STEWART COUNTY BOARD OF EDUCATION LUMPKIN, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor STEWART COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 6 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 9 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 10 H NOTES TO THE BASIC FINANCIAL STATEMENTS 1 I SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 25 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 26 3 SCHEDULE OF STATE REVENUE 28 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 30 STEWART COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - Page SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 31 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS STEWART COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 July 18, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Stewart County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Stewart County Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Stewart County Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our op1mons. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Stewart County Board of Education, as of June 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2004ARL-11 The Stewart County Board of Education has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements. As discussed in Note 2 to the basic financial statements, during fiscal year 2004, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements and consolidated its individual school activity accounts for inclusion in the basic financial statements. These changes are in accordance with generally accepted accounting principles. As described in Note 2, the Stewart County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2004. In accordance with Government Auditing Standards, we have also issued our report dated July 18, 2005, on our consideration ofthe Stewart County Board ofEducation's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope ofour testing of internal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 25 is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Stewart County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. 2004ARL-11 A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code of Georgia Annotated section 506-24. RWH:as 2004ARL-11 Respectfully submitted, ~0.~is Russell W. Hinton State Auditor STEWART COUNTY BOARD OF EDUCATION STEWART COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004 Cash and Cash Equivalents Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings and Improvements Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 2,803,133 173,263 385,757 427,657 34,639 13,338 63,916 3,000 326,655 10,766,853 1,392,373 -5 186,726 $ ===11=,2=0=3=,8=58= $ 580,532 556,451 205,000 895,000 $ 2,236,983 $ 7,366,071 66,125 288,831 340,968 439,358 465,522 $ 8,966,875 $ ======11;,.;,2=0=3e:,8=58== The notes to the basic financial statements are an integral part of this statement. -3- STEWART COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2004 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Debt Services Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year (Restated) Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 4,199,232 $ 228,728 338,630 149,902 317,550 433,825 81,793 461,973 533,677 27,296 61,871 394,862 40 381 $ 7,269,720 $ 94,824 28,886 123 710 The notes to the basic financial statements are an integral part of this statement. -4- EXHIBIT "B" PROGRAM REVENUES OPERATING GRANTS AND CONTRIBUTIONS CAPITAL GRANTS AND CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 3,105,375 $ 99,838 256,133 61,279 343,675 270,749 792 180,975 227,733 6,373 37,701 363,703 $ 4 954 326 $ 25,324 $ 1,303 176 713 1,532 39,914 2,433 3,469 74 864 $ -973,709 -128,890 -82,497 -87,320 26,301 -162,363 -81,001 -279,466 -266,030 -20,923 -21,737 1,196 -40,381 -2, 116,820 $ 1,253,006 305,559 4,790 103,400 4,618 110,898 $ 1,782,271 $ -334,549 9,301,424 $ ====8:!a9=6=6'=8=75== -5- STEWART COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2004 EXHIBIT"C" ASSETS Cash and Cash Equivalents Accounts Receivable, Net Taxes State Government Federal Government Other Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 1,057,084 $ 1,457,555 $ 25,981 382,262 427,657 34,639 13 338 3,495 288,494 $ 52,474 2,803,133 78,455 385,757 427,657 34,639 13,338 Total Assets $ 1940961 $ 1 461 050 $ 340 968 $====3-=7=42=97=9= LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable $ Salaries Payable Total Liabilities $ FUND BALANCES Reserved for: Bus Replacement $ Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund Total Fund Balances $ 564,012 $ 556 451 1,120,463 $ 66,125 275,493 13,338 $ 465,542 820,498 $ 16,520 16 520 $ 1,444,530 1,444,530 $ $ $ $ 340,968 340 968 $ 580,532 556,451 1 136 983 66,125 275,493 340,968 13,338 1,444,530 465,542 2 605 996 Total Liabilities and Fund Balances $ 1,940,961 $ 1 461 050 $ 340,968 $===~3,:,,74~2,.;9;,;,7~9 The notes to the basic financial statements are an integral part of this statement. -6- STEWART COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2004 EXHIBIT "D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings and Improvements Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable $ 2,605,996 $ 63,916 3,000 326,655 10,766,853 1,392,373 -5,186,726 7,366,071 94,808 -1, 100,000 Net Assets of Governmental Activities (Exhibit "A") $ ===8,=96=6=,8=7==5 The notes to the basic financial statements are an integral part of this statement. -7 - STEWART COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2004 EXHIBIT "E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning (Restated) GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 1,222,490 4,790 3,768,529 $ 1,327,752 123,710 3,498 110,884 $ 6,561,653 $ $ 34,950 1,359 $ 305,559 720 400 14 37,029 $ 305,973 $ 1,222,490 310,349 3,803,479 1,329,111 123,710 4,618 110,898 6,904,655 $ 3,982,238 $ 228,728 338,630 138,037 315,949 427,336 81,726 448,029 427,962 27,296 39,725 363,277 12,900 681 $ 6,832,514 $ $ -270,861 $ 1,908 $ $ 67 130,686 39,700 132,594 $ 39,767 $ -95,565 $ 266,206 $ 3,984,146 228,728 338,630 138,037 315,949 427,336 81,793 448,029 427,962 27,296 39,725 363,277 130,686 12,900 40,381 7,004,875 -100,220 $ 51,452 $ $ -51,452 $ -51,452 $ 51,452 $ $ -270,861 $ -147,017 $ 317,658 $ 1,091,359 1,591,547 23,310 51,452 -51,452 0 -100,220 2,706,216 Fund Balances - Ending $ 820 498 $ 1 444 530 $ 340 968 $===2:!c6=0;,;;5'=9=96~ The notes to the basic financial statements are an integral part of this statement. -8 - STEWART COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30. 2004 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However. in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends. they are not considered "available" revenues. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Capital Lease Payments $ $ 39,895 -317,640 -100,220 -277,745 30,516 12 900 Change in Net Assets of Governmental Activities (Exhibit "B") $ ===-=33=4 =54=9 The notes to the basic financial statements are an integral part of this statement. -9- STEWART COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004 ASSETS Accounts Receivable, Net Other LIABILITIES Cash Overdraft Accounts Payable Funds Held for Others Total Liabilities EXHIBIT"G" AGENCY FUNDS $ ===4=6,=28=2= $ 38,521 6,459 1,302 $ ===4=6,=28=2= The notes to the basic financial statements are an integral part of this statement. - 10 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Stewart County Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Stewart County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: - 11 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Bond Proceeds, grants from the Georgia Department of Education, grants from Georgia State Financing and Investment Commission and Special Purpose Local Option Sales Tax proceeds to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (sales) legally restricted for the payment ofgeneral longterm principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized - 12 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of $250,781 at July 1, 2003. For fiscal year 2004, these funds have been reported as part of the General Fund. In addition, governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been reported within the General Fund for fiscal year ended June 30, 2004. The governmental fund activity of the various school activity accounts had a fund balance of $5,371 at July 1, 2003. This change is in accordance with generally accepted accounting principles. General Fund Balance July 1, 2003 $ 835,207 Add Funds Consolidated with General Fund: School Food Services Fund School Activity Account - Governmental Activity 250,781 5 371 General Fund Balance July 1, 2003 (Restated) $ 1,091,359 CHANGES IN ACCOUNTING PRINCIPLES The Stewart County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2004. The provisions of GASB Statement No. 34 require the inclusion ofa Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following: - 13 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund (Restated) July 1, 2003 Capital Projects Fund Debt Service Fund $ 1,091,359 1,591,547 23 310 Governmental Funds (Restated) July 1, 2003 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Bonds Payable Capital Leases Payable $ 2,706,216 12,512,902 -4,869,086 64,292 -1,100,000 -12 900 Net Assets Beginning (See Exhibit "B") $ 9,301,424 CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Stewart County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on October 15, 2003 (levy date). Taxes were due on December 20, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Stewart County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2004, for maintenance and operations amounted to $1,222,490. - 14 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The tax millage rate levied for the 2003 tax year (calendar year) for the Stewart County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 9.28 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $305,559 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: - 15 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment All NIA $ 5,000 15 to 80 years $ 5,000 25 to 80 years $ 5,000 5 to 30 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. Note 3: DEPOSITS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. If a depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case of operating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, - 16 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 3: DEPOSITS (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 the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2004, the bank balances were $2,961,481. The amounts of the total bank balances are classified into three categories of credit risk: Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2004, as follows: Risk Category Bank Balance 1 $ 200,000 2 2,761,481 3 0 Total $ 2!961!481 - 17 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July l, 2003 Increases Decreases Balances June 30, 2004 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 63,916 0 $ Total Capital Assets Not Being Depreciated $ 63 916 $ Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 10,760,280 $ 1,362,051 326,655 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 3,945,881 710,452 212,753 Total Capital Assets, Being Depreciated, Net $ 7,579,900 $ Governmental Activity Capital Assets - Net $ 7,643.816 $ $ 3 000 3 000 $ 6,573 $ 30,322 188,660 116,342 12,638 -280,745 $ -277 745 $ 0 $ 63,916 3 000 0 $ 66,916 0 $ 10,766,853 1,392,373 326,655 4,134,541 826,794 225,391 0 $ 7,299,155 0 $ 7,366,071 Capital assets being acquired under capital leases as of June 30, 2004, are as follows: Governmental Funds Equipment Less: Accumulated Depreciation $ 61,428 27,643 $.===33-,7~8=5 - 18 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 5: CAPITAL ASSETS Current year depreciation expense by function is as follows: Instruction Support Services Educational Media Services General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Food Services $ 166,899 $ 8,590 1,159 4,698 10,095 87,300 16 033 127,875 22,866 $ 317 640 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) and general obligation bond proceeds are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2004, were as follows: District-wide Capital Projects Bond SPLOST Proceeds Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions $ 288,494 $ 444,948 $ 1,021,692 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2004, consisted of the following: Transfer to Transfers From District-wide Capital Projects Debt Service Funds $==='=51-4c'='5='=2 Transfers are used to move Special Purpose Local Option Sales Tax (SPLOST) revenues collected by the Capital Projects Fund to the Debt Service Fund to meet Debt Service requirements. - 19 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 8: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees and acts of God. The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members ofthe system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse) and automobile risks. Payment of excess insurance for the system varies by line of coverage. The School District participates in the Georgia School Boards Association Workers' Compensation Fund, a public entity risk pool organized on July 1, 1992, to develop, implement, and administer a program ofworkers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Fund for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Fund with the Safety National Casualty Corporation to provide coverage for potential losses sustained by the Fund in excess of $400,000 loss per occurrence, up to $1,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Employees $ 50,000 $ 100,000 Note 9: OPERATING LEASES Stewart County Board of Education has entered into various leases as lessee for office equipment. These leases are considered for accounting purposes to be operating leases. Lease expenditures for the year ended June 30, 2004, for governmental funds amounted to $28,840. Future minimum lease payments for these leases are as follows: - 20 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 9: OPERATING LEASES Year Ending Governmental Funds 2005 $ 27,560 2006 28,560 2007 26,625 2008 26,540 Total Note 10: LONG-TERM DEBT $======1==09="',2==8==5 CAPITAL LEASES The Stewart County Board of Education has entered into various lease agreements as lessee for buses. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of the future minimum lease payments as of the date of their inception. GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rate Amount General Government - Series 2002 2.98% $ 1,100.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows: Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2003 $ 12,900 $ 1,100,000 $ 1,112,900 Deductions Debt Retired 12,900 12,900 Balance June 30, 2004 $ 0 $ 1,100.000 $ 1,100.000 Portion of Long-Term Debt Due within One Year $ 0 $ 205,000 $ 205,000 - 21 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 10: LONG-TERM DEBT At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2005 2006 2007 2008 2009 $ 205,000 $ 210,000 220,000 230,000 235,000 29,725 23,542 17,135 10,430 3,502 Total Principal and Interest $ 1,100,000 $ 84 334 Note 11: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of$66,448 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $65,766 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $682 Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. - 22 - STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 13: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2004 100% $ 331,592 2003 100% $ 343,580 2002 100% $ 350,712 - 23 - STEWART COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30. 2004 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services Operation Debt Service Total Expenditures Net Change in Fund Balances Fund Balances - Beginning (Restated) Adjustments NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 923,520 $ 1,231,360 $ 1,222,490 11,000 11,000 4,790 3,477,323 3,844,585 3,768,529 760,982 1,351,222 1,327,752 135,031 123,710 6,500 6,500 3,498 64,500 110,884 $ 5,179,325 $ 6 644,198 $ 6,561,653 $ 3,787.703 $ 292,641 381,865 144,992 285,811 413,160 75,843 442.882 461,041 1,900 97,655 361,307 $ 6 746,800 $ $ -1,567,475 $ 1,235,449 -91 224 4,067,392 $ 321,541 451,618 144,992 296,467 446,640 73,343 464,606 463,704 5,240 102,036 367,871 7,205,450 $ -561,252 $ 1,235,449 -91,224 3,982,238 228,728 338,630 138,037 315,949 427,336 81,726 448,029 427,962 27,296 39,725 363,277 13 581 6,832,514 -270,861 1,091,359 Fund Balances - Ending $ -423 250 $ 582973 $===8~2;,;;;0,.,;4~98~ Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 25 - STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U. S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Accountability Grant Enhancing Education Through Technology Program Improving Teacher Quality State Grants Reading First State Grants Rural Education School Renovation - Schools State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Pass-Through From Morehouse School of Medicine Twenty-First Century Community Learning Centers Total U.S. Department of Education Labor, U.S. Department of Pass-Through From Columbus, Georgia Consolidated Government Workforce Investment Act Youth Activities Total Federal Financial Assistance N/A = Not Available CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 N/A N/A $ $ (2) 317,125 317,125 10.550 N/A $ 11 163 328,288 84.027 84.173 N/A $ N/A $ 163,031 10,329 173,360 84.348 84.318 84.367 84.357 84.358 84.352 84.298 * 84.010 84.048 84.287 N/A N/A NIA NIA N/A N/A N/A NIA NIA NIA $ 5,466 81,517 111,279 112,730 9,320 1,359 20,606 442,631 20,306 31,244 1,009,818 17.259 N/A $ 3,580 $ = = = = ' 1=34=1=6=8=6 - 26 - STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2004 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($88.770) were not maintained separately and are included in the 2004 National School Lunch Program. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Stewart County Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 27 - STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004 SCHEDULE "3" AGENCY/FUNDING GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program $ 161,065 $ Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Supplemental Speech - Special Education Alternative Education Program Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs 4-8 Statewide After School Program Health Insurance K-3 Statewide Reading Program Mentor Teachers Preschool Handicapped Program School Improvement (Georgia's Choice) Lottery Program Student Information Systems 91,495 111,677 326,568 255,441 166,362 106,209 291,461 286,211 185,030 26,137 125,523 131,856 50,077 43,296 12,965 22,619 710 28,967 59,183 18,985 12,504 246,688 239,613 171,871 213,095 39,914 182,934 31,863 2,640 731 95,163 25,104 -174,282 12,000 65,766 11,934 2,018 7,489 60,000 18,965 TOTAL 161,065 91,495 111,677 326,568 255,441 166,362 106,209 291,461 286,211 185,030 26,137 125,523 131,856 50,077 43,296 12,965 22,619 710 28,967 59,183 18,985 12,504 246,688 239,613 171,871 213,095 39,914 182,934 31,863 2,640 731 95,163 25,104 -174,282 12,000 65,766 11,934 2,018 7,489 60,000 18,965 - 28 - STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004 SCHEDULE "3" AGENCY/FUNDING GRANTS Georgia State Financing and Investment Commission Reimbursement on Construction Projects Office of Treasury and Fiscal Services Public School Employees Retirement GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ $ _ _ _ _6=8=2'- 34,950 $ 34,950 682 $ 3,768,529 $ 34 950 $ ===3=8=0=3=4=79= See notes to the basic financial statements. - 29- STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30 2004 SCHEDULE "4" PROJECT Construction and acquisition of projects to include repair and replacement of roofs, replacement of energy management system, air-condition auditorium at elementary school, renovate shop for construction of two computer labs, construction of two middle schools science labs and work room, extend the bleachers on the football field, renovation of cafeteria at elementary school, replace bleachers in gymnasium, construct canopy from front hall to auditorium, construct walkway from front hall to auditorium, refinish gymnasium floor, repair locker room floor in gymnasium, paving the drive at the elementary school, replace locks and hardware on doors at Stewart-Quitman Middle/High School, build restrooms for baseball field, replace carpet at StewartQuitman Middle/High School, paint metal on school building and paint field/press house at football field, purchase furniture, purchase and install four sets of portable bleachers, purchase four school buses, replace damaged ceiling tiles and install lights, poles, wiring and fixtures at baseball field Rehabilitating, adding to, repairing, renovating, extending and improving Stewart County Elementary School and Stewart-Quitman Middle/High School and related facilities useful or desirable in connection therewith, to include improvements to physical education, athletic and playground facilities, replacement or repair of portable classrooms, parking improvements, and ceiling, wall covering and flooring repairs and replacements, acquisition and construction of a maintenance storage building, installation of a sprinkler system for the front campus, School District offices, football and baseball fields, purchase of school buses, system-wide technology additions and improvements, and acquisition of any necessary property therefore, both real and personal ORIGINAL ESTIMATED COST(1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS(3) PROJECT STATUS $ 1,487,631 $ 1,487,631 $ 25,587 $ 1,026,056 Ongoing 1 600 000 1,600,000 104,808 _ _ _3~,_72_0_ Ongoing $ 3,087,631 $ 3 087 631 $ 130 395 $ 1 029776 (1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax. (2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion. (3) The voters of Stewart County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. See notes to the basic financial statements. - 30- STEWART COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2004 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Gifted Student - Category VI Remedial Education Program Alternative Education Program TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 118.582 $ 182,667 $ 203 $ 182,870 129,592 157,629 295 157,924 369,639 389,753 12,387 402,140 317,646 310,211 65 310,276 196,437 301,957 7,049 309,006 123,472 349,593 347,002 210,703 432,676 18,824 26,239 34,460 90,753 543,875 495,809 129,131 16,754 295,249 179,453 25,240 54,192 25,980 45,685 298 5,454 13,706 3,084 151 302 75 471 13 041 91,051 549,329 509,515 132,215 16,905 295,551 179,528 25,240 54,663 25,980 58 726 $ 2,674,865 $ 3,244,338 $ 56,581 $ 3,300,919 69,753 14 612 142,156 5044 14,288 4286 156,444 9 330 TOTAL QBE FORMULA FUNDS $====2=,7=59=,2=3=0 $ 3,391,538 $ 75,155 $ ===3='=46=6=,6=9=3 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 31 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 July 18, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Stewart County Board of Education REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ladies and Gentlemen: We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Stewart County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Stewart County Board of Education's basic financial statements and have issued our report thereon dated July 18, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Stewart County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Stewart County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-7281-04-01, FS-7281-04-02, FS-7281-04-03, FS-7281-04-04 and FS-7281-04-05. 2004YB-40 A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, of the reportable conditions described above, we consider item FS-7281-04-01 to be a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether Stewart County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the Stewart County Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, tte~~n~~~ State Auditor RWH:as 2004YB-40 Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 July 18, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Stewart County Board of Education REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 Ladies and Gentlemen: Compliance We have audited the compliance of Stewart County Board ofEducation with the types ofcompliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2004_ Stewart County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs_ Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Stewart County Board of Education's management. Our responsibility is to express an opinion on Stewart County Board of Education's compliance based on our audit We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred_ An audit includes examining, on a test basis, evidence about the Stewart County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Stewart County Board of Education's compliance with those requirements. 2004SA-30 In our opinion, the Stewart County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2004. Internal Control Over Compliance The management of Stewart County Board of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered Stewart County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. We noted certain matters involving the internal control over compliance and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Stewart County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FA-7281-04-01, FA-7281-04-02 and FA-7281-04-03. A material weakness is a reportable condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above is a material weakness. This report is intended solely for the information and use of the management, members of the Stewart County Board of Education, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~ .oo_ li) _.;\d::i:;. Russell W. Hinton State Auditor RWH:as 2004SA-30 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS STEWART COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7281-00-03 FS-7281-02-01 FS-7281-02-03 FS-7281-03-01 FS-7281-03-02 FS-7281-03-03 FS-7281-03-04 FS-7281-03-05 Unresolved - See Corrective Action/Reponses Further Action Not Warranted Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Reponses Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Meet Expenditure Requirements Amount: $15,529 Finding Control Number: FS-7281-00-03 These funds will be returned to the Office of Treasury and Fiscal Services. CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION GENERAL LEDGER Inadequate Accounting Procedures Finding Control Number: FS-7281-03-01 The School District employed additional staff (one full time and one part-time) to ensure adequate separation of duties. Procedures will be put in place to ensure that all expenditures are adequately documented. Procedures will be implemented to properly review cash and expenditures to determine accuracy. EMPLOYEE COMPENSATION Salary Payment Not in Agreement with Board Approval Amount: $12,613 Finding Control Number: FS-7281-03-02 Efforts have been made by the School District to secure reimbursement ofthe overpayment of salary. As of this date, no effort has been made by the former employee to return these funds. - 1- STEWART COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES EMPLOYEE COMPENSATION Underpayment of Employee Benefits Amount: $72,895 Finding Control Number: FS-7281-03-04 The School District has been in contact with the Department of Community Health in order to resolve this underpayment of employee benefits. The School District is trying to negotiate a payment plan. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-7281-03-01 FA-7281-03-02 Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-7281-03-02 The Georgia Department of Education provided procedures in fiscal year 2005 for implementation of fiscal requirements of the School-wide Program. These procedures were implemented by the School District in fiscal year 2005. -2 - SECTION IV FINDINGS AND QUESTIONED COSTS STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Stewart County Board of Education's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Stewart County Board of Education disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Capital Assets Revenues/Receivables/Receipts Accounting Controls (Overall) Expenditures/Liabilities/Disbursements Employee Compensation General Ledger Of the reportable conditions described above, Cash and Cash Equivalents, Expenditures/Liabilities/Disbursements, Employee Compensation, General Ledger, and Accounting Controls (Overall) are considered to be material weaknesses. 3. Noncompliance Material to the Financial Statements The audit of the Stewart County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Stewart County Board ofEducation disclosed reportable conditions in internal control over major programs for the following compliance requirements. Special Tests and Provisions Procurement and Suspension and Debarment None ofthe reportable conditions described above are considered to be material weaknesses. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Stewart County Board ofEducation's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Stewart County Board of Education's audit disclosed audit findings required to be reported by section .510(a) of 0MB Circular A-133. These audit findings are included in section IV of this report. - 1- STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.010 Title I Grants to Local Educational Agencies 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Stewart County Board of Education did not qualify as a low risk auditee as defined by Section .530 of 0MB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION GENERAL LEDGER ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7281-04-01 Accounting procedures of the Stewart County Board of Education were insufficient to provide adequate controls over the above control categories. The following deficiencies were noted: Cash and Cash Equivalents The duties of preparing and reconciling bank reconciliations for all funds were not separated from the duty of writing checks. There was no independent review to determine that bank reconciliations were correct and all reconciling items were identified and adjusted on the accounting records in a timely manner. Expenditures/Liabilities/Disbursements The School District did not have procedures in place to ensure all expenditures were adequately documented and checked for accuracy. Our tests of operating expenditures revealed three instances where funds were disbursed without an approved purchase order, one instance where sales tax was paid, and one instance where funds were disbursed without proper documentation to support the expenditure. -2- STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION GENERAL LEDGER ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7281-04-01 Employee Compensation The School District did not have adequate procedures in place to ensure employee compensation expenditures were properly calculated and approved before disbursement offunds. Our tests of employee compensation records for fifteen employees revealed four instances where disbursements were improperly made to employees. Leave records were incorrect for three employees. The amount of salary reported to the Department of Audits and Accounts for one employee was incorrect. General Ledger The School District did not have adequate procedures in place to ensure that journal entries were properly documented and contained administrative approval before posting to the general ledger. Our tests of twenty-five journal entries posted to the general ledger revealed that four did not have adequate supporting documentation, one could not be located and one did not have evidence of administrative approval. Accounting Controls (Overall) Access controls in the Financial System do not prevent users from accessing accounting functions that are outside of their area of responsibility. The deficiencies noted above occurred because of management's failure to implement adequate controls to ensure bank reconciliations are review by someone independent of the reconciliation process, expenditures are properly documented and processed, employee compensation expenditures are properly processed and approved before disbursement offunds and journal entries are adequately documented and approved before posting to the general ledger. The School District should establish and implement appropriate procedures to strengthen internal controls over reconciliation of bank statements to the general ledger, processing expenditures, processing employee compensation, maintaining accurate annual and sick leave records and posting journal entries to the general ledger. -3- STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION GENERAL LEDGER ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7281-04-01 Additionally, management should ensure that the access controls in the accounting information system complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of that employee's duties. The School District should determine ifreimbursement/payment for salary overpayments/underpayments is appropriate. CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-7281-04-02 Our examination of the principal's accounts disclosed weaknesses in internal control as discussed below: Cash and Cash Equivalents 1) The bank reconciliation function was not separated from the record keeping and voucher payment function. 2) Bank reconciliations were not prepared for the middle school bank account. There was an unidentified cash variance between the bank statement and the amount presented for examination by the School District of $349. 3) The bank reconciliation for the high school bank account did not reconcile to the records presented for examination by the School District. There was an unidentified variance of $2,809. Revenues/Receivables/Receipts 1) Deposit preparation was not separated from the record keeping and cash custody functions. -4 - STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-7281-04-02 2) No supporting receipt documentation was maintained for any receipts tested. 3) Receipts did not contain the account to which funds should be charged. 4) Deposit slips did not contain sufficient information to be traced to receipt number or the General Ledger. Expenditures/Liabilities/Disbursements 1) The check writing function was not separated from the record keeping or processing of signed checks. 2) Documentation was not found for five of the fifteen expenditures that were tested. These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible for accounting functions and failure to implement controls to properly account for all transactions involving the school activity accounts. Management should implement procedures to ensure that the key accounting functions ofcustody, record keeping and authorization be segregated. Additionally, controls should be revised to ensure disbursements and receipts of funds within the school activity accounts are adequately documented and recorded in the financial records. EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Expenditure Reportable Condition Amount: $17,546 Finding Control Number: FS-7281-04-03 Our examination of operating expenditures revealed two voucher packages for non-educational expenditures in the amount of $17,546. These expenditures were for extracurricular athletic team equipment and uniforms. The Official Code of Georgia Annotated Section 20-2-411 provides, in part, as follows: -5- STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Expenditure Reportable Condition Amount: $17,546 Finding Control Number: FS-7281-04-03 "... school funds shall be used for educational purposes and may be used to pay the salaries of personnel and to pay for the utilization of school facilities, including school buses; for extracurricular and interscholastic activities, including literary events, music, and athletic programs within individual schools and between schools in the same or different school systems when such activities are sponsored by local boards of education as an integral part of the total school program, and for no other purpose ... " Expenditures of this nature are considered to be beyond the customary scope of expenditures for "educational purposes". These expenditures occurred because management disregarded the specific limitations imposed upon the School District by Georgia Laws. Appropriate action should be taken by the School District to secure reimbursement in the amount of $17,546 for deposit to the School District's General Fund. EXPENDITURES/LIABILITIES/DISBURSEMENTS Unauthorized Expenditure Reportable Condition Finding Control Number: FS-7281-04-04 During the months ofAugust, September, and October 2003 bank charges for inappropriate internet sites were made to the School District's General Operating account by a former employee. These charges were noted by the School District when the bank reconciliation was performed. Due to the School District's failure to follow up on reconciling items in a timely manner, the employee was allowed to charge services for three months in the amount of $300. Appropriate action should be taken by the School District to secure reimbursement in an amount of$300 for deposit to the School District's General Fund. CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7281-04-05 Per our review of the School District's capital assets, the following exceptions were noted: 1) Asset identification numbers were not placed on assets in order to properly trace assets to listing. -6- STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7281-04-05 2) The purchase ofa telephone system in the amount of$7,997 was not properly capitalized per School District policy. 3) Two expenditures in the amount of $3,682 for renovations to the high school field house were not capitalized as part of the renovation cost. 4) Parking lots for each school were included in the cost of the buildings. Per School District policy (DIB-R), parking lots should be included as land improvements. These deficiencies were a result of management's failure to implement adequate controls to ensure School District policies are properly followed. Management should ensure that policies are properly followed and assets are tagged. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS PROCUREMENT/SUSPENSION/DEBARMENT Failure to Follow School District's Procurement Policy Reportable Condition U.S. Department of Agriculture U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-7281-04-01 A review of the School District's operating expenditures for the Child Nutrition Cluster Program (CFDA Nos. 10.553 and 10.555) and the Title I Grants to Local Educational Agencies (CFDA 84.010) Program indicated that the School District failed to adhere to local School District policy which requires bids for all contracts for, and purchases of supplies, materials, equipment, and contractual services in the amount of $1,000 or more. No bids were taken for fiscal year 2004. This condition occurred because management failed to follow School District policy DJED dated June 10, 2003. Procedures should be implemented to ensure compliance by management with the School District's purchasing policy. -7 - STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Inadequate Verification Process Reportable Condition U.S. Department of Agriculture Through Georgia Department of Education Finding Control Number: FA-7281-04-02 Per review of the free and reduced verification process performed by the School District in fiscal year 2004 the following deficiencies were noted: 1) A master roster listing of students could not be located to show changes made as a result of the verification process and therefore any changes in a student's status could not be supported. 2) The Verification Record of Action form was completed incorrectly. This form should list only those students selected for verification. The School District listed those students which returned verification forms. 3) The School District did not maintain a copy of the documentation letters for the initial and second requests made by the School District. These deficiencies occurred because the School District failed to follow federal requirements as set forth in the USDA's Manual FNS-274 Part 7 and CFR245.6a. The School District should review the procedures in place to enhance the verification procedures and implement these policies and procedures to ensure adequate internal control over the eligibility requirements for the National School Lunch and School Breakfast programs (CFDA Nos. 10.555 and 10.553). SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U. S. Department of Education Through Georgia Department of Education Repeated from Prior Year Finding Control Number: FA-7281-04-03 During the year in review, there were three schools that the School District identified as participating in a school-wide program. While Federal provisions prescribe that multiple funding sources (Federal, State or Local) are required to support a school-wide program, we noted that the Title I program (CFDA No. 84.010) was identified as the only funding source supporting the school-wide program concept at the participating schools and, in contrast with Federal requirements, the School District arbitrarily charged the Title I fund with school-wide expenditures. -8 - STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Repeated from Prior Year Finding Control Number: FA-7281-04-03 In accordance with provisions ofU. S. Department ofEducation Instructions and 0MB Circular A133, Compliance Supplement provisions, eligible schools are able to use their Title I, Part A funds, in combination with other Federal, State and local funds, in order to upgrade the entire educational program ofthe school and to raise academic achievements for all students. By combining funds from Title I and other eligible U. S. Department ofEducation funded programs in support ofa school-wide program, U. S. Department of Education Instructions provide that specific school-wide program costs lose their identity but only in those circumstances when funds are combined in a schoolwide program. In line with 0MB Circular A-87 requirements, school-wide expenditures should be charged to those Federal funding sources supporting the school wide program in a reasonable manner. If there is only one Federal funding source, then costs should be charged to the Federal program based on the specific benefits derived from that cost. When more than one Federal program supports a school-wide program, then school-wide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support of the school-wide program. It was the School District's understanding that costs related to a school-wide program lose their identity and therefore any school-wide program cost can be charged to the Title I program. They were unaware that this was only applicable when there is more than one funding source supporting the school-wide program. The School District should implement procedures to assure that ifthe Title I program continues to be the only funding source in support ofa school-wide program, only those costs that specifically relate to the Title I program may be charged to the Title I fund. If more than one funding source is to support the school-wide program in the future, then procedures should be developed to (1) combine such funds as prescribed by U. S. Department of Education and (2) in line with 0MB Circular A-87 provisions, allocate such school-wide program costs to the respective Federal fund in a reasonable manner. The School District should seek Georgia Department of Education guidance in implementing fiscal procedures for combining and allocating school-wide program expenditures to Federal programs. -9- SECTIONV MANAGEMENT'S RESPONSES STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FS-7281-04-01 We concur with the findings. The Board will begin the process by having the Superintendent develop a written administrative procedure to ensure that there is a separation ofthose who perform monthly bank reconciliation and record keeping/voucher payment functions. The Board anticipates having these administrative procedures in place by August 2005. Finding Control Number: FS-7281-04-02 We concur with the findings. The Board will begin the process by having the Superintendent to develop written policy and administrative school level procedures to ensure that there is separation of those who perform the record keeping and voucher payment function at the school level. Quarterly reports will be sent to the Superintendent for review and confirmation of accuracy and approved accounting procedures are being followed as directed by policy and written administrative procedure. Finding Control Number: FS-7281-04-03 We concur with the finding. The Board will direct the Superintendent to follow all Federal, State and local guidelines in the disbursement offunds that follow the customary scope ofthe expenditures for educational purposes only and not for extra curricular activities that fall outside of the educational purpose of the program for which the appropriated funds are to support. Finding Control Number: FS-7281-04-04 We concur with the finding. The Board has filed criminal charges against the individual in question and will seek restitution from the courts by the individual in the amount of $300. Finding Control Number: FS-7281-04-05 We concur with the finding. The Board has directed the Superintendent to bring all capital assets upto-date by properly tagging all capital assets and to update the listing of all capital assets currently held by the Stewart County Board ofEducation. The Board has also updated its capital assets policy to define the value of an item to be covered on the list of capital assets. Finding Control Number: FA-7281-04-01 We concur with this finding. The Board has directed the Superintendent to provide the directors of the Child Nutrition Cluster Program and the Title I Grant a copy ofthe policy and review the policy with these individuals. The Board has also directed the Superintendent to review the policy amount of $1,000 for bidding purposes to increase the amount of an item beyond the $1,000 level. The policy is currently under review. - 1- STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FA-7281-04-02 We concur with this finding. The Board has directed the Superintendent to provide staff development and training for system personnel for the information and procedures that are found in USDA's Manual FNS-274 Part 7 and CFR 245.6a. The review and training will allow individuals responsible for this program to follow the rules and regulations and will keep the program compliance. Finding Control Number: FA-7281-04-03 We concur with this finding. The Board will have the Superintendent to develop procedures that will allow the combining of Federal, State and local funding sources that will allow programs to use all funding sources to maximize educational value in school-wide programs to enhance the programs affect on the student's education. When funds are combined the Superintendent will (1) make sure all funds are combined following prescribed rules and regulations of the U.S. Department of Education and (2) in-line with 0MB A-87 provisions, allocate such school-wide program costs to the respective Federal fund in a reasonable manner. Contact Person: Vicki Harville, Chief Financial Officer Phone: (229) 838-4329 Fax Number: (229) 838-6984 E-mail Address: harvillev@stewart.kl2.ga.us -2-