Paulding County Board of Education, Dallas, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2003

PAULDING COUNTY BOARD OF EDUCATION
DALLAS, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

PAULDING COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

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

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

3

B

STATEMENT OF ACTIVITIES

4

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

6

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

7

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

8

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

9

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

10

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

1 I

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

PAULDING 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 COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

RUSSELL W. HINTON
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
June 18, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education
and Superintendent and Members ofthe Paulding 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) ofthe Paulding County Board of Education, as of and for the year ended June 30, 2003, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Paulding 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 op1mons.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective position ofthe governmental activities, each major fund, and the aggregate remaining fund information of the Paulding County Board of Education, as of June 30, 2003, and the respective changes in financial position thereoffor the year then ended in conformity with accounting principles generally accepted in the United States of America.
2003-34ARL-11

The Paulding 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.
As described in Note 2, the Paulding County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003.
In accordance with Government Auditing Standards, we have also issued our report dated June 18, 2004, on our consideration of the Paulding County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.
The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 27, is not a required part of the basic financial statements but are 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 Paulding County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code ofGeorgia Annotated section 506-24.
Respectfully submitted,

RWH:gp 2003-34ARL-11

sell W. Hinton State Auditor

PAULDING COUNTY BOARD OF EDUCATION

PAULDING COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2003
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 and Building Improvements Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries 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 Debt Service Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets
The notes to the basic financial statements are an integral part of this statement. -3-

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

16,617,413

13,894,895

3,671,758 11,622,228
468,038 20,161
225,474

2,303,346 10,429,505 2,265,647 120,804,477 15,443,866 -30,730,799

$ ===16=7=,0=3=6,=00=9=

$

4,006,108

11,404,911

11,038

6,125,000 41,080,000

$

62,627,057

$

73,311,042

1,336,327 1,491,414 16,349,512 11,920,657

$

104,408,952

$ ===16=7=,0=3=6=,0=09=

PAULDING COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2003

EXPENSES

CHARGES FOR SERVICES

GOVERNMENTAL ACTIVITIES

Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt

$

91,764,171 $

2,520,569 7,039,665 2,550,594
739,638 7,393,728
612,631 8,187,116 6,172,703
558,284 12,677

982,084 1,549,012 6,236,783 3,007,731

54,570
1,003,258 1,250,501 3,631,347

Total Governmental Activities

$=====1=3=9=,3=2=7=,=3=8=6= $

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

5,939,676

Total General Revenues

Change in Net Assets

Net Assets - Beginning of Year

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

EXHIBIT"B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

60,542,497 $

766,428 962,314 1,652,527 1,869,098 3,227,194

5,191,928 2,058,371
12,943 93,539

2,607,893

$

78,984,732 $

5,191,816 $
1,375,330 279,326
6,846,472 $

-25,975,288
-1,754,141 -6,077,351
-898,067 1,129,460 -4,166,534 -612,631 -2,995,188 -2,739,002 -545,341
80,862
21,174 -298,511 281,783 -3,007,731
-47,556,506

$

35,178,893

2,511,813

7,665,797 2,279,054 3,285,615
548,714 9,509,020
429,836 3,403,027

$

64,811,769

$

17,255,263

87,153,689

$ ===1===0=4=,4=08..,.9=5=2= -5-

PAULDING COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2003

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

$ 14,852,574 $ 421,862 $ 1,342,977 $ 16,617,413

1,058,538 12,835,700

657 13,894,895

1,566,743 10,034,476
468,038 20,161
225,474

1,777,081 1,587,752

116,856

3,460,680 11,622,228
468,038 20,161
225,474

Total Assets

$ 28,226,004 $ 16,622,395 $ 1,460,490 $ 46,308,889

LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries Payable Deposits and Deferred Revenue
Total Liabilities
FUND BALANCES
Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects
Unreserved Undesignated Reported in: General Fund
Total Fund Balances

$ 3,733,225 $ 11,404,911 11,038
$ 15,149,174 $

272,883 272,883

$ 4,006,108 11,404,911 11 038
$ 15,422,057

$ 1,110,853

$ 1,110,853

$ 1,460,490

1,460,490

225,474

225,474

$ 16,349,512

16,349,512

11,740,503

11,740,503

$ 13,076,830 $ 16,349,512 $ 1,460,490 $ 30,886,832

Total Liabilities and Fund Balances

$ 28,226,004 $ 16,622,395 $ 1,460,490 $ 46,308,889

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

PAULDING COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2003

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
Net Assets of Governmental Activities (Exhibit "A")

$ 30,886,832

$

2,303,346

10,429,505

2,265,647

120,804,477

15,443,866

-30,730,799

120,516,042

211,078

-47,205,000 $ 104,408,952

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

PAULDING COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2003

EXHIBIT"E"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 34,636,182

$ 2,444,975 $ 37,081,157

3,474,932 $ 2,279,054

8,025,194

13,779,180

82,364,848

6,846,472

89,211,320

6,128,904

6,128,904

5,939,676

5,939,676

174,396

227,256

28,184

429,836

3,515,918

3,515,918

$ 136,234,856 $ 9,352,782 $ 10,498,353 $ 156,085,991

$ 89,526,684

$ 89,526,684

2,520,569

3,073,671

2,550,594

778,788

7,454,528

601,240

$

8,187,116

5,871,342

558,284

138,177

982,084

1,549,012

6,059,283

$ 13,892,345

11,391

2,520,569 3,073,671 2,550,594
778,788 7,454,528
612,631 8,187,116 5,871,342
558,284 138,177 982,084 1,549,012 6,059,283 13,892,345

9,045,000 3,007,731

9,045,000 3,007,731

$ 129,851,372 $ 13,892,345 $ 12,064,122 $ 155,807,839

$ 6,383,484 $ -4,539,563 $ -1,565,769 $

278,152

6,693,346

20,889,075

3,026,259

30,608,680

$ 13,076,830 $ 16,349,512 $ 1,460,490 $ 30,886,832

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

PAULDING 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, 2003

EXHIBIT"F"

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

$

278,152

$ 10,999,697 -3,564,244

7,435,453 609,549

-112,891

9,045,000

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

$ 17,255,263

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

PAULDING COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2003
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT"G"
AGENCY FUNDS
$====14=1 =77=4=
$====1==41====77==4=

The notes to the basic financial statements are an integral part of this statement. -10-

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

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

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PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

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 Bond Proceeds, grants from Georgia State Financing and Investment Commission and Special Purpose Local Option Sales Tax proceeds to be used for the acquisition, construction or renovation of major capital facilities.
Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governments or individuals.
BASIS OF ACCOUNTING
The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
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
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PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

liability is incurred, except for principal and interest on general long-term debt and claims and judgments, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities are reported as other financing sources.

The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both
restricted and unrestricted net assets available to finance the program. It is the School District's
policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.

A substantial number of personnel of the School District were employed for a one hundred and ninety day period beginning in August 2002 and ending in early June 2003. Employment contracts for these employment periods typically specify that compensation be paid in twelve equal monthly payments beginning in September 2002 and ending in August 2003. State grants to fund the State's share of these contracts are disbursed to the School District in the same twelve month period. In accordance with generally accepted accounting principles, salary and fringe benefit costs and the related revenue from the State to fund these contracts are recorded in the fiscal period covered by these financial statements.

RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND

In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of $1,151,867 at July 1, 2002. Also, the financial activities of the School District's McGarity Fund was reported as an Expendable Trust Fund in prior years. This fund had a fund balance of$600 at July 1, 2002. For fiscal year 2003, these funds have been reported as a part ofthe General Fund. In addition, fiduciary fund activity from the various school activity accounts, which were reported within the General Fund in the prior year's financial statement, have been reported within Agency Funds for fiscal year ended June 30, 2003. The fiduciary fund activity ofthe various school activity accounts had a fund balance of$156,756 at July 1, 2002. This change is in accordance with generally accepted accounting principles.

General Fund Balance July 1, 2002

$ 5,697,635

Add Funds Consolidated with General Fund: School Food Services Fund Expendable Trust Fund

1,151,867 600

Deduct: School Activity Account - Agency Activity

156,756

General Fund Balance July 1, 2002 (Restated)

$ 6,693,346

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PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CHANGES IN ACCOUNTING PRINCIPLES

The Paulding County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003.

The provisions of GASB Statement No. 34 require the inclusion of a Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following:

General Fund (Restated) July 1, 2002 Capital Projects Fund Debt Service Fund

$ 6,693,346 20,889,075 3,026,259

Governmental Funds (Restated) July 1, 2002 Capital Assets
Balance July 1, 2002 Construction in Progress Adjustments to Prior Year Balance Accumulated Depreciation Property Tax Revenue Timing Differences Bonds Payable

$ 30,608,680

$ 131,274,023 7,858,559 1,578,568

140,711,150 -27,517,670
-398,471 -56,250,000

Net Assets Beginning (See Exhibit "B")

$ 87!153!689

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 Board 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 of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among

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PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:
(1) Obligations issued by the State of Georgia or by other states,
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,
(4) Obligations of any corporation of the United States government,
(5) Prime banker's acceptances,
(6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services,
(7) Repurchase agreements, and
(8) Obligations of other political subdivisions of the State of Georgia.
RECEIVABLES
Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.
PROPERTY TAXES
The Paulding County Board of Commissioners fixed the property tax levy for the 2002 tax digest year (calendar year) on October 1, 2002 (levy date). Taxes were due on December 31, 2002 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2002 tax digest are reported as revenue in the governmental funds for fiscal year 2003. The Paulding County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2003, for maintenance and operations amounted to $34,636,182 and for school bonds amounted to $2,444,975.
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PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Tax millage rates levied for the 2002 tax year (calendar year) for the Paulding County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations School Bonds

17.29 mills --1.,_ll mills

18.47 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $9,944,851 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 ofpurchase. 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 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 of art.

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

- 16 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

All

NIA

$

5,000

20 years

$

5,000

50 years

$

5,000 5 to 25 years

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

GENERAL OBLIGATION BONDS

The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement 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 ofmoney which has not been secured by surety bond, by guarantee ofinsurance, 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. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts.

Acceptable security for deposits consists of any one of or any combination of the following:

(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,

(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,

(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or ofthe State of Georgia,

- 17 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS

(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,

(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,

(6) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia, and

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

CATEGORIZATION OF DEPOSITS At June 30, 2003, the bank balances were $21,938,844. The amounts ofthe total bank balances are classified into three categories of credit risk:

Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name.
Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name.
Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.)

The School District's deposits are classified by risk category at June 30, 2003, as follows:

Risk Category

Bank Balance

1

$ 1,858,318

2

185,396

3

19.895,130

Total

$ 2119381844

CATEGORIZATION OF INVESTMENTS At June 30, 2003, the carrying value of the School District's total investments was $13,757,249 which is materially the same as fair value. The investments are classified as to risk categories as follows:

- 18 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS

Tx11e oflnvestment

U.S. Government

$

Local Government Investment Pools

Total Investments

Risk Categories 2

0 $

815 $

Carrying

Fair

3

Amount

Value

0 $

815 $

815

13,756,434

13,756,434

$ 13,257,249 $ 13157,249

The carrying amounts shown above includes amounts maintained in an investment pool by the State of Georgia, Office ofTreasury and Fiscal Services in which the School District owns no identifiable securities. The investment policy ofthe State of Georgia, Office of Treasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description ofthe Primary Liquidity Portfolio is as follows:

The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the Securities and Exchange Commission as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 ofthe Investment Company Act of 1940. The pool's primary objectives are safety ofcapital, 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 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 and Fund 6 are directed toward short-term instruments such as U. S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2003, was 30 days. The average investment duration for Fund 6 on June 30, 2003, was 0.39 years.

Note 4: NON-MONETARY TRANSACTIONS

The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories

- 19 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 5: CAPITAL ASSETS

The following is a summary of changes in the Capital Assets during the fiscal year:

Balances July 1, 2002

Increases

Decreases

Balances June 30, 2003

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

$ 2,303,346

$ 2,303,346

7,858,559 $ 8,387,850 $ 5,816,904 10,429,505

Total Capital Assets Not Being Depreciated $ 10,161,905 $ 8,387,850 $ 5,816,904 $ 12,732,851

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 114,987,573 $ 13,570,544 1,991,128

5,816,904 2,337,328 $
274,519

$ 120,804,477 464,006 15,443,866
2,265,647

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

18,936,779 7,722,241
858,650

2,357,782 1,115,322
91 140

351,115

21,294,561 8,486,448 949 790

Total Capital Assets, Being Depreciated, Net $ 103,031,575 $ 4,864,507 $ 112,891 $ 107,783,191

Governmental Activity Capital Assets - Net $ 113.193.480 $ 13,252.357 $ 5,929.795 $ 120,516.042

Current year depreciation expense by function is as follows:

Instruction Support Services
Student Transportation Services Food Services

$ 2,702,837
715,991 145,416

$ 3,564.244

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds and property tax levied specifically for retirement ofoutstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2003, were as follows:

-20-

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 6: RESTRICTED ASSETS

District-wide CaRital Projects

Bond

SPLOST

Proceeds

Debt Service Funds

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

$ 1,085,652 $ 12,835,542 $

$ 1,342,977

$

657

158

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 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) and automobile risks. Payment of excess insurance for the system varies by line of coverage.

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

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

2002 2003

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End ofYear Liability

$

0 $

0 $

0 $

0

$

0 $

12,748 $

12,748 $

0

- 21 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 7: RISK MANAGEMENT

The School District participates in the Georgia School Boards Association Workers' Compensation Fund, a public entity risk pool organized on July 1, 1992, to develop, implement, and administer a program ofworkers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Fund for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Fund with the United States Fidelity and Guaranty Company to provide coverage for potential losses sustained by the Fund in excess of$350,000 loss per occurrence, up to $1,000,000.

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

Position Covered

Amount

Superintendent All Other Employees

$ 100,000 $ 250,000

Note 8: SHORT-TERM DEBT

The School District issues tax anticipation notes in advance of property tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution ofthe State ofGeorgia limits the aggregate amount 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

Tax Anticipation Notes

$=======0 $ 5,500.000 $ 5,500.000 $==~0

Note 9: LONG-TERM DEBT

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

-22 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"H"

Note 9: LONG-TERM DEBT

Purpose

Interest Rates

Amount

General Government - Series 2001

4.69%

General Government - Series 2000

4.72%

General Government - Series 1995

4.60%- 5.50%

General Government - Refunding - Series l 992B 3.75% - 6.40%

General Government - Series 1992A

6.40% - 6.625%

$ 6,255,000 9,990,000 19,585,000 655,000 10,720,000

$ 47,205,000

The changes in Long-Term Debt during the fiscal year ended June 30, 2003, were as follows:

General Obligation
Bonds

Balance July 1, 2002

$ 56,250,000

Deductions Debt Retired

9,045,000

Balance June 30, 2003

$ 47205,000

Portion of Long-Term Debt Due within One Year

$ 6,125,000

At June 30, 2003, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

2004 2005 2006 2007 2008 2009 - 2013 2014 - 2015

$ 6,125,000 $ 6,555,000 7,040,000 7,560,000 3,530,000 10,645,000 5,750,000

2,543,786 2,219,494 1,869,326 1,490,094 1,189,125 3,502,225
483,725

Total Principal and Interest

$ 47205,000 $ 13297,775

- 23 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30. 2003

EXHIBIT"H"

Note 10: ON-BEHALF PAYMENTS

The Board has recognized revenues and costs in the amount of$1,312,861 for health insurance and retirement contributions paid on the Board's behalf by the following State Agencies.

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $1,110,967

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 $201,894

Note 11: SIGNIFICANT COMMITMENTS

The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2003:

Project

Unearned Executed Contracts

Poole Elementary North Paulding Elementary

$ 412,626 5,146,901

$ 5,559.527

The amounts described in this note are not reflected in the basic financial statements.

Note 12: SIGNIFICANT CONTINGENT LIABILITIES

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

The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements.

- 24-

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30. 2003

EXHIBIT"H"

Note 13: SUBSEQUENT EVENTS

In the subsequent fiscal year, the School District issued general obligation refunding bonds in the amount of $7,500,000 dated July 30, 2003. The proceeds from these bonds will be used for refunding a portion of Series 1995 School Bonds and pay expenses incident thereto.

Note 14: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)

TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2003

100%

$ 6,686,097

2002

100%

$ 5,966,192

2001

100%

$ 6,424,644

- 25 -

PAULDING COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30. 2003

SCHEDULE "1"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning
Adjustments

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

36.288.000 $

36,288,000 $

34,636,182

353,290

353,290

3,474,932

82,978,705

80,614,475

82,364,848

5,234,015

7,340,121

6,128,904

3,382,356

3,382,356

5,939,676

361,000

361,000

174,396

531 434

2,020,439

3,515,918

$

129,128,800 $

130,359,681 $

136,234,856

$

88,650,542 $

90,062,677 $

89,526,684

2,603,002 2,938,684 2,481,310
826,657 7,276,777
902,191 8,697,848 6,483,051
611,292 202,508
206,991 5,944,602

3,049,444 3,315,849 2,611,158
870,209 7,326,736
902,191 8,719,642 6,501,381
624,042 209,138
1,620,706 5,944,602

2,520,569 3,073,671 2,550,594
778,788 7,454,528
601,240 8,187,116 5,871,342
558,284 138,177 982,084 1,549,012 6,059,283

$

127,825,455 $

131,757,775 $

129,851,372

$

1,303,345 $

-1,398,094 $

6,383,484

8,110,850

8,110,850

6,693,346

100,353

100 353

Fund Balances - Ending

$

9,514,548 $

6,813,109 $ ==1~3;,i,;,0;;,;,7=6,~83~0;;,,,

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.

See notes to the basic financial statements.

- 27-

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30. 2003

SCHEDULE "2"

FUNDING AGENCY
PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food and Nutrition Program Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Distribution Program (1) Fresh Produce Program (1)
Total U. S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Individuals with Disabilities Education Act Part B - Special Education Flow Through Preschool Capacity Building Improvement
Total Special Education Cluster
Other Programs Pass-Through From Georgia Department of Education Elementary and Secondary Education Act Title I Comprehensive School Reform Demonstration Grant Grants to Local Educational Agencies Title II Enhancing Education Through Technology Improving Teacher Quality Title Ill Immigrant Education TitleV Innovative Education Program Strategies Safe and Drug-Free Schools and Communities Vocational Education - Basic Grants to States High School Program Basic Grant
Total U. S. Department of Education
Defense, U. S. Department of Direct Department of the Army R.O.T.C. Program

Total Federal Financial Assistance
N/A = Not Available

- 28-

CFDA
NUMBER

PASS-
THROUGH ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 10.555

N/A N/A $
$

(2) 5,397,560
5,397,560

10.550 10.550

N/A N/A
$

222,033 44000
5,663,593

* 84.027 * 84.173 * 84.027

N/A $ N/A N/A
$

1,444,049 95,100 53614
1,592,763

84.332 * 84.010
84.318 * 84.367
84.365
84.298 84.186
84.048

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

2,000 1,512,652
40,000 428,672
14,452 52,364 64,098
96277
3,803,278

$

113 423

$ ==,.,;;,i9,,;;;58;;,;0;,i,;,2:;,;:9~4

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30. 2003

SCHEDULE "2"

Notes to the Schedule of Expenditures of Federal Awards
(1) The amounts shown for the Food Distribution Program and Fresh Produce Program represent 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 ($346.293) were not maintained separately and are included in the 2003 National School Lunch Program.
Major Programs are identified by an asterisk (*) in front of the CFDA number.
The School District did not provide Federal Assistance to any Subrecipient.
The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Paulding 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 basic financial statements.

See notes to the basic financial statements.

- 29 -

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2003

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL} Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Apprenticeship Program Health Insurance Mentor Teachers National Teacher Certification Post Secondary Options Preschool Handicapped Program Tuition for the Multi-Handicapped Lottery Programs Assistive Technology Computers in the Classroom Exceptional Growth-Capital Outlay State Data and Research Center

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

$

5,622,204

335,013

12,972,804

1,113,446

6,458,656

782,498 11,160,721
7,734,954 1,611,447

751,362 1,014,519 4,751,358 1,603,886
249,837 807,349 178,304 749,825
79,300 1,681,204
557,293 349,323

1,569,621 3,086,362 5,170,134

1,419,059 304,668 348,055 74,308 67,274
8,241,722 395,690 92,432
-1,838,415
81,677 136,907
38,000 1,110,967
52,954 26,466
7,766 179,516
76,028
26,331 366,130
$ 101,750

$ 4,078,502

TOTAL
5,622,204 335,013
12,972,804 1,113,446 6,458,656
782,498 11,160,721
7,734,954 1,611,447
751,362 1,014,519 4,751,358 1,603,886
249,837 807,349 178,304 749,825
79,300 1,681,204
557,293 349,323
1,569,621 3,086,362 5,170,134
1,419,059 304,668 348,055 74,308 67,274
8,241,722 395,690 92,432
-1,838,415
81,677 136,907
38,000 1,110,967
52,954 26,466
7,766 179,516
76,028
26,331 366,130 4,078,502 101,750

- 30 -

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2003

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Office of School Readiness Pre-Kindergarten Program
Office of Treasury and Fiscal Services Public School Employees Retirement
OTHER Community Affairs, Georgia Department of Local Assistance Grant

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$

2,767,970 $

2,767,970

$

447,249

447,249

201,894

201,894

15000

15000

$

82,364,848 $

6,846,472 $ =====8=9.,.,2=1=1,=32=0=

See notes to the basic financial statements.

- 31 -

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2003

SCHEDULE 411 11

PROJECT
Acquisition, construction and equipping of four new elementary schools, one new middle school, one new high school, a performing arts center, improving system-wide technology, renovations, repairs, improvements and equipping of existing schools and the acquisition of related facilities including all necessary properties.
Paying a portion of the principal and interest on the School District's general obligation bonds maturing August 1, 2001 through and including February 1, 2006.

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT YEAR (3)

AMOUNT EXPENDED
IN PRIOR YEARS (3)

PROJECT STATUS

$ 76,500,000 $ 76,500,000 $ 13,892,345 $ 16,767,806 Ongoing

3,500,000

3,500,000

Ongoing

$ 80,000,000 $ 80,000,000 $ 13,892,345 $ 16,767,806

(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 Paulding County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects.

(4) In addition to the expenditures shown above, the School District has incurred interest to provide advance funding for the above projects as follows:

Prior Years

$ 1,090,172

Current Year

849,190

Total

$ 1,939,362

See notes to the basic financial statements.

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PAULDING COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2003

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 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

$

6,106,057 $ 5,510,995 $

201,908 $

5,712,903

395,854

848,139

40,159

888,298

14,146,662

15,900,825

1,090,125

16,990,950

1,241,316

992,868

5,773

998,641

7,027,386

6,719,840

649,681

7,369,521

858,033 12,095,504
8,470,685 1,777,835 9,136,856
848,660 192,009 818,107
83,949

783,319 13,471,578 10,042,479
2,208,997
603,326 8,964,658
436,787 873,008 122,764 847,320 181,295

2,054 778,124 797,569 276,660
50,678
18,170 1,158 6,922 5,018

785,373 14,249,702 10,840,048
2,485,657
603,326 9,015,336
436,787 891,178 123,922 854,242 186,313

$

63,198,913 $ 68,508,198 $

3,923,999 $

72,432,197

1,835,554 388,013

2,045,751 260,423

439,632 151,223

2,485,383 411,646

TOTAL QBE FORMULA FUNDS

$

65,422,480 $ 70,814,372 $

4,514,854 $ =====7=5'=32=9=,2=2=6

(1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction.

See notes to the basic financial statements.

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SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

RUSSELL W. HINTON
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
June 18, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members ofthe Paulding County Board of Education
REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 ofPaulding County Board ofEducation as ofand for the year ended June 30, 2003, which collectively comprise Paulding County Board of Education's basic financial statements and have issued our report thereon dated June 18, 2004. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Compliance
As part of obtaining reasonable assurance about whether Paulding 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 grants, noncompliance with which could have a direct and material effect on the determination offinancial 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 ofour tests disclosed no instances ofnoncompliance that are required to be reported under Government Auditing Standards.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Paulding County Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal
2003-34YB-30

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 ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Paulding County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule ofFindings and Questioned Costs as item FS-7101-03-01.
A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements 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.
This report is intended solely for the information and use of the management, members of the Paulding 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,
~:4:J..:.b::.

RWH:gp 2003-34YB-30

State Auditor

RUSSELL W. HINTON
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
June 18, 2004

Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education
and Superintendent and Members of the Paulding 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 Paulding 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, 2003. Paulding 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 of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Paulding County Board of Education's management. Our responsibility is to express an opinion on Paulding 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 ofStates, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Paulding County Board of Education'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 Paulding County Board ofEducation's compliance with those requirements.
2003SA-30

In our opinion, the Paulding 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, 2003.
Internal Control Over Compliance
The management of Paulding 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 Paulding County Board of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
We noted 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 Paulding 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-7101-03-01.
A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level of risk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants 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 of the 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 Paulding 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 2003SA-30

State Auditor

SECTION III FINDINGS AND QUESTIONED COSTS

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements
The auditor's opinion on the Paulding 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 Paulding County Board of Education disclosed a financial statement reportable condition related to the following control category. Expenditures/Liabilities/Disbursements The reportable condition described above is not considered to be a material weakness. 3. Noncompliance Material to the Financial Statements The audit of the Paulding 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 Paulding County Board of Education disclosed a reportable condition in internal control over major programs for the following compliance requirement. Cash Management 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 Paulding County Board of Education's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Paulding County Board of Education's audit disclosed an audit finding required to be reported by section .51 0(a) of 0MB Circular A-133. This audit finding is included in section III of this report.
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PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
I SUMMARY OF AUDITOR'S RESULTS
7. Major Programs Federal awards audited as major programs are as follows: 84.010 Elementary and Secondary Education Act - Title I - Grants to Local Educational Agencies 84.027 Individuals with Disabilities Education Act - Part B - Special Education Flow Through 84.027 Individuals with Disabilities Education Act - Part B - Special Education Capacity Building Improvement 84.173 Individuals with Disabilities Education Act - Part B - Special Education Preschool 84.367 Elementary and Secondary Education Act - Title II - Improving Teacher Quality
8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.
9. Low Risk Auditee The Paulding County Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133.
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over Principal Accounts Reportable Condition Finding Control Number: FS-7101-03-01
Our examination of the principals' accounts disclosed weaknesses in internal control as discussed below:
1) Based on a test of 40 items, eighteen voucher packets did not contain a purchase order. Fifteen voucher packets did not have prior approval for payment. Nine voucher packets did not contain original invoices. Two voucher packets included purchase request forms which were dated and approved after the invoice date.
2) Based on a test of99 items, four expenditures were not charged to the correct account. One check could not be traced to the ledger.
3) Board personnel could not provide adequate documentation for one check requested.
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PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over Principal Accounts Reportable Condition Finding Control Number: FS-7101-03-01
These deficiencies were a result of management's failure to ensure established controls were functioning as designed at the various school sites. Management should implement procedures to ensure that controls are revised and/or monitored to provide reasonable assurance that transactions are processed according to established procedures.
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
CASH MANAGEMENT Excessive Cash Balances Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-7101-03-01
A review ofcash management procedures for the Elementary and Secondary Education Act - Part B Special Education - Flow Through Program (CFDA 84.027), the Elementary and Secondary Education Act - Part B - Special Education - Capacity Building Improvement Grant Program (CFDA 84.027), and the Elementary and Secondary Education Act - Part B - Special Education - Preschool Program (CFDA 84.173) disclosed that cash draws were made in advance ofimmediate cash needs, resulting in the accumulation of excessive cash balances for four months during the year under review.
The excessive cash balances are a result of management's failure to accurately forecast the cash needs of these programs. The School District should implement procedures to minimize the time elapsing between the transfer offunds from the Georgia Department ofEducation and disbursement of such funds.
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