MCDUFFIE COUNTY BOARD OF EDUCATION
THOMSON, GEORGIA
ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012
(Including Independent Auditor's Reports)

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

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

B

STATEMENT OF ACTIVITIES

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 3 SCHEDULE OF STATE REVENUE

Page
1 2 4 5 6 7 9 10
25 26 28

MCDUFFIE COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I
FINANCIAL
SCHEDULES
SUPPLEMENTARY INFORMATION
4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 5 ALLOTMENTS AND EXPENDITURES
GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM

Page
29 31

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB 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

MCDUFFIE COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTION V MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
April 5, 2013

Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the McDuffie County Board of Education
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Ladies and Gentlemen:
We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the McDuffie County Board of Education, as of and for the year ended June 30, 2012, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the 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 of America 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Board's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the McDuffie County Board of Education, as of June 30, 2012, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Management has omitted Management's Discussion and Analysis that accounting principles generally accepted in the United States of America requires to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an
2012ARL-11

essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.
In accordance with Government Auditing Standards, we have also issued our report dated April 5, 2013, on our consideration of the McDuffie County Board of Education's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 25, is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the McDuffie County Board of Education's financial statements as a whole. The accompanying supplementary information consists 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 of States, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole.
A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24.
Respectfully submitted,

GSG:as 2012ARL-11

Greg S. Griffin State Auditor

MCDUFFIE COUNTY BOARD OF EDUCATION

MCDUFFIE COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2012
ASSETS
Cash and Cash Equivalents Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories Capitalized Bond Issuance Cost Capital Assets, Non-Depreciable Capital Assets, Depreciable (Net of Accumulated Depreciation)
Total Assets
LIABILITIES
Accounts Payable Salaries and Benefits Payable Payroll Withholdings Payable Deferred Revenue Contracts Payable Retainages Payable Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Capital Projects Debt Service Unrestricted
Total Net Assets
Total Liabilities and Net Assets

EXHIBIT "A"

GOVERNMENTAL ACTIVITIES

$

10,335,470.06

574,672.82 2,491,884.41
636,179.57 13,358.06
236,292.63 93,735.85
4,687,187.82 47,744,601.53

$

66,813,382.75

$

12,871.08

3,750,945.09

314,788.85

97,217.94

244,696.49

132,605.89

2,762,442.85 1,527,073.17

$

8,842,641.36

$

50,650,487.08

836,213.04 66,971.39
128,962.17 6,288,107.71

$

57,970,741.39

$

66,813,382.75

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

MCDUFFIE COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2012

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 Food Services Enterprise Operations Community Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Intangible Recording Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year

EXPENSES

P
CHARGES FOR SERVICES

$ 24,626,495.72 $
889,766.25 1,318,714.74
652,984.87 816,028.13 2,168,555.48 386,004.52 2,630,873.78 1,931,905.35 185,713.18 147,200.71
2,188,883.26 243,796.76 6,157.04 30,459.21
$ 38,223,539.00 $

411,613.65 $
64,573.86 124,416.86 600,604.37 $

Net Assets - End of Year

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

EXHIBIT "B"

PROGRAM REVENUES OPERATING GRANTS AND
CONTRIBUTIONS

CAPITAL GRANTS AND CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

16,503,445.46
175,655.51 564,955.32 411,362.04 550,626.74 834,836.62
2,523.49 1,073,805.20
598,759.37 $ 2,348.39
22,475.55
1,970,366.24
22,711,159.93 $

$ 152,439.00 152,439.00 $

-7,711,436.61
-714,110.74 -753,759.42 -241,622.83 -265,401.39 -1,333,718.86 -383,481.03 -1,492,494.72 -1,180,706.98 -183,364.79 -124,725.16
-94,100.16 -243,796.76
-6,157.04 -30,459.21
-14,759,335.70

$

9,826,283.97

3,444,893.30 86,138.67
2,453,937.00 74,593.39
823,476.08

$

16,709,322.41

$

1,949,986.71

56,020,754.68

$

57,970,741.39

- 3 -

MCDUFFIE COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2012

EXHIBIT "C"

ASSETS
Cash and Cash Equivalents Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 7,797,795.53 $ 2,408,712.36 $

273,551.61 2,491,884.41
636,179.57 13,358.06
236,292.63

301,121.21

128,962.17 $ 10,335,470.06
574,672.82 2,491,884.41
636,179.57 13,358.06
236,292.63

Total Assets

$ 11,449,061.81 $ 2,709,833.57 $ 128,962.17 $ 14,287,857.55

LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries and Benefits Payable Payroll Withholdings Payable Deferred Revenue Contracts Payable Retainages Payable
Total Liabilities
FUND BALANCES
Nonspendable Restricted Assigned Unassigned
Total Fund Balances

$

12,871.08

3,750,945.09

314,788.85

97,217.94

$

$ 4,175,822.96 $

244,696.49 132,605.89
377,302.38

$

12,871.08

3,750,945.09

314,788.85

97,217.94

244,696.49

132,605.89

$ 4,553,125.34

$ 236,292.63 599,920.41 $ 446,103.05
5,990,922.76

2,332,531.19 $

$ 7,273,238.85 $ 2,332,531.19 $

$ 128,962.17

236,292.63 3,061,413.77
446,103.05 5,990,922.76

128,962.17 $ 9,734,732.21

Total Liabilities and Fund Balances

$ 11,449,061.81 $ 2,709,833.57 $ 128,962.17 $ 14,287,857.55

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

MCDUFFIE COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2012

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 and Improvements Machinery and Equipment Accumulated Depreciation
Total Capital Assets
Other Long-Term Assets are not available to pay for current period expenditures and therefore, are deferred on the Statement of Net Assets.
Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:
Bonds Payable Compensated Absences Unamortized Bond Premiums
Total Long-Term Liabilities
Net Assets of Governmental Activities (Exhibit "A")

$ 9,734,732.21

$ 746,941.00 3,940,246.82 1,698,996.20
49,670,745.69 7,107,040.32
-10,732,180.68

52,431,789.35

93,735.85

$ -3,955,000.00 -131,676.03 -202,839.99

-4,289,516.02

$ 57,970,741.39

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

MCDUFFIE COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2012

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 Food Services Operation Enterprise Operations Community Services
Capital Outlay Debt Services
Principal Interest Dues and Fees
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Proceeds from Issuance of Bonds Transfers In Premiums on Long-Term Debt Other Sources Transfers Out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 9,826,283.97

86,138.67 $ 3,444,893.30

20,595,579.36

4,721,956.57

600,604.37

59,853.68

13,446.39 $

873,074.54

2,500.00

$ 36,763,491.16 $ 3,460,839.69 $

$ 9,826,283.97

3,531,031.97

20,595,579.36

4,721,956.57

600,604.37

1,293.32

74,593.39

875,574.54

1,293.32 $ 40,225,624.17

$ 23,526,659.52 $ 194,667.79

$ 23,721,327.31

889,679.64 1,305,435.05
634,698.26 805,850.61 2,161,789.69 345,291.66 2,577,759.93 1,838,614.09 172,389.65 147,200.71 2,117,229.29 235,840.14
6,157.04

104,931.25 33,313.01
204,701.00 7,500.00
3,777,849.65

889,679.64 1,305,435.05
634,698.26 805,850.61 2,161,789.69 450,222.91 2,611,072.94 2,043,315.09 179,889.65 147,200.71 2,117,229.29 235,840.14
6,157.04 3,777,849.65

$ 1,065,000.00 51,165.77
552.00

1,065,000.00 51,165.77 552.00

$ 36,764,595.28 $ 4,323,514.70 $ 1,116,165.77 $ 42,204,275.75

$

-1,104.12 $ -862,675.01 $ -1,114,872.45 $ -1,978,651.58

$ 3,955,000.00

$ 3,955,000.00

$ 284,860.18

$ 1,221,656.14

1,506,516.32

217,328.55

217,328.55

144.38

144.38

-1,506,516.32

-1,506,516.32

$ 285,004.56 $ 2,665,812.23 $ 1,221,656.14 $ 4,172,472.93

$ 283,900.44 $ 1,803,137.22 $ 106,783.69 $ 2,193,821.35

6,989,338.41

529,393.97

22,178.48

7,540,910.86

Fund Balances - Ending

$ 7,273,238.85 $ 2,332,531.19 $ 128,962.17 $ 9,734,732.21

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 STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2012

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
In the Statement of Activities, only the gain or loss on the sale of a capital assets 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 assets sold.
Debt proceeds provide current financial resources to Governmental Funds, however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from:
Issuance of Bonds
Premiums on debt issuance are reported as other financing sources in the governmental funds, but are amortized in the Statement of Activities.
Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets.
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:
Increase in Compensated Absences Decrease in Accrued Interest Payable Amortization of Debt Issuance Costs Amortization of Premiums
Total Additional Expenditures
Bond issuance costs are reported as expenditures in Governmental Funds while the asset is allocated over the life of the bonds in the Statement of Activities. The details of this difference in the current period are as follows:
Amortization of Bond Issuance Costs

$ 2,193,821.35

$ 4,057,716.14 -1,161,512.36

2,896,203.78

-52,242.84

-3,955,000.00 -217,328.55
1,065,000.00

$

-70,550.44

6,770.00

-31,606.42

14,488.56

-80,898.30

100,431.27

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

$ 1,949,986.71

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

- 7 -

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MCDUFFIE COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2012
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT "G"

AGENCY FUNDS

$

47,365.24

$

47,365.24

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

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

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 of the State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the McDuffie County Board of Education.
District-wide Statements: The Statement of Net Assets and the Statement of Activities display information about the financial activities of the overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support of the 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 of internal 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:
General Fund is the School District's primary operating fund. It accounts for and reports all financial resources not accounted for and reported in another fund.
District-wide Capital Projects Fund accounts for and reports financial resources including Special Purpose Local Option Sales Tax (SPLOST) and Bond Proceeds that are restricted, committed or assigned to the expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets.
Debt Service Fund accounts for and reports financial resources that are restricted, committed, or assigned including taxes (sales) legally restricted for the payment of general long-term principal and interest.

- 10 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various school clubs and class accounts.
BASIS OF ACCOUNTING
The basis of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities are reported as other financing sources.
The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
CASH AND CASH EQUIVALENTS
Composition of Deposits Cash and cash equivalents consist of cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated Section 45-8-14 authorizes the School District to deposit its funds in one or more solvent banks, insured Federal savings and loan associations or insured chartered building and loan associations.
INVESTMENTS
Composition of Investments Investments made by the School District in nonparticipating interest-earning contracts (such as certificates of deposit) and repurchase agreements are reported at cost. Participating interestearning contracts and money market investments with a maturity at purchase of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In
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MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

selecting among options for investment or among institutional bids for deposits, the highest rate of return shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:

1. Obligations issued by the State of Georgia or by other states,

2. Obligations issued by the United States government,

3. Obligations fully insured or guaranteed by the United States government or a United States government agency,

4. Obligations of any corporation of the United States government,

5. Prime banker's acceptances,

6. The Georgia Fund 1 administered by the State of Georgia, Office of the State Treasurer,

7. Repurchase agreements, and

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

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

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

The McDuffie County Board of Commissioners fixed the property tax levy for the 2011 tax digest year (calendar year) on August 16, 2011 (levy date). Taxes were due on November 15, 2011 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2011 tax digest are reported as revenue in the governmental funds for fiscal year 2012. 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, 2012, for maintenance and operations amounted to $9,813,490.95.

The tax millage rate levied for the 2011 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

17.19 mills

SALES TAXES
Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $3,444,893.30 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.

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MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

INVENTORIES

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

CAPITAL ASSETS

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

Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide

statements are as follows:

Capitalization

Estimated

Policy

Useful Life

Land Land Improvements Buildings and Improvements Equipment Intangible Assets Construction in Progress

Any Amount $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 100,000.00
Any Amount

N/A 20 to 90 years 50 to 90 years
5 to 90 years 5 to 50 years
N/A

Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives, with the exception of intangible assets which are amortized.
Amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, copyrights and internally generated software is computed using the straight-line method over the estimated useful lives of the assets, generally 10 to 20 years.
COMPENSATED ABSENCES
Members of the Teachers' Retirement System of Georgia (TRS) may apply unused sick leave toward early retirement. The liability for early retirement will be borne by TRS rather than by the individual school districts. Otherwise, sick leave does not vest with the employee, and no liability is reported in the School District's financial statements.
Vacation leave of ten days is awarded on a fiscal year basis to all full time personnel employed on a twelve month basis. No other employees are eligible to earn vacation leave. Vacation leave not utilized during the fiscal year may be carried over to the next fiscal year, providing such vacation leave does not exceed ten days.

- 13 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Beginning of Year Liability

Increases

Decreases

End of Year Liability

2010 2011 2012

$

60,708.39 $

78,930.22 $

82,993.48 $

56,645.13

$

56,645.13 $

72,995.80 $

68,515.34 $

61,125.59

$

61,125.59 $

128,188.35 $

57,637.91 $

131,676.03

GENERAL OBLIGATION BONDS
The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. In the District-wide financial statements, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method. Bond issuance costs are reported as deferred charges and amortized over the term of the debt.
In the fund financial statements, the School District recognizes bond premiums and discounts, as well as bond issuance costs during the fiscal year bonds are issued. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets.
NET ASSETS
The School District's net assets in the District-wide Statements are classified as follows:
Invested in capital assets, net of related debt - This represents the School District's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt.
Restricted net assets - These represent resources for which the School District is legally or contractually obligated to spend resources for continuation of Federal Programs, debt service and capital projects in accordance with restrictions imposed by external third parties.
Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes.
FUND BALANCES
The School District's fund balances are classified as follows:
Nonspendable Amounts that cannot be spent either because they are in a nonspendable form or because they are legally or contractually required to be maintained intact.
Restricted Constraints are placed on the use of resources are either (1) externally imposed conditions by creditors, grantors, contributors, or laws and regulations of other governments or (2) imposed by law through constitutional provisions or enabling legislation.
Committed Amounts that can be used only for specific purposes pursuant to constraints imposed by formal action of the Board of Education. The Board of Education is the School District's highest level of decision-making authority, and the formal action that is required to be taken to establish,

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MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

modify, or rescind a fund balance commitment is a resolution approved by the Board. Committed fund balance also should incorporate contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements.
Assigned Amounts that are constrained by the School District's intent to be used for specific purposes, but are neither restricted nor committed. The intent should be expressed by (1) the Board of Education or (2) the budget or finance committee, or the Superintendent, or designee, to assign amounts to be used for specific purposes.
Unassigned The residual classification for the General Fund. This classification represents fund balances that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the General Fund.

Fund Balances of the Governmental Funds at June 30, 2012, are as follows:

Nonspendable Inventories
Restricted Continuation of Federal Programs Capital Projects Debt Service
Assigned School Activity Accounts
Unassigned

$

236,292.63

$

599,920.41

2,332,531.19

128,962.17

3,061,413.77

446,103.05 5,990,922.76

Fund Balance, June 30, 2012

$ 9,734,732.21

When multiple categories of fund balance are available for expenditure, the School District will start with the most restricted category and spend those funds first before moving down to the next category with available funds.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
NOTE 3: BUDGETARY DATA
The budget is a complete financial plan for the School District's fiscal year, and is based upon careful estimates of expenditures together with probable funding sources. The budget is legally adopted each year for the general, debt service, and capital projects funds. There is no statutory prohibition regarding over expenditure of the budget at any level. The budget for all governmental funds is prepared and adopted by fund and function. The legal level of budgetary control was established by the Board at the aggregate fund level. The budget for the General Fund was prepared in accordance with accounting principles generally accepted in the United States of America.
The budgetary process begins with the School District's administration presenting an initial budget for the Board's review. The administration makes revisions as necessary based on the Board's guidelines and a tentative budget is approved. After approval of this tentative budget by the Board, such budget is advertised at least once in a newspaper of general circulation in the locality as well as the School District's website. At the next regularly scheduled meeting of the Board after advertisement, the Board receives comments on the tentative budget, makes revisions as necessary and adopts a final budget. The approved budget is then submitted, in accordance with provisions of Official Code of Georgia Annotated section 20-2-167(c), to the Georgia Department of Education. The Board may increase or decrease the budget at any time during the year. All unexpended budget authority lapses at fiscal year-end.

- 15 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

See Schedule 1 General Fund Schedule of Revenues, Expenditures and Changes in Fund Balances Budget to Actual for a detail of any over/under expenditures during the fiscal year under review.

NOTE 4: DEPOSITS COLLATERALIZATION OF DEPOSITS

Official Code of Georgia Annotated (O.C.G.A.) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate of the face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent of the public funds being secured after the deduction of the amount of deposit insurance. If a depository elects the pooled method (O.C.G.A. Section 45-8-13.1) the aggregate of the market value of the securities pledged to secure a pool of public funds shall be not less than 110 percent of the daily pool balance.

Acceptable security for deposits consists of any one of or any combination of the following:

1. Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,

2. Insurance on accounts provided by the Federal Deposit Insurance Corporation,

3. Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,

4. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,

5. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,

6. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and

7. Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by or securities guaranteed 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

Custodial credit risk is the risk that in the event of a bank failure, the School District's deposits may not be returned to it. The School District does not have a deposit policy for custodial credit risk. At June 30, 2012, the bank balances were $11,387,781.42. The amounts exposed to custodial credit risk are classified into three categories as follows:

Category 1 Category 2 -
Category 3 -

Uncollateralized, Cash collateralized with securities held by the pledging financial institution, or Cash collateralized with securities held by the pledging financial institution's trust department or agent but not in the School District's name.

- 16 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

The School District's deposits by custodial risk category at June 30, 2012, are as follows:

Custodial Credit Risk Category

Bank Balance

1

$

0.00

2

0.00

3

10,731,295.63

Total

$ 10,731,295.63

NOTE 5: 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 6: CAPITAL ASSETS

The following is a summary of changes in the Capital Assets during the fiscal year:

Balances July 1, 2011

Increases

Decreases

Balances June 30, 2012

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

$

7 4 6 ,9 4 1 .0 0

$

486,864.68 $ 3,453,382.14

0.00 $

7 4 6 ,9 4 1 .0 0 3 ,9 4 0 ,2 4 6 .8 2

Total Capital Assets Not Being Depreciated

$ 1,233,805.68 $ 3,453,382.14 $

0.00 $ 4,687,187.82

Capital Assets Being Depreciated Buildings and Improvements Equipm e nt Land Improvements
Less Accumulated Depreciation for: Buildings and Improvements Equipm e nt Land Improvements

$ 49,670,745.69 6,993,685.26 $ 1 ,4 8 8 ,5 7 1 .9 8

393,909.78 $ 2 1 0 ,4 2 4 .2 2

$ 49,670,745.69

2 8 0 ,5 5 4 .7 2

7 ,1 0 7 ,0 4 0 .3 2

1 ,6 9 8 ,9 9 6 .2 0

6 ,0 2 1 ,5 7 2 .2 2 3 ,4 6 6 ,8 5 6 .8 9
3 1 0 ,5 5 1 .0 9

5 9 6 ,7 2 6 .3 3 4 8 7 ,4 9 6 .9 7
7 7 ,2 8 9 .0 6

2 2 8 ,3 1 1 .8 8

6 ,6 1 8 ,2 9 8 .5 5 3 ,7 2 6 ,0 4 1 .9 8
3 8 7 ,8 4 0 .1 5

Total Capital Assets, Being Depreciated, Net

$ 48,354,022.73 $ -557,178.36 $

52,242.84 $ 47,744,601.53

Governmental Activity Capital Assets - Net

$ 49,587,828.41 $ 2,896,203.78 $

52,242.84 $ 52,431,789.35

- 17 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Current year depreciation expense by function is as follows:

Instruction

$

Support Services

Educational Medial Services

$

18,286.61

General Administration

5,712.23

School Administration

2,066.51

Business Administration

444.53

Maintenance and Operation of Plant

23,924.45

Student Transportation Services

240,802.95

Enterprise Operations

7,956.62

Food Services

793,365.20
299,193.90 68,953.26

$ 1,161,512.36

NOTE 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2012, consisted of the following:

Transfer to

Transfers From District-wide Capital Projects

General Fund Debt Service Fund

$ 284,860.18 1,221,656.14

Total

$ 1,506,516.32

Transfers are used to move (1) SPLOST revenue to the Debt Service Fund for the payment of bonds and (2) funds from the Capital Projects Fund to the General Fund to repay the General Fund for local funds borrowed in previous year to cover capital construction project expenditures.
NOTE 8: RISK MANAGEMENT
The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation.
The School District has obtained commercial insurance for risk of loss associated with torts, assets, errors or omissions and acts of God. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years.
The School District 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 of the 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 expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated.

- 18 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Changes in the unemployment compensation claims liability during the last two fiscal years are as

follows:

Beginning

Claims and

of Year

Changes in

Claims

End of Year

Liability

Estimates

Paid

Liability

2011 $ 2012 $

2,055.00 $ 0.00 $

32,352.00 $ 3,808.00 $

34,407.00 $ 3,092.00 $

0.00 716.00

The School District participates in the Georgia Education Workers' Compensation Trust, a public entity risk pool organized on December 1, 1991, to develop, implement and administer a program of workers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Trust for its general worker's compensation insurance coverage. Specific excess of loss insurance coverage is provided through an agreement by the Trust with the Safety National Casualty Company to provide coverage for potential losses sustained by the Trust in excess of $1 million loss per occurrence, up to the statutory limit. Employers' Liability insurance coverage is also provided with limits of $2 million. The Trust covers the first $1 million of each Employers liability claim with Safety National providing additional Employers Liability limits up to a $2 million per occurrence maximum. Safety National Casualty Company also provides aggregate cover to the Trust with a loss fund percentage of 100%, based on the Fund's annual normal premium, up to a maximum limit of indemnity of aggregate limit of $2 million.

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

Position Covered

Amount

Superintendent All Other Employees

$

15,000.00

$

150,000.00

NOTE 9: 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. Typically, the General Fund is the fund used to liquidate this long-term debt. The School District uses the vesting method to compute compensated absences.
GENERAL OBLIGATION DEBT OUTSTANDING

General Obligation Bonds currently outstanding are as follows:

Purpose

Interest Rate

Amount

General Government - Series 2012

3.00%

$ 3,955,000.00

Voters have authorized $14,000,000.00 in general obligation debt for capital outlay purposes. $3,955,000.00 in general obligation debt has been issued. The remaining balance of $10,045,000.00 was not issued as of June 30, 2012.

- 19 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

The changes in Long-Term Debt during the fiscal year ended June 30, 2012, were as follows:

Balance July 1, 2011

Additions

Governmental Funds

Balance

Deductions

June 30, 2012

Due Within One Year

G. O. Bonds Compensated Absences (1) Bond Premiums Amortized

$ 1,065,000.00 $ 61,125.59 0.00

3,955,000.00 $ 128,188.35 217,328.55

1,065,000.00 $ 57,637.91 14,488.56

3,955,000.00 $ 131,676.03 202,839.99

2,690,000.00 72,442.85

$ 1,126,125.59 $ 4,300,516.90 $ 1,137,126.47 $ 4,289,516.02 $ 2,762,442.85

(1) The portion of Compensated Absences due within one year has been determined to be immaterial to the basic financial statements.

At June 30, 2012, payments due by fiscal year which includes principal and interest for these items are as follows:

General Obligation Debt

U nam o rtiz e d

Principal

Interest

Bond Premium

Fiscal Year Ended June 30:

2013 2014 2015

$ 2,690,000.00 $ 1 ,2 6 5 ,0 0 0 .0 0

118,650.00 $ 1 1 8 ,6 5 0 .0 0
3 7 ,9 5 0 .0 0

7 2 ,4 4 2 .8 5 7 2 ,4 4 2 .8 5 5 7 ,9 5 4 .2 9

Total Principal and Interest

$ 3,955,000.00 $ 275,250.00 $ 202,839.99

NOTE 10: ON-BEHALF PAYMENTS
The School District has recognized revenues and costs in the amount of $2,740,733.40 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.
Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Certificated Personnel In the amount of $2,670,744.00
Paid to the Teachers' Retirement System of Georgia For Teachers' Retirement System (TRS) Employer's Cost In the amount of $22,628.40
Office of the State Treasurer Paid to the Public School Employees' Retirement System For Public School Employees' Retirement (PSERS) Employer's Cost In the amount of $47,361.00
NOTE 11: SIGNIFICANT COMMITMENTS

The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2012:

Project

Unearned Executed Contracts

Renovation of the Brickyard

$

2,652,318.84

The amount described in this note is not reflected in the basic financial statements. - 20 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

NOTE 12: SIGNIFICANT CONTINGENT LIABILITIES
Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position.
The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance of routine School District operations. The ultimate disposition of these proceedings is not presently determinable, but is not believed to be material to the basic financial statements.
NOTE 13: POST-EMPLOYMENT BENEFITS
GEORGIA SCHOOL PERSONNEL POST-EMPLOYMENT HEALTH BENEFIT FUND
Plan Description. The Georgia School Personnel Post-employment Health Benefit Fund (School OPEB Fund) is a cost-sharing multiple-employer defined benefit post-employment healthcare plan that covers eligible former employees of public school systems, libraries and regional educational service agencies. The School OPEB Fund provides health insurance benefits to eligible former employees and their qualified beneficiaries through the State Employees Health Benefit Plan administered by the Department of Community Health. The Official Code of Georgia Annotated (O.C.G.A.) assigns the authority to establish and amend the benefit provisions of the group health plans, including benefits for retirees, to the Board of Community Health (Board). The Department of Community Health, which includes the School OPEB Fund, issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.
Funding Policy. The contribution requirements of plan members and participating employers are established by the Board in accordance with the current Appropriations Act and may be amended by the Board. Contributions of plan members or beneficiaries receiving benefits vary based on plan election, dependent coverage, and Medicare eligibility and election. For members with fewer than five years of service as of January 1, 2012, contributions also vary based on years of service. On average, members with five years or more of service as of January 1, 2012, pay approximately 25 percent of the cost of the health insurance coverage. In accordance with the Board resolution dated December 8, 2011, for members with fewer than five years of service as of January 1, 2012, the State provides a premium subsidy in retirement that ranges from 0% for fewer than 10 years of service to 75% (but no greater than the subsidy percentage offered to active employees) for 30 or more years of service. The subsidy for eligible dependents ranges from 0% to 55% (but no greater than the subsidy percentage offered to dependents of active employees minus 20%). No subsidy is available to Medicare eligible members not enrolled in a Medicare Advantage Option. The Board of Community Health sets all member premiums by resolution and in accordance with the law and applicable revenue and expense projections. Any subsidy policy adopted by the Board may be changed at any time by Board resolution and does not constitute a contract or promise of any amount of subsidy.
Participating employers are statutorily required to contribute in accordance with the employer contribution rates established by the Board. The contribution rates are established to fund all benefits due under the health insurance plans for both active and retired employees based on projected "pay-as-you-go" financing requirements. Contributions are not based on the actuarially calculated annual required contribution (ARC) which represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years.

- 21 -

MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

The combined active and retiree contribution rates established by the Board for employers participating in the School OPEB Fund were as follows for the fiscal year ended June 30, 2012:
For certificated teachers, librarians and regional educational service agencies and certain other eligible participants:

June 2011 July 2011 August 2011 - March 2012 April 2012 - June 2012

1.429% of covered payroll for July coverage 18.534% of covered payroll for August coverage 24.000% of covered payroll for September - April coverage
3.958% of covered payroll for May - July coverage

For non-certificated school personnel:

July 2011 - August 2011

$246.20 per member per month

September 2011 - June 2012 $296.20 per member per month

No additional contribution was required by the Board for fiscal year 2012 nor contributed to the School OPEB Fund to prefund retiree benefits. Such additional contribution amounts are determined annually by the Board in accordance with the School plan for other post-employment benefits and are subject to appropriation.

The School District's combined active and retiree contributions to the health insurance plans, which

equaled the required contribution, for the current fiscal year and the preceding two fiscal years were

as follows:

Percentage

Required

Fiscal Year

Contributed

Contribution

2012 2011 2010

100% 100% 100%

$

3,649,846.24

$

3,556,854.36

$

3,454,603.87

NOTE 14 : RETIREMENT PLANS
TEACHERS' RETIREMENT SYSTEM OF GEORGIA (TRS)
Plan Description. The TRS is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS. 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.
On October 25, 1996, the Board created the Supplemental Retirement Benefits Plan of the Georgia Teachers' Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1, 1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits.
TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.

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MCDUFFIE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 30 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available.

Funding Policy. TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 10 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2012, were 5.53% of annual salary. The member contribution rate will increase to 6.00% effective July 1, 2012. Employer contributions required for fiscal year 2012 were 10.28% of annual salary as required by the June 30, 2009, actuarial valuation. The employer contribution rate will increase to 11.41% effective July 1, 2012.

Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2012 2011 2010

100% 100% 100%

$

2,196,479.42

$

2,270,017.82

$

2,316,563.40

PUBLIC SCHOOL EMPLOYEES' RETIREMENT SYSTEM (PSERS)
Bus drivers, lunchroom personnel, and maintenance and custodial personnel are members of the Public School Employees' Retirement System of Georgia. The System is funded by contributions by the employees and by the State of Georgia. The School District makes no contribution to this plan.

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MCDUFFIE COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2012

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 Food Services Operation Enterprise Operations Community Services
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Other Sources Other Uses
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

VARIANCE OVER/UNDER

$ 9,469,745.00 $ 9,469,745.00 $ 9,826,283.97 $

50,000.00

50,000.00

86,138.67

22,880,704.67 20,622,594.67 20,595,579.36

4,387,437.28

5,186,822.21

4,721,956.57

216,443.00

216,443.00

600,604.37

34,000.00

34,000.00

59,853.68

2,000.00

2,000.00

873,074.54

356,538.97 36,138.67 -27,015.31
-464,865.64 384,161.37
25,853.68 871,074.54

$ 37,040,329.95 $ 35,581,604.88 $ 36,763,491.16 $ 1,181,886.28

$ 22,637,347.51 $ 23,137,393.34 $ 23,526,659.52 $ -389,266.18

874,449.82 1,059,028.91
588,266.00 906,995.30 2,269,567.00 396,902.00 3,074,084.53 1,675,244.59 247,721.00 161,871.00 2,456,734.00

898,209.29 1,314,785.83
589,033.00 817,494.71 2,281,151.53 396,902.00 3,081,934.53 1,857,927.00 251,801.00 177,196.00 2,456,734.00

889,679.64 1,305,435.05
634,698.26 805,850.61 2,161,789.69 345,291.66 2,577,759.93 1,838,614.09 172,389.65 147,200.71 2,117,229.29 235,840.14
6,157.04

8,529.65 9,350.78 -45,665.26 11,644.10 119,361.84 51,610.34 504,174.60 19,312.91 79,411.35 29,995.29 339,504.71 -235,840.14 -6,157.04

$ 36,348,211.66 $ 37,260,562.23 $ 36,764,595.28 $ 495,966.95

$ 692,118.29 $ -1,678,957.35 $

-1,104.12 $ 1,677,853.23

$ 1,400,000.00 $ 1,400,000.00 $

-1,400,000.00

-1,400,000.00

285,004.56 $ -1,114,995.44 1,400,000.00

$

0.00 $

0.00 $ 285,004.56 $ 285,004.56

$ 692,118.29 $ -1,678,957.35 $ 283,900.44 $ 1,962,857.79

7,002,499.14

7,005,228.50

6,989,338.41

-15,890.09

Fund Balances - Ending

$ 7,694,617.43 $ 5,326,271.15 $ 7,273,238.85 $ 1,946,967.70

Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual
(1) Original and Final Budget amounts do not include actual revenues ($962,279.26) or expenditures ($988,094.93) of the various principal accounts.
The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

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MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2012

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Pass-Through From Bright From the Start: Georgia Department of Early Care and Learning Summer Food Service Program For Children
Total U. S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education ARRA - Grants to States Grants to States Preschool Grants
Total Special Education Cluster
Title I, Part A Cluster Pass-Through From Georgia Department of Education Title I Grants to Local Educational Agencies
Other Programs Pass-Through From Georgia Department of Education Career and Technical Education - Basic Grants to States Education Jobs Fund Improving Teacher Quality State Grants Twenty-First Century Community Learning Centers
Total Other Programs
Total U. S. Department of Education
Health and Human Services, U. S. Department of Child Care and Development Fund Cluster Pass-Through From Georgia Department of Human Resources Temporary Assistance for Needy Families Pass-Through From Bright From the Start: Georgia Department of Early Care and Learning ARRA - Child Care and Development Block Grant
Total U. S. Department of Health and Human Services

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

* 10.553 * 10.555
* 10.559

N/A

(2)

N/A

$

2,148,824.25 (1)

$

2,148,824.25

N/A

(2)

$

2,148,824.25

* 84.391 * 84.027 * 84.173

N/A

$

N/A

N/A

$

4,726.65 787,351.85
29,787.11
821,865.61

84.010

N/A

$

1,552,321.93

84.048 84.410 84.367 84.287

N/A

$

N/A

N/A

N/A

38,848.00 9,934.00
260,104.50 10,410.51

$

319,297.01

$

2,693,484.55

93.558 93.575

N/A

$

N/A $

10,727.30
600.00 11,327.30

Labor, U. S. Department of

- 26 -

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2012

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Workforce Investment Act Cluster Pass-Through From Governor's Office of Workforce Development Workforce Investment Act Youth Activities
Defense, U. S. Department of Direct Department of the Navy R.O.T.C. Program

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

17.259

N/A

$

32,884.25

$

69,688.11

Total Expenditures of Federal Awards N/A = Not Available

$

4,956,208.46

Notes to the Schedule of Expenditures of Federal Awards
(1) Includes the Federally assigned value of donated commodities for the Food Donation Program in the amount of $100,308.52.
(2) Expenditures for the funds earned on the School Breakfast Program ($517,911.21) and the Summer Food Service Program for Children ($44,426.88) were not maintained separately and are included in the 2012 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 fund financial statements.

See notes to the basic financial statements.

- 27 -

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2012

AGENCY/FUNDING
GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I 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 Nursing Services Education Equalization Funding Grant Food Services Vocational Education Amended Formula Adjustment Other State Programs Agriculture Construction Related Equipment - State Bonds Dual Enrollment Funding Health Insurance Move On When Ready Preschool Handicapped Program Pupil Transportation - State Bonds Teachers' Retirement Virtual Schools Grant
Office of State Treasurer Public School Employees' Retirement

See notes to the basic financial statements.

- 28 -

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

569,216.29

1,270,716.00 127,358.00
2,782,148.00 328,557.00
1,304,466.00 340,332.00
2,384,252.00 1,638,112.00
828,242.00
1,887,452.00 523,981.00 303,186.00 174,349.00 91,682.00 407,111.00 124,670.00 82,588.00
519,399.00 820,321.00 1,053,654.00
552,784.00 74,606.00
2,453,937.00 57,708.00 69,949.00
-3,203,885.00
74,948.67 2,725.00
2,670,744.00 100.00
57,642.00 152,439.00
22,628.40 100.00
47,361.00

$

20,595,579.36

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2012

SCHEDULE "4"

PROJECT

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT YEAR (3) (4)

AMOUNT EXPENDED IN PRIOR YEARS (3)

TOTAL COMPLETION
COST

EXCESS PROCEEDS NOT
EXPENDED

ESTIMATED COMPLETION
DATE

Acquiring, constructing, and equipping a new elementary school and the completion of the new 8-9 grade school, including necessary furnishings, fixtures and equipment; renovating, extending, repairing, and equipping existing School District facilities to include stadium renovation and improvement and roof repairs; acquiring and installing system-wide instructional and administrative technology, safety, and security equipment; acquisition of school buses and transportation equipment; acquisition of music, vocational, and physical education/athletic equipment, acquiring any necessary property therefore, both real and personal for the School District.

1 New Norris

$ 7,000,000.00 $

3,800.00 $

0.00 $

3,800.00 $

3,800.00 $

0.00 Completed

2 8-9 School

4,000,000.00

13,820,000.00

0.00 13,819,089.71 13,819,089.71

Ongoing

3 Pitched Roofs

2,000,000.00

0.00

0.00

0.00

0.00

Ongoing

4 Stadium Improvements (Phase I)

1,500,000.00

4,100,000.00 3,612,120.70

474,879.48 4,087,000.18

Ongoing

5 School Buses

500,000.00

1,000,000.00

204,701.00

780,060.53

984,761.53

Ongoing

6 Work Vehicles

100,000.00

0.00

0.00

0.00

0.00

Ongoing

7 Technology

2,000,000.00

1,662,951.00

186,298.00

1,141,636.03 1,327,934.03

Ongoing

8 Student Furniture

300,000.00

54,073.28

6,593.00

47,480.28

54,073.28

Ongoing

9 General Repairs

1,000,000.00

986,722.04

8,238.00

978,484.04

986,722.04

Ongoing

10 Other Various Projects

4,600,000.00

1,855,000.00

305,564.00

1,499,891.50 1,805,455.50

$ 23,000,000.00 $ 23,482,546.32 $ 4,323,514.70 $ 18,745,321.57 $ 23,068,836.27 $

0.00

(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 these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects.
(4) In addition to the expenditures shown above, the School District has incurred interest to provide advance funding for these above projects. The interest expenditure for fiscal year 2012 was $51,165.77.
(5) The School District sold $3,955,000.00 in General Obligation Series 2012 Bonds to be paid back from SPLOST V proceeds. This money is being used for stadium improvements.

See notes to the basic financial statements.

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MCDUFFIE COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2012

SCHEDULE "5"

DESCRIPTION
Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category II Category III Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL)
TOTAL DIRECT INSTRUCTIONAL PROGRAMS
Media Center Program Staff and Professional Development

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

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

$

1,515,220.00 $

1,482,892.51 $

223.81 $ 1,483,116.32

138,128.00

260,273.94

260,273.94

3,212,673.00

2,937,530.27

31,432.16

2,968,962.43

373,933.00

437,346.99

437,346.99

1,566,180.00

2,067,682.43

28,774.39

2,096,456.82

361,453.00 2,739,673.00 1,910,888.00
978,376.00 2,220,759.00
603,232.00 360,523.00 202,535.00 101,702.00

3,568,135.60 3,457,921.98
507,340.70
2,860,064.46 397,943.37 -141.59 192,298.35 114,028.81

45,361.98 85,275.36 34,378.75
50,228.39 97,631.97
3,037.63
6,343.79 300.00

3,613,497.58 3,543,197.34
541,719.45
50,228.39 2,957,696.43
400,981.00 -141.59
198,642.14 114,328.81

$

16,285,275.00 $ 18,283,317.82 $ 382,988.23 $ 18,666,306.05

474,050.00 95,441.00

566,484.56

28,264.89

594,749.45 95,206.28

TOTAL QBE FORMULA FUNDS

$

16,854,766.00 $ 18,849,802.38 $ 411,253.12 $ 19,356,261.78

(1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State amended formula adjustment.

See notes to the basic financial statements.

- 31 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
April 5, 2013

Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the McDuffie County Board of Education
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of McDuffie County Board of Education as of and for the year ended June 30, 2012, which collectively comprise McDuffie County Board of Education's basic financial statements and have issued our report thereon dated April 5, 2013. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
Management of McDuffie County Board of Education is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered McDuffie County Board of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the McDuffie County Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the McDuffie County Board of Education's internal control over financial reporting.
Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses and therefore, there can be no assurances that all deficiencies, significant deficiencies or material weaknesses have been identified. However, as described in the accompanying Schedule of Findings and Questioned Costs, we identified a certain deficiency in internal control over financial reporting that we consider to be a material weakness and other deficiencies that we consider to be significant deficiencies.

2012YB-40

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider item FS-6971-12-03 to be a material weakness.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider items FS-6971-12-01 and FS-6971-12-02 in the accompanying Schedule of Findings and Questioned Costs to be significant deficiencies in internal control over financial reporting.
Compliance and Other Matters
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 of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
We noted certain matters that we have reported to management of McDuffie County Board of Education in a separate letter dated April 5, 2013.
McDuffie County Board of Education's response to the findings identified in our audit is described in the accompanying Schedule of Management's Responses. We did not audit McDuffie County Board of Education's response and, accordingly, we express no opinion on the response.
This report is intended solely for the information and use of management, members of the McDuffie County Board of Education, others within the entity, 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,

GSG:as 2012YB-40

Greg S. Griffin State Auditor

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
April 5, 2013

Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the McDuffie County Board of Education
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133
Ladies and Gentlemen:
Compliance
We have audited McDuffie County Board of Education's compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2012. McDuffie County Board of Education's major Federal programs are identified in the Summary of Auditor's Results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major Federal programs is the responsibility of 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 of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the 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 of Education's compliance with those requirements.
In our opinion, the McDuffie County Board of Education complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2012.
2012SA-10

Internal Control Over Compliance
Management of McDuffie County Board of Education is responsible for establishing and maintaining effective internal control over compliance with the 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 the requirements that could have a direct and material effect on a major Federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the McDuffie County Board of Education's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis.
Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above.
This report is intended solely for the information and use of management, members of the McDuffie County Board of Education, others within the entity, 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,

GSG:as 2012SA-10

Greg S. Griffin 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, 2012

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-6971-10-01 FS-6971-10-02 FS-6971-11-01 FS-6971-11-02

Further Action Not Warranted Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

CASH AND CASH EQUIVALENTS Inadequate Internal Control Procedures Finding Control Number: FS-6971-11-01

We concur with this finding. The School District will establish procedures to ensure that all bank reconciliations are completed in a timely manner and that all required adjustments have been made and documented.

The School System has adopted an accounting handbook that includes procedures for reconciling bank statements. A deadline has been set to have bank statements by a certain date following the month of the bank statement.

This handbook also contains procedures for submitting journal entries for reconciling items monthly to the central office business department. These journal entries are made monthly in time to reconcile bank statements for all schools/departments.

The business department is currently working on internal mapping of our accounting software. We believe this mapping is currently incorrect and causing interfund cash to be out of balance.

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Control over School Activity Accounts Finding Control Number: FS-6971-11-02

We concur with this finding. The School District will revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures and implement procedures to ensure that expenditures of school activity accounts are recorded in the correct account and approved prior to payment.

The School System has adopted an accounting handbook that includes procedures for reconciling bank statements. A deadline has been set to have bank statements by a certain date following the month of the bank statement.

- 1 -

MCDUFFIE COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2012

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CORRECTIVE ACTION/RESPONSES

The general office accountants and school bookkeepers have been issued a new accounting handbook regarding expenditures and several classes have been held in which it was emphasized that writing a check without receipts is not allowed.

The business department has changed its approval process for all expenditures. The general accountant is now reviewing all expenditures and determining if the correct account has been used.

The business department has met with the bookkeeper for the McDuffie Achievement Center and trained her in using CSI. The bookkeeper is now entering all local financial information into the CSI general ledger.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-6971-10-01

Previously Reported Corrective Action Implemented

- 2 -

SECTION IV FINDINGS AND QUESTIONED COSTS

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

I SUMMARY OF AUDITOR'S RESULTS

Financial Statements

Type of auditor's report issue: Governmental Activities; General Fund; Capital Projects Fund; Debt Service Fund; Aggregate Remaining Fund Information

Unqualified

Internal control over financial reporting:

Material weakness identified?

Yes

Significant deficiencies identified?

Yes

Noncompliance material to financial statements noted:

No

Federal Awards

Internal Control over major programs: Material weakness identified? Significant deficiency identified?

No None Reported

Type of auditor's report issued on compliance for major programs: All major programs

Unqualified

Any audit findings disclosed that are required to be reported in

accordance with OMB Circular A-133, Section 510(a)?

No

Identification of major programs: CFDA Numbers

Name of Federal Program or Cluster

10.553, 10.555, 10.559 84.027, 84.173, 84.391

Child Nutrition Cluster Special Education Cluster

Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee?

$300,000.00 No

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS Inadequate Internal Control Procedures Significant Deficiency Finding Control Number: FS-6971-12-01

Condition: This is a repeat finding (FS-6971-11-01, FS-6971-10-01, and FS-6971-09-01) from the years ended June 30, 2011, June 30, 2010, and June 30, 2009, respectively. The accounting procedures of the School District were insufficient to provide adequate internal control procedures over the Cash and Cash Equivalents function

- 1 -

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
Criteria: The School District's management is responsible for designing and maintaining internal controls over Cash and Cash Equivalents.
Questioned Cost: N/A
Information: Weaknesses in internal controls relating to Cash and Cash Equivalents were noted as follows:
Bank accounts were not properly reconciled to the general ledger resulting in unidentified variances for the General Operating accounts.
Reconciling items for the General Operating account were not properly addressed in a timely manner.
Bank reconciliations for several accounts were not completed in a timely manner. Interfund Cash was not properly balanced resulting in a misstatement of $13,268.44.
Cause: These deficiencies were a result of management's failure to ensure internal control policies and procedures were established, implemented and functioning as intended with regard to Cash and Cash Equivalents.
Effect: The lack of adequate control over cash increases the risk for theft, fraud, or misuse of School District resources that may result in errors and/or irregularities which would not be detected in a timely manner.
Recommendation: The School District should establish policies and procedures to ensure all bank reconciliations are completed timely and accurately and all required adjustments are made and documented.
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Controls over School Activity Accounts Significant Deficiency Finding Control Number: FS-6971-12-02
Condition: This is a repeat finding (FS-6971-11-02 and FS-6971-10-02) from the years ended June 30, 2011, and June 30, 2010, respectively. The accounting procedures of the School District were insufficient to provide adequate internal controls over school activity accounts.
Criteria: The School District's management is responsible for designing and maintaining internal controls to ensure transactions are processed according to established procedures.
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MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
Questioned Cost: N/A
Information: Cash and Cash Equivalents
The Thomson High School bank account was not properly reconciled to the general ledger.
Revenues/Receivables/Receipts Four receipts were not properly charged to the correct account. Two receipts did not have sufficient documentation attached.
Expenditures/Liabilities/Disbursements Two vouchers were recorded in the wrong period. Five vouchers were charged to the wrong account. Two vouchers did not have sufficient documentation attached. Three vouchers did not have proper prior approval.
General ledger An instance was noted where an account was improperly classified as a Governmental account instead of an Agency account.
Cause: The deficiencies were a result of management's failure to ensure internal controls were established, implemented, and functioning at the school level.
Effect: Errors and/or irregularities may not be detected in a timely manner
Recommendation: The School District should revise and monitor controls to ensure transactions are processed according to established procedures and expenditures of school activity accounts funds are recorded in the correct account and approved prior to payment.
FINANCIAL REPORTING Inadequate Controls over Financial Reporting Material Weakness Finding Control Number: FS-6971-12-03
Condition: The School District did not have adequate controls in place to ensure all required activity was included in the financial statement information presented for audit.
Criteria: Chapter 22A Annual Financial Reporting of the Financial Management for Georgia Local Units of Administration indicates that School Districts must prepare their financial statements in accordance with generally accepted accounting principles.
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MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS Questioned Cost: N/A Information: During the audit, the following correcting entries were proposed and accepted by the client to properly present the entity's financial statements:
Retainage Payable was not recorded on the financial statements. An audit adjustment of $132,605.89 was proposed and accepted by the School District to record the liability. This amount is material to the Capital Projects Fund.
SPLOST Accounts Receivable and Revenue were not properly reported on the Capital Projects Fund. August 2012 SPLOST receipts were reflected on the financial statements in error. An audit adjustment of $297,523.98 was necessary to properly reflect the activity.
Cause: The School District did not implement an adequate system of internal control over the financial reporting process. Effect: The School District did not have adequate controls in place to ensure the financial statements were prepared in accordance with generally accepted accounting principles. Recommendation: The School District should implement controls over the financial statement reporting process to ensure all required activity is included in the financial statement information. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.
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SECTION V MANAGEMENT'S RESPONSES

MCDUFFIE COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2012

Finding Control Number: FS-6971-12-01

We concur with this finding. The School District will establish procedures to ensure that all bank reconciliations are completed in a timely manner and that all required adjustments have been made and documented.

The school system has adopted an accounting handbook that includes procedures for reconciling bank statements. A deadline has been set to have bank statements by a certain date following the month of the bank statement.

This handbook also contains procedures for submitting journal entries for reconciling items monthly to the central office business department. These journal entries are made monthly in time to reconcile bank statements for all schools/departments.

The business department is currently working on internal mapping of our accounting software. We believe this mapping is currently incorrect and causing interfund cash to be out of balance.

Finding Control Number: FS-6971-12-02

We concur with this finding. The School District will revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures and implement procedures to ensure that expenditures of school activity accounts are recorded in the correct account and approved prior to payment.

The school system has adopted an accounting handbook that includes procedures for reconciling bank statements. A deadline has been set to have bank statements by a certain date following the month of the bank statement.

The general office accountants and school bookkeepers have been issued a new accounting handbook regarding expenditures and several classes have been held in which it was emphasized that writing a check without a receipt is not allowed.

The business department has changed its approval process for all expenditures. The general accountant is now reviewing all expenditures and determining if the correct account has been used.

The business department has met with the bookkeeper for the McDuffie Achievement Center and trained her in using CSI. The bookkeeper is now entering all local financial information into the CSI general ledger.

Finding Control Number: FS-6971-12-03

We concur with this finding. We will be careful in the future to accrue Retainage Payable and to set up one months receivable on SPLOST instead of two months.

Contact Person: Telephone: Fax: Email:

Tom Smalley, Comptroller, Business Department (706) 986-4033 (706) 986-4034 tom@mcduffie.k12.ga.us