MERIWETHER COUNTY BOARD OF EDUCATION GREENVILLE, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor MERIWETHER 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 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 6 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 9 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 11 H NOTES TO THE BASIC FINANCIAL STATEMENTS 12 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 29 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 30 3 SCHEDULE OF STATE REVENUE 32 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 34 MERIWETHER COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 35 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 MERIWETHER COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION V MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 August 18, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Meriwether 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 H) of the Meriwether County Board ofEducation, as ofand for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Meriwether County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General 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 op1mons. As discussed in Note 2 to the basic financial statements, management has not recorded land at historical costs, maintained a detailed listing of equipment items, nor maintained an analysis of construction in progress in accordance with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States ofAmerica require that certain Capital Assets be recorded at historical costs, a detailed listing of equipment items be 2004ARL-19X maintained, and that construction in progress be analyzed each fiscal year. The amount by which this departure would affect the assets, net assets and expenses of the governmental activities is not reasonably determinable, but is believed to be material. In our opinion, except for the effects of not properly recognizing capital assets in the governmental activities as described in the proceeding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position ofthe governmental activities ofthe Meriwether County Board ofEducation, as of June 30, 2004, and the changes in financial position thereoffor the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of each major fund, and the aggregate remaining fund information of the Meriwether County Board of Education, as of June 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. The Meriwether County Board of Education 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. As discussed in Note 2 to the basic financial statements, during fiscal year 2004, the Board segregated its individual school activity accounts between governmental and fiduciary activities for inclusion in the basic financial statements. This change is in accordance with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued our report dated August 18, 2005, on our consideration of the Meriwether County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. 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 Meriwether County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes 2004ARL-19X the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code of Georgia Annotated section 506-24. Respectfully submitted, RWH:as 2004ARL-19X State Auditor MERIWETHER COUNTY BOARD OF EDUCATION MERIWETHER COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2004 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 Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted (Deficit) Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 514,025 469,905 827,123 2,257,499 487,719 60,976 102,627 3,030,499 2,895,276 399,947 33,939,744 15,869,017 -19,248 554 $ ===4=1=6=0=5=8=03= $ 730,670 2,992,878 961,808 20,182,757 $ 24,868,113 $ 16,538,501 11,556 144,638 573,267 11,100 -541,372 $ 16,737 690 $ ===4=1=6=05===80=3= The notes to the basic financial statements are an integral part of this statement. -3- MERIWETHER COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2004 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services 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 $ 21,147,942 1,368,121 865,468 504,500 1,024,679 1,936,772 249,952 3,932,550 2,180,954 50,919 370,029 269,648 869 $ 1,856,613 1,226,048 $ 36,985,064 $ 102,434 159,600 262,034 The notes to the basic financial statements are an integral part of this statement. -4- EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 15,801,163 753,224 565,606 331,256 706,016 817,688 983,544 888,522 $ 64,616 361,258 1,659,720 $ 22,932,613 $ $ 129,558 129,558 $ -5,346,779 -614,897 -299,862 -173,244 -318,663 -1, 119,084 -249,952 -2,949,006 -1,162,874 13,697 -8,771 -269,648 101,565 -37,293 -1,226,048 -13,660,859 $ 6,496,179 838 86,513 1,650,909 208,566 22,632 2,889,912 10,250 710 189 $ 12,075,988 $ -1,584,871 18,322,561 $ ======16=-,7=3=7=,6=90= -5- MERIWETHER COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2004 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 $ 441,154 $ 312,325 364,312 2,257,499 487,719 60,976 102,627 6,588 $ 4,512 66,283 $ 153,068 278,170 514,025 469,905 642,482 2,257,499 487,719 60,976 102 627 Total Assets $ 4,026,612 $ 11 100 $ 497,521 $ ==~4:,g,5~3~5,~23~3= LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable 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 $ 730,670 2,992,878 $ 3,723,548 $ 11,556 42,011 75,120 102,627 $ 71 750 $ 303,064 $ $ $ $ 11,100 $ 497,521 11 100 $ 497 521 $ 730,670 2,992,878 3,723,548 11,556 42,011 572,641 102,627 11,100 71 750 811 685 Total Liabilities and Fund Balances $ 4,026,612 $ 11 100 $ 497,521 $===4..,,5=3=5'=,2=33= The notes to the basic financial statements are an integral part of this statement. -6- MERIWETHER COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30. 2004 EXHIBIT" " Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Intergovernmental Contract Capital Leases Total Long-Term Liabilities $ 811,685 $ 3,030,499 2,895,276 399,947 33,939,744 15,869,017 -19,248,554 36,885,929 184,641 $ -11,850,000 -8,455,000 -839,565 -21 144 565 Net Assets of Governmental Activities (Exhibit "A") $ 16,737,690 The notes to the basic financial statements are an integral part of this statement. -7- MERIWETHER COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2004 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning (Restated) GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 6,802,643 231,198 20,786,032 5,166,051 262,034 4,766 $ 718,348 $ 33,971,072 $ $ 213 $ 1,650,909 2,581 2,903 2 581 $ 1,654,025 $ 6,802,856 1,882,107 20,786,032 5,166,051 262,034 10,250 718 348 35,627,678 $ 21,139,063 1,368,121 865,468 504,500 1,021,835 1,936,772 249,952 1,961,638 1,936,280 50,919 370,029 269,648 869 1,840,422 $ 212,281 55,513 $ 33,783,310 $ $ 187,762 $ $ 21,139,063 35,571 1,368,121 865,468 504,500 1,021,835 1,936,772 249,952 1,961,638 1,936,280 50,919 370,029 269,648 869 1,840,422 35,571 $ 710,000 1,170,535 922,281 1,226,048 35 571 $ 1,880,535 $ 35,699,416 -32,990 $ -226,510 $ -71 738 $ 44,090 $ $ -44,090 $ -44 090 $ 44,090 $ $ 143,672 $ 11,100 $ -226,510 $ 159,392 0 724,031 44,090 -44 090 0 -71,738 883,423 Fund Balances - Ending $ 303,064 $ 11 100 $ 497,521 $==,;;;,81;,,,:,1~6~85~ The notes to the basic financial statements are an integral part of this statement. -8- MERIWETHER COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2004 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") 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 equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold. 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: Intergovernmental Contract Payments Bond Principal Retirements Capital Lease Payments Total Long-Term Debt Repayments $ -71,738 $ 29,252 -2,237, 181 -2,207,929 -219,326 -8, 159 $ 130,000 580,000 212,281 922,281 Change in Net Assets of Governmental Activities (Exhibit "B") $ ==-==1d:5=8=4!:8=7=1 The notes to the basic financial statements are an integral part of this statement. -9- MERIWETHER COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004 ASSETS Cash and Cash Equivalents Investments Certificate of Deposit Total Assets LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ 74,608 12,628 $ ===87='=23=6= $ ===87='=23=6= The notes to the basic financial statements are an integral part of this statement. - 11 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Meriwether 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 Meriwether 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 of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: - 12 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund is the School District's primary operating fund. It accounts for all financial resources of the 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 and Special Purpose Local Option Sales Tax 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 type: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Capital assets cost and depreciation expenses are not reported in the Statement ofNet Assets and the Statement ofActivities, properly. Land is not reported at historical costs, neither a detailed listing of equipment nor an analysis of construction in progress are maintained. To conform to generally accepted accounting principles these deviations should be corrected. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable - 13 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. RESTATEMENT OF PRIOR YEAR NET ASSETS - GOVERNMENTAL ACTIVITIES For fiscal year 2004, the School District restated Capital Assets due to numerous errors and omissions noted during the initial year of implementation of GASB Statement No. 34. The School District increased land by $133,840. Additionally, the School District increased, net ofaccumulated depreciation, equipment by $647,666. The result is an increase in Net Assets at July 1, 2003, of $781,506. This change is in accordance with generally accepted accounting principles. For fiscal year 2004, the School District restated net assets/fund balance due to an error in recording fiduciary activity related to the school principal accounts within the General Fund. The result is a decrease in Net Assets at July 1, 2003, of $93,643. 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. - 14 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates of deposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. - 15 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PROPERTY TAXES The Meriwether County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on October 6, 2003 (levy date). Taxes were due on December 20, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Meriwether County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2004, for maintenance and operations amounted to $6,716,130 and for school bonds amounted to $213. The tax millage rate levied for the 2003 tax year (calendar year) for the Meriwether County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 16.307 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $1,650,909 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories ofdonated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time 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 - 16 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment $ 5,000 NIA $ 5,000 20 years $ 5,000 7 to 40 years $ 5,000 5 to 15 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. 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. DEFICIT FUND BALANCES The fund reporting a deficit fund balance at June 30, 2004, is as follows: Fund Type/Fund Name Deficit Balance Debt Service Fund $==7==5==,1==2==0 Subsequent year SPLOST receipts will be sufficient to liquidate this deficit. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not - 17 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS 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 th~ 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. If a depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percentofthedailypool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities 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, 2004, the bank balances were $2,867,717. The amounts of the total bank balances are classified into three categories of credit risk: - 18 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2004, as follows: Risk Category Bank Balance 1 $ 295,995 2 2,167,117 3 404,605 Total $ 2,867.717 CATEGORIZATION OF INVESTMENTS At June 30, 2004, the carrying value ofthe School District's total investments was $312,325 which is materially the same as fair value. This investment consisted entirely of funds invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows: The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency 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. - 19 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2004, was 24 days. The average investment duration for Fund 6 on June 30, 2004, was 0.22 years. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2003 (Restated) Increases Decreases Balances June 30, 2004 Governmental Activities Capital Assets, Not Being Depreciated: Land $ 3,030,499 $ 0 $ 0 $ 3,030,499 Construction in Progress 2,895,276 2,895,276 Total Capital Assets Not Being Depreciated $ 5,925,775 $ 0 $ 0 $ 5,925,775 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 33,939,744 15,849,284 $ 399,947 29,252 $ $ 33,939,744 9,519 15,869,017 399,947 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 6,194,041 10,810,693 7 999 695,988 1,533,194 7999 1,360 6,890,029 12,342,527 15 998 Total Capital Assets, Being Depreciated, Net $ 33,176,242 $ -2,207,929 $ 8 159 $ 30,960,154 Governmental Activity Capital Assets - Net $ 39,102,017 $ -2,207,929 $ 8,152 $ 36,885,229 Capital assets being acquired under capital leases as of June 30, 2004, are as follows: - 20 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 5: CAPITAL ASSETS Equipment Less: Accumulated Depreciation Governmental Funds $ 349,699 78 517 Current year depreciation expense by function is as follows: $==2==71=,-18=2 Instruction Support Services General Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 22,769 $ 2,799 1,940,065 255,610 2,198,474 15,938 $ 2,237,181 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) and property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2004, were as follows: District-wide Capital Projects SPLOST Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions $ 66,283 $ 6,588 $ 153,068 $ 4,512 - 21 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2004, consisted of the following: Transfer to Transfers From General Fund District-wide Capital Projects $=====44,,,.,,0=9==0 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. Note 8: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk of loss associated with motor vehicles. The School District has neither significantly reduced coverage for this risk nor incurred losses (settlements) which exceeded the School District's insurance coverage in any ofthe past three years. The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups ofself-insurance funds, including the processing and defense ofclaims brought against members of the system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake) and general liability (including coverage for sexual harassment, molestation and abuse). Payment of excess insurance for the system varies by line of coverage. 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 ofthat loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: - 22- MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 8: RISK MANAGEMENT 2003 2004 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End ofYear Liability $ 0 $ 1 180 $ 1 180 $ 0 $ 0 $ 21,228 $ 21,228 $ 0 The School District participates in the Georgia School Boards Association Workers' Compensation Fund, a public entity risk pool organized on July 1, 1992, to develop, implement, and administer a program ofworkers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Fund for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Fund with the Safety National Casualty Corporation to provide coverage for potential losses sustained by the Fund in excess of $400,000 loss per occurrence, up to $1,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Other Employees $ 50,000 $ 50,000 Note 9: SHORT-TERM DEBT The School District issues tax anticipation notes 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 ofGeorgia limits the aggregate amount ofshort-term debt to 75 percent ofthe 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 Tax Anticipation Notes $====0 $ 1,300.000 $ 1,300.000 $===0 CAPITAL LEASES The Meriwether County Board ofEducation has entered into various lease agreements as lessee for school buses, fuel tanks, HVAC and electrical and lighting retrofits. 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. - 23 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 9: SHORT-TERM DEBT INTERGOVERNMENTAL CONTRACT The Meriwether County Board of Education entered into a contract with the Meriwether County Public Facilities Authority, dated October 1, 1999, for the financing of the construction of various school facilities. Under the terms ofthe contract, the Authority issued $8,810,000 (less discount and issuance costs of$229,391) in revenue bonds on behalf ofthe School District to finance the costs of acquiring, constructing, furnishing and equipping a new elementary school to be owned by the School District and the costs ofmaking renovations and modifications to existing schools owned by the School District. The School District has contractually agreed to make semi-annual payments from April 1, 2000, through October 1, 2026, to the Authority sufficient to retire principal and interest on the bonds. The obligation ofthe School District is absolute and unconditional, so long as any of the bonds remain outstanding. Under the contract, the School District agreed to levy an annual tax on all property within the boundaries of the School District, at such rates, within any limits prescribed by law, as may be necessary to make payments required by the contract. Note 10: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 1996 3.65%- 7.0% $ 11,850,000 The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows: Capital Leases Governmental Funds Inter- Governmental Contract Meriwether County Public General Facilities Obligation Authority Bonds Total Balance July 1, 2003 $ 1,051,846 $ 8,585,000 $ 12,430,000 $ 22,066,846 Deductions Debt Retired 212,281 130,000 580 000 922,281 Balance June 30, 2004 $ 839 565 $ 8 455 000 $ 11 850.000 $ 21,144 565 Portion of Long-Term Debt Due within One Year $ 171 808 $ 135,000 $ 655 000 $ 961 808 At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows: - 24 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 10: LONG-TERM DEBT Fiscal Year Ended June 30 2005 2006 2007 2008 2009 2010 - 2014 2015 - 2019 2020 - 2024 2025 -2027 Total Principal and Interest Capital Leases Principal Interest Intergovernmental Contract Meriwether County Public Facilities Authority Principal Interest $ 171,808 $ 136,902 144,874 134,810 116,233 134,938 43,685 $ 135,000 $ 467,330 33,492 140,000 460,935 25,518 145,000 454,165 17,490 170,000 446,520 10,790 200,000 437,405 6,540 1,410,000 1,993,554 1,890,000 1,549,193 2,490,000 928,354 1,875,000 168,626 $ 839.565 $ 137.515 $ 8,455.000 $ 6,906.082 Fiscal Year Ended June 30 2005 2006 2007 2008 2009 2010 - 2014 2015 - 2019 Total Principal and Interest General Obligation Debt Principal Interest $ 655,000 $ 674,848 740,000 628,997 780,000 577,198 830,000 522,597 880,000 479,853 5,320,000 1,633,715 2,645,000 220,550 $ 11,850.000 $ 4,737.758 Note 11: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $316,091 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 $312,754 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $3,337 - 25 - MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 13: SUBSEQUENT EVENTS In the subsequent fiscal year, the School District issued general obligation bonds in the amount of $5,000,000, dated November 3, 2004. The proceeds from these bonds will be used for the cost of acquiring, constructing and equipping new school facilities, acquiring, constructing and equipping of renovations and modifications to existing school buildings and acquiring new school buses and transportation equipment. In the subsequent fiscal year, the School District issued general obligation refunding bonds in the amount of $9,971,000, dated January 11, 2005. The proceeds from these bonds will be used for refunding a portion of the Series 1996 School Bonds and paying expenses incident thereto. Note 14: 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: - 26- MERIWETHER COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 14: RETIREMENT PLANS Fiscal Year 2004 2003 2002 Percentage Contributed 100% 100% 100% Required Contribution $ 1,789,063 $ 1,839,867 $ 1,754,083 -27 - MERIWETHER COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30 2004 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING USES Other Uses Net Change in Fund Balances Fund Balances - Beginning Adjustments NONAPPROPRIATED BUDGETS ORIGINAL(1) FINAL(1) ACTUAL AMOUNTS $ 6,500,101 $ 6,500,108 $ 6,802,643 161,106 161,106 231,198 20,000,490 20,001,740 20,786,032 1,639,000 1,639,000 5,166,051 315,000 315,000 262,034 14,000 14,000 4,766 207100 207 100 718 348 $ 28,836,797 $ 28,838,054 $ 33 971 072 $ 18,754,226 $ 20,469,314 $ 21,139,063 1,150,458 815,124 501,862 797,470 1,973,664 563,494 2,180,237 1,444,922 71,227 79,177 2,138,100 1,121,252 980,254 501,425 905,601 1,948,607 404,961 2,035,479 1,459,075 15,000 95,389 2,138,100 1,368,121 865,468 504,500 1,021,835 1,936,772 249,952 1,961,638 1,936,280 50,919 370,029 269,648 869 1,840,422 267 794 $ 30 469 961 $ 32 074457 $ 33,783,310 $ -1,633, 164 $ -3,236,403 $ 187,762 -2 000 -2 000 $ -1,635,164 $ -3,238,403 $ 425,282 425,282 -486 785 -486 785 -44 090 143,672 159,392 Fund Balances - Ending $ -1.696.667 $ -3,299,906 $ 303 064 Notes to the Schedule of Revenues. Ex12enditures 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 - MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U.S. Department of Agriculture Education, U.S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Even Start Improving Teacher Quality State Grants Rural Education Safe and Drug-Free Schools and Communities School Renovation - Schools State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U. S. Department of Education Health and Human Services, U.S. Department of Direct Rural Health Outreach and Rural Network Development Program Total Federal Financial Assistance NIA= Not Available CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 NIA NIA $ $ (2) 1,579 214 1,579,214 10.550 NIA $ 134 876 1,714 090 84.027 84.173 NIA $ NIA $ 666,213 62 481 728,694 84.318 . 84.213 84.367 84.358 84.186 84.352 84.298 * 84.010 84.048 NIA NIA NIA NIA NIA NIA NIA NIA NIA $ 49,355 245,855 355,596 94,328 48,774 222,139 45,395 1,564,343 66,335 3,420,814 93.912 $ 175 588 - 30- MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2004 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($361,796) were not maintained separately and are included in the 2004 National School Lunch Program. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Meriwether 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. - 31 - MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2004 AGENCY/FUNDING GRANTS Bright From the Start: Georgia Department of Early Care and Leaming Pre-Kindergarten Program Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program 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 Sparsity Nursing Services Principal Supplements Vocational Supervisors Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Apprenticeship Program Health Insurance K-3 Statewide Reading Program Mentor Teachers Preschool Handicapped Program School Improvement (Georgia's Choice) 4-8 Statewide After School Program Vocational Construction Related Equipment Lottery Program Student Information System Conversion - 32 - SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 927,313 964,583 137,310 1,975,546 460,808 1,016,755 327,699 1,996,426 1,520,248 570,037 196,677 1,191,163 1,829,763 362,662 238,781 202,675 111,626 151,495 330,774 98,888 74,094 514,690 802,833 963,591 831,725 129,558 34,907 83,698 14,821 17,655 213,225 2,555,558 126,332 42,052 -895,566 1,900 312,754 52,259 504 55,453 60,000 32,080 1,250 64,616 MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004 AGENCY/FUNDING GRANTS Georgia Department of Community Affairs Governor's Emergency Funds Office of Treasury and Fiscal Services Public School Employees Retirement CONTRACT Human Resources, Georgia Department of Family Connection SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 19,000 3,337 62 477 $ ===2=0.=78=6=,0=32= See notes to the basic financial statements. - 33 - MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30. 2004 SCHEDULE "4" PROJECT Paying the principal and interest on the Meriwether County School District General Obligation School Bonds, Series 1996, the maximum amount of the debt to be paid is not to exceed $6,500,000. Acquiring the school buildings and facilities financed with the proceeds of the Meriwether County Public Facilities Revenue Bonds, Series 1999, by making the payments required under the Intergovernmental Contract, dated as of October 1, 1999, between the Authority and the School District, the maximum amount of obligations to be paid under the Contract will not exceed $3,010,000. (i) Acquiring, constructing and equipping a new elementary school; (ii) Adding to, renovating, repairing, improving and equipping existing school buildings and facilities; and (iii) Acquiring any property necessary and desirable therefor, both real and personal, the maximum amount of projects to be funded will not exceed $1,410,000. ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 6,500,000 $ 6,500,000 $ 1,295,448 $ 884,955 Ongoing 3,010,000 3,010,000 603,360 238,143 Ongoing 1,410,000 1,410,000 17 284 653,870 Ongoing $ 10,920,000 $ 10,920,000 $ 1,916,092 $ 1,776,968 (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 Meriwether 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. See notes to the basic financial statements. - 34 - MERIWETHER COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE} ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2004 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle 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 TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 1,080,793 $ 1,088,673 $ 14,299 $ 1,102,972 157,637 173,482 173,482 2,228,102 2,353,588 33,910 2,387,498 543,661 360,189 4,563 364,752 1,139,533 1,341,925 17,301 1,359,226 377,330 2,254,349 1,720,725 639,170 4,321,403 228,304 118,749 170 583 312,869 3,011,977 2,582,517 800,695 2 854,480 1,447,014 651,970 860,945 165,451 104,504 323,207 53,443 73,032 17,677 223 1,546 14 791 5,488 2,462 1 945 312,869 3,065,420 2,655,549 818,372 2 854,703 1,448,560 651,984 861,736 170,939 106,966 325,152 $ 14,980,339 $ 16,433,488 $ 226,694 $ 16,660,182 372,131 82 927 452,880 13 179 31,338 32197 484,218 45 376 TOTAL QBE FORMULA FUNDS $ 15,435,397 $ 16,899,547 $ 290,229 $ =:=:,1,;.7,~18;,;;9~,7;,,;,7~6 (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. - 35- 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 August 18, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Meriwether 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 Meriwether County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Meriwether County Board of Education's basic financial statements and have issued our report thereon dated August 18, 2005. This report was qualified for a departure from generally accepted accounting principles, as identified in the auditor's report on the basic financial statements. 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 Meriwether County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect 2004YB-40 Meriwether County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-6991-04-02, FS-6991-04-03, FS-6991-04-04, FS-6991-04-05 and FS-6991-04-06. A material weakness is a reportable condition in which the design or operation ofone 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, of the reportable conditions described above, we consider item FS-6991-04-06 to be a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether Meriwether County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the Meriwether 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 2004YB-40 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 August 18, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education and Superintendent and Members of the Meriwether 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 Meriwether 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, 2004. Meriwether County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section ofthe accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to each ofits major Federal programs is the responsibility ofMeriwether County Board of Education's management. Our responsibility is to express an opinion on Meriwether 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 ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Meriwether County Board ofEducation's compliance with those 2004SA-65 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 Meriwether County Board of Education's compliance with those requirements. As described in item FA-6991-04-01 in the accompanying Schedule of Findings and Questioned Costs, Meriwether County Board of Education did not comply with requirements regarding Activities Allowed or Unallowed and Allowable Costs/Cost Principles that are applicable to its Title II, Part A - Improving Teacher Quality Program (CFDA 84.367). Compliance with such requirements is necessary, in our opinion, for Meriwether County Board ofEducation to comply with requirements applicable to that program. In our opinion, except for the noncompliance described in the preceding paragraph, the Meriwether County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2004. Internal Control Over Compliance The management of Meriwether 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 Meriwether County Board of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. We noted certain matters involving the internal control over compliance and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Meriwether County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FA-6991-04-01, FA-6991-04-02 and FA-6991-04-03. A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements of laws, 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. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, of the reportable conditions described above, we consider item FA-6991-04-01 to be a material weakness. 2004SA-65 This report is intended solely for the information and use of the management, members of the Meriwether 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, ~~-~d;;. Russell W. Hinton State Auditor RWH:as 2004SA-65 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS MERIWETHER COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-6991-03-01 FS-6991-03-02 FS-6991-03-03 FS-6991-03-04 FS-6991-03-05 FS-6991-03-06 FS-6991-03-07 FS-6991-03-08 Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Reponses Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Reponses Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Control Procedures Finding Control Number: FS-6991-03-02 The Meriwether County School District has recognized these weaknesses in certain personnel areas and has made permanent replacements. In addition, intensive training and supervision has been implemented in the remaining areas of concern and weakness. CASH AND CASH EQUIVALENTS Failure to Properly Segregate Debt Service Funds Finding Control Number: FS-6991-03-03 The Meriwether County School Administrators recognize this as a bookkeeping error. They have implemented the appropriate procedures to prevent it from reoccurring in the future. EMPLOYEE COMPENSATION Inadequate Internal Controls Finding Control Number: FS-6991-03-05 The Meriwether County School District recognized this weakness and corrective measures are being implemented to prevent its reoccurrence in the future. Copies of all timesheets from "noncertified employees" are collected by the Personnel Department to verify their completion. - 1- MERIWETHER COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES GENERAL LEDGER Inadequate Accounting Procedures Finding Control Number: FS-6991-03-07 The Meriwether County School District recognized this weakness and corrective measures are being implemented to prevent its reoccurrence in the future. The funds in question have been returned to the Board and documentation deficiencies have been corrected. CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Finding Control Number: FS-6991-03-08 The Meriwether County School District recognized this weakness and corrective measures are being implemented to prevent its reoccurrence in the future. These errors have been corrected in the School District's fixed asset system. -2- SECTION IV FINDINGS AND QUESTIONED COSTS MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Meriwether County Board of Education's financial statements was qualified for a departure from generally accepted accounting principles. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Meriwether County Board ofEducation disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Budget Preparation/Execution Revenues/Receivables/Receipts Capital Assets Expenditures/Liabilities/Disbursements Employee Compensation General Ledger Of the reportable conditions described above, Capital Assets is considered to be a material weakness. 3. Noncompliance Material to the Financial Statements The audit of the Meriwether County Board of Education disclosed one instance of noncompliance deemed material to the financial statements. This noncompliance involved the Board's failure to identify direct costs specifically with a particular final cost objective. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Meriwether County Board of Education disclosed reportable conditions in internal control over major programs for the following compliance requirements. Activities Allowed or Unallowed Special Tests and Provisions Allowable Costs/Cost Principles Of the reportable conditions described above, Activities Allowed or Unallowed and Allowable Costs/Cost Principles are considered to be material weaknesses. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Meriwether County Board ofEducation's report on compliance with requirements applicable to major programs was qualified. 6. Audit Findings Required to be Reported by Section .5 lO(a) of 0MB Circular A-133 The Meriwether County Board of Education's audit disclosed audit findings required to be reported by section .510(a) of 0MB Circular A-133. These audit findings are included in section IV of this report. - 1- MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 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 84.367 Improving Teacher Quality State Grants 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Meriwether County Board of Education did not qualify as a low risk auditee as defined by Section .530 of 0MB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS BUDGET PREPARATION/EXECUTION Failure to Adopt a Balanced Budget Nonmaterial Noncompliance Finding Control Number: FS-6991-04-01 An examination of the School District's budget revealed that the School District failed to adopt a balanced budget for the General Fund. Chapter 32 ofthe Financial Management for Georgia Local Units of Administration issued by Georgia Department of Education states in part: "The budget must be balanced for all budgeted funds. Total anticipated revenues should equal total estimated expenditures. In the event anticipated revenues are insufficient to fund anticipated essential expenditures, a portion of unreserved fund balance from previous years must be used to fund the shortfall. In the event there is insufficient unreserved fund balance from previous years to fund anticipated expenditures, then such expenditures must be reduced to equal anticipated revenues plus available unreserved fund balance." This condition occurred because management neglected the specific limitations imposed upon the School District by the Georgia Department of Education. Appropriate procedures should be implemented by the School District to ensure that the adopted budget for all budgeted funds is balanced as required. -2- MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS Failure to Properly Segregate Debt Service Funds Reportable Condition Repeated From Prior Year Finding Control Number: FS-6991-04-02 The School District maintained $350,000 of debt service tax collection moneys within the general operating checking account. This combining of debt service and non-debt service funds is a violation of Article IX, Section V, Paragraph VI of the Constitution of the State of Georgia which provides in part as follows: "The proceeds ofthis tax, together with any other moneys collected for this purpose, shall be placed in a sinking fund to be used exclusively for paying the principal ofand interest on such bonded debt. Such moneys shall be held and kept separate and apart from all other revenues collected". Management should transfer these debt service funds plus applicable interest to a separate debt service bank account. CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Repeated From Prior Year Finding Control Number: FS-6991-04-03 Our examination of the principal's accounts disclosed weaknesses in internal control as discussed below: Cash and Cash Equivalents (1) The bank reconciliation function is not separated from the record keeping and voucher payment functions. (2) Bank reconciliations were not reconciled to the total cash listed on the general ledger as presented for audit. Revenues/Receivables/Receipts (1) Deposit preparation was not separated from the record keeping and cash custody functions. -3- MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Repeated From Prior Year Finding Control Number: FS-6991-04-03 (2) Based on a review of 50 items, the following deficiencies were noted: Five receipts were not deposited in a timely manner. Six receipts were not supported by adequate documentation. Expenditures/Liabilities/Disbursements (1) The check writing function was not separated from the record keeping or processing of signed checks. (2) Based on a review of 55 vouchers, the following deficiencies were noted: Eighteen vouchers did not have proper approval. Five vouchers were approved and paid without having proper evidence of the receipt of goods. Four vouchers were approved and paid without an original invoice. These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible for accounting functions and failure to ensure established controls were functioning as designed. Management should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization be segregated. Additionally, controls should be revised and monitored to provide reasonable assurance that transactions are processed according to established procedures. -4- MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EMPLOYEE COMPENSATION Inadequate Internal Controls Reportable Condition Repeated From Prior Year Finding Control Number: FS-6991-04-04 A review ofthe School District's internal control policies and procedures for employee compensation noted deficiencies in employee payroll records and personnel files. Testing oftwenty-five employee payroll records and personnel files revealed the following conditions: (1) Approved annual and sick leave records were not available to support leave deductions from payroll for five employees. (2) The personnel files for four employees contained inadequate documentation to support the employee's rate ofpay, which resulted in unsupported supplemental payments made to the employees. These conditions occurred because the School District failed to adequately implement and monitor procedures to ensure that payments made to employees are based on approved rates ofpay that are adequately documented in the employees' personnel file. In addition, the School District failed to implement procedures to ensure that approved annual and sick leave records exist prior to the processing ofemployees payroll transactions. The School District should implement strong internal control policies and procedures to ensure that employee payroll records and personnel files are properly maintained and that all payments made to employees are supported by properly approved annual and sick leave records and rate of pay documentation. GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition Repeated From Prior Year Finding Control Number: FS-6991-04-05 A review of the School District's internal control policies and procedures noted deficiencies in providing for adequate internal control over the journal entry process. Journal entries were not supported by adequate documentation or explanations and were not reviewed and approved by someone independent of the journal entry process. This condition was the result of management's failure to develop adequate internal controls over the journal entry process. The School District should review the accounting procedures in place, design procedures which would enhance segregation ofduties and proper internal controls relative to the journal entry process and implement those procedures to strengthen the internal control over the accounting functions. -5 - MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition - Material Weakness Repeated From Prior Year Finding Control Number: FS-6991-04-06 A review of the School District's Capital Assets policies and procedures and the related Capital Assets records noted material deficiencies as discussed below: (1) The Capital Assets records were incomplete and did not provide a detailed and accurate listing to support assets recorded as "Equipment". (2) The land value reported by the School District represents current fair market value in fiscal year 2004 and not historical cost as required by generally accepted accounting principles. (3) Assets deleted in Fiscal Year 2004 were not supported by adequate documentation. (4) Equipment which meets the $5,000 capitalization threshold was omitted from the Capital Assets records. (5) Depreciation expense for fiscal year 2004 was not properly allocated by function as required by generally accepted accounting principles. (6) The depreciable life of the "Buildings", which is used for calculating depreciation, exceeded the limits as stated in the School District's policy. In addition, several of the assets were not being depreciated based on School District policy. (7) A complete physical inventory ofthe School District's Capital Assets was not performed in fiscal year 2004, as required by the School District's policies. (8) Equipment with values less than the $5,000 capitalization threshold was recorded within the Capital Assets records. (9) An analysis of Construction in Progress at the School District was not completed for fiscal year 2004. The above material deficiencies occurred because the School District failed to properly maintain its Capital Assets records in accordance with the School District's approved capital assets policy and in accordance with generally accepted accounting principles. These material deficiencies are -6- MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition - Material Weakness Repeated From Prior Year Finding Control Number: FS-6991-04-06 considered to be financial irregularities in accordance with O.C.G.A 20-2-67 and results in the basic financial statements of the School District being incomplete and not in accordance with generally accepted accounting principles. The School District should review its Capital Assets records and make appropriate adjustments to ensure that the Capital Assets records conform to the School District's approved capital assets policy and generally accepted accounting principles. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Unallowable Expenditures Reportable Condition - Material Weakness Material Noncompliance U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6991-04-01 A review of accounting adjustments to the Title II, Part A Improving Teacher Quality State Grant program (CFDA Number 84.367) revealed a transfer of cash in the amount of $19,612.43 to the General Fund. Expenses related to the Title II program were not identified within the General Fund to support the transfer. As a result, it was not possible to determine the validity ofthis expenditure. This condition occurred because management failed to implement internal controls for monitoring compliance with Federal guidelines to ensure that expenditures charged to the Title II program were for allowable program purposes. Provisions of 0MB Circular A-87, Cost Principles for Determining Allowable Costs, require that direct costs are those that can be identified specifically with a particular final cost objective. The School District had no procedures in place to conform to these requirements and thus no documentation existed to verify if activities are related to Title II, Part A. The School District should implement procedures to ensure that all direct costs are identified specifically with a particular final cost objective related to Title II, Part A. The Georgia Department of Education should review this matter to determine if a refund of grant monies is appropriate. -7- MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inaccurate Indirect Cost Calculation Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6991-04-02 A review of the School District's indirect cost calculation revealed errors in the calculation which resulted in an overpayment of$16,141.85 by the School Breakfast Program (CFDA No. 10.553) and the National School Lunch Program (CFDA No. 10.555) to the General Fund. This condition occurred because management failed to implement procedures to ensure that the indirect cost rate was applied to a base exclusive of any extraordinary or distorting expenditure, such as donated commodities and purchased food, before posting the calculation to the General Ledger. According to 0MB Circular A-87 - Attachment E, extraordinary or distorting expenditures should be excluded from the indirect cost base when calculating the indirect cost reimbursement. The Georgia Department of Education should investigate these charges to verify their allowability and determine if a reclaim of funds is appropriate. SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6991-04-03 During the year in review, the School District identified five schools that participated in a schoolwide program. Federal provisions prescribe that multiple funding sources (Federal, State or Local) are required to support a school-wide program. The Title I program (CFDA No. 84.010) and the Title II, Part A (CFDA No. 84.367) supported the school-wide program at five of the District's schools. Although required by U. S. Department of Education and 0MB Circular A-133 Compliance Supplement provisions, we found that the School district had not consolidated the different Federal funds for each of those schools that participated in a school-wide program. Furthermore, we noted that the School District arbitrarily charged each Federal fund with individual school-wide expenditures rather than using a prescribed cost allocation plan to distribute school-wide program expenditures to each funding source. In accordance with provisions ofU. S. Department of Education Instructions and 0MB Circular A133, Compliance Supplement provisions, eligible schools are able to use their Title I and Title II, Part A funds, in combination with other Federal, State and local funds, in order to upgrade the entire educational program of the school and to raise academic achievements for all students. By -8 - MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-6991-04-03 combining funds from Title I and Title II, Part A and other eligible U.S. Department of Education funded programs in support of a school-wide program, U. S. Department ofEducation Instructions provide that specific school-wide program costs lose their identity but only in those circumstances when funds are combined in a school-wide program. In line with 0MB Circular A-87 requirements, school-wide expenditures should be charged to those Federal funding sources supporting the school-wide program in a reasonable manner. When more than one Federal program supports a school-wide program, then school-wide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support of the school-wide program. To distribute such costs, provisions of 0MB Circular A-87, Attachment E, F.3 state that a cost allocation plan should be developed, documented, maintained for audit. The School District personnel were unaware of these requirements and it was the School District's understanding that school-wide program expenditures lose their identity and therefore any school-wide program cost can be charged to Title I and Title II, Part A and other Federal funding programs. The School District should implement procedures to (1) combine such funds as prescribed by U.S. Department of Education and (2) in line with 0MB Circular A-87 provisions allocate such schoolwide program costs to the respective Federal fund in a reasonable manner. The School District should seek Georgia Department of Education guidance in implementing fiscal procedures for combining and allocating school-wide program expenditures to Federal programs. -9- SECTIONV MANAGEMENT'S RESPONSES MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FS-6991-04-01 We concur with this finding. We will be changing our budgeting process going forward to address these issues and begin utilizing budgeting information from all resources to avoid this problem. If anticipated revenues are not sufficient to cover anticipated costs, then either costs will be reduced and/or reserves will be utilized. Finding Control Number: FS-6991-04-02 We concur with this finding. We will examine these accounts and make the necessary adjustments to clear this finding. An examination of these accounts should identify the reasoning for such transfers between funds. Finding Control Number: FS-6991-04-03 We concur with this finding. Management has recognized these weaknesses in certain personnel areas and has made permanent replacements. In addition, intensive training and supervision will be implemented in the remaining areas of concern. These processes will be reviewed and subsequent follow-up will be conducted to ensure that these issues are resolved as intended. Finding Control Number: FS-6991-04-04 We concur with this finding. We recognize this weakness and corrective measures are being implemented to prevent its reoccurrence in the future. Copies of all timesheets from noncertified employees are colleted by the Personnel Department to verify their completion. We will implement further review processes in determining accurate timesheets and plan to document any issues that concern payroll in an appropriate manner. Finding Control Number: FS-6991-04-05 We concur with this finding. We recognize this weakness and corrective measures are being implemented to prevent its reoccurrence in the future. We will examine our internal control process and adapt accordingly to the concerns over our duties and responsibilities currently in place. Finding Control Number: FS-6991-04-06 We concur with this finding. We recognize this weakness and corrective measures are being implemented to prevent its reoccurrence in the future. Any errors will be corrected in the Fixed Asset System, and an examination of the entire Fixed Asset System will be conducted. - 1- MERIWETHER COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FA-6991-04-01 We concur with this finding. We will examine the transfer of funds to ensure that the expenditure was for related expenses. Adequate documentation will be provided in the future to justify these transfers of grant monies to the General Fund. Finding Control Number: FA-6991-04-02 We concur with this finding. We will examine the transfer of funds to ensure that the correct calculation for indirect costs is provided in the future. Training will be provided to explain the calculation as it relates to allowable and unallowable costs for recovery purposes. Finding Control Number: FA-6991-04-03 We concur with this finding. We will seek guidance in implementing fiscal procedures for combining and allocating school-wide program expenditures to Federal programs. We will contact the Georgia Department of Education for their assistance in this matter. Contact Person: Byron K. Jones, Chief Financial Officer Phone: (706) 672-4297, Fax:(706) 672-1618 Email: byrjones@meriwether .k 12.ga. us -2-