Polk School District Board of Education, Cedartown, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2003

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

POLK SCHOOL DISTRICT BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

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

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

3

B

STATEMENT OF ACTIVITIES

5

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

6

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

7

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

8

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

9

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

10

H

STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

11

I

NOTES TO THE BASIC FINANCIAL STATEMENTS

13

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERALFUND

29

POLK SCHOOL DISTRICT BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

30

3 SCHEDULEOFSTATEREVENUE

32

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

34

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

35

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133

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

SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
August 19, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members ofthe Polk School District 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 I) of the Polk School District Board ofEducation, as ofand for the year ended June 30, 2003, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Polk School District 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.
As discussed in Note 2 to the financial statements, management has not recognized in the governmental activities and general fund a portion ofsalaries and the corresponding employer's cost of related benefits earned for contractual services completed prior to June 30, 2003. Also funds received, subsequent to June 30, 2003, from the Georgia Department of Education for the State's share ofthese unrecorded salaries and related benefits were not recorded as revenue in the year under review. Conversely, the similar salary costs and related revenues for contractual services completed
2003-34ARL-13

prior to June 30, 2002, were improperly recorded in the year ended June 30, 2003. Accounting principles generally accepted in the United States ofAmerica require that revenues be recorded when available and measurable or earned, as appropriate, and that costs be recorded when liabilities are incurred, rather than when funds are received or disbursed. The aggregate effect on the financial statements of this variance or omission has not been determined, but is believed to be material.
In our opinion, except for the effects of not properly recognizing revenues and costs for certain salaries in the governmental activities and general fund as described in the proceeding paragraph, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and general fund of the Polk School District Board of Education, as ofJune 30, 2003, 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.
In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position ofthe district-wide capital projects fund, the debt service fund, and the aggregate remaining fund information ofthe Polk School District Board ofEducation, as of June 30, 2003, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States ofAmerica.
The Polk School District Board of Education has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements.
As discussed in Note 2 to the basic financial statements, during fiscal year 2003, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements and consolidated its individual school activity accounts for inclusion in the basic financial statements. These changes are in accordance with generally accepted accounting principles.
As described in Note 2, the Polk School District Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003.
In accordance with Government Auditing Standards, we have also issued our report dated August 19, 2004, on our consideration of the Polk School District Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.
The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 29 is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of
2003-34ARL-13

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 Polk School District Board ofEducation'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, except for the effects ofthe matters referred to in the third paragraph, such information, 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,
0,.._,2,tD~
~sell W. Hinton State Auditor
RWH:as 2003-34ARL-13

POLK SCHOOL DISTRICT BOARD OF EDUCATION

POLK SCHOOL DISTRICT BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2003
ASSETS
Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Prepaid Items Inventories Capital Assets Land Land Improvements Buildings and Improvements Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Cash Overdraft 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
Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

5,391,676

860,057 646,158 1,523,268 208,963 484,455 107,209

1,519,510 2,138,802 47,242,493 4,791,404 -14,014,583

$

50,899,412

$

1,873,334

267,052

474,148

16,956

2,612,091 7 318 105

$

12,561,686

$

32,872,135

191,503 306,854 2,300,730 475,733 2 190 771

$

38,337,726

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

POLK SCHOOL DISTRICT BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30. 2003

EXHIBIT"B"

EXPENSES

PROGRAM REVENUES

OPERATING

CHARGES FOR

GRANTS AND

SERVICES

CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

GOVERNMENTAL ACTIVITIES

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

$ 37,808,753 $
1,348,717 1,356,982 1,029,391
494,651 3,156,532
505,307 3,454,315 1,627,123
122,363 103,883
191,695 2,575,842
647 004
$ 54,422,558 $

417,218 $
121,570 611,136

26,642,170 $
395,835 900,561 636,201 995,109 1,463,594
1,830,173 1,044,186
103,270
1,714,453

1 149 924 $ ==~-=35=,7=25-,=55..2... $

-10,749,365
-952,882 -456,421 -393, 190 500,458 -1,692,938 -505,307 -1,624,142 -582,937 -122,363
-613
-70, 125 -250,253 -647 004
-17,547,082

General Revenues Taxes Property Taxes For Maintenance and Operations Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Debt Services Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous

$

9,461,578

30,066

3,684,291 38,768
3,103,068 85,956
1696672

Total General Revenues

$ _ ____,:_;1.8...1.:..;:0""0"'3""'99"-

Change in Net Assets

$

553,317

Net Assets - Beginning of Year

37,783,401

Inventory - Net Change in Period

1 008

Net Assets - End of Year

$ ====38..,,3..,3.,.7..,7,..,26..,.

The notes to the basic financial statements are an integral part of this statement. -5-

POLK SCHOOL DISTRICT BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30. 2003

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Prepaid Items Inventories
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Cash Overdraft Accounts Payable Salaries Payable Deposits and Deferred Revenue
Total Liabilities
FUND BALANCES
Reserved for: Bus Replacement 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

$ $ 2,925,000
325,087 262,750 1,523,268 208,963 484,455 107,209

150,113 $

33,681 $

794,110

1,672,566

383,408

594,483

183,794 5,391,676
919,570 646,158 1,523,268 208,963 484,455 107,209

$ 5,836,732 $ 1,327,631 $ 2,300,730 $ 9,465,093

$ 2,057,128 267,052 474,148 16,956
$ 2,815,284

$ 2,057,128 267,052 474,148 16 956
$ 2,815,284

$ 191,503

$

191,503

199,645

199,645

$ 2,300,730

2,300,730

107,209

107,209

$ 1,210,717

1,210,717

2,523,091 $ 3,021,448 $

116,914 1,327,631 $ 2,300,730 $

2,523,091 116 914
6,649,809

$ 5,836,732 $ 1,327,631 $ 2,300,730 $ 9,465,093

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

POLK SCHOOL DISTRICT BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30. 2003

EXHIBIT"D"

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

$

6,649,809

$ 1,519,510 2,138,802
47,242,493 4,791,404
-14,014,583

41,677,626

-59,513

$ -7,010,000 -2,920,196

-9,930,196

Net Assets of Governmental Activities (Exhibit "A")

$ 38,337,726

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

POLK SCHOOL DISTRICT BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2003

EXHIBIT"E"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES {USES}
Capital Leases Transfers In Transfers Out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning
Inventory - Net Change in Period
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 9,508,220 38,768
33,303,013 5,525,607 1,149,924 42,416 $ 1,696,672
$ 51,264,620 $

$ $ 3,684,291

16,091

27,449

9,508,220 3,723,059 33,303,013 5,525,607 1,149,924
85,956 1,696,672

16,091 $ 3,711,740 $ 54,992,451

$ 36,522,135

$ 36,522,135

1,348,717

1,348,717

1,339,110

1,339,110

1,029,391

1,029,391

493,864

493,864

3,156,532

3,156,532

503,824

$

397

504,221

3,445,278

3,445,278

1,242,576

1,242,576

122,363

122,363

103,883

103,883

191,695

191,695

2,470,102

2,470,102

$ 1,778,990

1,778,990

305,970 145,159

48,236 10,032

3,250,000 491,813

3,604,206 647 004

$ 52,420,599 $ 1,837,258 $ 3,742,210 $ 58,000,067

$ -1,155,979 $ -1,821, 167 $ -30,470 $ -3,007,616

$ 527,959 573,054
$ -573,054

$

527,959

573,054

-573,054

$ -573,054 $ 1,101,013

$

527,959

$ -1,729,033 $ -720,154 $ -30,470 $ -2,479,657

4,749,473

2,047,785 2,331,200

9,128,458

1 008

1 008

$ 3,021,448 $ 1,327,631 $ 2,300,730 $ 6,649,809

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

POLK SCHOOL DISTRICT BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2003

EXHIBIT"F"

Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")
Amounts reported for Governmental Activities in the Statement of Activities are different because:
Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are:
Capital Outlay Depreciation Expense
Excess of Capital Outlay over Depreciation Expense
Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues.
Some of the Capital Assets acquired this year were financed with capital leases. In Governmental Funds, a capital lease arrangement is considered a source of financing, but in the Statement of Net Assets, the lease obligation is reported as a Long-Term Liability.
Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of:
Bond Principal Retirements Capital Lease Payments
Total Long-Term Debt Repayments

$ -2,479,657

$ 1,306,979 -1,333,676

-26,697 -16,576

-527,959

$ 3,250,000 354,206

3,604,206

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

$ ==5=53=,3=1=7

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

POLK SCHOOL DISTRICT BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2003

EXHIBIT"G"

ASSETS Cash and Cash Equivalents

PRIVATE PURPOSE TRUSTS

AGENCY FUNDS

$ 14 873 $ ======7=0=,=2=9=0=

LIABILITIES Funds Held for Others
NET ASSETS Held in Trust for Private Purposes

$

70,290

$ _ _1_4~8_73~

Total Liabilities and Net Assets

$ 14 873 $ ======7=0,=2=9=0=

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

POLK SCHOOL DISTRICT BOARD OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS
FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2003
REVENUES Contributions Donors
EXPENSES Special Needs Change in Net Assets
Net Assets - Beginning
Net Assets - Ending

EXHIBIT"H"

PRIVATE PURPOSE TRUSTS

$

2,625

$

2,560

$

65

14,808

$ ===14===87...3. =

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

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "I"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Polk School District 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 Polk School District 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 ofintemal 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:
- 13 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"!"

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 Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation of major capital facilities.
Debt Service Fund accounts for taxes (sales) legally restricted for the payment ofgeneral longterm principal, interest and paying agent's fees.
The School District reports the following fiduciary fund types:
Private Purpose Trust fund reports a trust arrangement under which income is to be used for the purpose of clothing and medical needs for disadvantaged students at the superintendent's discretion.
Agency funds account for assets held by the School District as an agent for various funds, governments or individuals
BASIS OF ACCOUNTING
The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and
- 14 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Proceeds ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources.
The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
A departure from the above definitions is the accounting treatment afforded the final two payments on General Fund teachers' and bus drivers' contracts, and the resources available from the Georgia Department of Education for the State's share of these contracts. During fiscal year 2003, a substantial number ofpersonnel ofthe School District were employed for a one hundred and ninety day period beginning in August 2002 and ending in early June 2003. Personnel contracts for this employment period specify that compensation be paid in twelve equal monthly payments beginning in September 2002 and ending in August 2003. State grants to fund the State's share of these contracts were disbursed from the Georgia Department of Education to the School District in the same twelve months. As of June 30, 2003, compensation under these employment contracts had been earned, but two of the twelve monthly payments, due for July and August 2003, had not been made. Payments for these two months were made and recorded as costs by the School District subsequent to June 30, 2003. Also, the State's portion ofthe compensation paid in July and August 2003 was received and recorded as revenue in the fiscal year subsequent to June 30, 2003. Conversely, the similar costs and related revenues for contractual services completed prior to June 30, 2002, were recorded in the year ended June 30, 2003. Generally accepted accounting principles require that revenues be recorded when earned or available and measurable as appropriate and that expenditures or expenses as appropriate be recorded when incurred, rather than when funds are received or disbursed.
RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND
In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of $431,995 at July 1, 2002. For fiscal year 2003, these funds have been reported as part of the General Fund. In addition, governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been reported within the General Fund for fiscal year ended June 30, 2003. The governmental fund activity ofthe various school activity accounts had a fund balance of$251,963 at July 1, 2002. This change is in accordance with generally accepted accounting principles.

- 15 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Fund Balance July 1, 2002

$ 4,065,515

Add Funds Consolidated with General Fund: School Food Services Fund School Activity Account - Governmental Activity

431,995 251,963

General Fund Balance July l, 2002 (Restated)

$ 4,749.473

CHANGES IN ACCOUNTING PRINCIPLES

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

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

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

$ 4,749,473 2,047,785 2,331,200

Governmental Funds (Restated) July 1, 2002 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Bonds Payable Capital Leases Payable

$ 9,128,458 54,417,318 -12,712,995 -42,937 -10,260,000 -2,746,443

Net Assets Beginning (See Exhibit "B")

$ 37,783.401

CASH AND CASH EQUIVALENTS

COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the Board to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.

- 16 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"!"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:
(1) Obligations issued by the State of Georgia or by other states,
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,
(4) Obligations of any corporation of the United States government,
(5) Prime banker's acceptances,
(6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services,
(7) Repurchase agreements, and
(8) Obligations of other political subdivisions of the State of Georgia.
RECEIVABLES
Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.

- 17 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30. 2003

EXHIBIT"!"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PROPERTY TAXES

The Polk County Board of Commissioners fixed the property tax levy for the 2002 tax digest year (calendar year) on September 12, 2002 (levy date). Taxes were due on December 2, 2002 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2002 tax digest are reported as revenue in the governmental funds for fiscal year 2003. The Polk 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, 2003, for maintenance and operations amounted to $9,478,154.

The tax millage rate levied for the 2002 tax year (calendar year) for the Polk School District Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

13.026 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $3,684,291 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

INVENTORIES

FOOD INVENTORIES On the District-wide financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the purchases method to account for inventories whereby expenditures are recorded at the time of purchase or when received. To conform to generally accepted accounting principles, all food inventories should be accounted for using the consumption method whereby an asset is recorded when foods are purchased/received and expenses are recorded at the time the food items are consumed. The effect of this deviation is deemed to be immaterial to the fair presentation of the basic financial statements.

PREPAID ITEMS

Payments made to vendors for services that will benefit periods subsequent to June 30, 2003, are recorded as prepaid items.

- 18 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CAPITAL ASSETS

Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time ofpurchase. On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost ofnormal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art.

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

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

Any Amount

$

5,000

$

5,000

$

5,000

NIA 20 to 60 years 25 to 60 years
5 to 50 years

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

GENERAL OBLIGATION BONDS

The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets.

Note 3: DEPOSITS AND INVESTMENTS

COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance.

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POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "I"

Note 3: DEPOSITS AND INVESTMENTS
Ifa depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts.
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or ofthe State of Georgia,
(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,
(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use ofthe bonds for this purpose,
(6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and
(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.
CATEGORIZATION OF DEPOSITS At June 30, 2003, the bank balances were $697,982. 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.)
-20 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "I"

Note 3: DEPOSITS AND INVESTMENTS

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

Risk Category

Bank Balance

1

$ 358,925

2

38,042

3

301,015

Total

$===6-97-,9-8~2

CATEGORIZATION OF INVESTMENTS Investments are classified as to risk by the three categories described below:

Category 1 - Insured or registered, or securities held by the School District or the School District's agent in the School District's name.
Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the School District's name.
Category 3 - Uninsured or unregistered, with securities held by the counterparty, or by its trust department or agent but not in the School District's name.

Funds invested in an investment pool managed by another government are not required to be categorized unless the investing entity owns specific, identifiable investment securities in the pool.

At June 30, 2003, the carrying value ofthe School District's total investments was $5,391,676 which is materially the same as fair value. The investments are classified as to risk categories as follows:

Type of Investment Repurchase Agreements $
Local Government Investment Pools
Total Investments

Risk Categories 2
0 $ 2 925 000 $

Carrying

Fair

3

Amount

Value

0 $ 2,925,000 $ 2,925,000

2,466,676

2,466,676

$ 5,391,616 $ 5,391,616

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

The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not

- 21 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"I"

Note 3: DEPOSITS AND INVESTMENTS
registered with the Securities and Exchange Commission as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 ofthe Investment Company Act of 1940. The pool's primary objectives are safety ofcapital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund.
Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U. S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2003, was 30 days. The average investment duration for Fund 6 on June 30, 2003, was 0.39 years.
Note 4: NON-MONETARY TRANSACTIONS
The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories
Note 5: CAPITAL ASSETS
The following is a summary of changes in the Capital Assets during the fiscal year:

-22 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "I"

Note 5: CAPITAL ASSETS

Balances July 1, 2002

Increases

Balances Decreases June 30, 2003

Governmental Activities

Capital Assets, Not Being Depreciated:

Land

$ 1,519,510 $

0 $

0 $ 1,519,510

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 46,201,063 $ 4,794,992 1,901,753

1,041,430 28,500 $
237,049

$ 47,242,493

32,088

4,791,404

2,138,802

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

8,820,186 2,642,347 1,250,462

893,008 366,978
73,690

32,088

9,713,194 2,977,237 1,324,152

Total Capital Assets, Being Depreciated, Net $ 40,184,813 $

-26,697 $

0 $ 40,158,116

Governmental Activity Capital Assets - Net $ 41,704.323 $ -26.697 $

0 $ 41,677.626

Current year depreciation expense by function is as follows:

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

$ 940,253

$

12,995

572

790

22,568

279,612

316,537 76,886

$ 1,333.676

Note 6: RESTRICTED ASSETS
General obligation bond proceeds and Special Purpose Local Option Sales Tax (SPLOST), specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2003, were as follows:

- 23 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "I"

Note 6: RESTRICTED ASSETS

District-wide Capital Projects Bond Proceeds

Debt Service Funds

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

$

33,681

$

33,199

$ 1,672,566 $ 794,110

Note 7: INTERFUND TRANSFERS

Interfund transfers for the year ended June 30, 2003, consisted of the following:

Transfer to

Transfers From General Fund

District-wide Capital Projects

$=====5==73'='=,0===5==4

Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as a supplemental funding source for capital construction projects.

Note 8: RISK MANAGEMENT

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

The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions,job related illness or injuries to employees and acts ofGod. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the Board's insurance coverage in any ofthe 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 ofthat loss can be reasonably estimated.

-24-

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "I"

Note 8: RISK MANAGEMENT

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

2002 2003

Beginning ofYear Liability

Claims and Changes in Estimates

Claims Paid

End ofYear Liability

$

0 $

5 396 $

5 396 $

0

$

0 $

265 $

265 $

0

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

Position Covered

Amount

Superintendent All Other Employees

$

50,000

$

50,000

Note 9: LONG-TERM DEBT

CAPITAL LEASES The Polk School District Board ofEducation has entered into various lease agreements as lessee for mobile classrooms and heating and air conditioning equipment. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value ofthe future minimum lease payments as of the date of their inception.

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

Purpose

Interest Rates

Amount

General Government - Series 2000

5.00% - 5.25% $ 7,010,000

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

- 25 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"!"

Note 9: LONG-TERM DEBT

Governmental Funds

General

Capital

Obligation

Leases

Bonds

Total

Balance July 1, 2002

$ 2,746,443 $ 10,260,000 $ 13,006,443

Additions Capital Leases

527,959

527,959

Deductions Debt Retired

354,206

3,250,000

3,604,206

Balance June 30, 2003

$ 2,920,196 $ 7,010,000 $ 9,930.196

Portion of Long-Term Debt Due within One Year

$ 422,091 $ 2,190,000 $ 2,612,091

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

Fiscal Year Ended June 30

Cagital Leases

Princigal

Interest

General Obligation Debt

Princigal

Interest

2004 2005 2006 2007 2008 2009 - 2011

$

422,091 $

145,574 $ 2,190,000 $

361,813

443,772

123,893

2,335,000

246,837

466,604

101,061

2,485,000

124,250

408,581

78,495

371,850

56,958

807,298

57,296

Total Principal and Interest

$ 2,920.196 $

563.277 $ 7,010.000 $

732.900

Note 10: ON-BEHALF PAYMENTS

The Board has recognized revenues and costs in the amount of$405,488 for health insurance and retirement contributions paid on the Board's behalf by the following State Agencies.

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $328,800

- 26-

POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "I"

Note 10: ON-BEHALF PAYMENTS

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 $76,688

Note 11: SIGNIFICANT CONTINGENT LIABILITIES

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

Note 12: 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 ofGeorgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

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

Fiscal Year

Percentage Contributed

Required Contribution

2003 2002 2001

100% 100% 100%

$ 2,845,956 $ 2,678,414 $ 3,029,664

- 27 -

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

SCHEDULE "1"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation
Debt Service
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING USES
Other Uses
Net Change in Fund Balances
Fund Balances - Beginning
Adjustments
Inventory - Net Change in Period

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

9,133,059 $

9,564,966 $

9,508,220

25,000

25,000

38,768

33,112,235

33,081,125

33,303,013

4,989,747

4,165,560

5,525,607

587,500

1,149,924

110,000

40,000

42,416

283,095

315,095

1,696,672

$

48,240,636 $

47,191,746 $

51,264,620

$

35,754,242 $

34,488,988 $

36,522,135

1,242,491 905,854
1,035,381 398,186
2,709,929 472,004
3,800,069 1,406,149
124,947 60,803
2,374,878

1,225,115 704,709
1,059,289 570,066
2,844,320 518,216
3,983,141 1,455,480
122,968 133,355
1,500

1,348,717 1,339,110 1,029,391
493,864 3,156,532
503,824 3,445,278 1,242,576
122,363 103,883 191,695 2,470,102 451129

$

50,284,933 $

47107147 $

52,420,599

$

-2,044,297 $

84,599 $

-1,155,979

-278 070

$

-2,322,367 $

4,186,346

10,981

84,599 $ 4,186,346
10,981

-573 054 -1,729,033 4,749,473
1 008

Fund Balances - Ending

$

1,874,960 $

4,281,926 $===3=,0=2=1'=44=8=

Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual

(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts.

See notes to the basic financial statements.

- 29-

POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 320, 2003

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food and Nutrition Program Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Distribution Program (1) Pass-Through From Bright From the Start Georgia Department of Early Care and Learning Food and Nutrition Program Summer Food Service Program for Children
Total U.S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Individuals with Disabilities Education Act Part B - Special Education Flow Through Preschool Capacity Building Improvement
Total Special Education Cluster
Other Programs Pass-Through From Georgia Department of Education Elementary and Secondary Education Act Title I Comprehensive School Reform Demonstration Grant Grants to Local Educational Agencies State School Improvement Grants Title II Eisenhower Professional Development Enhancing Education Through Technology Improving Teacher Quality Title Ill Limited English Proficient Title IV Safe and Drug-Free Schools and Communities TitleV Innovative Education Program Strategies Title VI Rural and Low Income Schools Vocational Education - Basic Grants to States High School Program Basic Grant

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 10.555

N/A
N/A $
$

(2) 2,115,776
2,115,776

10.550

N/A

153,843

10.559

N/A
$

10 061 2,279,680

84.027 84.173 84.027

N/A $
N/A
NIA
$

902,025 71,742 24 728
998,495

84.332

N/A

* 84.010

N/A

84.218

N/A

84.281

N/A

84.318

N/A

* 84.367

N/A

84.365

N/A

84.186

NIA

84.298

N/A

84.358

N/A

84.048

N/A

258,540 1,858,182
43,997
9,001 150,798 304,621
34,029
55,390
48,066
135,695
68,306

- 30 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 320, 2003

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Education, U. S. Department of Other Programs Pass-Through From Hall County Board of Education d/b/a Piedmont Migrant Education Agency Elementary and Secondary Education Act Title I Migrant Education
Total U.S. Department of Education

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

84.011

N/A $ $

41,988 4,007,108

Total Federal Financial Assistance
N/A = Not Available

$ =====6,=28=6=,7=8=8

Notes to the Schedule of Expenditures of Federal Awards

(1) The amounts shown for the Food Distribution Program represent the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year.
(2) Expenditures for the funds earned on the School Breakfast Program ($340,524) were not maintained separately and are included in the 2003 National School Lunch Program.

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

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

The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Polk School District Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the basic financial statements.

See notes to the basic financial statements.

- 31 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2003
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 Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 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 - Alternative Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Agriculture Construction Related Equipment Apprenticeship Program Extended Day Technology/Career Health Insurance Mentor Teachers Preschool Handicapped Program
- 32 -

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

652,594

1,761,716 392,380
4,170,672 913,269
2,137,374 520,998 339,779
3,619,930 2,688,093 1,610,668
156,865 346,082 2,224,988 753,945
44,811 613,209 134,374 301,322 401,960 624,654 208,908 128,311
798,357 1,324,512 1,830,173
807,810 191,493
19,000 145,440
27,278 48,855 2,697,580 195,954 -669,239
61,045 87,830 173,904
1,900 69,672 328,800
590 92,153

POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2003
AGENCY/FUNDING
GRANTS Education, Georgia Department of Lottery Programs Assistive Technology Computers in the Classroom Post Secondary Options Student Information System
Office ofTreasury and Fiscal Services Public School Employees Retirement

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

6,153

144,410

2,949

92,804

76 688

$ ===3=3'!=30~3~,0=1~3

See notes to the basic financial statements.

- 33-

POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30. 2003

SCHEDULE "4"

PROJECT
Funding the completion of the acquisition, construction and equipping of a new Rockmart High School and a new Cedartown Middle School, and renovations and additions to existing schools, including the acquisition of all necessary property

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT YEAR (3) (4)

AMOUNT EXPENDED
IN PRIOR YEARS (3) (4)

PROJECT STATUS

$ 7,940,475 $ 7,118,587 $

853,159 $ 5,288,006 Ongoing

(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 project. Includes all cost from project inception to completion.

(3) The voters of Polk County approved the imposition of a 1% sales tax to fund the above project and retire associated debt. Amounts expended for this project may include sales tax proceeds, state, local property taxes and/or other funds over the life of the project.

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

Prior Years

$ 2,453,591

Current Year

491,813

Total

$ 2,945,404

See notes to the basic financial statements.

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POLK SCHOOL DISTRICT BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM {QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2003

SCHEDULE "5"

DESCRIPTION

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

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

Direct Instructional Programs

Kindergarten Program

$

Kindergarten Program-Early Intervention Program

Primary Grades (1-3) Program

Primary Grades-Early Intervention (1-3) Program

Upper Elementary Grades (4-5) Program

Upper Elementary Grades-Early Intervention (4-5)

Program

Middle Grades (6-8) Program

Middle School (6-8) Program

High School General Education (9-12) Program

Vocational Laboratory (9-12) Program

Students with Disabilities

Category I

Category II

Category Ill

Category IV

Gifted Student - Category VI

Remedial Education Program

Alternative Education Program

English Speakers of Other Languages (ESOL)

1,962,143 $ 437,261
4,637,941 1,017,731 2,375,944
580,591 378,644 4,033,985 2,995,563 1,794,899 3,930,084
683,349 149,744 335,788 447 937

1,578,005 $ 353,930
4,365,175 936,679
2,349,519
492,263
4,716,466 4,042,353 1,212,682
52,654 498,468 3,265,552 191,665 345,331 142,912 660,188 371 473

30,941 $ 163
164,795 1,695
68,467
2,225
247,955 174,602 119,438
4,835 1,887 22,085 8,610 2,289 1,005 2,285 1 628

1,608,946 354,093
4,529,970 938,374
2,417,986
494,488
4,964,421 4,216,955 1,332,120
57,489 500,355 3,287,637 200,275 347,620 143,917 662,473 373,101

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

25,761,604 $ 25,575,315 $

854,905 $ 26,430,220

Media Center Program Staff and Professional Development

696,103 142 987

941,734 32,250

66,951 47764

1,008,685 80 014

TOTAL QBE FORMULA FUNDS

$

26,600,694 $ 26,549,299 $

969,620 $ =====2=7,,..5=18..,,9=1===9

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

See notes to the basic financial statements.

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SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
August 19, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Polk School District Board of Education
REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Polk School District Board of Education as ofand for the year ended June 30, 2003, which collectively comprise Polk School District Board of Education's basic financial statements and have issued our report thereon dated August 19, 2004. This report was qualified for a departure from generally accepted accounting principles, as identified in the auditor's report on the basic financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Compliance
As part ofobtaining reasonable assurance about whether Polk School District Board ofEducation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination offinancial statement amounts. However, providing an opinion on compliance with those provisions was not an objective ofour audit, and accordingly, we do not express such an opinion. The results ofour tests disclosed no instances ofnoncompliance that are required to be reported under Government Auditing Standards.

2003-34YB-40

Internal Control Over Financial Reporting

In planning and performing our audit, we considered Polk School District 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 assurance 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 Polk School District Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-7151-03-01, FS-7151-03-02 and FS-7151-03-03.

A material weakness is a 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 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, ofthe reportable conditions described above, we consider items FS-7151-0302 and FS-7151-03-03 to be material weaknesses.

This report is intended solely for the information and use ofthe management, members ofthe Polk School District 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 2003-34YB-40

State Auditor

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
August 19, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Polk School District 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 Polk School District Board of Education with the types of compliance requirements described in the US. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2003. Polk School District Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section ofthe accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility ofPolk School District Board of Education's management. Our responsibility is to express an opinion on Polk School District Board of Education's compliance based on our audit.
We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types 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 Polk School District Board ofEducation's compliance with those

2003SA-30

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 Polk School District Board of Education's compliance with those requirements.
In our opinion, the Polk School District Board ofEducation complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2003.
Internal Control Over Compliance
The management of Polk School District Board of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered Polk School District Board of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
We noted a certain matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in ourjudgment, could adversely affect the Polk School District Board ofEducation's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FA-7151-03-01.
A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level of risk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness.
2003SA-30

This report is intended solely for the information and use ofthe management, members ofthe Polk School District Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

RWH:as 2003SA-30

State Auditor

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

POLK SCHOOL DISTRICT BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-7151-01-01 FS-7151-01-02 FS-7151-02-02

Further Action Not Warranted Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented

SECTION IV FINDINGS AND QUESTIONED COSTS

POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

I SUMMARY OF AUDITOR'S RESULTS

1. Type of Report Issued on the Financial Statements The auditor's opinion on the Polk School District Board ofEducation's financial statements was qualified for a departure from generally accepted accounting principles.

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

Cash and Cash Equivalents Revenues/Receivables/Receipts Capital Assets

Expenditures/Liabilities/Disbursements General Ledger

Of the reportable conditions described above, Revenues/Receivables/Receipts, Expenditures/Liabilities/Disbursements and Capital Assets are considered to be material weaknesses.

3. Noncompliance Material to the Financial Statements The audit of the Polk School District 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 Polk School District Board of Education disclosed a reportable condition in internal control over major programs for the following compliance requirement.

Special Tests and Provisions

The reportable condition described above is not considered to be a material weakness.

5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Polk School District Board ofEducation's report on compliance with requirements applicable to major programs was unqualified.

6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Polk School District Board ofEducation's audit disclosed an audit finding required to be reported by section .510(a) ofOMB Circular A-133. This audit finding is included in section IV of this report.

7. Major Programs Federal awards audited as major programs are as follows: 84.010 Elementary and Secondary Education Act - Title I - Grants to Local Educational Agencies 84.367 Elementary and Secondary Education Act - Title II - Improving Teacher Quality

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POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
I SUMMARY OF AUDITOR'S RESULTS
8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.
9. Low Risk Auditee The Polk School District 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
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-7151-03-01
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.
Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions. Based on a test of 40 items, 29 items could not be traced to supporting documentation, eight could not be traced to a deposit ticket, 17 could not be traced to the revenue account on the general ledger and two were deposited to the bank account in an untimely manner. Based on a test of 40 items, 33 duplicate receipts were not given to the person that funds were received from. Based on a test of five gate receipts, one Report for Admissions or Tickets sold form was not reconciled to consecutive numbered tickets, five did not contain an explanation for variances and five were not signed by the Principal and/or the Bookkeeper.
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POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30. 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-7151-03-01
Expenditures/Liabilities/Disbursements The check writing function was not separated from the record keeping or processing of signed checks. Based on a test of 50 items, eight vouchers did not have original invoices, all 50 did not have a purchase order, 31 vouchers were not properly approved and one was not signed by two individuals as required.
General Ledger General Ledgers as presented for audit did not balance for the following schools: Cedartown High, Cherokee Elementary, Eastside Elementary, Elm Street Middle, Euharlee Elementary and Rockmart High.
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 and general ledgers presented for audit are in balance.
Management's Response:
This is the first year the local schools books were included in the system-wide books. The findings mentioned regarding the revenues and receipts will be addressed with a change in personnel and better adherence to manuals and procedures already in place to address the above mentioned items.
REVENUES/RECEIPTS/RECEIVABLES EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Accrue Salaries and Fringe Benefits Reportable Condition - Material Weakness Finding Control Number: FS-7151-03-02
At June 30, 2003, the Polk School District Board of Education chose not to report expenditures incurred, but not paid, for General Fund teacher and bus driver contracts, including related employer benefits. In addition, the School District did not report revenues available from the Georgia
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POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
REVENUES/RECEIPTS/RECEIVABLES EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Accrue Salaries and Fringe Benefits Reportable Condition - Material Weakness Finding Control Number: FS-7151-03-02
Department ofEducation for the State's share ofthese contracts. This omission ofmaterial amounts, by management, is considered to be a financial irregularity in accordance with O.C.G.A 20-2-67 and results in the basic financial statements of the School District being incomplete and not in accordance with generally accepted accounting principles. The School District should establish appropriate policies and procedures designed to ensure the School District properly reports expenditures for General Fund teacher and bus driver contracts and associated revenues available from the Georgia Department of Education for the State's share of these contracts.
Management's Response:
The School District will provide to the auditors next year the totals for the salaries and benefits for the summer salaries of teachers and bus drivers and the related state revenue for those items to include in our financials.
CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition - Material Weakness Finding Control Number: FS-7151-03-03
A review of the School District's Capital Assets policies and procedures and the related Capital Assets records noted items totaling $304,580 meeting the capitalization threshold were not capitalized. This condition resulted from management's failure to identify and record Capital Assets in accordance with the School District's Capital Assets policies and procedures. The School District should review and enhance the procedures in place to ensure that all items meeting the capitalization threshold are included on the Capital Asset records.
Management's Response:
This was the first year we had capital assets included in our financial statements. An outside appraisal firm performed the inventory of our assets going back many years. Some items such as a roof replacement and school entrance road were left out ofthe report. The School District will do a better job to make sure all assets meeting the capitalization threshold will be included.
-4-

POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U. S. Department of Education Through Georgia Department of Education Finding Control Number: FA-7151-03-01
During the year in review, the School District identified five schools that participated in a schoolwide program. Federal provisions prescribe that multiple funding sources (Federal, State or Local) are required to support a school-wide program. The Title I program and the Title II program supported the school-wide program at five ofthe School District's schools. Although required by U. S. Dept of Education and 0MB Circular A-133 Compliance Supplement provisions, we found that the School District had not consolidated the different Federal funds for each of those schools that participated in a school-wide program. Furthermore, we noted that the School District arbitrarily charged each Federal fund with individual school-wide expenditures rather than using a prescribed cost allocation plan to distribute school-wide program expenditures to each funding source.
In accordance with provisions ofU. S. Department ofEducation Instructions and 0MB Circular A133, Compliance Supplement provisions, eligible schools are able to use their Title I, Part A funds, in combination with other Federal, State and local funds, in order to upgrade the entire educational program ofthe school and to raise academic achievements for all students. By combining funds from Title I and other eligible U. S. Department ofEducation funded programs in support ofa school-wide program, U. S. Department of Education Instructions provide that specific school-wide program costs lose their identity but only in those circumstances when funds are combined in a schoolwide program. In line with 0MB Circular A-87 requirements, school-wide expenditures should be charged to those Federal funding sources supporting the school wide program in a reasonable manner. When more than one Federal program supports a school-wide program, then school-wide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support ofthe school-wide program. To distribute such costs, provisions of 0MB Circular A-87, Attachment E, F.3 state that a cost allocation plan should be developed, documented, maintained for audit. The School District personnel were unaware of these requirements and it was the School District's understanding that school-wide program expenditures lose their identity and therefore any school-wide program cost can be charged to Title I and other Federal funding programs.
The School District should implement procedures to (1) combine such funds as prescribed by U.S. Department of Education and (2) in line with 0MB Circular A-87 provisions allocate such schoolwide program costs to the respective Federal fund in a reasonable manner. The School District should seek Georgia Department of Education guidance in implementing fiscal procedures for combining and allocating school-wide program expenditures to Federal programs.
-5 -

POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-7151-03-01 Management's Response: School-wide accounting procedures will be put into place to address this finding.
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