STEPHENS COUNTY BOARD OF EDUCATION TOCCOA, GEORGIA ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2016 (Including Independent Auditor's Reports) STEPHENS COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - Page SECTION I FINANCIAL INDEPENDENT AUDITOR'S REPORT EXHIBITS BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET POSITION 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 POSITION 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 POSITION FIDUCIARY FUNDS 8 H NOTES TO THE BASIC FINANCIAL STATEMENTS 10 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY TEACHERS RETIREMENT SYSTEM OF GEORGIA 35 2 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA 36 3 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM OF GEORGIA 37 4 SCHEDULE OF CONTRIBUTIONS TEACHERS RETIREMENT SYSTEM OF GEORGIA 38 5 SCHEDULE OF CONTRIBUTIONS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA 39 6 NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION 40 7 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 41 (This page left intentionally blank) STEPHENS COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 8 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 9 SCHEDULE OF STATE REVENUE 10 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS Page 42 43 45 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS INDEPENDENT AUDITOR'S 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 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE 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 V MANAGEMENT'S CORRECTIVE ACTION FOR CURRENT YEAR FINDINGS SCHEDULE OF MANAGEMENT'S CORRECTIVE ACTION (This page left intentionally blank) SECTION I FINANCIAL (This page left intentionally blank) Greg S. Griffin STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 January 11, 2018 Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Stephens County Board of Education INDEPENDENT AUDITOR'S REPORT Ladies and Gentlemen: Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Stephens County Board of Education (School District), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the School District's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility 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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the (This page left intentionally blank) effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the School District, as of June 30, 2016, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As described in Note 2 to the financial statements, in 2016, the School District adopted new accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application, GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets that are not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and 68, and GASB Statement No. 79, Certain External Investment Pools and Pool Participants. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information Management has omitted the Management's Discussion and Analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinions on the basic financial statements are not affected by this missing information. Accounting principles generally accepted in the United States of America require that the Schedules of Proportionate Share of the Net Pension Liability, Schedules of Contributions to Retirement Systems, Notes to the Required Supplementary Information and the Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual as presented on pages 35 through 41 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. (This page left intentionally blank) Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the School District's basic financial statements. The accompanying supplementary information, consisting of Schedules 8 through 10, is presented for the purposes of additional analysis and is not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by Title 2 U. S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 11, 2018, on our consideration of the School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the School District's internal control over financial reporting and compliance. 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, Greg S. Griffin State Auditor (This page left intentionally blank) STEPHENS COUNTY BOARD OF EDUCATION (This page left intentionally blank) (This page left intentionally blank) STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" NOTE 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY The Stephens County Board of Education (School District) was established under the laws of the State of Georgia and operates under the guidance of a board elected by the voters and a Superintendent appointed by the Board. The School District 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. BLENDED COMPONENT UNIT The Stephens County School Building Authority was created by House Bill 837 during the 2005 session of the Georgia General Assembly. The purpose of the Authority is to provide, acquire, construct, equip, maintain, and operate public service facilities, to acquire the necessary property therefore, both real and personal, and to lease or sell any or all of such facilities, including real and personal property for the benefit of the Stephens County School District. The Authority consists of five members appointed by the governing authority of the Stephens County Board of Education. The Stephens County School Building Authority is a component unit of the Stephens County Board of Education and as such the Authority's financial activity has been blended with the debt service fund, capital projects fund, long-term debt, and general fixed assets. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the School District have been prepared in conformity with generally accepted accounting principles (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB). GASB is the accepted standard-setting body for governmental accounting and financial reporting principles. The most significant of the School District's accounting policies are described below. BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the government-wide financial statements, fund financial statements and notes to the basic financial statements. The government-wide statements focus on the School District as a whole, while the fund financial statements focus on major funds. Each presentation provides valuable information that can be analyzed and compared between years and between governments to enhance the information's usefulness. GOVERNMENT-WIDE STATEMENTS: The Statement of Net Position and the Statement of Activities display information about the financial activities of the overall School District and its component unit, 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 Net Position presents the School District's non-fiduciary assets and liabilities, with the difference reported as net position. Net position is reported in three categories as follows: 1. Net investment in capital assets consists of the School District's total investment in capital assets, net of accumulated depreciation, and reduced by outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of net investment in capital assets. - 10 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" 2. Restricted net position consists of resources for which the School District is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties or imposed by law through constitutional provisions or enabling legislation. 3. Unrestricted net position consists of resources not meeting the definition of the two preceding categories. Unrestricted net positon often has constraints on resources imposed by management which can be removed or modified. 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 of the 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 of internal activities. Separate financial statements are presented for governmental and fiduciary funds. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District had no funds reported as nonmajor funds. The School District reports the following major governmental funds: The general fund is the School District's primary operating fund. It accounts for and reports all financial resources not accounted for and reported in another fund. The capital projects fund accounts for and reports financial resources including Education Special Purpose Local Option Sales Tax (ESPLOST) that are restricted, committed or assigned for capital outlay expenditures, including the acquisition or construction of capital facilities and other capital assets. The debt service fund accounts for and reports financial resources that are restricted, committed, or assigned including taxes (sales) legally restricted for the payment of general long-term principal and interest. The School District reports the following fiduciary fund type: Agency funds are used to report resources held by the School District in a purely custodial capacity (assets equal liabilities) and do not involve measurement of results of operations. BASIS OF ACCOUNTING The basis of accounting determines when transactions are reported on the financial statements. The government-wide and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes and grants. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes - 11 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. The School District considers all intergovernmental revenues to be available if they are collected within 120 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 longterm debt and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted resources 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. NEW ACCOUNTING PRONOUNCEMENTS In fiscal year 2016, the School District adopted Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application. This statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This statement provides guidance for determining a fair value measurement for financial reporting purposes. This statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The School District did not have any items that required a reassessment of value for reporting purposes as a result of the adoption of this statement. In fiscal year 2016, the School District adopted Governmental Accounting Standards Board (GASB) Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets that are not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and 68. This statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for the assets accumulated for purposes of providing those pensions. In addition, it establishes requirements for defined contribution pensions that are not within the scope of Statement No. 68. It also amends certain provisions of Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68 for pension plans and pensions that are within their respective scopes. The adoption of Statement No. 73 does not have a significant impact on the School District's financial statements. In fiscal year 2016, the School District adopted Governmental Accounting Standards Board (GASB) Statement No. 79, Certain External Investment Pools and Pool Participants. This statement addresses accounting and financial reporting for certain external investment pools and pool participants. If an external investment pool meets the criteria in this statement and measures all of its investments at amortized cost, the pool's participants also should measure their investments in that external investment pool at amortized cost for financial reporting purposes. The School District participates in - 12 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" an external investment pool, the State of Georgia local government investment pool (Georgia Fund 1), which does not meet the criteria of this statement. Therefore, the investment in this pool is measured at fair value as provided in paragraph 11 of GASB Statement No. 31, as amended. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand, demand deposits, investments in the State of Georgia local government investment pool (Georgia Fund 1) and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated (O.C.G.A.) 45-8-14 authorizes the School District to deposit its funds in one or more solvent banks, insured Federal savings and loan associations or insured chartered building and loan associations. INVESTMENTS The School District can invest its funds as permitted by O.C.G.A. 36-83-4. 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. Investments made by the School District in nonparticipating interest-earning contracts (such as certificates of deposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase of one year or less are reported at amortized cost. All other investments are reported at fair value. For accounting purposes, certificates of deposit are classified as investments if they have an original maturity greater than three months when acquired. 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. INVENTORIES Food Inventories On the basic financial statements, inventories of donated food commodities used in the preparation of meals are reported at their federally assigned value and purchased foods inventories are reported at cost (calculated on the first-in, first-out basis). 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. RESTRICTED ASSETS Certain resources set aside for repayment of debt are classified as restricted assets on the Statement of net position because their use is limited by applicable debt statutes, e.g. Qualified Zone Academy Bond and Qualified School Construction Bond sinking funds. CAPITAL ASSETS On the government-wide financial statements, capital assets are recorded 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 acquisition value on the date donated. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. The School District does not capitalize book collections or works of art. - 13 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" Capital acquisition and construction are recorded as expenditures in the governmental fund financial statements at the time of purchase (including ancillary charges), and the related assets are reported as capital assets in the governmental activities column in the government-wide financial statements. Depreciation is computed using the straight-line for all assets, except land, and is used to allocate the actual or estimated historical cost of capital assets over estimated useful lives. Capitalization thresholds and estimated useful lives of capital assets reported in the government-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements $ Buildings and Improvements $ Equipment $ Intangible Assets $ Any Amount 10,000.00 10,000.00 10,000.00 100,000.00 N/A 20 to 80 years 25 to 80 years 8 to 50 years 5 to 100 years DEFERRED OUTFLOWS/INFLOWS OF RESOURCES In addition to assets, the statement of financial position will report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of resources that applies to a future period(s) and therefore will not be recognized as an outflow of resources (expense/expenditure) until then. In addition to liabilities, the statement of financial position will report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of resources that applies to a future period(s) and therefore will not be recognized as an inflow of resources (revenue) until that time. COMPENSATED ABSENCES During fiscal year 2016, vacation leave of 15 days was awarded on a fiscal year basis to all full time personnel employed on a twelve-month basis. No other employees were eligible to earn vacation leave. Effective June 30, 2016, the Board changed its policy regarding compensated absences. Employees will no longer accrue unused vacation leave at fiscal year-end. No payments will be made subsequent to June 30, 2016, for unused vacation leave. Members of the Teachers Retirement System of Georgia (TRS) may apply unused sick leave toward early retirement. The liability for early retirement will be borne by TRS rather than by the individual School Districts. Otherwise, sick leave does not vest with the employee, and no liability is reported in the School District's financial statements. LONG-TERM LIABILITIES AND BOND DISCOUNTS/PREMIUMS In the School District's government-wide financial statements, outstanding debt is reported as liabilities. Bond premiums and discounts and the difference between the reacquisition price and the net carrying value of refunded debt are deferred and amortized over the life of the bonds using the straight-line method. To conform to generally accepted accounting principles, bond premiums and discounts should be amortized using the effective interest method. The effect of this deviation is deemed to be immaterial to the fair presentation of the basic financial statements. Bond issuance costs are recognized as an outflow of resources in the fiscal year in which the bonds are issued. In the governmental fund financial statements, the School District recognizes the proceeds of debt and premiums as other financing sources of the current period. Bond issuance costs are reported as debt service expenditures. - 14 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" PENSIONS For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the pension plan's fiduciary net position and additions to/deductions from the plan's fiduciary net position have been determined on the same basis as they are reported by the plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. FUND BALANCES Fund balance for governmental funds is reported in classifications that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The School District's fund balances are classified as follows: Nonspendable consists of resources that cannot be spent either because they are in a nonspendable form or because they are legally or contractually required to be maintained intact. Restricted consists of resources that can be used only for specific purposes pursuant constraints either (1) externally imposed by creditors, grantors, contributors, or laws and regulations of other governments or (2) imposed by law through constitutional provisions or enabling legislation. Committed consists of resources that can be used only for specific purposes pursuant to constraints imposed by formal action of the Board. The Board is the School District's highest level of decisionmaking authority, and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the Board. Committed fund balance also should incorporate contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements. Assigned consists of resources constrained by the School District's intent to be used for specific purposes, but are neither restricted nor committed. The intent should be expressed by (1) the Board or (2) the budget or finance committee, or the Superintendent, or designee, to assign amounts to be used for specific purposes. Unassigned consists of resources within the general fund not meeting the definition of any aforementioned category. The general fund should be the only fund that reports a positive unassigned fund balance amount. In other governmental funds, it may be necessary to report a negative unassigned fund balance. USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. PROPERTY TAXES The Stephens County Board of Commissioners adopted the property tax levy for the 2015 tax digest year (calendar year) on September 15, 2015 (levy date) based on property values as of January 1, 2015. Taxes were due on November 15, 2015 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2015 tax digest are reported as revenue in the governmental funds for fiscal year 2016. The Stephens County Board of 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, 2016, for maintenance and operations amounted to $12,226,772.45. - 15 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" The tax millage rate levied for the 2015 tax year (calendar year) for the School District was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 18.30 mills Additionally, Title Ad Valorem Tax revenues, at the fund reporting level, which is included in the property tax revenues as shown above amounted to $156,366.27 during fiscal year ended June 30, 2016. SALES TAXES Education Special Purpose Local Option Sales Tax (ESPLOST), at the fund reporting level, during the year amounted to $3,333,363.54 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. The most recent authorization expires on December 31, 2017. NOTE 3: BUDGETARY DATA The budget is a complete financial plan for the School District's fiscal year, and is based upon careful estimates of expenditures together with probable funding sources. The budget is legally adopted each year for the general, debt service, and capital projects funds. There is no statutory prohibition regarding over expenditure of the budget at any level. The budget for all governmental funds, except the various school activity (principal) accounts, is prepared and adopted by fund and function. The legal level of budgetary control was established by the Board at the aggregate fund level. The budget for the general fund was prepared in accordance with accounting principles generally accepted in the United States of America. The budgetary process begins with the School District's administration presenting an initial budget for the Board's review. The administration makes revisions as necessary based on the Board's guidelines, and a tentative budget is approved. After approval of this tentative budget by the Board, such budget is advertised at least once in a newspaper of general circulation in the locality, as well as the School District's website. At the next regularly scheduled meeting of the Board after advertisement, the Board receives comments on the tentative budget, makes revisions as necessary and adopts a final budget. The approved budget is then submitted, in accordance with provisions of O.C.G.A. 20-2-167(c), to the Georgia Department of Education. The Board may increase or decrease the budget at any time during the year. All unexpended budget authority lapses at fiscal year-end. The Superintendent is authorized by the Board to approve adjustments of no more than 5 percent of the amount budgeted for expenditures in any budget function for any fund. The Superintendent shall report any such adjustments to the Board. If expenditure of funds in any budget function for any fund is anticipated to be more than 5 percent of the budgeted amount, the Superintendent shall request Board approval for the budget amendment. Any position or expenditure not previously approved in the annual budget that exceeds $10,000.00 shall require Board approval unless the Superintendent deems the position or purchase an emergency. In such case, the expenditure shall be reported to the Board at its regularly scheduled meeting. Under no circumstance is the Superintendent or other staff person authorized to spend funds that exceed the total budget without approval by the Board. See the General Fund Schedule of Revenues, Expenditures and Changes in Fund Balances Budget to Actual in the Supplementary Information Section for a detail of any over/under expenditures during fiscal year 2016. - 16 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" NOTE 4: DEPOSITS, CASH EQUIVALENTS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS O.C.G.A. 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% of the public funds being secured after the deduction of the amount of deposit insurance. If a depository elects the pooled method (O.C.G.A. 45-8-13.1) the aggregate of the market value of the securities pledged to secure a pool of public funds shall be not less than 110% of the 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 (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 or securities guaranteed 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 Custodial credit risk is the risk that in the event of a bank failure, the School District's deposits may not be returned to it. The School District does not have a deposit policy for custodial credit risk. At June 30, 2016, the School District had deposits with a carrying amount of $11,820,346.12 and a bank balance of $12,791,094.66. The bank balances insured by Federal depository insurance were $788,199.80 and the bank balances collateralized with securities held by the pledging financial institution or by the pledging financial institution's trust department or agent in the School District's name were $149,083.05. At June 30, 2016, $11,853,811.81 of the School District's bank balance was exposed to custodial credit risk as follows: Uninsured and Uncollateralized Uninsured with collateral held by the pledging financial institution Uninsured with collateral held by the pledging financial institution's trust department or agent but not in the School District's name $ - - 11,853,811.81 Total $ 11,853,811.81 - 17 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" Reconciliation of cash and cash equivalents balances to carrying value of deposits: Statement of Net Position Cash and cash equivalents Statement of Fiduciary Net Position Cash and cash equivalents Total cash and cash equivalents Add: Deposits with original maturity of three months or more reported as investments Less: Investment pools reported as cash and cash equivalents Georgia Fund 1 Total carrying value of deposits - June 30, 2016 $ 9,704,385.64 158,848.36 9,863,234.00 3,334,773.38 1,377,661.26 $ 11,820,346.12 CATEGORIZATION OF CASH EQUIVALENTS The School District reported cash equivalents of $1,377,661.26 in Georgia Fund 1, a local government investment pool. Georgia Fund 1 is not registered with the SEC as an investment company and does not operate in a manner consistent with the SEC's Rule 2a-7 of the Investment Company Act of 1940. The investment is valued at the pool's share price, $1.00 per share, which approximates fair value. The pool is an AAAf rated investment pool by Standard and Poor's. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2016, was 42 days. Georgia Fund 1, administered by the State of Georgia, Office of the State Treasurer, is not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy of the State of Georgia, Office of the State Treasurer for the Georgia Fund 1, does not provide for investment in derivatives or similar investments. Additional information on the Georgia Fund 1 is disclosed in the State of Georgia Comprehensive Annual Financial Report. This audit can be obtained from the Georgia Department of Audits and Accounts at www.audits.ga.gov/SGD/CAFR.html. CATEGORIZATION OF INVESTMENTS At June 30, 2016, the School District had the following investments: Investment Type Fair Value Investment Maturity 1 - 5 Years Debt Securities U. S. Treasuries $ 706,883.33 $ 706,883.33 - 18 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" Fair Value of Investments The School District measures and records its investments using fair value measurement guidelines established by generally accepted accounting principles. These guidelines recognize a three-tiered fair value hierarchy, as follows: Level 1: Quoted prices for identical investments in active markets; Level 2: Observable inputs other than quoted market prices; and, Level 3: Unobservable inputs. The School District has the following recurring fair value measurements as of June 30, 2016: U. S. Treasuries of $706,883.33 are valued using quoted market prices. (Level 1 inputs). 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. Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of the 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. At June 30, 2016, $706,883.33 of the School District's applicable investments were held by the investment's counterparty, not in the School District's name. NOTE 5: RESTRICTED ASSETS The restricted assets represent investment balances totaling $3,311,889.54 and $706,883.33, respectively for the QZAB Bond Sinking Fund and the QSCB Bond Sinking Fund. - 19 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" NOTE 6: CAPITAL ASSETS The following is a summary of changes in the capital assets for governmental activities during the fiscal year: Balances July 1, 2015 Increases Decreases Balances June 30, 2016 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 2,708,973.00 $ - - $ 682,702.00 - $ - 2,708,973.00 682,702.00 Total Capital Assets Not Being Depreciated 2,708,973.00 682,702.00 - 3,391,675.00 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 98,501,010.05 - 6,788,075.33 - 3,311,788.75 - 19,810,181.36 5,383,225.81 2,947,076.45 1,722,143.92 257,769.14 52,974.61 70,303.00 - 98,501,010.05 6,717,772.33 3,311,788.75 60,573.00 - 21,532,325.28 5,580,421.95 3,000,051.06 Total Capital Assets, Being Depreciated, Net 80,460,390.51 (2,032,887.67) 9,730.00 78,417,772.84 Governmental Activity Capital Assets - Net $ 83,169,363.51 $ (1,350,185.67) $ 9,730.00 $ 81,809,447.84 Current year depreciation expense by function is as follows: Instruction Support Services Pupil Services $ General Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Food Services 39,030.00 4,854.47 9,824.50 11,350.14 175,950.14 $ 1,786,459.46 241,009.25 5,418.96 $ 2,032,887.67 NOTE 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2016, consisted of the following: Transfers to Transfers From General Capital Fund Projects Fund Debt Service Fund $ 8,624.61 $ 3,073,739.28 Transfers were used to move property tax revenues collected by the general fund and sales tax revenues collected by the capital projects fund to the debt service fund to provide funding for retirement of debt. - 20 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" NOTE 8: LONG-TERM LIABILITIES The changes in long-term liabilities during the fiscal year for governmental activities, were as follows: Balance July 1, 2015 Additions Governmental Activities Deductions Balance June 30, 2016 Due Within One Year General Obligation Bonds $ Unamortized Bond Premiums Qualified Zone Academy Bonds Qualified School Construction Bonds Revenue Draw-down Bonds Compensated Absences 7,880,000.00 $ 144,074.73 4,000,000.00 1,690,000.00 62,611.29 $ 13,776,686.02 $ - $ 2,520,000.00 $ 5,360,000.00 $ 2,625,000.00 - 48,024.90 96,049.83 48,024.90 - - 4,000,000.00 - - - 1,690,000.00 - 51,500.00 - 51,500.00 - 42,554.61 105,165.90 - - 94,054.61 $ 2,673,190.80 $ 11,197,549.83 $ 2,673,024.90 GENERAL OBLIGATION DEBT OUTSTANDING The School District's bonded debt consists of general obligation bonds that are generally noncallable with interest payable semiannually. Bond proceeds primarily pay for acquiring or constructing capital facilities. The School District repays general obligation bonds from voter-approved sales taxes. General obligation bonds are direct obligations and pledge the full faith and credit of the School District. General obligation bonds currently outstanding are as follows: Description Interest Rates Issue Date Maturity Date Amount Issued Amount Outstanding General Government - Series 2008 4.00 - 5.00% 12/30/2008 4/1/2018 $ 9,295,000.00 $ 5,360,000.00 The following schedule details debt service requirements to maturity for the School District's total general obligation bonds payable: Fiscal Year Ended June 30: General Obligation Debt Principal Interest Unamortized Bond Premium 2017 $ 2018 Total Principal and Interest $ 2,625,000.00 $ 2,735,000.00 5,360,000.00 $ 217,135.00 $ 112,135.00 329,270.00 $ 48,024.90 48,024.93 96,049.83 QUALIFIED ZONE ACADEMY BONDS (QZAB) Section 226 of the Taxpayer Relief Act of 1997 (Public Law 105-34) provides for a source of capital at no or at nominal interest rates for costs incurred by School Districts in connection with the establishment of special academic programs, in partnership with the business community. The School District, in agreement with Stephens County School Building Authority, has entered into such an arrangement. This agreement establishes a method of repayment for qualified interest-free debt instrument. The amount on deposit at June 30, 2016 was $3,311,889.54. - 21 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" Debt currently outstanding under Qualified Zone Academy Bonds is as follows: Purpose Interest Rate Issue Date Maturity Date Amount Issued Amount Outstanding Series 2005 QZAB 0.00% 8/11/2005 8/11/2021 $ 4,000,000.00 $ 4,000,000.00 The following schedule reports the annual Qualified Zone Academy Bond payments: Fiscal Year Ended June 30: Principal 2022 - 2026 $ 4,000,000.00 QUALIFIED SCHOOL CONSTRUCTION BONDS (QSCB) Section 1521 of the American Recovery and Reinvestment Act (ARRA) of 2009 provides for a source of capital at no or at nominal interest rates for costs incurred by School Districts in connection with the construction, rehabilitation or repair of a public school facility or for the acquisition of land where a school will be built. Investors receive Federal income tax credits at prescribed tax credit rates in lieu of interest, which essentially allows School Districts to borrow without incurring interest costs. The School District, in agreement with Stephens County School Building Authority, has entered into such an arrangement. When the stated interest rate on the QSCB results in interest payments that exceed the supplemental interest payments discussed in the preceding paragraph, the School District may apply for a direct cash subsidy payment from the U.S. Treasury which is intended to reduce the stated interest rate to a nominal percentage. To qualify for this subsidy the School District is required to periodically file appropriate documents with the Internal Revenue Service. These subsidy payments do not include the amount of any supplemental interest paid on a QSCB. The interest subsidy received by the School District in fiscal year 2016 was $78,385.67 which funded all but $5,945.33 of interest expense due on the QSCB bonds. The amount invested at June 30, 2016 to retire these bonds was $706,883.33. Debt currently outstanding under Qualified School Construction Bonds is as follows: Description Interest Rate Issue Date Maturity Date Amount Issued Amount Outstanding Series 2010 QSCB 4.99% 12/15/2010 10/1/2020 $ 1,690,000.00 $ 1,690,000.00 The following is a schedule of total Qualified School Construction Bond payments: Fiscal Year Ended June 30: Principal Interest 2017 2018 2019 2020 2021 Total Principal and Interest $ - $ - - - 1,690,000.00 $ 1,690,000.00 $ 84,331.00 84,331.00 84,331.00 84,331.00 42,165.50 379,489.50 - 22 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" REVENUE DRAW-DOWN BONDS The School District entered into a contract on May 25, 2016 with the Stephens County School Building Authority, a component unit for the issuance of Revenue Draw-down Bonds for the purpose of capital improvements. Under the terms of the contract the Stephens County School Building Authority authorized $4,000,000.00 in Revenue Draw-down Bonds of which only $51,500.00 were drawn down as of June 30, 2016 on behalf of the School District. Draws pursuant to this bond are treated as part of a single bond issue. The obligation of the School District is absolute and unconditional so long as any of the bonds remain outstanding. Under the contract, the School District will exercise its power of taxation to the extent necessary to pay the amounts required to be paid by the contract. Debt currently outstanding under Revenue Draw-down Bonds is as follows: Description Interest Rate Issue Date Maturity Date Amount Authorized Amount Drawn Down Amount Outstanding Revenue Draw-down Bonds 2016 2.412% 5/25/2016 6/1/2023 $ 4,000,000.00 $ 51,500.00 $ 51,500.00 The following is a schedule of total Revenue Draw-down Bond payments: Fiscal Year Ended June 30: Principal Interest 2017 2018 2019 2020 2021 2022 - 2023 $ - $ 1,266.00 - 1,242.18 9,809.70 1,134.42 10,048.95 895.17 10,294.03 650.09 21,347.32 540.90 Total Principal and Interest $ 51,500.00 $ 5,728.76 NOTE 9: RISK MANAGEMENT INSURANCE Commercial Insurance The School District is exposed to various risks of loss related to torts; theft of, and damage to and destruction of assets; errors or omissions; job related illness or injuries to employees; and natural disasters. Except as described below, the School District carries commercial insurance for these risks. Settled claims resulting from these insured risks have not exceeded commercial insurance coverage in any of the past three fiscal years. The School District has elected to self-insure for losses related to natural disasters. The School District has not experienced any losses related to this risk in the past three years. WORKERS' COMPENSATION Georgia Education Workers' Compensation Trust The School District participates in the Georgia Education Workers' Compensation Trust (the Trust), a public entity risk pool organized on December 1, 1991, to develop, implement and administer a program of workers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Trust for its general workers' compensation insurance coverage. Specific excess of loss insurance coverage is provided through an agreement by the Trust with the Safety National Casualty Company to provide coverage for potential losses sustained by the Trust in excess of $1.0 million loss per occurrence, up to the statutory limit. Employers' Liability insurance coverage is also provided with limits of $2.0 million. The Trust covers the first $1.0 million of each - 23 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" Employers Liability claim with Safety National providing additional Employers Liability limits up to a $2.0 million per occurrence maximum. Safety National Casualty Company also provides $2.0 million in aggregate coverage to the Trust, attaching at 110% of the loss fund and based on the Fund's annual normal premium. UNEMPLOYMENT COMPENSATION 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 with the related liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability 2015 $ - $ - $ - $ - 2016 $ - $ 55,894.51 $ 55,894.51 $ - SURETY BOND The School District purchased a surety bond to provide additional insurance coverage as follows: Position Covered Amount Superintendent $ 100,000.00 NOTE 10: FUND BALANCE CLASSIFICATION DETAILS The School District's financial statements include the following amounts presented in the aggregate at June 30, 2016: Nonspendable Inventories Restricted Continuation of federal programs Capital projects Debt service Committed School activity accounts Unassigned $ 36,499.16 $ 1,507,170.86 1,002,643.37 4,018,772.87 6,528,587.10 417,839.50 6,286,252.05 Fund Balance, June 30, 2016 $ 13,269,177.81 When multiple categories of fund balance are available for expenditure, the School District will start with the most restricted category and spend those funds first before moving down to the next category with available funds. - 24 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" NOTE 11: SIGNIFICANT COMMITMENTS COMMITMENTS UNDER CONSTRUCTION CONTRACTS The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2016: Project Unearned Executed Payments through Contracts (1) June 30, 2016 (2) Stephens County High School Reroofing and Demolition $ 653,502.00 $ 682,702.00 (1) The amounts described are not reflected in the basic financial statements. (2) Payments include contracts and retainage payable at year-end. NOTE 12: SIGNIFICANT CONTINGENT LIABILITIES FEDERAL GRANTS 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. Any disallowances resulting from the grantor audit may become a liability of the School District. However, the School District believes that such disallowances, if any, will be immaterial to its overall financial position. NOTE 13: POST-EMPLOYMENT BENEFITS GEORGIA SCHOOL PERSONNEL POST-EMPLOYMENT HEALTH BENEFIT FUND Plan Description. The Georgia School Personnel Post-Employment Health Benefit Fund (School OPEB Fund) is a cost-sharing multiple-employer defined benefit post-employment healthcare plan that covers eligible former employees of public school systems, libraries and regional educational service agencies. The School OPEB Fund provides health insurance benefits to eligible former employees and their qualified beneficiaries through the State Employees Health Benefit Plan administered by the Department of Community Health. The Official Code of Georgia Annotated (O.C.G.A.) assigns the authority to establish and amend the benefit provisions of the group health plans, including benefits for retirees, to the Board of Community Health (Board). Additional information about the School OPEB Fund is disclosed in the State of Georgia Comprehensive Annual Financial Report. This report can be obtained from the Georgia Department of Audits and Accounts at www.audits.ga.gov/SGD/CAFR.html. Funding Policy. The contribution requirements of plan members and participating employers are established by the Board in accordance with the current Appropriations Act and may be amended by the Board. Contributions of plan members or beneficiaries receiving benefits vary based on plan election, dependent coverage, and Medicare eligibility and election. For members with fewer than five years of service as of January 1, 2012, contributions also vary based on years of service. On average, members with five years or more of service as of January 1, 2012 pay approximately 25% of the cost of the health insurance coverage. In accordance with the Board resolution dated December 8, 2011, for members with fewer than five years of service as of January 1, 2012, the State provides a premium subsidy in retirement that ranges from 0% for fewer than 10 years of service to 75% (but no greater than the subsidy percentage offered to active employees) for 30 or more years of service. The subsidy for eligible dependents ranges from 0% to 55% (but no greater than the subsidy percentage offered to dependents of active employees minus 20%). No subsidy is available to Medicare eligible members not enrolled in a Medicare Advantage Option. The Board of Community Health sets all member premiums by resolution and in accordance with the law and applicable revenue and expense projections. Any subsidy policy adopted by the Board may be changed at any time by Board resolution and does not constitute a contract or promise of any amount of subsidy. - 25 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" Participating employers are statutorily required to contribute in accordance with the employer contribution rates established by the Board. The contribution rates are established to fund all benefits due under the health insurance plans for both active and retired employees based on projected "payas-you-go" financing requirements. Contributions are not based on the actuarially calculated annual required contribution (ARC) which represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The combined active and retiree contribution rates established by the Board for employers participating in the School OPEB Fund were as follows for the fiscal year ended June 30, 2016: For certificated teachers, librarians and regional educational service agencies and certain other eligible participants: July 1, 2015 June 30, 2016 $945.00 per member per month For non-certificated school personnel: July 1, 2015 December 31, 2015 $596.20 per member per month July 1, 2015 June 30, 2016 $746.20 per member per month No additional contribution was required by the Board for fiscal year 2016 nor contributed to the School OPEB Fund to prefund retiree benefits. Such additional contribution amounts are determined annually by the Board in accordance with the School plan for other post-employment benefits and are subject to appropriation. The School District's combined active and retiree contributions to the health insurance plans, which equaled the required contribution, for the current fiscal year and the preceding two fiscal years were as follows: Fiscal Year Percentage Contributed Required Contribution 2016 2015 2014 100% 100% 100% $ 4,212,856.20 $ 4,484,572.20 $ 4,750,611.94 NOTE 14: RETIREMENT PLANS The School District participates in various retirement plans administered by the State of Georgia, as further explained below. TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) Plan Description: All teachers of the School District as defined in O.C.G.A 47-3-60 and certain other support personnel as defined by 47-3-63 are provided a pension through the Teachers Retirement System of Georgia (TRS). TRS, a cost-sharing multiple-employer defined benefit pension plan, is administered by the TRS Board of Trustees (TRS Board). Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. The Teachers Retirement System of Georgia issues a publicly available separate financial audit report that can be obtained at www.trsga.com/publications. Benefits Provided: TRS provides service retirement, disability retirement, and death benefits. Normal retirement benefits are determined as 2% of the average of the employee's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. An employee is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. Ten years of service is required for - 26 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" disability and death benefits eligibility. Disability benefits are based on the employee's creditable service and compensation up to the time of disability. Death benefits equal the amount that would be payable to the employee's beneficiary had the employee retired on the date of death. Death benefits are based on the employee's creditable service and compensation up to the date of death. Contributions: Per Title 47 of the O.C.G.A., contribution requirements of active employees and participating employers, as actuarially determined, are established and may be amended by the TRS Board. Pursuant to O.C.G.A. 47-3-63, the employer contributions for certain full-time public school support personnel are funded on behalf of the employer by the State of Georgia. Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employees were required to contribute 6% of their annual pay during fiscal year 2016. The School District's contractually required contribution rate for the year ended June 30, 2016 was 14.27% of annual School District payroll (excluding payroll attributable to those personnel funded on behalf of the School District by the state). For the current fiscal year, employer contributions to the TRS pension plan were $2,494,793.00 and $509.20 from the School District and the State, respectively. EMPLOYEES' RETIREMENT SYSTEM Plan description: The Employees' Retirement System of Georgia (ERS) is a cost-sharing multiple-employer defined benefit pension plan established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees. Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. ERS issues a publicly available financial report that can be obtained at www.ers.ga.gov/formspubs/formspubs. Benefits provided: The ERS Plan supports three benefit tiers: Old Plan, New Plan, and Georgia State Employees' Pension and Savings Plan (GSEPS). Employees under the old plan started membership prior to July 1, 1982 and are subject to plan provisions in effect prior to July 1, 1982. Members hired on or after July 1, 1982 but prior to January 1, 2009 are new plan members subject to modified plan provisions. Effective January 1, 2009, new state employees and rehired state employees who did not retain membership rights under the Old or New Plans are members of GSEPS. ERS members hired prior to January 1, 2009 also have the option to irrevocably change their membership to GSEPS. Under the old plan, the new plan, and GSEPS, a member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60 or 30 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60. Retirement benefits paid to members are based upon the monthly average of the member's highest 24 consecutive calendar months, multiplied by the number of years of creditable service, multiplied by the applicable benefit factor. Annually, postretirement cost-of-living adjustments may also be made to members' benefits provided the members were hired prior to July 1, 2009. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension, at reduced rates, to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS. Contributions: Member contributions under the old plan are 4% of annual compensation, up to $4,200.00, plus 6% of annual compensation in excess of $4,200.00. Under the old plan, the state pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these state contributions are included in the members' accounts for refund purposes and are used in the computation of the members' earnable compensation for the purpose of computing retirement benefits. Member contributions under the new plan and GSEPS are 1.25% of annual compensation. The School District's contractually required contribution rate, actuarially determined annually, for the year ended June 30, 2016 was 24.72% of annual covered payroll for old and new plan members - 27 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" and 21.69% for GSEPS members. Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employer contributions to the pension plan were $5,078.00 for the current fiscal year. PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM (PSERS) Plan description: PSERS is a cost-sharing multiple-employer defined benefit pension plan established by the Georgia General Assembly in 1969 for the purpose of providing retirement allowances for public school employees who are not eligible for membership in the Teachers Retirement System of Georgia. The ERS Board of Trustees, plus two additional trustees, administers PSERS. Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. PSERS issues a publicly available financial report that can be obtained at www.ers.ga.gov/formspubs/formspubs. Benefits provided: A member may retire and elect to receive normal monthly retirement benefits after completion of ten years of creditable service and attainment of age 65. A member may choose to receive reduced benefits after age 60 and upon completion of ten years of service. Upon retirement, the member will receive a monthly benefit of $14.75, multiplied by the number of years of creditable service. Death and disability benefits are also available through PSERS. Additionally, PSERS may make periodic cost-of-living adjustments to the monthly benefits. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contribution, the member forfeits all rights to retirement benefits. Contributions: The general assembly makes an annual appropriation to cover the employer contribution to PSERS on behalf of local school employees (bus drivers, cafeteria workers, and maintenance staff). The annual employer contribution required by statute is actuarially determined and paid directly to PSERS by the State Treasurer in accordance with O.C.G.A. 47-4-29(a) and 60(b). Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Individuals who became members prior to July 1, 2012 contribute $4 per month for nine months each fiscal year. Individuals who became members on or after July 1, 2012 contribute $10 per month for nine months each fiscal year. The State of Georgia, although not the employer of PSERS members, is required by statute to make employer contributions actuarially determined and approved and certified by the PSERS Board of Trustees. The current fiscal year contribution by the State of Georgia was $120,100.00. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2016, the School District reported a total liability of $27,976,070.00 for its proportionate share of the net pension liability, consisting of $27,940,620.00 for TRS and $35,450.00 for ERS. The TRS net pension liability reflected a reduction for support provided to the School District by the State of Georgia for certain public school support personnel. The amount recognized by the School District as its proportionate share of the net pension liability, the related State of Georgia support, and the total portion of the net pension liability that was associated with the School District were as follows: School District's proportionate share of the TRS net pension liability $ 27,940,620.00 State of Georgia's proportionate share of the TRS net pension liability associated with the School District 59,374.00 Total $ 27,999,994.00 - 28 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" The net pension liability for TRS and ERS was measured as of June 30, 2015. The total pension liability used to calculate the net pension liability was based on an actuarial valuation as of June 30, 2014. An expected total pension liability as of June 30, 2015 was determined using standard roll-forward techniques. The School District's proportion of the net pension liability was based on contributions to TRS and ERS during the fiscal year ended June 30, 2015. At June 30, 2015, the School District's TRS proportion was 0.183530%, which was a decrease of 0.031277% from its proportion measured as of June 30, 2014. At June 30, 2015, the School District's ERS proportion was 0.000875%, which was a decrease of 0.000071% from its proportion measured as of June 30, 2014. At June 30, 2016, the School District did not have a PSERS liability for a proportionate share of the net pension liability because of a Special Funding Situation with the State of Georgia, which is responsible for the net pension liability of the plan. The amount of the State's proportionate share of the net pension liability associated with the School District is $471,603.00. The PSERS net pension liability was measured as of June 30, 2015. The total pension liability used to calculate the net pension liability was based on an actuarial valuation as of June 30, 2014. An expected total pension liability as of June 30, 2015 was determined using standard roll-forward techniques. The State's proportion of the net pension liability associated with the School District was based on actuarially determined contributions paid by the State during the fiscal year ended June 30, 2015. For the year ended June 30, 2016, the School District recognized pension expense of $494,391.00 for TRS, $2,510.00 for ERS and $28,124.00 for PSERS and revenue of $2,523.00 for TRS and $28,124.00 for PSERS. The revenue is support provided by the State of Georgia. For TRS the State of Georgia support is provided only for certain support personnel. At June 30, 2016, the School District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: TRS Deferred Outflows of Resources Deferred Inflows of Resources ERS Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $ - $ 245,752.00 $ - $ 283.00 Net difference between projected and actual earnings on pension plan investments - 2,356,821.00 - 2,558.00 Changes in proportion and differences between School District contributions and proportionate share of contributions - 5,338,113.00 1,188.00 1,988.00 School District contributions subsequent to the measurement date 2,494,793.00 - 5,078.00 - Total $ 2,494,793.00 $ 7,940,686.00 $ 6,266.00 $ 4,829.00 - 29 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" The School District contributions subsequent to the measurement date of $2,494,793.00 for TRS and $5,078.00 for ERS are reported as deferred outflows of resources and will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ended June 30: TRS ERS 2017 2018 2019 2020 2021 $ (2,481,828.00) $ (1,466.00) $ (2,481,828.00) $ (1,897.00) $ (2,481,830.00) $ (1,140.00) $ (278,539.00) $ 862.00 $ (216,661.00) $ - Actuarial assumptions: The total pension liability as of June 30, 2015 was determined by an actuarial valuation as of June 30, 2014, using the following actuarial assumptions, applied to all periods included in the measurement: Teachers Retirement System: Inflation Salary increases Investment rate of return 3.00% 3.75% 7.00%, average, including inflation 7.50%, net of pension plan investment expense, including inflation Mortality rates were based on the RP-2000 Combined Mortality Table for Males or Females set back two years for males and set back three years for females. The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period July 1, 2004 June 30, 2009. Employees' Retirement System: Inflation 3.00% Salary increases 5.45% 9.25%, average, including inflation Investment rate of return 7.50%, net of pension plan investment expense, including inflation Mortality rates were based on the RP-2000 Combined Mortality Table for the periods after service retirement, for dependent beneficiaries, and for deaths in active service, and the RP-2000 Disabled Mortality Table set back eleven years for males for the period after disability retirement. The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period July 1, 2004 June 30, 2009. - 30 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" Public School Employees Retirement System: Inflation 3.00% Salary increases N/A Investment rate of return 7.50%, net of pension plan investment expense, including inflation Mortality rates were based on the RP-2000 Combined Mortality Table set forward one year for males for the period after service retirement, for dependent beneficiaries, and for deaths in active service, and the RP-2000 Disabled Mortality Table set back two years for males and set forward one year for females for the period after disability retirement. The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period July 1, 2004 June 30, 2009. The long-term expected rate of return on TRS, ERS and PSERS pension plan investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target asset allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Asset class Fixed income Domestic large stocks Domestic mid stocks Domestic small stocks International developed market stocks International emerging market stocks Total * Rates shown are net of the 3.00% assumed rate of inflation Target allocation 30.00% 39.70% 3.70% 1.60% 18.90% 6.10% 100.00% Long-term expected real rate of return* 3.00% 6.50% 10.00% 13.00% 6.50% 11.00% Discount rate: The discount rate used to measure the total TRS, ERS and PSERS pension liability was 7.50%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that employer and nonemployer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the TRS, ERS and PSERS pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. - 31 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" Sensitivity of the School District's proportionate share of the net pension liability to changes in the discount rate: The following presents the School District's proportionate share of the net pension liability calculated using the discount rate of 7.50%, as well as what the School District's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50%) or 1-percentage-point higher (8.50%) than the current rate: Teachers Retirement System: School District's proportionate share of the net pension liability 1% Decrease (6.50%) Current Discount Rate (7.50%) 1% Increase (8.50%) $ 48,013,843.00 $ 27,940,620.00 $ 11,395,508.00 Employees' Retirement System: 1% Decrease (6.50%) Current Discount Rate (7.50%) 1% Increase (8.50%) School District's proportionate share of the net pension liability $ 50,251.00 $ 35,450.00 $ 22,831.00 Pension plan fiduciary net position: Detailed information about the pension plan's fiduciary net position is available in the separately issued TRS, ERS and PSERS financial report which is publically available at www.trsga.com/publications and http://www.ers.ga.gov/formspubs/formspubs.html. DEFINED CONTRIBUTION PLAN In September 1998, Stephens County Board of Education began an employer paid 403(b) annuity plan for the group of employees covered under the Public School Employees Retirement System (PSERS). Recognizing that PSERS was a limited defined contribution and defined benefit plan which did not provide for an adequate retirement for this group of employees, it was the Board's desire to supplement the retirement of this group. The Board selected Lincoln Financial Group as the provider of this plan. For each employee covered under PSERS, the Board began contributing to the plan an amount equal to the amount contributed by the employee (a match), not to exceed $25.00 per employee, per month. The employee becomes vested in the plan with five years of experience. Employees who had already achieved five years of experience at the time the plan was implemented were vested upon enrollment. Funds accumulated in the employer paid accounts are only available to the employee upon termination of employment and five years of service to Stephens County Board of Education. If an employee terminates employment prior to achieving five years of service, they receive 20% of the employer contributions for each year of completed service (20% for year 1, 40% for year 2, 60% for year 3 and 80% for year 4). The remaining funds paid on behalf of the non-vested employee are credited back to the Board. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2016 2015 2014 100% $ 100% $ 100% $ 22,540.00 25,845.00 26,225.01 - 32 - STEPHENS COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2016 EXHIBIT "H" NOTE 15: SUBSEQUENT EVENTS In the subsequent fiscal year, the voters of Stephens County authorized a special one percent sales tax for a period not to exceed 20 calendar quarters and for the raising of not more than $18,000,000.00 for the purposes of acquiring, constructing, repairing, improving, renovating, adding to, extending, upgrading, furnishing, and equipping school buildings and support facilities and infrastructure in the Stephens County School District useful or desirable in connection therewith, including acquiring any necessary property therefore, both real and personal, specifically including the following: (1)CTAE (Agriculture and Technical Education) program facility renovations and upgrades; HVAC renovations and upgrades; flooring, roofing, lighting, and paving renovations and upgrades; purchasing technology equipment and infrastructure; athletic and band equipment, fields, and stadium renovations and upgrades; and purchasing buses, maintenance equipment, and safety and security equipment (including ballistic glass); (2) paying previously incurred general obligation and/or revenue bond debt comprised of all or a portion of the principal of and interest on the Stephens County School Building Authority Revenue Bonds (Facilities Improvement Project), Series 2016 coming due in the years 2019 through 2023; and/or (3) paying expenses incident to accomplishing the foregoing. In the subsequent fiscal year, the voters authorized the School District to issue general obligation bonds in the amount of $13,500,000.00 repayable from the proceeds of the aforesaid sales and use tax, for the purpose of funding such portions of the above projects as may be acquired, constructed and equipped with the proceeds of general obligation debt and/or for the purpose of refunding and refinancing all or a portion of outstanding bonded indebtedness, including, but not limited to, the Stephens County School Building Authority Revenue Bonds (Facilities Improvement Project), Series 2016. - 33 - (This page left intentionally blank) (This page left intentionally blank) (This page left intentionally blank) SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS (This page left intentionally blank) Greg S. Griffin STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 January 11, 2018 Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Stephens County Board of Education REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITOR'S REPORT Ladies and Gentlemen: We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Stephens County Board of Education (School District) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the School District's basic financial statements and have issued our report thereon dated January 11, 2018. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the School District's internal control. Accordingly, we do not express an opinion on the effectiveness of the School District's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying Schedule of Findings and Questioned Costs, we identified certain deficiencies in internal control that we consider to be a material weakness and a significant deficiency. (This page left intentionally blank) A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying Schedule of Findings and Questioned Costs as item FS 2016-001 to be a material weakness. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiency described in the accompanying Schedule of Findings and Questioned Costs as item FS 2016-002 to be a significant deficiency. Compliance and Other Matters As part of obtaining reasonable assurance about whether the School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. School District's Response to Findings The School District's response to the findings identified in our audit is described in the accompanying Schedule of Findings and Questioned Costs. The School District's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the School District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the School District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Respectfully submitted, Greg S. Griffin State Auditor (This page left intentionally blank) Greg S. Griffin STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 January 11, 2018 Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Stephens County Board of Education REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE INDEPENDENT AUDITOR'S REPORT Ladies and Gentlemen: Report on Compliance for Each Major Federal Program We have audited Stephens County Board of Education's (School District) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2016. The School District's major federal programs are identified in the Summary of Auditor's Results section of the accompanying Schedule of Findings and Questioned Costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the School District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance 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 School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. (This page left intentionally blank) We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the School District's compliance. Opinion on Each Major Federal Program In our opinion, the School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2016. Other Matters The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying Schedule of Findings and Questioned Costs as items FA 2016-001 and FA 2016-002. Our opinion on each major federal program is not modified with respect to these matters. The School District's response to the noncompliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The School District's response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control over Compliance Management of the School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the School District's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the School District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, we identified certain deficiencies in internal control over compliance, as described in the accompanying Schedule of Findings and Questioned Costs as items FA 2016-001 and FA 2016-002 that we consider to be significant deficiencies. (This page left intentionally blank) The School District's response to the internal control over compliance findings identified in our audit is described in the accompanying Schedule of Findings and Questioned Costs. The School District's response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Respectfully submitted, Greg S. Griffin State Auditor (This page left intentionally blank) SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS (This page left intentionally blank) STEPHENS COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FS-7271-13-02 Inadequate Internal Control Procedures Control Category: Internal Control Impact: Compliance Impact: Cash and Cash Equivalents Revenues/Receivables/Receipts Expenditures/Liabilities/Disbursements General Ledger Capital Assets Material Weakness None Finding Status: Partially Resolved The School District is in the process of implementing a corrective action plan in regards to this finding. The School District hired a new finance director in June 2015 with twenty years of experience in the position. She has worked to get the information in the fund ledger correct. The corrective action plan will be fully implemented in fiscal year 2016. FS 2014-002 Inadequate Internal Control Procedures Control Category: Internal Control Impact: Compliance Impact: Cash and Cash Equivalents Revenues/Receivables/Receipts Expenditures/Liabilities/Disbursements Employee Compensation General Ledger Capital Assets Material Weakness None Finding Status: Partially Resolved The School District is in the process of implementing a corrective action plan in regards to this finding. The School District hired a new finance director in June 2015 with twenty years of experience in the position. She has worked to get the information in the fund ledger correct. The corrective action plan will be fully implemented in fiscal year 2016. FS 2015-001 Controls over Financial Reporting Control Category: Internal Control Impact: Compliance Impact: Financial Reporting Material Weakness None Finding Status: Unresolved The School District has contracted a certified public accountant, who is familiar with school accounting and reporting, to provide assistance in preparing financial reports. Additionally, a new finance director was hired in June 2015 with twenty years of experience in school accounting and reporting. - 1 - STEPHENS COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FS 2015-002 Internal Control Procedures Control Category: Internal Control Impact: Compliance Impact: Cash and Cash Equivalents Expenditures/Liabilities/Disbursements General Ledger Capital Assets Material Weakness None Finding Status: Partially Resolved The School District is in the process of implementing a corrective action plan in regards to this finding. The School District hired a new finance director in June 2015 with twenty years of experience in the position. She has worked to get the information in the fund ledger correct. The corrective action plan will be fully implemented in fiscal year 2016. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. - 2 - SECTION IV FINDINGS AND QUESTIONED COSTS (This page left intentionally blank) STEPHENS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 I SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of auditor's report issue: Governmental Activities; General Fund; Capital Projects Fund; Debt Service Fund; Aggregate Remaining Fund Information Unmodified Internal control over financial reporting: Material weakness identified? Yes Significant deficiency identified? Yes Noncompliance material to financial statements noted: No Federal Awards Internal Control over major programs: Material weakness identified? No Significant deficiencies identified? Yes Type of auditor's report issued on compliance for major programs: All major programs Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? Yes Identification of major programs: CFDA Numbers Name of Federal Program or Cluster 10.553, 10.555 84.010 Child Nutrition Cluster Title I Grants to Local Educational Agencies Dollar threshold used to distinguish between Type A and Type B programs: $750,000.00 Auditee qualified as low-risk auditee? No - 1 - STEPHENS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FS 2016-001 Control Category: Internal Control Impact: Compliance Impact: Repeat of Prior Year Finding: Controls over Financial Reporting Financial Reporting Material Weakness None FS 2015-001, FS 2014-001, FS-7271-13-01 Description: The School District did not have adequate controls in place over the financial statement reporting process to ensure all required activity was correctly reported in the financial statements presented for audit. The original financial statements, as presented for audit, contained numerous material and significant errors and omissions. Criteria: Management is responsible for having adequate controls over the preparation of financial statements in accordance with generally accepted accounting principles (GAAP). The School District's internal controls over GAAP financial reporting should include adequately trained personnel with the knowledge, skills and experience to prepare GAAP based financial statements and include all disclosures as required by the Governmental Accounting Standards Board (GASB). GASB Statement No. 34, Basic Financial Statements - Management's Discussion and Analysis - for State and Local Governments (Statement), requires governments to present government-wide and fund financial statements as well as a summary reconciliation of the (a) total governmental funds balances to the net position of governmental activities in the Statement of Net Position, and (b) total change in governmental fund balances to the change in the net position of governmental activities in the Statement of Activities. In addition, the statement requires information about the government's major and non-major funds in the aggregate, to be provided in the fund financial statements. Chapter 22A Annual Financial Reporting of the Financial Management for Georgia Local Units of Administration provides that School Districts must prepare their financial statements in accordance with generally accepted accounting principles. Condition: The following errors and omissions were noted in the School District's financial statements presented for audit: Beginning net position was overstated by $1,213,940.62, depreciable capital assets were overstated by $836,372.51 and depreciation expense was overstated by $377,568.11 due to numerous errors in accumulated depreciation calculations. A material adjustment was proposed by the auditors and accepted by the School District to restate beginning net position and properly record capital assets and the related depreciation expense. Proceeds and related business administration cost for the revenue draw-down bond were not recorded. A material adjustment was proposed by the auditors and accepted by the School District to properly record this transaction for the capital projects fund. Qualified School Construction Bonds interest subsidy payments of $78,386.17 from the U. S. Treasury were not properly recorded. Adjustments were proposed by the auditors and accepted by the School District to properly record revenue and expense/expenditures for the government-wide financial statements and for the debt service fund. Numerous other correction and reclassification entries were proposed by the auditor and accepted by the School District to properly present the financial statements. - 2 - STEPHENS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS Cause: In discussing this deficiency with the School District, they stated that due to changes in personnel, no review was performed to make sure that proper procedures were performed and that amounts were properly recorded. Effect or Potential Effect: Material and significant misstatements and misclassifications were included in the financial statements presented for audit. Adjustments were necessary in order for the School District's financial statements to be in conformity with GAAP. The lack of controls and monitoring could impact the reporting of the School District's financial position and results of operations. Recommendation: As part of internal controls over the preparation of financial statements, including note disclosures, management should implement comprehensive preparation and review procedures to ensure that the financial statements are complete and accurate. These procedures should be performed by properly trained personnel possessing a thorough understanding of the applicable GAAP statements, GASB pronouncements and knowledge of the School District's operations. Views of Responsible Officials: We concur with this finding. FS 2016-002 Control Category: Internal Control Impact: Compliance Impact: Repeat of Prior Year Finding: Internal Control Procedures Cash and Cash Equivalents General Ledger Capital Assets Significant Deficiency None FS 2015-002, FS 2014-002, FS-7271-13-02 Description: The accounting procedures of the School District were insufficient to provide adequate internal controls over operations. Criteria: The School District is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are accurately processed and recorded according to established procedures. Condition: The following deficiencies were noted during our audit procedures: Cash and Cash Equivalents Documentation of bank account reconciliations for June 30, 2016 was not available for the auditor to review for one of the School District's twelve bank accounts. In addition, one of the available eleven reconciliations for June 2016 was not adequately reconciled back to the general ledger. The general operating account bank statement for June 30, 2016 included numerous cash reconciling items totaling $20,665.54 were not adjusted on the general ledger in a timely manner. - 3 - STEPHENS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS The School District's general ledger reflected an overall balance in the Inter-fund cash account of $17,966.86. This account should always carry an overall balance of zero. General Ledger A review of fifteen journal entries revealed that supporting documentation could not be located for one journal entry. In addition, six of the available fourteen journal entries did not include documentation of proper approval. Capital Assets The School District has not implemented any type of capital asset review process such as an annual physical inventory. Cause: In discussing this deficiency with the School District, management indicated that they failed to adequately monitor or review reports that would identify that day-to-day activities were being properly performed by accounting personnel. Effect or Potential Effect: Without satisfactory accounting controls and procedures in place, the School District could place itself in a position where potential misappropriation of assets could occur. The lack of controls could impact reporting of its financial position and results of operations. In addition, material errors and/or irregularities were not detected in a timely manner. Recommendation: The School District should review accounting procedures in place and design and implement procedures relative to the above control categories to strengthen the internal controls over the accounting functions. Management should establish monitoring processes to provide reasonable assurance that the controls are functioning and financial transactions are properly processed and recorded. Views of Responsible Officials: We concur with this finding. - 4 - STEPHENS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FA 2016-001 Compliance Requirement: Internal Control Impact: Compliance Impact: Federal Awarding Agency: Pass- Through Entity: CFDA Number and Title: Federal Award Numbers: Questioned Costs: Controls over Eligibility Determination Process Eligibility Significant Deficiency Nonmaterial Noncompliance U.S. Department of Agriculture Georgia Department of Education 10.553 and 10.555 Child Nutrition Cluster 16165GA324N1099 $1,559.78 Description: The School District failed to use accurate claiming percentages for students participating in the School Breakfast Program (CFDA 10.553) and National School Lunch Program (CFDA 10.555). Criteria: Uniform Guidance 7 CFR 210.7(c) states, in part, "To be entitled to reimbursement under this part, each school food authority shall ensure that Claims for Reimbursement are limited to the number of free, reduced price and paid lunches and meal supplements that are served to children eligible for free, reduced price and paid lunches and meal supplements, respectively, for each day of operation". The School Food Authority (SFA) operates under the Community Eligibility Provision (CEP). Under CEP, the SFA claims meals as either free or paid based on meal claiming percentages as calculated by the Georgia Department of Education (GDOE). These meal claiming percentages must be used and cannot be altered in any way. Condition: A review of the monthly claim percentages utilized throughout the year for the four schools participating in the Community Eligibility Provision revealed errors in four of the eighty lunch and breakfast claim percentages that the School District claimed 577 meals as free that should have been claimed as paid resulting in $1,559.78 of questioned costs. Cause: In a discussion with management, the School District attributes this deficiency to using the incorrect free and paid meal claiming percentages. Effect or Potential Effect: The failure of the School District to claim an accurate number of free and paid meals resulted in noncompliance with requirements of the Federal grant. Recommendation: The School District should establish and implement appropriate monitoring procedures to ensure Federal requirements for eligibility are met. The Georgia Department of Education should review this matter to determine if a reclaim of funds is appropriate. Views of Responsible Officials: We concur with this finding. - 5 - STEPHENS COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FA 2016-002 Compliance Requirement: Internal Control Impact: Compliance Impact: Federal Awarding Agency: Pass- Through Entity: CFDA Number and Title: Federal Award Numbers: Internal Control Procedures Allowable Costs/Cost Principles Activities Allowed or Unallowed Significant Deficiency Nonmaterial Noncompliance U.S. Department of Agriculture Georgia Department of Education 10.553 and 10.555 Child Nutrition Cluster 16165GA324N1099 Description: The internal controls of the School District were not operating as designed to provide adequate internal controls over activities allowed, allowable costs, and special tests and provisions for the Child Nutrition Cluster. Criteria: Uniform Guidance 2 CFR part 200, subpart E, Cost Principles, requires that costs charged to a Federal award be necessary and reasonable for the performance of the Federal award and be allocable thereto; costs must be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the School District as well as be adequately documented. Condition: A review of twenty-five disbursements for the Child Nutrition Cluster revealed that supporting documentation could not be located for one expenditure. A review of nine journal entries allocated to the Child Nutrition Cluster revealed that supporting documentation could not be located for two journal entries. Cause: In discussing this deficiency with the School District, they stated that the cause was moving offices from one physical address to another. Effect or Potential Effect: Failure to ensure that program checks and journal entries were properly documented resulted in noncompliance with requirements of the Federal grant and could result in errors and/or irregularities not being detected in a timely manner and loss of Federal funds. Recommendation: Management should strengthen controls to ensure that all Child Nutrition Cluster disbursements and journal entries are properly reviewed and documented. Views of Responsible Officials: We concur with this finding. - 6 - SECTION V MANAGEMENT'S CORRECTIVE ACTION (This page left intentionally blank) STEPHENS COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SCHEDULE OF MANAGEMENT'S CORRECTIVE ACTION YEAR ENDED JUNE 30, 2016 CORRECTIVE ACTION PLANS - FINANCIAL STATEMENT FINDINGS FS 2016-001 Control Category: Internal Control Impact: Compliance Impact: Repeat of Prior Year Finding: Controls over Financial Reporting Financial Reporting Material Weakness None FS 2015-001, FS 2014-001, FS-7271-13-01 The original financial statements, as presented for audit, contained numerous material and significant errors and omissions. Corrective Action Plans: We have changed our capital asset process to use spreadsheets in order to ensure depreciation is calculated accurately. The School District has contracted a certified public accountant, who is familiar with school accounting and reporting, to provide assistance in preparing the financial reports. Additionally, a new Finance Director was hired in June 2015 with twenty years of experience in school accounting and reporting. Estimated Completion Date: June 30, 2017 Contact Person: Alicia Fitzpatrick, Finance Director Telephone: (706) 886-9415 E-mail: alicia.fitzpatrick@stephenscountyschools.org FS 2016-002 Control Category: Internal Control Impact: Compliance Impact: Repeat of Prior Year Finding: Internal Control Procedures Cash and Cash Equivalents General Ledger Capital Assets Significant Deficiency None FS 2015-002, FS 2014-002, FS-7271-13-02 The School District did not maintain adequate controls over cash maintenance process, journal entry process, or capital asset inventory process. Corrective Action Plans: We have changed our capital asset process to use spreadsheets. We are looking at reconcilement to ensure that cash reconciliations are done timely. We will be diligent in getting approval on all prepared journal entries. Estimated Completion Date: June 30, 2017 Contact Person: Alicia Fitzpatrick, Finance Director Telephone: (706) 886-9415 E-mail: alicia.fitzpatrick@stephenscountyschools.org - 1 - STEPHENS COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SCHEDULE OF MANAGEMENT'S CORRECTIVE ACTION YEAR ENDED JUNE 30, 2016 CORRECTIVE ACTION PLANS - FEDERAL AWARD FINDINGS FA 2016-001 Compliance Requirement: Internal Control Impact: Compliance Impact: Federal Awarding Agency: Pass-Through Entity: CFDA Number and Title: Federal Award Number: Questioned Costs: Controls over the Eligibility Determination Process Eligibility Significant Deficiency Nonmaterial Noncompliance U.S. Department of Agriculture Georgia Department of Education 10.553 and 10.555 Child Nutrition Cluster 16165GA3234N1099 $1,559.78 The School District did not maintain adequate controls to ensure that the correct number of free and paid meals were claimed for reimbursement. Corrective Action Plans: Training and assistance with school nutrition staff to reduce calculation mistakes. Spreadsheet will be used to calculate total meals served per school and multiplied by free and paid claiming percentages. school nutrition bookkeeper will manually check numbers, director will verify numbers and sign and approve spreadsheet that will be filed with claim. Estimated Completion Date: September 1, 2017 Contact Person: Kim Caudell, Director of School Nutrition Telephone: (706) 886-9415 E-mail: kim.caudell@stephenscountyschools.org FA 2016-002 Compliance Requirement: Internal Control Impact: Compliance Impact: Federal Awarding Agency: Pass-Through Entity: CFDA Number and Title: Federal Award Number: Questioned Costs: Internal Control Procedures Allowable Costs/Cost Principles Activities Allowed or Unallowed Significant Deficiency Nonmaterial Noncompliance U.S. Department of Agriculture Georgia Department of Education 10.553 and 10.555 Child Nutrition Cluster 16165GA3234N1099 None Identified The School District did not maintain adequate controls to ensure that proper documentation was maintained for all program expenditures. Corrective Action Plans: All expenditures and journal entries are now centrally located in the school nutrition department not in the finance department. All documents are labeled and filed accordingly. Monthly checklist will be used to ensure all documents are filed accordingly. Estimated Completion Date: September 1, 2017 Contact Person: Kim Caudell, Director of School Nutrition Telephone: (706) 886-9415 E-mail: kim.caudell@stephenscountyschools.org - 2 -