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

TOWNS COUNTY BOARD OF EDUCATION HIAWASSEE, 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

TOWNS 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

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

1

B

STATEMENT OF ACTIVITIES

2

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

4

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

5

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

6

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

7

G

STATEMENTOFFIDUCIARYNETASSETS

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

GENERAL FUND

21

TOWNS COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

22

3 SCHEDULE OF STATE REVENUE

24

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

26

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

27

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

TOWNS 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 11, 2007

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Towns 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 Towns 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 Towns 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 opinions.
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 Towns County Board of Education, as of June 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

In accordance with Government Auditing Standards, we have also issued our report dated May 11, 2007, on our consideration ofthe Towns 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 ofinternal 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 considered in assessing the results of our audit.

Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through ix and page 21 respectively, are not a required part of the basic financial statements but are 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 Towns 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,

-

l0...J.::=s

sell W. Hinton, CPA, CGFM State Auditor

RWH:gp 2006ARL-11

TOWNS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
Introduction
Our discussion and analysis of the Towns County School District's financial performance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2006. The intent of this discussion and analysis is to look at the School District's financial performance as a whole. Readers should also review the notes to the basic financial statements to enhance their understanding of the School District's financial performance.
The reporting model is a combination of both government-wide financial statements and fund financial statements. The basic financial statements contain three components:
1) District-wide financial statements including the Statement of Net Assets and the Statement of Activities, which provide both short-term and long-term overviews of the School District's finances.
2) Fund financial statements including the balance sheets that provide a greater level of detail and focus on how well the School District has performed in the short-term in the most significant or major funds.
3) Notes to the Basic Financial Statements.
Financial Highlights
Key financial highlights for fiscal year 2006 are as follows:
On the District-wide financial statements:
Total assets of the School District exceeded liabilities by almost $17.6 million. This represented an increase of $3.6 million in net assets when compared to the prior year.
The School District had almost $14.3 million in expenses relating to governmental activities; only $10.2 million of these expenses were offset by program specific charges for services, grants and contributions. However, general revenues (primarily property and sales taxes) of $7.7 million were adequate to provide for these programs.
As stated above, general revenues accounted for $7.7 million or about 43% of all revenues totaling almost $17.9 million. Program specific revenues in the form of charges for services, grants, and contributions accounted for the balance of these revenues.
On the fund financial statements:
Among major funds, the General Fund had almost $16.0 million in revenues and $14.1 million in expenditures. The General Fund balance of $5.8 million at June 30, 2006, increased $1.8 from the prior year.

TOWNS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
Overview of the Financial Statements
This annual report consists of three parts; management's discussion and analysis (this section), the basic financial statements and required supplementary information. The basic financial statements include two levels of statements that present different views of the School District. These include the District-wide and fund financial statements.
The District-wide financial statements include the 'Statement of Net Assets' and 'Statement of Activities'. These statements provide information about the activities of the School District presenting both short-term and long-term information about the School District's overall financial status.
The fund financial statements focus on individual parts of the School District, reporting the School District's operation in more detail. The 'Governmental Funds' statements disclose how basic services are financed in the short-term as well as what remains for future spending. The 'Fiduciary Funds' statements provide information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. In the case of the Towns County School District, the General Fund, Capital Projects Funds, and Debt Service Funds are all considered to be major funds. The School District has no nonmajor funds as defined by GASB Statement 34 for the purposes of this report.
The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. Additionally, other supplementary information (not required) is also presented that further supplements understanding of the financial statements.
District-wide Statements
Since Towns County School District has no operations that have been classified as "Business Activities", the District-wide financial statements are basically a consolidation of all of the School District's operating funds into one column called governmental activities. In reviewing the District-wide financial statements, a reader might ask the question, are we in a better financial position now than last year? The 'Statement of Net Assets' and the 'Statement of Activities' provides the basis for answering this question. These financial statements include all School District's assets and liabilities and uses the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid.
These two statements report the School District's net assets and any changes in those assets. The change in net assets is important because it tells the reader that, for the School District as a whole, the financial position of the School District has improved or diminished. The causes of this change may be the results of many factors, including those not under the School District's control, such as the property tax base, facility conditions, required educational programs, student-teacher ratios, and other factors.
11

TOWNS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
The 'Statement of Net Assets' and the 'Statement of Activities' reflects 100% of the School District's governmental activities.
Fund Financial Statements
The School District uses many funds or sub-funds to account for a multitude of financial transactions during the fiscal year. The fund financial statements presented in this report provide detail information about the School District's significant or major funds. As discussed previously, the School District has no nonmajor Funds as defined by generally accepted accounting principles.
Governmental Funds: Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at yearend available for spending in future periods. These funds are reported using the modified accrual method of accounting which measures cash and all other financial assets that can be readily be converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The differences between government activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds are reconciled in the financial statements.
Fiduciary Funds: The School District is the trustee, or fiduciary, for assets that belong to clubs, organizations and others within the principals' accounts. The School District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The School District excludes these activities from the Districtwide financial statements because it cannot use these assets to finance its operations.
Financial Analysis of the School District as a Whole
As discussed previously, the Statement of Net Assets provides a financial snapshot of the School District as a whole. The reader can think of the School District's net assets as the difference between its assets (i.e., what the School District owns) and its liabilities (i.e., what the School District owes) at the end of a fiscal year. This balance represents one way to measure the School District's financial health or its financial position. In the case of the Towns County School District, assets exceeded liabilities by $17.6 million at June 30, 2006.
To better understand the School District's actual financial position and ability to deliver services in future periods, it is necessary to review the various components of the net asset category. For example, of the $17.6 million of net assets, almost $2.2 million was restricted for bus replacement, continuation of Federal programs, debt service, and completion of ongoing capital projects. Accordingly, these funds were not available to meet the School District's ongoing obligations to citizens and creditors.
111

TOWNS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

In addition, the School District also had about $10.4 million (net of related debt) invested in capital assets (e.g., land, buildings, and equipment). The School District uses these capital assets to provide educational services to students within geographic boundaries served by the School District. Because of the very nature and on-going use of the assets being reported in this component of net assets, it must be recognized that this portion of the net assets is not available for future spending.

The remaining balance of unrestricted net assets of almost $5.1 million may be used to meet the School District's ongoing obligations to citizens and creditors.

Table 1 provides a summary of the School District's net assets for this fiscal year as compared to the prior fiscal year.

Table 1 Net Assets

Governmental Activities

Fiscal

Fiscal

Year 2006

Year 2005

Assets Current and Other Assets Capital Assets, Net

$ 8,842,797 $ 6,841,584

11,297,420

10,853,318

Total Assets

$ 20,140,217 $ 17,694,902

Liabilities Current and Other Liabilities Long-Term Liabilities

$ 1,160,186 $ 1,050,106

1,404,090

2,641,955

Total Liabilities

$ 2,564,276 $ 3,692,061

Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted

$ 10,352,144 $ 8,663,042

2,166,696

1,797,921

5,057,101

3,541,878

Total Net Assets

$ 17,575,941 $ 14,002,841

Table 2 shows the Changes in Net Assets for this fiscal year as compared to the prior fiscal year.

iv

TOWNS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

Table 2 Change in Net Assets

Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions

Governmental Activities

Fiscal

Fiscal

Year 2006

Year 2005

$

449,683 $

741,685

9,678,206

7,339,590

34,562

31,750

Total Program Revenues

$ 10,162,451 $ 8,113,025

General Revenues:

Taxes

Property Taxes

For Maintenance and Operations

$ 2,703,539 $ 2,747,429

Sales Taxes

Special Purpose Local Option Sales Tax

For Debt Service

1,322,065

1,279,077

For Capital Projects

822,982

503,501

Local Option Sales Tax

1,769,392

1,885,126

Real Estate

149,356

93,087

Grants and Contributions not Restricted to

Specific Programs

338,312

Investment Earnings

129,724

74,920

Miscellaneous

459,597

220,107

Total General Revenues

$ 7,694,967 $ 6,803,247

Total Revenues

$ 17,857,418 $ 14,916,272

Program Expenses

Instruction

$ 9,514,412 $ 7,823,761

Support Services

Pupil Services

886,140

713,344

Improvement of Instructional Services

149,448

65,246

Educational Media Services

291,108

243,362

General Administration

306,490

339,868

School Administration

746,035

762,388

Business Administration

89,243

77,841

Maintenance and Operation of Plant

1,009,719

847,274

Student Transportation Services

441,511

494,179

Other Support Services

33,178

36,322

Operations ofNon-Instructional Services

Enterprise Operations

146,666

131,955

Community Services

84,108

120,115

Food Services

509,744

446,302

Interest on Short-Term and Long-Term Debt

76,516

125,324

Total Expenses

$ 14,284,318 $ 12,227.281

Increase in Net Assets

$ 3,573.100 $ 2,688,991

V

TOWNS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

Governmental Activities

The Statement of Activities shows the cost of program services and the charges for services and grants offsetting these services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services. Net cost of services can be defined as the total cost less fees generated by the activities and intergovernmental revenue provided for specific programs. The net cost reflects the financial burden on the School District's taxpayers by each activity as compared to the prior fiscal year.

Table 3 Governmental Activities

Total Cost of Services

Fiscal

Fiscal

Year2006 Year2005

Net Cost of Services

Fiscal

Fiscal

Year2006 Year2005

Instruction

$

Support Services

Pupil Services

Improvement of Instructional Services

Educational Media Services

General Administration

School Administration

Business Administration

Maintenance and Operation ofPlant

Student Transportation Services

Other Support Services

Operations ofNon-Instructional Services

Enterprise Operations

Community Services

Food Services

Interest on Short-Term and Long-Term Debt

9,514,412 $
886,140 149,448 291,108 306,490 746,035 89,243 1,009,719 441,511 33,178
146,666 84,108 509,744 76,516

7,823,761 $
713,344 65,246 243,362 339,868 762,388 77,841 847,274 494,179 36,322
131,955 120,115 446,302 125,324

1,999,446$
736,408 42,830 128,715 30,352
308,217 8,445
565,552 189,988 26,904
-21,236 11,978 17,752 76,516

2,142,321
533,002 -10,448 115,805 86,192 400,871 22,122 478,643 238,811 30,452
-50,423 11,561 -9,977 125,324

Total Expenses

$ 14,284.318 $ 12,227.281 $ 4,121.867 $ 4,114.256

The table above shows that while the total cost of services for providing services increased 17% from the prior year, the net cost to the local taxpayers remained virtually unchanged. The School District is proud of the way it has managed costs that must be funded by the local taxpayers.

Financial Analysis of the School District's Funds

Information about the School District's governmental funds is presented starting on Exhibit "C" of this report. Governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of $18.1 million and total expenditures of$16.0 million in fiscal year 2006. Total governmental fund balances of almost $7.8 million at June 30, 2006, increased $2.1 million from the prior year. This increase in fund balance occurred primarily because General Fund revenues exceeded General Fund expenditures by almost $1.8 million.

Vl

TOWNS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
General Fund Budget Highlights
The School District's budget is prepared according to Georgia Law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2006, the School District amended its general fund budget as needed.
The School District budget is adopted at the aggregate level and maintained at the program, function, object, and site levels to facilitate budgetary control. The budgeting systems are designed to control the total budget, but provide flexibility to meet the ongoing programmatic needs. The budgeting systems are also designed to control total site budgets but provide flexibility for site management as well.
For the General Fund, the final actual revenues of $15.9 million were over the final budgeted amount of almost $13.1 million by $2.8 million. This difference (final actual vs. final budget) was primarily attributable to revenues for sales taxes over final budget of $289,000, revenues for State Funds over final budget of $1.8 million, and miscellaneous revenues over final budget of $422,000. The School District traditionally estimates revenue on a conservative basis to avoid shortfalls in actual revenues. Additionally, the School District did not include revenues for school activity accounts (included in miscellaneous revenues) in the final budget.
The General Fund's final actual expenditures of $14.1 million exceeded the final budget amount of $13.2 million by about $900,000. This difference (final actual vs. final budget) was primarily attributable to actual expenditures for instruction exceeding the final budget of $542,000, expenditures for pupil services exceeding the final budget by $186,000, expenditures for improvement of enterprise operations exceeding the final budget by $115,000. Additionally, actual expenditures for community services of $84,108 were not included in the School District's final budget.
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
At fiscal year ended June 30, 2006, the School District had almost $11.3 million invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances net of accumulated depreciation as compared to the prior fiscal year.
Vll

TOWNS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

Table 4 Capital Assets (Net of Depreciation)

Governmental Activities

Fiscal

Fiscal

Year 2006

Year 2005

Land Construction in Progress Land Improvements Buildings and Improvements Equipment

$

136,500 $

136,500

238,531

720,411

89,275

9,710,268

9,711,676

730.241

677.336

Total

$ 11,297,420 $ 10,853.318

Additional information about the School District's Capital Assets can be found in the Notes to the Basic Financial Statements.

Debt

At June 30, 2006, the School District had over $1.4 million in total debt outstanding which was consisted of almost $1.3 million in bond debt and $110,000 in compensated absences debt. Table 5 summarizes the School District's debt as compared to the prior fiscal year.

Table 5 Debt at June 30

Governmental Activities

Fiscal

Fiscal

Year 2006

Year 2005

Bonds Payable Compensated Absences

$ 1,295,000 $ 2,540,000

109.090

101,955

Total

$ 1,404.090 $ 2,641,955

Additional information about the School District's debt can be found in the Notes to the Basic Financial Statements.

Vlll

TOWNS COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
Factors Bearing on the School District's Future Currently known circumstances that are expected to have a significant effect on financial position or results of operations in future years are as follows:
The School District will continue to face challenges from the implementation of the A+ Education Reform Act, which mandates lower teacher to student ratios. The School District will also continue to be impacted by the remedial actions required for under performing schools under the No Child Left Behind Act. In the midst of these challenges, the School District remains confident in the ability to maximize resources to provide the best possible educational experience for all of our students.
Capital Improvements - The School District plans capital improvements as future capital needs arise due to increased student population and facility repair and maintenance needs. To that end, prior to June 30, 2006, the citizens of Towns County approved an educational local option sales tax (ELOST) that provides for a multitude of capital outlay educational purposes. Collection of the tax began on July, 1, 2006, and will continue through June 2011, or until $11.3 million is collected, whichever occurs first. The School District remains steadfast in its commitment to deliver quality education to the students of Towns County.
Contacting the School District's Financial Management This financial report is designed to provide our citizens, taxpayers, investors and creditors with a general overview of the School District's finances and to show the School District's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Mrs. Myra Underwood, Finance Director for Towns County School District, 67 Lakeview Circle, Suite C, and Hiawassee, Georgia 30546. You may also email your questions to Mrs. Underwood at Myra@towns.kl2.ga.us.
IX

TOWNS COUNTY BOARD OF EDUCATION

TOWNS COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006
ASSETS
Cash and Cash Equivalents Accounts Receivable, Net
Taxes State Government Federal Government 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
Total Net Assets
Total Liabilities and Net Assets

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

6,685,984

621,030 1,217,799
308,783 9,201

136,500 777,333 11,574,115 1,305,148 -2,495,676

$ ===2=0=,1..4..0..=,2=11_

$

296,374

863,812

1,351,873 52 217

$

2,564,276

$

10,352,144

46,921 100,552 1,320,901 698,322 5,057,101

$

17,575,941

$ ===2=0=1,=40='=21=7=

The notes to the basic financial statements are an integral part of this statement. - 1-

TOWNS 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 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 Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Local Option Sales Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year
Net Assets - End of Year

EXPENSES

CHARGES FOR SERVICES

$

9,514,412 $

886,140 149,448 291,108 306,490 746,035 89,243 1,009,719 441,511 33,178

146,666 84,108
509,744 76516

$

14,284,318 $

3,401
167,902 72,130 206,250 449,683

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

$

7,511,565

149,732 106,618 162,393 276,138 437,818 80,798 444,167 216,961 $
6,274

285,742

$

9,678,206 $

$ 34,562 34 562 $

-1,999,446
-736,408 -42,830
-128,715 -30,352
-308,217 -8,445
-565,552 -189,988
-26,904
21,236 -11,978 -17,752 -76 516
-4, 121,867

$

2,703,539

1,322,065 822,982
1,769,392 149,356 338,312 129,724 459 597

$

7 694 967

$

3,573,100

14,002,841

$ ======17=5=7=5=9==41.,.

-3-

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

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Accounts Receivable, Net
Taxes State Government Federal Government Inventories

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 5,048,990 $ 1,636,993 $

377,784 1,217,799
308,783 9 201

382,229

1 $

6,685,984

760,013 1,217,799
308,783 9201

Total Assets

$ 6,962,557 $ 2,019,222 $

1 $ =====8..,,9..,8=1,..,78..,0..,

LIABILITIES AND FUND BALANCES

LIABILITIES

Accounts Payable Salaries Payable

$

296,374

863,812

Total Liabilities

$ 1,160,186

FUND BALANCES

Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories Capital Projects
Unreserved Undesignated Reported in: General Fund

$

46,921

91,351

$ 1,320,900 $

9,201

698,322

5,654,898

Total Fund Balances

$ 5,802,371 $ 2,019,222 $

$

296,374

863,812

$

1,160,186

$

46,921

91,351

1,320,901

9,201

698,322

5,654,898

1 $

7,821,594

Total Liabilities and Fund Balances

$ 6,962,557 $ 2,019,222 $

1 $ ===8=,9=8..,1,..,78..,0=

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

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

EXHIBIT" "

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 Compensated Absences
Total Long-Term Liabilities
Net Assets of Governmental Activities (Exhibit "A")

$ 7,821,594

$

136,500

777,333

11,574,115

1,305,148

-2,495,676

11,297,420

-138,983

$ -1,295,000 -109,090

-1,404,090

$ 17,575,941

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

TOWNS 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 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
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 2,922,101 1,918,748 $ 8,954,671 1,096,409 449,683 103,230 439,597
$ 15,884,439 $

$ 822,982 $ 1,322,065

26,293

201

20,000

869,275 $ 1,322,266 $

2,922,101 4,063,795 8,954,671 1,096,409
449,683 129,724 459,597
18,075,980

$ 9,364,652

$

885,232 85,828
291,108 306,490 743,072 86,088 1,206,205 373,940
33,178 133,107 84,108 497,104 12,815 $

$ 539,767

2,075

1,245,000 76,516

$ 14,102,927 $ 539,767 $ 1,323,591 $

$ 1,781,512 $ 329,508 $

-1,325 $

4,020,859

1,689,714

1,326

9,364,652
885,232 85,828
291,108 306,490 743,072 88,163 1,206,205 373,940 33,178 133,107 84,108 497,104 552,582
1,245,000 76 516
15,966,285
2,109,695
5,711,899

$ 5,802,371 $ 2,019,222 $====1= $=====7,=82=1=,5=94=

The notes to the basic financial statements are an integral part of this statement. -6-

TOWNS 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
Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of:
Increase in Compensated Absences
Change in Net Assets of Governmental Activities (Exhibit "B")

$ 2,109,695

$ 709,956 -265.854

444,102 -218,562

1,245,000

-7135 $ =====3..5...,73..,.1.,.0===0

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

TOWNS COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS
FIDUCIARY FUNDS JUNE 30, 2006
ASSETS Cash and Cash Equivalents Accounts Receivable, Net
Other
Total Assets
LIABILITIES Funds Held for Others

EXHIBIT"G"

AGENCY FUNDS

$

10,663

2,760

$==1=3=,4=23...

$ ==1=3=,4=23..,.

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

TOWNS 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 Towns 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 Towns 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-

TOWNS 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) 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 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 ofwhen 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 and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund

- 10-

TOWNS 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 and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources.

The School District funds certain programs by a combination 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.

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 Towns County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on March 1, 2006 (levy date). Taxes were due on May 1, 2006 (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 Towns 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 $2,922,101.

The tax millage rate levied for the 2005 tax year (calendar year) for the Towns County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

3.89 mills

- 11 -

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SALES TAXES
Local Option Sales Tax revenue, at the fund reporting level, during the fiscal year amounted to $1,769,392 and was recorded in the General Fund. Local Option Sales Tax is to be used for the maintenance and operation of the School District.
Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $2,145,047 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.
INVENTORIES
FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.
CAPITAL ASSETS
Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art.
Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows:

- 12 -

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

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

All

NIA

$

20,000 10 to 60 years

$ 100,000 1 to 60 years

$

5,000 8 to 50 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 ofNet Assets.

Note 3: DEPOSITS

COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. 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,

- 13 -

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

EXHIBIT"H"

Note 3: DEPOSITS

(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

(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 $7,832,718. 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

$ 285,159

2

143,705

3

7,403,854

4

0

Total

$ 1,832,118

- 14 -

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

EXHIBIT "H"

Note 4: NON-MONETARY TRANSACTIONS

The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories
Note 5: CAPITAL ASSETS

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

Balances July l, 2005

Increases

Balances Decreases June 30, 2006

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

$ 136,500 238,531 $ 408,802 $

Total Capital Assets Not Being Depreciated $ 375,031 $ 408,802 $

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 11,393,695 $ 1,184,414 130,000

180,420 $ 120,734 647,333

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

1,682,019 507,078 40,725

181,828 67,829 16,197

Total Capital Assets, Being Depreciated, Net $ 10,478,287 $ 682,633 $

Governmental Activity Capital Assets - Net $ 10,853,318 $ 1,021,435 $

$ 647,333
647,333 $

136,500 0
136,500

0 $ 11,574,115 1,305,148 777,333

1,863,847 574,907 56,922
0 $ 11,160,920
M1,333 $ 11,221,420

Current year depreciation expense by function is as follows:

Instruction Support Services
School Administration Maintenance and Operation of Plant Student Transportation Services Enterprise Operations Food Services

$ 190,172

$

2,887

2,836

50,091

55,814 10,160 9,708

$=====2==65-,8==5==4

- 15 -

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

EXHIBIT "H"

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST) is reported as restricted assets in the Statement ofNet Assets because its use is limited by applicable statutory provisions. Restricted assets at June 30, 2006, were as follows:

District-wide Capital Projects SPLOST

Debt Service Funds

Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions

$ 1,320,900 $

1

$ 316,093

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 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 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 ofthat loss can be reasonably estimated. The Towns County Board ofEducation has not incurred any liabilities for unemployment compensation during the past two fiscal years.

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

- 16 -

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

EXHIBIT"H"

Note 7: RISK MANAGEMENT

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 a surety bond to provide additional insurance coverage as follows:

Position Covered

Amount

All Employees

$

50,000

Note 8: LONG-TERM DEBT

COMPENSATED ABSENCES Compensated absences represent obligations ofthe School District relating to employees' rights to receive compensation for future absences based upon service already rendered. This obligation relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. Typically, the General Fund is the fund used to liquidate this long-term debt. The School District uses the vesting method to compute compensated absences.

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

Purpose

Interest Rates

Amount

General Government - Series 2001 A and B

3.52% - 4.11% $ 1,295.000

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

- 17 -

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

EXHIBIT "H"

Note 8: LONG-TERM DEBT

Governmental Funds

General

Compensated Obligation

Absences

Bonds

Total

Balance July 1, 2005

$ 101,955 $ 2,540,000 $ 2,641,955

Additions Annual Leave Earned

64,008

64,008

Deductions Annual Leave Utilized Debt Retired

56,873

1,245,000

56,873 1,245,000

Balance June 30, 2006

$ 109,090 $ 1,295.000 $ 1,404.090

Portion of Long-Term Debt Due within One Year

$_ _5_6,~87_3 $ 1,295,000 $ 1,351,873

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

$ 1,295.000 $==2-5-,9=!!0=0

Note 9: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $285,781 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 $282,549

Paid to the Teachers Retirement System of Georgia For Teachers Retirement System (TRS) Employer's Cost In the amount of $1,853

- 18 -

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

EXHIBIT"H"

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 $1,379

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.

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 ofGeorgia (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% oftheir 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%

$ 565,882 $ 535,066 $ 514,630

- 19 -

(This page left intentionally blank)

TOWNS 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 Other Support Services Enterprise Operations Community Services Food Services Operation
Capital Outlay
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning
Adjustments

NONAPPROPRIATED BUDGETS

ORIGINAL (1}

FINAL (1}

ACTUAL AMOUNTS

$

2,750,000 $

2,750,000 $

2,922,101

1,630,000

1,630,000

1,918,748

7,144,202

7,155,702

8,954,671

738,401

1,166,190

1,096,409

297,000

297,000

449,683

32,000

32,000

103,230

17 500

17 500

439 597

$

12,609,103 $

13,048,392 $

15,884,439

$

6,465,776 $

8,822,853 $

9,364,652

625,177 42,120
283,895 305,928 597,874 79,754 1,180,519 425,696
15,000 18,000
468,400

698,952 93,218
283,895 305,928 762,147
79,754 1,180,519
425,696 17,000 18,000
468,400

885,232 85,828
291,108 306,490 743,072 86,088 1,206,205 373,940 33,178 133,107 84,108 497,104
12 815

$

10,508,139 $

13,156,362 $

14,102,927

$

2,100,964 $

-107,970 $

1,781,512

3,090,144

3,090,144

4,020,859

173 248

173 248

Fund Balances - Ending

$

5,364,356 $

3,155,422 $ ==-5,.8.0.=2=,3=71=

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.

-21 -

TOWNS 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) Pass-Through From Office of Treasury and Fiscal Services National Forest Reserve Funds
Total U. S. Department of Agriculture
Corporation for National and Community Service Pass-Through From Pioneer Regional Educational Service Agency 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 State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Pass-Through From Pioneer Regional Educational Service Agency Safe and Drug-Free Schools and Communities
Total U.S. Department of Education
Health and Human Services, U.S. Department of Pass-Through From Ninth District Opportunity, Inc. Head Start
Total Federal Financial Assistance
NIA = Not Available

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

. 10.553 . 10.555

NIA NIA $
$

(2) 456,226
456,226

10.550 10.665

NIA NIA
$

17,864 (3}
474 090

94.004

NIA $

7 886

84.027 84.173

NIA $ NIA
$

195,311 7 350
202,661

84.318 84.938 84.367 84.298 84.010 84.048
84.186

NIA NIA NIA NIA NIA NIA
NIA
$

13,047 (4)
97,143 17,268 309,933 28,028
6500
674,580

93.600

NIA $

157 274

$ =====1,=31=3,..,8..,30,..

- 22 -

TOWNS 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.
(2) Expenditures for the funds earned on the School Breakfast Program ($59,729) were not maintained separately and are included in the 2006 National School Lunch Program.
(3) Funds earned on the National Forest Reserve program, in the amount of $52,531, do not require reporting of expenditures. (4) Funds earned on the Hurricane Education Recovery program, in the amount of $2,168, 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 Towns 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.

- 23-

TOWNS 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 Grades (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI 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 Sparsity Alternative Program Nursing Services Principal Supplements Food Services Vocational Education Austerity Reduction Other State Programs Apprenticeship Program Health Insurance National Teacher Certification Preschool Handicapped Program School Improvement Dropout Prevention Statewide K-8 Reading and Mathematics Program Teacher Retirement Virtual Schools
- 24-

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

90,603

366,824 87,950
856,700 63,468 449,738 49,502 759,298 2,239,430 487,853
78,730 57,388 420,013 10,478 151,291 152,341 136,578 167,677 64,955 28,419
363,385 440,132 439,128
199,423 34,562 53,370 35,802 51,540
5,855 23,014 156,675 -364,271
14,000 282,549
29,442 42,436 350,000 21,511
1,853 150

TOWNS COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006
AGENCY/FUNDING GRANTS Office of Treasury and Fiscal Services Public School Employees Retirement CONTRACTS Human Resources, Georgia Department of Family Connection North Georgia Technical College School to Work

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

1,379

50,500 3000

$ ======8=,9=54='=67.,.1=

See notes to the basic financial statements.

-25-

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

SCHEDULE "4"

PROJECT

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT
YEAR (3)

AMOUNT EXPENDED
IN PRIOR YEARS (3)

PROJECT STATUS

The acquisition, construction, and equipping of a new elementary school on the site of the existing elementary/middle/high school, the construction and equipping of an auditorium and an outdoor track on the site of the existing elementary/middle/high school and paying any general obligation debt of the School District in conjunction with the imposition of SPLOST $ 7,500,000 $ 9,246,297 $

616,283 $ 8,630,014 Ongoing

Adding to, renovating, repairing, improving, demolishing, furnishing and equipping existing school buildings and other buildings and facilities useful and desirable in connection therewith, including, but not limited to agriculture and band buildings and additional classrooms; system-wide technology improvements; acquiring new school equipment, including new buses and maintenance vehicles; acquiring, constructing and equipping new school buildings and facilities useful and desirable in connection therewith, including athletic/ physical education facilities and transportation and maintenance facilities; acquiring any necessary or desirable property, both real and personal, including textbooks

11,300,000

11,300,000

Ongoing

$ 18,800,000 $ 20,546,297 $

616,283 $ 8,630,014

(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 Towns County approved the imposition of a 1% sales tax to fund the above project and retire associated debt. Amounts expended for this project may include sales tax proceeds, state, local property taxes and/or other funds over the life of the project.

See notes to the basic financial statements.

- 26-

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

SCHEDULE "5"

DESCRIPTION

ALLOTMENTS
FROM GEORGIA DEPARTMENT OF
EDUCATION (1 l (2)

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

Direct Instructional Programs

Kindergarten Program

$

Kindergarten Program-Early Intervention Program

Primary Grades (1-3) Program

Primary Grades-Early Intervention (1-3) Program

Upper Elementary Grades (4-5) Program

Upper Elementary Grades-Early Intervention (4-5)

Program

Middle School (6-8) Program

High School General Education (9-12) Program

Vocational Laboratory (9-12) Program

Students with Disabilities

Category Ill

Gifted Student - Category VI

Alternative Education Program

448,226 $ 107,862 1,066,253
80,305 542,653
66,769 945,148 2,724,491 590,462 913,514
187,004 166 005

369,211 $ 72,826
858,556 115,802 396,941
62,977 961,579 2,022,198 304,088
783,852 73,718
136,208

22,370 $
47,835 133
62,589
74,291 652,730
29,161
60,094 1,830 1 189

391,581 72,826
906,391 115,935 459,530
62,977 1,035,870 2,674,928
333,249
843,946 75,548
137 397

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

7,838,692 $ 6,157,956 $

952,222 $

7,110,178

Media Center Program Staff and Professional Development

206,520 36 141

189,922 6 827

94,432 941

284,354 7768

TOTAL QBE FORMULA FUNDS

$

8 081 353 $ 6,354,705 $

1047595 $===7,=40=2..,,3=0==0

(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.

- 27 -

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 11, 2007

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Towns 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 Towns County Board of Education as of and for the year ended June 30, 2006, which collectively comprise Towns County Board of Education's basic financial statements and have issued our report thereon dated May 11, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Towns 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 Towns County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-7391-06-01 and FS-7391-06-03.
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-7391-06-03 to be a material weakness.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Towns 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 Towns County Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
w~
Ru sell 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 11, 2007

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Towns 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 ofTowns County Board ofEducation with the types ofcompliance requirements described in the U.S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2006. Towns County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of Towns County Board of Education's management. Our responsibility is to express an opinion on Towns 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 ofthe United States; and 0MB Circular A133, Audits ofStates, 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 Towns 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 Towns County Board of Education's compliance with those requirements.
2006SA-10

In our opinion, the Towns County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2006.
Internal Control Over Compliance
The management of Towns 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 Towns 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 Towns 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,
~44m ~:t:; ~Jssell W. Hinton, CPA, CGFM State Auditor
RWH:gp 2006SA-10

SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

TOWNS 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-7391-04-01 FS-7391-04-02 FS-7391-05-01 FS-7391-05-02 FS-7391-05-03 FS-7391-05-04

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

CORRECTIVE ACTION/RESPONSES

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-7391-05-01

We concur with this finding. A member from the central office bookkeeping staff is performing bank reconciliation function each month for the Mountain Education Center. Bookkeeping at the school level is being reorganized. Receipts will be taken in by another member ofthe staffother than the bookkeeper. This individual will count the money and give a pre-numbered receipt to the person submitting the money. This individual will then prepare a voucher to give to the bookkeeper. The bookkeeper will then re-count the money and prepare a deposit slip to be taken to the bank by the Principal or Assistant Principal. The bookkeeper will then enter the deposit into the computer. Bookkeepers no longer sign checks. Each check requires 2 signatures.

GENERAL LEDGER CAPITAL ASSETS Incomplete General Ledger/DE046 Financial Report Finding Control Number: FS-7391-05-04

Capital Assets will be posted on the general ledger before the fiscal year 2006 books are closed. All items over $5,000 will be capitalized and recorded.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

SECTION IV FINDINGS AND QUESTIONED COSTS

TOWNS 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 Towns 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 Towns County Board of Education disclosed financial statement reportable conditions related to the following control categories.

Expenditures/Liabilities/Disbursements General Ledger

Revenues/Receivables/Receipts

Ofthe reportable conditions described above, General Ledger is considered to be a material weakness.

3. Noncompliance Material to the Financial Statements The audit ofthe Towns 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 Towns 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 Towns County Board ofEducation's report on compliance with requirements applicable to major programs was unqualified.

6. Audit Findings Required to be Reported by Section .510(a) ofOMB Circular A-133 The Towns County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) ofOMB Circular A-133.

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

8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.

9. Low Risk Auditee The Towns County Board ofEducation qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133.

- 1-

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

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7391-06-01

Condition:

This is a repeat finding (FS-7391-05-01 and FS-7391-04-01) from the years ended June 30, 2005, and 2004, respectively. The accounting procedures of the School District were insufficient to provide adequate internal controls over the school activity accounts.

Criteria:

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

Questioned Cost: NIA

Information:

Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions.

Expenditures/Liabilities/Disbursements The check writing function was not separated from record keeping or processing of signed checks.

Cause:

These deficiencies were a result of management's decision to limit the number ofadministrative staffmade responsible for accounting functions and failure to ensure established controls were functioning as designed.

Effect:

NIA

Recommendation:

Management should implement procedures to ensure that the key accounting functions ofcustody, record keeping and authorization are separated and that adequate monitoring is performed on a routine basis. Periodic reviews should be performed on the school activity accounts in order to ensure adherence to established policies and procedures.

-2-

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

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Excessive Fund Balance Nonmaterial Noncompliance Finding Control Number: FS-7391-06-02

Condition:

The School District did not comply with provisions ofO.C.G.A. 20-2-167 as defined by Chapter 32 of the Financial Management for Georgia Local Units of Administration (FMGLUA). "The purpose of this paragraph is to prohibit local school systems from accumulating surplus funds through taxation without accounting to the taxpayers for how such funds will be expended, and this paragraph shall be liberally construed to accomplish this purpose." The School District's General Fund had an excessive unreserved, undesignated fund balance at fiscal year end.

Criteria:

O.C.G.A. 20-2-167 states in part: "The budget of each local school system shall designate all of such anticipated revenues among the several funds or accounts of the system and shall not leave any anticipated revenues undesignated. Except as otherwise provided in this paragraph, all amounts allocated to each fund or account and any existing balance in each fund or account shall be intended for expenditure within the budget year for the purposes of that fund or account. There shall be no fund or account in the nature of a 'surplus' or 'unobligated surplus' fund or account. Each local school system may, however, establish a single reserve fund or reserve account intended to cover unanticipated deficiencies in revenue or unanticipated expenditures, provided that the budget for any year shall not allocate so such reserve fund or reserve account any amounts which, when combined with the existing balance in such fund or account, exceed 15 percent of that year's total budget."

Chapter 32 Preparing Operating Budgets ofthe Financial Management for Georgia Local Units of Administration (FMGLUA) states in part: "The O.C.G.A. 20-2-167 limits this part offund balance to 15 percent ofthe total budget. What this statute really means is that the general fund balance, after deducting all other reserves, may not exceed 15 percent of the next year's budgeted general fund expenditures."

Questioned Cost: NIA

Information:

The School District's General Fund reported an unreserved, undesignated fund balance at fiscal year end that exceeded 15 percent of the 2007 fiscal year budgeted general fund expenditures.

-3-

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

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Excessive Fund Balance Nonmaterial Noncompliance Finding Control Number: FS-7391-06-02

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:

The School District should establish policies and procedures designed to ensure that in future periods the School District complies with the provisions ofO.C.G.A. 20-2-167 as defined by Chapter 32 of the FMGLUA.

GENERAL LEDGER Incomplete General Ledger/DE046 Financial Report Reportable Condition - Material Weakness Finding Control Number: FS-7391-06-03

Condition:

The School District failed to include all fiscal year activity in the DE046 financial report submitted to the Georgia Department of Education.

Criteria:

Chapter 22 Annual Financial Reporting of the Financial Management for Georgia Local Units of Administration (FMGLUA) indicates that School Districts must prepare their financial statements in accordance with generally accepted accounting principles.

Questioned Cost: NIA

Information:

All accounts receivable activity was not recorded in the School District's general ledger as required. An audit adjustment of$1,045,306 was necessary to record an accounts receivable from Georgia Department of Education.

Cause:

Management failed to comply with the requirements of the Georgia Department of Education regarding financial reporting.

Effect:

The failure ofthe School District to maintain a complete and accurate general ledger can lead to inaccurate internal and external reporting.

-4-

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

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Incomplete General Ledger/DE046 Financial Report Reportable Condition - Material Weakness Finding Control Number: FS-7391-06-03

Recommendation:

The School District should implement controls to ensure that Georgia Department of Education's policies and procedures are followed and establish procedures to ensure that all financial data is properly recorded in the general ledger and reported in the DE046.

EMPLOYEE COMPENSATION Inaccurate Reporting of Senior Management Compensation Nonmaterial Noncompliance Finding Control Number: FS-7391-06-04

Condition:

Our examination ofcompensation paid to senior management ofthe School District revealed an error in the amount reported as salary to the Department of Audits and Accounts.

Criteria:

O.C.G.A. 50-6-27 states in part: "Each...local board ofeducation is required and directed to submit to the state auditor, in a format prescribed by the state auditor, a listing of all personnel of such...local board of education showing name, title, or functional area, salary and travel expense for each individual"

Questioned Cost: NIA

Information:

The School District failed to include $6,062 as earned compensation for the employee's (1) portion ofgroup health insurance of$854 and (2) portion of Teacher's Retirement System contributions of$5,208. These payments were in accordance with the contract between the Superintendent and the School District.

The School District reported a salary of $104,152 for Superintendent Dr. Richard Behrens in its salary and travel report for the period ended June 30, 2006. The actual compensation for Dr. Behrens totaled $110,214, which includes the $6,062 in payments referenced above.

Cause:

Management failed to implement procedures to ensure that all employee compensation is reported as salary to the Department of Audits and Accounts.

-5-

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

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EMPLOYEE COMPENSATION Inaccurate Reporting of Senior Management Compensation Nonmaterial Noncompliance Finding Control Number: FS-7391-06-04

Effect:

The failure of the School District to submit total compensation paid to employee leads to inaccurate external reporting.

Recommendation:

The School District should implement procedures to ensure that all employee compensation is included in the salary total reported to the Department of Audits and Accounts.

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

-6-

SECTIONV MANAGEMENT'S RESPONSES

TOWNS COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006
Finding Control Number: FS-7391-06-01
We concur with this finding. A member from the central office bookkeeping staff is performing bank reconciliation functions each month. At which time this individual will do a random check of deposits and expenses to verify that procedures are being implemented as directed by the central office to help with internal controls. Receipts are being taken in by another member of the staff other than the bookkeeper. This individual will count the money and give a pre-numbered receipt to the person submitting the money. This individual will then prepare a voucher to give to the bookkeeper. The bookkeeper will then re-count the money and prepare a deposit slip to be taken to the bank by the Principal or Assistant Principal. The bookkeeper will then enter the deposit into the computer. Bookkeepers no longer sign checks. Each check requires 2 signatures which must include an administrator listed on the bank account.
Finding Control Number: FS-7391-06-02
We concur with this finding. This overage in the fund balance was primarily caused by two factors. The sales tax revenues were underestimated due to an improved economic trend in the community and questions concerning funding for the Mountain Education Center. During this fiscal year, Towns County School System negotiated with the Department ofEducation concerning the status of the Mountain Education Center and its possible transition into a Charter School. Funding for the MEC had been cut from alternative weight in the past to regular high school funding. Expenses were cut to a minimum to maintain the program throughout this application process. Excess funds were carried to meet the financial needs ofthe MEC until a charter could be approved. The MEC at the time ofthis response has been approved as a state charter and will be separated from the Towns County School System on July 1, 2007.
Finding Control Number: FS-7391-06-03
We concur with this finding. All accounts receivables will be recorded.
Finding Control Number: FS-7391-06-04
We concur with this finding. All compensation paid by the Board for the Superintendent will be recorded on the CS-1 at year end and reported as salary to the Department ofAudits and Accounts.
Contact Person: Myra Underwood, Finance Director Phone: (706) 896-2632 Fax Number: (706) 896-2279 E-mail Address: myra@towns.k12.ga.us