Montgomery County Board of Education, Mount Vernon, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2007

MONTGOMERY COUNTY BOARD OF EDUCATION
MOUNT VERNON, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2007
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

MONTGOMERY COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION -SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

1

B

STATEMENT OF ACTIVITIES

2

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

4

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

5

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

6

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

7

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

8

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

9

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

23

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

24

3 SCHEDULE OF STATE REVENUE

26

MONTGOMERY COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

27

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

29

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

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

SECTION I FINANCIAL

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

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
May 8, 2008

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Montgomery 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 Montgomery County Board of Education, as of and for the year ended June 30, 2007, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Montgomery 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Montgomery County Board of Education's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.

2007ARL-11

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Montgomery County Board of Education, as of June 30, 2007, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The Montgomery County Board of Education has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States of America has determined is necessary to supplement, although not to be part of, the basic financial statements.
In accordance with Government Auditing Standards, we have also issued our report dated May 8, 2008, on our consideration of the Montgomery County Board of Education's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 23, 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 Montgomery County Board ofEducation's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24.
Respectfully submitted,
~w~:1-s.
Russell W. Hinton, CPA, CGFM State Auditor
RWH:gp 2007ARL-l l

MONTGOMERY COUNTY BOARD OF EDUCATION

MONTGOMERY COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2007

EXHIBIT "A"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories Capital Assets Land Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries and Benefits Payable Contracts Payable Deposits and Deferred Revenues Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Capital Projects Un restricted
Total Net Assets
Total Liabilities and Net Assets

GOVERNMENTAL ACTIVITIES

$

566,693

31,182

199,991 1,082,115
544,686 69,065 15,450

159,074 582,993 12,871,971 1,816,280 -3 987 013

$ ===1=3:e:,9=5=-2,=48=7=

$

39,102

1,149,368

323,406

39,448

65,253 270 681

$

1,887,258

$

11,107,371

156,273 493,577 308 008

$

12,065,229

$ ===1=3;.,;,9=5=-2,==48=7=

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

MONTGOMERY COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2007

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Intangible Recording Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year

EXPENSES

CHARGES FOR SERVICES

$

8,209,579 $

293,403 326,128 198,294 629,534 1,059,671 249,809 775,669 346,105
11,020 21,504

149,994 690,167
17 560

$ ====1=2,=97=8=,4=37= $

85,405
99,631
137,225 124,933 447 194

Net Assets - End of Year

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

EXHIBIT "B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

7,032,304

70,806 136,178 150,284 469,023 428,088

333,142 275,121 $

21,241

574,585

$

9 490 772 $

$ 228,888 228,888 $

-1,091,870
-222,597 -189,950
-48,010 -160,511 -531,952 -249,809 -442,527 157,904
-11,020 -263
-12,769 9,351
-17 560
-2,811,583

$

1,920,784

634,563 44,386 894,532 16,303 348 981

$

3 859 549

$

1,047,966

11017263

$ ===1=2"'=,0=6='5,=22=9=

-3-

MONTGOMERY COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2007

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Cash Overdraft Accounts Payable Salaries and Benefits Payable Contracts Payable Deposits and Deferred Revenue
Total Liabilities
FUND BALANCES
Reserved for: Continuation of Federal Programs Inventories Capital Projects
Unreserved Designated for Student Activities Undesignated Reported in: General Fund
Total Fund Balances
Total Liabilities and Fund Balances

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

TOTAL

$

$

31,182

34,110 1,007,115
544,686 69,065 15 450

633,902 $
108,081 75,000

633,902 31,182
142,191 1,082,115
544,686 69,065 15450

$

1,701,608 $

816,983 $ ======2=,5=1=8,=59=1=

$

67,209

39,102

1,149,368

$

39448

$

1,295,127 $

$ 323,406 323,406 $

67,209 39,102 1,149,368 323,406 39448
1,618,533

$

140,823

$

140,823

15,450

15,450

$

493,577

493,577

34,287

34,287

215,921

215,921

$

406 481 $

493 577 $

900,058

$

1,701,608 $

816,983 $ ======2=,5=1=8'=59=1=

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

MONTGOMERY COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2007

EXHIBIT "D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land 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.
Capital Leases, which are Long-Term Liabilities, are not due and payable in the current period and therefore are not reported as liabilities in the funds.

$

900,058

$

159,074

582,993

12,871,971

1,816,280

-3,987,013

11,443,305

57,800 -335 934

Net Assets of Governmental Activities (Exhibit "A")

$ 12,065,229

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

MONTGOMERY COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2007

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 Bysiness Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

TOTAL

$ 1,925,937 44,386 $
8,040,862 2,573,330
447,194 8,266
348 981
$ 13,388,956 $

$ 634,563
8,037 642,600 $

1,925,937 678,949
8,040,862 2,573,330
447,194 16,303
348 981
14,031,556

$ 8,348,394
293,403 327,959 198,716 631,417 1,060,673 249,809 777,609 628,465
11,020 21,504 149,994 705,789
7,320 $
66,078 17 560
$ 13,495,710 $
$ -106,754 $
513,235

$
272,672 272,672 $ 369,928 $ 123,649

8,348,394
293,403 327,959 198,716 631,417 1,060,673 249,809 777,609 628,465
11,020 21,504 149,994 705,789 279,992
66,078 17 560
13,768,382
263,174
636,884

$

406 481 $ 493 577 $ ===9=00='=05=8=

The notes to the basic financial statements are an integral part of this statement. -6 -

MONTGOMERY 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, 2007

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.

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 consists of Capital Lease Payments.

$
1,093,139 -369,272

263,174
723,867 -5,153 66078

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

$ ====1,=04=7=,9=66=

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

MONTGOMERY COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2007
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT"G"
AGENCY FUNDS
$ ======6,==84=0=
$ =====6,=84=0=

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

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "H"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Montgomery 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 Montgomery County Board of Education.
District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.

-9-

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District reports the following major governmental funds:
General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund.
District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST) to be used for the acquisition, construction or renovation of major capital facilities.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governments or individuals.
BASIS OF ACCOUNTING
The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless ofwhen the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available 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 ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources.
- 10 -

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
CASH AND CASH EQUIVALENTS
COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated Section 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.
INVESTMENTS
COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:
(1) Obligations issued by the State of Georgia or by other states,
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,
(4) Obligations of any corporation ofthe 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

- 11 -

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

RECEIVABLES

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

PROPERTY TAXES

The Montgomery County Board of Commissioners fixed the property tax levy for the 2006 tax digest year (calendar year) on September 25, 2006 (levy date). Taxes were due on December 20, 2006 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2006 tax digest are reported as revenue in the governmental funds for fiscal year 2007. The Montgomery County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance oftaxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2007, for maintenance and operations amounted to $1,925,937.

The tax millage rate levied for the 2006 tax year (calendar year) for the Montgomery County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

13.9 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $634,563 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

- 12 -

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.

CAPITAL ASSETS

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

Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows:

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment Construction in Progress

Any Amount

$

10,000

$

10,000

$

5,000

$

10,000

NIA 15 to 80 years 50 to 80 years 5 to 30 years
NIA

Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives.

NET ASSETS

The School District's net assets in the District-wide Statements are classified as follows:

Invested in capital assets, net of related debt - This represents the School District's total investment in capital assets, net ofoutstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt.

- 13 -

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restricted net assets - These represent resources for which the School District is legally or contractually obligated to spend resources for bus replacement, continuation of Federal programs and capital projects in accordance with restrictions imposed by external third parties.
Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes.
Note 3: DEPOSITS
COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face value ofsuch surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance.
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,
(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,
(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,
(6) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia, and

- 14 -

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "H"

Note 3: DEPOSITS

(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.

CATEGORIZATION OF DEPOSITS At June 30, 2007, the bank balances were $1,644,906. The amounts of the total uninsured bank balances are classified into three categories of custodial credit risk:

Category 1 - Uncollateralized, Category 2 - Cash collateralized with securities held by the pledging financial institution, or Category 3 - Cash collateralized with securities held by the pledging financial institution's
trust department or agent but not in the School District's name.

The School District's uninsured deposits are classified by custodial credit risk category at June 30, 2007, as follows:

Custodial Credit Risk Category

Bank Balance

1

$

0

2

605,618

3

739,288

Total

$ 1,344.906

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:

- 15 -

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "H"

Note 5: CAPITAL ASSETS

Balances July I, 2006

Increases

Decreases

Balances June 30, 2007

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

$ 159,074 5,671,369 $

$ 811,102 $ 6,482,471

159,074 0

Total Capital Assets Not Being Depreciated $ 5,830,443 $ 811,102 $ 6,482,471 $ 159 074

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 6,389,500 $ 6,482,471 $

1,534,243

282,037

582,993

0 $ 12,871,971 1,816,280 582,993

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

2,559,884 922,759 135,098

216,263 116,854 36 155

2,776,147 1,039,613
171,253

Total Capital Assets, Being Depreciated, Net $ 4,888,995 $ 6,395,236 $

0 $ 11,284,231

Governmental Activity Capital Assets - Net $ 10,719,438 $ 7.206,338 $ 6,482.471 $ 11,443,305

Capital assets being acquired under capital leases as of June 30, 2007, are as follows:

Buildings Land Improvements Equipment Less: Accumulated Depreciation

Governmental Funds

$

56,135

265,262

201,148

86,932

Current year depreciation expense by function is as follows:

$=====4==35-,6==1==3

- 16 -

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "H"

Note 5: CAPITAL ASSETS

Instruction Support Services
Improvements of Instructional Services Educational Media Services General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Food Services

$ 238,860

$

4,237

977

4,357

2,320

4,489

83,148

99,528 30,884

Note 6: RESTRICTED ASSETS

$=====3==69-,2==7==2

Special Purpose Local Option Sales Tax (SPLOST) funds are restricted assets in the Statement of Net Assets because their use is limited by applicable statutory provisions. Restricted assets at June 30, 2007, were as follows:

District-wide Capital Projects SPLOST

Restricted Cash and Cash Equivalents: Capital Acquisitions

$ 633,902

Note 7: RISK MANAGEMENT

The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation.

The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions and job related illness or injuries to employees. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years.

The School District has elected to self-insure for all losses related to acts of God. The School District has not experienced any losses related to this risk in the past three years.

- 17 -

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"H"

Note 7: RISK MANAGEMENT

The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount ofthat loss can be reasonably estimated.

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

2006 2007

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End of Year Liability

$

2,628 $

14 996 $

14,882 $

2 742

$

2 742 $

0 $

2 742 $

0

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

Position Covered

Amount

Superintendent Each Principal Each Assistant Principal Payroll Clerk Each Bookkeeper Each Secretary School Food Service Director All Employees

$

25,000

$

10,000

$

10,000

$

10,000

$

10,000

$

10,000

$

10,000

$ 100,000

Note 8: SHORT-TERM DEBT

The School District obtained a temporary loan to provide cash for the construction ofa new football field. Article IX, Section V, Paragraph V of the Constitution of the State of Georgia limits the aggregate amount of short-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

Temporary Loans

$ 52.353 $===0 $ 13,462 $ 38.891 (*)

(*) This debt balance is not recorded as a liability in these financial statements.

- 18 -

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "H"

Note 9: LONG-TERM DEBT

CAPITAL LEASES The Montgomery County Board ofEducation has entered into various lease agreements as lessee for a building, lighting upgrades and equipment. These lease agreements qualify as capital leases for accounting purposes, and, therefore, have been recorded at the present value ofthe future minimum lease payments as of the date of their inception.

The changes in Long-Term Debt during the fiscal year ended June 30, 2007, were as follows:

Balance July 1, 2006

Governmental Funds Capital Leases
$ 402,012

Deductions Debt Retired

66,078

Balance June 30, 2007
Portion of Long-Term Debt Due within One Year

$=~3=35-,9=!!,3==4 $_---=6=->5=-=25'-=-3

At June 30, 2007, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30

Capital Leases

Principal

Interest

2008 2009 2010 2011 2012 2013 - 2014

$

65,253 $

14,443

67,893

11,230

68,256

8,003

64,407

4,606

30,320

2,457

39,805

1 167

Total Principal and Interest

$ 335.934 $

41,906

Note 10: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $225,435 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.

- 19 -

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "H"

Note 10: ON-BEHALF PAYMENTS
Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $221,287
Paid to the Teachers Retirement System of Georgia For Teachers Retirement System (TRS) Employer's Cost In the amount of $3,019
Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $1,129
Note 11: 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 a law suit, filed on behalf of a student against the school system, the former Superintendent and a former school counselor, claiming a variety ofwrongs. The School District is presently being defended by its liability carrier. However, it is possible that the liability carrier may not be liable for any damage award under the existing policy, should an unfavorable verdict be made against the school system. While it is too early to determine any outcome, the plaintiffin the suit has made a previous demand of$2,000,000. Actual exposure would likely be far less than the demand, but could, nevertheless, be significant.
A declaratory judgment action has been filed by the parent company ofthe School District's liability carrier, against the parties in the above-referenced action. The purpose of this suit is for a court to determine whether or not the insurance carrier is liable for any damages and/or to provide a defense to any ofthe named defendants in the above-described suit. Should the insurance carrier be relieved ofany liability, the school system may be subject to substantial defense expenses and the liability of any verdict.
The School District is a defendant in various other legal proceedings pertaining to matters incidental to the performance of routine School District operations. The ultimate disposition of these other proceedings is not presently determinable, but is not believed to be material to the basic financial statements.

- 20 -

MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "H"

Note 12: 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 9.28% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2007 2006 2005

100% 100% 100%

$ 640,689 $ 581,306 $ 535,403

- 21 -

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MONTGOMERY COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2007

SCHEDULE "1"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation
Capital Outlay Debt Service
Total 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

$

3,300,110 $

3,300,110 $

1,925,937

25,000

25,000

44,386

7,630,072

7,788,518

8,040,862

1,477,833

1,578,361

2,573,330

128,625

130,875

447,194

6,475

6,475

8,266

764 729

761 229

348 981

$

13 332 844 $

13,590,568 $

13,388,956

$

7,503,072 $

7,567,182 $

8,348,394

425,490 167,323 235,658 588,986 803,139 228,706 742,882 445,633
9,867 19,034
622,785 47,520

359,966 311,991 221,493 638,636 857,499 231,916 690,612 433,166
9,867 8,023
622,785 43,520

293,403 327,959 198,716 631,417 1,060,673 249,809 777,609 628,465
11,020 21,504 149,994 705,789
7,320 83 638

$

11 840 095 $

11,996,656 $

13 495 710

$

1,492,749 $

1,593,912 $

-106,754

$

1,492,749 $

692,628

-869 242

-5 900 1,588,012 $
655,261 -869 242

-106,754 513,235

Fund Balances - Ending

$

1 316 135 $

1374031 $===4=0=6-=4=81=

Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual

(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts.

The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 23 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2007

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 Hurricane Education Recovery Improving Teacher Quality State Grants Migrant Education Reading First State Grants Rural Education Safe and Drug-Free Schools and Communities - State Grants State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Pass-Through From Wheeler County Board of Education Safe Schools/Healthy Students Initiative Twenty-First Century Community Learning Centers
Total U.S. Department of Education
Health and Human Services, U. S. Department of Pass-Through From Wheeler County Board of Education Adolescent Family Life Demonstration Projects
Labor, U.S. Department of Pass-Through From Georgia Department of Education Career Development Grant
Total Federal Financial Assistance
NIA = Not Available

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 10.555

N/A

NIA

$

$

(2) 638 221
638,221

10.550

NIA $

31 002 669 223

* 84.027 * 84.173

N/A

$

N/A

$

334,864 10 638
345,502

84.318 84.938 84.367 84.011 84.357 84.358 84.186 84.298 84.010 84.048
* 84.184 84.287

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

90,438 (3)
152,884 12,441
249,855 30,730 6,180 3,781
552,123 28,429
401,948 127 197
2,001,508

93.995

N/A $

68 810

17.258

N/A $

6 000

$ ===2=74=5=5=4=1

- 24 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2007

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 ($150,705) were not maintained separately and are included in the 2007 National School Lunch Program.
(3) Funds earned and expended in the prior period on the Hurricane Education Recovery program, in the amount of $499, do not require reporting of expenditures.
Major Programs are identified by an asterisk (*) in front of the CFDA number.
The School District did not provide Federal Assistance to any Subrecipient.
The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Montgomery 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.

- 25-

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2007

AGENCY/FUNDING
GRANTS Bright from the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Amended Formula Adjustment Other State Programs Health Insurance High School Graduation Coach Middle School Summer Remedial Program Preschool Handicapped Program Pupil Transportation - State Bonds Statewide K-8 Reading and Mathematics Program Teachers' Retirement
Office of Treasury and Fiscal Services Public School Employees Retirement

See notes to the basic financial statements.

- 26 -

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

283,633

265,024 234,577 639,741 384,876 393,823 164,277 641,528 662,395 227,705
109,478 79,109
307,589 71,701 83,899
151,575 143,733
54,410 47,344 127,233 39,895 24,926
325,128 339,006 326,185
269,142 28,888 27,802 39,920 4,129 84,663
894,532 32,196
152,414 -121,996
221,287 40,075 1,736 13,500
200,000 19,636 3,019
1 129
$ ===8=0=4=0=86=2=

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2007

SCHEDULE "4"

PROJECT
Construction of ten (10) classrooms and renovation of a media center, hallways, physical education facility, administration area and restrooms at the Montgomery County Elementary School and the renovation of physical education facilities, roof repair and other renovations in various buildings and the construction of science laboratories at the Montgomery County Middle School and High School.
Improvements and repairs to school system facilities and equipment purchases for use by students and school system staff.

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT
YEAR (3)

AMOUNT EXPENDED
IN PRIOR YEARS (3)

PROJECT STATUS

$ 2,000,000 $ 6,212,897

$ 6,212,897 Complete

3,500,000

3,500,000 $

272,672

Ongoing

$ 5,500,000 $ 9,712,897 $

272,672 $ 6,212,897

(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 Montgomery County approved the imposition of a 1% sales tax to fund the above project. Amounts expended for this project may include sales tax proceeds, state, local property taxes and/or other funds over the life of the project.

See notes to the basic financial statements.

-27 -

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MONTGOMERY COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2007

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 Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL)
TOTAL DIRECT INSTRUCTIONAL PROGRAMS
Media Center Program Staff and Professional Development

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

ELIGIBLE QBE PROGRAM COSTS

SALARIES OPERATIONS

TOTAL

$

298,554 $

397,701 $

12,556 $

410,257

244,150

122,504

2,944

125,448

721,571

1,066,839

28,404

1,095,243

404,404

239,359

3,053

242,412

427,455

370,836

13,682

384,518

175,364 730,556 707,637 276,862 710,045
168,991 138,761
60,966 51 813

128,707 937,587 937,880 268,345
149,184 217,030 231,932
653 129,675 151,789
163 60,309

2,944 24,260 61,030 58,078
53 3,109 5,013
2,656
72,273 1 061

131,651 961,847 998,910 326,423
149,237 220,139 236,945
653 132,331 151,789
72,436 61 370

$

5,117,129 $ 5,410,493 $

291,116 $

5,701,609

140,049 27668

198,016 1 232

17,676 23607

215,692 24 839

TOTAL QBE FORMULA FUNDS

$

5,284,846 $ 5,609,741 $

332,399 $ ===5,=94=2=1,=4=0

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

See notes to the basic financial statements.

- 29-

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

Russell W. Hinton
STATE AUDITOR
(404) 656-217 4

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
May 8, 2008

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Montgomery 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 ofMontgomery County Board of Education as ofand for the year ended June 30, 2007, which collectively comprise Montgomery County Board of Education's basic financial statements and have issued our report thereon dated May 8, 2008. 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 Montgomery County Board of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose ofexpressing an opinion on the effectiveness of the Montgomery County Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Montgomery County Board of Education's internal control over financial reporting.
Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies.
2007YB-40

A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affect the Montgomery County Board of Education's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Montgomery County Board of Education's financial statements that is more than inconsequential will not be prevented or detected by the Montgomery County Board of Education's internal control. We consider items FS-7031-07-01, FS-7031-07-02, FS-7031-07-03, FS-7031-0704, FS-7031-07-05, FS-7031-07-06 and FS-7031-07-07 in the accompanying Schedule ofFindings and Questioned Costs to be significant deficiencies in internal control over financial reporting.
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement ofthe financial statements will not be prevented or detected by the Montgomery County Board of Education's internal control.
Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph ofthis section and would not necessarily disclose all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, of the significant deficiencies described above, we consider items FS-7031-07-02 and FS-7031-07-07 to be material weaknesses.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Montgomery County Board ofEducation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
We noted certain matters that we have reported to management of Montgomery County Board of Education in a separate letter dated May 8, 2008.
Montgomery County Board of Education's response to the findings identified in our audit is described in the accompanying Schedule of Management's Responses. We did not audit Montgomery County Board of Education's response and, accordingly, we express no opinion on it.
2007YB-40

This report is intended solely for the information and use of the management, members of the Montgomery County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
RWH:gp 2007YB-40

Russell W. Hinton
STATE AUDITOR
(404) 856-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
May 8, 2008

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Montgomery 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 Montgomery 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, 2007. Montgomery County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility ofMontgomery County Board of Education's management. Our responsibility is to express an opinion on Montgomery County Board of Education's compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Montgomery County Board ofEducation's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Montgomery County Board of Education's compliance with those requirements.
2007SA-55

As described in items FA-7031-07-01, FA-7031-07-02, FA-7031-07-03 and FA-7031-07-05 in the accompanying Schedule of Findings and Questioned Costs, Montgomery County Board of Education did not comply with requirements regarding Activities Allowed or Unallowed, Allowable Costs/Cost Principles and Procurement and Suspension and Debarment that are applicable to its Child Nutrition Cluster (CFDA 10.553 and 10.555), Special Education Cluster (CFDA 84.027 and 84.173), Safe Schools/Healthy Students Initiative (CFDA 84.184) and Twenty-First Century Community Leaming Centers (CFDA 84.287) programs. Compliance with such requirements is necessary, in our opinion, for Montgomery County Board ofEducation to comply with requirements applicable to those programs.
In our opinion, except for the noncompliance described in the preceding paragraph, the Montgomery 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, 2007. The results of our auditing procedures also disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with 0MB Circular A-133 and which are described in the accompanying Schedule of Findings and Questioned Costs as items FA-703107-04, FA-7031-07-06, FA-7031-07-07, FA-7031-07-08, FA-7031-07-09 and FA-7031-07-10.
Internal Control Over Compliance
The management of Montgomery 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 Montgomery 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 ofexpressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness ofthe Montgomery County Board of Education's internal control over compliance.
Our consideration of the internal control over compliance was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in the Board's internal control that might be significant deficiencies or material weaknesses as defined below. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be significant deficiencies and others we consider to be material weaknesses.
A control deficiency in an entity's internal control over compliance exists when the design or operation ofa control does not allow management or employees, in the normal course ofperforming their assigned functions, to prevent or detect noncompliance with a type ofcompliance requirement of a Federal program on a timely basis. A significant deficiency is a control deficiency, or combination ofcontrol deficiencies, that adversely affects the entity's ability to administer a Federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a Federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. We consider the deficiencies in internal control over compliance described in the accompanying Schedule ofFindings and Questioned Costs as items FA-7031-07-01, FA-7031-07-02, FA-7031-07-03, FA-7031-07-04, FA-7031-07-05, FA7031-07-06 and FA-7031-07-07 to be significant deficiencies.
2007SA-55

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement ofa Federal program will not be prevented or detected by the entity's internal control. Of the significant deficiencies in internal control over compliance described in the accompanying Schedule of Findings and Questioned Costs, we consider items FA-7031-07-01, FA-7031-07-02, FA-7031-07-03 and FA-7031-07-05 to be to be material weaknesses.
Montgomery County Board of Education's response to the findings identified in our audit is described in the accompanying Schedule of Management's Responses. We did not audit Montgomery County Board of Education's response and, accordingly, we express no opinion on it.
This report is intended solely for the information and use of the management, members of the Montgomery 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,
~~-~~nt~~~
State Auditor
RWH:gp 2007SA-55

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

MONTGOMERY COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER

SEE AUDITEE'S RESPONSE/STATUS

AUDITOR'S COMMENTS

FS-7031-05-01 Further Action Not Warranted

FS-7031-05-02 Further Action Not Warranted

FS-7031-05-03 Further Action Not Warranted

FS-7031-05-04 Further Action Not Warranted

FS-7031-06-01 Unresolved - See Corrective Action/Responses

FS-7031-06-02 Unresolved - See Corrective Action/Responses

FS-7031-06-03 Unresolved - See Corrective Action/Responses

FS-7031-06-04 Unresolved - See Corrective Action/Responses

FS-7031-06-05 Partially Resolved - See Corrective Action/Responses

FS-7031-06-06 Further Action Not Warranted

(1)

FS-7031-06-07 Partially Resolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Finding Control Number: FS-7031-06-01

Secretaries at the school will receipt the monies and then give to bookkeeper to deposit. Principals will review invoices and checks written and sign off on them. Principals will review bank statements and sign off on them also.

CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls at the Central Office Finding Control Number: FS-7031-06-02

We concur with this finding. The School District will implement procedures at the central office to resolve these deficiencies.

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MONTGOMERY COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTION/RESPONSES
CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Debit Card Expenditures Finding Control Number: FS-7031-06-03
We concur with this finding. The Principal has destroyed the debit card. State Travel regulations will be followed. The Principal will review checks and payment vouchers.
ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls Finding Control Number FS-7031-06-04
We concur with this finding. The School District has a limited staff and is aware of the access control deficiencies.
GENERAL LEDGER Incomplete General Ledger/DE046 Financial Report Finding Control Number: FS-7031-06-05
We concur with this finding. The School District will make sure the General Ledger and DE046 is complete and accurate.
CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Finding Control Number: FS-7031-06-07
We concur with this finding. The School District will make sure Capital Assets are maintained properly.
AUDITOR'S COMMENTS
(1) Findings/internal control deficiencies ofthis nature, that are not deemed significant deficiencies or material weaknesses and do not require reporting in the audit report in accordance with Statements on Auditing Standards (SAS) 112 or Governmental Auditing Standards (Yellow Book), will be communicated in a management letter in subsequent periods.
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MONTGOMERY COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-7031-06-01

Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

SPECIAL TESTS AND PROVISIONS Deficiencies in Hiring "Highly Qualified" Personnel Finding Control Number: FA-7031-06-01

We concur with this finding. Highly Qualified Personnel requirements will be followed.

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SECTION IV FINDINGS AND QUESTIONED COSTS

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

I SUMMARY OF AUDITOR'S RESULTS

1. Type of Report Issued on the Financial Statements The auditor's opinion on the Montgomery County Board ofEducation's financial statements was unqualified.

2. Significant Deficiencies in Internal Control Disclosed by the Audit ofthe Financial Statements The audit report for the Montgomery County Board of Education disclosed financial statement significant deficiencies related to the following control categories.

Cash and Cash Equivalents Revenues/Receivables/Receipts Accounting Controls (Overall) Financial Reporting

Expenditures/Liabilities/Disbursements Employee Compensation Capital Assets

Of the significant deficiencies described above, Cash and Cash Equivalents, Expenditures/Liabilities/Disbursements and Financial Reporting are considered to be material weaknesses.

3. Noncompliance Material to the Financial Statements The audit of the Montgomery County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements.

4. Significant Deficiencies in Internal Control Over Major Programs The audit report for the Montgomery County Board of Education disclosed significant deficiencies in internal control over major programs for the following compliance requirements.

Activities Allowed or Unallowed Allowable Costs/Cost Principles Reporting

Period of Availability of Federal Funds Procurement and Suspension and Debarment

Ofthe significant deficiencies described above, Activities Allowed or Unallowed, Allowable Costs/Cost Principles and Procurement and Suspension and Debarment are considered to be material weaknesses.

5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Montgomery County Board of Education's report on compliance with requirements applicable to major programs was qualified.

6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Montgomery County Board ofEducation's audit disclosed audit findings required to be reported by section .510(a) ofOMB Circular A-133. These audit findings are included in section IV of this report.

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

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 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 84.184 Safe Schools/Healthy Students Initiative 84.287 Twenty-First Century Community Leaming Centers

8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.

9. Low Risk Auditee The Montgomery County Board ofEducation did not qualify as a low risk auditee as defined by Section .530 ofOMB Circular A-133.

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Significant Deficiency Finding Control Number: FS-7031-07-01

Condition:

This is a repeat finding (FS-7031-06-01 and FS-7031-05-01) from the years ended June 30, 2006, and June 30, 2005, respectively. The accounting procedures of the School District were insufficient to provide for adequate internal controls over the school activity accounts.

Criteria:

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

Questioned Cost: NIA

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Finding Control Number: FS-7031-07-01 (continued)

Information:

Cash and Cash Equivalents The bank reconciliation function was not separated from the record keeping and check preparation functions. The bank reconciliations did not include evidence of approval by an administrator not directly connected with cash operations. The bank account for Montgomery County Elementary School was not properly reconciled to the books at June 30, 2007. The School District's Federal Employee Identification (FEI) number was used by two unauthorized organizations for their bank accounts.

Revenues/Receivables/Receipts The cash receipts and deposit preparation functions were not separated from the record keeping and cash custody functions. Based on a review of thirty items, the following deficiencies were noted: 1. Two receipts were not deposited in a timely manner. 2. Twelve receipts lacked adequate supporting documentation. 3. One receipt could not be traced to the general ledger or the bank statement. 4. One receipt did not equal the amount deposited at the bank.

Expenditures/Liabilities/Disbursements The check writing function was not separated from the record keeping function. Two employees were paid for personal services from the School Activity Accounts rather than through the Central Office Payroll System. Based on a review ofthirty vouchers, the following deficiencies were noted: 1. Twenty-six vouchers did not include properly approved purchase orders. 2. Thirteen vouchers lacked proper approval for payment. 3. Thirteen vouchers did not contain an invoice or itemized receipt. It could not be determined if the correct amounts were paid due to the lack of documentation.

Cause:

These deficiencies were a result of management's decision to limit the number of administrative staffmade responsible for accounting functions and management's failure to ensure that internal controls were established, implemented and functioning at the school level.

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Finding Control Number: FS-7031-07-01 (continued)

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

The School District should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization are separated and/or utilize management oversight for these incompatible activities. In addition, management should monitor controls to provide reasonable assurance that transactions are processed according to established procedures and implement procedures deemed necessary to strengthen internal controls over the accounting functions.

CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls at the Central Office Material Weakness Finding Control Number: FS-7031-07-02

Condition:

This is a repeat finding (FS-7031-06-02 and FS-7031-05-02) from the years ended June 30, 2006, and June 30, 2005, respectively. The accounting procedures of the School District were insufficient to provide for adequate internal controls at the Central Office.

Criteria:

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

Questioned Cost: $78,472

Information:

Cash and Cash Equivalents The bank reconciliation for the School Food Services account was not reconciled to the general ledger at June 30, 2007. The School District failed to properly record a certificate of deposit redemption on the general ledger.

Expenditures/Liabilities/Disbursements Based on a review of two hundred and three vouchers, the following deficiencies were noted: 1. Fifty-seven vouchers did not contain purchase orders. 2. One hundred, fourteen vouchers lacked proper approval for payment. 3. Six vouchers had no evidence for the receipt of goods.

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
Finding Control Number: FS-7031-07-02 (continued)
4. Seventy-two vouchers were charged to the improper funds and/or objects.
5. Nine 2008 fiscal year vouchers, totaling $7,826, were erroneously charged to the 2007 fiscal year.
6. Thirty-five vouchers, totaling $4,327, did not contain adequate documentation.
7. One voucher, in the amount of $201, was erroneously paid twice.
8. Fourteen vouchers included charges for sales tax. 9. Mileage reimbursements made to employees erroneously
included home to office miles and other unallowable miles resulting in total travel overpayments of $1,813. 10. Payments totaling $55,868 were paid to employees as additional compensation without adequate documentation to support these payments. These payments were not processed through the Payroll System. W-2 forms were not completed for this compensation as required by the Internal Revenue Service. These payments should have been subject to Income Tax and Social Security withholdings.
Based on a review of eighty-two credit card transactions, the following deficiencies were noted: 1. Twenty-two transactions, totaling $3,164, did not contain invoices or receipt documentation. (Eleven ofthese were for motel charges totaling $2,100). 2. Six other transactions, totaling $259, did not have itemized receipts. 3. Twelve transactions, totaling $27, included charges for sales tax. 4. Finance and/or late fee charges of $221 were paid. 5. Four transactions, totaling $200, were for gasoline purchases for an individual's personal vehicle in violation of the Statewide Travel Regulations. 6. Eight transactions, totaling $824, were paid for group meals which circumvented the State travel guidelines. These meals were not allowable under the Statewide Travel Regulations.
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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Finding Control Number: FS-7031-07-02 (continued)

During the year under review, the School District received a donation of $4,000 from the Coca-Cola Company to be spent at the Superintendent's discretion. The Board overspent this amount by $3,742 for purchases that would not normally be considered allowable expenditures for the other funding sources of the General Fund. The School District maintained these funds separately but failed to have adequate accounting controls in place to ensure that these donated funds were not overspent.

Cause:

These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the Central Office.

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

Management should review the accounting procedures in place, design procedures which would enhance internal controls relative to the above control categories and implement those procedures to strengthen the internal control over these accounting functions. In addition, management should establish accounting controls to ensure that purchases are for necessary, educational purposes or that discretionary funds are maintained separately and monitored to prevent overexpenditure.

CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Debit Card Expenditures Significant Deficiency Finding Control Number: FS-7031-07-03

Condition:

This is a repeat finding (FS-7031-06-03) from the year ended June 30, 2006. School District personnel did not ensure that purchases made with the Montgomery County Elementary School's debit card were properly documented and/or authorized.

Criteria:

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

Questioned Cost: NIA

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Finding Control Number: FS-7031-07-03 (continued)

Information:

A review of the Montgomery County Elementary School's bank statements for the period July 1, 2006, to June 30, 2007, revealed that a debit card was being used to make charges directly to the bank account. There were no procedures in place to ensure that charges were allowable prior to payments.

Based on a review of fifteen debit card transactions, the following weaknesses in internal controls were noted: 1. Fourteen transactions lacked the proper approval for purchase. 2. One transaction had a purchase order completed after the purchase date. 3. One transaction included a charge for sales tax.

Cause:

These deficiencies were- a result of management's failure to ensure that internal controls were established, implemented and functioning with regard to the Montgomery County Elementary School debit card.

Effect:

Errors and/or irregularities may occur and not be detected in a timely manner.

Recommendation:

The School District should establish policies and procedures to ensure that expenditures are utilized only for educational purposes and properly documented or discontinue use of the debit card.

ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls Significant Deficiency Finding Control Number: FS-7031-07-04

Condition:

This is a repeat finding (FS-7031-06-04) from the year ended June 30, 2006. The accounting procedures ofthe School District did not maintain adequate separation of duties in the Financial Accounting System.

Criteria:

Separation of duties involving key accounting functions, both manual and automated, is the basis for achieving an adequate system of internal control.

Questioned Cost: NIA

Information:

Access controls in the Financial Accounting System do not prevent users from accessing accounting functions that are outside of their area of responsibility.

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Finding Control Number: PS-7031-07-04 (continued)

Cause:

The School District's management is responsible for designing and maintaining internal controls that restrict access to programs or data. Management has not limited the access rights of users of the Financial Accounting System.

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

Management should ensure that the access controls in the accounting information system should complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of the employee's duties.

EMPLOYEE COMPENSATION Inadequate Controls over Payroll Process Significant Deficiency Finding Control Number: PS-7031-07-05

Condition:

The School District failed to implement procedures to ensure that salary payments were accurately calculated, documented, and posted to the accounting records. In addition, the School District failed to maintain complete personnel files for all employees.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that employees are paid according to approved salary schedules and that personnel files are maintained with documentation to support the payments. Additionally, management should ensure that salaries are charged to the correct accounts in the financial records in line with employee duties.

Official Code of Georgia Annotated (O.C.G.A.) 20-2-211 states in part: "Employment contracts of teachers, principals, and other certificated professional personnel shall be in writing, and such contracts shall be signed in duplicate by such personnel on their own behalf and by the executive office of the local unit of administration on behalf of its governing board".

Questioned Cost: $45,927

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Finding Control Number: FS-7031-07-05 (continued)

Information:

Weaknesses in internal controls related to employee compensation were noted as follows:
a) Procedures were not in place to ensure that personnel files include adequate documentation to support salary payments.
b) Procedures were not in place to ensure that salary payments were properly calculated based on an approved rate of pay.
c) In some instances, financial personnel signed the contracts for the Superintendent.

A review of fifty-one employee payroll records revealed the following deficiencies:
a) Two instances were noted where the amount paid did not agree to the contract amount. In one ofthese instances, the contract amount was in error. The other instance resulted in an overpayment of$ I0, 183 to the former Superintendent.
b) Three instances were noted where the employee's salary was not properly pro-rated among funds in accordance with the duties assigned.
c) Two instances were noted where there was insufficient documentation to support the employee compensation payments made.
d) Twenty-two instances were noted where employees were not paid according to the approved contracts or pay scales, resulting in one underpayment of $5,045 and twenty-one overpayments totaling $35,744.

Cause:

Management failed to implement and adequately monitor procedures to ensure that payments made to employees were based on an approved rate of pay that was adequately documented in the employees' personnel files and properly posted to the accounting records in accordance with their assigned duties.

Effect:

Errors and/or irregularities may occur and not be detected in a timely manner. In addition, the School District's employment contracts could be determined to be invalid, illegal and unenforceable.

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Finding Control Number: FS-7031-07-05 (continued)

Recommendation:

Management should develop and implement policies and procedures to ensure that payments made to employees are based on approved rates ofpay that are adequately documented in the employees' personnel files and that expenditures are properly charged to the appropriate program in the financial records. Additionally, the School District should establish policies and procedures designed to ensure that teacher contracts are valid and enforceable in accordance with the provisions ofO.C.G.A. 20-2-211.

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Significant Deficiency Finding Control Number: FS-7031-07-06

Condition:

This is a repeat finding (FS-7031-06-07) from the year ended June 30, 2006. The School District failed to adequately maintain capital assets records.

Criteria:

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

Questioned Cost: NIA

Information:

The Capital Assets listing and the School District's financial statements presented for audit failed to include current year additions for equipment of $96,020. In addition, the related depreciation expense of$12,003 was also not recorded. Audit adjustments were proposed and made to record this activity.

Cause:

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

Effect:

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

Recommendation:

The School District should review 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.

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINANCIAL REPORTING Inadequate Controls over Financial Reporting Material Weakness Finding Control Number: FS-7031-07-07

Condition:

The School District did not have adequate controls in place over the financial statement reporting process.

Criteria:

Management is responsible for having adequate controls over the financial reporting process, which not only includes proper recording oftransactions to the general ledger, but extends to accurate preparation and presentation ofthe financial statements, including note disclosures.

Questioned Cost: NIA

Information:

The Governmental Accounting Standards Board (GASB) Statement 34 reporting model requires the presentation ofboth fund level and entity-wide level statements in the School District's financial statements. During the audit, numerous correcting entries were proposed by the auditor and accepted by the client to properly present the entity's fund level and entity-wide level financial statements.

Cause:

The School District did not implement an adequate system ofinternal control over the financial statement reporting process.

Effect:

The School District did not have adequate controls in place to ensure that the financial statements were properly prepared in accordance with generally accepted accounting principles.

Recommendation:

The School District should develop and implement internal controls over the financial statement reporting process to ensure that activity is properly recorded in the general ledger; to verify that financial statements (including note disclosures) properly reflect activity reported in the general ledger; and to include a monitoring process to evaluate the accuracy of the financials presented for audit.

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ACTIVITIES ALLOWED OR UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Material Weakness Material Noncompliance U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) U.S. Department of Education Through Georgia Department of Education Special Education Cluster (CFDA 84.027 and 84.173) Reading First State Grants (CFDA 84.357) Title I Grants to Local Educational Agencies (CFDA 84.010) Through Wheeler County Board of Education Safe Schools/Healthy Students Initiative (CFDA 84.184) Twenty-First Century Community Leaming Centers (CFDA 84.287) Finding Control Number: FA-7031-07-01

Condition:

A review ofexpenditures charged to various Federal programs revealed that costs were not adequately documented to ensure compliance with grant requirements.

Criteria:

Provisions of the 0MB Circular A-87, Cost Principles for Determining Allowable Costs, require that "to be allowable under Federal awards, costs must be... authorized or not prohibited under state or local laws or regulations and supported by underlying documentation".

Questioned Cost:

$47,893 Child Nutrition Cluster (CFDA 10.553 and 10.555) $84 Title I Grants to Local Educational Agencies (CFDA 84.010) $4,104 Safe Schools/Healthy Students Initiative (CFDA 84.184) $40,354 Twenty-First Century Community Leaming Centers (CFDA 84.287) $3,351

Information:

A review of one hundred and sixteen vouchers revealed the following deficiencies:
1. Thirty-nine vouchers did not contain purchase orders. 2. Sixty vouchers lacked proper approval for payment. 3. Six vouchers had no evidence for receipt of goods. 4. Thirty vouchers had amounts that differed from the amounts actually
paid.

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-01 (continued)

5. Thirty-six vouchers were erroneously charged to the wrong funds and/or objects.
6. Expenditures for two vouchers, totaling $4,104 were erroneously charged to the wrong grant period.
7. Sixteen vouchers did not contain adequate documentation. 8. Nine vouchers included charges for sales tax. 9. Fourteen vouchers, totaling $851, for travel reimbursements
erroneously included home to office miles. 10. Three vouchers, totaling $186, were for miles in excess of the
estimated travel distance. 11. Ten payments to employees for work performed, totaling $38,868,
lacked adequate documentation. 12. Payments to employees for a total of $32,482, charged to Other
Expenditures were not processed through the payroll system. W-2s were not issued for these payments and therefore income taxes were not withheld. 13. Twenty-one vouchers, totaling $3,879, were for unallowable expenditures. 14. One voucher exceeded the Statewide Travel Regulations' allowable meal allowance by $5. See Finding Control Number: FS-7031-07-02.

Cause:

Management failed to adequately monitor compliance with Federal guidelines to ensure that expenditures for these Federal Programs were allowable, properly approved and adequately documented.

Effect:

Failure to ensure that program costs were allowable, approved and properly documented resulted in material noncompliance with Federal grant requirements.

Recommendation:

The School District should implement procedures to ensure that all costs are allowable under 0MB Circular A-87, approved by appropriate management, and properly documented. The School District should contact the Georgia Department of Education and the Wheeler County Board of Education to determine the amount of refund for these questioned expenditures.

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ACTIVITIES ALLOWED OR UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Time and Attendance Records Not Utilized Material Weakness Material Noncompliance U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) U.S. Department of Education Through Georgia Department of Education Special Education Cluster (CFDA 84.027 and 84.173) Through Wheeler County Board of Education Safe Schools/Healthy Students Initiative (CFDA 84.184) Twenty-First Century Community Leaming Centers (CFDA 84.287) U. S. Department of Health and Human Services Through Wheeler County Board of Education Adolescent Family Life Demonstration Projects (CFDA 93.995) Finding Control Number: FA-7031-07-02

Condition:

Certifications and documentation based on time distribution records, as required by Federal guidelines, were not available for all School District employees whose salaries were paid from Federal programs.

Criteria:

Provisions of the 0MB Circular A-87, Cost Principles for Determining Allowable Costs, require that salaries be documented as follows:
a) Personnel who work on one Federal award will be supported by a semi-annual certification. The certifications will be signed by the employee and/or immediate supervisor.
b) For those personnel who work on multiple Federal activities or a Federal activity and non-Federal activity, a distribution of their salaries or wages to the Federal awards will be based on personnelactivity-reports (PARs). The PARs shall reflect after-the-fact certification ofthe time and effort ofeach employee on all activities. PARs are to be prepared monthly and signed by the employee.

Questioned Cost:

$86,755 Special Education Cluster (CFDA 84.027 and 84.173) $61,585 Safe Schools/Healthy Students Initiative (CFDA 84.184) $25,170

- 14 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-02 (continued)

Information:

Based on a review offifty-one (51) employees' payroll records, the following deficiencies were noted:
a) Five (5) employees whose salaries were charged solely to a Federal program were not supported with the required semi-annual certifications.
b) Five (5) employees whose salaries were paid from multiple Federal programs did not have the required personnel activity reports (PARs) supporting time and effort.

Cause:

Federal Program Directors and payroll personnel were unaware of the Federal requirements for documenting actual time and effort for Federal personnel and, as a result, the required certifications and PARs were not completed and used as a basis for documenting salary charges to each ofthe Federal programs.

Effect:

Because ofthe School District's failure to maintain the required semi-annual certifications and PARs supporting time and effort, it could not be determined if the correct amounts of salaries for these employees were properly charged to the appropriate Federal grant awards.

Recommendation:

The School District should implement procedures to ensure that, in line with Federal regulations, appropriate time and effort records are prepared and maintained for all personnel working on Federal programs. Management should ensure that all salaries charged to the Federal programs are commensurate with actual time devoted to those Federal programs. The affected grantors should review documentation to determine if refunds are appropriate.

- 15 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ALLOWABLE COSTS/COST PRINCIPLES Excessive Compensation Material Weakness Material Noncompliance U.S. Department ofAgriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) U.S. Department of Education Through Wheeler County Board of Education Twenty-First Century Community Learning Centers (CFDA 84.287) Safe Schools/Healthy Students Initiative (CFDA 84.184) U.S. Department of Health and Human Services Through Wheeler County Board of Education Adolescent Family Life Demonstration Projects (CFDA 93.995) Finding Control Number: FA-7031-07-03

Condition:

Inappropriate reimbursements and compensation were paid to employees and charged to the Child Nutrition Cluster (CFDA 10.553 and 10.555), TwentyFirst Century Community Learning Centers (CFDA 84.287), Safe Schools/Healthy Students Initiative (CFDA 84.184), and Adolescent Family Life Demonstration Projects (CFDA 93.995). In addition, there were employees not paid according to an approved contract or pay scale in the Child Nutrition Cluster and Twenty-First Century programs.

Criteria:

Provisions of 0MB Circular A-87, Cost Principles for Determining Allowable Costs, require that costs charged to a Federal award be program necessary and reasonable for proper and efficient performance and administration of the Federal program award. A cost should be allocable to the Federal award in accordance with the benefits received. Furthermore, consideration should be given as to whether (1) individuals acted with prudence in the circumstances considering their responsibilities to the government unit and the Federal government and (2) significant deviations from established practices would unjustifiably increase the cost of the Federal award.

Questioned Cost:

$61,479 Child Nutrition Cluster (CFDA 10.553 and 10.555) $23,743 Twenty-First Century Community Learning Centers (CFDA 84.287) $5,868 Safe Schools/Healthy Students Initiative (CFDA 84.184) $21,868 Adolescent Family Life Demonstration Projects (CFDA 93.995) $10,000

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-03 (continued)

Information:

We noted the following deficiencies relative to the compensation paid and charged to four Federal programs:

1) The Safe Schools/Healthy Students Initiative fund was charged a total of $68,500 for the salary of the Project Director to carry out his full time duties on this program. This was in line with the Federal agency's approved budget for the July 2006, through June 2007 grant period. Although paid a monthly salary to conduct his full time duties for the 12 month grant period, we noted that for July 2006, and June 2007, the Project Director was reimbursed $17,368 for time and effort on the program. The reimbursement for these two months was approved by the Project Director and was based on time sheets reflecting number of hours he worked on this program. We found that while the Board had no written contract with the Project Director, the Project Director viewed his position to be carried out for a 190 day work year. Ifneeded, summer hours could be documented with approved time cards as long as it was within budget. He advised that he was given verbal approval from the Superintendents of the three participating Boards of Education to receive the additional compensation for hours worked during these two months. However, two ofthe three Superintendents who were available during the audit advised that it was their understanding that his compensation would be in line with the budget approved for the Project Director's position for the twelve month grant period, and there was no discussion or approval given the Project Director for any further compensation that would be charged to the grant for the two months in question.
2) In addition, the Project Director received a $10,000 local supplement for duties associated with the Adolescent Family Life program. No documentation was provided to support this payment. The Project Director advised us that he was given verbal approval from the Superintendents ofthe three participating School Districts. However, an interview with the Superintendents did not support his explanation.
3) We also noted that in September 2006, the Project Director approved a 10% increase in compensation for a Mental Health Coordinator based upon the Coordinator acquiring a Licensed Professional Counselor (LPC) license. Board files had no record of the Coordinator's license and, upon request, neither the Project Director nor the Mental Health Coordinator could provide documentation that the Coordinator had actually received the license. The Project

- 17 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-03 (continued)

Director subsequently advised us that the increase was given based on the Mental Health Coordinator verbally advising him that she received the LPC license. From September 2006 through June 2007, the Safe Schools/Healthy Students program was charged $4,500 for the Coordinator's increase in compensation. 4) The Child Nutrition Program Director's supplement was increased from $3,000 to $5,000 in a prior year. The Child Nutrition Program Director was only eligible to receive $5,000 for the year under review. However, she was paid a total of $8,000, resulting in a $3,000 overpayment for receiving an incorrect local supplement. 5) Certain employees of the Twenty-First Century programs were not paid in accordance with an approved contract or pay scale resulting in an overpayment of$5,868. See Finding Control Number FS-703107-05. 6) Due to a clerical error made in the current year, fourteen Child Nutrition Program employees were overpaid a total of $20,743.

Cause:

Management did not have controls and procedures in place to assure that: 1) The amount of compensation and terms of employment for those personnel funded from the shared Federal programs were established by the three Superintendents governing activity for these programs, nor was this documented in Board records, 2) compensation paid to personnel or employees and charged to Federal programs were clerically accurate and in accordance with an approved contract or pay scale, and 3) those professionals who attained additional professional credentials or certifications were documented on Board files and any added compensation provided to such personnel was determined on a reasonable basis.

Effect:

Excessive costs were charged to the Child Nutrition Program, Safe Schools/Healthy Students Initiative Project, Twenty-First Century Community Leaming Centers and Adolescent Family Life Demonstration Projects for (1) inappropriate reimbursements for time and effort ofpersonnel and (2) an increase in compensation to one other professional without documentation that the increase was justified.

- 18 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-03 (continued)

Recommendation:

The School District should establish procedures to ensure that: 1) Adequate records are on file that document the amount of compensation, responsibilities, etc., of those personnel who are engaged in administering or carrying out the Safe Schools/Healthy Students Initiative Project, Twenty-First Century Community Leaming Centers Project and Adolescent Family Life Demonstration Project Federal program activities, 2) reimbursements paid to program personnel or employees and charged to Federal programs are in accordance with approved contracts or pay scales, and 3) copies of professional credentials/certifications are acquired and maintained for those personnel who attain such and any added compensation provided to affected personnel are determined on a reasonable basis.

The grantor organizations should review the above matter and determine ifa reclaim of funds is appropriate.

PERIOD OF AVAILABILITY OF FEDERAL FUNDS Expenditures Outside of Grant Period Significant Deficiency Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Reading First State Grants (CFDA 84.357) Through Wheeler County Board of Education Twenty-First Century Community Leaming Centers (CFDA 84.287) Finding Control Number: FA-7031-07-04

Condition:

An examination of transactions for the Reading First State Grants (CFDA 84.357) program and the Twenty-First Century Community Leaming Centers (CFDA 84.287) program revealed that expenditures occurring outside the grant period were charged to these programs.

- 19 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-04 (continued)

Criteria:

The Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments states, in part, "where a funding period is specified, a grantee may charge to the award only costs resulting from obligations of the funding period".

Questioned Cost:

$5,093 Reading First State Grants (CFDA 84.357) $4,104 Twenty-First Century Community Learning Centers (CFDA 84.287) $989

Information:

A review ofexpenditures revealed that three travel reimbursements charged to these programs were for travel costs incurred subsequent to the end ofthe grant period.

Cause:

Management failed to adequately monitor compliance with Federal guidelines to ensure that expenditures were charged during the approved grant period.

Effect:

Failure to ensure that expenditures were charged in the correct grant period resulted in noncompliance with the requirements of the Federal grant.

Recommendation:

The School District should implement adequate procedures to ensure that expenditures are charged to the appropriate grant period. The Georgia Department ofEducation and the Wheeler County Board ofEducation should review this matter to determine if a reclaim of funds is appropriate.

- 20 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

PROCUREMENT AND SUSPENSION AND DEBARMENT Failure to Implement Procurement Procedures Material Weakness Material Noncompliance U.S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) U. S. Department of Education Through Georgia Department of Education Special Education Cluster (CFDA 84.027 and 84.173) Reading First State Grants (CFDA 84.357) Title I Grants to Local Educational Agencies (CFDA 84.010) Through Wheeler County Board of Education Safe Schools/Healthy Students Initiative (CFDA 84.184) Twenty-First Century Community Learning Centers (CFDA 84.287) Finding Control Number: FA-7031-07-05

Condition:

The School District did not have adequate control procedures in place over the procurement process for the Child Nutrition Cluster (CFDA 10.553 and 10.555), Special Education Cluster (CFDA 84.027 and 84.173), Reading First State Grants (CFDA 84.357), Title I Grants to Local Educational Agencies (CFDA 84.010), Safe Schools/Healthy Students Initiative (CFDA 84.184) and Twenty-First Century Community Leaming Centers programs (CFDA 84.287).

Criteria:

The Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments Subpart C - Post-Award Requirements _.36 Procurement establishes procurement standards for subgrantees. Specifically, "... subgrantees will use their own procurement procedures which reflect applicable State and local laws and regulations".

Questioned Cost: NIA

Information:

Testing revealed that the School District was not following the State Procurement guidelines and there were numerous instances where voucher packages did not contain the required documentation. See Finding Control Number: FS-7031-07-02.

Purchases were made on a Program Director's personal credit card and reimbursement was made directly to the credit card company, thereby, circumventing normal procurement procedures. Additionally, no approval was obtained prior to purchase and/or payment related to these charges.

- 21 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-05 (continued)

Cause:

Management failed to establish and exercise adequate control procedures over the procurement process related to purchases and/or contracts paid for with these Federal funds.

Effect:

Failure to ensure that proper procurement procedures were followed resulted in material noncompliance with the requirements of these Federal grants.

Recommendation: The School District should establish and implement adequate controls and procedures over the procurement process for Federal program purchases.

REPORTING Failure to File Accurate Completion Report Significant Deficiency Nonmaterial Noncompliance U. S. Department of Education Through Georgia Department of Education Enhancing Education Through Technology Program (CFDA 84.318) Safe and Drug-Free Schools and Communities - State Grants (CFDA 84.186) Finding Control Number: FA-7031-07-06

Condition:

The School District failed to file accurate completion reports for the Enhancing Education Through Technology Program (CFDA 84.318) and Safe and Drug-Free Schools and Communities - State Grants (CFDA 84.186).

Criteria:

The instructions provided by the Georgia Department ofEducation mandate that financial management systems provide for accurate, complete and current disclosure for the financial results of each grant program.

Questioned Cost: NIA

Information:

A review of the School District's accounting records revealed that the completion reports were not supported by the total expenditures for the programs indicated below:

CFDA 84.318 84.186

Expenditures per General Ledger
$ 51,418 $ 6,180

Expenditures per Completion Report
$ 89,684 $ 5,910

Variance $ 38,266 $ -270

- 22 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-06 (continued)

Cause:

Management neglected the specific requirements imposed by the Georgia Department of Education.

Effect:

Failure to accurately report Federal expenditures could result in the School District having to return Federal funds or having to fund Federal expenditures with local revenues even though Federal funds may have been available.

Recommendation:

Appropriate procedures should be implemented to ensure that accurate completion reports are submitted for all grants as required. The School District should submit corrected completion reports for these grants to the Georgia Department of Education.

REPORTING Failure to Refund Unexpended Grants Significant Deficiency Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Special Education - Grants to States (CFDA 84.027) Enhancing Education Through Technology Program (CFDA 84.318) State.Grants for Innovative Programs (CFDA 84.298) Title I Grants to Local Educational Agencies (CFDA 84.010) Finding Control Number: FA-7031-07-07

Condition:

The School District failed to return expired, unearned grant balances to the Georgia Department of Education.

Criteria:

The instructions provided by the Georgia Department of Education require that these grants are expended within the official grant period. Any expired, unearned grant balances -for these programs should be promptly returned to the grantor agency.

Questioned Cost: $41,127

Information:

A review of the School District's accounting records revealed expired, unearned grant balances for the Federal programs as indicated below:

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-07 (continued)

Program Special Education
Grants to States Enhancing Education Through Technology Program State Grants for Innovative Programs Title I Grants to Local Educational Agencies

Amount
$ 412 $ 847 $38,266 $ 1,602

Cause:

This condition occurred because the School District submitted Federal program completion reports that over reported the amount of Federal expenditures actually incurred.

Effect:

Failure to refund expired, unearned grant balances could result in material noncompliance with the requirements of the Federal grants.

Recommendation:

Appropriate procedures should be implemented to ensure that all expired, unexpended grant balances are promptly refunded to the appropriate grantor agency. The School District should refund the unearned Federal grant funds of $41,127 to the Georgia Department of Education.

REPORTING Failure to File Accurate Performance Report Nonmaterial Noncompliance U. S. Department of Education Through Wheeler County Board of Education Safe Schools/Healthy Students Initiative (CFDA 84.184) Finding Control Number: FA-7031-07-08

Condition:

Expenditure amounts reported on the Safe Schools/Healthy Students Initiative (CFDA 84.184), semi-annual grant performance report do not agree with the total expenditures as reported on the general ledgers for each Board participating in this tri-county program.

Criteria:

Reports for Federal awards should include all activity ofthe reporting period and should be supported by applicable accounting and/or performance records in accordance with program requirements.

Questioned Cost: NIA

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-08 (continued)

Information:

Expenditures reported on the semi-annual performance report are not properly supported by the general ledgers of each participating Board. Amounts paid by the Wheeler County Board ofEducation (fiscal agent) were not properly supported by the expenditures reported on the general ledgers.

Cause:

The Project Director failed to ensure that amounts reported on the performance report reconciled to the accounting records maintained by the Central Office.

Effect:

The submission of inaccurate reports could result in an over expenditure of Federal funds.

Recommendation:

The School District should implement policies and procedures to ensure that information reported on financial and/or performance report is properly supported by the accounting records.

SPECIAL TESTS AND PROVISIONS Written Consent and Confidentiality Agreements Not Obtained Nonmaterial Noncompliance U.S. Department of Education Through Wheeler County Board of Education Safe Schools/Healthy Students Initiative (CFDA 84.184) Finding Control Number: FA-7031-07-09

Condition:

The School District did not obtain required written consent for those students participating in the Safe Schools/Healthy Students Initiative (CFDA 84.184) program. In addition, confidentiality agreements were not maintained, as required for personnel involved with this program.

Criteria:

The approved Safe Schools/Healthy Students Initiative program application included provisions that required the School District to obtain written consent for each student's program participation. According to the "Adequate Consent Procedures" section of the application, written consent will be obtained in an enrollment form in order to validate that the student, parent, or legal guardian has read, understands and has given permission to participate in the program. If necessary, the consent form will be read to individuals. They will subsequently be given a copy of what they sign.

Privacy and confidentiality are a requirement. All staff is required to sign confidentiality agreements.

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MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-09 (continued)

Questioned Cost: NIA

Information:

Although management indicated in the program application that prior written permission would be obtained for students who were evaluated, the required written consent was not obtained. We noted that parents received notification in a student handbook about the mental health services that could be given to a child. Verbal permission as opposed to written consent was obtained for children who received those services.

In addition, the Project Director could not provide the required signed confidentiality agreements for the personnel working in this program.

Cause:

By referencing the program in the handbook and by obtaining verbal permission, program management believed the requirement for written consent was met.

Effect:

Failure to ensure appropriate written consent is obtained can result in nonconformity with the "Adequate Consent Procedures" that are contained in the Safe Schools/Healthy Students Initiative program application. Furthermore, without written consent of the enrollment form or, if appropriate, the handbook, there is no documented evidence that the student, parent or legal guardian has read, understood and given permission to participate in the program.

Failure to maintain signed confidentiality agreements could result m disclosures of sensitive and private information.

Recommendation:

Management should establish procedures to ensure that, when required, written permission is obtained for children who receive mental health services funded by the Safe Schools/Healthy Students Initiative program. Additionally, policies should be implemented to ensure that all personnel working in this program have a signed confidentiality agreement on file.

- 26 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

SPECIAL TESTS AND PROVISIONS Deficiencies in Hiring "Highly Qualified" Personnel Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (CFDA 84.010) Finding Control Number: FA-7031-07-10

Condition:

This is a repeat finding (FA-7031-06-01) for the year ended June 30, 2006. The School District failed to ensure that teachers and paraprofessionals met the requirements of "Highly Qualified" personnel for those individuals working in a Title I Grants to Local Educational Agencies (CFDA 84.010) schoolwide program.

Criteria:

"Highly Qualified" requirements are set forth in 34 CPR section 200.55 and 200.56, which states, in part, as follows: "An LEA must ensure that all Title I teachers hired after the first day of2002 who teach a core academic subject be highly qualified". Additionally, all teachers of core academic subjects must be highly qualified by the end of the 2005-2006 school year. To be a highly qualified teacher, the individual must: (1) hold at least a bachelor's degree (2) be certified by the State, including alternative routes to certification (3) pass a rigorous State test on subject knowledge that the teacher teaches and on teaching skills.

"Highly Qualified" requirements are set forth in 34 CPR section 200.58, which states in part, as follows: "An LEA must ensure that each paraprofessional who is hired by the LEA after the first day of2002, and who works in a program supported with Title I funds meet specific qualification requirements. A paraprofessional must hold a high school diploma or its recognized equivalent and meet one ofthe following requirements: (1) have completed at least two years of study at an institution of higher education, (2) have obtained an associate's or higher degree, (3) have met a rigorous standard of quality, and can demonstrate through a formal State or local academic assessment knowledge of, and the ability to assist in instructing, reading/language arts, writing and mathematics, or reading readiness, writing readiness, and mathematics readiness".

Questioned Cost: NIA

- 27 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Finding Control Number: FA-7031-07-10 (continued)

Information:

The School made offers of employment, for teacher and paraprofessional positions, before verifying "highly qualified" status and, after identifying that the employee was not "highly qualified", continued to allow the employee to work in a Title I schoolwide program.

Cause:

The School District failed to ensure that employees not meeting "highly qualified" status were not hired or offered positions requiring this status.

Effect:

The School District failed to ensure that those students in need ofinstruction, from "highly qualified" personnel receive it.

Recommendation:

The School District should implement procedures to ensure that only "highly qualified" employees are hired for positions requiring "highly qualified" status. The Georgia Department of Education should further review this matter to determine if a reclaim of funds is necessary.

- 28 -

SECTIONV MANAGEMENT'S RESPONSES

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2007
Finding Control Number: FS-7031-07-01
We concur with this finding. Financial Director, principals, and bookkeepers will develop a handbook for accounting purposes. Financial Director will provide training for all school employees involved in school financial procedures. A financial checklist will be utilized and the Superintendent or Financial Director will review school activity accounting records on site quarterly to ensure compliance. The bookkeepers at the two schools will balance one another's bank statements each month. Principals will sign off on bank statements monthly. We will contact the bank, in writing, to ensure that the MCES PTO account that utilized our FEI number is closed. The School Nutrition Employee Account that utilized our FEI number was closed in May, 2007.
Finding Control Number: FS-7031-07-02
We concur with this finding. The Board ofEducation approved a new Director ofFinance position. A person has been hired for this position. She has an MBA in Accounting with a concentration in Finance. She also has experience as a Financial Analyst with the Georgia Department ofEducation. The School Nutrition bank statement has been reconciled to the general ledger each month and the CD has been redeemed on the general ledger. The system will begin using a voucher package which will include a prior approved purchase order, invoice indicating receipt of goods, and copy of the check for payment. The Director of Finance will review current travel regulations at a county-wide employee meeting during Pre-Planning. 1099s were issued for additional compensation to employees. Future payments for Board of Education employees will be processed through payroll. Presently all BOE credit cards have been destroyed except for one which is only used at the discretion of the Superintendent. One Wal-Mart card is kept at the Central Office and is signed in and out with a prior approved purchase order. Non-tax (i.e., Coca Cola money) will be monitored and expended as approved by the Superintendent.
Finding Control Number: FS-7031-07-03
We concur with this finding. The debit card was destroyed and is no longer is use.
Finding Control Number: FS-7031-07-04
System does have control over accounting system through password security and access is allowed only for what pertains to the person's job. The Director of Finance will address this finding and implement proper internal controls.
Finding Control Number: FS-7031-07-05
We concur with this finding. Superintendent manually signed fiscal year 2009 contracts and this will be the procedure from now on. Director of Finance and Superintendent are looking at a payroll software calculation package. The payroll clerk will calculate or input salaries/supplements and these will be double checked by the Director of Finance or the Director ofAdministrative Services.
- 1-

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2007
Finding Control Number: FS-7031-07-06
We concur with this finding. This has been corrected and an audit adjustment was supplied to bookkeeper and recorded to correct this expense.
Finding Control Number: FS-7031-07-07
We concur with this finding. The Director of Finance and other financial staff will attend training on financial reporting. We will generate our own GASB 34 for fiscal year 2008.
Finding Control Number: FA-7031-07-01
We concur with this finding. Financial Director, principals, and bookkeepers will develop a handbook for accounting purposes. Financial Director will provide training for all school employees involved in school financial procedures. A financial checklist will be utilized and the Superintendent or Financial Director will review Federal accounting records quarterly to ensure compliance. On Tri-County Federal Initiatives, an MOU outlining the responsibilities for the fiscal agent, project director, and each school system will be developed by a school board attorney and signed by the three school superintendents.
Finding Control Number: FA-7031-07-02
We concur with this finding. Semi-Annual certifications have been signed and filed on employees paid solely out of Federal funds. Monthly time documentation sheets are being utilized for employees who are split-funded.
Finding Control Number: FA-7031-07-03
We concur with these findings. However, the Mental Health Director does have the appropriate License (#APC000832) from the Secretary of State's office. A contract will be developed for the Project Director which will specify salary, number of days to be worked, and responsibilities. Accruals are now being made for School Nutrition employees and they are being paid at the correct rate of pay. Certified personnel will not be paid time and a half but will be compensated in accordance with the grant program.
Finding Control Number: FA-7031-07-04
We concur with these findings. Grants will be monitored closely and expenditures will be expended during appropriate grant period.
-2 -

MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2007
Finding Control Number: FA-7031-07-05
We concur with this finding. The system will begin using a voucher package which will include a prior approved purchase order, invoice indicating receipt of goods, and copy of the check for payment. The Director of Finance will review current travel regulations at a county-wide employee meeting during Pre-Planning. Personal credit cards are no longer being used for purchases. The School District will follow the State's procurement guidelines and training will take place for appropriate employees.
Finding Control Number: FA-7031-07-06
We concur with this finding. Completion reports will be completed and reviewed by the Director of Finance and the appropriate department heads.
Finding Control Number: FA-7031-07-07
We concur with this finding. Accurate completion reports will be submitted to the Department of Education. Director ofFinance and appropriate department heads will review the completion reports prior to submission.
Finding Control Number: FA-7031-07-08
We concur with this finding. Prior to submitting the semi-annual grant performance report, the project director will reconcile the report totals with the general ledger at the appropriate Tri-County Boards of Education.
Finding Control Number: FA-7031-07-09
We concur with this finding. All personnel working m this program will have a signed confidentiality agreement on file.
Finding Control Number: FA-7031-07-10
We concur with this finding. Only "highly qualified" employees will be hired for positions requiring "highly qualified" status.
Contact Person: Lynn Batten, Superintendent Phone: (912) 583-2740 Fax: (912) 583-4822 E-mail Address: lbatten@montgomery.k12.ga.us
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