PAULDING COUNTY BOARD OF EDUCATION DALLAS, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor 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 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 9 H NOTES TO THE BASIC FINANCIAL STATEMENTS 10 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERALFUND 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 SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS PAULDING COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 June 15, 2007 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, 2006, 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, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-11 In accordance with Government Auditing Standards, we have also issued our report dated June 15, 2007, 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 considered in assessing 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 of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, ~-aj~ ell W. Hinton, CPA, CGFM State Auditor RWH:gp 2006ARL-11 PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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, 2006. 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. This is the fourth year the Paulding County School District has prepared the annual financial report to comply with the new reporting model for financial statements (GASB Statement 34). Financial Highlights Key financial highlights for fiscal year 2006 are as follows: The Board's financial status continued to improve during fiscal year 2006. In total, net assets increased $21.5 million, which represents a 14.9 percent increase from the fiscal year 2005 balance. This total increase was due to governmental activities since Board has no business-type activities. General revenues accounted for $89.7 million in revenue or 43 percent of all revenues. Program specific revenues in the form of charges for services and sales, grants and contributions accounted for $119.0 million or 57 percent of total revenues. Total revenues were $208. 7 million. The Board had $187.2 million in expenses related to governmental activities; only $119.0 million of these expenses were offset by program specific charges for services, grants or contributions. General revenues, primarily taxes, of $89.7 million were adequate to provide for these programs. Among major funds, the general fund had $180.1 million in revenues and $178.7 million in expenditures. The general fund's balance increased to $20.2 million from $19.8 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 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. - I- PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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 2006?" 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 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 governmentalfands is reconciled in the financial statements. -11- PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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 2006. Table 1 Net Assets (in Thousands) Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Assets Current and Other Assets Capital Assets, Net $ 90,666 193,348 $ 105,566 161,599 Total Assets $ 284,014 $ 267,165 Liabilities Current and Other Liabilities Long-Term Liabilities $ 28,188 89,464 $ 25,026 97,313 Total Liabilities $ 117,652 $ 122,339 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 130,330 23,276 12,756 $ 120,570 10,199 14,057 Total Net Assets $ 166.362 $ 144.826 Total net assets increased $21.5 million. Table 2 shows the changes in net assets for fiscal year 2006 compared to the changes in net assets in fiscal year 2005. - 111 - PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table 2 Change in Net Assets (in Thousands) Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions Total Program Revenues 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 Total General Revenues Total Revenues 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 Total Expenses Increase in Net Assets Governmental Activities Fiscal Fiscal Year2006 Year 2005 $ 8,476 101,598 8,959 $ 119,033 $ 7,245 87,035 9,813 $ 104,093 $ 47,831 3,331 6,859 7,480 2,777 1,043 13,523 2,878 3,940 $ 89,662 $ 208,695 $ 125,678 3,245 4,564 3,036 1,263 10,547 1,527 11,180 8,777 914 281 1,456 1,927 8,543 4,221 $ 187,159 $ 21.536 $ 41,759 2,915 1,606 12,323 3,716 159 14,676 1,278 7,304 $ 85,736 $ 189,829 $ 108,673 2,547 7,885 2,584 1,214 9,067 1,591 10,118 7,292 505 236 1,222 1,565 7,644 2,650 $ 164,793 $ 25,036 - IV - PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Governmental Activities Instruction comprises 67.2 percent of governmental program expenses. Interest expense comprises 2.3 percent of governmental program expenses. Interest expense was attributable to capital leases and 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 comparing fiscal year 2006 with fiscal year 2005. Table 3 shows, for governmental activities, the total cost of services and the net cost of services. That is, it identifies the cost of these services supported by tax revenue and unrestricted State entitlements. Table 3 Governmental Activities (in Thousands) Total Cost of Services Fiscal Fiscal Year 2006 Year 2005 Net Cost of Services Fiscal Fiscal Year 2006 Year 2005 Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation ofPlant 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 $ 125,678 $ 108,673 $ 40,315 $ 33,861 3,245 4,564 3,036 1,263 10,547 1,527 11,180 8,777 914 281 2,547 7,885 2,584 1,214 9,067 1,591 10,118 7,292 505 236 1,968 2,502 837 -933 6,223 1,418 4,655 6,936 887 40 1,538 6,462 670 -795 5,390 1,546 4,361 5,011 492 -13 1,456 1,927 8,543 4,221 1,222 1,565 7,644 2,650 -39 -53 -852 4,221 -64 11 -421 2.650 Total Expenses $ 181,152 $ 164,123 $ 68,125 $ 60,622 Although program revenues make up a majority of the revenues, the Board is still dependent upon tax revenues for governmental activities. About 32.1 percent of instruction activities are supported through taxes and other general revenues; for all governmental activities general revenue support is 36.4 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 $209.5 - V- PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 million and expenditures and other financing uses of $227.7 million. There was a decrease of $19.0 million in the capital projects fund due to the construction of facilities during the current year. The general fund had an increase of $0.4 million and the debt service fund had a decrease of $0.6 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 2006, 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 $169.7 million exceeded the original budgeted amount of $167.7 million by $2.0 million. This difference was primarily due to increases in Federal revenues budgeted of $1.9 million. The actual revenues of $180.l million exceeded the final budgeted amount by $10.4 million. Shortfalls in other revenue categories were offset by the conservative budgeting for real estate sales and intangible taxes, and investment earnings. The final budgeted expenditures of $173.2 million exceeded the original budgeted amount of $170.5 million by $2.7 million. This difference was primarily due to an increase in instruction of $1.5 million, in pupil services of $0.6 million, and in improvement of instructional services of $0.5 million. The actual expenditures of $178.7 million exceeded the final budgeted amount by $5.5 million. General Fund revenues exceeded expenditures by $1.4 million. The Board has made a concerted effort to maintain an appropriate fund balance for current operations and anticipated austerity reductions. Capital Assets and Debt Administration Capital Assets At the end of fiscal year 2006, the Board had $193 .3 million invested in capital assets, all in governmental activities. Table 4 shows fiscal year 2006 balances compared with fiscal year 2005 balances. - Vl - PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table 4 Capital Assets at June 30 (Net of Depreciation, in Thousands) Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Land Construction in Progress Buildings and Building Improvements Equipment Land Improvements $ 5,175 35,132 141,109 10,297 1,635 $ 4,993 33,516 113,062 8,869 1,159 Total $ 193,348 $ 161,599 The primary increases occurred in Building and Improvements as a result of a new high school being constructed and completed. Due to the ongoing growth in the county, the Board has numerous construction projects including new buildings, additions and renovations. Debt At June 30, 2006, the Board had $87.2 million in bonds outstanding with $7.3 million due within one year. The Board's legal debt limit is 10 percent of the net assessed valuation of $3,002.9 million for bond purposes, or a maximum bonded debt of $300.3 million. The total current bonded restricted debt of $87.2 million is well below the legal limit. Current Issues With almost 26,000 students, the Paulding County School District is one of the largest and most rapidly growing districts in the state. Growth of approximately 2,000 additional students each year requires an extensive building program and ongoing recruitment of highly qualified staff. The Paulding County School District works closely with the community to generate support for both SPLOST and bond referendums. The impact of September 11, 200 I and the resulting impact on the economy coupled with a tax base that is 80% residential has made it impossible for SPLOST revenues to meet the demands of this student population growth. Voters approved a $125 million bond referendum in March 2007. Although this will not eliminate the need for portable classrooms, this financing source will allow us to begin construction of needed facilities identified in our newly developed five year facility plan. The economy of the county continues to improve at a modest rate. Completion of the regional airport in the last quarter of 2008 is expected to be an economic engine for our county with the potential for significantly increasing available revenues. - vu - PAULDING COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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, 3236 Atlanta Highway, Dallas, Georgia 30132. - Vlll - PAULDING COUNTY BOARD OF EDUCATION PAULDING COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Prepaid Items 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 The notes to the basic financial statements are an integral part of this statement. -1- EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 30,628,135 40,087,601 5,236,510 12,579,601 1,745,495 101,623 18,869 267,586 5,174,836 35,132,225 2,897,936 170,623,488 22,185,760 -42,665,866 $ ===28=4..,,0=1=3=,7=99= $ 406,977 20,336,394 5,044,613 2,399,572 8,249,273 81,214,901 $ 117,651,730 $ 130,330,319 2,300,584 5,646,025 15,329,666 12,755,475 $ 166,362,069 $ ===28=4=,0=1=3,=7=99_ PAULDING COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services 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 EXPENSES CHARGES FOR SERVICES $ 125,678,434 3,244,749 4,563,790 3,035,845 1,263,443 10,546,968 1,527,360 11,180,187 8,776,944 913,720 281,000 1,455,597 $ 1,926,874 8,542,819 4,220,940 $ 187,158,670 $ 1,494,225 1,978,136 5,003,949 8 476 310 Net Assets - End of Year The notes to the basic financial statements are an integral part of this statement. -2 - EXHIBIT "B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 77,398,714 $ 1,275,383 2,035,182 2,188,704 2,160,360 4,270,752 21,300 6,377,252 1,597,063 20,278 157,846 1,369 4,094,168 $ 101,598,371 $ 7,964,542 $ 1,777 26,190 10,620 35,588 53,619 87,656 148,467 244,248 6,029 83,228 296,667 8,958,631 $ -40,315,178 -1,967,589 -2,502,418 -836,521 932,505 -6,222,597 -1,418,404 -4,654,468 -6,935,633 -887,413 -39,926 38,628 52,631 851,965 -4 220 940 -68, 125,358 $ 47,831,220 3,330,813 6,858,899 7,480,135 2,777,130 1,042,668 13,522,649 2,878,052 3 939 849 $ 89,661,415 $ 21,536,057 144,826,012 $ ===1=66=,3=6=2,=06=9= -3- PAULDING COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Prepaid Items Inventories Total Assets 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 Total Liabilities and Fund Balances GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 23,231,946 $ 5,252,419 $ 1,104,454 38,946,597 1,894,823 12,579,601 1,745,495 101,623 18,869 267,586 2,688,432 2,143,770 $ 30,628,135 36,550 40,087,601 134,456 4,717,711 12,579,601 1,745,495 101,623 18,869 267,586 $ 40,944,397 $ 46,887,448 $ 2,314,776 $ 90,146,621 $ 397,234 $ 20,336,394 $ 20,733,628 $ 9,743 5,044,613 2,399,572 7,453,928 $ 406,977 20,336,394 5,044,613 2,399,572 $ 28,187,556 $ 2,032,998 $ 2,032,998 $ 3,325,776 $ 2,314,776 5,640,552 267,586 267,586 36,107,744 36,107,744 17,910,185 $ 20,210,769 $ 39,433,520 $ 17,910,185 2,314,776 $ 61,959,065 $ 40,944,397 $ 46,887,448 $ 2,314,776 $ 90,146,621 The notes to the basic financial statements are an integral part of this statement. -4- PAULDING COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Capital Leases Compensated Absences Total Long-Term Liabilities $ 61,959,065 $ 5,174,836 35,132,225 2,897,936 170,623,488 22,185,760 -42,665,866 193,348,379 518,799 $ -87,200,000 -1,931,355 -332,819 -89,464.174 Net Assets of Governmental Activities (Exhibit "A") $ 166,362,069 The notes to the basic financial statements are an integral part of this statement. -5- PAULDING COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES {USES} Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 47,689,275 3,565,779 $ 105,198,217 10,167,051 8,476,310 1,027,225 3,942,724 $ 7,480,135 8,714,383 1,773,589 3,325,340 $ 51,014,615 7,112,918 18,158,832 113,912,600 10,167,051 8,476,310 77,238 2,878,052 3,942,724 $ 180,066,581 $ 17,968,107 $ 10,515,496 $ 208,550,184 $ 119,863,472 $ 119,863,472 3,243,368 4,548,768 3,027,904 1,235,500 10,506,725 1,453,138 $ 11,982,920 8,037,676 939,189 216,720 1,455,597 1,926,684 8,437,315 790,605 4,175 $ 36,962,393 7,258 3,243,368 4,548,768 3,027,904 1,235,500 10,506,725 1,464,571 11,982,920 8,037,676 939,189 216,720 1,455,597 1,926,684 8,437,315 37,752,998 859,175 162,708 7,040,000 4,058,232 7,899,175 4,220,940 $ 178,687,464 $ 36,966,568 $ 11,105,490 $ 226,759,522 $ 1,379,117 $ -18,998,461 $ -589,994 $ -18,209,338 $ $ -983,327 983,327 $ -983,327 $ 983,327 $ 395,790 $ -18,015,134 $ 19,814,979 57,448,654 $ 983,327 -983,327 $ 0 -589,994 $ -18,209,338 2,904,770 80,168,403 Fund Balances - Ending $ 20,210,769 $ 39,433,520 $ 2,314.776 $ 61.959,065 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 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds {Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. In the Statement of Activities, only the gain on the sale of the equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold. 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 Capital Lease Payments 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 $ -18,209,338 $ 36,311,994 -4.559,834 31,752,160 147,418 -2,875 $ 7,040,000 859 175 7,899,175 -50483 Change in Net Assets of Governmental Activities {Exhibit "B") $ 21,536,057 The notes to the basic financial statements are an integral part of this statement. -7- (This page left intentionally blank) PAULDING COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT"G" AGENCY FUNDS $ ==1=9=8,.1..2=2= $ =====1=98='=12=2= The notes to the basic financial statements are an integral part of this statement. -9- PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 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 ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. - 10 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST), Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation ofmajor capital facilities. Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund 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 and grants. 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 is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund - 11 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofretum shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, - 12 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Paulding County Board of Commissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on August 9, 2005 (levy date). Taxes were due on November 15, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The 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, 2006, for maintenance and operations amounted to $47,689,275 and for school bonds amounted to $3,325,340. Tax millage rates levied for the 2005 tax year (calendar year) for the Paulding County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): School Operations School Bonds 16.41 mills __Ll1 mills 17.53 mills - 13 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $14,339,034 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 of donated 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. PREPAID ITEMS Payments made to vendors for services that will benefit periods subsequent to June 30, 2006, are recorded as prepaid items. 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: - 14 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 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 of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. At June 30, $4,542 of deposits were not secured by surety bond, insurance or collateral as specified above. The School District is working with the affected financial institutions to ensure appropriate levels of collateral are maintained for all of the School District's deposits. 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, - 15 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 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, 2006, the bank balances were $38,651,360. The amounts ofthe total bank balances are classified into four categories of custodial credit risk: Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name. Category 4 - Uncollateralized. The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows: Custodial Credit Risk Category Bank Balance 1 $ 2,715,553 2 0 3 35,931,265 4 4,542 Total $ 38.651.360 - 16 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS CATEGORIZATION OF INVESTMENTS Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure ofthe counterparty to a transaction, the School District will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The School District does not have a formal policy for managing custodial credit risk. Funds invested in an investment pool managed by another government are not required to be categorized unless the investing entity owns specific, identifiable investment securities in the pool. At June 30, 2006, the carrying value of the School District's total investments was $39,974,744 which is materially the same as fair value. These investments included funds in the amount of $14,594,110 invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy of the 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 of the Primary Liquidity Portfolio is as follows: The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. - 17 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days. Funds invested in U. S. Treasury Money Market Mutual Funds (open-end mutual funds) in the amount of $25,380,634 are not required to be classified by categories of custodial credit risk. Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value ofan investment. The School District does not have a formal policy for managing interest rate risk. At June 30, 2006, the School District's investments consisted of U. S. Treasury Money Market Mutual Funds (open-end mutual funds) and Local Government Investment Pool administered by the State of Georgia, for which Investment Maturities are not required to be categorized. Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The School District does not have a formal policy for managing credit quality risk. The U.S. Treasury Money Market Mutual Funds have a credit quality rating of AAA by Standard andPoor's. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The School District does not have a formal policy for managing concentration of credit risk. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: - 18 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 5: CAPITAL ASSETS Balances July 1. 2005 Increases Decreases Balances June 30. 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 4,992,716 $ 182,120 $ 5,174,836 33.516.193 32.493.544 $ 30,877,512 35,132,225 Total Capital Assets Not Being Depreciated $ 38,508,909 $ 32.675,664 $ 30,877.512 $ 40,307,061 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 139,596,901 $ 31,026,587 19,640,426 2,898,482 $ 2,309,163 588,773 $ 170,623,488 353,148 22,185,760 2,897,936 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 26,534,688 10,770,930 1,150,687 2,979,684 1,468,251 111,899 350,273 29,514,372 11,888,908 1,262,586 Total Capital Assets, Being Depreciated, Net $ 123,090.185 $ 29.954.008 $ 2 875 $ 153.041,318 Governmental Activity Capital Assets - Net $ 161,592,024 $ 62,629,672 $ 30,880,387 $ 123,348,379 Current year depreciation expense by function is as follows: Instruction Support Services Pupil Services Improvements of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services $ 3,137,176 $ 700 10,316 4,183 14,018 21,120 34,527 58,480 1,127,301 2,375 32,783 1,305,803 116,855 $ 4,559.834 - 19 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds, 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 of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2006, were as follows: District-wide Ca12ital Projects Bond SPLOST Proceeds Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions $ 5,250,419 $ 2,143,770 $ 3,325,776 $ $ 8,437,694 $ 27,183,127 36,550 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2006, consisted of the following: Transfer to Transfers From General Fund District-wide Capital Projects $======9==83-,3==2==7 Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as supplemental funding source for capital construction projects. Note 8: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District 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 - 20 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 8: RISK MANAGEMENT claims brought against members ofthe system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse), errors and omissions, crime and automobile risks. Payment of excess insurance for the system varies by line of coverage. The School District 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 EndofYear Liability 2005 2006 $ 0 $ 7 613 $ 7 613 $ 0 $ 0 $ 12,815 $ 12,815 $ 0 The School District participates in the Georgia School Boards Association Workers' Compensation Fund, a public entity risk pool organized on July 1, 1992, to develop, implement, and administer a program ofworkers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Fund for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Fund with the Safety National Casualty Corporation to provide coverage for potential losses sustained by the Fund in excess of $400,000 loss per occurrence, up to $1,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Other Employees $ 100,000 $ 250,000 Note 9: LONG-TERM DEBT CAPITAL LEASES The Paulding County Board of Education has entered into various lease agreements as lessee for computer equipment. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of the future minimum lease payments as of the date of their inception. - 21 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 9: 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. GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 2004 General Government - Refunding - Series 2003 General Government - Series 2000 General Government - Series 1995 General Government - Series 1992A 2.50% - 5.00% 2.87% 4.72% 4.60% - 5.50% 6.40% - 6.625% $ 59,000,000 7,500,000 4,365,000 10,595,000 5,740,000 $ 87,200.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: Capital Leases ' Governmental Funds General Compensated Obligation Absences (1) Bonds Total Balance July 1, 2005 $ 2,790,530 $ 282,336 $ 94,240,000 $ 97,312,866 Additions Annual Leave Earned 414,586 414,586 Deductions Annual Leave Utilized Debt Retired 859,175 364,103 7,040,000 364,103 7,899,175 Balance June 30, 2006 $ 1.931.355 $ 332.819 $ 87 200.000 $ 89.464.174 Portion of Long-Term Debt Due within One Year $ 909,273 $ 0 $ 7,340,000 $ 8,249,273 (1) The portion ofCompensated Absences due within one year has been determined to be immaterial to the basic financial statements. At June 30, 2006, 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, 2006 EXHIBIT "H" Note 9: LONG-TERM DEBT Fiscal Year Ended June 30 Capital Leases Principal Interest 2007 2008 2009 $ 909,273 $ 112,610 962,292 59,591 59 790 3 481 Total Principal and Interest $ 1,931,355 $ 175,682 Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2007 2008 2009 2010 2011 2012 - 2015 $ 7,340,000 $ 13,525,000 13,525,000 13,430,000 14,730,000 24,650,000 3,679,314 3,260,435 2,670,322 2,030,859 1,425,464 1,334,450 Total Principal and Interest $ 87,200.000 $ 14,400.844 Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $3,168,408 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 $3,145,042 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 $23,366 - 23 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 11: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2006, together with funding available: Project Austin Middle School East Paulding High School Herschel Jones Middle School Roof Hiram High School HVAC Phase II McGarity Elementary School HVAC North Paulding Middle School Paulding County High School Paulding County High School Modification South Paulding High School Unearned Executed Contracts Funding Available From State $ 65,645 $ 638,339 2,361,170 213,788 1,965,570 1,196,860 140,113 18,348,091 8,134,039 3,969,185 273,173 2,765,038 1,063.405 $ 31,298,633 $ 9,835,783 The amounts described in this note are not reflected in the basic financial statements. Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 13: SUBSEQUENT EVENTS On March 20, 2007, the voters of Paulding County voted and authorized the issuance of General Obligation Bonds in the amount of $125,000,000. On June 4, 2007, the School District issued General Obligation Bonds in the amount of$62,500,000 for the purpose of financing (a) the payment of a portion of the costs of (i) the acquisition, construction and equipping of new schools, and the purchase of land to be used as sites for future educational facilities, and (ii) the acquisition, construction and equipping ofclassroom additions, physical education facilities, and renovations and modifications to existing educational facilities (together, the "Projects"); and (b) the payment of capitalized interest on the Bonds through and including February 1, 2008; and (c) the cost ofissuing the Bonds. - 24 - PAULDING COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 14: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% oftheir 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 2006 2005 2004 100% 100% 100% $ 8,847,988 $ 7,779,411 $ 7,098,212 - 25 - (This page left intentionally blank) PAULDING COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2006 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Capital Outlay Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES} Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Adjustments NONAPPROPRIATED BUDGETS ORIGINAL FINAL ACTUAL AMOUNTS $ 48,630,326 $ 48,630,326 $ 47,689,275 398,189 398,189 3,565,779 98,963,422 99,089,398 105,198,217 9,479,124 11,330,053 10,167,051 3,728,810 3,728,810 8,476,310 384,528 384,528 1,027,225 6,133,116 6,133,116 3,942,724 $ 167,717,515 $ 169,694,420 $ 180,066,581 $ 117,360,349 $ 118,816,964 $ 119,863,472 2,521,966 4,181,096 3,234,906 1,633,905 9,632,396 1,994,524 11,524,450 8,450,071 792,328 179,033 1,625,434 7,373,036 3,080,235 4,671,230 3,242,597 1,520,644 9,596,064 1,994,524 11,524,450 8,708,183 781,783 182,608 1,625,434 7,444,656 3,243,368 4,548,768 3,027,904 1,235,500 10,506,725 1,453,138 11,982,920 8,037,676 939,189 216,720 1,455,597 1,926,684 8,437,315 790,605 1,021,883 $ 170,503,494 $ 173,189,372 $ 178,687,464 $ -2,785,979 $ -3,494,952 $ 1 379 117 $ 446,669 $ 446,669 -446 669 -446,669 $ -983,327 $ 0 $ 0 $ -983,327 $ -2,785,979 $ -3,494,952 $ 395,790 19,843,121 19,843,121 19,814,979 -37 028 -37 028 Fund Balances - Ending $ 17,020,114 $ 16 311141 $ 20,210,769 Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual 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, 2006 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U.S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education English Language Acquisition Grants Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality State Grants Mathematics and Science Partnerships 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 U. S. Marine Corps R.O.T.C. Program CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 10.550 NIA (2) NIA $ _ _ _7~,_55_0~1,_03_ $ 7,550,103 NIA 365 546 $ _ _-'-'7'"'-91..;..;5:..i.;,64:..=..9 * 84.027 * 84.173 84.365 84.318 * 84.938 * 84.367 84.366 84.298 * 84.010 84.048 NIA $ NIA $ 3,478,288 129,372 3,607,660 NIA NIA NIA NIA NIA NIA NIA NIA $ 22,514 35,933 (3) 596,836 78,796 58,964 2,113,025 145 011 6,658,739 $ _ _ _=26=6"-,1-""3=-2 Total Federal Financial Assistance NIA = Not Available Notes to the Schedule of Expenditures of Federal Awards $===1=4,..,84..,0=,5=2=0 (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 ($601,563) were not maintained separately and are included in the 2006 National School Lunch Program. (3) Funds earned on the Hurricane Education Recovery program, in the amount of $350,026, do not require reporting of expenditures. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the 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, 2006 SCHEDULE "3" AGENCY/FUNDING GRANTS Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Nursing Services Principal Supplements Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs Agriculture - Extended Day Agriculture - Extended Year Health Insurance K-8 Statewide Reading and Mathematics Program National Teacher Certification Preschool Handicapped Program Residential and Reintegration Services Technology/Career Education - Apprenticeship Technology/Career Education - Extended Day Technology/Career Education - Extended Year Technology/Career Education - High Schools That Work Technology/Career Education - Industry Certification Technology/Career Education - Supervision Unpaid Sales Tax (1) Virtual Schools Grant Vocational Construction Related Equipment Georgia State Financing and Investment Commission Reimbursement on Construction Projects Office of Treasury and Fiscal Services Public School Employees Retirement GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 7,323,500 65,648 16,273,950 1,429,164 7,414,462 1,105,226 13,493,432 11,111,627 2,215,622 953,096 811,652 5,757,366 2,003,077 783,847 1,476,153 8,003 988,351 166,367 2,110,488 677,288 437,260 1,964,019 3,915,041 6,233,719 1,495,474 244,248 419,534 79,322 13,522,649 446,822 -3,979,118 8,341 6,886 3,145,042 335,565 124,699 193,543 34,130 38,000 52,015 2,465 6,000 13,981 36,366 121,220 150 109,159 $ 7,323,500 65,648 16,273,950 1,429,164 7,414,462 1,105,226 13,493,432 11,111,627 2,215,622 953,096 811,652 5,757,366 2,003,077 783,847 1,476,153 8,003 988,351 166,367 2,110,488 677,288 437,260 1,964,019 3,915,041 6,233,719 1,495,474 244,248 419,534 79,322 13,522,649 446,822 -3,979,118 8,341 6,886 3,145,042 335,565 124,699 193,543 34,130 38,000 52,015 2,465 6,000 13,981 36,366 121,220 150 109,159 $ 8,714,383 23 366 8,714,383 23,366 $ 105,198,217 $ 8 714 383 $ 113,912,600 (1) The purpose of the funds are to reimburse local school systems for taxes charged on the purchase of materials for infrastructure. See notes to the basic financial statements. - 29- PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 SCHEDULE "4" PROJECT ORIGINAL ESTIMATED COST (1} CURRENT ESTIMATED COSTS (2} AMOUNT EXPENDED IN CURRENT YEAR (3} (4} AMOUNT EXPENDED IN PRIOR YEAR (3) (4} PROJECT STATUS Acquiring, constructing and equipping of four new elementary schools, one new middle school, one new high school, a performing arts center, improving systemwide technology, renovations, repairs, improvements and equipping of existing schools and the acquisition of related facilities including all necessary properties. $ 76,500,000 $ 76,864,921 $ 9,976,478 $ 66,888,443 Ongoing 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. 3,500,000 3,500,000 2,399,875 1,100,125 Completed Acquisition, construction and equipping of three new elementary schools, three new middle schools, one new high school, renovation, completion and expansion of the new and existing school facilities, acquisition of any property necessary or desirable therefor, both real and personal. 86,500,000 86,500,000 25,863,467 7,996,793 Ongoing Payment of a portion of the principal and interest of the School District's outstanding general obligation bonds coming due August 1, 2006 through and including February 1, 2011. 3,500,000 3,500,000 Ongoing $ 170,000,000 $ 170,000,000 $ 38,239,820 $ 75,985,361 (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 $ 3,697,221 Current Year 2,649,161 Total $ 6,346,382 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, 2006 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 8,142,607 $ 7,374,760 $ 556,520 $ 7,931,280 95,067 368,705 4,441 373,146 18,135,458 20,815,998 1,148,510 21,964,508 1,578,834 1,560,944 7,012 1,567,956 8,278,177 8,122,117 635,492 8,757,609 1,221,978 15,080,475 12,356,870 2,449,626 11,603,203 1,640,786 42,138 1,101,802 178 163 1,360,060 17,349,779 14,269,675 2,952,005 21,678 854,322 14,004,333 625,867 1,646,734 1,286,286 373,781 67,682 701,684 998,867 263,139 2,060 381 150,005 3,509 5,394 32,293 18,488 10,627 1,427,742 18,051,463 15,268,542 3,215,144 23,738 854,703 14,154,338 629,376 5,394 1,679,027 1,304,774 384,408 $ 81,905,184 $ 92,987,044 $ 4,606,104 $ 97,593,148 2,357,704 496 217 2,557,839 151,237 380,818 345 118 2,938,657 496,355 TOTAL QBE FORMULA FUNDS $ 84,759,105 $ 95,696,120 $ 5,332,040 $ 101,028,160 (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 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 June 15, 2007 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 ofand for the year ended June 30, 2006, which collectively comprise Paulding County Board of Education's basic financial statements and have issued our report thereon dated June 15, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Paulding County Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted 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 of the internal control over financial reporting that, in our judgment, could adversely affect Paulding County Board of Education'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-7101-06-01, FS-7101-06-02 and FS-7101-06-03. 2006YB-40 A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, of the reportable conditions described above, we consider item FS-7101-06-02 to be 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 oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the 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:gp 2006YB-40 ell W. Hinton, CPA, CGFM State Auditor Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 June 15, 2007 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 COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 Ladies and Gentlemen: Compliance We have audited the compliance of Paulding County Board of Education with the types of compliance requirements described in the U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Paulding County Board ofEducation's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Paulding County Board of Education's management. Our responsibility is to express an opinion on Paulding County Board of Education's compliance based on our audit. We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits ofStates, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the 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 of Education's compliance with those requirements. 2006SA-40 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, 2006. The results of our auditing procedures disclosed an instance of nonmaterial noncompliance with those requirements which is described in the accompanying Schedule of Findings and Questioned Costs as item FA-7101-06-03. 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 certain matters involving the internal control over compliance and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Paulding County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FA-7101-06-01 and FA-7101-06-02. 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 none of the reportable conditions described above are material weaknesses. 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, ~ t . o .. a J ~ Ru sell W. Hinton, CPA, CGFM State Auditor RWH:gp 2006SA-40 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, 2006 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7101-04-01 FS-7101-04-02 FS-7101-05-01 FS-7101-05-02 Further Action Not Warranted Further Action Not Warranted Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Controls over School Activity Accounts Finding Control Number: FS-7101-05-02 The Procedures Manual was reviewed with the school bookkeepers to reinforce the policies and procedures of the School District. Principals continue to send in monthly assurances oftasks completed. Monthly monitoring and periodic checks ofreceipt books are conducted by the Staff Accountant over Local School Accounting. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-7101-04-01 FA-7101-05-01 Further Action Not Warranted Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES SPECIAL TESTS AND PROVISIONS Federal Reimbursement Transfers Not Timely Finding Control Number: FA-7101-05-01 The corrective action plan that was implemented failed to meet management's expectations in controls. Since Food Service is not notified of the expected date of ACH deposit the School District office goes in daily to verify ACH activity and verify receipt of deposit. Once the deposit is received the School District transfers funds in a timely manner (within three business days). SECTION IV FINDINGS AND QUESTIONED COSTS PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the 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 ofEducation disclosed financial statement reportable conditions related to the following control categories. Revenues/Receivables/Receipts General Ledger Expenditures/Liabilities/Disbursements Capital Assets Ofthe reportable conditions described above, Expenditures/Liabilities/Disbursements and General Ledger 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 ofEducation disclosed reportable conditions in internal control over major programs for the following compliance requirements. Activities Allowed or Unallowed Special Tests and Provisions None ofthe reportable conditions described above are considered to be material weaknesses. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Paulding County Board of Education's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510{a) ofOMB Circular A-133 The Paulding County Board of Education's audit disclosed audit findings required to be reported by section .510(a) ofOMB Circular A-133. These audit findings are included in section IV of this report. - 1- PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 7. Major Programs Federal awards audited as major programs are as follows: 10.553 10.555 84.010 84.027 84.173 84.367 84.938 Food Services - School Breakfast Program Food Services - National School Lunch Program Title I Grants to Local Educational Agencies Special Education - Grants to States Special Education - Preschool Grants Improving Teacher Quality State Grants Hurricane Education Recovery 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $455,717. 9. Low Risk Auditee The Paulding County Board of Education qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7101-06-01 Condition: This is a repeat finding (FS-7101-05-02 and FS-7101-04-02) from the years ended June 30, 2005, and June 30, 2004, respectively. The accounting procedures of the School District were insufficient to provide for adequate internal controls over the school activity accounts. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures. Questioned Cost: NIA Information: Revenues/Receivables/Receipts Based on a review of25 items, the following deficiencies were noted: 1. Five receipts were not supported by adequate documentation, 2. Seven receipts were not deposited in a timely manner, 3. Three receipts were not reconciled to the amount deposited, -2- PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7101-06-01 4. Three receipts could not be reconciled to the accounting records, and 5. Three receipts could not be traced to the accounting records. Expenditures/Liabilities/Disbursements Based on a review of 27 vouchers, the following deficiencies were noted: 1. Four vouchers did not have proper prior approval, and 2. One voucher was not supported by adequate documentation. Cause: These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the school level. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: Management should ensure that controls are in place and operating effectively to provide reasonable assurance that transactions are processed according to established procedures. EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7101-06-02 Condition: The accounting procedures ofthe School District were insufficient to provide for adequate controls over (1) Expenditures/Liabilities/Disbursements and (2) General Ledger. Criteria: Chapter 22 Annual Financial Reporting of the Financial Management for Georgia Local Units of Administration indicates that School Districts must prepare their financial statements in accordance with generally accepted accounting principles. Questioned Cost: NIA -3- PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7101-06-02 Information: A review of current year activity disclosed the following weaknesses: Expenditures/Liabilities/Disbursements Based on a review of significant commitments, it was noted that the School District failed to record material contract payables of $523,363 and retainage payables of $563,434. Audit adjustments were proposed and made to correct this deficiency. General Ledger Based on a review ofthe accounting records, as presented for audit, it was noted that the Capital Projects Regular fund had a deficit fund balance in the amount of $983,327. An audit adjustment was proposed and made to correct this deficiency. Our testing also revealed that several Federal programs reporting deficits totaling $635,770 had funding available from grantors to fund these deficits. Cause: School District management failed to implement adequate controls and procedures to (1) ensure proper recognition of revenues when measurable and available and (2) ensure proper recording of expenditures when the liability was incurred in accordance with generally accepted accounting principles. Effect: The failure ofthe School District to maintain a complete and accurate general ledger can lead to inaccurate internal and external reporting. Recommendation: The School District should review the accounting procedures in place and implement additional procedures necessary to ensure that financial transactions are recorded properly and in accordance with generally accepted accounting principles. -4- PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Inadequate Controls over Capital Assets Reportable Condition Finding Control Number: FS-7101-06-03 Condition: The School District has not formally adopted a Capital Assets policy and failed to adequately maintain Capital Asset records. Criteria: Chapter 37 Fixed Assets of the Financial Management for Georgia Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records. Questioned Cost: NIA Information: The School District has not formally adopted a Capital Assets policy. A review of the District-wide Capital Projects Fund transactions revealed expenditures for additions or replacements/betterments that should be capitalized. Additionally, the School District did not record certain Construction in Progress activity. Cause: These deficiencies were a result ofmanagement's failure to formally adopt a Capital Assets policy. Additionally, management recorded amounts for Construction in Progress based on information obtained from a contracted party. However, management did not ensure that amounts for all projects were included in the general ledger. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: Management should adopt a formal Capital Assets policy. In addition, the School District should review its Capital Asset records and make appropriate adjustments to ensure that all Capital Assets are complete, accurately valued and properly recorded on the Capital Assets inventory records. -5- PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA No. 84.938) Finding Control Number: FA-7101-06-01 Condition: The School District did not have procedures in place to ensure that Hurricane Education Recovery Act (HERA) funds provided for displaced students reported as having disabilities were used for the excess costs of providing special education and related services to students with disabilities. Criteria: The following guidance applied to the management of Emergency Impact Aid for Displaced Students to include funds made available for displaced students: 1. Section 107(e)(4) ofHERA, 2. Volumes "I" and "II" ofU. S. Department of Education (USED) guidelines included in "Frequently Asked Questions, Emergency Impact Aid for Displaced Students" and 3. State of Georgia issued publication titled "Georgia Guidance on Federal Emergency Hurricane Act" (GDOE Guidelines). Provisions of HERA, USED and GDOE Guidelines state that HERA funds for students with disabilities may only be used to pay for special education and related service consistent with the Individuals with Disabilities Education Act (IDEA). Both Volumes "I" and "II" of USED guidance state that the funds provide for students with disabilities must be recorded and tracked separately from those HERA funds provided for non-disabled students. This Federal requirement was not specifically included in GDOE Guidelines. Provisions of HERA and GDOE guidelines state that these funds may become a part of a Board's special education budget to ensure that they are only used to pay for special education and related service consistent with IDEA. The guidelines further stated that since these funds are to be applied and used in a manner as funds made available under Part B ofIDEA, it was also advised to consult with State and local staffwho are cognizant ofIDEA requirements. Questioned Cost: $50,625 -6 - PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA No. 84.938) Finding Control Number: FA-7101-06-01 Information: HERA funds received by the School District included $50,625 for students with disabilities. Although required by Federal guidelines, the receipt and expenditure of these funds were not maintained separately. We further noted that the budget for special education was not modified for the increase in HERA funds designated for special education and related purposes. Cause: The School District relied solely on GDOE Guidelines which did not require that the School District provide separate accountability of HERA funds provided for students with disabilities. Consideration had not been given to consulting with local and State special education staff or revising its special education budget to ensure that these HERA funds were applied in line with IDEA. Effect: We were unable to determine if the $50,625 of HERA funds earmarked for students with disabilities were used for special education and related purposes. Recommendation: Management should ensure that procedures are in place to comply with Federal and State guidelines when administering HERA funds for special education purposes. GDOE should review this matter and determine ifthese funds were used properly or if a refund is appropriate. -7- PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Federal Reimbursement Transfers Not Timely Reportable Condition U. S. Department of Agriculture Through Georgia Department of Education Food Services - School Breakfast Program (CFDA 10.553) Food Services - National School Lunch Program (CFDA 10.555) Finding Control Number: FA-7101-06-02 Condition: This is a repeat finding (FA-7101-05-01 and FA-7101-04-01) from the years ended June 30, 2005, and 2004, respectively. Federal reimbursement payments for the Food Services- School Breakfast Program (CFDA 10.553) and the Food Services - National School Lunch Program (CFDA 10.555) have not been credited to the food service account in a timely manner. Criteria: USDA policy 210.14(a) states in part: "Revenues received by the nonprofit school food service are to be used only for the operation or improvement of such food service...." Questioned Cost: NIA Information: Testing revealed that in September 2005, the Federal reimbursement was held up to 8 days before being credited to the School Food Service account; in December 2005, the Federal reimbursement was held up to 8 days; in February 2006, the Federal reimbursement was held up to 5 days; and in May 2006, the Federal reimbursement was held up to 4 days. Cause: The School District failed to implement appropriate internal controls for monitoring compliance in accordance with Federal guidelines. Effect: Federal reimbursements received by the School District and not transferred timely to the School Food Service account may have earned interest which should be used solely for the benefit of the Food Services Program. Recommendation: Management should implement policies and procedures to ensure compliance with Federal requirements over the process for the transfer of Federal reimbursement payments. In addition, any interest earned on the Federal reimbursements by the School District prior to crediting the School Food Service account should be transferred to the School Food Service account. -8- PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of Schoolwide Program Not Fully Implemented Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (CFDA 84.010) Finding Control Number: FA-7101-06-03 Condition: The School District did not fully implement the fiscal requirements of its schoolwide program. Criteria: In accordance with provisions ofU. S. Department ofEducation Instructions and 0MB Circular A-133, Compliance Supplement provisions, eligible schools are able to use their Title I, Part A funds, in combination with other Federal, State and local funds, in order to upgrade the entire educational program of the school and to raise academic achievements for all students. By combining funds from Title I and other eligible U. S. Department of Education funded programs in support of a schoolwide program, U. S. Department of Education Instructions provide that specific schoolwide program costs lose their identity but only in those circumstances when funds are combined in a schoolwide program. In line with 0MB Circular A-87 requirements, schoolwide expenditures should be charged to those Federal funding sources supporting the schoolwide program in a reasonable manner. When more than one Federal program supports a schoolwide program, then schoolwide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support of the schoolwide program. To distribute such costs, provisions ofOMB Circular A-87, Attachment E, F.3 state that a cost allocation plan should be developed, documented, and maintained for audit. In July 2004, Georgia Department ofEducation issued accounting guidelines to the School Districts illustrating a method to properly consolidate funds from the different Federal programs in line with Federal requirements. Questioned Cost: NIA -9- PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of Schoolwide Program Not Fully Implemented Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (CFDA 84.010) Finding Control Number: FA-7101-06-03 Information: The School District identified one school that participated in the schoolwide program. While Federal provisions prescribe that multiple funding sources are required to support a schoolwide program, we noted that the Title I program was identified as the only funding source supporting the schoolwide program. Cause: School District personnel were not fully aware ofthese requirements and the School District believed that schoolwide program expenditures lost their identity and therefore any schoolwide program cost could be charged to Title I and other Federally funded programs. Effect: Failure to appropriately consolidate Federal funds and allocate costs can result in material noncompliance with requirements of the Federal requirements. Recommendation: The School District should implement procedures to (1) combine such funds as prescribed by U. S. Department of Education and (2) in line with 0MB Circular A-87 provisions, allocate such schoolwide program costs to the respective Federal funds in a reasonable manner. The School District should seek additional guidance from the Georgia Department of Education to implement procedures for combining and allocating schoolwide program expenditures. - 10 - SECTIONV MANAGEMENT'S RESPONSES PAULDING COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-7101-06-01 We concur with this finding. Principals and bookkeepers have been furnished a Policy and 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 oftasks completed. Compliance failures will be addressed and appropriate action taken. Additional training will be provided to the bookkeepers and internal audits will be conducted on a more frequent basis. Finding Control Number: FS-7101-06-02 We concur with this finding. Procedures have been implemented to ensure that fiscal year end financial transactions relating to capital projects and Federal programs are recorded in compliance with generally accepted accounting principals. Finding Control Number: FS-7101-06-03 We concur with this finding. A Capital Assets policy has been written and will be submitted to the Board for approval in the month of August 2007. Finding Control Number: FA-7101-06-01 We concur with this finding. Georgia Department of Education guidelines will be followed in addition to Federal guidelines when administering Federal Funds. Finding Control Number: FA-7101-06-02 We concur with this finding. Procedures that require management of food services to notify the Board of requested grant draws and expected date of ACH deposit have been implemented. The Board office is monitoring daily ACH activity to verify receipt of deposit. Any interest earned on Federal reimbursements that are received by the Board office and not transferred within 3 business days will be paid to the Food Service Department. Finding Control Number: FA-7101-06-03 We concur with this finding. Procedures to combine funds as prescribed by the U. S. Department of Education and allocate schoolwide program costs to the respective funds in a reasonable manner were implemented in July 2006. Contact Person: Gayle W. Blalock, Chief Financial Officer Telephone: (770) 443-8003, Ext. 10126, Fax: (770) 443-8007 Email: gblalock@paulding.k12.ga.us