PICKENS COUNTY BOARD OF EDUCATION JASPER, 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 PICKENS COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 8 H NOTES TO THE BASIC FINANCIAL STATEMENTS 9 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 25 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 26 3 SCHEDULE OF STATE REVENUE 28 PICKENS COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 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 PICKENS 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 January 26, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members ofthe Pickens 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 Pickens 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 Pickens 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 opm10ns. 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 Pickens County Board ofEducation, as ofJune 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-11 The Pickens County Board ofEducation has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements. In accordance with Government Auditing Standards, we have also issued our report dated January 26, 2007, on our consideration of the Pickens County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 25, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Pickens 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, ~_m tA~-=is ~sell W. Hinton, CPA, CGFM State Auditor RWH:as 2006ARL-11 PICKENS COUNTY BOARD OF EDUCATION PICKENS 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 EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 8,116,370 43,196 1,302,226 2,112,897 872,907 106,358 25,333 41,891 1,731,154 6,645,712 2,055,376 34,228,144 5,230,026 -9436 713 $ ===5;;;3;i,,;0;,;,7,,;;4~87;,,;7= $ 1,681,613 3,097,011 289,427 334,634 900,729 7 280 949 $ 13,584,363 $ 32,835,650 340,938 127,908 1,042,629 5143 389 $ 39 490 514 $ ===5=3=0=74==!=87=7= The notes to the basic financial statements are an integral part of this statement. -1- PICKENS 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 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 Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Real Estate Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 26,258,921 $ 1,500,925 1,168,570 621,569 1,057,268 1,945,291 203,275 3,063,881 2,236,566 204,095 906,604 113,976 1,758,196 289 315 $ 41,328,452 $ 158,572 638,780 797 352 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 $ 15,556,310 207,156 202,583 349,606 580,724 743,040 964,731 577,740 $ 109,256 1,000,285 $ 20,291,431 $ $ 97,680 97 680 $ -10,544,039 -1,293,769 -965,987 -271,963 -476,544 -1,202,251 -203,275 -2,099,150 -1,561,146 -94,839 -906,604 -113,976 -119,131 -289 315 -20, 141,989 $ 16,788,084 726,258 3,439,748 242,255 225,033 1 361 180 $ 22,782,558 $ 2,640,569 36,849,945 $ ======39=,4=9=0=,5=14= -3- PICKENS 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 Due From Other Funds Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Due To Other Funds 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 $ 6,945,739 $ 1,170,094 $ 43,196 162,269 2,112,897 872,907 106,358 25,333 41 891 750,851 350,000 537 $ 8,116,370 43,196 913,120 2,112,897 872,907 106,358 25,333 350,000 41 891 $ 10,310,590 $ 2,270,945 $ 537 $ =====12.,.,5.,.8..,2.,.,0=72..., $ 1,204,729 $ 3,097,011 350,000 476,884 289,427 334,634 $ 4,651,740 $ 1,100,945 $ 1,681,613 3,097,011 289,427 334,634 350,000 $ 5,752,685 $ 299,047 $ 299,047 $ 127,371 $ 537 127,908 41,891 41,891 1,042,629 1,042,629 5,317,912 $ 5,658,850 $ 1,170,000 $ 537 $ 5,317,912 6,829,387 $ 10,310,590 $ 2,270,945 $ 537 $ =====12=,5=8=2,=07=2= The notes to the basic financial statements are an integral part of this statement. -4- PICKENS 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 $ 6,829,387 $ 1,731,154 6,645,712 2,055,376 34,228,144 5,230,026 -9,436,713 40,453,699 389,106 $ -7,480,000 -571,439 -130 239 -8,181,678 Net Assets of Governmental Activities (Exhibit "A") $ 39,490,514 The notes to the basic financial statements are an integral part of this statement. -5- PICKENS 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 Slate 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 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) Capital Leases 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 $ 16,352,966 242,255 $ 3,439,748 $ 16,801,173 3,587,938 797,352 136,087 88,848 1,364,985 $ 39,282,756 $ 3,528,596 $ $ 16,352,966 726,258 4,408,261 16,801,173 3,587,938 797,352 98 225,033 1,364,985 726,356 $ 43,537,708 $ 25,029,855 $ 25,029,855 1,500,925 1,163,585 613,534 1,046,684 1,922,458 202,639 3,054,711 2,205,763 204,095 906,604 113,976 1,727,078 41,361 $ 7,153,801 1,500,925 1,163,585 613,534 1,046,684 1,922,458 202,639 3,054,711 2,205,763 204,095 906,604 113,976 1,727,078 7,195,162 323,318 6 799 $ 585,000 282,516 908,318 289,315 $ 40,063,385 $ 7,153,801 $ 867,516 $ 48,084,702 $ -780,629 $ -3,625,205 $ -141 160 $ -4,546,994 $ 611,820 $ 350,000 -350,000 $ 611,820 350,000 -350,000 $ 261,820 $ 350,000 $ 611,820 $ -518,809 $ -3,275,205 $ -141,160 $ -3,935,174 6,177,659 4,445,205 141 697 10,764,561 Fund Balances - Ending $ 5,658,850 $ 1,170,000 $===53=7= $ 6,829,387 The notes to the basic financial statements are an integral part of this statement. -6- PICKENS 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 $ 6,688,039 -838,453 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 land/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 cost of the land/carrying value of the equipment sold. Some of the Capital Assets acquired this year were financed with capital leases. In Governmental Funds, a capital lease arrangement is considered a source of financing, but in the Statement of Net Assets, the lease obligation is reported as a Long-Term Liability. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements Capital Lease Payments Total Long-Term Debt Repayments $ 585,000 323,318 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 -3,935,174 5,849,586 435,118 -3,805 -611,820 908,318 -1 654 Change in Net Assets of Governmental Activities (Exhibit "B") $ ====2,=64=0:!:,5=6=9 The notes to the basic financial statements are an integral part of this statement. -7- PICKENS 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 $ ===5==<4=98=8= $ ===5=4,=9=88= The notes to the basic financial statements are an integral part of this statement. -8- PICKENS 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 Pickens County Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Pickens County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. -9- PICKENS 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) to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (sales) legally restricted for the payment of general longterm principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund - 10 - PICKENS 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, 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 of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, - 11 - PICKENS 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 of credit 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 Pickens County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on December 1, 2005 (levy date). Taxes were due on February 3, 2006 (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 Pickens County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance 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 $16,352,966. The tax millage rate levied for the 2005 tax year (calendar year) for the Pickens County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 15.12 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $4,166,006 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. - 12 - PICKENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories ofdonated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. 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: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment Construction in Progress Any Amount $ 50,000 $ 50,000 $ 5,000 $ 50,000 NIA 20 to 80 years 50 to 80 years 5 to 50 years NIA Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. - 13 - PICKENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities ofthe 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 - 14 - PICKENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $9,870,107. The amounts of the 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 $ 153,222 2 9,716,885 3 0 4 0 Total $ 9,870,107 CATEGORIZATION OF INVESTMENTS At June 30, 2006, the carrying value of the School District's total investments was $3,996 which is materially the same as fair value. This investment consisted entirely of funds invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows: - 15 - PICKENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS 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. Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: - 16 - PICKENS 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 $ 1,733,817 $ 428,689 $ 6,427,441 2,663 $ 1,73 l, 154 210,418 6,645,712 Total Capital Assets Not Being Depreciated $ 2,162,506 $ 6,427,441 $ 213,081 $ 8,376,866 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 34,105,540 $ 4,995,821 2,055,376 122,604 348,412 $ $ 34,228,144 114,207 5,230,026 2,055,376 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 4,592,621 3,203,187 915,517 516,474 234,822 87 157 113,065 5,109,095 3,324,944 1,002,674 Total Capital Assets, Being Depreciated, Net $ 32,445,412 $ -367,437 $ 1 142 $ 32,076,833 Governmental Activity Capital Assets - Net $ 34,607.918 $ 6.060.004 $ 214.223 $ 40,453.699 Capital assets being acquired under capital leases as of June 30, 2006, are as follows: Governmental Funds Equipment Less: Accumulated Depreciation $ 613,402 152,450 $ 460.952 Current year depreciation expense by function is as follows: Instruction Support Services Pupil Services General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 531,653 $ 3,392 4,337 9,639 29,094 243,643 290,105 16,695 - 17 - PICKENS 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) proceeds are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable statutory provisions. Restricted assets at June 30, 2006, were as follows: District-wide Capital Projects SPLOST Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions $ 127,371 $ 537 $ 1,042,723 Note 7: INTERFUND ASSETS AND LIABILITIES Due to and due from other funds are recorded for interfund receivables and payables which arise from interfund transactions. Interfund balances at June 30, 2006, consisted of the following: Due From Other Funds Due To Other Funds General Fund District-wide Capital Projects $ 350,000 $ 350,000 $ 350,000 $ 350,000 Transfers are used to move property tax revenues to provide supplemental funding for capital construction projects. Note 8: 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 $==3==50=,o"'="o"""o 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. - 18 - PICKENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 9: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members ofthe system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse), 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 ofthat loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2005 2006 Beginning ofYear Liability Claims and Changes in Estimates Claims Paid EndofYear Liability $ 0 $ 9,722 $ 9,722 $ 0 $ 0 $ 1 085 $ 1 085 $ 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. - 19 - PICKENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 9: RISK MANAGEMENT The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Other Employees $ 50,000 $ 100,000 Note 10: LONG-TERM DEBT CAPITAL LEASES The Pickens County Board of Education has entered into various lease agreements as lessee for buses and software. 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. COMPENSATED ABSENCES Compensated absences represent obligations ofthe 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 Rate Amount General Government - Refunding - Series 2004 3.42% $ 7,480,000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: -20- PICKENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 10: LONG-TERM DEBT Capital Leases Governmental Funds General Compensated Obligation Absences (1) Bonds Total Balance July 1, 2005 $ 282,937 $ 128,585 $ 8,065,000 $ 8,476,522 Additions Capital Leases Annual Leave Earned 611,820 7,878 611,820 7,878 Deductions Annual Leave Utilized Debt Retired 323,318 6,224 585,000 6,224 908,318 Balance June 30, 2006 $ 571 439 $ 130.239 $ 7,480.000 $ 8 181 678 Portion of Long-Term Debt Due within One Year $ 285,729 $ 0 $ 615 000 $ 900 729 (1) The portion of Compensated 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: Fiscal Year Ended June 30 Cagital Leases Princigal Interest 2007 2008 2009 $ 285,729 $ 168,966 116 744 33,402 15,984 6 458 Total Principal and Interest $ 571 439 $ 55 844 Fiscal Year Ended June 30 General Obligation Debt Princigal Interest 2007 2008 2009 2010 2011 2012 - 2016 $ 615,000 $ 640,000 670,000 700,000 730,000 4,125,000 255,816 234,783 212,895 189,981 166,041 435,024 Total Principal and Interest $ 7A801000 $ 1!494!540 - 21 - PICKENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 11: PRIOR YEAR DEFEASEMENT OF DEBT In fiscal year 2005, the School District defeased certain general obligation bonds by placing the proceeds ofnew bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the School District's basic financial statements. The 1995 bonds were paid off on February 1, 2006. At June 30, 2006, none of the bonds are outstanding or considered defeased. Note 12: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $1,039,171 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 ofNon-Certified Personnel In the amount of $1,032,650 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 $6,521 Note 13: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2006: Project Unearned Executed Contracts Harmony Elementary School The amount described in this note is not reflected in the basic financial statements. Note 14: 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. - 22 - PICKENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 14: SIGNIFICANT CONTINGENT LIABILITIES As more fully discussed in Section III, Auditee's Response to Prior Year Findings and Questioned Costs, the School District may have underpaid employer cost associated with health insurance to the Georgia Department ofCommunity Health (DCH). The outcome ofthe resulting questioned cost is uncertain at this time, pending a management decision by DCH. Accordingly, no provision for any liability has been made to the financial statements for possible claims for employer cost underpayments. Note 15: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board 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% $ 1,823,967 $ 1,689,308 $ 1,634,086 - 23 - (This page left intentionally blank) PICKENS 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 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 NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL Pl ACTUAL AMOUNTS $ 16,602,670 $ 16,602,670 $ 16,352,966 241,400 241,400 242,255 15,517,414 15,517,414 16,801,173 2,731,954 2,731,954 3,587,938 675,000 675,000 797,352 2,000 2,000 136,087 1 000 1 000 1364985 $ 35,771,438 $ 35 771 438 $ 39,282,756 $ 23,899,489 $ 23,899,489 $ 25,029,855 1,459,570 1,202,154 677,829 973,484 1,871,495 250,750 2,987,990 2,257,500 185,500 1,831,050 122,500 1,459,570 1,202,154 677,829 973,484 1,871,495 250,750 2,987,990 2,257,500 185,500 1,831,050 122,500 1,500,925 1,163,585 613,534 1,046,684 1,922,458 202,639 3,054,711 2,205,763 204,095 906,604 113,976 1,727,078 41,361 330 117 $ 37719311 $ 37719311 $ 40,063,385 $ -1 947 873 $ -1 947 873 $ -780 629 $ 611,820 -350 000 $ 261,820 $ -1,947,873 $ -1,947,873 $ -518,809 5 555 911 5 555 911 6 177 659 Fund Balances - Ending $ 3,608,038 $ 3,608,038 $ 5,658,850 Notes to the Schedule of Revenues, Ex11enditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. -25- PICKENS 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 Improving Teacher Quality State Grants Hurricane Education Recovery Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U. S. Department of Education Health and Human Services, U. S. Department of Pass-Through From Ninth District Opportunity, Incorporated Head Start Total Federal Financial Assistance NIA= Not Available CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 N/A N/A $ $ (2) 1386079 1,386,079 10.550 N/A $ 90 086 1476165 84.027 84.173 N/A $ N/A $ 734,425 50 555 784,980 84.365 84.318 84.367 84.938 84.186 84.298 * 84.010 84.048 N/A N/A N/A N/A N/A N/A N/A N/A $ 15 16,710 160,619 (3) 26,700 13,331 996,838 47 350 2 046 543 93.600 N/A $ 629 296 $ ===4=1=5=2=0=0=4 - 26 - PICKENS COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($181,529) 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 $16,814, 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 Pickens 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. -27- PICKENS COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 AGENCY/FUNDING GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV 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 Sparsity Nursing Services Principal Supplements Vocational Supervisors Mid-term Adjustment Hold-Harmless Food Services Vocational Education Austerity Reduction Other State Programs At-Risk Summer School Program Health Insurance National Teacher Certification Preschool Handicapped Program Virtual Schools State Grant - 28 - SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 165,816 961,662 283,687 2,325,059 473,243 948,743 355,657 2,141,043 1,760,123 700,202 248,107 217,755 1,094,974 207,462 92,461 587,359 15,510 171,422 38,881 342,328 109,224 69,993 469,017 724,793 964,634 563,751 97,680 35,802 90,266 14,376 9,092 64,640 100,480 112,514 -931,056 65,502 1,032,650 7,312 62,288 200 PICKENS COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 AGENCY/FUNDING GRANTS Office of Treasury and Fiscal Services Public School Employees Retirement SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ _ _ _ _~6~52_1_ $ ===1=6=,8=0=1'=17=3= See notes to the basic financial statements. -29- PICKENS COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 SCHEDULE "4" PROJECT To pay the cost of replacing window heating and air conditioning systems at Jasper Primary School To pay the cost of replacing the heating and air conditioning system at Jasper Upper Elementary School The acquisition and installation of new technology and equipment at all educational facilities; the acquisition, construction, and equipping of one new school and the purchase of land to be used as a site for the said new school; the acquisition, construction, and equipping of classroom additions, physical educational facilities and renovations and modifications to existing educational facilities system-wide, and a system-wide bus garage; the acquisition of new school buses and transportation equipment; a media center with classrooms at Jasper Primary School The payment of principal and interest on the School District's Series 1995 Bonds maturing February 1, 2003, through and including August 1, 2007 ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 60,000 Ongoing 50,000 Ongoing 15,730,374 $ 15,730,374 $ 7,153,801 $ 6,528,347 Ongoing 4,229,626 4,229,626 867 516 2,139,966 Ongoing $ 20,070,000 $ 19,960,000 $ 8,021,317 $ 8,668,313 (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 Pickens County approved the imposition of a 1% sales tax to fund the above projects. Amounts expended for these projects may include sales tax proceeds, stale, local property taxes and/or other funds over the life of the projects. See notes to the basic financial statements. - 30 - PICKENS COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2006 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Middle Grades (6-8) 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) 1,223,416 $ 367,600 2,938,410 642,537 1,221,855 465,485 2,754,753 2,264,301 897,899 2,378,413 753,590 22,942 219,708 48 526 1,215,073 $ 373,683 2,844,699 679,819 1,530,484 382,225 3,214,181 3,496,146 821,170 94,879 257,212 1,647,276 170,706 197,694 1,069,392 26,069 47,506 64 666 51,143 $ 8,186 186,892 30,251 97,081 24,333 206,948 239,661 80,750 6,660 5,125 29,844 3,617 3,792 9,675 4,973 167,005 1 505 1,266,216 381,869 3,031,591 710,070 1,627,565 406,558 3,421,129 3,735,807 901,920 101,539 262,337 1,677,120 174,323 201,486 1,079,067 31,042 214,511 66171 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 16,199,435 $ 18,132,880 $ 1,157,441 $ 19,290,321 Media Center Program Staff and Professional Development 439,124 90274 516,381 4 683 58,863 80 598 575,244 85 281 TOTAL QBE FORMULA FUNDS $ 16,728,833 $ 18,653,944 $ 1,296,902 $===19=,9=5=0.!:,8=4=6 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 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 January 26, 2007 Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education and Superintendent and Members of the Pickens 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 ofPickens County Board ofEducation as of and for the year ended June 30, 2006, which collectively comprise Pickens County Board of Education's basic financial statements and have issued our report thereon dated January 26, 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 Pickens 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 Pickens 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-7121-06-01, and FS-7121-06-02 and FS-7121-06-03. 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-7121-06-02 to be a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether Pickens 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 Pickens County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, -----~~\.()~ Ru sell W. Hinton, CPA, CGFM State Auditor RWH:as 2006YB-40 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 January 26, 2007 Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education and Superintendent and Members of the Pickens 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 Pickens 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. Pickens 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 Pickens County Board of Education's management. Our responsibility is to express an opinion on Pickens County Board of Education's compliance based on our audit. We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-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 Pickens County Board ofEducation's compliance with those requirements and performing such other procedures as we considered necessary in the 2006SA-10 circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Pickens County Board of Education's compliance with those requirements. In our opinion, the Pickens County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Internal Control Over Compliance The management of Pickens 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 Pickens County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose ofexpressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, 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. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the management, members of the Pickens 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, w.~~ ell W. Hinton, CPA, CGFM State Auditor RWH:as 2006SA-10 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS PICKENS 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-7121-04-01 FS-7121-05-01 FS-7121-05-02 Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-7121-05-01 Due to the audit being conducted late in the year changes were not fully implemented until July 1, 2006. New procedures are in place to address weaknesses in controls at the school level. School level personnel have been retrained on these procedures. Mid-year audits are being conducted to ensure compliance. EMPLOYEE COMPENSATION EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-7121-05-02 Management acknowledged this error in fiscal year 2004 and took action and the software program was corrected in May of 2005. The prior superintendent contacted DCH and notified them of the situation. Since notification, we have not been contacted by DCH concerning this issue. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION IV FINDINGS AND QUESTIONED COSTS PICKENS 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 Pickens 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 Pickens County Board of Education disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Capital Assets Expenditures/Liabilities/Disbursements Of the reportable conditions described above, Capital Assets is considered to be a material weakness. 3. Noncompliance Material to the Financial Statements The audit of the Pickens 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 Pickens County Board ofEducation did not disclose any reportable conditions in internal control over major programs. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Pickens County Board ofEducation's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Pickens County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.010 Title I Grants to Local Educational Agencies 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Pickens County Board of Education qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133. - 1- PICKENS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Procurement Card Expenditures Reportable Condition Finding Control Number: FS-7121-06-01 Condition: School District personnel did not ensure that purchases made with the Board's procurement cards were properly documented and/or authorized. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures. Questioned Cost: $1,888.34 Information: Weaknesses in internal controls related to the procurement cards were noted: Payments were approved without purchase orders. Payments lacked adequate supporting documentation. Procedures for returning cards after use were not being followed. Cause: These deficiencies were a result of management's failure to ensure that internal controls were established, implemented, and functioning with regard to the procurement cards. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: The School District should establish policies and procedures to ensure that expenditures are utilized only for appropriate and approved purposes. CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition - Material Weakness Finding Control Number: FS-7121-06-02 Condition: The School District failed to adequately maintain a capital assets listing and failed to include material capital asset activity on the general ledger. Criteria: Chapter 37 Fixed Assets of the Financial Management for Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records. -2 - PICKENS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition - Material Weakness Finding Control Number: FS-7121-06-02 Questioned Cost: NIA Information: 1) The current year amount of construction in progress was not recorded on the general ledger and was material to the financial statements. 2) Equipment purchased in the current fiscal year was not recorded on the general ledger. 3) Accumulated depreciation for assets disposed of during the fiscal year under review was not deleted from the general ledger or the capital asset records. Numerous correcting entries were made to provide for materially correct financial statement presentation. Cause: These deficiencies were a result of the School District's failure to properly maintain its capital assets records in accordance with the approved capital assets policy. The School District also failed to properly record current year activity in the general ledger. Effect: Inaccurate internal and external reporting; noncompliance with generally accepted accounting principles. Recommendation: The School District should review its capital asset records and make appropriate adjustments to ensure that the capital asset records conform to the School District's approved capital assets policy and generally accepted accounting principles. The School District should also implement controls to ensure that all capital asset data is properly recorded in the general ledger. -3- PICKENS 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 Inadequate Internal Controls Over School Activity Accounts Reportable Condition Finding Control Number: FS-7121-06-03 Condition: This is a repeat finding (FS-7121-05-01) from the year ended June 30, 2005. The accounts 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: Three vouchers out of the thirty tested did not have a purchase order. 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 revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -4- SECTIONV MANAGEMENT'S RESPONSES PICKENS COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-7121-06-01 Management concurs that written procedures need to be established to safeguard the use of credit cards and increase control regarding the use ofthese cards. Written procedures will be established. These written procedures will address obtaining approval for a purchase, proper documentation, and assignment of cards. Finding Control Number: FS-7121-06-02 Management concurs with this finding. Management will establish additional procedures to ensure all capital assets are recorded properly. We have already requested changes to our capital assets software program and these changes have been implemented to properly record additions and deletions to Construction in Progress and depreciation for assets that are disposed of in fiscal year 2007. Finding Control Number: FS-7121-06-03 Management concurs with the increase in control procedures recommended in the fiscal year 2005 audit findings. These recommendations were received late in the fiscal year and we were not able to fully implement changes until July 1, 2006. At that time, a new financial system was added at the school level in order to facilitate additional procedures that were implemented for principals' accounts. The new procedures include requirement of purchase orders, changes in the receipting procedure, and retraining school level employees on documentation as addressed in the School Activity Procedures Manual. Mid-year audits are being conducted to ensure compliance. Contact Person: Amy W. Burgess, Assistant Superintendent for Business Services Phone: (706) 253-1700 Fax Number: (706) 253-1705 E-mail Address: amyburgess@pickens.k12.ga.us