Paulding County Board of Education, Dallas, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2004

PAULDING COUNTY BOARD OF EDUCATION
DALLAS, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

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

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

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

I 0

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

11

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

27

PAULDING COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

28

3 SCHEDULE OF STATE REVENUE

29

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

30

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

31

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

PAULDING COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS
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
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
May 13, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the 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, 2004, 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 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 Paulding County Board ofEducation, as ofJune 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
2004ARL-11

In accordance with Government Auditing Standards, we have also issued our report dated May 13, 2005, 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 grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.
Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through viii and page 27 respectively, are not a required part ofthe 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:as 2004ARL-l l

State Auditor

PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
The discussion and analysis of the Paulding County Board of Education's financial performance provides an overall review of the Board's financial activities for the fiscal year ended June 30, 2004. The intent of this discussion and analysis is to look at the Board's financial performance as a whole. Readers should also review the financial statements and the notes to the basic financial statements to enhance their understanding of the Board's financial performance.
Financial Highlights
Key financial highlights for fiscal year 2004 are as follows:
The Governmental Accounting Standards Board (GASB) issued GASB Statement 34 on June 30, 1999, requiring governments to comply with a new reporting model for financial statements. Based upon total revenues, the Paulding County Board of Education was a Phase Two implementer, and was required to implement GASB Statement 34 beginning in fiscal year 2003.
The Board's financial status improved substantially during fiscal year 2004. In total, net assets increased $7.4 million, which represents a 6.6 percent increase from fiscal year 2003 restated balance. This total increase was due to governmental activities since the Board has no business-type activities.
General revenues accounted for $69.8 million in revenue or 44 percent of all revenues. Program specific revenues in the form of charges for services and sales, grants and contributions accounted for $88.1 million or 56 percent of total revenues. Total revenues were $157.9 million.
The Board had $150.5 million in expenses related to governmental activities; only $88.1 million of these expenses were offset by program specific charges for services, grants or contributions. General revenues, primarily taxes, of $69.8 million were adequate to provide for these programs.
Among major funds, the general fund had $143.4 million in revenues and $139.4 million in expenditures. The general fund's balance increased to $17.1 million from $13.1 million.
Using the Basic Financial Statements
This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the Paulding County Board of Education as a financial whole, or as an entire operating entity.
The Statement ofNet Assets and Statement ofActivities provide information about the activities of the Board as a whole, presenting both an aggregate view of the Board's finances and a longerterm view of those finances. The fund financial statements provide the next level of detail. For
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PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
governmental funds, these statements tell how services were financed in the short-term as well as what remains for future spending. The fund financial statements also look at the Board's most significant funds. In the case of the Paulding County Board of Education, the general fund is by far the most significant fund.
Reporting the Board as a Whole
Statement ofNet Assets and Statement ofActivities
While these documents contain the large number of funds used by the Board to provide programs and activities, the view of the Board as a whole looks at all financial transactions and asks the question, "How did we do financially during fiscal year 2004?" The Statement ofNet Assets and the Statement of Activities answer this question. These statements include all assets and all liabilities using the accrual basis of accounting similar to the accounting used by most privatesector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid.
These two statements report the Board's net assets and changes in those assets. This change in net assets is important because it tells the reader whether, for the Board as a whole, the financial position of the Board has improved or diminished. The causes of this change may be the result of many factors, some financial, some not. Nonfinancial factors include the Board's property tax base, facility conditions, required educational programs and other factors.
In the Statement of Net Assets and the Statement of Activities, the Board has one distinct type of activity:
Governmental Activities - All of the Board's programs and services are reported here including instruction, support services, operation and maintenance of plant, pupil transportation, food service, after school program, school activity accounts and various others.
Reporting the Board's Most Significant Funds
Fund Financial Statements
Fund financial reports provide detailed information about the Board's major funds. The Board uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the Board's most significant funds. The Board's major governmental funds are the General Fund, the District-wide Capital Projects Fund, and the Debt Service Fund.
Governmental Funds Most of the Board's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily
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PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

be converted to cash. The governmental fund statements provide a detailed short-term view of the Board's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental/unds is reconciled in the financial statements.

Fiduciary Funds The Board is the trustee, or fiduciary, for assets that belong to others, such as school clubs and organizations within the school activity accounts. The Board is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The Board excludes these activities from the District-wide financial statements because it cannot use these assets to finance its operations.

The Board as a Whole

The perspective of the Statement of Net Assets is of the Board as a whole. Table 1 provides a summary of the Board's net assets for fiscal year 2004 compared to fiscal year 2003.

Table 1 Net Assets (in Thousands)

Governmental Activities

Fiscal

Fiscal

Year 2003

Year 2004 (Restated)

Assets Current and Other Assets Capital Assets, Net

$ 45,455 134,509

$ 46,520 128,730

Total Assets

$ 179,964 $ 175,250

Liabilities Current and Other Liabilities Long-Term Liabilities

$ 18,135 42,039

$ 15,422 47,437

Total Liabilities

$ 60,174 $ 62,859

Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted
Total Net Assets

$ 92,714 11,538 15,538
$ 1192790

$ 81,525 19,177 11,689
$ 1122391

Total net assets increased $7.4 million.

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PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Table 2 shows the changes in net assets for fiscal year 2004 compared to the changes in net assets for fiscal year 2003.

Table 2 Change in Net Assets
(in Thousands)

Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions
Capital Grants and Contributions

Governmental Activities

Fiscal

Fiscal

Year 2004

Year 2003

$ 6,746 81,087 305

$ 5,940 78,985 6,846

Total Program Revenues

$ 88,138

$ 91 771

General Revenues:
Taxes Property Taxes For Maintenance and Operations For Debt Service
Sales Taxes Special Purpose Local Option Sales Tax For Debt Service For Capital Projects Intangible Recording Tax Real Estate
Grants and Contributions not Restricted to Specific Programs
Investment Earnings Miscellaneous

$ 37,293 2,610
4,446 6,505 2,643
565
11,177 665
3,851

$ 35,179 2,512
7,666 2,279 3,285
549
9,509 430
3,403

Total General Revenues

$ 69,755

$ 64,812

Total Revenues

$ 157,893

$ 156,583

Program Expenses 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

$ 99,597
2,622 3,819 2,632
707 8,233
762 9,197 9,227
640 240
1,105 1,548 7,122 3,043

$ 91,764
2,521 7,039 2,551
740 7,394
613 8,187 6,173
558 13
982 1,549 6,236 3,008

Total Expenses

$ 150,494

$ 139,328

Increase in Net Assets

$ 7 399

$ 17,255

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PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Governmental Activities

Instruction comprises 66.2 percent of governmental program expenses. Interest expense comprises 2 percent of governmental program expenses. Interest expense was attributable to the outstanding bonds for capital projects.

The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services comparing fiscal year 2004 with fiscal year 2003. That is, it identifies the cost of these services supported by tax revenue and unrestricted State entitlements.

Table3 Governmental Activities
(in Thousands)

Total Cost of Services

Fiscal

Fiscal

Year2004 Year2003

Net Cost of Services

Fiscal

Fiscal

Year2004 Year 2003

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 ofNon-Instructional Services Enterprise Operation Community Services Food Services Interest on Short-Term and Long-Term Debt

$ 99,597 $ 91,764

2,622 3,819 2,632
707 8,233
762 9,197 9,227
640 240

2,521 7,039 2,551
740 7,394
613 8,187 6,173
558 13

I, 105 1,548 7,122 3,043

982 1,549 6,236 3,008

$ 38,374 $ 25,975

1,638 2,535
870 -1,117 4,749
762 3,732 6,753
636 199

1,754 6,077
898 -1, 129 4,167
613 2,995 2,739
545 -81

-35 197 20 3,043

-21 299 -282 3,008

Total Expenses

$ 150,494 $ 139,328 $ 62,356 $ 47,557

Although program revenues make up a majority of the revenues, the Board is still dependent upon tax revenues for governmental activities. Over 38.5 percent of instruction activities are supported through taxes and other general revenues; for all governmental activities general revenue support is 41.4 percent.

The Board's Funds

The Board's governmental funds are accounted for using the modified accrual basis of accounting. Total governmental funds had revenues and other financing sources of $165.4 million and expenditures and other financing uses of $169.2 million. There was a decrease of

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PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
$10.8 million in the capital projects fund due to capital funds on hand being expended. The general fund had an increase of $4 million and the debt service fund had an increase of $3.0 million. The positive change in the fund balance of the general fund for the year indicates that the Board was able to meet current costs from current revenues.
General Fund Budgeting Highlights
The Board's budget is prepared according to Georgia law. The most significant budgeted fund is the General Fund.
During the course of fiscal year 2004, the Board amended its general fund budget as needed. The Board uses site-based budgeting. The budgeting systems are designed to tightly control total site budgets but provide flexibility for site management.
For the General Fund, the final budgeted revenues of $137.2 million exceeded the original budgeted amount of $136.3 million by $0.9 million. This difference was primarily due to increases in Federal revenues budgeted of $0.5 million. The actual revenues of $143.4 million exceeded the final budgeted amount by $6.2 million. Shortfalls in other revenue categories were offset by the inclusion of the nonbudgeted individual school accounts and the conservative budgeting for real estate sales and intangible taxes.
The final budgeted expenditures of $138.5 million exceeded the original budgeted amount of $136.4 million by $2.1 million. This difference was due to an increase in instruction of $1.6 million, in pupil services of $0.5 million. The actual expenditures of $139.4 were more than the final budgeted amount by $0.9 million.
General Fund revenues exceeded expenditures by $4 million. The Board has made a concerted effort to raise fund balance in anticipation of future needs, and this result is evidence of their work.
Capital Assets and Debt Administration
Capital Assets
At the end of fiscal year 2004, the Board had $134.5 million invested in capital assets, all in governmental activities. Table 4 shows fiscal year 2004 balances compared with fiscal year 2003 balances.
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PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Table 4 Capital Assets at June 30 (Net of Depreciation, in Thousands)

Governmental Activities

Fiscal

Fiscal

Year 2003

Year 2004 (Restated)

Land Construction in Progress Buildings and Building Improvements Equipment Land Improvements

$ 4,538 5,872
115,205 7,638 1,256

$ 4,538 15,535
100,500 6,846 1,311

Total

$ 134!509 $ 128)30

The primary increases occurred in Buildings and Improvements. Due to the ongoing growth in the county, the Board has numerous construction projects including new buildings, additions and renovations.

Debt

At June 30, 2004, the Board had $42 million in bonds outstanding with $6.6 million due within one year. The School District's legal debt limit is 10 percent of the net assessed tax digest valuation of $2,535.9 million for bond purposes, or a maximum bonded debt of $253.6 million. The total current bonded restricted debt of $42 million is well below the legal limit.

Current Issues

Paulding County continues to be among the fastest growing counties in the nation. The responsibility for funding education continues to be shifted from the state to local revenues. Although the state economy shows signs of recovery, previous cuts in the state budget for education with the exception of equalization, have not been restored. Sales tax revenue growth is lower than anticipated, and a shortfall is expected in total collections under the current Special Purpose Local Option Sales Tax initiative. Capital projects are being evaluated and reprioritized in light of the current revenue shortfall. The county's economic outlook continues to be healthy. The tax digest increased 102.5 percent between 1999 and 2004, including growth, reassessment and reappraisals. Population growth is continuing at an extremely high rate. There are over 21,700 students currently enrolled in the School District. The enrollment has increased by an average of 1,329 students per year for the last five years. The population growth is expected to be reflected in school system enrollment growth for several years to come, and is a significant factor in the Board's annual budget and planning processes.

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PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Contacting the Board's Financial Management This financial report is designed to provide our citizens, taxpayers, investors, and creditors with a general overview of the Board's finances and to show the Board's accountability for the money it receives. If you have questions about this report or need additional information, contact Gayle W. Blalock, CPA, Chief Financial Officer at the Paulding County Board of Education, 522 Hardee Street, Dallas, Georgia 30132.
- Vlll -

PAULDING COUNTY BOARD OF EDUCATION

PAULDING COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable 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 Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets

EXHIBIT "A"

GOVERNMENTAL ACTIVITIES

$

21,189,272

9,193,280

3,342,714 10,253,362
1,247,417 29,167 199,635

4,538,347 5,871,586 2,309,163 139,028,713 17,383,314 -34,622,280

$ ===17=9=9=6=3'=6=90==

$

5,522,407

12,189,169

110,040

313,068

6,799,407 35,240,000

$

60,174,091

$

92,713,843

1,510,161 4,452,010 5,575,255 15,538,330

$

119,789,599

$ ===17=9=9=6=3==6=90=

The notes to the basic financial statements are an integral part of this statement. -3-

PAULDING COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30. 2004

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services 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 (Restated)
Net Assets - End of Year

EXPENSES

CHARGES FOR SERVICES

$

99,597,427 $

2,621,780 3.819,407 2,632,069
706,911 8,233,011
762,248 9,196,912 9,227,143
639,442 239,788

1,105,420 1,548,133 7,121,710 3,042,760

$

150494161 $

184,644
1,140,521 1,350,834 4,070,226 6,746,225

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

$

61,039,008

983,969 1,284,334 1,762,375 1,823,850 3,484,121

5,464,697 2,169,380 $
3,839 40,676

3,030,914

$

81 087 163 $

$ 304,595 304 595 $

-38,373,775
-1,637,811 -2,535,073
-869,694 1,116,939 -4,748,890 -762,248 -3,732,215 -6,753, 168 -635,603 -199,112
35,101 -197,299
-20,570 -3,042,760
-62,356,178

$

37,293,204

2,610,368

4,445,510 6,505,050 2,642,874
565,449 11,176,854
664,777 3,850 831

$

69 754,917

$

7,398,739

112,390,860

$ ===1=19=7=8=9'=5=99=

-5-

PAULDING COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30. 2004

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 20,540,305 $ 1,041,720
1,281,333 10,253,362
1,247,417 29,167 199 635

265,641 $ 4,196,560
1,757,635

383,326 $ 3,955,000
87,510

21,189,272 9,193,280
3,126,478 10,253,362
1,247,417 29,167 199,635

Total Assets

$ 34,592,939 $ 6,219,836 $ 4,425,836 $ ===4~5;,.;,2~3~8,~6~11~

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 Capital Projects
Unreserved Undesignated Reported in: General Fund
Total Fund Balances

$ 5,300,934 $

221,473

$

12,189,169

110,040

313 068

$ 17,490,103 $

644,581

$

$ 1,310,526

$

$ 4,425,836

199,635

$ 5,575,255

15,592,675 $ 17,102,836 $

5,575,255 $

4,425,836 $

5,522,407 12,189,169
110,040 313,068 18,134,684
1,310,526 4,425,836
199,635 5,575,255
15,592,675 27 103 927

Total Liabilities and Fund Balances

$ 34,592,939 $ 6,219,836 $ 4,425,836 $ ===4~5;,.;2~3~8~6~11~

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. 2004

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 Compensated Absences
Total Long-Term Liabilities

$ 27,103,927

$ 4,538,347 5,871,586 2,309,163
139,028,713 17,383,314 -34,622,280

134,508,843

216,236

$ -41,795,000 -244 407

-42,039,407

Net Assets of Governmental Activities (Exhibit "A")

$ 119,789,599

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. 2004

EXHIBIT"E"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Proceeds of Refunding Bonds Payment to Bond Refunding Escrow Agent Refunding Bond Issuance Cost
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 37,283,296 2,670,287 $
85,403,127 7,165,485 6,746,225 258,853 3,872,318

$ 2,615,118 $

2,550,050

8,938,546

392,529

13,395

39,898,414 14,158,883 85,403,127
7,165,485 6,746,225
664,777 3,872,318

$ 143,399,591 $ 2,942,579 $ 11,567,059 $ 157,909,229

$ 94,416,917

$ 94,416,917

2,621,780 3,816,846 2,569,484
633,931 8,214,938
611,608 9,193,719 6,962,115
637,695 88,367
1,105,420 1,548,133 6,952,632
$

$ 13,716,836

10,402

2,621,780 3,816,846 2,569,484
633,931 8,214,938
622,010 9,193,719 6,962,115
637,695 88,367
1,105,420 1,548,133 6,952,632 13,716,836

6,125,000 2,280,759

6,125,000 2,280,759

$ 139,373,585 $ 13,716,836 $ 8,416,161 $ 161,506,582

$ 4,026,006 $ -10,774,257 $ 3,150,898 $ -3,597,353

$ 7,500,000 $ -7,547,001 -138,551

$ -185,552 $

$ 4,026,006 $ -10,774,257 $ 2,965,346 $

13,076,830

16,349,512

1,460,490

7,500,000 -7,547,001
-138551
-185,552
-3,782,905
30,886,832

Fund Balances - Ending

$ 17,102,836 $

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

-8 -

5,575,255 $ 4,425,836 $

27,103,927

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. 2004

EXHIBIT"F"

Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")
Amounts reported for Governmental Activities in the Statement of Activities are different because:
Capital Outlays are reported as expenditures in Governmental Funds. However. in the Statement of Activities. the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period. these amounts are:
Capital Outlay Depreciation Expense
Excess of Capital Outlay over Depreciation Expense
Because some property taxes will not be collected for several months after the School District"s fiscal year ends. they are not considered "available" revenues.
In the Statement of Activities. only the gain on the sale of the equipment is reported. whereas in the Governmental Funds. the entire proceeds from the sale increase financial resources. Thus. the change in net assets differs from the change in fund balances by the carrying value of the equipment sold.
Bond proceeds provide current financial resources to Governmental Funds; however. issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period. proceeds were received from:
Refunding Bonds issued
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 Payments to Bond Refunding Agent
Total Long-Term Debt Repayments
Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of:
Increase in Compensated Absences

$ $ 9,748,531
-3,948,064
$ 6,125,000 6,785,000

-3.782.905
5,800,467 5,158
-21,485 -7.500.000 12,910,000
-12 496

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

$ =====7=,3=9=8=7'=39=

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, 2004
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT"G"
AGENCY FUNDS $ ======1=7=0'=04=4=
$ =====1=70='=04=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, 2004

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 of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.
The School District reports the following major governmental funds:
- 11 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Fund is the School District's primary operating fund. It accounts for all financial resources 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 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 of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt 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.
- 12 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
RESTATEMENT OF PRIOR YEAR NET ASSETS
For fiscal year 2004, the School District restated Capital Assets due to numerous errors and omissions noted during the initial year of implementation of GASB Statement No. 34. The School District increased land and construction in progress by $2,235,001 and $5,105,887, respectively. Additionally, the School District increased, net of accumulated depreciation, buildings and improvements, by $990,469 and decreased, net of accumulated depreciation, equipment and land improvements by $112,641 and $4,896, respectively. The result is an increase in Net Assets at July 1, 2003, of $8,213,820. This change is in accordance with generally accepted accounting principles.
For fiscal year 2004, the School District restated Compensated Absences due to a change in accounting principal. The result is a decrease in Net Assets at July 1, 2003, of $231,911. This change is in accordance with generally accepted accounting principles.
CASH AND CASH EQUIVALENTS
COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.
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 of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code of Georgia 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,

- 13 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(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 2003 tax digest year (calendar year) on August 12, 2003 (levy date). Taxes were due on November 15, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The 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, 2004, for maintenance and operations amounted to $37,283,296 and for school bonds amounted to $2,615,118.
Tax millage rates levied for the 2003 tax year (calendar year) for the Paulding County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value):

- 14 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

School Operations School Bonds

16.41 mills _l__,_l2 mills

17.53 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $10,950,560 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:

- 15 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

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 of Net 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. If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent 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 of the State of Georgia,

- 16 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

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 of the State of Georgia, and

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

CATEGORIZATION OF DEPOSITS At June 30, 2004, the bank balances were $27,159,620. 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, 2004, as follows:

Risk Category

Bank Balance

1

$ 930,925

2

212,757

3

26,015,938

Total

$ 27,159,620

CATEGORIZATION OF INVESTMENTS At June 30, 2004, the carrying value ofthe School District's total investments was $9,081,925 which is materially the same as fair value. The investments are classified as to risk categories as follows:

- 17 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS

TyQe of Investment

U. S. Government

$

Local Government Investment Pools

Total Investments

Risk Categories 2

0 $

160 $

Carrying

Fair

3

Amount

Value

0 $

160 $

160

9,081,765

9 081 765

$ 9 081,925 $ 9,081,925

The carrying amounts shown above includes amounts maintained in an investment pool by the State of Georgia, Office of Treasury 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 (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 and Fund 6 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2004, was 24 days. The average investment duration for Fund 6 on June 30, 2004, was 0.22 years.

Note 4: NON-MONETARY TRANSACTIONS

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

- 18 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 5: CAPITAL ASSETS

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

Balances July 1, 2003
(Restated)

Increases

Balances Decreases June 30, 2004

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

$ 4,538,347

$ 4,538,347

15,535,392 $ 5,862,586 $ 15,526,392

5,871,586

Total Capital Assets Not Being Depreciated $ 20,073,739 $ 5,862,586 $ 15,526,392 $ 10,409,933

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 121,794,947 $ 17,233,766

15,406,360

2,130,055 $

2,265,647

48,516

$ 139,028,713

153,101 17,383,314

5,000

2,309,163

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

21,294,561 8,561,582 954,687

2,530,012 1,320,087
97 965

136,614

23,824,573 9,745,055 1,052,652

Total Capital Assets, Being Depreciated, Net $ 108,656,124 $ 15,464,273 $

21 487 $ 124,098,910

Governmental Activity Capital Assets - Net $ 128,729,863 $ 21,326,859 $ 15,547,879 $ 134,508.843

Current year depreciation expense by function is as follows:

Instruction Support Services
Educational Media Services General Administration School Administration Student Transportation Services Other Support Services Food Services

$ 2,851,831

$

16,163

23,177

16,769

863,473

39 494

959,076 137,157

$ 3,948.064

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST) and property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2004, were as follows:

- 19 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 6: RESTRICTED ASSETS

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

District-wide Capital Projects SPLOST

Debt Service Funds

$ 383,326 $ 265,641
$ 3,955,000 $ 4,196,400

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:

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End of Year Liability

2003 2004

$

0 $

12,748 $

12,748 $

0

$

0 $

18,016 $

18,016 $

0

-20-

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

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 of workers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Fund for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Fund with the Safety National Casualty Corporation to provide coverage for potential losses sustained by the Fund in excess of $400,000 loss per occurrence, up to $1,000,000.

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

Position Covered

Amount

Superintendent All Other Employees

$ 100,000 $ 250,000

Note 8: LONG-TERM DEBT

COMPENSATED ABSENCES Compensated absences represent obligations of the School District relating to employees' rights to receive compensation for future absences based upon service already rendered. This obligation relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. Typically, the General Fund is the fund used to liquidate this long-term debt. The School District uses the vesting method to compute compensated absences.

ADVANCE REFUNDING During fiscal year 2004, the Paulding County Board of Education issued $7,500,000 in General Obligation Refunding Bonds to advance refund $6,785,000 of outstanding bonds. The bond issue of $7,500,000 less underwriters and bond issue cost of$138,55 l provided net proceeds of$7,361,449. The total net proceeds of $7,361,449 and $185,552 in additional funds were deposited in an irrevocable trust with an escrow agent to provide for future debt service payments on portions ofthe 1995 Bond issue. As a result, portions of the 1995 Series Bonds are considered defeased, and the liability for these portions has been removed from the District-wide Statement of Net Assets. The Paulding County Board ofEducation refunded the aforementioned bonds to obtain an economic gain (difference between the present values oftotal debt service payments and the old and new debt) of $973,770.

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

- 21 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 8: LONG-TERM DEBT

Purpose

Interest Rates

Amount

General Government - Refunding - Series 2003 General Government - Series 2001 General Government - Series 2000 General Government - Series 1995 General Government - Series 1992A

2.87% 4.69% 4.72% 4.60% - 5.50% 6.40% - 6.625%

$ 7,500,000 2,485,000 9,990,000 12,200,000 9,620,000

$ 41)95,000

The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows:

Governmental Funds

General

Compensated Obligation

Absences ( 1)

Bonds

Total

Balance July 1, 2003

$

0 $ 47,205,000 $ 47,205,000

Retroactive Restatement of Prior Year Balances

231,911

231,911

Balance July 1, 2003 Restated

$ 231,911 $ 47,205,000 $ 47,436,911

Additions Annual Leave Earned G.O. Bonds

324,549

7,500,000

324,549 7,500,000

Deductions Annual Leave Utilized Debt Retired

312,053

12,910,000

312,053 12,910,000

Balance June 30, 2004

$ 244,407 $ 41,795,000 $ 42,039,407

Portion of Long-Term Debt Due within One Year

$ 244,407 $ 6,555,000 $ 6,799,407

(1) The portion of Compensated Absences due within one year has been determined to be immaterial to the basic financial statements.

At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows:

-22 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 8: LONG-TERM DEBT

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

2005 2006 2007 2008 2009 2010 - 2014 2015

$ 6,555,000 $ 7,040,000 7,340,000 3,645,000 2,780,000 11,320,000 3,115,000

2,063,639 1,713,471 1,334,239 1,064,735
835,134 2,165,248
89,400

Total Principal and Interest

$ 41,795.000 $ 9,265.866

Note 9: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $1,236,036 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 $1,224,710

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 $11,326

Note 10: SIGNIFICANT COMMITMENTS

The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2004, together with funding available:

- 23 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 10: SIGNIFICANT COMMITMENTS

Project

Unearned Executed Contracts

Funding Available From State

South Paulding High School Connie Dugan Elementary School Austin Middle School

$ 26,575,547 $ 8,870,256

15,161,168

4,005,608

8,161,056

6,383,387

$ 49,897)71 $ 19,259,251

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

Note 11: SIGNIFICANT CONTINGENT LIABILITIES

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

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

Note 12: SUBSEQUENT EVENTS

In the subsequent fiscal year, voters authorized the School District to issue general obligation bonds in the amount of $59,000,000. The proceeds from these bonds will be used for financing the acquisition, construction and equipping oftwo new elementary schools, one new middle school and one new high school; financing the renovation, completion, construction and expansion ofnew and existing school facilities; acquiring any property necessary or desirable therefore, both real and personal; capitalized interest on the Series 2004 Bonds and costs of issuing the Series 2004 Bonds.

Note 13: 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.

- 24 -

PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "H"

Note 13: RETIREMENT PLANS

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

2004 2003 2002

100% 100% 100%

$ 7,098,212 $ 6,686,097 $ 5,966,192

- 25 -

PAULDING COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30. 2004

SCHEDULE "1"

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

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

37,820,275 $

37,820,275 $

37,283,296

372,139

372,139

2,670,287

84,921,119

85,487,705

85,403,127

7,388,657

8,311,491

7,165,485

3,875,385

3,284,952

6,746,225

386,700

374,270

258,853

1,541,059

1,595,443

3,872,318

$

136,305,334 $

137,246,275 $

143,399,591

$

92,285,480 $

93,903,479 $

94,416,917

2,871,577 3,526,766 2,646,121
752,472 8,004,731
983,757 9,152,882 7,228,786
636,057 130,168
1,440,016 6,733,586

3,049,420 4,079,366 2,651,121
823,449 8,004,182
963,757 9,075,882 7,141,276
639,494 108,715
1,459,423 6,566,693

2,621,780 3,816,846 2,569,484
633,931 8,214,938
611,608 9,193,719 6,962,115
637,695 88,367
1,105,420 1,548,133 6,952,632

$

136,392,399 $

138,466,257 $

139,373,585

$

-87,065 $

-1,219,982 $

4,026,006

14,666,846

14,666,846

13,076,830

-1 854 976

-1 854 976

Fund Balances - Ending

$

12,724,805 $

11591888 $===17~,1=0=2~,8=36=

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 -

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30. 2004

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Donation (1)
Total U.S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Other Programs Pass-Through From Georgia Department of Education English Language Acquisition Grants Enhancing Education Through Technology Program Improving Teacher Quality State Grants 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

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 10.555

N/A

NIA

$

$

(2) 6 142 108
6,142,108

10.550

N/A
$

408 918 6 551 026

84.027 84.173

NIA $ N/A
$

2,323,836 54566
2,378,402

84.365 84.318 84.367 84.298 84.010 84.048

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

20,740 40,822 396,583 97,002 1,371,869 99 461
4 404 879

$

131 298

Total Federal Financial Assistance N/A = Not Available

$ ===1=1..o..8..7..,..2.0.3..

Notes to the Schedule of Expenditures of Federal Awards

(1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year.
(2) Expenditures for the funds earned on the School Breakfast Program ($378,399) were not maintained separately and are included in the 2004 National School Lunch Program.

Major Programs are identified by an asterisk (*) in front of the CFDA number.

The School District did not provide Federal Assistance to any Subrecipient.

The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the 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 fund financial statements.

See notes to the basic financial statements.

- 28 -

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004

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 Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Apprenticeship Program At-Risk Summer School Program Health Insurance K-3 Statewide Reading Program Mentor Teachers National Teacher Certification Pay for Performance Preschool Handicapped Program Tuition for the Multi-Handicapped Lottery Program Student Information System
Office of Treasury and Fiscal Services Public School Employees Retirement

See notes to the basic financial statements.

- 29-

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

5,783,468

182,378

13,457,309

1,151,295

6,276,576

972,553

11,521,798

8,577,070

1,656,723

852,950 878,440 5,372,893 1,637,619 363,519 882,183 222,937 801,016
89,437 1,756,520
551,383 372,102

1,681,857 3,318,293 5,464,681

1,371,002 304,595 381,771 75,848
10,316,302 401,606 190,453
-3,615,947
38,000 115,428 1,224,710 244,912 39,345 52,968 82,763 179,516 94,199
69,330

11 326

$ ==.,,,;;;;85;;;,.,4;;,;;0;;;;,3.,;1,2, ;;,,;7=

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2004

SCHEDULE "4"

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) (4)

AMOUNT EXPENDED
IN PRIOR YEARS (3) (4)

PROJECT STATUS

$ 76,500,000 $ 76,500,000 $ 13,716,836 $ 30,660,151 Ongoing

3,500,000

3,500,000

Ongoing

$ 80,000,000 $ 80,000,000 $ 13,716,836 $ 30,660,151

(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

$ 1,939,362

Current Year

676 481

Total

$ 2,615,843

See notes to the basic financial statements.

- 30 -

PAULDING COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2004

SCHEDULE "5"

DESCRIPTION

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

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 II

Category Ill

Category IV

Gifted Student - Category VI

Remedial Education Program

Alternative Education Program

English Speakers of Other Languages (ESOL)

6,455,303 $ 233,171
15,000,833 1,289,069 7,050,218

6,016,905 $ 427,722
17,008,378 1,329,047 6,961,363

1,061,224 12,852,922
9,492,522 1,853,781 10,097,817
973,016 242,599 890,020
98 322

911,495 13,829,616 11,177,393
2,051,996
772,282 10,166,675
319,395 1,104,836
183,805 877,840 269,865

393,846 $ 38,025
1,567,767 5,736
660,328
2,060 640,055 571,614 296,898
117,809
17,515 35
4,497 11 624

6,410,751 465,747
18,576,145 1,334,783 7,621,691
913,555 14,469,671 11,749,007
2,348,894
772,282 10,284,484
319,395 1,122,351
183,840 882,337 281 489

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

67,590,817 $ 73,408,613 $

4,327,808 $

77,736,421

Media Center Program Staff and Professional Development

1,954,335 417 071

2,183,617 106,281

335,793 282,762

2,519,410 389 043

TOTAL QBE FORMULA FUNDS

$

69,962,223 $ 75,698,511 $

4,946,363 $ =~8,;;;0e;;;64;;,;;4;.;8;;,,;,7,;;,4

(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.

- 31 -

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
May 13, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Paulding 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 ofPaulding County Board ofEducation as of and for the year ended June 30, 2004, which collectively comprise Paulding County Board of Education's basic financial statements and have issued our report thereon dated May 13, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered 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 an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Paulding County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-7101-04-01 and FS-7101-04-02.
2004YB-30

A material weakness is a reportable condition in which the design or operation of one 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 none of the reportable conditions described above is a material weakness.
Compliance and Other Matters
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 of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of the management and members of the Paulding County Board of Education and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

RWH:as 2004YB-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
May 13, 2005

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 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 US. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2004. 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 of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types 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.
2004SA-30

In our opinion, the Paulding County Board ofEducation 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, 2004.
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-7101-04-01.
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 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:as 2004SA-30

State Auditor

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

PAULDING COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-7101-03-01

Unresolved - See Corrective Action/Reponses

CORRECTIVE ACTION/RESPONSES

EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Controls over Principal Accounts Reportable Condition Finding Control Number: FS-7101-03-01

This audit finding was issued in June of 2004. The corrective action plan was implemented in July of 2004, which was after the year that is being audited. Currently, the action plan has rendered good results in requiring principals to submit monthly reporting to reflect day-to-day financial activities. Periodic, unannounced audits were conducted by the local school accountant to ensure compliance with established procedures. Failure to follow these procedures will be addressed appropriately.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-7101-03-01

Previously Reported Corrective Action Implemented

SECTION IV FINDINGS AND QUESTIONED COSTS

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

I SUMMARY OF AUDITOR'S RESULTS

1. Type of Report Issued on the Financial Statements The auditor's opinion on the 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 financial statement reportable conditions related to the following control categories.

Accounting Controls (Overall)

Expenditures/Liabilities/Disbursements

None ofthe reportable conditions described above are considered to be material weaknesses.

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.

Special Tests and Provisions

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 .5 lO(a) of 0MB Circular A-133 The Paulding County Board of Education's audit disclosed an audit finding required to be reported by section .5 lO(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: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program

8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $332,616.

- 1-

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
I SUMMARY OF AUDITOR'S RESULTS
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
ACCOUNTING CONTROLS (OVERALL) Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-7101-04-01
Our examination of the access roles and rights disclosed weaknesses in internal control. Access controls in the Financial System do not prevent users from accessing accounting functions that are outside of their area of responsibility.
Separation of duties involving key accounting functions is the basis for achieving an adequate system of internal control. These deficiencies were a result of management's decision not to review the access granted to administrative staff responsible for accounting functions. Management should periodically review this decision to determine if employee duties can be reassigned to achieve a higher degree of internal control with the existing staff. Additionally, management should ensure that the access controls in the accounting information system complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of that employee's duties.
EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Controls over School Activity Accounts Reportable Condition Repeated from Prior Year Finding Control Number: FS-7101-04-02
Our examination of the school activity (principal's) accounts disclosed weaknesses in internal controls as discussed below:
1) Based on a test of expenditures, it appears that several voucher packages did not have proper documentation and approval prior to payment.
2) Based on a review of receipts, it is concluded that proper documentation is not available on several receipts tested. These items could not be traced from the receipt book to the general ledger and bank deposits.
3) There are currently no controls in place to properly account for prepaid expenses to ensure they are recorded in the proper period.
-2 -

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Controls over School Activity Accounts Reportable Condition Repeated from Prior Year Finding Control Number: FS-7101-04-02
These deficiencies were a result ofmanagement's failure to ensure procedures are placed in operation for recording and reporting of transactions. Management should implement procedures to ensure that controls are revised and/or monitored to provide for reasonable assurance that transactions are processed and recorded properly.
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
SPECIAL TEST AND PROVISIONS Federal Reimbursement Transfers Not Timely Reportable Condition U.S. Department of Agriculture Through Georgia Department of Education Finding Control Number: FA-7101-04-01
A review ofthe School District's process for the transfer ofFederal reimbursement payments for the Food Services - School Breakfast Program (CFDA 10.553) and the Food Services - National School Lunch Program (CFDA 10.555) disclosed that Federal reimbursement payments have not been credited to the food service account in a timely manner in accordance with the USDA Policy 210.1406. A test revealed that in March 2004, the Federal reimbursement was held up to 42 days before being credited to the School Food Service account, and in June 2004, the Federal reimbursement was held up to 15 days. If funds are not transferred timely, any interest earned on these funds should be used in furtherance of the Food Services Program.
This condition occurred because management failed to implement appropriate internal controls for monitoring compliance in accordance with Federal guidelines. The School District should implement policies and procedures to ensure compliance with Federal requirements over the process for the transfer of Federal reimbursement payments.
-3 -

SECTIONV MANAGEMENT'S RESPONSES

PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2004
Finding Control Number: FS-7101-04-01
We concur with this finding. During the fall of 2003, management reviewed the access rights of all users. Because of limitations of the current financial system, user rights were assigned to area/ departmental functions (i.e., Payroll, Personnel, Accounting). Limitations were assigned within the constraints of the current system according to the corresponding job responsibilities. Refinements are made in the assignment of rights on the current system as needed. We have established a monthly routine to review the access to the financial data on a monthly basis. This issue should be eliminated by the implementation of new financial system software with enhanced controlled features of security and access rights for users.
Finding Control Number: FS-7101-04-02
We concur with this finding. In July of 2004, all Principals were issued a Policy and Procedures manual at the administrative inservice meeting. Bookkeepers at each school were also given the procedures manual as well as other financial procedures to be reviewed. Interim controls for compliance were established by financial services requiring the principal to submit monthly assurances of tasks completed. Compliance failures were addressed and appropriate action taken.
Finding Control Number: FA-7101-04-01
We concur with this finding. Currently, no notification is given to the School District ofreceipt of grant funds. Transfer of funds to school food services is done on a monthly basis when the system bookkeeper recognizes an extra ACH included in the bank account. We are implementing a procedure that requires management of food services to notify the School District in writing of requested grant draws and expected date ofACH deposit. The School District will transfer funds in a timely manner in accordance with the USDA Policy 210.14-06. The procedure will include a written follow up verification from the food services accountant within the required time period. This procedure will be implemented in August of 2005.
Contact Person: Gayle W. Blalock, Chief Financial Officer Phone: (770) 443-8003 Ext. 10126 Fax Number: (770) 443-8007 E-mail Address: gblalock@paulding.kl2.ga.us