MARION COUNTY BOARD OF EDUCATION BUENA VISTA, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor MARION 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 3 D STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 4 E RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES 5 F STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES FIDUCIARY FUNDS 6 G NOTES TO THE BASIC FINANCIAL STATEMENTS 7 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 21 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 22 3 SCHEDULE OF STATE REVENUE 23 MARION COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 24 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 25 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 MARION 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 July 31, 2008 Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education and Superintendent and Members of the Marion County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through G) of the Marion County Board of Education, as of and for the year ended June 30, 2007, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Marion 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Marion County Board of Education's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. 2007ARL-11 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 Marion County Board of Education, as of June 30, 2007, 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. The Marion County Board of Education has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States of America 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 July 31, 2008, on our consideration of the Marion County Board of Education's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose 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 21, 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 Marion 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, :~H~to~Pi.~ State Auditor RWH:gp 2007ARL-11 MARION COUNTY BOARD OF EDUCATION MARION COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2007 ASSETS Cash and cash equivalents Cash with fiscal agent Receivables: Taxes Intergovernmental: State Federal Interest Inventory Prepaid items Capital assets (nondepreciable) Capital assets (net of accumulated depreciation) Total assets LIABILITIES Accounts payable Salaries and benefits payable Accrued interest payable Bonds payable due within one year Bonds payable due in more than one year Capital leases due within one year Capital leases due in more than one year Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Continuation of federal programs Capital projects Debt service Unrestricted Total net assets EXHIBIT"A" Governmental Activities $ 2,826,758 45,903 180,938 977,614 212,788 5,154 14,367 31,177 98,276 10,314,827 $ 14,707,802 $ 169,602 1,346,670 49,656 590,000 2,165,000 100,597 125,565 $ 4,547,090 $ 7,431,941 226,413 533,195 994,203 974,960 $ 10,160,712 The accompanying notes are an integral part of these financial statements. -1- MARION COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2007 EXHIBIT"B" Functions/Programs Governmental activities: Instruction Support services: Pupil services Improvement of instructional services Educational media services General administration School administration Business administration Maintenance and operation of plant Student transportation services Other support services Enterprise operations Food service operations Interest on long-term debt Total governmental activities Expenses Program Revenues Operating Capital Charges for Grants and Grants and Services Contributions Contributions Net (Expense) Revenue and Changes in Net Assets Governmental Activities $ 8,441,113 $ 662,583 $ 6,961,256 $ 22,760 $ -794,514 322,013 126,008 -196,005 258,315 74,996 -183,319 324,344 179,409 -144,935 791,865 455,616 -336,249 940,373 429,748 -510,625 79,110 133 -78,977 1,069,993 444,730 -625,263 877,652 433,870 235,982 -207,800 53,643 753 -52,890 114,633 -114,633 895,533 151,209 689,580 -54,744 193,937 -193,937 $ 14,362,524 $ 813,792 $ 9,796,099 $ 258,742 $ -3,493,891 General revenues: Taxes: Property taxes, levied for maintenance and operations Property taxes, levied for debt service Sales taxes: For debt service Intangible taxes Transfer taxes Railroad equipment tax Grants and contributions not restricted to specific programs Unrestricted investment earnings Gain on sale of capital assets Total general revenues Change in net assets Net assets, beginning of year Net assets, end of year $ 2,659,905 339,002 470,726 43,580 20,983 18,258 991,115 78,633 17,858 $ 4,640,060 $ 1,146,169 9,014,543 $ 10,160,712 The accompanying notes are an integral part of these financial statements. -2 - MARION COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2007 EXHIBIT"C" ASSETS Cash and cash equivalents Cash with fiscal agent Receivables: Taxes Intergovernmental: State Federal Interest Prepaid items Inventory Total assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts payable Salaries and benefits payable Deferred revenue Total liabilities FUND BALANCES Reserved for: Continuation of federal programs Inventory Prepaid items Unreserved, reported in: General Fund Designated for student activities Undesignated Capital projects fund, undesignated Debt service fund, undesignated Total fund balances Total liabilities and fund balances General Capital Projects Debt Service Total Governmental Funds $ 1,408,946 $ 553,831 $ 863,981 $ 2,826,758 45,903 45,903 94,812 86,126 180,938 977,614 977,614 212,788 212,788 5,154 5,154 31,177 31,177 14,367 14,367 $ 2,744,858 =$===5=5=3,=83=1= $ 996,010 $ 4,294,699 $ 169,602 1,346,670 16,564 $ 1,532,836 $ ..;$_ _ _-,--'1,.,,.80""'1,.... ~$_ _ _~1,_80_7_ $ 169,602 1,346,670 18,371 1,534,643 $ 212,046 14,367 31,177 $ 212,046 14,367 31,177 85,391 869,041 $ 553,831 $ 994,203 85,391 869,041 553,831 994,203 $ 1,212,022 ~$_ _ _55_3~,8_3_1_ $ 994,203 $ 2,760,056 $ 2,744,858 _.$===5=5=3'=83=1= $ 996,010 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 are not reported in the funds. Cost $ 15,965,279 Less accumulated depreciation -5,552, 176 Other long-term assets are not available to pay for current-period expenditures and are deferred in the funds. Property taxes Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the funds. Bonds $ -2,755,000 Accrued interest -49,656 Capital leases -226, 162 10,413,103 18,371 -3,030,818 Net assets of governmental activities $ 10,160,712 The accompanying notes are an integral part of these financial statements. -3- MARION COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 EXHIBIT"D" REVENUES Property taxes Sales taxes Other taxes State funds Federal funds Charges for services Investment earnings Total revenues EXPENDITURES Current: Instruction Support Services: Pupil services Improvement of instructional services Educational media services General administration School administration Business administration Maintenance and operation of plant Student transportation services Other support services Enterprise operations Food services operation Debt service: Principal retirement Interest and fees Total expenditures Excess of revenues over (under) expenditures OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets Operating transfers in Operating transfers out Total other financing sources (uses) Net change in fund balances FUND BALANCE, beginning of year, as restated FUND BALANCE, end of year General $ 2,852,705 74,978 9,294,454 1,728,742 813,792 34,756 $ 14,799,427 District - Wide Capital Projects Debt Service Total Governmental Funds $ 347,948 $ 3,200,653 470,726 470,726 7,842 82,820 9,294,454 1,728,742 813,792 $ 20,636 23,241 78,633 $ 20,636 $ 849,757 $ 15,669,820 $ 8,190,876 $ 322,013 258,315 324,344 789,605 940,373 79,110 1,069,338 1,053,899 53,643 114,633 847,068 99,512 10,880 $ 14,153,609 $ $ 645,818 $ 0 $ 0 $ 20,636 $ $ 8,190,876 322,013 258,315 324,344 789,605 940,373 79,110 1,069,338 1,053,899 53,643 114,633 847,068 565,000 664,512 133,401 144,281 698,401 $ 14,852,010 151,356 $ 817,810 $ 20,058 54,170 $ -1,657 $ 72,571 $ $ 718,389 $ 1,657 -54,170 -52,513 -31,877 $ $ $ 151,356 $ 20,058 55,827 -55,827 20,058 837,868 493,633 $ 1,212,022 $ 585,708 553,831 $ 842,847 994,203 $ 1,922,188 2,760,056 The accompanying notes are an integral part of these financial statements. -4- MARION COUNTY BOARD OF EDUCATION RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2007 EXHIBIT"E" Net change in fund balances - total governmental funds $ Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. The net effect of the amount by which depreciation expense exceeded capital outlay is to decrease net assets. Capital outlay Depreciation expense $ 303,179 -428,547 Net effect of various miscellaneous transactions involving fixed assets (sales, trade-ins, donations, etc.) is to increase net assets. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Property taxes Issuance of long-term debt provides current financial resources to governmental funds, while repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences in the treatment of long-term debt and related items. Principal payments - bonds Principal payments - capital leases $ 565,000 99,512 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Change in accrued interest $ 837,868 -125,368 20,560 -201,747 664,512 -49,656 1,146,169 The accompanying notes are an Integral part of these financial statements. -5- MARION COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES FIDUCIARY FUNDS JUNE 30, 2007 ASSETS Cash Investments Total assets LIABILITIES Funds held for others EXHIBIT"F" Agency Fund $ 3,215 29,899 $ 33,114 $ 33,114 The accompanying notes are an integral part of these financial statements. -6 - MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY Reporting Entity The Marion County Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Marion 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 ofinternal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement ofActivities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients 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. -7- MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED} The School District reports the following major governmental funds: The 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. The District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST) to be used for the acquisition, construction or renovation of major capital facilities. The Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency Funds account for assets held by the School District as an agent for various funds, governments or individuals. Basis of Accounting The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless 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 ifthey are collected within 60 days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as -8- MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general 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. Official Code of Georgia Annotated Section 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 bankers' acceptances, -9- MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (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. 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. Property Taxes The Marion County Board of Commissioners fixed the property tax levy for the 2006 tax digest year (calendar year) on August 25, 2006 (levy date). Taxes were due on December 20, 2006 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2006 tax digest are reported as revenue in the governmental funds for fiscal year 2007. The Marion 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, 2007, for maintenance and operations amounted to $2,852,705 and for school bonds amounted to $347,948. Tax millage rates levied for the 2006 tax year (calendar year) for the Marion County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): School Operations School Bonds 15.00 mills 1.75 mills 16.75 mills Sales Taxes Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $470,726 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. - 10 - MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Inventories FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for 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. During the fiscal year under review, no events or changes in circumstances affecting a capital asset that may indicate impairment were known to the School District. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment Computer Applications All NIA $ 5,000 20 to 80 years $ 5,000 10 to 80 years $ 5,000 3 to 20 years $ 5,000 6 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 - 11 - MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. Net Assets The School District's net assets in the District-wide Statements are classified as follows: Invested in Capital Assets, Net of Related Debt - This represents the School District's total investment in capital assets, net of outstanding debt obligations related to those capital assets. Restricted Net Assets - These represent resources for which the School District is legally or contractually obligated to spend for bus replacement, continuation ofFederal programs, debt service and capital projects in accordance with restrictions imposed by external third parties. Unrestricted Net Assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes. Reserved Fund Balances Reserves represent those portions of fund balance equity that are legally segregated for a specific future use. 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 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 of the public funds being secured after the deduction of the amount of deposit insurance. If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent of the daily pool balance. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, - 12 - MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 3: DEPOSITS (CONTINUED) (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities ofthe State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2007, the bank balances were $3,425,985. The amounts of the total uninsured bank balances are classified into three categories of custodial credit risk: Category 1 - Uncollateralized, Category 2 - Cash collateralized with securities held by the pledging financial institution, or Category 3 - Cash collateralized with securities held by the pledging financial institution's trust department or agent but not in the School District's name. The School District's uninsured deposits are classified by custodial credit risk category at June 30, 2007, as follows: Custodial Credit Risk Category Bank Balance 1 $ 0 2 0 3 3,325,985 Total $ 3,325.985 - 13 - MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 3: DEPOSITS (CONTINUED) At June 30, 2007, the carrying value ofthe School District's total investments was $29,899 which is materially the same as fair value. This investment consisted entirely offunds invested in a certificate of deposit. The maturity of this certificate was November 15, 2007. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the capital assets during the fiscal year: Balances July 1, 2006 Increases Decreases Balances June 30, 2007 Governmental Activities Capital Assets, Not Being Depreciated: Land $ 75,516 $ 22,760 $ 0 $ 98,276 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 12,404,579 2,072,054 $ 1,447,716 303,179 $ $ 12,404,579 360,525 2,014,708 1,447,716 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 3,349,911 1,335,976 796,067 227,567 146,373 54 607 358,325 3,577,478 1,124,024 850,674 Total Capital Assets, Being Depreciated, Net $ 10,442,395 $ -125,368 $ 2,200 $ 10,314,827 Governmental Activity Capital Assets - Net $ 10,511,211 $ -102,608 $ 2,200 $ 10,413,103 Capital assets being acquired under capital leases as of June 30, 2007, are as follows: Buildings and Improvements Equipment Less: Accumulated Depreciation Governmental Funds $ 177,918 287,465 81,536 $=====3==83-,8===4==7 - 14 - MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 5: CAPITAL ASSETS (CONTINUED) Current year depreciation expense by function is as follows: Instruction Support Services General Administration $ Maintenance and Operation of Plant Student Transportation Services Food Services $ 2,260 6,964 120,623 250,235 129,847 48,465 Note 6: RESTRICTED ASSETS $=~4=28-,5'==4==7 Special Purpose Local Option Sales Tax (SPLOST), property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2007, were as follows: District-wide Capital Projects SPLOST Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Note 7: INTERFUND TRANSFERS $ 909,884 $ 553,831 Interfund transfers for the year ended June 30, 2007, consisted of the following: Transfer to Transfers From District-wide General Capital Fund Projects General Fund District-wide Capital Projects Total $ 54,170 $ 1 657 $ 1 657 $ 54,170 - 15 - MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 7: INTERFUND TRANSFERS (CONTINUED) Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as required match or supplemental funding source for capital construction projects and to move unreserved funds in the District-wide Capital Projects Fund to the General Fund. 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 and acts of God. 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 potential losses of property related to acts of God. The School District has not experienced any losses related to this risk in the past three years. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent Board Chairman Each Principal Each Lunchroom Manager $ 50,000 $ 12,000 $ 2,000 $ 1,000 Note 9: OPERATING LEASES Marion 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, 2007, for governmental funds amounted to $32,712. There are no future minimum lease payments for these leases. Note 10: LONG-TERM DEBT CAPITAL LEASES The Marion County Board of Education has entered into various lease agreements as lessee for buildings and buses. 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. - 16 - MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 10: LONG-TERM DEBT (CONTINUED) GENERAL OBLIGATION BONDS OUTSTANDING General obligation bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 2002 3.56% General Government - Refunding - Series 1998 4.05% - 4.65% $ 715,000 2,040,000 $ 2,755.000 CHANGES IN LONG-TERM DEBT The changes in long-term debt during the fiscal year ended June 30, 2007, were as follows: Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2006 $ 325,674 $ 3,320,000 $ 3,645,674 Deductions Debt Retired 99,512 565;000 664,512 Balance June 30, 2007 $ 226.162 $ 2,755.000 $ 2,981.162 Portion of Long-Term Debt Due within One Year $ 100,597 $ 590,000 $ 690,597 SCHEDULED MATURITIES OF LONG-TERM DEBT At June 30, 2007, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 Canital Leases Princinal Interest 2008 2009 2010 2011 $ 100,597 $ 61,763 31,145 32,657 9,794 5,827 3,094 1 584 Total Principal and Interest $ 226,162 $ 20,229 - 17 - MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 10: LONG-TERM DEBT (CONTINUED} Fiscal Year Ended June 30 General Obligation Bonds Principal Interest 2008 2009 2010 2011 2012 2013 - 2014 $ 590,000 $ 111,029 620,000 87,982 270,000 70,393 290,000 58,378 310,000 45,328 675,000 47,265 Total Principal and Interest $ 21755!000 $ 4201375 Note 11: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $264,735 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $262,979 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $1,756 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. Note 13: RETIREMENT PLAN 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 ofGeorgia (TRS), which is a cost-sharing, multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and - 18 - MARION COUNTY BOARD OF EDUCATION EXHIBIT "G" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2007 Note 13: RETIREMENT PLAN (CONTINUED) survivors' benefits for its members in accordance with state statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report which 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 9.28% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year 2007 2006 2005 Percentage Contributed 100% 100% 100% Required Contribution $ 766,339 $ 697,896 $ 707,162 Note 14: PRIOR PERIOD ADJUSTMENT The School District has determined that restatements ofthe fund balances of the General Fund and the Debt Service Fund are required to reflect corrections to beginning balances ofcash. The School District failed to record a transfer of cash in the amount $85,992 between the two funds in the June 30, 2006 financial statements in error, resulting in an overstatement of fund balance in the General Fund and an understatement of fund balance in the Debt Service Fund. Fund Balance as of June 30, 2006, as Previously Reported Effect on Prior Year Operating Statements Fund Balance as of June 30, 2007, as Restated General Fund Debt Service Fund $ 579,625 $ 756,855 -85,992 85,992 $ 493,633 $====84==2-,8==4==7 Note 15: SUBSEQUENT EVENT The voters of Marion County approved, in a special election held on September 18, 2007, to authorize the reimposition of a 1% sales tax, for a period beginning January I, 2008, not to exceed 20 calendar quarters, and to raise no more than $2,500,000. At this time, the voters also authorized the Marion County School District to issue General Obligation Bonds in an amount not to exceed $2,000,000. The proceeds ofthe bonds are to be used, in whole or in part, for renovating, extending, repairing and equipping existing schools. In the subsequent fiscal year, the Board issued 2008 Series Bonds in the amount of$525,000, as authorized. - 19 - {This page left intentionally blank) MARION COUNTY BOARD OF EDUCATION GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2007 SCHEDULE "1" REVENUES Property taxes Other taxes State funds Federal funds Charges for services Investment earnings Miscellaneous Total revenues EXPENDITURES Current: Instruction Support services: Pupil services Improvement of instructional services Educational media services General administration School administration Business administration Maintenance and operation of plant Student transportation services Other support services Enterprise operations Food services operations Debt service: Principal retirement Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over (under) expenditures OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets Transfers in Transfers out Total other financing sources (uses) Net change in fund balances FUND BALANCE, beginning of year, as restated FUND BALANCE, end of year Budget Original (1) Final (1) Actual Variance With Final Budget $ 3,235,000 $ 3,166,812 $ 2,852,705 $ 74,978 8,564,029 8,753,557 9,294,454 1,763,971 1,840,080 1,728,742 448,399 448,399 813,792 7,750 7,750 34,756 21,069 21,069 $ 14,040,218 $ 14,237,667 $ 14,799,427 $ -314,107 74,978 540,897 -111,338 365,393 27,006 -21,069 561,760 $ 8,259,465 $ 8,434,857 $ 8,190,876 $ 327,716 263,019 297,080 881,851 930,676 117,817 1,013,168 1,138,448 74,101 1,041,666 327,716 263,520 297,080 883,955 930,676 117,817 1,035,802 1,143,948 74,101 1,041,666 322,013 258,315 324,344 789,605 940,373 79,110 1,069,338 1,053,899 53,643 114,633 847,068 99,512 10,880 $ 14,345,007 $ 14,551,138 $ 14,153,609 $ $ -304,789 $ -313,471 $ 645,818 $ $ 20,058 $ $ 3,552 $ 3,552 54,170 -3,552 -3,552 -1,657 $ 0 $ 0 $ 72,571 $ $ -304,789 $ -313,471 $ 718,389 $ $ 493,633 $ 493,633 $ 493,633 $ $ 188,844 $ 180,162 $ 1,212,022 $ 243,981 5,703 5,205 -27,264 94,350 -9,697 38,707 -33,536 90,049 20,458 -114,633 194,598 -99,512 -10,880 397,529 959,289 20,058 50,618 1,895 72,571 1,031,860 0 1,031,860 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 school activity 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. - 21 - MARION COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 SCHEDULE "2" Funding Agency Program/Grant CFDA Number PassThrough Entity ID Number Expenditures In Period Agriculture, U.S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program 10.553 10.555 NIA NIA $ (1) 775,447 Total Child Nutrition Cluster $ 775,447 Other Programs Pass-Through From Georgia Department of Education Food Donation (2) 10.550 NIA 22,023 Total U.S. Department of Agriculture $ 797,470 Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants 84.027 84.173 N/A $ NIA 290,565 8,435 Total Special Education Cluster $ 299,000 Other Programs Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Improving Teacher Quality State Grants Migrant Education Rural Education Safe and Drug-Free Schools and Communities - State Grants State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States 84.318 NIA 84.367 NIA 84.011 N/A 84.358 N/A 84.186 NIA 84.298 N/A 84.010 NIA 84.048 N/A 22 103,245 24,641 47,521 3,788 2,861 568,459 39,223 Total U. S. Department of Education $ 1,088,760 Total Expenditures of Federal Awards $ 1,886,230 N/A = Not Available Notes to the Schedule of Expenditures of Federal Awards (1) Expenditures for the funds earned on the School Breakfast Program in the amount of ($196,839) were not maintained separately and are included in the 2007 National School Lunch Program. (2) The amount disclosed 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. 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 Marion County Board of Education and is presented on the modified accrual basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 22 - MARION COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE FOR THE FISCAL YEAR ENDED JUNE 30, 2007 Agency/Funding Grants Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten 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 Grades (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 Program for Intellectually Gifted Students - Category VI Alternative Education Program 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 State Bonds Sparsity Nursing Services Principal Supplements Vocational Supervisors Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Amended Formula Adjustment Other State Programs Graduation Coaches K-8 Statewide Reading and Math Grants Middle School Summer Remedial Program National Teacher Certification Pay for Performance On Behalf Payments On Behalf Payments - Health Insurance On Behalf Payments - Public School Employees Retirement See notes to the basic financial statements. - 23 - SCHEDULE "3" Governmental Fund Type General Fund $ 272,299 499,290 37,030 985,554 49,858 497,538 130,699 874,217 910,801 446,318 58,864 120,519 440,421 90,313 -2, 140 96,587 85,072 155,590 51,591 28,540 340,416 381,828 409,750 411,575 35,982 200,000 35,802 45,002 4,797 18,859 184,832 991,115 49,598 106,142 -140,699 40,075 24,186 1,383 26,227 33,888 262,979 1,756 $ 9,294,454 . MARION COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 SCHEDULE "4" Project Original Estimated Cost(1) Current Estimated Costs (2} Expended In Current Year (3} Expended In Prior Years (3} Project Status Provide funds to pay or to be applied toward the cost of adding to, renovating, improving, expanding, furnishing and equipping existing schools and facilities, including additional classrooms, technology improvements, and security system installation; and acquiring, constructing and equipping of physical education facilities, including softball and soccer fields, the maximum of such projects not to exceed $2,500,000. $ 2,500,000 $ 2,500,000 $ 31,506 $ 1,935,680 Ongoing (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 project. Includes all cost from project inception to completion. (3) The voters of Marion County approved the imposition of a 1% sales tax to fund the above project and retire associated debt. Amounts expended for the project may include sales tax proceeds, state, local property taxes and/or other funds over the life of the project. See notes to the basic financial statements. - 24- MARION COUNTY BOARD OF EDUCATION SCHEDULE OF QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES BY PROGRAM GENERAL FUND FOR THE FISCAL YEAR ENDED JUNE 30, 2007 SCHEDULE "5" Description Direct Instructional Funds: Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Gifted Student - Category VI Alternative Education Program TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development TOTAL QBE FORMULA FUNDS Allotments From Georgia Department of Education (1) (2) Eligible QBE Program Costs Salaries Operations Total $ 548,033 $ 512,489 $ 38,601 52,440 1,093,814 1,256,856 52,827 74,704 545,654 663,939 140,499 81,774 968,871 1,058,298 981,664 1,041,850 512,365 355,702 768,377 34,959 291,789 304,460 12,541 123,082 100,332 93,933 72,549 $ 5,867,720 $ 5,914,682 $ 171,555 31,654 279,476 16,248 40,564 19,259 39,792 35,320 29,485 $ 528,737 52,440 1,297,420 74,704 683,198 81,774 1,098,090 1,077,170 385,187 559 4,838 2,188 34,959 291,789 305,019 12,541 105,170 74,737 188,253 $ 6,102,935 30,645 310,121 31,654 $ 6,070,929 $ 6,194,158 $ 218,898 $ 6,444,710 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the state amended formula adjustment. See notes to the basic financial statements. - 25 - 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 July 31, 2008 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Marion County Board of Education REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ladies and Gentlemen: We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Marion County Board of Education as of and for the year ended June 30, 2007, which collectively comprise Marion County Board of Education's basic financial statements and have issued our report thereon dated July 31, 2008. 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 Marion County Board of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose ofexpressing an opinion on the effectiveness of the Marion County Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Marion County Board of Education's internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies. 2007YB-60 A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affect the Marion County Board of Education's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Marion County Board ofEducation's financial statements that is more than inconsequential will not be prevented or detected by the Marion County Board of Education's internal control. We consider items FS-6961-07-01, FS-6961-07-02 and FS-6961-07-03 in the accompanying Schedule of Findings and Questioned Costs to be significant deficiencies in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement ofthe financial statements will not be prevented or detected by the Marion County Board of Education's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph ofthis section and would not necessarily disclose all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, of the significant deficiencies described above, we consider items FS-6961-07-01 and FS-6961-07-03 to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether Marion 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 an instance of noncompliance or other matters that is required to be reported under Government Auditing Standards and which is described in the accompanying Schedule of Findings and Questioned Costs as item FS-6961-07-03. We also noted certain matters that we have reported to management of Marion County Board of Education in a separate letter dated July 31, 2008. Marion County Board of Education's response to the findings identified in our audit is described in the accompanying Schedule ofManagement's Responses. We did not audit Marion County Board of Education's response and, accordingly, we express no opinion on it. 2007YB-60 This report is intended solely for the information and use of the management, members of the Marion 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, ~L1).4sl~ Russell W. Hinton, CPA, CGFM State Auditor RWH:gp 2007YB-60 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 July 31, 2008 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Marion 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 ofMarion County Board ofEducation with the types ofcompliance requirements described in the U.S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2007. Marion County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section ofthe accompanying Schedule ofFindings 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 Marion County Board of Education's management. Our responsibility is to express an opinion on Marion County Board of Education's compliance based on our audit. We conducted our audit ofcompliance 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 Marion County Board ofEducation'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 Marion County Board of Education's compliance with those requirements. 2007SA-10 In our opinion, the Marion 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, 2007. Internal Control Over Compliance The management of Marion 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 Marion County Board ofEducation'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 ofexpressing our opinion on compliance, but not for the purpose ofexpressing an opinion on the effectiveness ofinternal control over compliance. Accordingly, we do not express an opinion on the effectiveness ofthe Marion County Board ofEducation's internal control over compliance. A control deficiency in an entity's internal control over compliance exists when the design or operation ofa control does not allow management or employees, in the normal course ofperforming their assigned functions, to prevent or detect noncompliance with a type ofcompliance requirement of a Federal program on a timely basis. A significant deficiency is a control deficiency, or combination ofcontrol deficiencies, that adversely affects the entity's ability to administer a Federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a Federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement ofa Federal program will not be prevented or detected by the entity's internal control. Our consideration ofthe internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the management, members of the Marion 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, ~w~~' State Auditor RWH:gp 2007SA-10 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS MARION COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AUDITEE'S RESPONSE/STATUS SEE AUDITOR'S COMMENTS FS-6961-05-01 Further Action Not Warranted FS-6961-05-02 Further Action Not Warranted FS-6961-06-01 Further Action Not Warranted (1) FS-6961-06-02 Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Accounting Procedures Finding Control Number: FS-6961-06-02 Policy DJEG: Purchase Orders, Contracts, and Credit Card Procedures has been adopted and implemented. The purchasing procedures have been reiterated in staff meetings. Management has enforced strict guidelines for authorizing expenditures to strengthen internal controls. AUDITOR'S COMMENTS (1) Findings/internal control deficiencies ofthis nature, that are not deemed significant deficiencies or material weaknesses and do not require reporting in the audit report in accordance with Statements on Auditing Standards (SAS) 112 or Governmental Auditing Standards (Yellow Book), will be communicated in a management letter in subsequent periods. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS F A-6961-04-01 FA-6961-04-02 FA-6961-05-01 FA-6961-06-01 Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Further Action Not Warranted Previously Reported Corrective Action Implemented - 1- MARION COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES DAVIS-BACON ACT Failure to Monitor Labor Reports Finding Control Number: FA-6961-04-01 This finding has been forwarded to the Facilities Services Section of the Georgia Department ofEducation, for further review. This finding will remain open, pending their conclusions. PROCUREMENT, SUSPENSION AND DEBARMENT Failure to Obtain Suspension and Debarment Certification Finding Control Number: FA-6961-04-02 This finding has been forwarded to the Facilities Services Section of the Georgia Department ofEducation, for further review. This finding will remain open, pending their conclusions. -2- SECTION IV FINDINGS AND QUESTIONED COSTS MARION COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Marion County Board ofEducation's financial statements was unqualified. 2. Significant Deficiencies in Internal Control Disclosed by the Audit ofthe Financial Statements The audit report for the Marion County Board of Education disclosed financial statement significant deficiencies related to the following control categories. Expenditures/Liabilities/Disbursements Financial Reporting Revenues/Receivables/Receipts General Ledger Of the significant deficiencies described above, Financial Reporting and Revenues/Receivables/Receipts are considered to be material weaknesses. 3. Noncompliance Material to the Financial Statements The audit of the Marion County Board of Education disclosed one instance of noncompliance deemed material to the financial statements. This noncompliance involved the Board's failure to report SPLOST interest in the capital projects fund. 4. Significant Deficiencies in Internal Control Over Major Programs The audit report for the Marion County Board ofEducation did not disclose any significant deficiencies in internal control over major programs. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Marion County Board ofEducation'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 Marion County Board ofEducation'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. - 1- MARION COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 I SUMMARY OF AUDITOR'S RESULTS 9. Low Risk Auditee The Marion County Board of Education qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINANCIAL REPORTING Inadequate Controls over Financial Reporting Material Weakness Finding Control Number: FS-6961-07-01 Condition: The School District's controls did not identify all material accounting adjustments. Criteria: Management is responsible for having adequate controls over the financial reporting process, which not only includes proper recording oftransactions to the general ledger, but extends to accurate preparation and presentation ofthe financial statements, including note disclosures. Questioned Cost: NIA Information: The Governmental Accounting Standards Board (GASB) Statement 34 reporting model requires the presentation ofboth fund level and entity-wide level statements in the School District's financial statements. During the audit, a material correcting entry was proposed by the auditor and accepted by the client to properly present the entity's fund level financial statements. In addition, a restatement of beginning fund balance was also required to adjust for a material error made by the School District in the prior year, which the School District attempted to correct in the year under audit. Cause: The School District's control procedures failed to properly identify and report Agency fund activity. Effect: The School District's financial statements as presented for audit did not include correct presentation for Agency fund activity. Recommendation: The School District should enhance internal controls over the financial statement reporting process to ensure that activity is properly recorded in the general ledger; to verify that financial statements (including note disclosures) properly reflect activity reporting in the general ledger; and to include a monitoring process to evaluate the accuracy of the financials presented for audit. -2 - MARION COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-6961-07-02 Condition: This is a repeat finding (FS-6961-06-02) from the year ended June 30, 2006. The accounting procedures ofthe School District were insufficient to provide for adequate internal controls. Criteria: The School District's Board and management are responsible for designing and maintaining internal controls that provide reasonable assurance that recorded transactions are valid and accurate and that all transactions are recorded in a timely manner. Questioned Cost: NIA Information: Expenditures/Liabilities/Disbursements Twenty-three of the ninety-four expenditures reviewed did not contain evidence that items were received prior to payment being made. General Ledger A review of the School District's journal entries revealed that there was no approval of entries by someone other than the preparer for any of the entries made to the general ledger during the year under audit. Cause: These deficiencies were a result of the failure of the School District's management to ensure that internal controls were established, implemented and operating effectively. Effect: Errors or irregularities may not be detected by the School District in a timely manner. Recommendation: The School District should review the control procedures in place, and design procedures which will enhance the administrative review ofexpenditures and journal entries. -3 - MARION COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS Improper Reporting of SPLOST Interest Material Weakness Material Noncompliance Finding Control Number: FS-6961-07-03 Condition: The School District did not maintain a separate bank account for its SPLOST capital projects funds. These funds were recorded in the general operating account. In addition, interest earned on these funds was not transferred to the capital projects fund. Criteria: According to O.C.G.A. 48-8-121(a), SPLOST proceeds shall be kept in a separate account from other funds of the entity. The Attorney General's Official Opinion 2001-3 states: "The requirement of a separate account and the mandate that the proceeds placed in the account not be commingled with other funds, as set forth in the second part of the statutory limitation, demonstrate a legislative intent that all money in the account, including any interest, is dedicated for the purposes specified in the involved resolution or ordinance, as required by the first part ofthe statutory limitation. This determination of legislative intent is consistent with the general rule that interest follows principal". Questioned Cost: NIA Information: During the year under audit, it was noted that the cash in the School District's SPLOST capital projects fund was held in the general operating account of the School District, and was not held in a separate account, as required by State law. It was also noted that interest earned on these funds in the general operating account was recorded in the general fund and was not transferred to the SPLOST capital projects fund. As a result, these funds were not designated for the purposes specified by the School District's SPLOST resolution. It was also noted that earnings on investments have not been recorded in the SPLOST Capital Projects fund since fiscal year 2002. Cause: The School District did not maintain a separate bank account for its SPLOST capital projects funds, nor did it track and transfer interest earned on these funds from the general fund to the SPLOST capital projects fund. -4 - MARION COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS Improper Reporting of SPLOST Interest Material Weakness Material Noncompliance Finding Control Number: FS-6961-07-03 Effect: Cash and Earnings on Investments were misstated between the general fund and the capital projects fund, requiring an adjustment to be proposed by the auditor and accepted by the School District to generate materially correct fund financial statements. Additionally, the School District did not comply with State law. Recommendation: The School District should ensure that all SPLOST funds are kept separately from all other funds of the entity. In addition, the School District should determine total interest earned on these funds to date and transfer that amount to the SPLOST Capital Projects fund. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were noted. -5- SECTIONV MANAGEMENT'S RESPONSES MARION COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2007 Finding Control Number: FS-6961-07-01 We concur with this finding. The School District has retained a certified public accountant as a financial consultant to manage our financial statement reporting process and to ensure that the financial statements are properly prepared in accordance with generally accepted accounting principles. Finding Control Number: FS-6961-07-02 We concur with this finding. No checks will be issued for invoices without proofofreceipt. Journal entries will be reviewed and signed by someone other than the preparer daily. These changes have been implemented. Finding Control Number: FS-6961-07-03 We concur with this finding. SPLOST funds and interest earned has been transferred to a separate bank account and will be maintained in a separate account with our bank according to O.C.G.A. 48-8-12 l(a). Contact Person: Cathy Wiggins, Bookkeeper Phone: (229) 649-2234 Fax: (229) 649-7423 E-mail: cwiggins@marion.k12.ga.us