Madison County Board of Education, Danielsville, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2006

MADISON COUNTY BOARD OF EDUCATION
DANIELSVILLE, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2006
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

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

1

B

STATEMENT OF ACTIVITIES

2

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

4

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

5

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

6

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

7

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

8

H

STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

9

I

NOTES TO THE BASIC FINANCIAL STATEMENTS

11

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

29

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

30

3 SCHEDULE OF STATE REVENUE

31

MADISON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

32

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

33

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133

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

SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

MADISON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
January 16, 2007

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) ofthe Madison County Board of Education, as of and for the year ended June 30, 2006, 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, 2006, 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.
2006ARL-11

The Madison County Board ofEducation has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements.
In accordance with Government Auditing Standards, we have also issued our report dated January 16, 2007, 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 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 29, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the 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 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,
~~QQ~.~
~uJ:ll W. Hinton, CPA, CGFM
State Auditor
RWH:as 2006ARL-11

MADISON COUNTY BOARD OF EDUCATION

MADISON COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Contracts 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 Unrestricted
Total Net Assets
Total Liabilities and Net Assets

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

12,049,723

7,480,484

1,259,634 2,891,529
451,210 106,339
51,545

1,000,936 685,768
1,073,533 30,410,997
5,238,633 -9 507 987

$ ===5=3=,1=9=2"=,3=44=

$

1,091,037

3,593,160

69,979

15,243

1,403,527 17,092,582

$

23,265,528

$

19,783,410

59,386 693,222 4,983,322 4 407 476

$

29,926,816

$ ===5=3='1=9=2=,3=44===

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

MADISON COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2006

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
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year, Restated
Net Assets - End of Year

EXPENSES

CHARGES FOR SERVICES

$

27,589,398 $

1,345,465 760,797 694,269
1,035,582 2,403,132
287,362 1,970,330 1,939,273
49,141 362,930

192,345 1,888,547
292,884

$

40,811,455 $

218,852
198,454 660,448 1077754

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

EXHIBIT"B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

18,238,997

376,935 470,963 457,330 350,087 1,037,410

1,243,594 835,974 $

100,770

1,315,648

$

24,427,708 $

$ 138,248 138 248 $

-9, 131,549
-968,530 -289,834 -236,939 -685,495 -1,365,722 -287,362 -726,736 -965,051
-49,141 -262,160
6,109 87,549 -292 884
-15,167,745

$

8,985,777

518,585

12,439

2,024,980 202,904 63,483
5,079,161 247,527
1415002

$

18,549,858

$

3,382,113

26,544,703

$ ===29=,9=2=6=,8=16=

-3-

MADISON COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2006

EXHIBIT"C"

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

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 6,557,795 $ 2,382,813 $ 3,109,115 $ 12,049,723

6,946,646

533,838

7,480,484

858,179 2,833,196
451,210 106,339 51 545

58,333

394,207

1,252,386 2,891,529
451,210 106,339
51 545

Total Assets

$ 10,858,264 $ 9,387,792 $ 4,037,160 $ 24,283,216

LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries Payable Contracts 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

$ 1,091,037 3,593,160 $ 15243
$ 4,699,440 $

69,979 69,979

$

1,091,037

3,593,160

69,979

15243

$ 4,769,419

$

59,386

$

59,386

639,141

639,141

140,657 $

809,394 $ 4,037,160

4,987,211

54,081

54,081

8,508,419

8,508,419

5,265,559

5,265,559

$ 6,158,824 $ 9,317,813 $ 4,037,160 $ 19,513,797

Total Liabilities and Fund Balances

$ 10,858,264 $ 9,387,792 $ 4,037,160 $ 24,283,216

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

MADISON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2006

EXHIBIT"D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation
Total Capital Assets
Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures.
Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:
Bonds Payable Capital Leases
Total Long-Term Liabilities
Net Assets of Governmental Activities (Exhibit "A")

$ 19,513,797

$

1,000,936

685,768

1,073,533

30,410,997

5,238,633

-9,507,987

28,901,880

7,248

$ -17,150,000 -1,346, 109

-18,496,109

$ 29,926,816

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

MADISON COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006

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
OTHER FINANCING SOURCES (USES}
Proceeds of Long-Term Capital Related Debt Transfers In Transfers Out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 8,969,787 257,209
25,835,460 3,809,657 1,077,754 88,397 $ 1,481,125
$ 41,519,389 $

$ 524,375 $ 2,034,158

104,737

54,393 350

104 737 $ 2,613,276 $

9,494,162 2,291,367 25,835,460 3,809,657 1,077,754
247,527 1 481 475
44,237,402

$ 26,580,832

$ 26,580,832

1,345,465 760,797 694,269
1,035,582 2,395,461
186,689 $ 2,397,229 1,694,260
49,141 383,506 192,345 1,873,309
34,834

97,302 $ 1,124,978

2,851

1,345,465 760,797 694,269
1,035,582 2,395,461
286,842 2,397,229 1,694,260
49,141 383,506 192,345 1,873,309 1,159,812

222,101 56,722

1,150,000 236,162

1,372,101 292,884

$ 39,902,542 $ 1,222,280 $ 1,389,013 $ 42,513,835

$ 1,616,847 $ -1 117 543 $ 1,224,263 $ 1,723,567

$ 9,880,000 331,385 $
$ -392,789

$ 61,404

9,880,000 392,789 -392,789

$ -392,789 $ 10,211,385 $

61404 $ 9,880,000

$ 1,224,058 $ 9,093,842 $ 1,285,667 $ 11,603,567

4,934,766

223,971

2,751,493

7,910,230

$ 6,158,824 $ 9,317,813 $ 4,037,160 $ 19,513,797

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 STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006

EXHIBIT"F"

Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")
Amounts reported for Governmental Activities in the Statement of Activities are different because:
Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are:
Capital Outlay Depreciation Expense
Excess of Capital Outlay over Depreciation Expense
Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues.
In the Statement of Activities, only the gain on the sale of the land and equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the cost of the land/carrying value of the equipment sold.
Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from:
General Obligation Bonds Issued
Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of:
Bond Principal Retirements Capital Lease Payments
Total Long-Term Debt Repayments
Change in Net Assets of Governmental Activities (Exhibit "B")

$ 11,603,567

$ 1,327,614
-874 771

452,843 22,639

-189,037

-9,880,000

$ 1,150,000
222 101

1 372 101

$ =====3=,3=8=2=1,=1=3

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

MADISON COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS
FIDUCIARY FUNDS JUNE 30, 2006

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

$

14,704 $

112,896

2,000

$

16 704 $ ===1=12=,8=96=

$

112,896

$ _ _ _1~6,..7.0. -'--4_

$

16 704 $ ====11=2=,8=96=

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

MADISON COUNTY BOARD OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS
FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2006

EXHIBIT"H"

ADDITIONS Contributions Donors Investment Earnings Interest Total Additions
DEDUCTIONS Scholarships Administrative Expenses Total Deductions Change in Net Assets
Net Assets - Beginning
Net Assets - Ending

PRIVATE PURPOSE TRUSTS

$

184

201

$

385

$

1,500

66

$

1 566

$

-1,181

17,885

$ ====1=6=7=04=

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

(This page left intentionally blank)

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

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.

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MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District reports the following major governmental funds:
General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund.
District-wide Capital Projects Fund accounts for financial resources including 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 ofwhen the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and
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MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds 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.
RESTATEMENT OF PRIOR YEAR NET ASSETS
For fiscal year 2006, the School District restated various Capital Assets due to errors and omissions. The School District decreased land by $12,256 and increased construction in progress by $2. Additionally, the School District increased, net of accumulated depreciation, equipment $574,656. The result is an increase in Net Assets at July 1, 2005, of $562,402. This change is in accordance with generally accepted accounting principles.
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,

- 13 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,
(4) Obligations of any corporation of the United States government,
(5) Prime banker's acceptances,
(6) The Local Government Investment Pool administered by the State ofGeorgia, Office of Treasury and Fiscal Services,
(7) Repurchase agreements, and
(8) Obligations of other political subdivisions of the State of Georgia.
The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks.
RECEIVABLES
Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.
PROPERTY TAXES
The Madison County Board of Commissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on February 6, 2006 (levy date). Taxes were due on May 2, 2006 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Madison County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes 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, 2006, for maintenance and operations amounted to $8,957,348 and for school bonds amounted to $524,375.
Tax millage rates levied for the 2005 tax year (calendar year) for the Madison County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value):

- 14 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

School Operations School Bonds

15.650 mills 0.964 mills

16.614 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $2,024,980 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

INVENTORIES

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 as 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.

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:

- 15 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

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 AND INVESTMENTS

COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money 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.

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,

- 16 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 3: DEPOSITS AND INVESTMENTS

(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, 2006, the bank balances were $13,193,212. The amounts ofthe total bank balances are classified into four categories of custodial credit risk:

Category 1 - Cash that is insured (e.g., Federal Deposit 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 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.
Category 4 - Uncollateralized.

The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows:

Custodial Credit Risk Category

Bank Balance

1

$ 3,309,115

2

9,884,097

3

0

4

0

Total

$ 1311931212

- 17 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 3: DEPOSITS AND INVESTMENTS
CATEGORIZATION OF INVESTMENTS Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure ofthe counterparty to a transaction, the School District will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The School District does not have a formal policy for managing custodial credit risk.
Investments are classified as to custodial credit risk by the categories described below:
Category 1 - Insured or registered, or securities held by the School District or the School District's agent in the School District's name.
Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the School District's name.
Category 3 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent, but not in the School District's name.
Funds invested in an investment pool managed by another government are not required to be categorized unless the investing entity owns specific, identifiable investment securities in the pool.
At June 30, 2006, the carrying value ofthe School District's total investments was $7,480,484 which is materially the same as fair value. These investments included funds in the amount of$6,946,646 invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy of the State of Georgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows:
The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund.

- 18 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 3: DEPOSITS AND INVESTMENTS

Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U.S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days.

Funds invested in U. S. Treasury Money Market Mutual Funds (open-end mutual funds) are not required to be classified by categories of custodial credit risk.

Type of Investment

Carrying Amount

Fair Value

Debt Securities U.S. Agencies (Category 1)

$ 533,518 $ 550,677

Other Investments U.S. Treasury Money Market Mutual Funds (Open-End)

320

320

Investment Pools Office of Treasury and Fiscal Services Georgia Fund 1

6,946,646

6,946,646

Total Investments

$ 7,480,484 $ 7,497,643

Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value ofan investment. The School District does not have a formal policy for managing interest rate risk.

Investments are classified as to investment maturity as follows:

Investment Type

Fair Value

Investment Maturity

Less than

1- 5

1 Year

Years

Debt Securities

U.S. Agencies

$

Money Market Mutual Fund

Total Investments

$

550,677

$

320 $- - - -3- 20

550,677

550,997 $====3=2==0 $==5==50-,6==7===7

- 19 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 3: DEPOSITS AND INVESTMENTS

Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The School District does not have a formal policy for managing credit quality risk.

Investments are classified as to quality ratings as follows:

Rated Debt Investments

Fair Value

Quality Ratings

AAA

Unrated

U. S. Agencies Money Market Mutual Fund

$ 550,677 320 $

$ 320

550,677

Totals by Quality Ratings $ 5501997 $

320 $=====5==50!:!:16===7===7

Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The School District does not have a formal policy for managing concentration of credit risk.

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:

- 20-

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 5: CAPITAL ASSETS

Balances July 1, 2005 (Restated)

Increases

Balances Decreases June 30, 2006

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

$ 863,682 $ 259,818 $ 122,564 $ 1,000,936

399,157

685,768

399,157

685,768

Total Capital Assets Not Being Depreciated $ 1,262,839 $ 945,586 $ 521,721 $ 1,686,704

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 30,107,639 $ 5,428,918 763,241

303,358 167,535 $ 310,292

$ 30,410,997

357,820

5,238,633

1,073,533

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

6,256,783 2,265,745
402,035

530,850 298,003
45,918

291,347

6,787,633 2,272,401
447,953

Total Capital Assets, Being Depreciated, Net $ 27,375,235 $

-93,586 $

66,473 $ 27,215,176

Governmental Activity Capital Assets - Net $ 28,638,014 $ 852,QQQ $ 588,124 $ 28,201,880

Capital assets being acquired under capital leases as of June 30, 2006, are as follows:

Governmental Funds

Buildings and Improvements Equipment Less: Accumulated Depreciation

$ 1,329,155 589,215 283,455

$ 1,634.915

Current year depreciation expense by function is as follows:

Instruction Support Services
School Administration Maintenance and Operation of Plant Student Transportation Services Food Services

$ 594,390

$

7,200

7,933

229,953

245,086 35,295

$====8===74=.7===7==1

- 21 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds, Qualified Zone Academy Bonds (QZAB) escrow account 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 of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2006, were as follows:

General Fund

District-wide Capital Projects Bond Proceeds

Debt Service Funds

Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions
Restricted Investments: Debt Services Capital Acquisitions

$ 809,394 $ 3,109,115 $ 1,573,419

$ 140,657

$ 533,838

$ 6,946,646

Note 7: INTERFUND TRANSFERS

Interfund transfers for the year ended June 30, 2006, consisted of the following:

Transfer to

Transfers From General Fund

District-wide Capital Projects
Debt Service Fund

$ 331,385 61 404

Total

Transfers are used to move property tax revenues collected by the General Fund to (1) the Districtwide Capital Projects Fund as required match or supplemental funding source for capital construction projects, and (2) Debt Service Fund for principal and interest payments.

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.

- 22 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 8: RISK MANAGEMENT

The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions,job related illness or injuries to employees and acts ofGod. 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. 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:

2005 2006

Beginning ofYear Liability

Claims and Changes in Estimates

Claims Paid

End of Year Liability

$

280 $

0 $

280 $

0

$

0 $

0 $

0 $

0

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

Position Covered

Amount

Superintendent

$ 1,000,000

Note 9: 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, 2006, for governmental funds amounted to $112,630. Future minimum lease payments for these leases are as follows:

Year Ending

Governmental Funds

2007

$

45,225

2008

45,225

2009

45,225

2010

45,225

2011

3 769

Total

$====1"=84-,6==6==9

- 23 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 10: SHORT-TERM DEBT

The School District obtains temporary loans in advance ofproperty tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution ofthe State of Georgia limits the aggregate amount of short-term debt to 75 percent of the total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 of the calendar year in which the debt was incurred.

Short-term debt activity for the fiscal year is as follows:

Beginning Balance

Issued

Redeemed

Ending Balance

Temporary Loans

$====0 $ 1,000.000 $ 1,000.000 $====0

Note 11: LONG-TERM DEBT

CAPITAL LEASES The Madison County Board of Education has entered into various lease agreements as lessee for equipment, buses and an energy management system. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value ofthe future minimum lease payments as of the date of their inception.

GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows:

Purpose

Interest Rates

Amount

General Government - Refunding - Series 1993 General Government - Series 2003A General Government - QZAB Series 2003B General Government - Series 2006

2.75%- 5.5% 2.42% 0% 3.74%

$ 2,850,000 2,420,000 2,000,000 9,880.000

$ 17,150.000

The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows:

- 24-

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 11: LONG-TERM DEBT

Governmental Funds

General

Capital

Obligation

Leases

Bonds

Total

Balance July 1, 2005

$ 1,568,210 $ 8,420,000 $ 9,988,210

Additions G. 0. Bonds

9,880,000

9,880,000

Deductions Debt Retired

222,101

1,150,000

1,372,101

Balance June 30, 2006

$ 1,346.109 $ 17.150.000 $ 18,496.109

Portion of Long-Term Debt Due within One Year

$ 208,527 $ 1,195,000 $ 1,403,527

At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30

Capital Leases

Principal

Interest

2007 2008 2009 2010 2011 2012 - 2015

$ 208,527 $ 214,374 222,349 107,554 112,426 480,879

55,869 47,217 38,242 28,889 24,017 39,624

Total Principal and Interest

$ 1,346,109 $ 233,858

- 25 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 11: LONG-TERM DEBT

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

2007 2008 2009 2010 2011 2012 - 2016 2017 - 2019

$ 1,195,000 $ 1,245,000 1,295,000 1,710,000 1,775,000 5,855,000 4,075,000

501,961 527,285 484,624 439,605 367,167 922,174 157,267

Total Principal and Interest

$ 17,150.000 $ 3,400.083

Note 12: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $810,065 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 $803,920

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 $6,145

Note 13: SIGNIFICANT COMMITMENTS

The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2006:

Project

Unearned Executed Contracts

Madison County Middle School

$ 257,207

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

- 26 -

MADISON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "I"

Note 14: SIGNIFICANT CONTINGENT LIABILITIES

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

Note 15: 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

2006 2005 2004

100% 100% 100%

$ 2,012,566 $ 1,913,380 $ 1,836,190

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MADISON COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2006

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
Capital Outlay Debt Service
Total Expendiiures
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

$

9,000,000 $

9,000,000 $

8,969,787

210,000

210,000

257,209

24,469,015

24,918,298

25,835,460

3,715,969

4,387,557

3,809,657

700,750

713,628

1,077,754

18,700

18,700

88,397

538 800

761 553

1 481 125

$

38,653,234 $

40,009,736 $

41 519 389

$

25,339,146 $

26,503,298 $

26,580,832

1,360,928 745,113 680,654
1,066,120 2,360,059
184,700 2,239,200 1,876,540
46,758 359,600
1,914,338 25,487

1,452,705 890,640 682,396
1,078,009 2,360,556
184,700 2,239,200 1,883,540
46,758 402,813
1,914,338 34,834

1,345,465 760,797 694,269
1,035,582 2,395,461
186,689 2,397,229 1,694,260
49,141 383,506 192,345 1,873,309
34,834 278 823

$

38,198,643 $

39 673 787 $

39,902,542

$

454 591 $

335 949 $

1 616 847

$

15,000

$

-392 789

$

15 000

$

-392 789

$

469,591 $

335,949 $

1,224,058

4664 905

4 664 712

4 934 766

Fund Balances - Ending

$

5134496 $

5,000,661 $

6,158,824

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.

- 29-

MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2006

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Donation (1)
Total U. S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Other Programs Direct Fund for the Improvement of Education Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Hurricane Education Recovery 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

NIA

(2)

N/A $ _ _~1-'-67~1~0~5~3

$

1,671,053

10.550

N/A

93 118

$ _ _ _1'-'-7'--'6'--'4-'-'1-'-7.1...

84.027 84.173

NIA $ N/A
$

1,004,419 72 564
1,076,983

84.215
84.318 84.938 84.367 84.186 84.298 84.010 84.048

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

81,766
19,181 (3)
205,229 28,597 14,942
1,096,452 55690
2,578,840

Total Federal Financial Assistance

$

NIA = Not Available

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 fund earned on the School Breakfast Program ($273,900) were not maintained separately and are included in the 2006 National School Lunch Program.
(3) Funds earned on the Hurricane Education Recovery program, in the amount of $24,307, do not require reporting of expenditures.

Major Programs are identified by an asterisk (*) in front of the CFDA number.

The School District did not provide Federal Assistance to any Subrecipient.

The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the 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.

- 30-

4 343 011

MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006
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 CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Health Insurance National Teacher Certification Preschool Handicapped Program Special Education Low Incidence Grant Statewide K-8 Reading and Mathematics Program
Office of Treasury and Fiscal Services Public School Employees Retirement

See notes to the basic financial statements.

- 31 -

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

1,277,672

257,626

2,937,658

343,248

1,351,709

260,894

2,879,074

2,266,298

989,935

214,690 325,087 1,980,552 660,363 143,960 707,960
-2,787 224,693
49,181 442,410 140,567
92,349

597,924 962,936 1,243,594

764,913 138,248
20,000 98,227 16,324 4,269,095 109,138 160,926 -1,093,616
803,920 28,479 81,101 10,298 74,669

6145

$ ===2=5!:,8=35==,4=6=0

MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2006

SCHEDULE "4"

PROJECT

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED
COSTS (2)

AMOUNT EXPENDED IN CURRENT
YEAR (3) (4)

AMOUNT EXPENDED
IN PRIOR
YEARS (3) (4)

PROJECT STATUS

Retirement of previously incurred general obligation debt.

$ 1,625,000 $ 1,661,098 $

554,327 $ 1,106,771 Ongoing

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.

7,675,000

8,288,678

6,205,719 Ongoing

Acquisition, construction, equipping and furnishing of new school buildings and facilities, including, but not limited to, a new middle school; the addition, renovation, repair and improvement to existing school buildings and facilities, including, but not limited to, the existing middle school, other schools, transportation facilities and administrative offices; the acquisition and purchase of system-wide technology and safety equipment, including, but not limited to, computer hardware and software and security and safety equipment; the acquisition and purchase of school vehicles, including, but not limited to, school buses and maintenance vehicles; and the acquisition and purchase of any property necessary and desirable therefore, both real and personal; capitalized interest on the Bonds through and
including August 1, 2008; the cost of issuing
the Bonds.

10,000,000 10,000,000

890,895

Ongoing

$ 19,300,000 $ 19,949,776 $ 1,445,222 $ =====1,.3.1..,.2=,4=9=0

(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:

Prior Years

$ 148,588

Current Year

29,538

Total

$ =====17=8=1'=26=

See notes to the basic financial statements.

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MADISON COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2006

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)

1,404,611 $ 285,017
3,223,492 398,224
1,503,314
286,802 3,171,521 2,502,027 1,093,158 3,646,391
783,101
247,825 57 019

1,987,454 $ 267,592
3,498,926 432,858
2,174,641
390,988 2,802,253 3,202,102 1,026,526
309,739 466,254 2,724,591
25,597 19,230 648,040
3,597 217,021
99 971

34,109 $ 2,960 96,164 5,989 53,959
2,672 129,488 182,526 138,705
2,317 1,403 38,500 7,376 9,398 12,858
2,932 1 088

2,021,563 270,552
3,595,090 438,847
2,228,600
393,660 2,931,741 3,384,628 1,165,231
312,056 467,657 2,763,091
32,973 28,628 660,898
3,597 219,953 101 059

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

18,602,502 $

20,297,380 $

722,444 $

21,019,824

Media Center Program Staff and Professional Development

488,640 102 857

611,627 26 880

48,909 75 639

660,536 102 519

TOTAL QBE FORMULA FUNDS

$

19193 999 $

20,935,887 $

846 992 $ ====2='1,=78=2=,8=7=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.

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SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
January 16, 2007

Honorable Sonny Perdue, Governor Members ofthe General Assembly Members ofthe 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 ofand for the year ended June 30, 2006, which collectively comprise Madison County Board of Education's basic financial statements and have issued our report thereon dated January 16, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Madison County Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect Madison County Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6951-06-01, FS-6951-06-02 and FS-6951-06-03.
2006YB-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 none of the reportable conditions described above are material weaknesses.
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 oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
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,

RWH:as 2006YB-30

~~QQ l.<.).~
Russell W. Hinton, CPA, CGFM State Auditor

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
January 16, 2007

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 U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Madison County Board ofEducation's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of 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 ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types 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 Madison County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the

2006SA-10

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.
In our opinion, the Madison County Board ofEducation 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, 2006.
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,
Q -~ Le).~~ ~Jssell W. Hinton, CPA, CGFM State Auditor
RWH:as 2006SA-10

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, 2006

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-6951-05-01 FS-6951-05-02 FS-6951-05-03

Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Finding Control Number: FS-6951-05-03

The Madison County Board ofEducation submitted an overall list of capital assets along with a deletions and additions list of capital assets. There was a discrepancy in the data
between these two lists. In the future, the data on these two lists will agree.

Central office personnel will closely review all data before it is submitted to the auditors. The Madison County Board ofEducation uses a consultant to assist with the reporting of capital assets. Close verification ofthe data on capital assets will be reviewed before it is submitted to the consultant, after it is received from the consultant, and after all capital asset information is entered on the final reports.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

SECTION IV FINDINGS AND QUESTIONED COSTS

MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006
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 of Education disclosed financial statement reportable conditions related to the following control categories.
Expenditures/Liabilities/Disbursements Capital Assets
None ofthe reportable conditions described above are considered to be material weaknesses.
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 .51 0(a) of 0MB Circular A-133 The Madison County Board of Education's audit did not disclose audit findings required to be reported by section .510(a) ofOMB 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 84.010 Title I Grants to Local Educational Agencies
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 ofOMB Circular A-133.
- 1-

MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-6951-06-01

Condition:

The accounting procedures ofthe School District were insufficient to provide adequate internal controls over the school activity accounts.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures.

Questioned Cost: NIA

Information:

Based on a review oftwenty vouchers, the following deficiencies were noted:

1) Seven vouchers did not have a properly authorized purchase order prior to the purchase/expenditure,
2) One voucher did not have a purchase order.

Cause:

These deficiencies were a result of management's failure to ensure that 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:

Management should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures.

EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Corporate Credit Card Expenditures Reportable Condition Finding Control Number: FS-6951-06-02

Condition:

The School District failed to monitor purchase card expenditures to ensure that State law and local policies were properly followed.

Criteria:

According to the School District's Credit Card/Debit Card Use policy, a purchase order for the credit card purchase must receive prior approval and credit card documentation must be maintained.

-2-

MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Corporate Credit Card Expenditures Reportable Condition Finding Control Number: FS-6951-06-02

O.C.G.A. 50-6-27 states in part: "Each ... local board of education is required and directed to submit to the state auditor, in a format prescribed by the state auditor, a listing of all personnel ofsuch ... local board of education showing name, title or functional area, salary, and travel expense for each individual."

Chapter 2 Authorizationfor Travel ofthe State of Georgia - Statewide Travel Regulations indicates that employees, who are eligible for travel reimbursement, should receive authorization prior to performing the travel. This chapter specifically states, "Signature of the approving official on the travel expense form constitutes authorization of employee travel."

Chapter 9 Reimbursement Procedures of the State of Georgia - Statewide Travel Regulations states, "Employees requesting reimbursement for travel expenses are required to submit their claim to authorized personnel on the employee travel expense statement" .... "Employees are also required to submit receipts for the following expenses: ... Lodging".

Questioned Cost: NIA

Information:

Based on a review of twelve transactions the following deficiencies were noted:
Two payments to the credit card company did not contain authorizing signatures documenting approval for payment,
Five vouchers did not have the required purchase order attached, Five vouchers had a purchase order dated subsequent to the date ofthe
original sales receipt, indicating that prior approval was not obtained for the purchase, One voucher contained the credit card invoice with no supporting documentation of approval or an original invoice. This expenditure was for Travel (hotel lodging) that was incorrectly charged as Other Purchased Services. This transaction violated State Travel regulations because no required travel voucher or supporting documentation was submitted. Additionally, O.C.G.A 50-6-27 was violated because this travel related expenditure was not reported in the School District's detail listing of salaries and travel made to employees.

-3 -

MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Corporate Credit Card Expenditures Reportable Condition Finding Control Number: FS-6951-06-02

Cause:

These deficiencies were a result of management's failure to monitor established controls in place over purchase card transactions.

Effect:

Errors and or/irregularities may not be detected in a timely manner. Also, failure to submit a complete salaries and travel listing leads to inaccurate external reporting.

Recommendation:

Management should revise and monitor controls to provide reasonable assurance that purchase card transactions are processed according to established procedures and State laws. In addition, these transactions should be supported by adequate documentation.

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6951-06-03

Condition:

This is a repeat finding (FS-6951-05-03) from year ended June 30, 2005. The School District failed to adequately maintain its capital assets listing.

Criteria:

Chapter 37 Fixed Assets of the Financial Management for Local Units of Administration indicates that the School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records.

Questioned Cost: NIA

Information:

The capital asset listing, as presented to auditors for review, contained the following deficiencies:
The balances on the capital assets listing for land and land improvements did not agree to the general ledger for fixed assets. It was noted that a land improvement with a value of$122,565 had been erroneously included as a land addition when the general ledger was updated.
Current year deletions totaling $357,820 were not correctly removed from the June 30, 2006 capital asset listing.

-4-

MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-6951-06-03

The capital asset records, originally provided to the auditors, were not the final corrected amounts.
The additions listing provided to the auditors did not contain all ofthe current year additions recorded on the capital asset listing. The additions listing showed capitalized additions totaling $369,059, while actual additions on the capital asset listing totaled $1,327,614.
A review of depreciation expense identified that not all functions having capital asset purchases were prorated a share of the depreciation expense. Function 2900, Other Support Services, had current year additions of $20,576 but no current year depreciation expense was charged to this function.

Cause:

The School District failed to properly maintain its capital assets records in accordance with the School District's approved capital assets policy.

Effect:

The failure ofthe School District to maintain a complete and accurate capital assets listing can lead to inaccurate internal and external reporting, as well as noncompliance with generally accepted accounting principles.

Recommendation:

The School District should review internal control procedures for capital assets to ensure that capital assets records are updated timely, additions are properly included on the additions listing and deletions are properly removed. An administrative review should be performed to ensure the accuracy of inventory records and amounts recorded in the general ledger at the close of each fiscal year.

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

-5-

SECTIONV MANAGEMENT'S RESPONSES

MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006
Finding Control Number: FS-6951-06-01
We concur with this finding. Teachers or staff members submit requests for purchase orders in writing to the principal. The principal approves the request, but the purchase order is not entered into the financial software in a timely manner. Therefore, the purchase appears that it was made without the prior approval of the principal. Certain purchases are still made without a completed purchase order and the proper procedural guidelines being followed. The Madison County Board of Education has and will continue to work to prevent this from happening. If this problem is not alleviated, the system will take drastic measures with the school that refuses to follow the established procedures and protocol.
Finding Control Number: FS-6951-06-02
We concur with this finding. The Madison County Board of Education will comply with the requirements of Georgia Law and the Georgia Department of Education regarding the use of credit cards. The critical reason for this finding deals with the use of credit cards by school employees. School personnel are guilty ofproviding the verbal permission for staffmembers to use credit cards for specific purchases but are not having the purchase orders entered into the financial software system before the transaction has been made. A procedural problem also greatly contributed to this finding. School bookkeepers were making the requisition to the vendor when using the credit card. However, the bill was being paid to the credit card company. The bookkeeper was voiding the transaction to the vendor and creating a new requisition to the credit card company. This caused the majority of all credit card purchases to appear as if they had not received prior approval before the transaction had taken place. The Financial Handbook for the Madison County School System and the credit card procedures have been updated to ensure that schools have written procedures to follow so that proper authorization occurs before the purchase is made. In the previous financial year, the credit card purchases for hotels were charged to 595. (NOTE: Hotels often will not allow tax exemption unless a school credit or check is used.) In fiscal year 2005, these type ofpurchases were charged to 595 (Purchased Services) because one could not use 580 unless it was an individual employee. After being informed by the auditors that we could not charge the expenditure to 595, all expenditures for hotel or travel made by a credit card will be charged to 580. Now, all hotel or other travel expenditures can be traced back to the individual employee and will be reported in the CS-1 report. This adjustment has been made for all transactions in fiscal year 2007.
Finding Control Number: FS-6951-06-03
We concur with this finding. The Madison County Board of Education submitted an overall list of capital assets along with a deletions and additions list of capital assets. There was a discrepancy in the data between these two lists. In the future, the data on these two lists will agree.
- 1-

MADISON COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-6951-06-03 Central office personnel will closely review all data before it is submitted to the auditors. The Madison County Board of Education uses a consultant to assist with the reporting ofcapital assets. Close verification of the data on capital assets will be reviewed before it is submitted to the consultant. When the consultant submits the data back to the system, the capital asset information will again be reviewed before it is entered on final reports. The system has met with the consultant to discuss the reasons for the finding. The system does not anticipate a finding in this area again. Contact Person: Allen McCannon, Associate Superintendent Phone: (706) 795-2191, Ext. 33 Fax Number: (706) 795-5104 E-mail Address: amccannon@madison.kl2.ga.us
-2-