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

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

PIKE COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

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

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

3

B

STATEMENT OF ACTIVITIES

4

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

6

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

7

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

8

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

9

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

11

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

12

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

27

PIKE 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

PIKE COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS
SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
September 2, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Pike 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) of the Pike County Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Pike County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our op1mons.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Pike County Board of Education, as of June 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
2004ARL-11

In accordance with Government Auditing Standards, we have also issued our report dated September 2, 2005, on our consideration ofthe Pike County Board ofEducation'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 ofour testing of internal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.
Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through viii and page 27 respectively, are not a required part ofthe basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Pike County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code ofGeorgia Annotated section 506-24.
Respectfully submitted,
u\~~
R ssell W. Hinton State Auditor
RWH:as 2004ARL-11

PIKE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Introduction
The discussion and analysis of Pike County School District's financial performance provides an overall review of the School District's financial activities for the fiscal year ended June 30, 2004. The intent of this discussion and analysis is to look at the School District's financial performance as a whole. Readers should also review the notes to the basic financial statements and financial statements to enhance their understanding of the School District's financial performance.
Financial Highlights
Key financial highlights for 2004 are as follows:
General revenues accounted for $7.3 million in revenue or 36 percent of all revenues. Program specific revenues in the form of charges for services, grants and contributions accounted for $12.9 million or 64 percent of total revenues of $20.2 million.
The Board had $19.3 million in expenses relating to governmental activities.
Among major funds, the general fund had $18.8 million in revenues and $18.79 million in expenditures. The fund balance for the general fund increased to $2,359,116 from $2,312,840.
Overview of the Financial Statements
This report consists of several parts including management's discussion and analysis, the basic financial statements and required supplementary information. The basic financial statements include two levels of statements that present different views of the School District. These include the District-wide and fund financial statements and are organized so the reader can understand Pike County School District as a financial whole, or as an entire operating entity. The fiscal year ended June 30, 2004, is the second year of GASB 34 implementation. Thus marking the first year prior year data has been available.
The District-wide financial statements include the Statement of Net Assets and Statement of Activities. These statements provide information about the activities of the School District, presenting both short-term and long-term information about the School District's overall financial status.
The fund financial statements focus on individual parts of the School District, reporting the School District's operation in more detail. The Governmental Funds statements disclose how basic services are financed in the short-term as well as what remains for future spending. The Fiduciary Funds statement provides information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. The fund financial statements reflect the School District's most significant funds.
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PIKE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. Additionally, other supplementary information (not required) is also presented that further supplements understanding of the financial statements.
District-wide Statements
The District-wide financial statements are basically a consolidation of all of the School District's operating funds into one column called governmental activities. In reviewing the District-wide financial statements, a reader might ask the question, are we in a better financial position than last year? The Statement of Net Assets and the Statement of Activities provides the basis for answering this question. These financial statements include all School District's assets and liabilities and uses the accrual basis of accounting. 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 School District's net assets and any changes in those assets. The Statement of Net Assets and Statements of Activities provide information about the School District as a whole using accounting methods similar to industry. The increases and decreases in the School District net assets are an indicator of whether the School District's financial position is improving or deteriorating. There are many factors that can affect the overall financial condition of the School District, such as the property tax base, State and Federal funding, and the condition of buildings and equipment.
Fund Financial Statements
The School District uses many funds to account for a multitude of financial transactions during the fiscal year. The fund financial statements provide detailed information about only the School District's significant or major funds. Funds are accounting devices the School District uses to keep track of general operations, Federal and State grants, building programs, debt payments and worker's compensation claims.
Governmental Funds
Most of the School District'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 the future periods. These funds are reported using modified accrual method of accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental funds statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the basic financial statements. The School District's significant governmental funds are the General Fund, Capital Projects Fund, and Debt Service Fund.
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PIKE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Fiduciary Funds

The School District is the trustee, or fiduciary, for assets that belong to others, such as the student activity funds. The student activity funds are local school accounts the principal uses to collect funds for field trips, school fundraisers, athletic events and school clubs. The school clubs and field trips are considered to be agency funds. The School District excludes these activities from the District-wide financial statements because it cannot use these assets to finance its operations.

Financial Analysis of the School District as a Whole

The perspective of the Statement of Net Assets is of the School District as a whole. Table 1 provides a summary of the School District's net assets for this fiscal year. Since this is the second year the School District has prepared basic financial statements following GASB 34, net assets comparisons to fiscal year 2003 are now available.

Table 1 Net Assets

Governmental Activities

Fiscal

Fiscal

Year 2004 Year 2003

Assets Current and Other Assets Capital Assets, Net

$ 9,485,319 $ 8,601,646 18,716,129 18,981,720

Total Assets

$ 28,201,448 $ 27,583,366

Liabilities Current and Other Liabilities Long-Term Liabilities

$ 2,382,567 $ 2,384,712 4,690,000 4,935,000

Total Liabilities

$ 7,072,567 $ 7,319,712

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

$ 14,026,129 $ 14,046,720

2,454,041

1,653,450

4,648,711

4,563,484

Total Net Assets

$ 21!128!881 $ 20!263!654

The above comparison reflects that although total net assts increased by $865,000 the increase in unrestricted net assets was only a little more than $85,000.

Table 2 shows the Changes in Net Assets for this fiscal year and the prior year as compared to the prior fiscal year and summarized the revenues and expenses that caused the increase.

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

Table 2 Change in Net Assets

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

Governmental Activities

Fiscal

Fiscal

Year 2004 Year 2003

$ 302,352 $ 295,910

12,480,556 12,602,291

88,763

426,534

Total Program Revenues

$ 12,871,671 $ 13,324,735

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

$ 4,027,331 $ 3,437,744

455,051

445,431

901,382 155,722 59,144

805,376 184,412 23,630

714,978 98,106
916,289

943,531 108,964 784,055

Total General Revenues

$ 7,328,003 $ 6,733,143

Total Revenues

$20,199,674 $20,057,878

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 Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Long-Term Debt

$ 12,443,067 $12,251,674

949,112 475,286 337,331 587,828 1,070,122 150,679 1,112,385 784,964
89,744

723,007 509,048 363,086 430,227 1,090,782 144,101 1,026,746 792,829 121,051

166,441
903,924 263,564

160,932 2,477
878,458 271,191

Total Expenses

$ 19,334,447 $18,765,609

Increase in Net Assets

$ 865!227 $ 1,292!269

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

Governmental Activities

Instruction comprises 64 percent of governmental program expenses.

The Statement ofActivities shows the cost of program services and the charges for services and grants offsetting these services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services comparing fiscal year 2004 with fiscal year 2003. It identifies the cost of these services supported by tax revenue and unrestricted State entitlements. The net cost reflects the financial burden on the School District's taxpayers by each activity.

Table 3 Governmental Activities

Total Cost of Services

Fiscal

Fiscal

Year2004 Year 2003

Net Cost of Services

Fiscal

Fiscal

Year2004 Year 2003

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

$12,443,067 $12,251,674 $ 3,422,477 $ 2,664,578

949,112 475,286 337,331 587,828 1,070,122 150,679 1,112,385 784,964
89,744

723,007 509,048 363,086 430,227 1,090,782 144,101 1,026,746 792,829 121,051

685,722 244,108
94,676 39,411 563,481 150,679 354,853 307,044 81,067

531,122 309,455 127,822
-5,727 568,600 144,101 278,787 211,348 109,466

166,441
903,924 263,564

160,932 2,477
878,458 271,191

166,441
89,253 263,564

160,932
69,199 271,191

Total Expenses

$ 19,334.447 $ 18,765.609 $ 6,462.776 $ 5,440.874

Instructional expenses include activities directly dealing with the teaching of pupils and the interaction between teacher and pupil.

Pupil Services are activities designed to assess and improve the well-being of students and to supplement the teaching process.

Improvement of instruction are activities which are designed primarily for assisting instructional staff in planning, developing and evaluating the process of providing challenging learning experiences for students.

Educational media is directing, managing and operating educational media centers.

General administration established and administers policy for operating the local School District.

-v-

PIKE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
School administration includes principals, assistant principals, counselors and clerical staff who administer the school operations.
Business administration includes the financial operations of the School District.
Maintenance and operation of plant activities involve keeping the school grounds, buildings and equipment in an effective working condition.
Student transportation includes activities involved with the conveyance of students to and from school, as well as to and from activities, as provided by State law.
Central support includes personnel services, strategic planning and public relations activities.
Other support services include all other support services.
Community services are student activity accounts used to collect money from students for various fundraisers for the school. The proceeds are spent on media center materials, instructional supplies and other school needed supplies.
Food services prepares and serves breakfast, lunch and snacks to the students of the School District.
Interest involves the transactions associated with the payment of interest related to the School District's outstanding bonds.
Financial Analysis of the School District's Funds
Information about the School District's governmental funds is presented starting on Exhibit "C" of this report. Governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of $20.3 million and total expenditures of $19.3 million in fiscal year 2004. The net change in fund balance for governmental funds was $951,000.
General Fund Budgeting Highlights
The School District's budget is prepared according to Georgia Law. The most significant budgeted fund is the General Fund. The General Fund consists of the general operations, Federal grants and school nutrition program.
The original revenue and expenditure budgets only reflect the anticipated funding for Federal and State grants and are amended to reflect the final award. The School District uses site-based budgeting and the budgeting systems are designed to tightly control total site budgets and to provide flexibility for site management.
- Vl -

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

The majority of the variances between final budget and actual expenditures in fiscal year 2004 are due to the fact that the School District did not budget for the student activity funds, local revenues or the school nutrition program.

Capital Assets and Debt Administration

Capital Assets

At the end of the fiscal year, the School District had $18.7 million invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances net of accumulated depreciation as compared to the prior fiscal year.

Table 4 Capital Assets (Net of Depreciation)

Governmental Activities

Fiscal

Fiscal

Year 2004

Year 2003

Land Construction in Progress Buildings and Improvements Equipment Land Improvements

$ 404,646 87,965
16,705,876 1,170,984 346,658

$ 404,646 79,673
17,088,497 1,027,226 381,678

Total

$ 18,716,129

$ 18,981,720

Debt

At June 30, 2004, the School District had $4,690,000 in general obligation bonds outstanding with $260,000 due within one year. The voters of Pike County approved the issuance of $6.2 million of general obligation bonds on April 30, 1996. The bond proceeds were used to build one new high school.

On September 18, 2001, the voters approved an extension of the one percent sales tax for education purposes for an additional five years. Table 5 summarized the general operation bonds.

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

Table 5 Outstanding Debt at June 30

Governmental Activities

Fiscal

Fiscal

Year 2004

Year 2003

Bonds Payable

$ 4,690,000

$ 4,935,000

Current Financial Issues and Concerns

The Pike County School District is financially stable. The School District's current operating millage is 11.86, which produces approximately $383,800 per mill. The tax digest has continued to grow during the last five years. The Pike County Tax Commissioner's Office collects taxes for the School District. The School District does not anticipate any significant changes in the local tax digest in the immediate future.

The School District continues to grow at an average of 25 students per year. The School District plans to construct a new middle school in the next several years to accommodate the growth. The School District plans to fund the capital outlay with the one percent local sales tax revenue and State capital outlay grants.

The Quality Basic Education Act was enacted into law by the 1985 session of the Georgia General Assembly. The act set out the provisions for funding for grades kindergarten through twelve in the State of Georgia. The funding is based on student counts with the expectation that local School Districts fund part of the cost with local tax monies. The School District receives approximately 62 percent of the required funds for general operations from the State. The School District will receive $610,478 less in funding for fiscal year 2005 from the State. The reductions in State funding are due to the economic downturn in the State and it is unclear how long funding reductions will last. Currently, the School District has adequate reserves for fiscal year 2005 and fiscal year 2006 to handle the reduction in funding from the State.

Contacting the School District's Financial Management

This financial report is designed to provide our citizens, taxpayers, investors and creditors with a general overview of the School District's finances and to show the School District's accountability for the money it receives. If you have any questions about this report or need additional financial information contact Mr. Jeff Hattaway, Director of Finance, CFO, at Pike County Board of Education, 16 Jackson Street, Post Office Box 386, Zebulon, Georgia, 30295. You may also email your questions to Mr. Hattaway at hattawj@pike.kl2.ga.us.

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PIKE COUNTY BOARD OF EDUCATION

PIKE COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Other Lease Receivable Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Deposits and Deferred Revenues Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Debt Service Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets
The notes to the basic financial statements are an integral part of this statement. -3 -

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

5,845,978

1,858,080

314,566 1,388,225
11,998 55,800 10,672

404,646 87,965
700,409 21,586,782
2,411,444 -6475117

$ ===2=8=,2=0=1,=44=8=

$

636,969

1,641,397

104,201

260,000 4430 000

$

7 072 567

$

14,026,129

355,096 457,678 1,641,267 4 648 711

$

21,128,881

$ ===2=8=,2=0=1='4=48===

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

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on 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 Capital Projects Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year
Net Assets - End of Year

EXPENSES

CHARGES FOR SERVICES

$

12,443,067

949,112 475,286 337,331 587,828 1,070,122 150,679 1,112,385 784,964
89,744

166,441 903,924 $ 263 564

$

19334447 $

302,352 302,352

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

EXHIBIT"B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

9,020,590

263,390 231,178 242,655 548,417 506,641

757,532 389,157 $
8,677

512,319

$

12,480,556 $

$ 88,763 88 763 $

-3,422,477
-685,722 -244, 108
-94,676 -39,411 -563,481 -150,679 -354,853 -307,044 -81,067
-166,441 -89,253
-263 564
-6,462,776

$

4,027,331

455,051

901,382 155,722
59,144 714,978
98,106 916 289

$

7,328,003

$

865,227

20,263,654

$ ======2=1;.,,1=2=8=,8=81=

-5-

PIKE COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2004

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Other Lease Receivable Inventories
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries Payable Deposits and Deferred Revenue
Total Liabilities
FUND BALANCES
Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects
Unreserved Undesignated Reported in: General Fund Capital Projects
Total Fund Balances
Total Liabilities and Fund Balances

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 2,913,258 $ 149,273

2,493,142 $ 439,578 $ 1,708,807

5,845,978 1,858,080

212,457 1,388,225
11,998 55,800 10 672

162,291

24,313

399,061 1,388,225
11,998 55,800 10 672

$ 4 741 683 $ 4,364,240 $ 463 891 $ 9 569 814

$

636,969

1,641,397

104,201

$ 2,382,567

$

636,969

1,641,397

104,201

$ 2,382,567

$

344,424

$

344,424

$ 463,891

463,891

10,672

10,672

$ 1,641,267

1,641,267

2,004,020

2,722,973

2,004,020 2,722,973

$ 2,359,116 $ 4,364,240 $ 463,891 $ 7,187,247

$ 4,741,683 $ 4,364,240 $ 463,891 $ 9,569,814

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

PIKE COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30. 2004

EXHIBIT"D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation
Total Capital Assets
Some of the School District"s property tax revenues will be collected after year-end but are not available soon enough to pay for the current period"s expenditures.
Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:
Bonds Payable

$

7,187.247

$

404.646

87,965

700,409

21,586,782

2,411,444

-6475117

18,716,129

-84,495

-4,690,000

Net Assets of Governmental Activities (Exhibit "A")

$ 21,128,881

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

PIKE COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2004

EXHIBIT "E"

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

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 4,086,251 194,219 $
11,711,795 1,572,502 302,352 39,007 925,955
$ 18,832,081 $

$ 901,382
55,735 1,000
958,117 $

461,264 $ 20,647
3,364 485,275 $

4,547,515 1,116,248 11,711,795 1,572,502
302,352 98,106
926,955
20,275,473

$ 12,044,905
954,512 475,286 337,331 582,653 1,070,122 150,679 1,145,053 831,669
89,744 166,441 885,496
51,914 $

30,153 $

$ 18,785,805 $

30,153 $

$

46,276 $ 927,964 $

2,312,840

3,436,276

$ 12,044,905

954,512 475,286 337,331 582,653 1,070,122 150,679 1,145,053 831,669
89,744 166,441 885,496
82,067

245,000 263,564

245,000 263 564

508,564 $ 19,324,522

-23,289 $

950,951

487,180

6,236,296

$ 2 359 116 $ 4,364,240 $

463 891 $ =~7.,,;1~8,;,7~24~7~

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

PIKE COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF
REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30. 2004

EXHIBIT"F"

Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")

$

Amounts reported for Governmental Activities in the Statement of Activities are different because:

Capital Outlays are reported as expenditures in Governmental Funds. However. in the Statement of Activities. the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period. these amounts are:

Capital Outlay Depreciation Expense
Excess of Capital Outlay over Depreciation Expense

$ 302,517 -557,442

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 cost of 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

950.951
-254,925 -65,133 -10,666 245,000

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

$ ===8=6=5'=2=27=

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

PIKE COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS
FIDUCIARY FUNDS JUNE 30, 2004
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT"G"
AGENCY FUNDS $ ===9='=27=3=
$ ===9='=27=3=

The notes to the basic financial statements are an integral part of this statement. - 11 -

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

EXHIBIT"H"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Pike 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 ofthe Pike County Board of Education.
District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.
The School District reports the following major governmental funds:
- 12 -

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund.
District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax proceeds to be used for the acquisition, construction or renovation of major capital facilities.
Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governments or individuals.
BASIS OF ACCOUNTING
The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds.
- 13 -

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
CASH AND CASH EQUIVALENTS
COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.
INVESTMENTS
COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:
(1) Obligations issued by the State of Georgia or by other states,
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,
(4) Obligations of any corporation of the United States government,
(5) Prime banker's acceptances,
(6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services,
(7) Repurchase agreements, and

- 14 -

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

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(8) Obligations of other political subdivisions of the State of Georgia.

RECEIVABLES

Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.

LEASE RECEIVABLE

The Pike County Board of Education has entered into a direct financing lease (as lessor) with the City of Zebulon (lessee) to lease land and facilities owned by the School District. The Lease Receivable recorded on the Basic Financial Statements consist ofthe balance ofthe lease payments due to the School District as of June 30, 2004.

PROPERTY TAXES

The Pike County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on September 10, 2003 (levy date). Taxes were due on December 20, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Pike 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, 2004, for maintenance and operations amounted to $4,086,251 and for school bonds amounted to $461,264.

Tax millage rates levied for the 2003 tax year (calendar year) for the Pike County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations School Bonds

12.31 mills 1.35 mills

13.66 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $901,382 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.

- 15 -

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

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.

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

All

NIA

$

10,000

20 years

$

10,000 20 to 60 years

$

10,000 5 to 15 years

$

10,000

NIA

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

- 16 -

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts.
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,
(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

- 17 -

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

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, 2004, the bank balances were $6,379,903. The amounts of the total bank balances are classified into three categories of credit risk:

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

The School District's deposits are classified by risk category at June 30, 2004, as follows:

Risk Category

Bank Balance

1

$ 591,282

2

5,788,621

3

0

Total

$ 6,379,903

CATEGORIZATION OF INVESTMENTS At June 30, 2004, the carrying value ofthe School District's total investments was $1,845,053 which is materially the same as fair value. This investment consisted entirely offunds invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio and Extended Term Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows:

- 18 -

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

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, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund.
Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U. S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2004, was 24 days. The average investment duration for Fund 6 on June 30, 2004, was 0.22 years.
The Extended Term Portfolios consist of Fund 3 "Georgia Extended Asset Pool", Fund 7 and Fund 8. The Georgia Extended Asset Pool is a variable net asset value investment pool which follows Standard and Poor's criteria for AAAfmoney market rated funds. The pool is not registered with the SEC as an investment company. The pool's primary objective is the prudent management ofpublic funds on behalf of the State of Georgia and local governments seeking income higher than money market rates. Net Asset Value (NAV) is calculated daily to determine current share price. NAVis calculated by taking the closing fair value of securities owned plus other assets and subtracting liabilities. The remainder is then divided by the total number ofshares outstanding to compute NAV per share (current share price). The pool distributes earnings (net of management fees) which are reinvested as shares in the pool on a monthly basis and determines participant's shares sold and redeemed based on the current share price, which at June 30, 2004, was at $1.99 per share. The Office of Treasury and Fiscal Services has hired a third party bank, Investors Bank and Trust, to perform custody and valuation services to include calculation ofthe NAVon a daily basis. Pooled cash and cash equivalents and investments are reported at fair value. The pool does not issue any legally binding guarantees to support the value ofthe shares. Participation in the pool is voluntary and deposits consist of funds from local governments, operating and trust funds of State agencies, and current operating funds of the State's General Fund.
Investments in the Georgia Extended Asset Pool consist generally ofsecurities 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 duration at June 30, 2004, was 0.78 years.
- 19 -

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

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS
Investments in Fund 7 consist generally of repurchase agreements and certain U. S. Government Securities. The average investment duration for Fund 7 on June 30, 2004, was 1.57 years.
Investments in Fund 8 consist generally ofmortgage-backed securities issued by U. S. Corporations (reported as Corporate Obligations in the disclosure of custodial risk), repurchase agreements and certain U.S. Government Securities, which include mortgage-backed securities such as collateralized mortgage obligations and adjustable rate mortgages. These mortgage-backed securities are reported as U. S. Government Securities in the disclosure of custodial risk. Investments in Fund 8 are transacted by an external investment management firm under direction of investment advisory agreements executed between the Office of Treasury and Fiscal Services and the investment management firm.
The agreement directs the investment firm to utilize the Merrill Lynch 1-3 year Treasury Index in managing the average duration of the overall portfolio, excluding cash, to within plus or minus 6 months ofthe duration ofthe Index. The average investment duration for Fund 8 on June 30, 2004, was 1.55 years. In addition, the investment advisory agreements place limitations on individual security purchases and holdings as follows:
1) Limits the duration ofany security at the time ofpurchase to a maximum offive (5) years.
2) Requires any mortgage-backed security, at the time of purchase and periodically, thereafter, to pass a "stress test" which provides for a duration profile not to exceed 7 years given an instantaneous and permanent interest yield increase of 300 basis points.
3) With the exception ofU. S. Treasury securities, limits individual security investments to no more than the greater of$5 million or 10% ofthe separate portfolio's total investments.
4) Prohibits investments in interest only strips, principal only strips, inverse floaters, and Z tranche securities.
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:

-20-

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

EXHIBIT"H"

Note 5: CAPITAL ASSETS

Balances July 1, 2003

Increases

Balances Decreases June 30, 2004

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

$ 404,646 79,673 $

$ 8,292

0 $ 404,646 87,965

Total Capital Assets Not Being Depreciated $ 484,319 $

8,292 $

0 $ 492,611

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 21,586,782 2,317,195 $ 700,409

294,225 $

$ 21,586,782

199,976

2,411,444

700,409

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

4,498,285 1,289,969
318,731

382,621 139,801 35,020

189,310

4,880,906 1,240,460
353,751

Total Capital Assets, Being Depreciated, Net $ 18,497,401 $ -263,217 $

10,666 $ 18,223,518

Governmental Activity Capital Assets - Net $ 18,981.720 $ -254.925 $

10.666 $ 18,716.129

Current year depreciation expense by function is as follows:

Instruction Support Services
General Administration Maintenance and Operation of Plant Student Transportation Services Food Services

$ 391,935

$

5,003

12,042

113,075

130,120 35,387

Note 6: RESTRICTED ASSETS

$.===5~57~,4~4~2

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

- 21 -

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

EXHIBIT"H"

Note 6: RESTRICTED ASSETS

District-wide Capital Projects

SPLOST

GSFIC

Debt Service Funds

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

$
$ 1,551,807

$
7,160

439,578

Note 7: RISK MANAGEMENT

The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation.

The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions and job related illness or injuries to employees. However, the errors or omissions policy excludes coverage for sexual harassment and discrimination. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years.

The School District has elected to self-insure for all losses related to acts of God. In addition, the School District has elected to self-insure for risks for sexual harassment and discrimination. The School District has not experienced any losses related to these risks in the past three years.

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. The School District has not experienced any losses related to this risk in the past two years.

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

Position Covered

Amount

Superintendent Finance Director Principals

$

50,000

$

50,000

$

1,250 - $

10,000

-22 -

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

EXHIBIT "H"

Note 8: LONG-TERM DEBT

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

Purpose

Interest Rates

Amount

General Government - Refunding - Series 1996 3.75% - 5.70% $ 4,690.000

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

Governmental Funds General
Obligation Bonds

Balance July 1, 2003

$ 4,935,000

Deductions Debt Retired

245,000

Balance June 30, 2004

$ 4,690.000

Portion of Long-Term Debt Due within One Year

$ 260,000

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

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

2005 2006 2007 2008 2009 2010 - 2014 2015 - 2016

$ 260,000 $ 270,000 285,000 300,000 310,000
1,860,000 1,405,000

245,118 232,660 219,336 205,000 189,748 671,163 109,297

Total Principal and Interest

$ 4,690.000 $ 1,872,322

- 23 -

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

EXHIBIT"H"

Note 9: PRIOR YEAR DEFEASEMENT OF DEBT
In fiscal year 1996, the School District defeased certain general obligation bonds by placing the proceeds of new 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. At June 30, 2004, $4,240,000 of bonds are outstanding and are considered defeased.
Note 10: ON-BEHALF PAYMENTS
The School District has recognized revenues and costs in the amount of $172,965 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 $170,992
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 $1,973
Note 11: SIGNIFICANT CONTINGENT LIABILITIES
Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position.
Note 12: RETIREMENT PLANS
TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)
TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

-24 -

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

EXHIBIT"H"

Note 12: RETIREMENT PLANS

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

Fiscal Year

Percentage Contributed

Required Contribution

2004 2003 2002

100% 100% 100%

$ 936,377 $ 901,385 $ 834,136

- 25 -

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

SCHEDULE "1"

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

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

4.086.251

194.219

$

11,081,927 $

11,141,337

11,711,795

1,031,634

1,129,122

1,572,502

302,352

39,007

925 955

$

12,113,561 $

12,270,459 $

18,832,081

$

10,837,585 $

11,338,357 $

12,044,905

468,135 409,341 360,659 493,981 971,130 148,712 1,072,626 818,911 233,427
75 000

566,188 626,343 360,660 575,080 969,903 148,712 1,072,802 818,911 242,927
75 000

954,512 475,286 337,331 582,653 1,070,122 150,679 1,145,053 831,669
89,744 166,441 885,496
51 914

$

15,889,507 $

16,794,883 $

18,785,805

$

-3,775,946 $

-4,524,424 $

46,276

1,955,200

1,955,200

2,312,840

12479

-11 872

Fund Balances - Ending

$

-1,808,267 $

-2,581,096 $==~2;,i;,3~5=9,~1~16~

Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual
(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts, the school food service fund or local revenues.
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 -

PIKE COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2004

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Donation (1)
Total U. S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Other Programs Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Improving Teacher Quality State Grants Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States
Total U.S. Department of Education

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

.* 10.553 10.555

N/A

N/A

$

$

(2) 769,906
769,906

10.550

N/A $

64 504 834 410

84.027 84.173

N/A $ N/A
$

478,017 19 508
497,525

84.318 84.367 84.186 84.298 84.010 84.048

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

12,008 99,028 17,013 15,950 457,743 (3) 25,789
1,125,056

Total Federal Financial Assistance
N/A = Not Available

$ ======1=95=9=4=6=6

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 ($75,708) were not maintained separately and are included in the 2004 National School Lunch Program.
(3) Includes Federal Assistance of $12,581 provided to subrecipients.

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

The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Pike 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 -

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

AGENCY/FUNDING
GRANTS Bright From the Start: Georgia Department of Early Care and Leaming 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 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 Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Construction Related Equipment State Bonds - Agriculture Extended Day - Agriculture Extended Year -Agriculture Health Insurance Mentor Teachers Middle School Extended Day - Agriculture National Teacher Certification Preschool Handicapped Program Technology/Career Apprenticeship Technology/Career Extended Day Technology/Career Supervision Lottery Program Student Information System (Conversion)
Office of Treasury and Fiscal Services Public School Employees Retirement

See notes to the basic financial statements.

-29-

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

243.103

552.487 180,263 1,671,553 224,745 998,719 112,238 1,554,820 1,127,567 522,906
68.302 101.874 581,159 222.056 232,101 136,873
8.606 116,973 242,655
77.231 51.140
365,802 495.818 756,039
340,813 88,763 34.907 71,853 10.823
542,013 64,166
-555,764
17,324 35,974 125.000
3,826 3.271 170,992 3,699 3.942 10,408 22.464 1,900 6,710 9.008
52,700
1 973

$

11 711 795

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

SCHEDULE "4"

PROJECT
Paying all or a portion of the debt service on the outstanding Series 1996 Refunding General Obligation Bonds previously issued by the Pike County School District
Acquiring, constructing, equipping and furnishing a new middle school; adding to, renovating, repairing, improving, equipping and furnishing existing school buildings or other buildings or facilities useful or desirable in connection therewith

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT
YEAR (3)

AMOUNT EXPENDED IN PRIOR YEARS (3)

PROJECT STATUS

$

400,000 $

400,000

Ongoing

4,100,000 11,466,000 $

8,293 $

79673 Ongoing

$ 4,500,000 $ 11,866,000 $

8,293 $ ==7=9=6=7=3

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

See notes to the basic financial statements.

- 30-

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

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
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

$

656,418 $

607,370 $

22,569 $

629,939

209,768

250,595

250,595

1,926,604

1,888,381

91,249

1,979,630

281,652

214,472

5,231

219,703

1,118,830

1,294,230

38,869

1,333,099

145,218 1,806,382 1,327,633
584,233 1,425,036

76,412 1,832,491 1,745,736
433,953

161,390 13,521
135 985

1,175,703
234,734 167,728
21,164 80,172

2,741 62,711 64,721 29,083
633 1,527 4,910 3,459 23,454 3,307
278 36,000

79,153 1,895,202 1,810,457
463,036
633 1,527 1,180,613 3,459 258,188 171,035 21,442 116 172

$

9,792,670 $ 10,023,141 $

390,742 $

10,413,883

280,293 59 383

310,791 16 483

22,539 23 891

333,330 40,374

TOTAL QBE FORMULA FUNDS

$

10,132,346 $ 10,350,415 $

437172 $==1=0,=78=7=,5=8'""7

(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
September 2, 2005

Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education
and Superintendent and Members of the Pike 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 of Pike County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Pike County Board ofEducation's basic financial statements and have issued our report thereon dated September 2, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Pike County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Pike 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-7141-04-01 and FS-7141-04-02.
2004YB-30

A material weakness is a reportable condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above is a material weakness.
Compliance and Other Matters
As part ofobtaining reasonable assurance about whether Pike County Board ofEducation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of the management and members of the Pike County Board of Education and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

RWH:as 2004YB-30

State Auditor

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
September 2, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Pike 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 Pike County Board of Education with the types of compliance requirements described in the U.S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2004. Pike County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Pike County Board of Education's management. Our responsibility is to express an opinion on Pike 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 of America; 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 ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Pike 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 Pike County Board of Education's compliance with those requirements.
2004SA-30

In our opinion, the Pike 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, 2004.
Internal Control Over Compliance
The management ofPike County Board ofEducation 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 Pike 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 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 Pike 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-7141-04-01 and FA-7141-04-02.
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 is a material weakness.
This report is intended solely for the information and use ofthe management, members ofthe Pike 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~

RWH:as 2004SA-30

State Auditor

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

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

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-7141-03-01 FS-7141-03-02

Unresolved - See Corrective Action/Reponses Previously Reported Corrective Action Implemented

CORRECTIVE ACTION/RESPONSES

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-7141-03-01

Attempts have been made to address this issue; however, segregation ofduties within the accounting procedures surrounding the principal's accounts is not possible due to limited clerical staffand limited budgetary funds needed to add additional staffthat would rectify this segregation of duties issue.

SECTION IV FINDINGS AND QUESTIONED COSTS

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

I SUMMARY OF AUDITOR'S RESULTS

1. Type of Report Issued on the Financial Statements The auditor's opinion on the Pike County Board of Education's financial statements was unqualified.

2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Pike County Board of Education disclosed financial statement reportable conditions related to the following control categories.

Cash and Cash Equivalents Employee Compensation Accounting Controls (Overall)

Expenditures/Liabilities/Disbursements Revenues/Receivables/Receipts

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

3. Noncompliance Material to the Financial Statements The audit of the Pike 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 Pike County Board of Education disclosed reportable conditions in internal control over major programs for the following compliance requirements.

Eligibility

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 Pike County Board of Education's report on compliance with requirements applicable to major programs was unqualified.

6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Pike County Board ofEducation's audit disclosed audit findings required to be reported by section .51 0(a) of 0MB Circular A-133. These audit findings are included in section IV of this report.

7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program

8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.

- 1-

PIKE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
I SUMMARY OF AUDITOR'S RESULTS
9. Low Risk Auditee The Pike County Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133.
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
ACCOUNTING CONTROLS (OVERALL) CASH AND CASH EQUIVALENTS EMPLOYEE COMPENSATION Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-7141-04-01
An examination of the internal accounting control procedures revealed that the School District did not maintain adequate separation of duties for the following accounting functions and related procedures:
ACCOUNTING CONTROLS (OVERALL) Access controls in the Financial System do not prevent users from accessing accounting functions that are outside of their area of responsibility.
CASH AND CASH EQUIVALENTS The reconciliation ofthe operating, school nutrition and bond sinking accounts was not performed by someone independent of the general ledger function.
No evidence was presented that bank reconciliations were reviewed by supervisors.
EMPLOYEE COMPENSATION The personnel and payroll functions were not separated. The same individual maintains personnel records, enters employee information, salary and accounting information into the payroll system, has access to process payroll transactions and posts information to the general ledger.
Separation of duties involving key accounting functions is the basis for achieving an adequate system of internal control. These deficiencies were a result ofmanagement's decision to limit the number of administrative staff made responsible for accounting functions and failure to ensure established controls were functioning as designed. Management should periodically review this decision to determine if employee duties can be reassigned to achieve a higher degree ofinternal control with the existing staff and should also implement procedures to ensure that the key accounting functions of
-2 -

PIKE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
ACCOUNTING CONTROLS (OVERALL) CASH AND CASH EQUIVALENTS EMPLOYEE COMPENSATION Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-7141-04-01
custody, record-keeping and authorization are segregated. Additionally, management should ensure that the access controls in the accounting information system complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of that employee's duties.
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Repeated From Prior Year Finding Control Number: FS-7141-04-02
Our examination of the principal's accounts disclosed weaknesses in internal control as discussed below:
Cash and Cash Equivalents The bank reconciliation function is not separated from the record-keeping and voucher payment functions.
A Pike County Elementary School certificate of deposit was discovered during the external bank confirmation process that was not included on the general ledger as presented for audit. Upon the request of School District personnel, the auditors made an adjustment to record the balance ofthis certificate of deposit on the financial statements. The balance ofthe certificate of deposit at June 30, 2004, was $13,027.
Revenues/Receivables/Receipts Deposit preparation was not separated from the record-keeping and cash custody functions.
None of the twenty receipts tested had supporting documentation.
Pre-numbered receipt books were not used for the principal account tested.
-3-

PIKE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Repeated From Prior Year Finding Control Number: FS-7141-04-02
Expenditures/Liabilities/Disbursements 1) The check writing function was not separated from record-keeping or processing of signed checks.
2) Based on a review oftwenty items, five voucher packages did not contain an invoice or other supporting documentation for the expenditure, two voucher packages contained a photo copy of the invoice and two voucher packages included sales tax.
These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible, at the various principal account sites, for the accounting functions and their failure to ensure established controls were functioning as designed. Management should implement additional procedures to ensure that the key accounting functions of custody, record-keeping and authorization are segregated. Controls should be revised and monitored to provide reasonable assurance that the transactions are processed according to established procedures. Additionally, the School District should establish appropriate policies and procedures to ensure that all ofthe financial activity related to the various school activity accounts are properly reconciled to the general ledger balances as presented for audit by the School District.
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
ELIGIBILITY Failure to Maintain Master List of Eligible Students U.S. Department of Agriculture Through Georgia Department of Education Reportable Condition Finding Control Number: FA-7141-04-01
The Pike County High, Elementary and Primary Schools' master lists ofstudents eligible for free and reduced meals for the Child Nutrition Cluster Programs (CFDA 10.553 and 10.555) were not maintained in accordance with U. S. Department of Agriculture's Eligibility for School Meals Manual, as required by the Georgia Department of Education. The master lists for these schools, as presented for examination, did not contain a complete listing of all students who participated in the program during the year and did not include information concerning dates of withdrawal, denial, approval and status changes of students.
-4-

PIKE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
ELIGIBILITY Failure to Maintain Master List of Eligible Students Reportable Condition U. S. Department of Agriculture Through Georgia Department of Education Finding Control Number: FA-7141-04-01
This condition occurred because management failed to become familiar with Georgia Department of Education requirements as outlined in the Eligibility Guideline for School Meals Manual. Management should develop adequate internal controls to ensure that master lists are updated regularly and maintained according to established guidelines.
SPECIAL TESTS AND PROVISIONS Deficiencies Over Verification Process Reportable Condition U. S. Department of Agriculture Through Georgia Department of Education Finding Control Number: FA-7141-04-02
A review of the School District's verification procedures for the Child Nutrition Cluster (CFDA 10.553 and 10.555) revealed the following deficiencies:
The master list for October 31, 2003 was not available for review. Without the master list it could not be determined that management had verified 3 percent of the free and reduced meal applications as required.
The verification process was performed for only one of four schools in the School District.
Of the 21 free and reduced applications reviewed by the School District in its eligibility verification process, our examination of 14 of the 21 applications disclosed the following deficiencies: (1) Four ofthe applications selected for verification were actually on the School District's direct certification list. Verification is not required for students who are eligible under direct certification. (2) An additional four applications selected for verification were not updated to the master list as required.
These conditions were the result of the School District's failure to implement appropriate internal controls to ensure compliance in accordance with Federal guidelines. The School District should implement policies and procedures to ensure that the verification process is accurately completed, all
-5-

PIKE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Deficiencies Over Verification Process Reportable Condition U.S. Department of Agriculture Through Georgia Department of Education Finding Control Number: FA-7141-04-02 students affected in the process are properly updated and required documentation is retained. The School District should contact the Georgia Department of Education for determination of required procedures to be performed for resolution of this finding.
-6-

SECTIONV MANAGEMENT'S RESPONSES

PIKE COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2004
Finding Control Number: FS-7141-04-01
We have requested of management its views concerning this finding, its conclusions, its recommendations and the planned corrective actions. We have not received management's views as of the release of this audit report.
Finding Control Number: FS-7141-04-02
We have requested of management its views concerning this finding, its conclusions, its recommendations and the planned corrective actions. We have not received management's views as of the release of this audit report.
Finding Control Number: FA-7141-04-01
We have requested of management its views concerning this finding, its conclusions, its recommendations and the planned corrective actions. We have not received management's views as of the release of this audit report.
Finding Control Number: FA-7141-04-02
We have requested of management its views concerning this finding, its conclusions, its recommendations and the planned corrective actions. We have not received management's views as of the release of this audit rep