UNION COUNTY BOARD OF EDUCATION BLAIRSVILLE, 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 UNION COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 8 H STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS 9 I NOTES TO THE BASIC FINANCIAL STATEMENTS 10 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 23 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 24 3 SCHEDULE OF STATE REVENUE 26 UNION COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 28 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 29 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS UNION 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) 666-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 July 16, 2007 Honorable Sonny Perdue, Governor Members ofthe General Assembly Members ofthe State Board of Education and Superintendent and Members of the Union County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through I) of the Union 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 ofcontents. These financial statements are the responsibility ofthe Union County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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 of the Union 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 The Union County Board of Education has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements. In accordance with Government Auditing Standards, we have also issued our report dated July 16, 2007, on our consideration ofthe Union County Board ofEducation's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope ofour testing of internal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 23, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Union 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, ~~.. w_w~ ~Jsell W. Hinton, CPA, CGFM State Auditor RWH:as 2006ARL-11 UNION COUNTY BOARD OF EDUCATION UNION COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Deposits and Deferred Revenues Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted (Deficit) Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. -1- EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 6,078,402 21,199 1,004,190 1,440,387 81,508 63,245 27,986 2,338,671 8,433,418 2,568,087 28,643,513 3,454,785 -10,636,287 $ ===4=3=5=1=9==1=04,... $ 516,970 2,517,337 29,476 1,990,000 4,255,000 $ 9,308,783 $ 29,614,577 157,276 395,555 4,525,536 687,989 -1,170,612 $ 34,210,321 $ ===4=3=,5=1=9==1,=04= UNION COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services 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 Intangible Recording 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 (Restated) Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 17,113,000 745,310 824,269 460,899 902,454 1,271,713 42,981 2,305,074 987,613 160,694 11,023 98,008 $ 49,270 1,386,584 367 742 $ 26,726,634 $ 126,767 469,138 595 905 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 $ 10,297,042 $ 332,670 586,830 218,731 505,910 627,341 621,065 436,660 5,680 8,360 841,443 $ 14 481 732 $ 2,637,918 $ 13,957 10,464 17,091 54,061 45,433 2 778 924 $ -4,178,040 -412,640 -237,439 -242, 168 -382,587 -633,908 -42,981 -1,666,918 -496,892 -160,694 -5,343 28,759 -40,910 -30,570 -367 742 -8,870,073 $ 7,045,359 3,618,289 422,767 191,756 925,148 184,805 421 267 $ 12 809 391 $ 3,939,318 30,271,003 $ ======34=-,2=1=0=,3==21= -3- UNION COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Total Assets GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 901,890 $ 1,307,481 $ 3,869,031 $ 6,078,402 21,199 21,199 300,541 1,440,387 81,508 63,245 27,986 656,505 957,046 1,440,387 81,508 63,245 27,986 $ 2,836,756 $ 1,307,481 $ 4,525,536 $ 8,669,773 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund (Deficit) Total Fund Balances $ 516,970 2,517,337 29476 $ 3,063.783 $ 516,970 2,517,337 29476 $ 3,063.783 $ 157,276 $ 157,276 367,569 367,569 $ 4,525,536 4,525,536 27,986 27,986 $ 1,307,481 1,307,481 -779.858 -779,858 $ -227,027 $ 1,307,481 $ 4,525,536 $ 5,605,990 Total Liabilities and Fund Balances $ 2,836.756 $ 1,307.481 $ 4,525.536 $ ==8=.6=6=9'=77=3= The notes to the basic financial statements are an integral part of this statement. -4- UNION COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress 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. Bonds payable, which are Long-Term Liabilities, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Net Assets of Governmental Activities (Exhibit "A") $ 5,605,990 $ 2,338,671 8,433,418 2,568,087 28,643,513 3,454,785 -10,636,287 34,802,187 47,144 -6,245,000 $ 34,210,321 The notes to the basic financial statements are an integral part of this statement. -5- UNION COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services 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 $ 6,711,138 $ 614,523 $ 3,618,289 11,726,997 $ 2,724,863 3,439,030 595,905 28,077 65,818 90,910 730,094 $ 23,845,764 $ 2,790,681 $ 3,709,199 $ 6,711,138 4,232,812 14,451,860 3,439,030 595,905 184,805 730,094 30,345,644 $ 16,381,444 $ 745,310 824,269 460,899 898,041 1,268,404 42,981 2,229,760 $ 885,020 160,694 11,023 98,008 49,270 1,372,217 77,030 7,303,780 9630 $ 1,910,000 358,112 $ 25,436,970 $ 7,380,810 $ 2,268,112 $ $ -1,591,206 $ -4,590, 129 $ 1,441,087 $ 1,364,179 5,897,610 3,084,449 16,381,444 745,310 824,269 460,899 898,041 1,268,404 42,981 2,306,790 885,020 160,694 11,023 98,008 49,270 1,372,217 7,303,780 1,910,000 367,742 35,085,892 -4,740,248 10,346,238 $ -227,027 $ 1,307,481 $ 4,525,536 $=====5'=60=5=,9=90,.. The notes to the basic financial statements are an integral part of this statement. -6- UNION 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. In the Statement of Activities, only the gain on the sale of the equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold. 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. $ -4,740,248 $ 7,308,287 -859,029 6,449,258 334,221 -13,913 1,910,000 Change in Net Assets of Governmental Activities (Exhibit "B") $ =====3,,..93,..9..,,3.,.1=8 The notes to the basic financial statements are an integral part of this statement. -7- UNION COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 EXHIBIT"G" ASSETS Cash and Cash Equivalents Investments Certificates of Deposit Total Assets LIABILITIES Funds Held for Others NET ASSETS Held in Trust for Private Purposes Total Liabilities and Net Assets PRIVATE PURPOSE TRUSTS AGENCY FUNDS $ 568 $ 122,628 45,879 $ 46 447 $ ====12=2=,6=28= $ 122,628 $ _ _...;.4"""'6"""44-"-'7_ $ 46 447 $ ==1=22=1..6.2..===8= The notes to the basic financial statements are an integral part of this statement. -8- UNION COUNTY BOARD OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2006 EXHIBIT"H" ADDITIONS Contributions Donors Investment Earnings Interest Total Additions DEDUCTIONS Scholarships Change in Net Assets Net Assets - Beginning Net Assets - Ending PRIVATE PURPOSE TRUSTS $ 560 1,633 $ 2,193 1,800 $ 393 46,054 $ ==4=6=4=47= The notes to the basic financial statements are an integral part of this statement. -9- UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Union 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 Union 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 ofActivities 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. - 10- UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" 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), Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation ofmajor 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 types: Private Purpose Trust funds report trust arrangements under which income benefits graduating seniors of the Union County School System. Agency funds account for assets held by the School District as an agent for various School Activity Accounts. 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, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable - 11 - UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. RESTATEMENT OF PRIOR YEAR NET ASSETS For fiscal year 2006, the School District restated various Capital Assets due to errors and omissions. The School District increased construction in progress by $412,279. Conversely, the School District decreased, net of accumulated depreciation, buildings and improvements, equipment and land improvements, $369,064, $23,263 and $40,299, respectively. The result is a decrease in Net Assets at July 1, 2005, of $20,347. This change is in accordance with generally accepted accounting principles. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: - 12 - UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation ofthe United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State ofGeorgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Union County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on August 20, 2005 (levy date). Taxes were due on December 20, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Union 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 oftaxes 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 $6,711,138. - 13 - UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The tax millage rate levied for the 2005 tax year (calendar year) for the Union County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 9,222 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $3,618,289 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: - 14 - UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment Computer Applications Any Amount $5,000 or more $5,000 or more $5,000 or more $5,000 or more NIA 15 to 80 years 10 to 80 years 3 to 20 years 6 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. DEFICIT FUND BALANCE The fund reporting a deficit fund balance and deficit net assets at June 30, 2006, is as follows: Fund Type/Fund Name Deficit Balance Governmental General Fund (Fund 100 Only) $ 1,011,700 The School District does hereby agree to set Maintenance and Operation (M&O) millage levies as is necessary to provide enough local monies to (1) assure normal operations ofthe school system and (2) to eliminate deficit financing by June 30, 2007. 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 of money 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. - 15 - UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 3: DEPOSITS Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia, and (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 $7,713,998. 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. - 16 - UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 3: DEPOSITS The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows: Custodial Credit Risk Category 1 2 3 4 Bank Balance $ 4,069,031 363,282 3,281,685 0 Total $ 7,713.998 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 (Restated) Increases Balances Decreases June 30, 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 2,338,671 $ 1,159.251 $ 7.274.167 0 $ 2,338,671 8.433.418 Total Capital Assets Not Being Depreciated $ 3.497.922 $ 7,274.167 $ 0 $ 10,772,089 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 28,643,513 3,465,365 $ 2,541,087 7,120 $ 27,000 $ 28,643,513 17,700 3,454,785 2,568,087 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 6,039,815 2,462,359 1,278.871 577,624 153,001 128.404 3,787 6,617,439 2,611,573 1.407.275 Total Capital Assets, Being Depreciated, Net $ 24.868.920 $ -824.909 $ 13.913 $ 24.030.098 Governmental Activity Capital Assets - Net $ 28,366,842 $ 6,~~2,258 $ 13,213 $ 3~,802,187 - 17 - UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 5: CAPITAL ASSETS Current year depreciation expense by function is as follows: Instruction Support Services General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 729,337 $ 4,400 3,299 5,388 102,282 115,369 14,323 Note 6: RESTRICTED ASSETS $=~8-59-,0=2!!:5.9 Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds, and Georgia State Financing and Investment Commission (GSFIC) funds are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2006, were as follows: Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Note 7: RISK MANAGEMENT District-wide Capital Projects Bond SPLOST Proceeds GSFIC Debt Service Funds $ 3,869,031 $ 408,996 $ 763,016 $ 135,469 The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions,job related illness or injuries to employees and acts ofGod. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. - 18 - UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 7: RISK MANAGEMENT Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2005 2006 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0 $ 6,326 $ 6,326 $ 0 $ 0 $ 6 606 $ 6 606 $ 0 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent Principals School Food Nutrition Program Director All Employees $ 25,000 $ 10,000 $ 20,000 $ 125,000 Note 8: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 2002 General Government - Series 2004 2.5% - 3.25% 6.00% $ 1,645,000 4,600,000 $ 6,245,000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: - 19 - UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 8: LONG-TERM DEBT Balance July 1, 2005 Governmental Funds General Obligation Bonds $ 8,155,000 Deductions Debt Retired 1,910,000 Balance June 30, 2006 $ 6,245,000 Portion of Long-Term Debt Due within One Year $ 1,990,000 At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2007 2008 2009 $ 1,990,000 $ 2,080,000 2,175,000 292,381 192,900 65,250 Total Principal and Interest $ 6,245.000 $ 550,531 Note 9: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $581,939 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 $578,553 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 $3,386 - 20 - UNION COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 10: SIGNIFICANT COMMITMENTS The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2006, together with funding available: Project Unearned Executed Contracts Funding Available From State New Union County Middle School $ 1,289.946 $====!,6-96-,1"='!0==4 The amounts described in this note are not reflected in the basic financial statements. Note 11: 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 12: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2006 2005 2004 100% 100% 100% $ 1,307,255 $ 1,210,089 $ 1,153,430 - 21 - (This page left intentionally blank) UNION COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2006 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Capital Outlay Debt Service Total Expenditures Net Change in Fund Balances Fund Balances Beginning Adjustments NONAPPROPRIATED BUDGETS ORIGINAL {1) FINAL {1) ACTUAL AMOUNTS $ 7,500,000 $ 9,000,000 $ 6,711,138 614,523 10,914,336 10,917,623 11,726,997 3,156,200 4,016,486 3,439,030 513,600 513,600 595,905 18,500 18,500 28,077 95,500 95,500 730,094 $ 22,198,136 $ 24,561,709 $ 23,845,764 $ 15,139,907 $ 15,578,521 $ 16,381,444 644,192 675,814 454,426 832,647 1,216,093 90,705 2,303,067 966,201 187,274 22,716 44,760 1,363,505 4,500 784,325 892,294 454,426 866,592 1,215,348 90,705 2,303,067 987,203 187,274 35,877 44,760 1,363,536 4,500 745,310 824,269 460,899 898,041 1,268,404 42,981 2,229,760 885,020 160,694 11,023 98,008 49,270 1,372,217 9630 $ 23,945,807 $ 24,808,428 $ 25,436,970 $ -1,747,671 $ -246,719 $ -1,591,206 731,982 731,982 1,364,179 -1 810 73,828 Fund Balances Ending $ -1017499 $ 559,091 $ ====22=7=,0=27= Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. 23- UNION 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 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 Comprehensive School Reform Demonstration Enhancing Education Through Technology Program Hurricane Education Recovery Program Improving Teacher Quality State Grants State Grants for Innovative Programs Title I Grants to Local Educational Agencies Twenty-First Century Community Learning Centers Vocational Education - Basic Grants to States Total U. S. Department of Education Health and Human Services, U.S. Department of Pass-Through From Georgia Department of Human Resources Family Connection Pass-Through From Ninth District Opportunity, Incorporated Head Start Total U. S. Department of Health and Human Services Total Federal Financial Assistance N/A = Not Available CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 N/A NIA $ $ (2) 1174 997 1,174,997 10.550 10.665 N/A N/A $ 58,692 {4} 1,233,689 84.027 84.173 N/A $ NIA $ 660,406 16 621 677,027 84.332 84.318 84.938 84.367 84.298 * 84.010 84.287 84.048 N/A N/A N/A NIA N/A NIA N/A N/A $ 155,894 16,471 (3) 146,302 11,753 719,111 614,707 35489 2,376,754 93.959 93.600 N/A $ N/A $ 14,513 215,679 230,192 $ ===3=,8=40..,,6=3=5 -24- UNION 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 ($180,042) were not maintained separately and are included in the 2006 National School Lunch Program. (3) Funds earned on the Hurricane Education Recovery program, in the amount of $17,345, do not require reporting of expenditures. (4) Funds earned on this program in the amount of $48,296 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 Union County Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 25- UNION COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND GRANTS Bright From the Start: Georgia Department of Early Care and Learning Through Ninth District Opportunity, Inc. Pre-Kindergarten Program $ 172,605 $ 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 Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Alternative Education Program English Speakers of Other Languages (ESOL) 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 - Regular Sparsity - Alternative Nursing Services Principal Supplements Vocational Supervisors Food Services Vocational Education Austerity Reduction Other State Programs Health Insurance K-8 Reading and Mathematics Program National Teacher Certification Preschool Handicapped Program 657,081 53,286 1,555,578 178,648 606,045 97,313 69,126 1,338,575 1,165,688 455,705 290,214 147,995 1,266,675 306,843 215,105 54,877 114,129 33,723 218,731 69,560 45,688 382,632 534,990 599,310 385,197 54,061 264,775 35,802 63,843 9,359 10,924 74,628 79,482 -636,198 578,553 39,664 42,040 41,359 Georgia State Financing and Investment Commission Reimbursement on Construction Projects $ 2,724,863 TOTAL 172,605 657,081 53,286 1,555,578 178,648 606,045 97,313 69,126 1,338,575 1,165,688 455,705 290,214 147,995 1,266,675 306,843 215,105 54,877 114,129 33,723 218,731 69,560 45,688 382,632 534,990 599,310 385,197 54,061 264,775 35,802 63,843 9,359 10,924 74,628 79,482 -636,198 578,553 39,664 42,040 41,359 2,724,863 - 26- UNION COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING GRANTS Office of Treasury and Fiscal Services Public School Employees Retirement CONTRACT Human Resources, Georgia Department of Family Connection GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 3,386 $ 3,386 50,000 50.000 $ 11,726.997 $ 2,724.863 $===14=!,,4=5=1!=,8=60= See notes to the basic financial statements. - 27- UNION COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 SCHEDULE "4" PROJECT The acquisition, construction and equipping of one new middle school, acquisition of the land for the new middle school. Acquisition, construction and equipping an addition to the new high school. Acquisition, construction and equipping a new vocational building at the high school. Adding to, renovating, repairing, improving and equipping existing school buildings. ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 15,500,000 $ 19,2921031 $ 7,738,922 $ 7,546,878 Ongoing (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 project. Includes all cost from project inception to completion. (3) The voters of Union 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. - 28- UNION 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) (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 Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Alternative Education Program English Speakers of Other Languages (ESOL) 844,919 $ 68,639 1,998,590 222,769 89,951 125,325 801,056 1,726,068 1,490,418 588,676 2,847,722 69,880 146,254 42073 947,545 $ 48,288 2,044,164 240,641 155,496 136,579 1,077,630 1,776,532 2,205,321 568,356 266,725 177,751 2,325,552 105,168 191,755 80,241 135,192 54107 16,528 $ 787 92,094 1,980 4,913 145 42,540 69,318 86,981 40,608 125,230 13,001 25,918 1,094 2 031 964,073 49,075 2,136,258 242,621 160,409 136,724 1,120,170 1,845,850 2,292,302 608,964 266,725 177,751 2,450,782 118,169 191,755 106,159 136,286 56138 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 11,062,340 $ 12,537,043 $ 523,168 $ 13,060,211 Media Center Program Staff and Professional Development 281,818 59180 385,350 12 943 24,571 44423 409,921 57,366 TOTAL QBE FORMULA FUNDS $ 11,403,338 $ 12,935,336 $ 592,162 $ =-1..,3,..,52..,7..,.4..,9...,8 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. -29- SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 July 16, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Union 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 Union County Board of Education as of and for the year ended June 30, 2006, which collectively comprise Union County Board of Education's basic financial statements and have issued our report thereon dated July 16, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Union 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 Union 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-7441-06-01, FS-7441-06-02 and FS-7441-06-03. 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 items FS-7441-06-02 and FS-7441-06-03 to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether Union 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 Union County Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~w~~~ State Auditor RWH:as 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 July 16, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education and Superintendent and Members ofthe Union 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 ofUnion 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 ofits major Federal programs for the year ended June 30, 2006. Union County Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section ofthe accompanying Schedule ofFindings 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 Union County Board of Education's management. Our responsibility is to express an opinion on Union County Board of Education's compliance based on our audit. We conducted our audit ofcompliance 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 Union County Board ofEducation's compliance with those requirements and performing such other procedures as we considered necessary in the 2006SA-10 circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Union County Board ofEducation's compliance with those requirements. In our opinion, the Union 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 Union 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 Union 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 Union 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, Q ~ -. . ~:ell W. Hinton, CPA, CGFM State Auditor RWH:as 2006SA-10 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS UNION 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-7441-04-01 FS-7441-05-01 FS-7441-05-02 FS-7441-05-03 Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Finding Control Number: FS-7441-05-03 The School District corrected errors related to an excel spreadsheet cell and restated accumulated depreciation for this error in calculation. The School District has increased the threshold for Buildings and Improvements and Land Improvements asset categories and submitted these changes to the Board Members for action at the next board meeting. The change in threshold for these categories is an effort to avoid future confusion between expenditures considered renovations/additions to existing buildings and expenditures considered regular repair and maintenance of existing facilities. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION IV FINDINGS AND QUESTIONED COSTS UNION 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 Union 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 Union County Board of Education disclosed financial statement reportable conditions related to the following control categories. Budget Preparation/Execution Capital Assets General Ledger Of the reportable conditions described above, General Ledger and Capital Assets are considered to be material weaknesses. 3. Noncompliance Material to the Financial Statements The audit ofthe Union 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 Union 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 Union 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 Union 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 84.010 Title I Grants to Local Educational Agencies 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Union County Board ofEducation qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. - 1- UNION COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS BUDGET PREPARATION/EXECUTION Deficit Fund Balance Reportable Condition Finding Control Number: FS-7441-06-01 Condition: The School District reported a Deficit Fund Balance at year end within one of its major funds. Criteria: Chapter 25 Reporting for LUAs with General Fund Deficit Balances of the Financial Management for Local Units ofAdministration states in part: "The seriousness of fund balance deficits cannot be overstated. The Georgia Department ofEducation requires those LUAs with deficit balances to meet certain reporting requirements." Questioned Cost: NIA Information: The School District's General Fund (Fund 100) reported a deficit fund balance in the amount of $1,011,700. Cause: The School District incurred expenditures in excess of revenues during the year under review in the General Fund. Effect: A financial statement irregularity in accordance with O.C.G.A. 20-2-67. Recommendation: The School District should establish policies and procedures designed to ensure that in future periods the School District does not report a deficit fund balance. In addition, the School District should ensure that they comply with the additional reporting requirements mandated in O.C.G.A. 20-2-67. -2- UNION 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-7441-06-02 Condition: The School District failed to include revenue and expense activity related to the individual school principals' accounts and certain capital asset activity in the DE046 financial report submitted to the Georgia Department of Education. Criteria: Chapter 22 Annual Financial Reporting of the Financial Management for Local Units of Administration indicates that School Districts must prepare their financial statements in accordance with generally accepted accounting principles. Questioned Cost: NIA Information: Revenue and expense activity for the individual school principals' accounts and capital asset activity were not recorded in the School District's general ledger as required. An audit adjustment was proposed and made to record the governmental funds revenue and expense activity of $445,812 and $442,428, respectively. An audit adjustment was also proposed and made to record the agency revenue and expense activity of the school activity accounts of$343,654 and $337,768, respectively. An audit adjustment was proposed and made to record capital asset activity of $1,353,529 in the School District's governmental activities. 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. Recommendation: The School District should implement controls to ensure that Georgia Department of Education policies and procedures are followed and implement procedures to ensure that all financial data is properly recorded in the general ledger and reported in the DE046. -3- UNION COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition - Material Weakness Finding Control Number: FS-7441-06-03 Condition: This is a repeat finding (FS-7441-05-03) from the year ended June 30, 2005. The School District failed to adequately maintain capital assets listing. Criteria: Chapter 37 Fixed Assets of the Financial Management for Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records. Questioned Cost: NIA Information: Capital asset records were incomplete and did not provide a detailed and accurate listing to support assets recorded as "Construction in Progress", "Buildings and Improvements" and "Equipment". Activity related to construction in progress was omitted from the analysis provided by the School District. This omission resulted in an understatement of $1,072,001 for the Construction in Progress asset category. Buildings and Improvements which met the $5,000 capitalization threshold were omitted from the capital assets listing. This omission resulted in an understatement of $97,983 for the Buildings and Improvements asset category. Equipment which met the $5,000 capitalization threshold was omitted from the capital assets listing. This omission resulted in an understatement of $19,401 for the Equipment asset category. Current year depreciation expense for the above mentioned omissions was not properly reflected in the capital asset activity resulting in an understatement of current year depreciation expense in the amount of $19,057. As a result of the om1ss1ons listed above and additional inaccurate calculations of depreciation, accumulated depreciation had a net overstatement of $183,201. -4- UNION COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition - Material Weakness Finding Control Number: FS-7441-06-03 These material variances were reclassified and corrected, through audit entries, for inclusion in the financial statements. Additionally, depreciation expense was charged using the straight line method, however, the approved board policy identifies that depreciation expense will be charged using the straight line method with a "half-years convention". Cause: The School District failed to properly maintain its capital assets records in accordance with the School District's approved capital assets policy. Effect: The failure ofthe School District to maintain a complete and accurate capital assets listing can lead to inaccurate internal and external reporting, as well as noncompliance with generally accepted accounting principles. Recommendation: The School District should review its capital assets records and make appropriate adjustments to ensure that the capital assets records conform to the School District's approved capital assets policy and generally accepted accounting principles. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -5- SECTIONV MANAGEMENT'S RESPONSES UNION COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-7441-06-01 We concur with this finding. It is the Board's intent to set M & 0 millage levies as necessary to provide enough local monies to assure normal operations of the school system and eliminate the deficit balance. We have implemented the deficit elimination plan as instructed by Georgia Department of Education to correct this deficit. Finding Control Number: FS-7441-06-02 We concur with this finding. Management has implemented controls to ensure that Georgia Department of Education policies and procedures are followed to ensure that all financial data is properly recorded in the general ledger and reported in the DE046. Finding Control Number: FS-7441-06-03 We concur with this finding. The School District has a new capitalization policy, Board approved at the June 2006, Board meeting. The formula errors in the spreadsheet have been corrected. Contact Person: Myrta McCarter, Director of Accounting Services Phone: (706) 745-2322 Fax Number: (706) 745-5025 E-mail Address: myrta.mccarter@ucschools.org