TALBOT COUNTY BOARD OF EDUCATION TALBOTTON, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor TALBOT COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 6 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 9 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 10 H STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS 11 I NOTES TO THE BASIC FINANCIAL STATEMENTS 12 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 27 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 28 3 SCHEDULE OF STATE REVENUE 30 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 32 TALBOT COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 33 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS TALBOT 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 August 10, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Talbot 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 I) of the Talbot County Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Talbot County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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 of the Talbot County Board of Education, as of June 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2004ARL-11 The Talbot County Board of Education has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements. As discussed in Note 2 to the basic financial statements, during fiscal year 2004, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements and changed its method of accounting for the salaries of certain ten-month employees from a cash basis to a basis that is generally accepted. These changes are in accordance with generally accepted accounting principles. As described in Note 2, the Talbot County Board of Education has implemented a new financial reporting model as required by provisions ofGovernmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2004. In accordance with Government Auditing Standards, we have also issued our report dated August 10, 2005, on our consideration ofthe Talbot County Board ofEducation's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope ofour testing of internal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 27 is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Talbot County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. 2004ARL-11 A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code ofGeorgia Annotated section 506-24. Respectfully submitted, RWH:as 2004ARL-11 Russell W. Hinton State Auditor TALBOT COUNTY BOARD OF EDUCATION TALBOT COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004 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 Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 3,564,906 3,194,605 206,630 390,121 115,529 811 20,116 42,051 289,689 3,336,286 1,385,990 -2,329,700 $ ======1o="',2=1=1=,0=34= $ 582,274 732,915 615,000 4,820,000 $ 6 750 189 $ 1,693,253 168,236 1,056,957 67,061 481 338 $ 3 466 845 $ ======10="',2=1=7,0=34= The notes to the basic financial statements are an integral part of this statement. -3 - TALBOT COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2004 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year (Restated) Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 4,624,919 $ 445,311 342,472 112,427 589,664 405,604 60,712 433,069 393,968 11,854 48,094 54,885 2,229 572,039 204,265 $ 8,301,512 $ 209 93,076 39,603 132,888 The notes to the basic financial statements are an integral part of this statement. -4- EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 4,031,117 173,312 302,187 68,551 132,740 21,878 4,981 231,959 $ 26,584 27,385 473,511 $ 5494 205 $ $ 37,330 37 330 $ -593,593 -271,999 -40,285 -43,876 -456,924 -383,726 -60,712 -428,088 -124,679 -11,854 -21,510 38,191 25,156 -58,925 -204,265 -2,637,089 $ 2,445,985 151,872 396,743 3,481 9,426 167,178 75,716 67 364 $ 3 317,765 $ 680,676 2,786,169 $ 3 466 845 -5- TALBOT COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2004 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 1,244,502 $ 1,353,160 $ 76,767 3,117,838 26,360 390,121 115,529 764 20 116 967,244 $ 89,666 47 3,564,906 3,194,605 116,026 390,121 115,529 811 20 116 Total Assets $ 1,874,159 $ 4,470,998 $ 1,056,957 $ ======7=4=0=2'=1=14= LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable $ 582,274 $ Salaries Payable 732,915 Total Liabilities $ 1,315,189 $ FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund $ 148,120 $ $ 1,056,957 20,116 $ 4,470,998 390,734 Total Fund Balances $ 558,970 $ 4,470,998 $ 1,056,957 $ 582,274 732 915 1,315 189 148,120 1,056,957 20,116 4,470,998 390 734 6,086,925 Total Liabilities and Fund Balances $ 1,874,159 $ 4,470,998 $ 1,056,957 $ ======7=4=0=2'=1=14= The notes to the basic financial statements are an integral part of this statement. -6- TALBOT COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30. 2004 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land 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 $ 6,086,925 $ 42,051 289,689 3,336,286 1,385,990 -2,329,700 2,724,316 90,604 -5,435,000 Net Assets of Governmental Activities (Exhibit "A") $ ====3=,4=6=6..,,8=45= The notes to the basic financial statements are an integral part of this statement. -7 - TALBOT COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2004 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Net Change in Fund Balances Fund Balances - Beginning (Restated) Inventory - Net Change in Period Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 2,374,710 8,960 $ 4,064,229 1,634,484 132,888 16,650 67 317 $ 8,299,238 $ $ 3,481 55,398 58,879 $ 147,568 $ 397,209 3,668 47 548,492 $ 2,522,278 409,650 4,064,229 1,634,484 132,888 75,716 67 364 8,906,609 $ 4,348,441 445,311 342,472 112,427 587,425 405,604 59,098 420,370 572,145 11,854 35,737 54,885 2,229 567,725 $ $ 300,869 $ 7,965,723 $ 300,869 $ $ 333,515 $ -241,990 $ 218,468 4,712,988 6 987 $ 1,614 90,000 204,265 295,879 $ 252,613 $ 804,344 4,348,441 445,311 342,472 112,427 587,425 405,604 60,712 420,370 572,145 11,854 35,737 54,885 2,229 567,725 300,869 90,000 204,265 8,562,471 344,138 5,735,800 6 987 $ 558,970 $ 4,470,998 $ 1,056,957 $ =====6=,0=86='=92=5= The notes to the basic financial statements are an integral part of this statement. -8- TALBOT COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30. 2004 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") $ Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense $ 310,926 -160,083 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 Food Inventories are expensed on the District-Wide Statements using the consumption method while on the fund level Food Inventories are recorded as expenditures when purchased. In the current period this difference amounts to. 344,138 150,843 75,579 90,000 20 116 Change in Net Assets of Governmental Activities (Exhibit "B") $ ===68=0=,6=7=6 The notes to the basic financial statements are an integral part of this statement. -9- TALBOT COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004 EXHIBIT G 11 11 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others NET ASSETS Held in Trust for Private Purposes Total Liabilities and Net Assets PRIVATE PURPOSE TRUSTS AGENCY FUNDS $ 2,556 $ 25,547 $ 25,547 $ 2,556 $ 2,556 $ ===2=15=54=7= The notes to the basic financial statements are an integral part of this statement. -10- TALBOT COUNTY BOARD OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS YEAR ENDED JUNE 30. 2004 EXHIBIT"H" ADDITIONS Investment Earnings Interest DEDUCTIONS Administrative Expenses Change in Net Assets Net Assets - Beginning Net Assets - Ending PRIVATE PURPOSE TRUSTS $ 13 $ 24 $ -11 2,567 $ ===2='=55=6= The notes to the basic financial statements are an integral part of this statement. - 11 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Talbot 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. The Talbot County Alternative Academy (Charter School) is responsible for the public education of all students attending its school. The Charter School was created through a contract between the School District and the Charter School whereby all State funding associated with the students attending the Charter School and certain specified local funds are turned over to the Charter School to cover the cost of its operations. The financial statements ofthe Charter School have been blended with the School District's general fund. 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 Talbot County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. - 12 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Bond Proceeds to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund types: Private Purpose Trust fund reports a trust arrangement under which principal and income are used to provide scholarships to business administration and business education students with junior standing at an accredited college or university. Agency funds account for assets held by the School District as an agent for various funds, governments, or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by - 13 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. For fiscal year 2004, the School District changed its method of accounting for the final two payments on one hundred and ninety day contracts and for the related revenue due from the State to fund these contracts. Adjustments have been made in the fiscal year 2004 financial statements to record costs for salaries and fringe benefits earned by employees through June 30, 2004, (even though paid in July and August 2004) and the related revenue due from the State to fund these contracts. Adjustments were also made for the similar salaries, benefits and related State revenues earned in fiscal year 2003 and recorded in fiscal year 2004. The net effect of the above accounting treatment results in the accompanying financial statements reflecting costs for those salaries and benefits earned by employees during fiscal year 2004 and the related State revenue to fund these contracts. In addition, both the net assets and fund balance at July 1, 2003, have been restated for salaries and benefits earned by employees in fiscal year 2003 but not paid until July and August 2003 and for the related State revenue for these contracts. This change is in accordance with generally accepted accounting principles. See Restatement of Prior Year Fund Balance. RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of $216,958 at July 1, 2003. For fiscal year 2004, these funds have been reported as part of the General Fund. In addition, governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been - 14 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES reported within the General Fund for fiscal year ended June 30, 2004. The governmental fund activity ofthe various school activity accounts had a fund balance of $14,447 at July 1, 2003. This change is in accordance with generally accepted accounting principles. General Fund Balance July 1, 2003 $ 385,278 Add Funds Consolidated with General Fund: School Food Services Fund School Activity Account - Governmental Activity 216,958 14,447 Add: State Revenue Related to July and August 2003 Salary Payments Earned by Employees in Fiscal Year 2003 378,276 Deduct: July and August 2003 Salary Payments Earned by Employees in Fiscal Year 2003 776,491 General Fund Balance July 1, 2003 (Restated) CHANGES IN ACCOUNTING PRINCIPLES $====2==18=,4==6==8 The Talbot County Board ofEducation has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis -for State and Local Governments, as of June 30, 2004. The provisions of GASB Statement No. 34 require the inclusion of a Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following: General Fund (Restated) July 1, 2003 Capital Projects Fund Debt Service Fund $ 218,468 4,712,988 804,344 Governmental Funds (Restated) July 1, 2003 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Bonds and Notes Payable Food Inventories Costing Differences $ 5,735,800 4,743,090 -2,169,617 15,025 -5,525,000 -13,129 Net Assets Beginning (See Exhibit "B") $ 2~786~169 - 15 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 of deposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables - 16 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 Talbot County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on October 20, 2003 (levy date). Taxes were due on December 20, 2003 (due date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Talbot 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, 2004, for maintenance and operations amounted to $2,374,710 and for school bonds amounted to $147,568. Tax millage rates levied for the 2003 tax year (calendar year) for the Talbot County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): School Operations School Bonds 13.08 mills ~mills 13.88 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $400,224 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the District-wide financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the 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. - 17 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time 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: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment All NIA $ 5,000 15 years $ 5,000 25 to 60 years $ 5,000 5 to 12 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. In addition, general obligation bonds have been issued to refund existing general obligation bonds. 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 ofNet Assets. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. - 18 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 3: DEPOSITS AND INVESTMENTS If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2004, the bank balances were $7,132,131. The amounts of the total bank balances are classified into three categories of credit risk: Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. - 19 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 3: DEPOSITS AND INVESTMENTS Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2004, as follows: Risk Category Bank Balance 1 $ 940,414 2 1,907,962 3 4,283,755 Total $ 7,132,131 CATEGORIZATION OF INVESTMENTS At June 30, 2004, the carrying value ofthe School District's total investments was $82,795 which is materially the same as fair value. This investment consisted entirely offunds invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows: The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U. S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase - 20 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30. 2004 EXHIBIT"I" Note 3: DEPOSITS AND INVESTMENTS agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2004, was 24 days. The average investment duration for Fund 6 on June 30, 2004, was 0.22 years. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2003 Increases Decreases Balances June 30, 2004 Governmental Activities Capital Assets, Not Being Depreciated: Land $ 42,051 $ 0 $ 0 $ 42,051 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 3,326,286 $ 1,085,064 289,689 10,000 $ 300,926 0 $ 3,336,286 1,385,990 289,689 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 1,198,933 707,343 263,341 57,531 84,987 17,565 1,256,464 792,330 280,906 Total Capital Assets, Being Depreciated, Net $ 2,531,422 $ 150,843 $ 0 $ 2,682,265 Governmental Activity Capital Assets - Net $ 2,573,473 $ 150,843 $ 0 $ 2,724,316 Current year depreciation expense by function is as follows: Instruction Support Services General Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Food Services $ 76,072 $ 616 3,494 69,779 3 400 77,289 6,722 $ 160!083 - 21 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds and property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2004, were as follows: District-wide Capital Projects Bond SPLOST Proceeds Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Capital Acquisitions $ 967,244 $ 6,856 $ 1,346,304 $ 3,117,838 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; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with torts, assets and errors or omissions. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years. The School District has elected to self-insure for all losses related to acts of God. The School District has not experienced any losses related to this risk in the past three years. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: - 22 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 7: RISK MANAGEMENT 2003 2004 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End ofYear Liability $ 0 $ 6,662 $ 6,662 $ 0 $ 0 $ 11 776 $ 11 776 $ 0 The School District participates in the Georgia Education Workers' Compensation Trust, a public entity risk pool organized on December 1, 1991, to develop, implement and administer a program of workers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Trust for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Trust with the Midwest Employers Casualty Company to provide coverage for potential losses sustained by the Trust in excess of $400,000 loss per occurrence, up to $2,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent School Food Service Director Bookkeeper/Clerk Payroll Clerk Each Employee $ 30,000 $ 10,000 $ 10,000 $ 10,000 $ 100,000 Note 8: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 1998 General Government - Refunding - Series 1998 General Government - Series 2003 4.0% 4.3%-4.5% 3.8% $ 305,000 630,000 4,500,000 $ 5,435,000 The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows: - 23 - TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 8: LONG-TERM DEBT Governmental Funds General Obligation Bonds Balance July 1, 2003 $ 5,525,000 Deductions Debt Retired 90,000 Balance June 30, 2004 $ 5,435,000 Portion of Long-Term Debt Due within One Year $ 615,000 At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2005 2006 2007 2008 2009 2010 - 2014 2015 - 2019 $ 615,000 $ 320,000 330,000 350,000 365,000 1,590,000 1,865,000 198,598 180,065 167,228 153,728 139,439 502,400 183,825 Total Principal and Interest $ 5,435,000 $ 1,525,283 Note 9: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of$73,658 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $73,073 - 24- TALBOT COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "I" Note 9: ON-BEHALF PAYMENTS Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $585 Note 10: 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 11: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2004 2003 2002 100% 100% 100% $ 395,874 $ 398,165 $ 356,590 - 25 - TALBOT COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30 2004 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning (Restated) Inventory - Net Change in Period NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 2,430,289 $ 2,430,289 $ 2,374,710 13,500 13,500 8,960 4,031,420 4,196,987 4,064,229 1,405,359 2,265,482 1,634,484 38,500 38,500 132,888 16,500 16,500 16,650 94 500 97 000 67 317 $ 8 030 068 $ 9,058,258 $ 8,299,238 $ 4,486,210 $ 4,622,551 $ 4,348,441 561,493 87,521 134,044 595,853 415,337 99,258 620,389 602,830 40,000 29,400 495 184 532,178 423,204 134,044 614,921 465,064 99,258 622,618 570,930 40,000 34,600 8,450 495 184 445,311 342,472 112,427 587,425 405,604 59,098 420,370 572,145 11,854 35,737 54,885 2,229 567 725 $ 8 167 519 $ 8,663,002 $ 7 965 723 $ -137 451 $ 395 256 $ 333 515 $ 195,000 $ 195,000 -195 000 -195 000 $ 0 $ 0 $ -137,451 $ 395,256 $ 333,515 541,621 541,621 218,468 14 340 14 340 6987 Fund Balances - Ending $ 418 510 $ 951 217 $ 558 970 Notes to the Schedule of Revenues Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. -27- TALBOT COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U.S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Pass-Through From Bright From the Start: Georgia Department of Early Care and Leaming Child and Adult Care Food Program 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 Even Start Improving Teacher Quality State Grants Reading First State Grants Rural Education State Grants for Innovative Programs Title I - Accountability Grant Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U.S. Department of Education National Endowment for the Arts Pass-Through From Georgia Council for the Arts Promotion of the Arts - Partnership Agreements Defense, U. S. Department of Direct Department of the Army R.O.T.C. Program Total Federal Financial Assistance N/A = Not Available -28- CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 N/A N/A $ $ (2) 508,289 508,289 10.550 10.558 N/A N/A $ 32,037 (2) 540 326 94.004 NIA $ 5000 84.027 84.173 N/A $ N/A $ 139,723 20 838 160,561 84.318 84.213 84.367 84.357 84.358 84.298 . 84.348 84.010 84.048 N/A N/A N/A N/A N/A N/A N/A N/A N/A $ 14,239 202,194 136,863 30,368 26,091 21,740 2,105 569,154 18,460 1181,775 45.025 N/A (3) (4) $ 1 727 101 TALBOT COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2004 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on Child and Adult Care Food Program ($15,144) and the School Breakfast Program ($121,967) were not maintained separately and are included in the 2004 National School Lunch Program. (3) Funds earned on this program in the amount of $4,265 were not maintained by fund source. (4) Funds earned on this program in the amount of $50,856 were not maintained by fund source. 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 Talbot 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. -29- TALBOT COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004 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 Grades (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category II 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 - Alternative Program Sparsity Nursing Services Principal Supplements Vocational Supervisors Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs K-3 Statewide Reading Program 4-8 Statewide After School Program Health Insurance Mentor Teachers Pay for Performance Preschool Handicapped Program School Improvement (Georgia's Choice) Lottery Program Student Information System Office of Treasury and Fiscal Services Public School Employees Retirement - 30 - SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 170,318 167,428 12,236 433,635 53,954 251,140 44,435 496,919 287,281 150,706 207,752 68,695 33,768 65,542 21,945 11,890 244,912 134,664 182,241 207,415 37,330 11,700 221,659 32,814 2,586 9,008 160,089 78,324 26,664 29,705 -169,101 12,664 12,000 73,073 1,345 92,582 41,021 60,000 15,422 585 TALBOT COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004 AGENCY/FUNDING CONTRACTS Education, Georgia Department of Northwest Georgia Regional Educational Service Agency America's Choice NCEE Grant Human Resources, Georgia Department of Family Connection Division of MHDDAD Substance Abuse Prevention Services SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 5,250 39,833 22 800 $ ===4='=,0=6=4=,2=29= See notes to the basic financial statements. - 31 - TALBOT COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30. 2004 SCHEDULE "4" PROJECT Payments on previously incurred bonded indebtedness, including payments of principal and interest due on Talbot County School District's Series 1989 General Obligation Bonds (or any bonds issued to refund those bonds), from February 1, 2000 through and including August 1, 2004. The expansion, remodeling and renovation of existing school district facilities, including classrooms, instructional areas, support space, physical education and athletic facilities and grounds, and to provide furnishings, equipment, and fixtures for such areas, acquisition of real estate for a central office complex and an athletic facility, and construction of new athletic and storage facilities, and paying any expenses incident thereto, including capitalized interest during construction, at an estimated cost to be funded with sales and use tax proceeds. Acquiring, constructing, and equipping one new elementary school; and adding to, renovating, repairing, improving, and equipping existing school buildings and other buildings and facilities useful or desirable in connection therewith; payment of capitalized interest on the bonds through and including August 1, 2003; and the costs of issuing the bonds. ORIGINAL ESTIMATED COST(1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) (4) AMOUNT EXPENDED IN PRIOR YEARS (3) (4) PROJECT STATUS $ 125,000 $ 490,799 $ 119,540 $ 371,259 Ongoing 1,470,000 1,607,677 300,869 1,306,808 Ongoing 2,500,000 2,500,000 96 063 Ongoing $ 4,095,000 $ 4,598,476 $ 420,409 $ 1 774 130 (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 Talbot 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. (4) In addition to the expenditures shown above, the School District has incurred interest to provide advance funding for the above projects as follows: Prior Years $ 187,433 Current Year 174 725 Total $ ==3=6=2.._,1=5=8 See notes to the basic financial statements. - 32 - TALBOT COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2004 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category II Category Ill Remedial Education Program Alternative Education Program TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 200,460 $ 159,518 $ 4,665 $ 164,183 18,080 41,141 41,141 509,328 537,085 34,168 571,253 71,812 100,768 2,810 103,578 298,023 340,054 17,883 357,937 60,594 580,836 342,139 175,901 266,933 76,926 39 778 62,795 552,523 571,742 246,225 160,504 170,225 36,430 38,669 5,250 30,776 12,259 26,518 523 500 68,045 583,299 584,001 272,743 161,027 170,725 36,430 38669 $ 2,640,810 $ 3,017,679 $ 135,352 $ 3,153,031 77,653 14,154 82,691 15,079 15,784 97,770 15,784 TOTAL QBE FORMULA FUNDS $====2::!'=73=2.i:,6=1=7 $ 3,100,370 $ 166,215 $===3,!=26=6;!,;,5=8=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. - 33 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 August 10, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Talbot 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 Talbot County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Talbot County Board of Education's basic financial statements and have issued our report thereon dated August 10, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Talbot County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Talbot 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-7301-04-01, FS-7301-04-02 and FS-7301-04-03. 2004YB-30 A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above is a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether Talbot 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 Talbot County Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~w.~ Russell W. Hinton State Auditor RWH:as 2004YB-30 Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 August 10, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members ofthe Talbot 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 ofTalbot County Board ofEducation with the types ofcompliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to its major Federal program for the year ended June 30, 2004. Talbot County Board of Education's major Federal program is identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to its major Federal program is the responsibility of Talbot County Board of Education's management. Our responsibility is to express an opinion on Talbot County Board ofEducation's compliance based on our audit. We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Talbot County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Talbot County Board of Education's compliance with those requirements. 2004SA-10 In our opinion, the Talbot County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to its major Federal program for the year ended June 30, 2004. Internal Control Over Compliance The management of Talbot 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 its Federal program. In planning and performing our audit, we considered Talbot 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. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use ofthe management, members ofthe Talbot 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, ~ ...QQ w..J..k Russell W. Hinton State Auditor RWH:as 2004SA-10 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS TALBOT COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7301-00-01 FS-7301-01-02 FS-7301-02-01 FS-7301-02-02 FS-7301-03-01 FS-7301-03-02 Unresolved - See Corrective Action/Reponses Unresolved - See Corrective Action/Reponses Further Action Not Warranted Further Action Not Warranted Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS Lack of Expenditure/Obligation Documentation Finding Control Number: FS-7301-00-01 The following procedures are in place for fiscal year 2003. All payments for services rendered will have original invoice submitted to the accounts payable clerk before disbursing funds. Failure to submit an invoice will delay payment for services rendered. No exceptions. We are waiting on clearance from the Georgia Department ofEducation to resolve this finding. EMPLOYEE COMPENSATION Improper Salary Payments Finding Control Number: FS-7301-01-02 Appropriate procedures have been implemented. We are waiting on clearance from the Georgia Department of Education to resolve this finding. - 1- TALBOT COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2004 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-7301-01-01 Unresolved - See Corrective Action/Reponses CORRECTIVE ACTION/RESPONSES ALLOWABLE COSTS/COST PRINCIPLES Improper Staff Development Payments Finding Control Number: FA-7301-01-01 Procedures have been established to ensure appropriate Staff Development Service Unit payments are made in accordance with local Board policy. We are waiting on clearance from the Georgia Department of Education to resolve this finding. -2- SECTIONN FINDINGS AND QUESTIONED COSTS TALBOT COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Talbot County Board of Education's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Talbot County Board of Education disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Employee Compensation Accounting Controls (Overall) Expenditures/Liabilities/Disbursements Revenues/Receivables/Receipts None ofthe reportable conditions described above are considered to be material weaknesses. 3. Noncompliance Material to the Financial Statements The audit ofthe Talbot County Board ofEducation disclosed no instances ofnoncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Talbot County Board of Education did not disclose any reportable conditions in internal control over major programs. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Talbot 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 lO(a) of 0MB Circular A-133 The Talbot County Board of Education's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133. 7. Major Programs The Federal award audited as a major program is as follows: 84.010 Title I Grants to Local Educational Agencies 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Talbot County Board of Education qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133. - 1- TALBOT COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-7301-04-01 Our examination of the principal's accounts disclosed weaknesses in internal control as discussed below: Cash and Cash Equivalents The bank reconciliation function was not separated from the record keeping and voucher payment functions. Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions. No supporting documentation was available for any cash receipts. Expenditures/Liabilities/Disbursements The check writing function was not separated from record keeping or processing of signed checks. Eight out of the twenty voucher packets tested did not contain proper documentation. These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible, at the various principal account sites, for accounting functions and their failure to establish controls over these accounts. Management should implement additional procedures to ensure that the key accounting functions ofcustody, recordkeeping and authorization are segregated. In addition, management should establish controls over these areas. ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls Reportable Condition Finding Control Number: FS-7301-04-02 An examination ofthe internal accounting control procedures revealed that the School District did not maintain adequate general controls over the Financial Accounting System. Access controls in the Financial Accounting System do not prevent unauthorized users from accessing critical accounting information or prevent employees from accessing accounting functions that are outside oftheir area of responsibility. -2- TALBOT COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls Reportable Condition Finding Control Number: FS-7301-04-02 Access controls, both manual and automated, are the basis for achieving security over the financial system. Further, separation of duties involving key accounting functions, both manual and automated, is the basis for achieving an adequate system of internal control. The deficiencies were a result of management's decision not to implement standard access controls thereby increasing the risk of unauthorized access to the financial system by individuals both internal and external to the School District. Management should ensure that the access controls in the accounting information system limit access to the financial system to only employees with a need for access for the performance of their job duties. EMPLOYEE COMPENSATION Salary Underpayments/Overpayments Reportable Condition Finding Control Number: FS-7301 ~04-03 Fifteen payroll records were examined to test for accuracy of payroll records of the Talbot County Board of Education. The following deficiencies were noted: The School District underpaid four employees a total of$2,144. The underpayment was the result of paying the employees based on the fiscal year 2003 non-certified employee salary schedule instead of the Board-approved fiscal year 2004 salary schedule. The School District underpaid one employee by a total of$3,560. The underpayment was the result ofincorrect calculations used when determining the employee's final paycheck amount. The School District overpaid two employees a total of$519. The overpayment was the result of the School District not deducting excess leave from the employees' salaries. These deficiencies occurred due to the School District's failure to adequately monitor administrative procedures regarding employee compensation. The School District should implement procedures to ensure that all payroll disbursements are based on approved contracts, salary schedules, and time worked. In addition, management should review all non-certified employees to ensure that appropriate amounts were paid to this group of employees. -3- TALBOT COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -4- SECTIONV MANAGEMENT'S RESPONSES TALBOT COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FS-7301-04-01 We concur with this finding. The following audit corrective actions are submitted in response. Cash and Cash Equivalents 1) The bank reconciliation function has been separated from the record-keeping and voucher payment functions. 2) Reconciliation was assigned to the central office and record-keeping and voucher payment to the school site. Revenues/Receivables/Receipts 1) Deposit preparation in the principal's account is not separated from record-keeping and cash custody functions. 2) Supporting documentation is now being maintained for cash receipts. Expenditures/Liabilities/Disbursements 1) The check-writing function is now separated from record-keeping or processing of signed checks. 2) Voucher packets are now required to have proper documentation. Finding Control Number: FS-7301-04-02 We concur with this finding. Internal accounting control in the School District is now limited to one person (the bookkeeper) having controls oyer the Financial Accounting System. Finding Control Number: FS-7301-04-03 We concur with this finding. Salary Underpayments/Overpayments 1) Payments were recalculated and made to non-certified employees using the Board approved 2004 salary schedule. 2) The underpayment ofone employee in the amount of$3,560.00 was recalculated and made. 3) The overpayment oftwo employees in the amount of$519.00 due to not deducting excessive leave from their salaries were rechecked and deducted. Increased monitoring is now being emphasized to prevent recurrence. Contact Person: Robert Patrick, Superintendent Phone Number: (706) 665-8528 Fax Number: (706) 665-3620 Email: rwpatrick@hotmail.com