MADISON COUNTY BOARD OF EDUCATION DANIELSVILLE, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor MADISON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 6 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 9 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS H STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS 11 I NOTES TO THE BASIC FINANCIAL STATEMENTS 13 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 27 MADISON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 28 3 SCHEDULE OF STATE REVENUE 29 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 30 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 31 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION Ill AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS MADISON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION V MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 June 2, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Madison County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through I) of the Madison County Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Madison County Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Madison County Board ofEducation, as ofJune 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2004ARL-11 In accordance with Government Auditing Standards, we have also issued our report dated June 2, 2005, on our consideration of the Madison County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through x and page 27 respectively, are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Madison County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code of Georgia Annotated section 506-24. Respectfully submitted, ":;),....Jl2 w. ~ ~~ell W. Hinton State Auditor RWH:as 2004ARL-11 MADISON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 INTRODUCTION Our discussion and analysis of the Madison County School District's financial performance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2004. The intent of this discussion and analysis is to look at the School District's financial performance as a whole. Readers should also review the notes to the basic financial statements and financial statements to enhance their understanding of the School District's financial performance. This is the second year the School District has prepared its annual financial report using the new government financial reporting model. The reporting model is a combination of both government-wide financial statements and fund financial statements. The basic financial statements contain three components: 1) District-wide financial statements including the Statement of Net Assets and the Statement of Activities, which provide both short-term and long-term overviews of the School District's finances. 2) Fund financial statements including the balance sheets that provide a greater level of detail and focus on how well the School District has performed in the short-term in the most significant or major funds. 3) Notes to the Financial Statements. FINANCIAL HIGHLIGHTS Key financial highlights for fiscal year 2004 are as follows: On the District-wide financial statements: Total assets of the School District exceeded liabilities by approximately $23.9 million. This represented an increase of approximately $2.0 million in net assets when compared to the prior year. The School District had $35.2 million in expenses relating to governmental activities; only $23.4 million of these expenses were offset by program specific charges for services, grants and contributions. However, general revenues (primarily property and sales taxes) of $13.9 million were adequate to provide for these programs. As stated above, general revenues accounted for $13.9 million or approximately 37% of all revenues totaling approximately $3 7.3 million. Program specific revenues in the form of charges for services, grants, and contributions accounted for the balance of these revenues. - 1- MADISON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 On the fund financial statements: Among major funds, the General Fund had $35.8 million in revenues and $34.7 million in expenditures. The general fund balance of approximately $4.7 million at June 30, 2004, increased about $1.2 million when compared to the prior year. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of three parts; management's discussion and analysis (this section), the basic financial statements and required supplementary information. The basic financial statements include two levels of statements that present different views of the School District. These include the District-wide and fund financial statements. The District-wide financial statements include the 'Statement of Net Assets' and 'Statement of Activities'. These statements provide information about the activities of the School District presenting both short-term and long-term information about the School District's overall financial status. The fund financial statements focus on individual parts of the School District, reporting the School District's operation in more detail. The 'Governmental Funds' statements disclose how basic services are financed in the short-term as well as what remains for future spending. The 'Fiduciary Funds' statements provide information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. In the case of the Madison County School District, the General Fund, Capital Projects Funds, and Debt Service Funds are all considered to be major funds. The School District has no nonmajor funds as defined by GASB Statement 34 for the purposes of this report. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. Additionally, other supplementary information (not required) is also presented that further supplements understanding of the financial statements. District-wide Statements Since Madison County School District has no operations that have been classified as "Business Activities", the District-wide financial statements are basically a consolidation of all of the School District's operating funds into one column called governmental activities. In reviewing the District-wide financial statements, a reader might ask the question, are we in a better financial position now than last year? The 'Statement of Net Assets' and the 'Statement of Activities' provides the basis for answering this question. These financial statements include all School District's assets and liabilities and uses the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid. - 11 - MADISON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 These two statements report the School District's net assets and any changes in those assets. The change in net assets is important because it tells the reader that, for the School District as a whole, the financial position of the School District has improved or diminished. The causes of this change may be the results of many factors, including those not under the School District's control, such as the property tax base, facility conditions, required educational programs, student-teacher ratios, and other factors. The 'Statement of Net Assets' and the 'Statement of Activities' reflects 100% of the School District's governmental activities. Fund Financial Statements The School District uses many funds or sub-funds to account for a multitude of financial transactions during the fiscal year. The fund financial statements presented in this report provide detail information about the School District's significant or major funds. As discussed previously, the School District has no nonmajor funds as defined by generally accepted accounting principles. Governmental Funds - Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at yearend available for spending in future periods. These funds are reported using the modified accrual method of accounting which measures cash and all other financial assets that can be readily be converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The differences between government activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds are reconciled in the financial statements. Fiduciary Funds - The School District is the trustee, or fiduciary, for assets that belong to clubs, organizations and others within the principals' accounts. The School District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The School District excludes these activities from the Districtwide financial statements because it cannot use these assets to finance its operations. FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE Recall that the Statement of Net Assets provides the perspective of the School District as a whole. The reader can think of the School District's net assets as the difference between its assets (i.e., what the School District owns) and its liabilities (i.e., what the School District owes) at the end of a fiscal year. This balance represents one way to measure the School District's financial health or its financial position. In the case of the Madison County School District, assets exceeded liabilities by $23.9 million at June 30, 2004. - 111 - MADISON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 To better understand the School District's actual financial position and ability to deliver services in future periods, the reader will need to review the various components of the net asset category. For example, of the $23.9 million of net assets, $3 .1 million was restricted for bus replacement, continuation of Federal programs, debt service and completion of capital projects. Accordingly, these funds were not available to meet the School District's ongoing obligations to citizens and creditors. In addition, the School District also had approximately $17.0 million (net of related debt) invested in capital assets (e.g., land, buildings, and equipment). The School District uses these capital assets to provide educational services to students within geographic boundaries served by the School District. Because of the very nature and on-going use of the assets being reported in this component of net assets, it must be recognized that this portion of the net assets is not available for future spending. The remaining balance of unrestricted net assets of $3.7 million may be used to meet the School District's ongoing obligations to citizens and creditors. Table 1 provides a summary of the School District's net assets for this fiscal year as compared to the prior fiscal year. Table 1 Net Assets Governmental Activities Fiscal Fiscal Year 2004 Year 2003 Assets Current and Other Assets Capital Assets, Net $ 11,860,158 $ 16,114,711 27,559,952 22,232,647 Total Assets $ 39,420,110 $ 38,347,358 Liabilities Current and Other Liabilities Long-Term Liabilities $ 4,798,081 $ 4,210,923 10,739,680 12,287,598 Total Liabilities $ 15,537,761 $ 16,498,521 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 16,979,702 3,160,519 3,742,128 $ 15,814,332 3,229,165 2,805,340 Total Net Assets $ 23,882.349 $ 21,848.837 - lV - MADISON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 The above comparison reflects that total net assets increased $2.0 million and total unrestricted net assets increased by approximately $1.0 million. However, even though total unrestricted assets increased by $1.0 million, current and other assets decreased by approximately $4.3 million, and current and other liabilities increased by approximately $0.6 million in the same period. The unfavorable changes in the current and other assets/liabilities accounts will result in less financial flexibility for the School District going forward. Table 2 shows the Changes in Net Assets for this fiscal year as compared to the prior fiscal year. -v- MADISON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Table 2 Change in Net Assets Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions Governmental Activities Fiscal Fiscal Year 2004 Year 2003 $ 1,079,310 22,171,883 133,062 $ 733,228 23,870,760 Total Program Revenues $ 23,384,255 $ 24,603,988 General Revenues: Taxes Property Taxes For Maintenance and Operations $ 7,536,411 $ 7,522,440 For Debt Service 19,639 62,221 Railroad Cars 14,085 Sales Taxes Special Purpose Local Option Sales Tax For Debt Service 1,542,074 1,140,020 Intangible Recording Tax 318,939 205,560 Real Estate 20,685 35,058 Grants and Contributions not Restricted to Specific Programs 3,185,337 1,784,482 Investment Earnings 57,618 41,280 Miscellaneous 1,122,650 749,106 Special Items Gain on Sale of Land 78 975 Total General Revenues and Special Items $ 13,896,413 $ 11,540,167 Total Revenues $ 37,280,668 $ 36,144,155 Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations ofNon-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt $ 23,459,476 588,439 975,316 808,014 913,599 2,122,273 135,866 1,871,092 1,541,075 85,302 530,347 161,366 1,713,728 341,263 $ 22,395,011 458,520 1,003,430 804,526 781,005 1,911,065 234,806 2,266,028 1,506,534 82,876 501,337 145,704 1,687,493 336,845 Total Expenses $ 35,247,156 $ 34,115,180 Increase in Net Assets $ 2,033.512 $ 2,028,975 - Vl - MADISON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Governmental Activities The Statement of Activities shows the cost of program services and the charges for services and grants offsetting these services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services. Net cost of services can be defined as the total cost less fees generated by the activities and intergovernmental revenue provided for specific programs. The net cost reflects the financial burden on the School District's taxpayers by each activity as compared to the prior fiscal year. Table 3 Governmental Activities Total Cost of Services Fiscal Fiscal Year 2004 Year 2003 Net Cost of Services Fiscal Fiscal Year 2004 Year 2003 Instruction $23,459,476 $ 22,395,011 $ 6,763,789 $ 4,354,221 Support Services Pupil Services 588,439 458,520 283,943 192,026 Improvement of Instructional Services 975,316 1,003,430 574,750 544,077 Educational Media Services 808,014 804,526 373,307 360,778 General Administration 913,599 781,005 572,721 462,458 School Administration 2,122,273 1,911,065 1,185,243 989,565 Business Administration 135,866 234,806 81,201 187,908 Maintenance and Operation of Plant 1,871,092 2,266,028 635,845 1,011,523 Student Transportation Services 1,541,075 1,506,534 673,970 524,120 Central Support Services 85,302 82,876 40,993 40,376 Other Support Services 530,347 501,337 530,347 432,576 Operations of Non-Instructional Services Enterprise Operations 161,366 145,704 43,474 64,617 Food Services 1,713,728 1,687,493 -237,945 10,102 Interest on Short-Term and Long-Term Debt 341,263 336,845 341,263 336,845 Total Expenses $35,247.156 $34,115.180 $ 11,862.901 $ 9,511,192 The table above shows that continued reductions in funding by the State of Georgia is forcing School Districts to more and more locally fund its programs. For example, as shown in the above table, even though the total cost of services increased $1.1 million from the prior year, the School District's costs for those same services increased approximately $2.3 million. FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT'S FUNDS Information about the School District's governmental funds is presented starting on Exhibit "C" of this report. Governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of $37.4 million and total expenditures of $42.1 million in fiscal year 2004. Total governmental fund balances of $7.2 million at June 30, 2004, decreased $4.6 million from the prior year. This decrease occurred primarily because Capital Projects reserves of $5.7 million that had been accumulated in prior years were expended in the current fiscal year. - vu - MADISON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 General Fund Budget Highlights The School District's budget is prepared according to Georgia Law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2004, the School District amended its general fund budget as needed. The School District budget is adopted at the aggregate level and maintained at the program, function, object, and site levels to facilitate budgetary control. The budgeting systems are designed to control the total budget, but provide flexibility to meet the ongoing programmatic needs. The budgeting systems are also designed to control total site budgets but provide flexibility for site management as well. For the General Fund, the final actual revenues of $35.8 were over the final budgeted amount of $35.5 million by $0.3 million. This difference (final actual vs. final budget) was due primarily due to Federal Funds less than final budget of $0.4 million, charges for services over final budget by $0.4 million, and miscellaneous revenues over final budget of $0.3 million. The final actual expenditures of $34.7 million were less than the final budgeted amount of $35.8 million by approximately $1.1 million. This difference (final actual vs. final budget) was due primarily to expenditures for instruction less than budget of $0.4 million and expenditures for maintenance and operation less than budget of $0.4 million. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At fiscal year ended June 30, 2004, the School District had approximately $27.6 million invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances net of accumulated depreciation as compared to the prior fiscal year. Table 4 Capital Assets (Net of Depreciation) Governmental Activities Fiscal Fiscal Year 2004 Year 2003 Land Construction in Progress Land Improvements Buildings and Improvements Equipment $ 875,938 5,810,018 288,628 17,761,894 2,823,474 $ 877,356 99,226 281,881 18,171,830 2,802,354 Total $ 27!559!952 $ 22!232!647 - vm - MADISON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Due to the continued growth in the county, the School District has ongoing construction projects including new buildings, additions and renovations. Debt At fiscal year ended June 30, 2004, the School District had $1.2 million in Long-Term debt for capital leases and $9.5 million in general obligation bond debt outstanding. Table 5 summarizes the School District's debt for capital leases and general obligation bonds as compared to the prior fiscal year. Table 5 Debt at June 30 Governmental Activities Fiscal Fiscal Year 2004 Year 2003 Capital Leases General Obligation Bonds $ 1,209,680 $ 1,312,598 9,530,000 10,975,000 Total $ 10,739,680 $ 12,287,598 Additional Information can be found on the School District's Debt Obligations in the Notes to the Financial Statements. CURRENT ISSUES Currently known facts, decisions or conditions that are expected to have a significant effect on financial positions or results of operations in future years are as follows: Although State revenue collections increased by about 7% in fiscal year 2004, educational funding from the State of Georgia is expected to remain at a conservatively low level due to ongoing concerns about smaller projected state tax revenues and increased Medicaid and Health care costs at the State level. The School District will continue to face challenges from the implementation of the A+ Education Reform Act, which mandates lower teacher to student ratios. The School District will also be impacted by the remedial actions required for under performing schools under the No Child Left Behind Act. In the midst of these challenges, the School District remains confident in the ability to maximize resources to provide the best possible educational experience for all of our students. - IX - MADISON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 State QBE Revenue Reductions - During fiscal year 2004, the State of Georgia implemented a 2.5% QBE revenue formula funding reduction to all state school districts. This reduction was on top of the 2.5% reduction for fiscal year 2003. These two cuts resulted in State funding for the fiscal year 2005 budget being 5% less than its original level. Considering the stagnant economy of the past few years, these formula funding reductions challenge the long-term financial stability of the School District. However, despite these conditions, the Madison County School District is strong financially and we remain optimistic about the ability of the School District to maximize all of the financial resources to provide a quality education for our students. Capital Improvements - The School District plans capital improvements as future capital needs arise due to increased student population and facility repair and maintenance needs. Specific capital expenditure plans are formalized in conjunction with individual general obligation bond issues and anticipated annual receipts of capital outlay funds from the State of Georgia Department of Education. CONTACTING THE SCHOOL DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizen's taxpayers, investors and creditors with a general overview of the School District's finances and to show the School District's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Mr. Allen McCannon, Assistant Superintendent, Madison County Board of Education, Post Office Box 37, 55 Mary Ellen Street, Danielsville, Georgia 30633. You may also email your questions to Mr. McCannon at amcannon@doe.kl2.ga. us. -x- MADISON COUNTY BOARD OF EDUCATION MADISON COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004 ASSETS Cash and Cash Equivalents Accounts Receivable, Net Taxes State Government Federal Government Other Prepaid Items Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenues Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 8,134,328 651,481 2,582,134 339,373 83,417 15,582 53,843 875,938 5,810,018 655,201 23,549,700 4,803,843 -8 134,748 $ ===3=9=,4=2='0,=11=0= $ 1,007,455 3,290,697 348,307 136,505 15,117 1,215,537 9 524,143 $ 15,537,761 $ 16,979,702 67,246 462,723 2,595,135 35,415 3,742,128 $ 23,882,349 $ ====39=-'=42=0=.e,1=1=0= The notes to the basic financial statements are an integral part of this statement. -3- MADISON COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2004 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Debt Services Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Special Items Gain on Sale of Land Total General Revenues and Special Items Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 23,459,476 $ 118,062 588,439 975,316 808,014 913,599 2,122,273 135,866 1,871,092 1,541,075 85.302 530,347 161,366 1,713,728 341,263 117,892 843,356 $ 35,247,156 $ 1 079 310 The notes to the basic financial statements are an integral part of this statement. -4- EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 16,577,625 304,496 400,566 434,707 340,878 937,030 54,665 1,235,247 734,043 $ 44,309 1,108,317 $ 22,171,883 $ $ 133,062 133 062 $ -6,763,789 -283,943 -574,750 -373,307 -572,721 -1,185,243 -81,201 -635,845 -673,970 -40,993 -530,347 -43,474 237,945 -341,263 -11,862,901 $ 7,536,411 19,639 14,085 1,542,074 318,939 20,685 3,185,337 57,618 1,122,650 78,975 $ 13,896,413 $ 2,033,512 21,848,837 $ ===2=3=,8=8=2'=34=9= -5- MADISON COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2004 EXHIBIT"C" ASSETS Cash and Cash Equivalents Accounts Receivable, Net Taxes State Government Federal Government Other Prepaid Items Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund Total Fund Balances Total Liabilities and Fund Balances GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 5,396,693 $ 527,665 2,582,134 339,373 83,417 15,582 53,843 540,794 $ 2,196,841 $ 247,876 8,134,328 775,541 2,582,134 339,373 83,417 15,582 53,843 $ 8,998,707 $ 540 794 $ 2 444 717 $ 11,984,218 $ 1,007,455 3,290,697 $ 15,117 $ 4,313,269 $ 348,307 136,505 484,812 $ 1,007,455 3,290,697 348,307 136,505 15,117 $ 4 798,081 $ 67,246 416,286 136,439 53,843 $ $ $ 2,444,717 55,982 67,246 416,286 2,581,156 53,843 55,982 4,011,624 $ 4,685,438 $ 55,982 $ 2,444,717 $ 4,011,624 7,186,137 $ 8,998,707 $ 540 794 $ 2 444 717 $ 11,984,218 The notes to the basic financial statements are an integral part of this statement. -6- MADISON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30. 2004 EXHIBIT" " Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Capital Leases Total Long-Term Liabilities Net Assets of Governmental Activities (Exhibit "A") $ 7,186,137 $ 875,938 5,810,018 655,201 23,549,700 4,803,843 -8,134,748 27,559,952 -124,060 $ -9,530,000 -1,209,680 -10,739,680 $ 23,882,349 The notes to the basic financial statements are an integral part of this statement. -7- MADISON COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2004 EXHIBIT "E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures SPECIAL ITEMS Proceeds from Sale of Land Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 7,785,115 339,624 22,476,308 3,013,974 1,079,310 22,371 $ 1,095,562 $ 35,812,264 $ $ 15,871 $ 1,542,074 28,888 6,359 27,088 7,800,986 1,881,698 22,476,308 3,013,974 1,079,310 57,618 1,122,650 28,888 $ 1,591,392 $ 37,432,544 $ 23,036,382 $ 23,036,382 588,439 975,316 808,014 913,293 $ 2,115,073 133,019 1,938,961 1,577,741 85,302 530,347 161,366 1,678,824 306 $ 5,689,386 2,847 588,439 975,316 808,014 913,599 2,115,073 135,866 1,938,961 1,577,741 85,302 530,347 161,366 1,678,824 5,689,386 102,918 59,337 1,445,000 281,926 1,547,918 341,263 $ 34,704,332 $ 5,689,692 $ 1 729,773 $ 42 123 797 $ 1,107,932 $ -5,660,804 $ -138,381 $ -4,691,253 80,393 80,393 $ 1,188,325 $ -5,660,804 $ -138,381 $ -4,610,860 3,497,113 5,716,786 2,583,098 11,796,997 $ 4,685,438 $ 55 982 $ 2 444 717 $==7=1=8=6=13=7= The notes to the basic financial statements are an integral part of this statement. -8- MADISON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30. 2004 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") $ -4.610.860 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 $ 6,014,733 -686,010 5,328,723 Because some property taxes will not be collected for several months after the School District"s fiscal year ends, they are not considered "available" revenues. -230,851 In the Statement of Activities, only the gain on the sale of the land 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 cost of the land sold. -1,418 Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements Capital Lease Payments Total Long-Term Debt Repayments $ 1,445,000 102,918 1,547,918 Change in Net Assets of Governmental Activities (Exhibit "B") $ 2,033.512 The notes to the basic financial statements are an integral part of this statement. -9- MADISON COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30. 2004 EXHIBIT"G" ASSETS Cash and Cash Equivalents Investments Certificate of Deposit Total Assets LIABILITIES Funds Held for Others NET ASSETS Held in Trust for Private Purposes Total Liabilities and Net Assets PRIVATE PURPOSE TRUSTS AGENCY FUNDS $ 11.008 $ 82.848 4 000 $ 15 008 $ ===8=2.=84=8= $ 82,848 $ _ _....;.1..;;;.5..:;.00.a..c8e- $ 15,008 $===8=2,=84=8= The notes to the basic financial statements are an integral part of this statement. - 10 - MADISON COUNTY BOARD OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2004 EXHIBIT"H" ADDITIONS Contributions Donors Investment Earnings Interest Total Revenues DEDUCTIONS Scholarships Administrative Expenses Total Expenses Change in Net Assets Net Assets - Beginning Net Assets - Ending PRIVATE PURPOSE TRUSTS $ 10,673 113 $ 10 786 $ 13,500 30 $ 13 530 $ -2,744 17,752 $ ===15='=00=8= The notes to the basic financial statements are an integral part of this statement. - 11 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Madison 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 Madison County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: - 13 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Bond Proceeds to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund types: Private Purpose Trust funds report trust arrangements which provide funds for scholarships and the purchase of library books. Agency funds account for assets held by the School District as an agent for various school activities and medical reimbursements. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund - 14 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES liability is incurred, except for principal and interest on general long-term debt which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (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, - 15 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. 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 Madison County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on October 6, 2003 (levy date). Taxes were due on December 29, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Madison 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, 2004, for maintenance and operations amounted to $7,771,942 and for school bonds amounted to $14,959. The tax millage rate levied for the 2003 tax year (calendar year) for the Madison County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 16.72 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $1,542,074 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. - 16 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES CONSUMABLE SUPPLIES INVENTORY On the basic financial statements, inventories of consumable supplies are reported at weighted average cost. The School District uses the consumption method to account for consumable supplies inventory whereby supplies are recorded as an asset when purchased and expenses are recorded at the inventory items are used. FOOD INVENTORIES On the basic financial statements, inventories ofdonated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. PREPAID ITEMS Payments made to vendors for services that will benefit periods subsequent to June 30, 2004, are recorded as prepaid items. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: - 17 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Capitalization Policy Estimated Useful Life Land/Inexhaustible Land Improvements Exhaustible Land Improvements Buildings and Improvements Equipment/Leased Equipment Capital Leases - Buildings All NIA $ 20,000 10 to 20 years $ 100,000 20 to 60 years $ 10,000 5 to 20 years $ 100,000 20 to 60 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. Note 3: DEPOSITS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case of operating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, - 18 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 3: DEPOSITS (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2004, the bank balances were $9,833,778. The amounts of the total bank balances are classified into three categories of credit risk: Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2004, as follows: Risk Category Bank Balance 1 $ 2,418,122 2 7,415,656 3 0 Total $ 9~833~778 - 19 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July I, 2003 Increases Balances Decreases June 30, 2004 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 877,356 $ 99,226 $ 5,710,792 1,418 $ 875,938 5,810,018 Total Capital Assets Not Being Depreciated $ 976,582 $ 5,710,792 $ 1 418 $ 6,685,956 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 23,549,700 4,520,928 $ 634,175 $ 282,915 21,026 0 $ 23,549,700 4,803,843 655,201 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 5,377,870 1,718,574 352,294 409,936 261,795 14 279 5,787,806 1,980,369 366,573 Total Capital Assets, Being Depreciated, Net $ 21,256,065 $ -382,069 $ 0 $ 20,873,996 Governmental Activity Capital Assets - Net $ 22,232,647 $ 5,328.723 $ 1 418 $ 27,559,952 Capital assets being acquired under capital leases as of June 30, 2004, are as follows: Governmental Funds Buildings and Improvements Less: Accumulated Depreciation $ 1,329,155 132,916 $ 1,196.239 Current year depreciation expense by function is as follows: - 20- MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 5: CAPITAL ASSETS Instruction Support Services School Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 437,120 $ 7,200 2,537 204,249 213,986 34 904 $ 686!010 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds and property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2004, were as follows: District-wide Capital Projects Bond Proceeds Debt Service Funds General Fund Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions $ 2,196,841 $ 136,439 $ 540,794 Note 7: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions and job related illness or injuries to employees. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years. The School District has elected to self-insure for all losses related to acts of God. The School District has not experienced any losses related to this risk in the past three years. - 21 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 7: RISK MANAGEMENT The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability 2003 2004 $ 0 $ 2 432 $ 647 $ 1 785 $ 1 785 $ 6 845 $ 8 350 $ 280 The School District has purchased a surety bond to provide additional insurance coverage as follows: Position Covered Amount Superintendent $ 1,000,000 Note 8: OPERATING LEASES Madison County Board of Education has entered into various leases as lessee for copiers. These leases are considered for accounting purposes to be operating leases. Lease expenditures for the year ended June 30, 2004, for governmental funds amounted to $209,083. Future minimum lease payments for these leases are as follows: Year Ending Governmental Funds 2005 2006 2007 $ 116,681 116,058 17 877 Total $===2-50",6==1==6 Note 9: LONG-TERM DEBT CAPITAL LEASES The Madison County Board of Education has entered into various lease agreements as lessee for equipment and energy management system. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of the future minimum lease payments as of the date of their inception. - 22 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 9: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Refunding - Series 1993 General Government - Series 2003A General Government - QZAB - Series 2003B 2.75%- 5.5% 2.42% 0% $ 3,620,000 3,910,000 2,000,000 $ 9,530.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows: Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2003 $ 1,312,598 $ 10,975,000 $ 12,287,598 Deductions Debt Retired 102,918 1,445,000 1,547,918 Balance June 30, 2004 $ 1,209.680 $ 9,530.000 $ 10,739.680 Portion of Long-Term Debt Due within One Year $ 105,537 $ 1,110,000 $ 1,215,537 At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 2005 2006 2007 2008 2009 2010 - 2014 2015 - 2018 Total Principal and Interest Cagital Leases Princigal Interest General Obligation Bonds Princigal Interest $ 105,537 $ 106,018 96,936 98,436 101,894 700,859 53,488 $ 1,110,000 $ 47,657 1,150,000 42,312 1,195,000 38,007 1,245,000 33,549 1,295,000 92,530 1,535,000 2,000,000 272,148 236,163 198,140 157,773 115,112 128,413 $ 1,209,680 $ 307,543 $ 9,530,000 $ 1,107,749 - 23 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $326,077 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $322,984 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $3,093 Note 11: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2004, together with funding available: Project Unearned Executed Contracts Funding Available From State Ila/Danielsville/Middle School Renovations Colbert/Comer Renovations Additions and Modifications to Madison County High School PE/Athletic Complex $ 46,597 $ 318,182 41,432 265,152 41,958 305,586 $ 435,573 $==5=83-,3==3==4 The amounts described in this note are not reflected in the basic financial statements. Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. - 24 - MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 13: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2004 2003 2002 100% 100% 100% $ 1,836,190 $ 1,790,534 $ 1,672,056 - 25 - MADISON COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30 2004 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES Other Sources SPECIAL ITEMS Proceeds from Sale of Land Net Change in Fund Balances Fund Balances - Beginning Adjustments NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL(1) ACTUAL AMOUNTS $ 7,401,047 $ 7,773,826 $ 7,785,115 200,000 352,797 339,624 22,778,218 22,487,148 22,476,308 3,269,798 3,412,754 3,013,974 664,708 663,666 1,079,310 17,400 21,825 22,371 471 017 760 512 1095562 $ 34,802,188 $ 35 472 528 $ 35 812 264 $ 23,139,011 $ 23,470,972 $ 23,036,382 654,875 1,034,838 798,474 984,329 2,129,168 147,624 2,305,428 1,728,786 94,141 574,830 1,688,294 676,577 1,086,011 797,742 1,040,900 2,129,169 137,624 2,326,834 1,722,327 94,141 613,438 1,688,294 588,439 975,316 808,014 913,293 2,115,073 133,019 1,938,961 1,577,741 85,302 530,347 161,366 1,678,824 162 255 $ 35,279,798 $ 35,784,029 $ 34 704 332 $ -477,610 $ -311,501 $ 1,107,932 16,275 80 393 80 393 $ -461,335 $ -231, 108 $ 1,188,325 4,144,633 4,144,633 3,497,113 -952 214 -952 214 Fund Balances - Ending $ 2731084$ 2961311 $ 4 685 438 Notes to the Schedule of Revenues Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 27 - MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U.S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U.S. Department of Agriculture Education, U.S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs English Language Acquisition Grants Enhancing Education Through Technology Program Improving Teacher Quality State Grants Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U.S. Department of Education CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD . 10.553 . 10.555 N/A N/A $ $ (2) 1,644,015 1,644,015 10.550 N/A $ 98 316 1,742,331 . 84.027 . 84.173 84.365 84.318 84.367 84.186 84.298 84.010 84.048 N/A $ N/A $ N/A N/A N/A N/A N/A N/A N/A $ 677,069 55,271 732,340 10,758 22,488 227,070 28,837 27,813 907,810 58647 2,015,763 Total Federal Financial Assistance N/A = Not Available $ ======3,=75=8=,0=9=4 Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($205,126) were not maintained separately and are included in the 2004 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 Madison 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. - 28 - MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004 AGENCY/FUNDING GRANTS Education. Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Health Insurance Mentor Teachers National Teacher Certification Preschool Handicapped Program Special Education Low Incidence Grant Student Information System Reporting Student Information System Conversion Office of Treasury and Fiscal Services Public School Employees Retirement OTHER Community Affairs. Georgia Department of Local Assistance Grant See notes to the basic financial statements. - 29 - SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 1.161.522 229,337 2.452,537 607,424 1,316,847 362,280 2,657,785 1,989,684 929,903 212,878 382,616 1,748,814 434,278 39,734 671,068 890 204,589 46.438 411,659 128,077 88.479 552,793 899,795 1,235,247 724,039 133,062 19,500 101,387 17,837 50,642 2,859,260 110,106 110,644 -995.429 31,862 65,648 322,984 4,372 5,968 75,165 8,018 25,989 32,487 3,093 5 000 $ 22 476 308 MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30. 2004 SCHEDULE "4" PROJECT Retirement of previously incurred general obligation debt. Adding to, renovating, improving and equipping existing school buildings and facilities; making certain safety, technology and transportation improvements; purchasing textbooks; acquiring land for future schools, and acquiring any property necessary or desirable therefor, both real and personal. ORIGINAL ESTIMATED COST (1} CURRENT ESTIMATED COSTS (2} AMOUNT EXPENDED IN CURRENT YEAR(3} (4} AMOUNT EXPENDED IN PRIOR YEARS (3} PROJECT STATUS $ 1,625,000 $ 1,625,000 $ 554,245 Ongoing 7,675,000 8,287,000 5,689,692 $ 99,226 Ongoing $ 9,300,000 $ 9,912,000 $ 6,243,937 $===9=9=,2=2=6 (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 Madison 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 the above projects as follows: Current Year $===8=7-=6=8=1 See notes to the basic financial statements. - 30 - MADISON COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2004 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 1,296,139 $ 255,844 2,751,148 682,746 1,488,918 407,390 2,972,789 2,212,667 1,024,996 3,172,565 746,152 21,606 227,612 53 295 1,793,247 $ 192,312 3,233,588 567,883 1,977,707 240,559 2,583,668 2,751,441 933,392 281,086 434,741 2,386,284 44,565 17,969 540,525 204,487 71,693 15,778 $ 2,442 104,862 8,940 79,866 4,565 103,156 83,062 80,205 8,125 4,160 36,954 9,905 1,442 12,951 1,554 550 1,809,025 194,754 3,338,450 576,823 2,057,573 245,124 2,686,824 2,834,503 1,013,597 289,211 438,901 2,423,238 54,470 19,411 553,476 206,041 72 243 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 17,313,867 $ 18,255,147 $ 558,517 $ 18,813,664 Media Center Program Staff and Professional Development 459,909 98,701 731,377 17,158 44,419 87,571 775,796 104,729 TOTAL QBE FORMULA FUNDS $ 17 872 477 $ 19,003,682 $ 690,507 $ ==1=9,=69=4=,1=8===9 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 31 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 June 2, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Madison County Board of Education REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ladies and Gentlemen: We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information ofMadison County Board ofEducation as of and for the year ended June 30, 2004, which collectively comprise Madison County Board of Education's basic financial statements and have issued our report thereon dated June 2, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Madison County Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Madison County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule ofFindings and Questioned Costs as item FS-6951-04-01. 2004YB-30 A material weakness is a reportable condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether Madison 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. This report is intended solely for the information and use of the management and members of the Madison County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~~~ Russell W. Hinton State Auditor RWH:as 2004YB-30 Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 June 2, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Madison County Board of Education REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 Ladies and Gentlemen: Compliance We have audited the compliance of Madison County Board of Education with the types of compliance requirements described in the US. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2004. Madison 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 Madison County Board of Education's management. Our responsibility is to express an opinion on Madison County Board of Education's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Madison 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 Madison County Board of Education's compliance with those requirements. 2004SA-10 In our opinion, the Madison County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2004. Internal Control Over Compliance The management of Madison County Board of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered Madison County Board of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the management, members of the Madison County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:as 2004SA-10 State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS MADISON COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6951-03-01 Unresolved - See Corrective Action/Reponses CORRECTIVE ACTION/RESPONSES CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-7091-03-01 The Madison County Board ofEducation has now implemented adequate internal control procedures for all seven schools in the system for fiscal year 2005. The fiscal year for 2004 had ended before the fiscal year 2003 audit was completed. Each school will designate someone different other than the bookkeeper or principal to do the official bank reconciliation each month. The designee will manually check all deposit/check documentation and make sure this information is reconciled with the bank statement, the revenue, and expenditure documentation. The Board of Education has received a letter from J. Larry Cloud dated January 6, 2005, stating that the response to FS-6951-03-01 indicates that the Board ofEducation is in the process ofimplementing an internal control plan which will resolve this finding. SECTION IV FINDINGS AND QUESTIONED COSTS MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Madison County Board ofEducation's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Madison County Board ofEducation disclosed a financial statement reportable condition related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts Expenditures/Liabilities/Disbursements The reportable condition described above is not considered to be a material weakness. 3. Noncompliance Material to the Financial Statements The audit of the Madison County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Madison County Board ofEducation did not disclose any reportable conditions in internal control over major programs. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Madison County Board of Education's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510{a) ofOMB Circular A-133 The Madison County Board of Education's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Madison County Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. - 1- MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-6951-04-01 Our examination of the Principals' accounts disclosed weaknesses in internal controls as discussed below: Cash and Cash Equivalents 1) The bank reconciliation function was not separated from the record keeping and voucher payment function. 2) Bank statements were not reconciled to the General Ledger. Revenues/Receivables/Receipts 1) Deposit preparation was not separated from the record keeping and cash custody functions. Expenditures/Liabilities/Disbursements 1) The check writing function was not separated from record keeping or processing of signed checks. These deficiencies were a result of management's decision to limit the number ofadministrative staff made responsible for accounting functions and failure to ensure established controls were functioning as designed. Management should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization be segregated. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -2- SECTIONV MANAGEMENT'S RESPONSES MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FS-6951-04-01 We concur with this finding. The Madison County Board of Education has now implemented adequate internal control procedures for the Principals' accounts in all seven schools in the system for fiscal year 2005. (The fiscal year for 2004 had ended before the fiscal year 2003 audit was completed.) Each school has designated someone different other than the bookkeeper or principal to do the official bank reconciliation each month. This designee will manually check all revenue/expenditure documentation and make sure this information is reconciled with the bank statement and with the revenue and expenditure documentation. The principal will review the reconciliation documentation once the designee has completed the reconciliation. The system will also make sure that the final reconciliation in last month of the fiscal year (June) is completed after June has ended and the bank statement has arrived from the financial institution. Local audits will not start until these important tasks are completed for June. Teachers and other employees complete the original receipt forms to students or parents when collecting funds. Every employee who collects funds has their own receipt book. These receipt books are kept in the employee's possession until the end ofthe fiscal year. When these funds and a copy of the receipts are turned into the bookkeeper, the bookkeeper verifies the amounts and submits the employee who collected the funds a receipt. The revenue and deposit information is reviewed during the monthly reconciliations. The initiator does a purchase order. Once this requisition is approved by the principal, the bookkeeper processes and mails the purchase order. Once the initiator has received the ordered items, the packing slip is signed and given to the bookkeeper for payment. The bookkeeper receives the documentation, writes the check, attaches the documentation to the check, and submits the check to the principal for approval. The principal signs the check after reviewing the documentation. Please note that the returned checks and bank statements are now reviewed closely during the reconciliation process completed each month. Contact Person: Allen McCannon, Associate Superintendent Phone: (706) 795-2191 Ext. 33 Fax Number: (706) 795-5104 E-mail Address: amccanno@doe.k12.ga.us