Stewart County Board of Education, Lumpkin, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2006

STEWART COUNTY BOARD OF EDUCATION
LUMPKIN, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2006
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

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

STATEMENTOFNETASSETS

1

B

STATEMENT OF ACTIVITIES

2

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

4

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

5

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

6

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

7

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

8

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

9

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERALFUND

23

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

24

3 SCHEDULE OF STATE REVENUE

26

STEWART COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

27

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

29

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
May 8, 2007

Honorable Sonny Perdue, Governor Members ofthe General Assembly Members ofthe 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, 2006, 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 opm1ons.
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 ofEducation, as ofJune 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
2006ARL-11

The 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.
In accordance with Government Auditing Standards, we have also issued our report dated May 8, 2007, on our consideration of the Stewart County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 23, 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.
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,
~~.~QJ_LC)~
~Jsell W. Hinton, CPA, CGFM State Auditor
RWH:gp 2006ARL-11

STEWART COUNTY BOARD OF EDUCATION

STEWART COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories Capital Assets Land Land Improvements Buildings 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 (Deficit)
Total Net Assets
Total Liabilities and Net Assets
The notes to the basic financial statements are an integral part of this statement.
- 1-

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

583,233

551,616

175,941 424,534 494,859
32,022 7,888

63,916 388,277 11,354,006 1,403,121 -5,731,558

$ =====9=7'.,.4,..7,=8=5.5...

$

401,025

745,877

220,000 465,000

$

1,831,902

$

7,369,593

71,658 40,009 522,045 258,304 -345,656

$

7,915,953

$ ===9='7=4=7,=8=55=

STEWART COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2006

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services 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

EXPENSES

CHARGES FOR SERVICES

$

4,635,697 $

243,655 398,535 164,837 547,034 511,035
72,875 378,539 541,732
25,917 17,339

536,696 23 543

$=====8=0=9=7 =43=4= $

173,436
30,923 204 359

Net Assets - End of Year

The notes to the basic financial statements are an integral part of this statement. -2 -

EXHIBIT"B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

3,385,128

125,730 349,207 65,890 410,366 254,537
8,751 167,806 288,798 $

16,691

342,058

$

5,414,962 $

$ 42,533 42 533 $

-1,077,133
-117,925 -49,328 -98,947
-136,668 -256,498
-64,124 -210,733 -210,401
-25,917 -648
-163,715 -23 543
-2,435,580

$

1,684,367

362,043 7,808 10,020 12,564
130,932

$

2,207,734

$

-227,846

8 143 799

$ ===7..,,9=1=5..,,9=53=

-3-

STEWART COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2006

EXHIBIT"C"

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

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$

205,809 $

116,074 $

261,350 $

583,233

351,616

200,000

551,616

40,000 424,534 494,859
32,022 7 888

60,695

100,695 424,534 494,859
32,022 7 888

$ 1,205,112 $

467,690 $

522,045 $ ====2,=19=4=,8=47=

$

392,684 $

745 877

$ 1,138,561 $

8,341 8 341

$

401,025

745 877

$ 1,146,902

$

71,658

$

71,658

32,121

32,121

$

522,045

522,045

7,888

7,888

$

459,349

459,349

-45 116

-45 116

$

66 551 $

459 349 $

522,045 $ 1,047,945

$ 1,205,112 $

467 690 $

522,045 $ 2,194,847

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

STEWART COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2006

EXHIBIT"D"

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

$

1,047,945

$

63,916

388,277

11,354,006

1,403,121

-5,731,558

7,477,762

75,246

-685,000

Net Assets of Governmental Activities (Exhibit "A")

$ ==7,=9=15=,9=5=3

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

STEWART COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006

EXHIBIT"E"

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

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 1,681,791 7,808
3,850,760 1,616,755
204,359 1,545 $
130 932
$ 7,493,950 $

$ 7,120 7120 $

$ 362,043
3,899 365 942 $

1,681,791 369,851
3,850,760 1,616,755
204,359 12,564 130,932
7,867,012

$ 4,425,405
243,655 398,535 154,038 527,630 511,035
72,875 370,195 471,553 $
4,625 17,339 508,372

15,355
205,728 $

$ 7,705,257 $ $ -211,307 $
277,858

221,083 $ -213,963 $ 673,312

$
210,000 23 543
233,543 $ 132,399 $ 389 646

4,425,405
243,655 398,535 154,038 527,630 511,035
72,875 370,195 486,908
4,625 17,339 508,372 205,728
210,000 23 543
8,159,883
-292,871
1,340,816

$

66 551 $

459 349 $

522,045 $==1=,0=4=7'=94=5=

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 STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006

EXHIBIT"F"

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

$

-292,871

$

180,481

-328,032

-147,551 2,576

210,000

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

$ ==-=22=7,!,i,8,..46=

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

STEWART COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006
ASSETS Accounts Receivable, Net
Other
LIABILITIES Cash Overdraft Accounts Payable Funds Held for Others
Total Liabilities

EXHIBIT "G"

AGENCY FUNDS
$ ===13='=82=2=

$

8,612

2,907

2,303

$ ===13='=82=2=

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

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

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 ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting 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.

-9-

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District reports the following major governmental funds:
General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund.
District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST) and Bond 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 and grants. 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 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

- 10 -

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

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

- 11 -

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services,

(7) Repurchase agreements, and

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

The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks.

RECEIVABLES

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

PROPERTY TAXES

The Stewart County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on October 15, 2005 (levy date). Taxes were due on December 20, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Stewart County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $1,681,791.

The tax millage rate levied for the 2005 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

13.23 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $362,043 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.

- 12 -

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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:

Land Land Improvements Buildings and Improvements Equipment

Capitalization Policy

Estimated Useful Life

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.

- 13 -

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DEFICIT FUND BALANCES

The fund reporting a deficit fund balance at June 30, 2006, is as follows:

Fund Type/Fund Name

Deficit Balance

Governmental Fund Type General Fund - Regular

$===='!1==03-,0==1=':5

The Stewart County Board of Education has been cutting costs to reduce the deficit.

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. Ifa depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance.

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 ofthe State of Georgia, and

- 14 -

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 3: DEPOSITS

(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.

CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $1,239,078. The amounts of the total bank balances are classified into four categories of custodial credit risk:

Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name.
Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name.
Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.
Category 4 - Uncollateralized.

The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows:

Custodial Credit Risk Category

Bank Balance

1

$ 100,000

2

1,139,078

3

0

4

0

Total

$ 1,239,078

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

- 15 -

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 5: CAPITAL ASSETS

The following is a summary of changes in the Capital Assets during the fiscal year:

Balances July 1, 2005

Increases

Balances Decreases June 30, 2006

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

$

63,916

581,826 $

6 327 $

$ 588,153

63,916 0

Total Capital Assets Not Being Depreciated $ 645,742 $

6 327 $ 588,153 $

63,916

Capital Assets Being Depreciated Buildings Equipment Land Improvements

$ 10,765,853 $ 1,392,373 316,655

588,153 102,532 $ 71,622

$ 11,354,006

91,784

1,403,121

388,277

Less Accumulated Depreciation for: Buildings Equipment Land Improvements

4,323,154 945,004 227,152

191,237 120,144
16 651

91,784

4,514,391 973,364 243,803

Total Capital Assets, Being Depreciated, Net $ 6,979.571 $ 434,275 $

0 $ 7,413,846

Governmental Activity Capital Assets - Net $ 1,625,313 $ 440,602 $ 588,153 $ 1,471,162

Current year depreciation expense by function is as follows:

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

$ 165,380

$

8,493

15,260

6,562

88,640

16 745

135,700 26,952

$ 328,032

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST) and general obligation bond proceeds are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2006, were as follows:

- 16 -

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 6: RESTRICTED ASSETS

District-wide Capital Projects

Bond

SPLOST

Proceeds

Debt Service Funds

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

$ 261,350

$

7,237 $ 109,386

$ 200,000 $ 251,616 $ 100,000

Note 7: RISK MANAGEMENT

The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees 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), errors and omissions, crime 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:

- 17 -

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 7: RISK MANAGEMENT

Position Covered

Amount

Superintendent Board Chairperson Each Principal All Employees

$

50,000

$

50,000

$

10,000

$ 100,000

Note 8: OPERATING LEASES

Stewart County Board of Education has entered into a lease as lessee for office equipment. This lease is considered for accounting purposes to be an operating lease. Lease expenditures for the year ended June 30, 2006, for governmental funds amounted to $1,020. Future minimum lease payments for these leases are as follows:

Year Ending

Governmental Funds

2007 2008 2009

$

1,020

1,020

510

Total Note 9: SHORT-TERM DEBT

$====2"'-",5==5~0

The School District obtains temporary loans in advance of property tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution ofthe State of Georgia limits the aggregate amount of short-term debt to 75 percent of the total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 of the calendar year in which the debt was incurred.

Short-term debt activity for the fiscal year is as follows:

Beginning Balance

Issued

Redeemed

Ending Balance

Temporary Loans

$===0 $ 500,075 $ 500,075 $=====0

- 18 -

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 10: LONG-TERM DEBT

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

Purpose

Interest Rate

Amount

General Government - Series 2002

2.98%

$=====6==85-,0===0==0

The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows:

Governmental Funds General
Obligation Bonds

Balance July 1, 2005

$ 895,000

Deductions Debt Retired

210,000

Balance June 30, 2006

$==6=85=.o=o==o

Portion of Long-Term Debt Due within One Year

$ 220,000

At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

2007

$ 220,000 $

17,135

2008

230,000

10,430

2009

235,000

3,502

Total Principal and Interest

$ 685,000 $

31,067

Note 11: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $159,305 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.

- 19 -

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT"H"

Note 11: ON-BEHALF PAYMENTS
Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $158,093
Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $1,212
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.
Note 13: SUBSEQUENT EVENTS
On March 20, 2007, the voters ofStewart County voted in favor of a Special Purpose Local Option Sales Tax of one percent to be imposed on all sales in Stewart County for a period of time not to exceed 20 calendar quarters, commencing April 1, 2008, to raise not more than $2,300,000. The proceeds from the tax are to be used for the benefit of Stewart County Board of Education as stated on the Official Ballot of Stewart County as follows:
"Shall a one percent sales and use tax be imposed in Stewart County for a period not to exceed 20 calendar quarters and for the raising of not more than $2,300,000 for the purposes of (i) rehabilitating, repairing, renovating, extending and improving the Stewart County Elementary School to include without limitation, parking lot upgrade and expansion, mechanical system upgrade and replacements, landscape and drainage improvements and recreational facility upgrade, expansion and improvements; (ii) rehabilitating, repairing, renovating, extending and improving the Stewart-Quitman Middle High School to include without limitation, parking lot upgrade and expansion, mechanical system upgrade and replacement, roofreplacement and repairs, landscape improvements and recreational facility upgrade, expansion, and improvements; (iii) acquiring, constructing and equipping, a community education center to share with the community; (iv) rehabilitating, repairing, renovating, equipping, and extending the Central Office; (v) acquiring, installing, improving, and upgrading system-wide instructional and administrative technology, safety and security

- 20-

STEWART COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "H"

Note 13: SUBSEQUENT EVENTS

equipment, to include without limitation, school and bus surveillance equipment and cameras; (vi) acquiring school furnishings, signage, textbooks, music, educational and vocational equipment; (vii) acquiring new school buses, maintenance vehicles and equipment and improving transportation and maintenance facilities; (viii) acquiring any necessary property, both real and personal; (ix) payment of capitalized interest through July 1, 2008; (the "Projects") and (x) paying costs incident to accomplishing the foregoing. If imposition ofthe tax is approved by the voters, such vote shall also constitute approval of the issuance of general obligation debt ofthe Stewart County School District in the principal amount ofup to $1,200,000 repayable from the proceeds of aforesaid sales and use tax, for the purpose of funding such portions ofthe above Projects as may be acquired, constructed and equipped with the proceeds of general obligation debt and to pay capitalized interest on such debt through July 1, 2008 inclusive."

Note 14: 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

2006 2005 2004

100% 100% 100%

$ 384,677 $ 358,114 $ 331,592

- 21 -

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STEWART COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2006

SCHEDULE "1"

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

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

1,727,466 $

1,727,466 $

1,681,791

243,925

243,925

7,808

3,460,953

3,527,245

3,850,760

844,309

844,309

1,616,755

17,700

17,700

204,359

200

200

1,545

9639

158 139

130 932

$

6,304,192 $

6,518,984 $

7,493,950

$

3,611,783 $

4,360,466 $

4,425,405

128,060 235,066 135,571 430,548 427,992
10,609 388,605 461,142
4,675 51,500 422,039

233,845 383,957 151,621 396,940 427,992 100,698 388,605 494,557
4,675 68,691 429 914

243,655 398,535 154,038 527,630 511,035
72,875 370,195 471,553
4,625 17,339 508,372

$

6,307,590 $

7 441 961 $

7,705,257

$

-3,398 $

-922,977 $

-211,307

268,822

268,822

277,858

-1 299

-1 299

Fund Balances - Ending

$

264,125 $

-655 454 $ ====6=6'=55=1=

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.

- 23 -

STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2006

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Donation (1)
Total U.S. Department of Agriculture
Corporation for National and Community Service Pass-Through From Georgia Department of Education Learn and Serve America School and Community Based Programs
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Other Programs Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality State Grants Reading First State Grants Rural Education Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Pass-Through From Morehouse School of Medicine Twenty-First Century Community Learning Centers
Total U. S. Department of Education
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) 476 441
476,441

10.550

N/A
$

624 477 065

94.004

NIA $

909

84.027 84.173

N/A $ N/A
$

172,854 15 606
188,460

84.318 84.938 84.367 * 84.357 84.358 84.186 84.298 * 84.010 84.048
84.287

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

9,252 (3)
103,237 224,200
41,078 7,804 8,740
509,903 17,400
148 500
1,258,574

$ ======1,.,.73=6=,54====8

- 24 -

STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2006

SCHEDULE "2"

Notes to the Schedule of Expenditures of Federal Awards
(1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year.
Commodities valued in the amount of $16,291 were received during the current fiscal year but $15,667 of that amount was not recorded in the School District's financial statements.
(2) Expenditures for the funds earned on the School Breakfast Program ($102,913) were not maintained separately and are included in the 2006 National School Lunch Program.
(3) Funds earned on the Hurricane Education Recovery program, in the amount of $6,504, do not require reporting of expenditures.
Major Programs are identified by an asterisk (*) in front of the CFDA number.
The School District did not provide Federal Assistance to any Subrecipient.
The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the 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.

- 25 -

STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006

AGENCY/FUNDING
GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Health Insurance National Teacher Certification Preschool Handicapped Program Statewide K-8 Reading and Mathematics Program Virtual Schools
Office of Treasury and Fiscal Services Public School Employees Retirement

See notes to the basic financial statements.

-26-

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

169,342

91,325 96,956 291,991 212,043 175,854 109,553 367,095 390,369 143,294
9,780 147,330 213,339
53,247 13,117 15,570
-545 31,007 60,460 20,257 12,442
260,202 251,944 165,850
227,054 42,533 195,412 31,259 2,364 3,518 21,934 13,541
-190,224
158,093 9,805 7,337
25,000 100
1 212
$ =====3=,8=50='=76=0=

STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2006

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 $

5,975 $ 1,233,577 Ongoing

1,600,000

1,600,000

238,651

731,910 Ongoing

$ 3,087,631 $ 3,087,631 $

244,626 $ 1,965,487

(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.

- 27-

(This page left intentionally blank)

STEWART COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2006

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 Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI 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

$

112,654 $

147,438 $

521 $

147,959

120,351

151,349

-2,748

148,601

359,579

422,616

3,221

425,837

243,989

232,319

232,319

211,855

285,426

719

286,145

133,257 433,824 460,026 170,331 531,327
20,304 37186

127,773
484,593 546,215 155,634
15,387 351,168 181,721
11,190 41,491 48,041 42,087

1,346 66
23,384 4,085
875
682

127,773 1,346
484,659 569,599 159,719
15,387 352,043 181,721
11,190 41,491 48,723 42 087

$

2,834,683 $ 3,244,448 $

32,151 $

3,276,599

72,624 14 956

135,868 844

4,772 4 812

140,640 5656

TOTAL QBE FORMULA FUNDS

$

2,922,263 $ 3,381,160 $

41 735 $===3,,..42..2..,.8.=9=5

(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.

-29-

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
May 8, 2007

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, 2006, which collectively comprise Stewart County Board of Education's basic financial statements and have issued our report thereon dated May 8, 2007. 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 opinions 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 of the internal control over financial reporting that, in our judgment, could adversely affect Stewart County Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-7281-06-01, FS-7281-06-03, FS-7281-06-04, FS-7281-06-05 and FS-7281-06-06.
2006YB-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-7281-06-03 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 oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of the management and members of the Stewart County Board of Education and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
~w~--k Russell W. Hinton, CPA, CGFM State Auditor
RWH:gp 2006YB-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
May 8, 2007

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 of Education with the types of compliance requirements described in the U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Stewart County Board ofEducation'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 ofAmerica; 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 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 Stewart County Board ofEducation's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Stewart County Board of Education's compliance with those requirements.
2006SA-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, 2006.

Internal Control Over CompHance

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-7281-06-01 and FA-7281-06-02.

A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above are material weaknesses.

This report is intended solely for the information and use of the management, members of the Stewart County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Respectfully submitted,

.

RWH:gp 2006SA-30

~e~ffit~~~ State Auditor

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, 2006

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-7281-00-03 FS-7281-03-01 FS-7281-03-02 FS-7281-03-04 FS-7281-04-01 FS-7281-04-02 FS-7281-04-03 FS-7281-04-04 FS-7281-04-05 FS-7281-05-01 FS-7281-05-02 FS-7281-05-03 FS-7281-05-04

Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Further Action Not Warranted Further Action Not Warranted Unresolved - See Corrective Action/Responses Further Action Not Warranted Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Meet Expenditure Requirements Amount: $15,529 Finding Control Number: FS-7281-00-03

All expenditure requirements are being closely monitored and should be met during each fiscal year.

EMPLOYEE COMPENSATION Underpayment of Employee Benefits Amount: $72,895 Finding Control Number: FS-7281-03-04

The School District has not paid as ofthis date due to inadequate funding. Superintendent will recommend the School District place funds in the fiscal year 2008 budget for this item.

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STEWART COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTION/RESPONSES
EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Expenditure Amount: $17,546 Finding Control Number: FS-7281-04-03
The Stewart/Quitman High School athletic department has been requested to refund this money to the Stewart County Board of Education but due to insufficient revenue, the athletic department has not been able to return the $17,546 as of this date. The School District continues to request the reimbursement of these funds and hopes the funds will soon be repaid to the School District. The School District will continue to pursue these funds in hope of full recovery of the funds.
CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Finding Control Number: FS-7281-05-01
The Stewart County Board of Education recognizes the importance for assurances that ensure separation ofindividuals that perform monthly bank reconciliation, record keeping, and voucher payment functions. The tasks are kept separate by using the following procedures:
Monthly bank reconciliation is performed by the Assistant Bookkeeper. System record keeping is performed by the Financial Director. Voucher payment functions are performed by the Superintendent's secretary with
final approval of payment authorized by the Superintendent.
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Accounting Procedures Finding Control Number: FS-7281-05-02
The Stewart County Board of Education recognizes the importance for assurances that ensure separation ofindividuals that perform monthly bank reconciliation, record keeping, and voucher payment functions. The tasks are kept separate by using the following procedures:
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STEWART COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTION/RESPONSES
CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Accounting Procedures Finding Control Number: FS-7281-05-02
Monthly bank reconciliation is performed by the School's Nurse. School record keeping is performed by the School's Secretary/Receptionist. Voucher payment functions are performed by the Principal's secretary with final
approval of payment authorized by the Principal.
At the end ofeach quarter, a quarterly report will be filed with the Superintendent's office and reviewed by the Financial Director. The Financial Director will then report to the Superintendent quarterly on the findings of each school's quarterly financial statement.
EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Expenditure Amount: $11,053 Finding Control Number: FS-7281-05-03
The Superintendent follows all Federal, State, and local guidelines in the disbursement of funds that follow the customary scope of the expenditure for educational purposes only and not for extra curricular activities that fall outside of the educational purpose of the program for which the appropriate funds are to support.
CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Finding Control Number: FS-7281-05-04
All capital assets should be up-to-date and properly tagged as of this date.
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STEWART COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-7281-04-01 FA-7281-04-02 FA-7281-05-01 FA-7281-05-02 FA-7281-05-03

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

CORRECTIVE ACTION/RESPONSES

SPECIAL TESTS AND PROVISIONS Inadequate Verification Process U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-7281-04-02

The School District 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 in compliance.

EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequate Inventory Records U.S. Department ofAgriculture Through Georgia Department of Education Finding Control Number: FA-7281-05-02

The Superintendent has provided staff development and training for appropriate system personnel for the information and procedures that are found in Chapter 41 of the FMGLUA for recording of equipment purposes and inventory purposes. All equipment should be recorded and properly tagged.

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SECTION IV FINDINGS AND QUESTIONED COSTS

STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

I SUMMARY OF AUDITOR'S RESULTS

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

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

Budget Preparation/Execution Cash and Cash Equivalents Revenues/Receivables/Receipts Accounting Controls (Overall)

Expenditures/Liabilities/Disbursements Employee Compensation General Ledger Capital Assets

Of the reportable conditions described above, Cash and Cash Equivalents, 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.

Equipment and Real Property Management

Reporting

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 .5 IO{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) ofOMB Circular A-133. These audit findings are included in section IV of this report.

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STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

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 84.357 Reading First State Grants

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 ofOMB Circular A-133.

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

BUDGET PREPARATION/EXECUTION Deficit Fund Balance Reportable Condition Finding Control Number: FS-7281-06-01

Condition:

Deficit Fund Balance.

Criteria:

Chapter 25 Reportingfor LUA 's with General Fund Deficit Balances ofthe Financial Management for Georgia Local Units of Administration states in part: "The seriousness of fund balance deficits cannot be overstated. The Georgia Department ofEducation requires those LUA's with deficit balances to meet certain reporting requirements".

Questioned Cost: NIA

Information:

The School District's General Fund - Regular reported a deficit fund balance in the amount of$103,015.

Cause:

The School District incurred expenditures in excess of revenues in the General Fund - Regular.

Effect:

A financial statement irregularity in accordance with O.C.G.A. 20-2-67.

Recommendation:

The School District should establish policies and procedures designed to ensure that in future periods the School District does not report a deficit fund balance.

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STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

BUDGET PREPARATION/EXECUTION Failure to Adopt a Balanced Budget Nonmaterial Noncompliance Finding Control Number: FS-7281-06-02

Condition:

School District failed to adopt a balanced budget for the General Fund.

Criteria:

Chapter 32 of the Financial Management for Georgia Local Units of Administration (FMGLUA) states in part: "The budget must be balanced for all budgeted funds. Total anticipated revenues should equal total estimated expenditures. In the event anticipated revenues are insufficient to fund anticipated essential expenditures, a portion ofunreserved fund balance from previous years must be used to fund the shortfall. In the event there is insufficient unreserved fund balance from previous years to fund anticipated expenditures, then such expenditures must be reduced to equal anticipated revenues plus available unreserved fund balance".

Questioned Cost: NIA

Information:

In the School District's final budget, the General Fund budgeted a deficit fund balance in the amount of $655,454.

Cause:

The School District neglected the specific limitations imposed upon the School District by the Georgia Department of Education.

Effect:

Nonmaterial noncompliance with respect to Chapter 32 of the FMGLUA.

Recommendation:

Appropriate procedures should be implemented by the School District to ensure that the adopted budget for each budgeted fund is balanced as required.

CASH AND CASH EQUIVALENTS EMPLOYEE COMPENSATION GENERAL LEDGER ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7281-06-03

Condition:

This is a repeat finding (FS-7281-05-01 and FS-7351-04-01) from the years ended June 30, 2005, and 2004 respectively. The accounting procedures of the School District were insufficient to provide for adequate controls over the above control categories.
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STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS EMPLOYEE COMPENSATION GENERAL LEDGER ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7281-06-03

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures.

Questioned Cost: NIA

Information:

Cash and Cash Equivalents 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.

Employee Compensation The School District did not have adequate procedures in place to ensure employee leave records were properly maintained per approved leave policy. Our tests of employee leave records for twenty employees revealed six instances where leave balances were not calculated per the School District's leave policy.

General Ledger USDA commodities received were not properly recorded on the general ledger.

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.

Cause:

The School District's management failed to ensure that adequate internal controls were established, implemented and functioning. The School District's management is responsible for designing and maintaining internal controls that restrict access to programs or data. Management has not limited the access rights of users of the Financial Accounting System.

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STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS EMPLOYEE COMPENSATION GENERAL LEDGER ACCOUNTING CONTROLS (OVERALL) Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7281-06-03

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

The School District should establish and implement appropriate procedures to strengthen internal controls over reconciliation of bank statements to the general ledger, maintaining accurate annual and sick leave records, and to ensure the general ledger is complete and accurate. Additionally, management should ensure that the access controls in the accounting information system complement the system ofinternal control by limiting an employee's access to only the accounting functions necessary for the performance of that employee's duties.

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7281-06-04

Condition:

This is a repeat finding (FS-7281-05-02 and FS-7281-04-02) from the years ended June 30, 2005, and 2004, respectively. The accounting procedures of the School District were insufficient to provide for adequate internal controls over the school activity accounts.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures. Such internal controls would limit any one individual's access to both physical assets and the related accounting records.

Questioned Cost: NIA

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STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7281-06-04

Information:

Cash and Cash Equivalents The bank reconciliation function was not separated from the record keeping and voucher payment functions. There was an unidentified variance of $1,360 between the high school's reconciliation and their general ledger.

Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions. No supporting receipt documentation was maintained for any receipts.

Expenditures/Liabilities/Disbursements The check writing function was not separated from the record keeping or processing of signed checks. Documentation, such as purchase orders and receipt of goods, was not provided for four ofthe ten expenditures that were tested. None identified the account to which the expenditures were charged and two were not approved.

Cause:

The School District has not assigned responsibilities to achieve appropriate separation of duties nor utilized management oversight of the incompatible activities to properly safeguard assets. These deficiencies were also a result of management's failure to ensure that internal controls were established, implemented and functioning at the school level.

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

The School District should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization are separated and/or utilize management oversight of these incompatible activities. Management should also revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures.

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STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Failure to Report the Financial Statements in a Timely Manner Reportable Condition Finding Control Number: FS-7281-06-05

Condition:

The School District failed to submit the DE046 financial report to the Georgia Department of Education in a timely manner.

Criteria:

Chapter 1 Introduction to LUA Accounting ofthe Financial Management for Georgia Local Units of Administration indicates that "accounting records must provide meaningful, reliable, accurate and timely information to the many persons and groups with legitimate interests in the financial affairs of an LUA".

Questioned Cost: NIA

Information:

The School District's DE046 financial report was submitted to the Georgia Department of Education on November 27, 2006.

Cause:

Management failed to comply with the due date of September 30, 2006, as established by the Georgia Department of Education.

Effect:

The failure ofthe School District to prepare and submit the financial report in a timely manner prohibits legitimate users of the report from being able to have timely access to the financial information provided.

Recommendation:

The School District should implement controls to ensure that the DE046 financial report is submitted in a timely manner in accordance with guidelines established by the Georgia Department of Education.

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7281-06-06

Condition:

This is a repeat finding (FS-7281-05-04 and FS-7281-04-05) from the years ended June 30, 2005, and 2004, respectively. The School District failed to adequately maintain capital assets records.

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STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7281-06-06

Criteria:

Chapter 37 Fixed Assets of the Financial Management for Georgia Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records.

Questioned Cost: NIA

Information:

A review of the School District's capital assets policies and procedures and the related capital asset records noted the following deficiencies:
1. Asset identification numbers were not placed on assets in order to properly trace assets to listing.
2. The subsidiary ledger did not agree to the General Ledger. 3. School District's capital assets policies were not adhered:
a. Three assets were incorrectly recorded according to School District's policy DIB-R, and
b. Nine capital asset expenditures totaling $162,928 were not recorded.

Cause:

The School District failed to properly maintain its capital assets records in accordance with the School District's approved capital assets policy.

Effect:

The failure ofthe School District to maintain a complete and accurate capital assets listing can lead to inaccurate internal and external reporting, as well as noncompliance with generally accepted accounting principles.

Recommendation:

The School District should review its capital assets records and make appropriate adjustments to ensure that the capital assets records conform to the School District's approved capital assets policy and generally accepted accounting principles.

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STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequate Inventory Records Reportable Condition U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Finding Control Number: FA-7281-06-01

Condition:

This is a repeat finding (FA-7281-05-02) from the year ended June 30, 2005. The School District failed to adequately maintain property management records for the Child Nutrition Cluster (CFDA 10.553 and 10.555) programs.

Criteria:

Policies and procedures relative to the School District's management of Federally acquired property are included in Chapter 41 of the Financial Management for Georgia Local Units of Administration. In addition, the requirements for equipment procured with School Food Service funds are contained in the A-102 Common Rule L.32)- U. S. Department of Agriculture regulations 7 CFR 3015 for equipment purchased prior to July 1, 2001, and 7 CFR 3016 for equipment purchased on or after July 1, 2001.

Questioned Cost: NIA

Information:

A review of the School District's equipment list revealed the following deficiencies:
No asset identification number or serial number was included on the equipment records for each equipment item.
Dates the equipment was purchased and put into service were not listed.
Cost ofeach equipment item was not listed on the equipment records.

Cause:

The School District failed to properly maintain complete property management records as required for the Child Nutrition Cluster program and failed to ensure that physical inventory counts were performed and reconciled to property management records.

Effect:

The failure ofthe School District to maintain complete and accurate property management records can lead to inaccurate internal and external reporting, as well as noncompliance with Federal guidelines and policies.

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STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequate Inventory Records Reportable Condition U. S. Department of Agriculture Through Georgia Department of Education Child Nutrition Cluster (CFDA 10.553 and 10.555) Finding Control Number: FA-7281-06-01

Recommendation:

The School District should establish procedures to ensure that equipment purchased with Child Nutrition Cluster program funds is properly documented and maintained in compliance with the requirements of the policies and procedures relative to the School District's management of Federally acquired property included in Chapter 41 of the Financial Management for Georgia Local Units of Administration.

REPORTING Failure to File Accurate Completion Report Reportable Condition U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (CFDA 84.010) Finding Control Number: FA-7281-06-02

Condition:

The School District failed to file an accurate completion report for the Title I Grants to Local Educational Agencies (CFDA 84.010) program.

Criteria:

The instructions provided by the Georgia Department ofEducation mandate that financial management systems provide for accurate, complete and current disclosure for the financial results of each grant program.

Questioned Cost: NIA

Information:

A review of the School District's accounting records revealed that the completion report was not supported by the total expenditures for this program as indicated below:

Actual Program Expenditures

Expenditures per Completion Report

Variance

$350,806

$388,338

$37,532

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STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

REPORTING Failure to File Accurate Completion Report Reportable Condition U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (CFDA 84.010) Finding Control Number: FA-7281-06-02

Cause:

Expenditures per the completion report were not correct due to the School District incorrectly allocating schoolwide program expenditures.

Effect:

The School District may have to refund the Georgia Department ofEducation the variance identified above.

Recommendation:

Appropriate procedures should be implemented to ensure that accurate completion reports are submitted to the Georgia Department of Education. The School District should submit a corrected completion report to the Georgia Department of Education. In addition, the Georgia Department of Education should review this matter to determine if a reclaim of grant funds is appropriate.

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SECTIONV MANAGEMENT'S RESPONSES

STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006
Finding Control Number: FS-7281-06-01
We concur with this finding. The Board will begin the process by having the Superintendent develop and establish policies and procedures designed to ensure that in future periods the School District does not report a deficit fund balance. The Board anticipates having these policies and procedures in place by August 2007.
Finding Control Number: FS-7281-06-02
We concur with this finding. The Board will begin the process by having the Superintendent develop and establish procedures to ensure that the adopted budget for each budgeted fund is balanced as required. The Board anticipates having these policies and procedures in place by August 2007.
Finding Control Number: FS-7281-06-03
We concur with this finding. The Board will begin the process by having the Superintendent develop a written administrative procedure to ensure that bank reconciliations are independently reviewed and corrected in a timely manner, employee leave records are properly maintained and follow Board policy, USDA commodities are recorded on the general ledger, and unauthorized personnel do not have access to financial systems outside their areas or responsibility. The Board anticipates having these procedures in place by August 2007.
Finding Control Number: FS-7281-06-04
We concur with this finding. The Board will begin the process by having the Superintendent implement procedures to ensure that the key accounting functions of custody, record keeping and authorization be separated and/or utilize management oversight ofthese incompatible activities. The central and school management will revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures. The Board anticipates having these procedures in place by August 2007.
Finding Control Number: FS-7281-06-05
We concur with this finding. The Board will begin the process by having the Superintendent to implement controls to ensure that the Georgia Department ofEducation policies and procedures are followed and implemented to ensure that the DE046 financial report is submitted in a timely manner. The Board will have this implemented immediately.
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STEWART COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006
Finding Control Number: FS-7281-06-06 We concur with this finding. The Board will begin the process by having the Superintendent to develop a plan to update and review its capital assets records and make appropriate adjustments to ensure that the capital assets conform to the School District's approved capital assets policy and generally accepted accounting procedures. The Board has already had the capital assets corrected and brought up-to-date with Board policy. Finding Control Number: FA-7281-06-01 We concur with this finding. The Board will begin the process by having the Superintendent establish procedures to ensure that equipment purchased with Child Nutrition Cluster program funds are properly documented and maintained in compliance with the requirements ofthe policies and procedures relative to School District's management of Federally acquired property included in Chapter 41 of the Financial Management for the Georgia Local Administration. The Board anticipates having these administrative procedures in place by August 2007. Finding Control Number: FA-7281-06-02 We concur with. this finding. The Board will begin the process by having the Superintendent to oversee that appropriate procedures are in place to ensure that accurate completion reports are submitted to the Georgia Department of Education. The School District will submit a corrected completion report to the Georgia Department of Education immediately and will wait on their response on the reclaiming offunds. The Board anticipates having these administrative procedures in place by August 2007. Contact Person: Vicki Harville, ChiefFinancial Officer Phone: (229) 838-4329 Fax Number: (229) 838-6984 E-mail Address: harvillev@stewart.kl2.ga.us
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