NEWTON COUNTY BOARD OF EDUCATION COVINGTON, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor NEWTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 8 H STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS 9 I NOTES TO THE BASIC FINANCIAL STATEMENTS 10 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 27 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 28 3 SCHEDULE OF STATE REVENUE 30 NEWTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 32 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 33 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS NEWTON 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 25, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Newton County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through I) ofthe Newton County Board of Education, as of and for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Newton County Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Newton County Board ofEducation, as ofJune 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-11 The Newton County Board ofEducation has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements. In accordance with Government Auditing Standards, we havealso issued our report dated May 25, 2007, on our consideration of the Newton County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 27, 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 Newton County Board of Education's basic financial statements. The accompanying supplementary information which consist ofSchedules 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~ Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2006ARL-11 NEWTON COUNTY BOARD OF EDUCATION NEWTON COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Continuation of Federal Programs Debt Service Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 30,203,018 6,838,058 2,395,505 9,674,222 2,390,208 283,075 158,574 4,200,510 32,470,036 6,307,676 109,605,208 13,608,758 -36,629,266 $ ===18.,.1=,5=0=5=,5=82.... $ 8,839,155 11,024,978 950,282 1,428,654 8,430,418 44,642,091 $ 75,315,578 $ 76,490,413 2,518,408 9,387,198 17,793,985 $ 106,190,004 $ ===18=1=,5=0=5=,5=82= The notes to the basic financial statements are an integral part of this statement. - 1- NEWTON COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 88,760,187 $ 3,291,756 3,641,170 2,713,491 852,059 6,331,985 564,769 10,071,297 7,439,277 1,839,642 2,833,411 7,209,243 2,244,507 $ 137,792,794 $ 19,575 1,032,444 2,498,280 3,550,299 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 $ 62,695,074 $ 1,495,331 1,581,601 1,508,648 1,642,321 2,709,912 958 4,289,235 1,501,056 48,404 130,340 4,832,129 9,572,689 $ 45,222 80,635 451,251 122,172 238,454 64,080 228,333 227,904 42,445 895,621 $ 82,4351009 $ 111968,806 $ -16,472,849 -1,751,203 -1,978,934 -753,592 912,434 -3,383,619 -499,731 -5,553,729 -5,710,317 -1,748,793 -1,670,627 1,016,787 -2,244,507 -39,838,680 $ 40,943,815 2,359,071 9,984,612 26,862 1,345,738 463,875 6,171,870 1,722,096 2,203,063 $ 65,221,002 $ 25,382,322 80,807,682 $ ===10_6,_19...o._,o=-04- -3- NEWTON COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 19,416,653 $ 10,019,712 $ 40,131 1,556,760 9,205,648 2,390,208 283,075 158 574 468,574 766,653 $ 6,797,927 1,894,752 30,203,018 6,838,058 3,451,512 9,674,222 2,390,208 283,075 158 574 Total Assets $ 33,051,049 $ 10,488,286 $ 9,459,332 $ -==5=2-,9=9=8'=66=7= LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Unreserved Designated for Self-Insurance Undesignated Reported in: General Fund Capital Projects Total Fund Balances $ 7,951,160 $ 11,024,978 $ 18,976,138 $ $ 2,359,834 158,574 289,744 11,266,759 $ $ 14,074,911 $ 854,662 $ 950,282 1,428,654 3,233,598 $ $ 7,254,688 7,254,688 $ 33,333 $ 33,333 $ $ 9,425,999 9,425,999 $ 8,839,155 11,024,978 950,282 1,428,654 22,243,069 2,359,834 9,425,999 158,574 289,744 11,266,759 7,254,688 30,755,598 Total Liabilities and Fund Balances $ 33,051,049 $ 10,488,286 $ 9,459,332 $ ===5=2_10..0.,..8,..,66=7== The notes to the basic financial statements are an integral part of this statement. -4- NEWTON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Capital Leases Total Long-Term Liabilities Net Assets of Governmental Activities (Exhibit "A") $ 30,755,598 $ 4,200,510 32,470,036 6,307,676 109,605,208 13,608,758 -36,629,266 129,562,922 -1,056,007 $ -50,545,000 -2,527,509 -53,072,509 $ 106,190,004 The notes to the basic financial statements are an integral part of this statement. -5- NEWTON COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES} Capital Leases Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 42,031,248 $ 2,397,872 $ 1,713,635 $ 26,862 10,080,590 75,996,711 11,916,344 12,662,630 3,550,299 1,015,519 209,778 496,799 2,188,470 19,216 44,429,120 11,821,087 87,913,055 12,662,630 3,550,299 1,722,096 2,207,686 $ 139,158,512 $ 12,172,200 $ 12,975,261 $ 164,305,973 $ 87,002,920 $ 87,002,920 3,281,028 3,622,040 2,606,436 823,075 6,275,414 542,632 $ 10,334,158 8,847,236 1,829,572 2,833,411 7,046,441 $ 22,837,273 6,935 3,281,028 3,622,040 2,606,436 823,075 6,275,414 549,567 10,334,158 8,847,236 1,829,572 2,833,411 7,046,441 22,837,273 13,520,000 2,244,507 13,520,000 2,244,507 $ 135,044,363 $ 22,837,273 $ 15,771,442 $ 173,653,078 $ 4,114,149 $ -10,665,073 $ -2,796,181 $ -9,347,105 $ 2,527,509 $ $ 6,427,606 -6,427,606 $ -3,900,097 $ 6,427,606 $ $ 214,052 $ -4,237,467 $ -2,796,181 $ 13,860,859 11,492,155 12,222,180 2,527,509 6,427,606 -6,427,606 2,527,509 -6,819,596 37,575,194 $ 14,074,911 $ 7,254,688 $ 9,425,999 $ 30,755,598 The notes to the basic financial statements are an integral part of this statement. -6- NEWTON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. In the Statement of Activities, only the gain on the sale of the equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold. Some of the Capital Assets acquired this year were financed with capital leases. In Governmental Funds, a capital lease arrangement is considered a source of financing, but in the Statement of Net Assets, the lease obligation is reported as a Long-Term Liability. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements $ -6,819,596 $ 25,908,539 -3.568.255 22,340,284 -1,126,234 -4,623 -2,527,509 13,520.000 Change in Net Assets of Governmental Activities (Exhibit "B") $ 25,382.322 The notes to the basic financial statements are an integral part of this statement. -7- NEWTON COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 EXHIBIT "G" ASSETS Cash and Cash Equivalents PRIVATE PURPOSE TRUSTS AGENCY FUNDS $ LIABILITIES Accounts Payable Funds Held for Others Total Liabilities NET ASSETS Held in Trust for Private Purposes $ 25 $ 54,581 156,956 $ 25 $ 211,537 14 600 Total Liabilities and Net Assets $ The notes to the basic financial statements are an integral part of this statement. -8- NEWTON COUNTY BOARD OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2006 EXHIBIT"H" ADDITIONS Contributions Donors DEDUCTIONS Administrative Expenses Change in Net Assets Net Assets - Beginning Net Assets - Ending PRIVATE PURPOSE TRUSTS $ 8,267 $ 6 381 $ 1,886 12 714 $ ====1=4=6=00= The notes to the basic financial statements are an integral part of this statement. -9- NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Newton County Board of Education (School District) was established under the laws of the State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Newton 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. - IO - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST), Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation ofmajor capital facilities. Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund types: Private Purpose Trust fund reports a trust arrangement under which principal and income may be expended for employee recognition awards. 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 - 11 - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, - 12 - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State ofGeorgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Newton County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on June 5, 2005 (levy date). Taxes were due on December 20, 2005 (lien date) and could be paid in two installments on July 20, 2005 and December 20, 2005 (due dates). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Newton 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, 2006, for maintenance and operations amounted to $42,031,248 and for school bonds amounted to $2,397,872. Tax millage rates levied for the 2005 tax year (calendar year) for the Newton County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): School Operations School Bonds 18.21 mills 1.00 mills 19.21 mills - 13 - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $10,011,474 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories ofdonated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment Computer Applications All NIA $ 10,000 20 to 80 years $ 10,000 20 to 80 years $ 10,000 4 to 20 years $ 10,000 6 years - 14 - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement ofNet Assets. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (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 - 15 - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 3: DEPOSITS AND INVESTMENTS (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $33,232,060. The amounts ofthe total bank balances are classified into four categories of custodial credit risk: Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name. Category 4 - Uncollateralized. The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows: Custodial Credit Risk Category Bank Balance 1 $ 1,060,275 2 0 3 32,171,785 4 0 Total $ 33,232.060 CATEGORIZATION OF INVESTMENTS At June 30, 2006, the carrying value ofthe School District's total investments was $6,797,927 which is materially the same as fair value. This investment consisted entirely offunds invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State of Georgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows: - 16 - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 3: DEPOSITS AND INVESTMENTS The Primary Liquidity Portfolio consists ofGeorgia Fund 1, which is a combination local and state government investment pool. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U.S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days. 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: - 17 - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 5: CAPITAL ASSETS Balances July I, 2005 Increases Balances Decreases June 30, 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 3,936,542 $ 263,968 $ 4,200,510 19,647,419 20,206,336 $ 7,383,719 32,470,036 Total Capital Assets Not Being Depreciated $ 23,583,961 $ 20,470,304 $ 7,383.719 $ 36,670,546 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 99,720,141 $ 11,198,615 6,019,233 9,885,067 2,648,444 $ 288,443 $ 109,605,208 238,301 13,608,758 6,307,676 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 23,010,865 6,692,670 3,591,154 2,292,723 1,065,688 209.844 233,678 25,303,588 7,524,680 3,800,998 Total Capital Assets, Being Depreciated, Net $ 83,643,300 $ 9,253.699 $ 4.623 $ 92,892,376 Governmental Activity Capital Assets - Net $ 107.227.261 $ 29,724.003 $ 7.388.342 $ 129.562.922 Capital assets being acquired under capital leases as of June 30, 2006, are as follows: Governmental Funds Equipment Less: Accumulated Depreciation $ 2,527,509 157,179 $ 2,370.330 Current year depreciation expense by function is as follows: - 18 - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 5: CAPITAL ASSETS Instruction Support Services Pupil Services Improvements of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation ofPlant Student Transportation Services Central Support Services Food Services $ 2,054,372 $ 9,705 17,305 96,842 26,219 51,174 13,752 49,002 1,048,568 9,109 1,321,676 192,207 $ 3,568.255 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) and property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable statutory provisions. Restricted assets at June 30, 2006, were as follows: District-wide Capital Projects Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Restricted Investments Debt Services $ 766,653 $ 6,797,927 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2006, consisted of the following: Transfer to Transfers From General Fund District-wide Capital Projects $ 6,427.606 - 19 - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 7: INTERFUND TRANSFERS Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as required match or supplemental funding source for capital construction projects. Note 8: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God; unemployment compensation and employee dental and optical expenses. The School District has established a limited risk management program for Dental/Optical coverage of its employees. The School District accounts for claims within the General Fund. In connection with this program a self-insurance reserve has been established within the General Fund by the School District. Estimated claims are budgeted by management based on known claims and prior experience. Changes in the Dental/Optical claims liability during the last two fiscal years are as follows: 2005 2006 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0 $ 293,091 $ 265,066 $ 28,025 $ 28,025 $ 283,884 $ 288,112 $ 23,797 The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members ofthe system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse), errors and omissions, crime and automobile risks. Payment of excess insurance for the system varies by line of coverage. The School District has established a limited risk management program for workers' compensation claims. In connection with this program, a self-insurance reserve has been established within the General Fund by the School District. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. An excess coverage insurance policy covers individual claims in excess of$275,000 loss per occurrence, up to the statutory limit. -20- NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 8: RISK MANAGEMENT Changes in the workers' compensation claims liability during the last two fiscal years are as follows: 2005 2006 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0 $ 233,332 $ 233,332 $ 0 $ 0 $ 324,948 $ 324,948 $ 0 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: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability 2005 2006 $ 0 $ 13,400 $ 13,400 $ 0 $ 0 $ 952 $ 952 $ 0 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Other Employees $ 50,000 $ 50,000 Note 9: LONG-TERM DEBT CAPITAL LEASES The Newton County Board ofEducation has entered into a lease agreement as lessee for buses. This lease agreement qualifies as a capital lease for accounting purposes and, therefore, has been recorded at the present value of the future minimum lease payments as of the date of its inception. - 21 - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 9: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Refunding - Series 1997 3.60% - 5.30% General Government - Refunding - Series 2003 1.05% - 5.00% General Government - Series 2003 2.00% - 4.50% $ 6,205,000 17,835,000 26,505,000 $ 5015451000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2005 $ 0 $ 64,065,000 $ 64,065,000 Additions Capital Leases 2,527,509 2,527,509 Deductions Debt Retired 13,520,000 13,520,000 Balance June 30, 2006 $ 2,5271509 $ 5015451000 $ 531072,509 Portion of Long-Term Debt Due within One Year $ 500,418 $ 7,930,000 $ 8,430,418 At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows: -22- NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 9: LONG-TERM DEBT Fiscal Year Ended June 30 Ca.Qital Leases Princi12al Interest 2007 2008 2009 2010 2011 $ 500,418 $ 479,784 497,344 515,547 534,416 53,558 74,191 56,631 38,429 19,560 Total Principal and Interest $ 2,527,509 $ 242,369 Fiscal Year Ended June 30 General Obligation Debt Princi12al Interest 2007 2008 2009 2010 2011 2012 - 2016 $ 7,930,000 $ 8,475,000 9,155,000 9,385,000 2,310,000 13,290,000 1,891,982 1,709,993 1,462,872 1,103,873 715,492 1,876,353 Total Principal and Interest $ 50,545.000 $ 8,760.565 Note 10: PRIOR YEAR DEFEASEMENT OF DEBT In fiscal year 2003, the School District defeased certain general obligation bonds by placing the proceeds ofnew bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the School District's basic financial statements. The bonds were redeemed on February 1, 2006. Note 11: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $2,849,942 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $2,832,219 - 23 - NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 11: ON-BEHALF PAYMENTS 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 $17,723 Note 12: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2006, together with funding available: Project Unearned Executed Contracts Funding Available From State 070-707-042 070-707-040 06-707-042/06G-707-022 06-707-043/06G-707-023 05-707-033/05G-707-021/07G-707-041 $ 1,196,486 $ 574,580 1,093,583 574,579 148,168 56,734 171,654 56,734 951,640 1,199,955 $ 3,5611531 $ 2.462,582 The amounts described in this note are not reflected in the basic financial statements. Note 13: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. - 24- NEWTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 14: RELATED PARTY TRANSACTION The School District employed the services of Dobbs Environmental for environmental services. This company is owned and operated by Mr. Denny Dobbs, the husband of Cathy Dobbs, Board Chair. Mr. Dobbs performed these services prior to Mrs. Dobbs' election to the Board. Current year expenditures to Dobbs Environmental totaled $1,066. Note 15: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board ofTrustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2006 2005 2004 100% 100% 100% $ 6,638,334 $ 5,978,996 $ 5,552,879 - 25 - (This page left intentionally blank) NEWTON COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2006 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services Operation Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES} Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 40,564,697 $ 42,273,673 $ 42,031,248 1,190,000 1,590,000 1,713,635 67,187,859 73,656,755 75,996,711 11,630,097 13,401,105 12,662,630 2,199,298 2,199,298 3,550,299 356,300 556,300 1,015,519 708 041 808 391 2,188,470 $ 123,836,292 $ 134,485,522 $ 139,158,512 $ 85,757,311 $ 85,188,215 $ 87,002,920 2,713,892 3,179,240 2,287,826 733,160 6,251,399 510,739 8,179,481 5,556,553 1,153,045 689,534 6,887,717 3,952,912 4,202,982 2,549,381 843,011 6,090,599 529,434 10,203,601 6,130,801 1,873,572 862,004 6 887 717 3,281,028 3,622,040 2,606,436 823,075 6,275,414 542,632 10,334,158 8,847,236 1,829,572 2,833,411 7 046 441 $ 123,899,897 $ 129,314,229 $ 135,044,363 $ -63 605 $ 5,171,293 $ 4 114 149 $ 100 $ 2,527,509 $ -2,227,606 -6,427,706 -6,427,606 $ -2,227,606 $ -6,427,606 $ -3,900,097 $ -2,291,211 $ -1,256,313 $ 214,052 12,810,907 12,810,907 13,860,859 Fund Balances - Ending $ 10,519,696 $ 11,554,594 $ ==1=4.!:0=7=4=91=1= Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 27 - NEWTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U. S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs English Language Acquisition Grants Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality State Grants Reading First State Grants Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U. S. Department of Education Defense, U. S. Department of Direct Department of the Marines R.O.T.C. Program Total Federal Financial Assistance N/A = Not Available CFDA NUMBER PASS- THROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 N/A N/A $ $ (2) 6,471,808 6,471,808 10.550 N/A $ 289,903 6 761 711 * 84.027 * 84.173 84.365 84.318 * 84.938 * 84.367 84.357 84.186 84.298 * 84.010 84.048 NIA $ N/A $ N/A N/A N/A NIA N/A NIA N/A NIA N/A $ 3,044,114 80,423 3,124,537 34,788 103,996 (3) 580,236 612,123 85,422 49,929 2,941,564 226,163 7,758,758 $ 69 390 $===14='=58=9=,8=59,.,. - 28 - NEWTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 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 fund earned on the School Breakfast Program ($999,429) were maintained separately and are and are included in the 2006 National School Lunch Program: (3) Funds earned on the Hurricane Education Recovery program, in the amount of $365,063, 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 Newton 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. -29- NEWTON COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND GRANTS Bright From the Start: Georgia Department of Early Care and Leaming Pre-Kindergarten Program $ 1,982,096 $ Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Nursing Services Principal Supplements Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Capital Outlay - Renovations Bond Funds Health Insurance National Teacher Certification Preschool Handicapped Program Residential and Reintegration Services Statewide K-8 Reading and Mathematics Program Virtual School State Grant 4,313,311 786,948 10,305,587 1,247,548 4,641,935 1,163,273 8,650,255 7,330,343 1,338,576 519,985 1,504,353 5,719,856 2,242,182 181,301 2,139,735 117,220 639,770 344,329 1,430,703 441,196 319,229 1,590,577 2,647,748 4,272,999 1,446,404 227,904 300,073 58,601 6,171,972 349,300 921,799 -2,850,191 175,442 2,832,219 130,045 189,312 54,790 274,905 800 TOTAL 1,982,096 4,313,311 786,948 10,305,587 1,247,548 4,641,935 1,163,273 8,650,255 7,330,343 1,338,576 519,985 1,504,353 5,719,856 2,242,182 181,301 2,139,735 117,220 639,770 344,329 1,430,703 441,196 319,229 1,590,577 2,647,748 4,272,999 1,446,404 227,904 300,073 58,601 6,171,972 349,300 921,799 -2,850,191 175,442 2,832,219 130,045 189,312 54,790 274,905 800 - 30- NEWTON COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING GRANTS Georgia State Financing and Investment Commission Reimbursement on Construction Projects Office of Treasury and Fiscal Services Public School Employees Retirement GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 11,740,902 $ 11,740,902 $ _____1_7__.._7=23"- 17723 s s $ 76,112,153 11,1401902 ====a.1..1...,91..,3.,.,o..,ss..., See notes to the basic financial statements. - 31 - NEWTON COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 SCHEDULE "4" PROJECT ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS To acquire, construct, and equip two new elementary schools, one new middle school, and one new high school, acquire school buses presently leased by it, and instructional and administrative technology improvements for existing schools, and to renovate, repair, improve and equip existing school buildings and other buildings and facilities useful or desirable in connection therewith, and acquire any necessary property therefore, both real and personal, all at a maximum cost of $46,500,000. $ 46,500,000 $ 49,341,226 $ 23,141,902 $ 26,199,324 Ongoing To retire a portion of the Series 1996 Bonds, and the Series 1997 Bonds and Series 2003 Bonds by paying or making provisions for the payment of the principal of and interest on the Newton Bonds coming due August 1, 2010, in the maximum amount of $3,500,000. 3,500,000 3,500,000 925,000 Ongoing To acquire, construct and equip one new elementary school and one new middle school, acquire school buses presently leased by it and instructional and administrative technology improvements for existing schools, add to, renovate, repair, improve and equip existing school buildings and other buildings and facilities useful or desirable in connection therewith and acquire any necessary property therefor, both real and personal, all at a maximum cost of $39,000,000. 39,000,000 42,693,107 466,956 42,226,151 Completed To retire a portion of the Series 1992 Bonds, the Series 1996 Bonds and the Series 1997 Bonds by paying or making provisions for the payment of the principal and interest on the Newton Bonds coming due on August 1, 2000 through February 1, 2005, in the maximum of $5,000,000. 5,000,000 5,000,000 4,270,000 Completed $ 94,000,000 $ 100,534,333 $ 24,533,858 $ 72,695,475 (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 Newton County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. See notes to the basic financial statements. - 32 - NEWTON COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2006 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1l (2l ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 4,926,912 $ 893,147 11,727,342 1,389,511 5,283,839 4,889,004 $ 643,714 12,169,483 1,504,371 5,546,406 1,295,520 9,927,087 8,349,331 1,532,707 11,552,390 2,460,734 135,699 731,840 389,829 825,632 10,088,063 8,947,930 1,556,907 203,337 1,897,067 10,432,259 205,077 20,094 1,993,289 138,587 1,271,814 430,481 117,549 $ 6,242 667,121 16,737 264,109 3,942 475,782 1,730,545 857,200 27,493 36,685 80,299 239 20,540 60,701 5,006,553 649,956 12,836,604 1,521,108 5,810,515 829,574 10,563,845 10,678,475 2,414,107 230,830 1,933,752 10,512,558 205,316 20,094 2,013,829 138,587 1,332,515 430,481 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 60,595,888 $ 62,763,515 $ 4,365,184 $ 67,128,699 Media Center Program Staff and Professional Development 1,633,500 370480 1,903,839 218,319 573,846 152,526 2,477,685 370,845 TOTAL QBE FORMULA FUNDS $ 6215991868 $ 6418851673 $ 510911556 $ 6919771229 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 33- SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (4041656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 May 25, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Newton 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 ofNewton County Board ofEducation as ofand for the year ended June 30, 2006, which collectively comprise Newton County Board of Education's basic financial statements and have issued our report thereon dated May 25, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Newton County Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect Newton County Board of Education's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FS-7071-06-01. 2006YB-30 A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether Newton County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the Newton County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:as 2006YB-30 ~l-0-~ Russell W. Hinton, CPA, CGFM State Auditor Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 May 25, 2007 Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education and Superintendent and Members ofthe Newton 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 Newton County Board of Education with the types of compliance requirements described in the U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Newton County Board ofEducation's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Newton County Board of Education's management. Our responsibility is to express an opinion on Newton County Board of Education's compliance based on our audit. We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Pro.fit 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 Newton 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 2006SA-30 does not provide a legal determination on Newton County Board of Education's compliance with those requirements. In our opinion, the Newton County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Internal Control Over Compliance The management of Newton 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 Newton County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose ofexpressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. We noted a certain matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Newton County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FA-7071-06-01. A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. This report is intended solely for the information and use of the management, members of the Newton 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, ~~-~ Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2006SA-30 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS NEWTON COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7071-05-01 Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls Finding Control Number: FS-7071-05-01 A new school bookkeepers' manual was developed and a meeting was held with all school bookkeepers to review procedures. As we did not get this finding until late in fiscal year 2006, the corrective action was implemented in fiscal year 2007. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION IV FINDINGS AND QUESTIONED COSTS NEWTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Newton County Board ofEducation's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Newton County Board ofEducation disclosed a financial statement reportable condition related to the following control categories. Expenditures/Liabilities/Disbursements Revenues/Receivables/Receipts The reportable condition described above is not considered to be a material weakness. 3. Noncompliance Material to the Financial Statements The audit of the Newton County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Newton County Board ofEducation disclosed a reportable condition in internal control over major programs for the following compliance requirement. Activities Allowed or Unallowed The reportable condition described above is not considered to be a material weakness. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Newton County Board of Education's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Reguired to be Reported by Section .510(a) ofOMB Circular A-133 The Newton County Board of Education's audit disclosed an audit finding required to be reported by section .510(a) of 0MB Circular A-133. This audit finding is included in section IV of this report. 7. Major Programs Federal awards audited as major programs are as follows: 84.010 Title I Grants to Local Educational Agencies 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 84.367 Improving Teacher Quality State Grants 84.938 Hurricane Education Recovery - 1- NEWTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $448,648. 9. Low Risk Auditee The Newton County Board of Education qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7071-06-01 Condition: This is a repeat finding (FS-7071-05-01) from the year ended June 30, 2005. The accounting procedures ofthe 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 Information: Revenues/Receivables/Receipts Based on a review of seventy items, the following deficiencies were noted: Three receipts were not deposited in a timely manner. Twenty receipts were not supported by adequate documentation, including gate receipts. Expenditures/Liabilities/Disbursements Based on a review of seventy vouchers, the following deficiencies were noted: Eight vouchers did not contain an invoice supporting the disbursement. Eighteen vouchers did not include a purchase order. Forty-five vouchers did not contain evidence of approval. Cause: These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the school level. -2- NEWTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7071-06-01 Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: Management should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA 84.938) Finding Control Number: FA-7071-06-01 Condition: There were no procedures in place to ensure that Hurricane Education Recovery Act (HERA) funds provided to the School District for (1) displaced students reported as having disabilities were used for the excess costs of providing special education and related services to students with disabilities and (2) payments on behalf of displaced students enrolled in nonpublic schools were adequately identifiable. Criteria: The following guidance applied to the management of Emergency Impact Aid for Displaced Students to include funds made available for displaced students: 1. Section 107(e)(4) of HERA, 2. Volumes "I" and "II" of U. S. Department of Education (USED) guidelines included in "Frequently Asked Questions, Emergency Impact Aid for Displaced Students" and 3. State of Georgia issued publication titled "Georgia Guidance on Federal Impact Aid" (GDOE Guidelines). -3- NEWTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA 84.938) Finding Control Number: FA-7071-06-01 Provisions of HERA, USED and GDOE Guidelines state that HERA funds for students with disabilities may only be used to pay for special education and related service consistent with the Individuals with Disabilities Education Act (IDEA). Both Volume "I" and "II" of USED guidance state that the funds provided for students with disabilities must be recorded and tracked separately from those HERA funds provided for nondisabled students. The Federal requirement was not specifically included in GDOE Guidelines. Provisions of HERA and GDOE Guidelines state that these funds may become a part of a School District's special education budget to ensure that they are only used to pay for special education and related service consistent with IDEA. The guidelines further stated that since these funds are to be applied and used in a manner as funds made available under Part B ofIDEA, it was also advised to consult with State and local staffwho are cognizant of IDEA requirements. Additionally, provisions ofGDOE Guidelines state that payments on behalf of displaced students enrolled in nonpublic schools will be recorded in the General Fund under Function 1000, Object 563, Program Code 1799. Questioned Cost: $31,500 Information: HERA funds received by the School District included $22,500 for students with disabilities. Although required by Federal guidelines, the receipt and expenditure of these funds were not maintained separately. We further noted that although advised by GDOE and Federal guidelines, the budget for special education was not modified for the increase in HERA funds designated for special education and related purposes. There was no evidence that State or local special education staffwere consulted about the use of these funds in keeping with IDEA requirements. -4- NEWTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA 84.938) Finding Control Number: FA-7071-06-01 Additionally, HERA funds received by the School District included $9,000 for students enrolled in nonpublic schools. Although required by GDOE Guidelines, the payments were not readily identifiable by Function, Object and Program as required. Cause: The School District relied solely on GDOE Guidelines which did not require that the School District provide separate accountability of HERA funds provided for students with disabilities. Consideration had not been given to consulting with local and State special education staff or revising its special education budget to ensure that these HERA funds were applied in line with provision of IDEA. Additionally, the School District failed to abide by specific guidelines regarding accounting for payments made on behalf of displaced students enrolled in nonpublic schools. Effect: Although the School District did overspend their State and Federal special education budgets, the School District did not specifically allocate the $22,500 of HERA funds earmarked for students with disabilities to cover these special education overexpenditures. In addition, the School District did not appropriately document $9,000 in payments made on behalfofdisplaced students enrolled in nonpublic schools. Recommendation: Management should ensure that procedures are in place to comply with both Federal and State guidelines when administering HERA funds. GDOE should review these matters and determine ifthese funds were used properly or if a refund is appropriate. -5- SECTIONV MANAGEMENT'S RESPONSES NEWTON COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-7071-06-01 We concur with this finding. The Board's Business Services Department rewrote the school bookkeeper's handbook and has conducted a training session with the bookkeepers. Also, the Board is contracting with an outside independent audit firm to conduct audits ofthe school books for fiscal year 2007. This audit firm will prepare a report oftheir findings and meet with the school principal and bookkeeper to review the findings. Finding Control Number: FA-7071-06-01 We concur with this finding. The Board will refund the HERA funds as directed by GDOE. Contact Person: R. Steven Whatley, Superintendent Phone: (770) 787-1330 Fax Number: (770) 784-2950 E-mail Address: whatleys@newton.k12.ga.us