.

The provisions of GASB Statement No. 34 require the inclusion of a Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following:

General Fund (Restated) July 1, 2002 Capital Projects Fund

$ 5,023,906 3,254,460

Governmental Funds (Restated) July 1, 2002 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Compensated Absences

$ 8,278,366 27,495,908 -4,214,888 324,416 -33,123

Net Assets Beginning (See Exhibit "B")

$ 31,850,679

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 Board 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,

- 15 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(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

(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 McDuffie County Board of Commissioners fixed the property tax levy for the 2002 tax digest year (calendar year) on November 19, 2002 (levy date). Taxes were due on February 5, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2002 tax digest are reported as revenue in the governmental funds for fiscal year 2003. The McDuffie 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, 2003, for maintenance and operations amounted to $5,979,381.

The tax millage rate levied for the 2002 tax year (calendar year) for the McDuffie County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

14.50 mills

- 16 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SALES TAXES

Special Purpose Local Option Sales Tax revenue during the year amounted to $3,046,717 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 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 ofpurchase. 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 fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art.

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

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

All

NIA

All

20 to 90 years

All

90 years

$

5,000 5 to 20 years

Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives.

- 17 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

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 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, 2003, the bank balances were $7,654,792. The amounts of the total bank balances are classified into three categories of credit risk:

- 18 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

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, 2003, as follows:

Risk Category

Bank Balance

1

$ 122,848

2

0

3

7,531,944

Total

$ 7,654.792

CATEGORIZATION OF INVESTMENTS At June 30, 2003, the carrying value ofthe School District's total investments was $16,434 which is materially the same as fair value. This investment consisted entirely of funds 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 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.

- 19 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

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, 2003, was 30 days. The average investment duration for Fund 6 on June 30, 2003, was 0.39 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, 2002

Increases

Decreases

Balances June 30, 2003

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

$ 747,996 $

1,000

$ 748,996

2,001,957

1,305,107 $ 2,001,957

1,305,107

Total Capital Assets Not Being Depreciated $ 2,749,953 $ 1,306,107 $ 2,001,957 $ 2,054,103

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 20,862,414 $ 3,733,541 150,000

2,525,155 649,947 $

$ 23,387,569

92,000

4,291,488

150,000

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

2,746,637 1,467,695
556

248,794 289,990
1 667

81,357

2,995,431 1,676,328
2,223

Total Capital Assets, Being Depreciated, Net $ 20,531,067 $ 2,634,651 $

10 643 $ 23,155,075

Governmental Activity Capital Assets - Net $ 23,281,020 $ 3,940,758 $ 2,012,600 $ 25,209,178

- 20 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 5: CAPITAL ASSETS

Current year depreciation expense by function is as follows:

Instruction Support Services
Educational Media Services School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Community Services Food Services

$ 274,304

$

9,867

5,370

10,307

7,758

170,680

7 949

211,931 54,216

$ 540,451

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST) funds are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable statutory provisions. Restricted assets at June 30, 2003, were as follows:

District-wide Capital Projects SPLOST

Restricted Cash and Cash Equivalents: Capital Acquisitions

$ 3,235,963

Note 7: RISK MANAGEMENT

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

The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions,job related illness or injuries to employees and acts ofGod. However, the errors or omissions policy excludes coverage for sexual harassment and discrimination. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the Board's insurance coverage in any of the past three years.

- 21 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 7: RISK MANAGEMENT

The School District is self-insured with regard to unemployment compensation claims. A premium is charged when needed by the General Fund to each user program on the basis ofthe percentage of that fund's payroll to total payroll in order to cover estimated claims budgeted by management based on known claims and prior experience. The School District accounts for claims with 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:

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End ofYear Liability

2002 2003

$

1 332 $

5 492 $

2 176 $

4 648

$

4 648 $

1 659 $

5,022 $

1,285

The School District has purchased a surety bond to provide additional insurance coverage as follows:

Position Covered

Amount

Superintendent

$

15,000

Note 8: LONG-TERM DEBT

COMPENSATED ABSENCES Compensated absences represent obligations of the School District relating to employees' rights to receive compensation for future absences based upon service already rendered. This obligation relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. The School District uses the vesting method to compute compensated absences.

The changes in Long-Term Debt during the fiscal year ended June 30, 2003, were as follows:

- 22 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 8: LONG-TERM DEBT

Governmental Funds
Compensated Absences

Balance July 1, 2002

$

33,123

Additions Annual Leave Earned

51,076

Deductions Annual Leave Utilized

45,098

Balance June 30, 2003
Portion of Long-Term Debt Due within One Year

$====39="==10==1 $_ _~8_07_6

Note 9: ON-BEHALF PAYMENTS

The Board has recognized revenues and costs in the amount of $338,916 for health insurance and retirement contributions paid on the Board'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 $295,485

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 $43,431

Note 10: SIGNIFICANT COMMITMENTS

The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2003, together with funding available:

- 23 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 10: SIGNIFICANT COMMITMENTS

Project

Unearned Executed Contracts

Funding Available From State

SA-0lS-697-117

$

Maxwell Elementary School Kitchen Renovations

McDuffie County Elementary School Paving

Thomson High School Grandstands

Thomson High School Tennis Courts

Thomson Middle School Gymnasium

526,411 $ 472
36,326 120,303 114,433 85,800

212,121

$ 883,745 $=~2=12==12-1

The amounts described in this note are not reflected in the basic financial statements.

Note 11: SIGNIFICANT CONTINGENT LIABILITIES

Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position.

Note 12: ACCUMULATED EMPLOYEES' LEAVE

Annual leave for full-time twelve month employees is earned on a fiscal year basis and is credited at the beginning of the fiscal year. A maximum of 10 working days of unused leave not including designated holidays may be accumulated from one fiscal year to the next. Upon retirement or termination of employment, an employee will be compensated at their current rate of pay for no more than 10 days of accumulated leave. See Note 8 - Long-Term Debt

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.

- 24-

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 13: 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

2003 2002 2001

100% 100% 100%

$ 1,717,646 $ 1,647,807 $ 1,958,667

- 25 -

MCDUFFIE COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2003

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 Central Support Services Other Support Services Community Services Food Services Operation
Capital Outlay
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES
Other Sources
Net Change in Fund Balances
Fund Balances - Beginning
Inventory - Net Change in Period
Fund Balances - Ending

NONAPPROPRIATED BUDGETS

ORIGINAL

FINAL

ACTUAL AMOUNTS

$

5,856,262 $

5,856,262 $

5,979.381

171,844

19,146,391

19,055,576

19,869,917

3,241,276

3,241,276

4,050,913

22,100

22,100

786,722

50,000

50,000

46,352

306 050

370 600

625 436

$

28,622,079 $

28,595,814 $

31,530,565

$

20,328,463 $

21,037,535 $

21,056,519

684,973 739,386 539.113 626,370 1,590,137 278,201 2,301,907 1,302,740 137,018
45,189 1,495
1,522,302 5000

720,173 835.661 649,691 748,522 1,740,808 285,075 2,240.912 1,348,842 166,768
56,415 51,728 1,685,002 10 100

710,802 831,788 604,938 675,461 1,807,509 352.097 2,062,599 1,311,510 105,393
54,429 654,264 1,744,452
4469

$

30,102,294 $

31,577,232 $

31,976,230

$

-1,480,215 $

-2,981,418 $

-445,665

450

16 459

$

-1,480,215 $

-2,980,968 $

-429,206

5,075,557

5,075,557

5,023,906

3 335

3 335

$

3,598,677 $

2,097,924 $===4;,.;,5;;,;;9;,,,;4;,,;,,7,;;,00;;.,

See notes to the basic financial statements.

- 27 -

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2003

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food and Nutrition Program Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Distribution Program (1) Pass-Through From Bright From the Start: Georgia Department of Early Care and Learning Food and Nutrition Program 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 Individuals with Disabilities Education Act Part B - Special Education Flow Through Preschool Capacity Building Improvement
Total Special Education Cluster
Other Programs Direct Twenty-First Century Community Learning Centers Drug and Violence Prevention Coordinators for Middle Schools Pass-Through From Georgia Department of Education Elementary and Secondary Education Act Title I Grants to Local Educational Agencies Title II Eisenhower Professional Development Enhancing Education Through Technology Improving Teacher Quality TitleV Innovative Education Program Strategies Title IV Twenty-First Century Community Learning Centers Safe and Drug-Free Schools and Communities Vocational Education - Basic Grants to States High School Program Basic Grant
Total U.S. Department of Education
- 28 -

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

* 10.553 * 10.555

N/A
N/A $
$

(2) 1,593,310
1,593,310

10.550

N/A

67,269

10.558

N/A
$

(2} 1,660,579

84.027 84.173 84.027

N/A $
N/A N/A
$

558,494 52,148 17 664
628,306

84.287 84.184

346,535 50,919

* 84.010
84.281 84.318 84.367
84.298
84.287 84.186
84.048

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

1,129,592 31,977 38,835
250,957 27,244
278,911 16,874
72,712
2,872,862

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30. 2003

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Justice, U. S. Department of Pass-Through From Georgia Department of Juvenile Justice Children and Youth Coordinating Council Targeted Case Management for Females

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

16.540

NIA $ ------'2=2'-'-',6'--'-9~8

Total Federal Financial Assistance NIA = Not Available

$ ===4='=55=6=1,=3=9

Notes to the Schedule of Expenditures of Federal Awards

(1) The amounts shown for the Food Distribution 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 funds earned on the Child and Adult Care Food Program ($1,193) and the School Breakfast Program ($215,099) were not maintained separately and are included in the 2003 National School Lunch Program.

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 McDuffie 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 basic financial statements.

See notes to the basic financial statements.

- 29 -

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2003

SCHEDULE "3"

AGENCY/FUNDING

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program

$

501.886

$

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 Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Agriculture Construction Related Equipment Apprenticeship Program Health Insurance Mentor Teachers Preschool Handicapped Program Special Education Low Incidence Grant Lottery Programs Assistive Technology Computers in the Classroom

1,096,400 152,505
2,416,999 473,440
1,444,188 237,153
2,477,997 1,875,219
917,889
22,705 352,221 1,199,831 183,510
78,117 160,914
57,352 193,792
32,645 376,246 129,701
74,989
463,585 786,170 1,116,431
593,833 134,015
34,095 96,555 16,178 32,682 1,564,589 108,632 35,074 -459,241
36,010 54,906 195,000 33,250 295,485
7,138 60,180 10,308
9,382 88,137

- 30-

TOTAL
501,886
1,096,400 152,505
2,416,999 473,440
1,444,188 237,153
2,477,997 1,875,219
917,889
22,705 352,221 1,199,831 183,510
78,117 160,914
57,352 193,792
32,645 376,246 129,701
74,989
463,585 786,170 1,116,431
593,833 134,015
34,095 96,555 16,178 32,682 1,564,589 108,632 35,074 -459,241
36,010 54,906 195,000 33,250 295,485
7,138 60,180 10,308
9,382 88,137

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2003

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Office of Treasury and Fiscal Services Public School Employees Retirement
CONTRACT Georgia Institute of Technology Student Information System

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$

55,152 $

$

43,431

55,152 43,431

58,393

58 393

$ 19,869,917 $

55,152 $ ====19=-,9=2=5=,0=69=

See notes to the basic financial statements.

- 31 -

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30. 2003

SCHEDULE "4"

PROJECT
Technology improvements, purchase of school buses, renovating, repairing, improving, equipping and making modifications to all existing schools, and acquisition of all necessary property and acquiring, constructing and equipping a new elementary/middle school for the School District, and to pay for the cost of acquiring real estate
Technology improvements, purchase of school buses, renovating, repairing, improving, equipping and making modifications to all existing schools, and acquisition of all necessary property and acquiring, constructing and equipping a new elementary/middle school for the School District, and to pay for the cost of acquiring real estate

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED
COST(2)

AMOUNT EXPENDED IN CURRENT YEAR (3)

AMOUNT EXPENDED
IN PRIOR YEARS (3)

PROJECT STATUS

$ 8,900,000 $ 8,900,000 $ 2,819,005 $ 4,575,696 Completed

16,000,000

16,000,000

Ongoing

$ 24,900,000 $ 24,900,000 $ 2,819,005 $ 4,575,696
(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 McDuffie County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for the projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the project.

See notes to the basic financial statements.

- 32 -

MCDUFFIE COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2003

SCHEDULE "5"

DESCRIPTION

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

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

Direct Instructional Programs

Kindergarten Program

$

Kindergarten Program-Early Intervention Program

Primary Grades (1-3) Program

Primary Grades-Early Intervention (1-3) Program

Upper Elementary Grades (4-5) Program

Upper Elementary Grades-Early Intervention (4-5)

Program

Middle Grades (6-8) 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

Gifted Student - Category VI

Remedial Education Program

Alternative Education Program

English Speakers of Other Languages (ESOL)

1,216,347 $ 176,530
2,716,248 560,014
1,618,326
263,660
2,741,794 2,110,017 1,014,813 2,045,495
176,804 64,980
215,736 38,164

893,301 $ 298,179 2,869,501 452,750 1,514,882
307,210 6,136
2,635,344 2,710,682
827,965
23,288 1,706,175
88,019 181,838
70,007 216,560
39 772

11,006 $ 62,379
84,893
103,259 3,657
230,888 28,929
6,723 79,327
2,660
8,570

904,307 298,179 2,931,880 452,750 1,599,775
307,210 109,395 2,639,001 2,941,570 856,894
30,011 1,785,502
88,019 184,498
70,007 225,130
39 772

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

14,958,928 $ 14,841,609 $

622,291 $

15,463,900

Media Center Program Staff and Professional Development

421,298 84 268

510,885 32,776

41,821 55 668

552,706 88 444

TOTAL QBE FORMULA FUNDS

$

15 464 494 $ 15,385,270 $

719 780 $ ==1=6,=10=5=,0=5=0

(1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction.

See notes to the basic financial statements.

- 33 -

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
July 28, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the McDuffie County Board of Education
REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 McDuffie County Board ofEducation as ofand for the year ended June 30, 2003, which collectively comprise McDuffie County Board of Education's basic financial statements and have issued our report thereon dated July 28, 2004. 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.
Compliance
As part of obtaining reasonable assurance about whether McDuffie 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 grants, noncompliance with which could have a direct and material effect on the determination offinancial 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 ofour tests disclosed no instances ofnoncompliance that are required to be reported under Government Auditing Standards.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered McDuffie County Board ofEducation'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 assurance on the internal
2003-34YB-40

control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect McDuffie County Board of Education's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6971-03-01, FS-6971-03-02 and FS-6971-03-04.

A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements 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, ofthe reportable conditions described above, we consider items FS-6971-0302 and FS-6971-03-04 to be material weaknesses.

This report is intended solely for the information and use of the management, members of the McDuffie 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,

\

\1)\~

RWH:as 2003-34YB-40

RUSSELL W. HINTON
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
July 28, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the McDuffie 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 McDuffie County Board of Education with the types of compliance requirements described in the US. 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, 2003. McDuffie 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 McDuffie County Board of Education's management. Our responsibility is to express an opinion on McDuffie County Board of Education's compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types 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 McDuffie 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 McDuffie County Board ofEducation's compliance with those requirements.
2003SA-30

In our opinion, the McDuffie County Board ofEducation complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2003.
Internal Control Over Compliance
The management of McDuffie 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 McDuffie 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.
We noted certain matters involving the internal control over compliance and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the McDuffie County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FA-6971-03-01 and FA-6971-03-02.
A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level of risk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above is a material weakness.
This report is intended solely for the information and use of the management, members of the McDuffie 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,

RWH:as 2003SA-30

State Auditor

SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

MCDUFFIE COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-6971-01-01 FS-6971-01-02 FS-6971-02-01 FS-6971-02-02

Further Action Not Warranted Further Action Not Warranted Umesolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented

CORRECTIVE ACTION/RESPONSES

GENERAL LEDGER Inadequate Internal Control Procedures Finding Control Number: FS-6971-02-01

The finding for inadequate internal control procedures was identified in an exit interview for fiscal year 2002. This interview occurred after the end ofthe 2003 fiscal year. Because of this timing, this is a repeat finding for fiscal year 2003. Starting July 1, 2003, proper journal entry backup was attached to school nutrition journal entries, which should correct the inadequate internal control procedures for the general ledger finding for fiscal year 2004.

SECTION IV FINDINGS AND QUESTIONED COSTS

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

I SUMMARY OF AUDITOR'S RESULTS

1. Type of Report Issued on the Financial Statements The auditor's opinion on the McDuffie County Board ofEducation's financial statements was unqualified.

2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the McDuffie County Board ofEducation disclosed financial statement reportable conditions related to the following control categories.

Capital Assets Revenues/Receivables/Receipts

Expenditures/Liabilities/Disbursements General Ledger

Of the reportable conditions described above, General Ledger and Capital Assets are considered to be material weaknesses.

3. Noncompliance Material to the Financial Statements The audit of the McDuffie County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements.

4. Reportable Conditions in Internal Control Over Major Programs The audit report for the McDuffie County Board of Education disclosed reportable conditions in internal control over major programs for the following compliance requirements.

Reporting

Special Tests and Provisions

None ofthe reportable conditions described above are considered to be material weaknesses.

5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the McDuffie 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 .510(a) of 0MB Circular A-133 The McDuffie County Board of Education's audit disclosed audit findings required to be reported by section .510(a) of 0MB Circular A-133. These audit findings are included in section IV of this report.

7. Maj or Programs Federal awards audited as major programs are as follows: 10.553 Food and Nutrition Program - Food Services - School Breakfast Program 10.555 Food and Nutrition Program - Food Services - National School Lunch Program 84.010 Elementary and Secondary Education Act - Title I - Grants to Local Educational Agencies

- 1-

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
I SUMMARY OF AUDITOR'S RESULTS
8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.
9. Low Risk Auditee The McDuffie County Board ofEducation did not qualify as a low risk auditee as defined by Section .530 of 0MB Circular A-133.
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-6971-03-01
Our examination of the principals' accounts disclosed weaknesses in internal control as discussed below:
Revenues/Receivables/Receipts * Deposit preparation is not separated from the record keeping function.
Expenditures/Liabilities/Disbursements * Based on a sample of50 items, five did not include an invoice, 36 did not include evidence of approval prior to purchase and three transactions recorded in the general ledger did not agree with supporting documentation.
These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible, at the various principal accounts sites, for the accounting functions and their failure to ensure that established controls were functioning as designed. Managements should implement additional procedures to ensure that key accounting functions ofcustody, record keeping and authorization are segregated.
Management's Response:
Starting August 12, 2004, the deposit function was separated from the bookkeeping function. The school secretary counts funds and prepares the deposit ticket. The school bookkeeper then verifies the totals before recording the deposit on the books. The principal or their designee takes the deposit to the bank and returns the verified deposit slip to the bookkeeper.
All purchases have prior approval from the school principals. All invoices have a purchase order and/or a purchase requisition prior to a purchase being made. Purchase orders are no longer issued after the invoice is received.
-2-

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-6971-03-01
An invoice or other supporting documentation is provided to make payments and the payment matches the amount of the invoice or sufficient supporting documentation. Principals review the check proofs or voucher registers and verify the supporting documentation before approving the check run.
GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-6971-03-02
The following deficiencies were noted in regard to the School District's accounting procedures related to the general ledger process:
(1) The School District's general ledger did not agree with the financial data submitted to the Georgia Department ofAudits. The School District claims that this condition resulted from a software problem with the new accounting system implemented in the current fiscal year. Adjusting journal entries were made by the auditors to correct identified variances of $529,041 between the general ledger and the financial data submitted by the School District.
(2) Journal entries were not reviewed and approved by someone independent of the general ledger journal entry function. In addition, journal entries were not consistently supported by adequate documentation and explanations. This condition was a result of management's decision to limit the number of administrative staff made responsible for accounting functions and their failure to institute proper control over this area.
(3) The School District's general ledger included invalid Accounts Payable of $27,312 in the General Fund and invalid Salaries Payable of$69,937 in the School Food Services Fund. In addition, the School District failed to accrue July and August, 2003, salaries and benefits for the School Food Services Fund. These deficiencies resulted from management's failure to follow established accounting procedures and to reconcile general ledger accounts with subsidiary records.
-3 -

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-6971-03-02
(4) Checks in the amount of $55,877 written in July, 2003, were backdated and posted to the general ledger operating account in June, 2003. These checks were identified on the June, 2003, bank reconciliation as outstanding checks. This condition occurred because School District personnel failed to follow established accounting procedures and entered incorrect posting dates into the accounting system.
(5) The School District's Federal grant programs had deficit balances at June 30, 2003, totaling $64,409. There were no revenues or related receivables recorded for these deficit balances. This condition occurred because management failed to monitor Federal program expenditures and request appropriate funds from Federal agencies.
(6) The School District failed to record contracts payable of$303,513 and retainages payable of $106,611 in the general ledger for the Capital Projects Fund. An audit adjustment was made to record this material omission in the School District's basic financial statements.
Management should implement procedures to ensure that all financial data is properly recorded in the general ledger and reconciled to subsidiary records. In addition, procedures should be established to ensure that journal entries are properly documented and reviewed prior to recording in the general ledger.
Management's Response:
During fiscal year 2003, we converted our software from PC GENESIS to CSL This conversion was done after reviewing several software vendors at locations set up by the State of Georgia. We received a software update from CSI after closing out fiscal year 2003, and completing all completion reports based on the CSI trial balance. The software update affected our trial balance without our knowledge. When the auditors arrived for our annual audit, we printed a trial balance for the auditors. To our shock, the trial balance we printed did not match the trial balance we sent to Atlanta earlier. This caused our Federal completion reports to be incorrect. It also affected our balancing of the Salary and Travel Report to the trial balance. Our software company has set up safeguards to assure us that this situation never happens again.
-4-

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Detail Listing of Salary and Travel Not Reconciled to General Ledger Nonmaterial Noncompliance Finding Control Number: FS-6971-03-03
The detailed listing of salary and travel payments made to employees as submitted by the School District to the Georgia Department ofAudits was not reconciled with the general ledger as presented for audit. An unidentified variance of $58,448 for salaries remained between the detail and the general ledger.
This condition occurred because management did not ensure that amounts submitted to the Georgia Department of Audits were reconciled to the School District's general ledger. Administrative procedures should be implemented to ensure that the detailed listing of salaries and travel is reconciled to the School District's general ledger prior to submission to the Georgia Department of Audits.
Management's Response:
During fiscal year 2003, we converted our software from PC GENESIS to CSL This conversion was done after reviewing several software vendors at locations set up by the State of Georgia. We received a software update from CSI after closing out fiscal year 2003, and completing all completion reports based on the CSI trial balance. The software update affected our trial balance without our knowledge. When the auditors arrived for our annual audit, we printed a trial balance for the auditors. To our shock, the trial balance we printed did not match the trial balance we sent to Atlanta earlier. This caused our Federal completion reports to be incorrect. It also affected our balancing of the Salary and Travel Report to the trial balance. Our software company has set up safeguards to assure us that this situation never happens again.
CAPITAL ASSETS Failure to Maintain Accurate Capital Assets Records Reportable Condition - Material Weakness Finding Control Number: FS-6971-03-04
The McDuffie County Board of Education did not maintain up to date District-wide Capital Assets records at June 30, 2003 as required by generally accepted accounting principles. Capital Assets presented for audit did not include Construction in Progress beginning balance of $2,001,958, current year Construction in Progress additions of$793,117 and current year Building and Building and Building Improvements additions of $59,055. An audit adjustment was made to record this material omission in the School District's basic financial statements. This condition occurred
-5-

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CAPITAL ASSETS Failure to Maintain Accurate Capital Assets Records Reportable Condition - Material Weakness Finding Control Number: FS-6971-03-04
because management failed to review its Capital Assets records and reconcile to the accounting records. The School District should establish appropriate policies and procedures designed to ensure that Capital Assets are complete and reported accurately within its basic financial statements as required.
Management's Response:
This was the first year that we had to prepare Construction in Progress and Building and Building Improvements additions. This was previously done by the Department of Audits. We feel that we are in a position now to correctly prepare this statement and have set up controls and procedures accordingly.
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
REPORTING Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6971-03-01
A comparison ofthe completion report for the Title I program (CFDA No. 84.010) to the accounting records revealed that the project completion report was not supported by total expenditures recorded for this program in the accounting records. The completion report should have reflected an approved grant and grant expenditures totaling $1,145,099, however, only $1,129,592 in grant revenues and expenditures were included in the completion report. The instructions provided by the Georgia Department ofEducation mandate that financial management systems provide for accurate, complete and current disclosure for the financial results ofeach grant program. This condition was a result of management's failure to implement internal controls for monitoring compliance with Federal guidelines. The School District should review the Federal compliance procedures in place, design procedures which would enhance monitoring compliance with Federal guidelines and proper internal controls relative to the above Federal compliance requirement and implement those procedures to strengthen the internal control over Federal programs.
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MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
REPORTING Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6971-03-01
Management's Response:
During fiscal year 2003, we converted our software from PC GENESIS to CSL This conversion was done after reviewing several software vendors at locations set up by the State of Georgia. We received a software update from CSI after closing out fiscal year 2003, and completing all completion reports based on the CSI trial balance. The software update affected our trial balance without our knowledge. When the auditors arrived for our annual audit, we printed a trial balance for the auditors. To our shock, the trial balance we printed did not match the trial balance we sent to Atlanta earlier. This caused our Federal completion reports to be incorrect. It also affected our balancing of the Salary and Travel Report to the trial balance. Our software company has set up safeguards to assure us that this situation never happens again.
SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6971-03-02
During the year under review, there were four schools that the School District identified as participating in a school-wide program. While Federal provisions prescribe that multiple funding sources (Federal, State or Local) are required to support a school-wide program, we noted that the Title I program (CFDA No. 84.010) was identified as the only funding source supporting the schoolwide program concept at the participating schools and, in contrast with Federal requirements, the School District arbitrarily charged the Title I fund with school-wide expenditures.
In accordance with provisions ofU. S. Department ofEducation Instructions and 0MB Circular Al 33, Compliance Supplement provisions, eligible schools are able to use their Title I, Part A funds, in combination with other Federal, State and local funds, in order to upgrade the entire educational program of the school and to raise academic achievements for all students. By combining funds from Title I and other eligible U. S. Department of Education funded programs in support of a school-wide program, U.S. Department ofEducation Instructions provide that specific school-wide program costs lose their identity but only in those circumstances when funds are combined in a school-wide program. In line with 0MB Circular A-87 requirements, school-wide expenditures
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MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6971-03-02
should be charged to those Federal funding sources supporting the school-wide program in a reasonable manner. Ifthere is only one Federal funding source, then costs should be charged to the Federal program based on the specific benefits derived from that cost. When more than one Federal program supports a school-wide program, then school-wide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support of the
school-wide program. It was the School District's understanding that costs related to a school-wide
program lose their identity and therefore any school-wide program cost can be charged to the Title I program. They were unaware that this was only applicable when there is more than one funding source supporting the school-wide program.
The School District should implement procedures to assure that ifthe Title I program continues to be the only funding source in support ofa school-wide program, only those costs that specifically relate to the Title I program may be charged to the Title I fund. If more than one funding source is to support the school-wide program in the future, then procedures should be developed to (1) combine such funds as prescribed by U.S. Department ofEducation and (2), in line with 0MB Circular A-87 provisions, allocate such school-wide program costs to the respective Federal fund in a reasonable manner.
The School District should seek Georgia Department ofEducation guidance in implementing fiscal procedures for combining and allocating school-wide program expenditures to Federal programs.
Management's Response:
Copier paper was purchased at Thomson Elementary School in June 2003 and was not prorated between the General Fund and other Federal Programs resulting in this finding. Effective August 12, 2004, purchases will be made in accordance with actual program involvement to allocate the expenditures to the programs that have actually incurred the cost.
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