POLK SCHOOL DISTRICT BOARD OF EDUCATION CEDARTOWN, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor 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 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 8 H STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS 9 I NOTES TO THE BASIC FINANCIAL STATEMENTS 10 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 27 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 28 3 SCHEDULE OF STATE REVENUE 30 POLK SCHOOL DISTRICT BOARD OF EDUCATION -TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 32 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 33 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS POLK SCHOOL DISTRICT BOARD OF EDUCATION - TABLE OF CONTENTS - SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 January 26, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the 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 of the governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through I) of the Polk School District Board ofEducation, as of and for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility 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 opm10ns. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Polk School District Board ofEducation, as ofJune 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-11 The 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. In accordance with Government Auditing Standards, we have also issued our report dated January 26, 2007, on our consideration ofthe Polk School District 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 of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 27, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the 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, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, RWH:as 2006ARL-11 k)_~ ell W. Hinton, CPA, CGFM State Auditor POLK SCHOOL DISTRICT BOARD OF EDUCATION POLK SCHOOL DISTRICT BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Retainages Payable Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 5,274,525 12,430,391 1,162,377 4,252,786 1,045,618 259,110 113,512 1,818,246 1,380,035 2,201,726 47,563,042 6,016,861 -17 774 606 $ ===6=5=,7=4=3=,6=23= $ 3,721 6,674,194 63,764 3,625,522 8 072 587 $ 18 439 788 $ 39,081,994 699,281 3,560,858 548,871 3 412 831 $ 47,303,835 $ ===6;;5=,7=4=3=,6=23= The notes to the basic financial statements are an integral part of this statement. -1- POLK SCHOOL DISTRICT BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities 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 Total General Revenues Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 41,728,898 $ 1,540,971 1,329,683 868,028 1,045,468 705,781 3,057,691 791,475 3,710,967 1,788,096 37,205 90,338 46,333 2,827,542 208 126 705,194 $ 58,235,631 $ 2,246,165 The notes to the basic financial statements are an integral part of this statement. -2 - EXHIBIT "B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 34,160,495 $ 396,063 134,377 33,591 206,176 111,977 7,170 31,468 892,177 386 7,730 2,217,670 $ 38,199,280 $ 357,120 $ 3,752 106 8,630 154,387 27,843 551 838 $ -5,670,312 -933,620 -729,899 -1,011,877 -499,499 -2,945,714 -784,305 -3,670,869 -741,532 -36,819 -82,608 -46,333 123,165 -208 126 -17,238,348 $ 12,639,478 26,777 2,477,634 67,812 3,579,115 379,843 1 038 071 $ 20,208,730 $ 2,970,382 44 333 453 $ =======47=3=0=3~8=35= -3- POLK SCHOOL DISTRICT BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 4,925,272 $ 322,357 $ 26,896 $ 9,705,674 2,724,717 629,179 4,252,786 1,045,618 259,110 113 512 809,245 5,274,525 12,430,391 1,438,424 4,252,786 1,045,618 259,110 113 512 Total Assets $ 11,225,477 $ 10,028,031 $ 3,560,858 $ ===2=4=,8=1=4,=36=6= LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Retainages Payable 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 $ 2,141 $ 6,674,194 $ 6,676,335 $ 1,580 63 764 65 344 $ 585,769 $ 113,512 $ 9,962,309 3,849,861 378 $ 4 549142 $ 9,962,687 $ $ $ $ 3,560,858 3,560,858 $ 3,721 6,674,194 63 764 6 741 679 585,769 3,560,858 113,512 9,962,309 3,849,861 378 18 072 687 Total Liabilities and Fund Balances $ 11,225,477 $ 10,028,031 $ 3,560,858 $ ===2=4=,8=1=4,=36=6= The notes to the basic financial statements are an integral part of this statement. -4 - POLK SCHOOL DISTRICT BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Capital Leases Total Long-Term Liabilities Net Assets of Governmental Activities (Exhibit "A") $ 18,072,687 $ 1,818,246 1,380,035 2,201,726 47,563,042 6,016,861 -17 774 606 41,205,304 -276,047 $ -9,900,000 -1,798,109 -11,698,109 $ 47,303,835 The notes to the basic financial statements are an integral part of this statement. -5- POLK SCHOOL DISTRICT BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES} Proceeds of Long-Term Capital-Related Debt Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 12,893,989 67,812 35,494,097 $ 6,438,685 2,246,165 210,025 1,038,071 $ 58,388,844 $ $ 397,451 $ 2,477,634 50,408 119,410 447 859 $ 2,597,044 $ 12,893,989 2,545,446 35,891,548 6,438,685 2,246,165 379,843 1 038 071 61433747 $ 40,682,784 $ 1,329,683 856,939 1,045,468 729,102 3,057,691 596,765 $ 3,685,462 2,337,390 37,205 90,338 46,333 2,741,471 194,710 39,474 1,878,979 532,471 83 876 $ 2,485,000 124 250 $ 57,852,978 $ 2,113,163 $ 2,609,250 $ $ 535,866 $ -1,665,304 $ -12,206 $ 40,682,784 1,329,683 856,939 1,045,468 729,102 3,057,691 791,475 3,685,462 2,337,390 37,205 90,338 46,333 2,780,945 1,878,979 3,017,471 208 126 62,575,391 -1 141 644 $ 9,900,000 593,980 $ $ -593,980 $ 10,493,980 $ -593,980 $ $ 535,866 $ 8,828,676 $ -606, 186 $ 4,013,276 1134 011 4 167 044 9,900,000 593,980 -593 980 9,900,000 8,758,356 9 314 331 Fund Balances - Ending $ 4,549,142 $ 9,962,687 $ 3,560,858 $==1=8=,0=7=2'=68=7= 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 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from: General Obligation Bonds Issued Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements Capital Lease Payments Total Long-Term Debt Repayments $ 8,758,356 $ 2,688,488 -1,366, 199 1,322,289 -227,734 -9,900,000 $ 2,485,000 532 471 3 017 471 Change in Net Assets of Governmental Activities (Exhibit "B") $ ==2,=97=0e!:,3=82= The notes to the basic financial statements are an integral part of this statement. -7- POLK SCHOOL DISTRICT BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 EXHIBIT "G" ASSETS Cash and Cash Equivalents Investments Total Assets LIABILITIES Funds Held for Others NET ASSETS Held in Trust for Private Purposes Total Liabilities and Net Assets PRIVATE PURPOSE TRUSTS AGENCY FUNDS $ 18,648 $ 81,772 793 897 $ 18 648 $ ===8=7=5'=66=9= $ 875,669 $ 18,648 $===8=7=5=66=9= The notes to the basic financial statements are an integral part of this statement. -8- POLK SCHOOL DISTRICT BOARD OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2006 ADDITIONS Contributions Donors DEDUCTIONS Administrative Expenses Change in Net Assets Net Assets - Beginning Net Assets - Ending EXHIBIT "H" PRIVATE PURPOSE TRUSTS $ 5,800 $ 1 305 $ 4,495 14,153 $ ===1=8,==64==8= The notes to the basic financial statements are an integral part of this statement. -9 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 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 ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting of internal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. - 10 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including 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 of general longterm principal, interest and paying agent's fees. The School District reports the following fiduciary fund types: Private Purpose Trust fund reports trust arrangements 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, including employees eligible to participate in a pension retirement plan. 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. - 11 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund 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 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 and equity investments 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 of return 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, - 12 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Polk School District Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on July 29, 2005 (levy date). Taxes were due on December 1, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Polk School District Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $12,867,212. The tax millage rate levied for the 2005 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 15.28 mills - 13 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $2,477,634 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. 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 donot 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 All NIA $ 5,000 20 to 60 years $ 5,000 25 to 60 years $ 5,000 5 to 50 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. - 14 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. 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 of the 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 of deposit 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. 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 of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and - 15 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 3: DEPOSITS AND INVESTMENTS (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $9,199,398. The amounts of the total bank balances are classified into four categories of custodial credit risk: Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name. Category 4 - Uncollateralized. The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows: Custodial Credit Risk Category Bank Balance 1 $ 341,227 2 8,503,490 3 354,681 4 0 Total $ 9,199,398 CATEGORIZATION OF INVESTMENTS Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the School District will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The School District does not have a formal policy for managing custodial credit risk. Investments are classified as to custodial credit risk by the categories described below: - 16 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 3: DEPOSITS AND INVESTMENTS 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's 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, 2006, the carrying value of the School District's total investments was $11,324,288 which is materially the same as fair value. These investments included funds in the amount of $4,430,391 invested in the Local Government Investment Pool administered by the State ofGeorgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy of the State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows: The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U.S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days. Funds invested in Equity Mutual Funds (open-end mutual funds) are not required to be classified by categories of custodial credit risk. - 17 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 3: DEPOSITS AND INVESTMENTS At June 30, 2006, the carrying value ofthe School District's investments was $11,324,288 which is materially the same as fair value. Fair value is based on quoted market prices, unless otherwise noted. Type ofinvestment Debt Securities Repurchase Agreements Other Investments Equity Mutual Funds Investment Pools Office of Treasury and Fiscal Services Georgia Fund I Total Investments Risk Categories 2 3 Carrying Amount Fair Value $ 6 I00 000 $======"' $ 6,100,000 $ 6,100,000 793,897 793,897 4,430,391 $ 11 324 288 4,430,391 $ I I 324 288 Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value of an investment. The School District does not have a formal policy for managing interest rate risk. Investment Type Fair Value Investment Maturity Less than 1 Year Debt Securities Repurchase Agreements $ 6,100.000 $ 6,100.000 Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The School District does not have a formal policy for managing credit quality risk. Investments are classified as to quality ratings as follows: Rated Debt Investments Fair Value Quality Ratings AAA AA Equity Mutual Fund $ 335.008 $ 185 .129 $=====14==9=-=8=7==9 - 18 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 3: DEPOSITS AND INVESTMENTS Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The School District does not have a formal policy for managing concentration of credit risk. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2005 Increases Decreases Balances June 30, 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 1,519,510 $ 298,736 $ 0 1,380,035 0 $ 1,818,246 1,380,035 Total Capital Assets Not Being Depreciated $ 1,519,510 $ 1,678,771 $ 0 $ 3,198,281 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 47,460,526 $ 5,384,932 2,201,726 102,516 907,201 $ $ 47,563,042 275,272 6,016,861 2,201,726 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 11,558,642 3,651,070 1,473,967 916,649 373,885 75,665 275,272 12,475,291 3,749,683 1,549,632 Total Capital Assets, Being Depreciated, Net $ 38,363,505 $ -356,482 $ 0 $ 38,007,023 Governmental Activity Capital Assets - Net $ 32,883,015 $ 1,322,282 $ 0 $ 41,205,304 - 19 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 5: CAPITAL ASSETS Capital assets being acquired under capital leases as of June 30, 2006, are as follows: Governmental Funds Buildings and Improvements Less: Accumulated Depreciation $ 815,041 111 193 Current year depreciation expense by function is as follows: $====7-03-,8==4="'8 Instruction Support Services Improvements of Instructional Services General Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 967,661 $ 10,167 286 23,384 289,257 323,094 75 444 $ 1,366,199 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) and general obligation bond proceeds are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2006, were as follows: District-wide Capital Projects Bond SPLOST Proceeds Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions $ 326,943 $ 26,896 $ 2,724,717 $ 287,272 $ 9,418,402 - 20 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2006, consisted of the following: Transfer to Transfers From Debt Service Fund District-wide Capital Projects $====5==93'="'.9==8='=0 Transfers are used to move excess sales tax revenues collected by the Debt Service Fund to the District-wide Capital Projects Fund as supplemental funding source for capital construction projects. Note 8: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions, job related illness or injuries to employees and acts ofGod. 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 is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2005 2006 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0 $ 0 $ 0 $ 0 $ 0 $ 7 800 $ 7 800 $ 0 - 21 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 8: RISK MANAGEMENT The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Other Employees $ 50,000 $ 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 Rate Amount General Government - Series 2006 3.59% $ 9,900.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2005 $ 2,330,580 $ 2,485,000 $ 4,815,580 Additions G. 0. Bonds 9,900,000 9,900,000 Deductions Debt Retired 532,471 2,485,000 3,017,471 Balance June 30, 2006 $ 1,798.109 $ 9,900.000 $ 11,698.109 Portion of Long-Term Debt Due within One Year $ 475,522 $ 3,150,000 $ 3,625,522 - 22 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 9: LONG-TERM DEBT At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 CaQital Leases PrinciQal Interest 2007 2008 2009 2010 2011 $ 475,522 $ 434,773 336,452 344,696 206,666 60,236 42,717 28,558 15,385 2,688 Total Principal and Interest $ 1,798.109 $ 149.584 Fiscal Year Ended June 30 General Obligation Debt PrinciQal Interest 2007 2008 2009 2010 2011 $ 3,150,000 $ 1,595,000 1,655,000 1,720,000 1,780,000 343,563 242,325 185,065 125,650 63,902 Total Principal and Interest $ 9,900.000 $ 960.505 Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $881,161 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 $874,557 - 23 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 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 $6,604 Note 11: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 12: SUBSEQUENT EVENTS In the subsequent fiscal year, voters authorized the School District to issue general obligation qualified zone academy bonds in the amount of$2,000,000. The proceeds from these bonds will be used for financing the cost of certain capital outlay projects for educational purposes in the School District. Note 13: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. 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: - 24 - POLK SCHOOL DISTRICT BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 13: RETIREMENT PLANS Fiscal Year 2006 2005 2004 Percentage Contributed 100% 100% 100% Required Contribution $ 3,094,335 $ 2,904,749 $ 2,868,893 - 25 - (This page left intentionally blank) POLK SCHOOL DISTRICT BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2006 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations 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 NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 11,825,636 $ 11,825,636 $ 12,893,989 25,000 25,000 67,812 34,690,122 33,574,720 35,494,097 3,694,190 2,823,976 6,438,685 705,194 2,246,165 40,000 69,048 210,025 249 300 249 798 1 038 071 $ 50 524 248 $ 49 273 372 $ 58 388 844 $ 36,053,642 $ 34,137,831 $ 40,682,784 1,185,736 943,685 970,572 680,736 2,969,656 607,737 4,493,702 1,519,446 21,280 115,373 1,015,734 854,807 983,362 491,142 2,970,244 607,737 4,472,787 1,443,182 21,280 136,847 2,746,519 1,329,683 856,939 1,045,468 729,102 3,057,691 596,765 3,685,462 2,337,390 37,205 90,338 46,333 2,741,471 616 347 $ 49 561 565 $ 49 881 472 $ 57 852 978 $ 962,683 $ -608, 100 $ 535,866 -385 000 -385 000 $ 577,683 $ -993, 100 $ 535,866 3 202 604 3 673 177 4 013 276 Fund Balances - Ending $ 3 780 287 $ 2 680 077 $ ===4=5=4=9==14=2= Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 27 - POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U.S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U.S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Comprehensive School Reform Demonstration English Language Acquisition Grants Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality State Grants Migrant Education 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 Total Federal Financial Assistance NIA = Not Available CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 N/A N/A $ $ (2) 2,350,789 2,350,789 10.550 N/A $ 211,322 2,562,111 84.027 84.173 NIA $ NIA $ 1,439,708 67 958 1,507,666 84.332 84.365 84.318 84.938 * 84.367 84.011 84.186 84.298 84.010 84.048 NIA NIA NIA NIA NIA NIA NIA NIA NIA NIA $ 52,100 64,298 167,762 (3) 378,775 20,025 58,727 24,987 2,005,379 85 011 4 364 730 $ ===6,.;;,92;;,;6;,,.,8=4~1 - 28 - POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of non monetary 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 ($479,906) were not maintained separately and are included in the 2006 National School Lunch Program. (3) Funds earned on the Hurricane Education Recovery program, in the amount of $35,146, do not require reporting of expenditures. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the 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 fund financial statements. See notes to the basic financial statements. - 29- POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program $ 775,973 $ 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 High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Health Insurance Limited School Choice Program National Teacher Certification Preschool Handicapped Program Virtual Schools 2,031,324 391,529 4,949,141 584,574 2,182,444 290,721 4,006,341 2,210,063 2,128,496 187,294 261,382 3,602,029 858,513 412,443 317,278 72,406 303,768 400,223 660,599 207,134 137,657 921,756 1,396,117 1,727,412 823,377 154,387 20,000 136,482 24,766 3,574,662 178,862 86,424 -1,643,580 874,557 120,863 30,259 89,367 450 TOTAL 775,973 2,031,324 391,529 4,949,141 584,574 2,182,444 290,721 4,006,341 2,210,063 2,128,496 187,294 261,382 3,602,029 858,513 412,443 317,278 72,406 303,768 400,223 660,599 207,134 137,657 921,756 1,396,117 1,727,412 823,377 154,387 20,000 136,482 24,766 3,574,662 178,862 86,424 -1,643,580 874,557 120,863 30,259 89,367 450 - 30 - POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING GRANTS Georgia State Financing and Investment Commission Reimbursement on Construction Projects Office of Treasury and Fiscal Services Public School Employees Retirement GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 397,451 $ $ _ _ _-=.6=6-=-04-'- 397,451 6 604 $ 35,494,097 $ 397,451 $ ====35=,8=9=1=5'=48= See notes to the basic financial statements. - 31 - POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 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. Acquiring, constructing and equipping new school buildings and other buildings and facilities useful or desirable in connection therewith, including, but not limited to, one new middle school and one new elementary school; adding to, renovating, repairing, improving and equipping existing school buildings and other buildings and facilities useful or desirable therewith, including, but not limited to, additional classrooms and traffic improvements; and acquiring any property necessary or desirable therefor, both real and personal. ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) $ 7,940,475 $ 9,728,217 $ 1,717,504 $ 8,010,713 36,700,000 34,422,000 519 911 PROJECT STATUS Ongoing Ongoing $ 44,640,475 $ 44,150,217 $ 2,237,415 $ 8,010,713 (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 Polk County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. See notes to the basic financial statements. - 32 - POLK SCHOOL DISTRICT BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2006 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 2,316,702 $ 424,637 5,551,992 647,359 2,459,079 342,085 4,571,502 2,615,347 2,296,759 5,870,779 353,010 84,754 345,314 464 485 1,800,112 $ 324,223 4,829,480 1,014,711 2,565,256 421,048 4,725,252 4,436,425 1,202,280 49,952 65,833 4,623,483 127,449 252,911 569,527 112,625 682,500 541 806 15,976 $ 1,023 110,450 2,093 38,432 2,126 129,913 209,825 97,773 133 44,427 2,234 3,606 319 10,270 2 722 1,816,088 325,246 4,939,930 1,016,804 2,603,688 423,174 4,855,165 4,646,250 1,300,053 49,952 65,966 4,667,910 129,683 252,911 573,133 112,944 692,770 544 528 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 28,343,804 $ 28,344,873 $ 671,322 $ 29,016,195 Media Center Program Staff and Professional Development 745,588 155 954 935,305 32 542 76,639 112 512 1,011,944 145 054 TOTAL QBE FORMULA FUNDS $ 29 245 346 $ 29,312,720 $ 860 473 $ ====3=0,=17=3=,1=9=3 (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. - 33- SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 January 26, 2007 Honorable Sonny Perdue, Governor Members 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 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 Polk School District Board of Education as of and for the year ended June 30, 2006, which collectively comprise Polk School District Board of Education's basic financial statements and have issued our report thereon dated January 26, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Polk School District Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose ofexpressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. The reportable condition involved matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect Polk School District Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule ofFindings and Questioned Costs as item FS-7151-06-01. 2006YB-30 A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether Polk School District Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the Polk School District Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~ ell W. Hinton, CPA, CGFM State Auditor RWH:as 2006YB-30 Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 January 26, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members 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 U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Polk School District 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 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 of compliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Polk School District Board ofEducation'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 Polk School District Board of Education's compliance with those requirements. 2006SA-40 In our opinion, the Polk School District Board of Education 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, 2006. The results of our auditing procedures disclosed a nonmaterial instance of noncompliance with those requirements which is described in the accompanying Schedule of Findings and Questioned Costs as item FA-7151-06-02. 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 our judgment, 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-7151-06-01. A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. This report is intended solely for the information and use of the management, members of the Polk School District Board of Education, 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, ~iu.4~ Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2006SA-40 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, 2006 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7151-04-01 FS-7151-04-03 FS-7151-05-01 Further Action Not Warranted Unresolved - See Corrective Action/Reponses Unresolved - See Corrective Action/Reponses CORRECTIVE ACTION/RESPONSES EMPLOYEE COMPENSATION EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-7151-04-03 The information shown in the finding was given to the Department of Community Health at their request for them to make a determination about a year ago. Also, the last communication we had with Live Oak was legal action to challenge this finding. REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Control Procedures Finding Control Number: FS-7151-05-01 The findings regarding the revenues expenses and beginning net assets will be addressed with better adherence to manuals and procedures already in place. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-7151-03-01 FA-7151-05-01 FA-7151-05-02 Unresolved - See Corrective Action/Reponses Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Reponses - 1- POLK SCHOOL DISTRICT BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES SPECIAL TESTS AND PROVISIONS Fiscal Requirements of Schoolwide Program not Fully Implemented U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-7151-03-01 We complied with Department of Education guidelines for fiscal year 2006, but have decided to account for these programs in a fund by fund basis in the future. REPORTING Accounting/Internal Control Deficiencies U.S. Department of Agriculture Through Georgia Department of Education Finding Control Number: FA-7151-05-02 We have begun to use a reconciliation form daily which more accurately captures instances when students are present or absent and their participation daily in the meal program. Longer term plans include an automated point of sale system. Communications of this finding with building principal will ensure that faculty and staff consistently inform the cafeteria staff of their intention to participate in the breakfast or lunch service. Daily ending physical inventory counts will be reconciled to the daily usage reports and receipt invoices by ensuring that every student breakfast is served to include milk. -2- SECTION IV FINDINGS AND QUESTIONED COSTS POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Polk School District Board ofEducation's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Polk School District Board of Education disclosed a financial statement reportable condition related to the following control categories. Expenditures/Liabilities/Disbursements Revenues/Receivables/Receipts The reportable condition described above is not considered to be a material weakness. 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. Reporting 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 .5 lO(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) of 0MB Circular A-133. This audit finding is included in section IV of this report. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.367 Improving Teacher Quality State Grants - 1- POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 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 REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7151-06-01 Condition: This is a repeat finding (FS-7151-05-01 and FS-7151-04-01) from the years ended June 30, 2005 and 2004, respectively. The accounting procedures of the School District were insufficient to provide for adequate internal controls over the school activity accounts. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures. Questioned Cost: NIA Information: Revenues/Receivables/Receipts Based on a review of fifty items, the following deficiencies were noted: 1) Eight receipts were not deposited in a timely manner, and 2) Thirty-two receipts were not supported by adequate documentation. Expenditures/Liabilities/Disbursements Based on a review of fifty items, the following deficiencies were noted: 1) Ten vouchers did not include adequate documentation for receipt of goods, 2) Nineteen vouchers did not include an approved requisition dated before the invoice date, and 3) Two vouchers did not include an invoice. -2- POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: PS-7151-06-01 Cause: These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the school level. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: Management should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS REPORTING Accounting/Internal Control Deficiencies Reportable Condition U.S. Department of Agriculture Through Georgia Department of Education School Breakfast Program (CFDA 10.553) National School Lunch Program (CFDA 10.555) Finding Control Number: FA-7151-06-01 Condition: This is a repeat finding (FA-7151-05-02) from year ended June 30, 2005. A review ofthe School District's policies and procedures noted deficiencies in providing for an adequate internal control environment for the Child Nutrition Cluster (CFDA 10.553 and 10.555). Criteria: Chapter 7 of the Code ofFederal Regulations, sections 210.7(c), 210.8(c) and 225.9(d) state, "at a minimum, a claim must include the number of reimbursable meals/milk served by category and type during the period (generally a month) covered by the claim. All meals claimed for reimbursement must (a) be oftypes authorized by the SFA's, institution's, or sponsor's administering agency; (b) be served to eligible children; and (c) be supported by accurate meal counts and records indicating the number of meals served by category and type." Questioned Cost: NIA -3 - POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS REPORTING Accounting/Internal Control Deficiencies Reportable Condition U.S. Department of Agriculture Through Georgia Department of Education School Breakfast Program (CFDA 10.553) National School Lunch Program (CFDA 10.555) Finding Control Number: FA-7151-06-01 Information: Testing ofthe reporting process at the School District revealed the following deficiencies: 1) Three schools claimed a participation rate offree and reduced-price meals that was greater than the average daily participation rate of 95.14% in April 2006. 2) 162 errors were noted when comparing the breakfast and lunch participation records to the student attendance roster for February 2006. In most cases, the errors occurred when the school counted a student participating in the meal service and the student was counted absent on the attendance roster. In a few instances, the school counted a student absent at the meal service, when the student was present on the attendance roster. 3) 130 errors were noted when comparing the breakfast and lunch participation records to the student attendance roster for the week ofApril 24-28, 2006. In most cases, the errors occurred when the school counted a student participating in the breakfast meal service who was counted as absent on the school attendance roster. 4) The daily cash receipts could not be reconciled to the meal service reports because there was no reconciliation between the number of meals served and the amount collected for prepayments of meals and the number of meals charged each day. 5) There was no reconciliation ofthe ending physical inventory counts to the daily usage reports and receipt invoices. 6) The School District's approved salary scale for Lunchroom Managers indicates that the Managers are paid additional monies according to the number of free and reduced-price applications on file and the student participation rate. -4- POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS REPORTING Accounting/Internal Control Deficiencies Reportable Condition U.S. Department of Agriculture Through Georgia Department of Education School Breakfast Program (CFDA 10.553) National School Lunch Program (CFDA 10.555) Finding Control Number: FA-7151-06-01 Cause: Management failed to implement appropriate internal controls, including a point of sale computerized system. In addition, the School District has not adequately trained and supervised lunchroom personnel to ensure compliance with Federal guidelines. Effect: These deficiencies could result in inaccurate reporting ofbreakfast and lunch meal participation activity to the Georgia Department ofEducation. Because ofthe direct correlation ofeligible meals served to reimbursements from the Georgia Department of Education, the School District may have received Federal reimbursements for which it was not eligible. Recommendation: The School District should provide a sound environment for capturing data, as well as, training and supervising lunchroom personnel. The Georgia Department of Education should review these matters to determine if a reclaim of funds is appropriate. SPECIAL TESTS AND PROVISIONS Fiscal Requirements of Schoolwide Program Not Fully Implemented Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Education Agencies (CFDA 84.010) Improving Teacher Quality State Grants (CFDA 84.367) Finding Control Number: FA-7151-06-02 Condition: The School District did not fully implement the fiscal requirements of its schoolwide programs. Criteria: In accordance with provisions ofU. S. Department ofEducation Instructions and 0MB Circular A-133, Compliance Supplement provisions, eligible schools are able to use their Title I, Part A funds, in combination with other Federal, State and local funds, in order to upgrade the entire education program of the school and to raise academic achievements for all students. By combining funds from Title I and other eligible U. S. Department of -5- POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of Schoolwide Program Not Fully Implemented Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Education Agencies (CFDA 84.010) Improving Teacher Quality State Grants (CFDA 84.367) Finding Control Number: FA-7151-06-02 Education funded programs in support of a schoolwide program, U. S. Department of Education Instructions provide that specific schoolwide program costs lose their identity but only in those circumstances when funds are combined in a schoolwide program. In line with 0MB Circular A-87 requirements, schoolwide expenditures should be charged to those Federal funding sources supporting the schoolwide program in a reasonable manner. When more than one Federal program supports a schoolwide program, schoolwide program expenditures may be allocated to specific Federal programs based on the participation of each program in support of the schoolwide 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, and maintained for audit. In July 2004, Georgia Department ofEducation issued accounting guidelines to the School Districts illustrating a method to properly consolidate funds from the different Federal programs and allocate schoolwide costs to the participating Federal programs in line with Federal requirements. Questioned Cost: NIA Information: The School District identified six schools that participated in a schoolwide program. As prescribed by Federal and State guidelines, the School District established a consolidated schoolwide account for each ofthese schools. Our analysis ofthe schoolwide accounts disclosed that while Title I and all other eligible Federal program funds should be consolidated in each account, the School District only combined funds from Title I and one other Federal program. We noted that each account only included the school's allocation of Title I Grant funds with an amount oflmproving Teacher Quality State Grant (ITQSG) program funds. The amount the ITQSG funds included in each schoolwide account was small relative to the total amount of ITQSG funds -6- POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of Schoolwide Program Not Fully Implemented Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Education Agencies (CFDA 84.010) Improving Teacher Quality State Grants (CFDA 84.367) Finding Control Number: FA-7151-06-02 the School District actually expended in support ofeach ofthese schoolwide schools. Our review further disclosed that even though there were other U. S. Department of Education program funds available and expended in support of each of the schoolwide programs, the District did not consider these other Federal program funds for consolidation. Those schoolwide program expenditures charged to each school's consolidated schoolwide account were subsequently allocated to the Title I and ITQSG program accounts through an appropriate cost allocation plan. However, those schoolwide program expenditures that were not charged to a schoolwide consolidated account were arbitrarily charged to a Federal program. Cause: School District personnel were not fully aware of the requirements of a Schoolwide program and believed that schoolwide program expenditures lose their identity and therefore can be charged to Title I or any other Federally funded programs. Effect: Failure to appropriately consolidate Federal funds in schoolwide accounts and charge schoolwide program costs to Federal programs can result in noncompliance with Federal and State schoolwide program requirements. Recommendation: The School District should implement procedures to consolidate Federal funds and allocate such schoolwide program costs to the respective Federal funds as prescribed by U. S. Department of Education and Georgia Department of Education guidelines. As needed, the School District should seek additional guidance from the Georgia Department of Education in the development and implementation of such schoolwide program procedures. -7- SECTIONV MANAGEMENT'S RESPONSES POLK SCHOOL DISTRICT BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-7151-06-01 We concur with this finding. The findings mentioned will be addressed with better adherence to manuals and procedures already in place. Contact Person: Alan Melson, Business Manager Phone: (770) 748-3831 Fax Number: (770) 748-5131 E-mail Address: amelson@J>olk.kl2.ga.us Finding Control Number: FA-7151-06-01 1) We do not concur with this finding. Two schools claimed a participation rate of92.27% or less. Edit checks will be performed daily to assure the total number of student meals do not exceed the state attendance factor when applied to daily attendance. If so, an explanation will be documented under the edit column on the DE 0118. 2) We concur with this finding. We have a school level discrepancy wherein a child will be included on a roster the day he or she enters and eats at school. Office personnel will quite often not enter that child into our attendance program until days later. Naturally, a child will be present at school and absent at the meal service. Upon recent review by the Food Systems Unit, three schools have been required to recount meal rosters for a specified period of time to determine if a reclaim is necessary. 3) Same as above. 4) We concur with this finding. The attached forms are being used daily to reconcile cash receipts to the meal service reports. 5) We concur with this finding. We do not use the perpetual inventory method for foods used. 6) We concur with this finding. These supplements will be discontinued effective with the 2007- 08 school year. Contact Person: Dean Timmons, SNP Director Phone: (770) 748-3821 Fax Number: (770) 748-5131 E-mail Address: dean@J>olk.k12.ga.us Finding Control Number: FA-7151-06-02 We somewhat agree with this finding although we accounted for these funds as directed by the Georgia Department of Education. In the future these funds will be accounted for separately. Contact Person: Alan Melson, Business Manager Phone: (770) 748-3831 Fax Number: (770) 748-5131 E-mail Address: amelson@polk.kl2.ga.us