WARE COUNTY BOARD OF EDUCATION WAYCROSS, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor WARE 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 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 6 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 9 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 10 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 12 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 13 H NOTES TO THE BASIC FINANCIAL STATEMENTS 15 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 31 WARE COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 32 3 SCHEDULE OF STATE REVENUE 35 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 36 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 39 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 WARE COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION V MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 May 2, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Ware 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 Ware County Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Ware 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 Ware County Board of Education, as of June 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2004ARL-11 In accordance with Government Auditing Standards, we have also issued our report dated May 2, 2005, on our consideration ofthe Ware County Board ofEducation's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope ofour testing of internal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. 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 31 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 Ware 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 ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code of Georgia Annotated section 506-24. Respectfully submitted, RWH:gp 2004ARL-11 State Auditor WARE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 The discussion and analysis of Ware County Board ofEducation's financial performance provides an overall review of the Board's financial activities for the fiscal year ended June 30, 2004. The intent of this discussion and analysis is to look at the Board's financial performance as a whole; readers should also review the financial statements and the notes to the basic financial statements to enhance their understanding of the Board's financial performance. Financial Highlights Key financial highlights for fiscal year 2004 are as follows: In total, net assets increased $3,691,891, which represents an 8 percent increase from fiscal year 2003. This total increase was due to governmental activities since the Board has no businesstype activities. General revenues accounted for $20.4 million in revenue or 36.0 percent of all revenues. Program specific revenues in the form ofcharges for services and sales, grants and contributions accounted for $36.2 million or 64.0 percent of total revenues of $56.6 million. The Board had $52.9 million in expenses related to governmental activities; only $36.2 million ofthese expenses were offset by program specific charges for services, grants or contributions. General revenues (primarily taxes) of $20.4 million were adequate to provide for these programs. Among major funds, the general fund has $50.9 million in revenues and $51.3 million in expenditures. The general fund's balance decreased from $3.6 million to $3.3 million. Using the Basic Financial Statements This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the Ware County Board of Education as a financial whole, or as an entire operating entity. The Statement ofNet Assets and Statement ofActivities provide information about the activities of the whole Board, presenting both an aggregate view ofthe Board's finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term as well as what remains for future spending. In the case of the Ware County Board of Education, the general fund is by far the most significant fund. 1 WARE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Reporting the Board as a Whole Statement ofNet Assets and the Statement ofActivities While this document contains the large number offunds used by the Board to provide programs and activities, the view ofthe Board as a whole looks at all financial transactions and asks the question, "How did we do financially during fiscal year 2004?" The Statement ofNet Assets and the Statement of Activities answer this question. These statements include all assets and liabilities using the accrual basis ofaccounting 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 Board's net assets and changes in those assets. This change in net assets is important because it tells the reader whether, for the Board as a whole, thefinancial position of the Board has improved or diminished. The causes of this change may be the result of many factors, some financial, some not. Nonfinancial factors include the Board's property tax base, facility conditions, required educational programs and other factors. In the Statement of Net Assets and the Statement of Activities, the Board has one distinct type of activity: Governmental Activities - All ofthe Board's programs and services are reported here including instruction, support services, operation and maintenance of plant, pupil transportation, food service, after school program, principal's accounts and various others. Reporting the Board's Most Significant Funds Fund Financial Statements Fund financial reports provide detailed information about the Board's major funds. The Board uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the Board's most significant funds. The Board's major governmental funds are the general fund, the capital projects fund and the debt service fund. Governmental Funds: Most of the Board's activities are reported in governmental funds, which focus on how money flows into and out ofthose funds and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all otherfinancial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view ofthe Board's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement ofNet Assets and the Statement ofActivities) and governmentalfunds is reconciled in the financial statements. 11 WARE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Fiduciary Funds: The Board is the trustee, orfiduciary, for assets that belong to others, such as the medical spending account fund and school clubs and organizations within the principals' accounts. The Board 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 Board excludes these activities from the District-wide financial statements because it cannot use these assets to finance its operations. The Board as a Whole The perspective of the statement of net assets is of the Board as a whole. Table 1 provides a summary ofthe Board's net assets for fiscal year 2004. Note the comparison of2003 and 2004 statement of net assets. Table 1 Net Assets Governmental Activities Fiscal Fiscal Year 2004 Year 2003 Assets Current and Other Assets Capital Assets, Net $ 28,240,938 $ 29,757,197 47,567,445 45,338,311 Total Assets $ 75,808,383 $ 75,095,508 Liabilities Current and Other Liabilities Long-Term Liabilities $ 6,718,799 $ 6,047,966 20,081,309 23,735,522 Total Liabilities $ 26,800,108 $ 29,783,488 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 30,417,041 14,975,936 3,615,298 $ 27,424,437 13,748,365 4,139,218 Total Net Assets $ 49,008.275 $ 45,312.020 Total net assets increased $3.7 million in fiscal year 2004. Table 2 shows the changes in net assets for fiscal year 2004. Note the revenue and expense comparisons to fiscal year 2003. 111 WARE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Table 2 Change in Net Assets Revenues Program Revenues: Charges for Services Operating Grants and Contributions Capital Grants and Contributions Governmental Activities Fiscal Fiscal Year 2004 Year 2003 $ 1,834,901 34,210,293 217,509 $ 1,917,769 35,239,043 Total Program Revenues $ 36,262,703 $ 37,156,812 General Revenues: Taxes Property Taxes For Maintenance and Operations For Debt Service Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Debt Service For Capital Projects Intangible Recording Tax Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous $ 8,176,321 $ 8,115,594 374 -63 125,685 117,880 3,930,520 1,676,284 77,485 31,643 4,714,541 259,616 1,405,061 4,561,042 566,356 22,549 4,126,732 351,876 940 765 Total General Revenues $ 20,397,530 $ 18,802,731 Total Revenues $ 56,660,233 $ 55,959,543 Program Expenses 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 ofNon-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt $ 33,951,010 2,145,081 1,232,125 923,018 566,125 2,933,445 333,608 3,320,081 2,261,515 383,615 624,106 317,433 2,926,567 1,050,613 $ 34,331,850 1,990,691 1,426,773 1,066,188 476,403 2,927,622 320,905 3,198,347 2,585,018 386,239 656,091 402,432 2,954,924 1,145,957 Total Expenses $ 52,968,342 $ 53,869,440 Increase in Net Assets $ 3,691,891 $ 2,090,103 IV WARE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Governmental Activities Instruction comprises 64.1 percent of governmental program expenses. Interest expense was 1.9 percent of governmental program expenses. Interest expense was attributable to capital leases and the outstanding bonds for capital projects. The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. Table 3 shows, for governmental activities, the total cost ofservices and the net cost of services for fiscal year 2004. That is, it identifies the cost of these services supported by tax revenue and unrestricted State entitlements. Table 3 Governmental Activities Total Cost of Services Fiscal Year 2004 Net Cost of Services Fiscal Year 2004 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 Food Services Interest on Short-Term and Long-Term Debt $ 33,951,010 $ 2,145,081 1,232,125 923,018 566,125 2,933,445 333,608 3,320,081 2,261,515 383,615 624,106 317,433 2,926,567 1,050,613 7,653,345 1,454,028 642,865 349,666 -532,381 1,508,870 332,895 1,606,991 1,318,231 383,615 536,588 317,433 82,880 1,050,613 Total Expenses $ 52!968!342 $ 16!705!639 Although program revenues make up a majority of the revenues, the Board is still dependent upon tax revenues for governmental activities. Over 22.5 percent of instruction activities are supported through taxes and other general revenues; for all governmental activities general revenue support is 31.5 percent. V WARE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 The Board's Funds The Board's governmental funds are accounted for using the modified accrual basis of accounting. Total governmental funds had revenues and other financing sources of over $70.0 million and expenditures and other financing uses of$72.1 million. There was a decrease of$14.4 million in the capital projects fund; the general fund had a decrease of$0.3 million and debt service funds had an increase of $12.7 million. The negative change in the fund balance ofthe general fund for the year reflects that the Board was unable to meet current costs with current revenues. General Fund Budgeting Highlights The Board's budget is prepared according to Georgia law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2004, the Board amended its general fund budget as needed. The Board uses site-based budgeting. The budgeting systems are designed to tightly control total site budgets but provide flexibility for site management. For the General Fund, the final budgeted revenues and other financing sources and the original budgeted expenditures were virtually the same at $48.9 million. The original and final budget amounts do not include budgeted revenues ofthe various principals' accounts. The actual revenues and other financing sources of $51.0 million exceeded the budgeted amount by $2.1 million. The original and final budgeted expenditure amounts were the same at $48.9 million. The original and final budget amounts do not include budgeted expenditures ofthe various principals' accounts. The actual expenditures and other financing uses of $51.3 million was $2.4 million more than budgeted. General Fund expenditures and other financing uses exceeded revenues and other financing sources by $0.3 million. The Board has utilized the accumulated fund balance to compensate for the shortfall. Capital Assets and Debt Administration Capital Assets At the end of fiscal year 2004 the Board had $47.6 million invested in capital assets, all in governmental activities. Table 4 shows fiscal year 2004 balances compared with fiscal year 2003 balances. Vl WARE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Table 4 Capital Assets (Net of Depreciation) Governmental Activities Fiscal Fiscal Year 2004 Year 2003 Land Construction in Progress Buildings and Building Improvements Equipment Land Improvements $ 831,951 2,536,028 41,766,836 1,247,299 1,185,331 $ 831,951 139,738 41,586,829 1,426,368 1,353,425 Total $ 471567A45 $ 45!338!311 The primary increases occurred in Construction in Progress due to the initiation of construction. Debt At June 30, 2004, the Board had $19.9 million in bonds outstanding with $3.1 million due within one year and $0.1 million in capital leases outstanding with $0.1 million due within one year. Table 5 summarizes general obligation bonds and capital leases. Table 5 shows fiscal year 2003 balances compared with fiscal year 2004 balances. Table 5 Debt at June 30 Governmental Activities Fiscal Fiscal Year 2004 Year 2003 General Obligation Bonds Capital Leases Other $ 19,950,000 $ 23,470,000 131,309 265,522 Total $ 20!081!309 $ 23)3\522 Current Issues The Ware County School District has experienced the economic challenges caused by declining local ad valorem revenues and state funding. For a number ofyears, the Board benefited from incremental growth in local tax revenues due to reassessment of property values. However, for the past several years changes in state legislation has changed the process and procedures for setting and adopting Vll WARE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 millage rates. To avoid increasing the millage rates, Ware County like many other boards adopted the "rollback rates" calculated on the tax notices. In fact, the Ware County Board of Education adopted the rollback millage rate for three consecutive years moving the mill rate downward from 15.75 mills to 15.261 mills. By adopting the rollback rates over this period, the chief source oflocal revenues for the Board was literally frozen in time. The net consequences of adopting three consecutive rollback rates have resulted in a freeze in any increase in local revenues for the school system. However, for the current fiscal year, the Board did not adopt the rollback mill rate. The prior year's millage rate of 15.261 was adopted in order to keep the mill rate and tax revenues constant. The Board did not want to raise taxes, but did not want to suffer the loss of badly needed local tax revenues. In fiscal year 2003, the Georgia Department of Education applied an "austerity reduction" to the Ware County School System, which cut the state revenues to the Board by $0.7 million. The reduction was applied on the mid-term earnings sheet, which had serious consequences to the Board since only three months remained in the fiscal year and most ofthe system's expenditures were tied up in contractual commitments to salary. Additionally, millage rates and other revenue sources were fixed for the remainder of the fiscal year. Through sound fiscal management practices, the Board reduced expenditures in areas where feasible. Reductions in staffwere made and program costs were reduced. In fiscal year 2004, the amount ofthe austerity reduction grew to nearly $1.4 million, and in fiscal year 2005 to $1.5 million. The school system has relied on portions of its fund equity to offset the loss of state budgeted revenues. Now after three years of managing increasing austerity cuts, limitations on property tax growth, and increases in costs; the Ware County Board of Education's fund equity has been dramatically and negatively impacted. Although the Ware County School District has experienced declining student enrollment for the past several years, that seems to have changed in fiscal year 2005. There has been a population shift to communities outside the county due to land development availability. That population shift has contributed to the declining enrollment in Ware's public schools. The Board of Education reinstituted its out-of-system tuition policies offering nonresident students an opportunity to attend Ware schools. The Board has benefited only slightly from the tuition policy. The chief financial consequence for declining enrollment has been a reduction in QBE funding which is based upon the Full Time Equivalent (FTE) enrollment ofstudents. While enrollments decreased, the requirement for more teachers increased, as smaller pupil-teacher ratios were imposed by HB 1187 passed by the Georgia General Assembly in 2001. Not only was additional staff required to meet the new ratios, but in some instances additional classroom space was also needed. Despite a loss in population in recent years, the County of Ware has developed into a retail center attracting shoppers from smaller surrounding counties. Yet, while the Board has experienced declining enrollment, decreasing local revenues, and deep cuts in the state allotment offunds, a Sales Tax for Education approved by the voters in 1997 and again in 2001 has tapped into the growing retail business. This has produced a new source ofrevenue for facility expansion and improvement. As a result of the sales tax revenues, the Board's facilities are among the finest in the state. Classroom technology has also been enhanced with these funds. Additionally, the Sales Tax for Education has provided the funds to repay the bonded indebtedness for the Board. The 1998 General viii WARE COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Obligation Bonds for $10,000,000 were retired in fiscal year 2004 with sales tax revenues. The 1995 series bonds in the amount of $11,965,000 were retired at the earliest possible date on February 1, 2005. Debt service of the 1995 Bonds was shifted from the property tax digest (1.8 mills) to the sales tax collections. Like the 1998 Bonds, the 2002 General Obligations Bonds permitted the Board to "front-load" funding for many worthwhile and necessary facility improvement and construction projects. And like the previous bonds, the obligations on the 2002 Bonds are being serviced with sales tax revenues. The Ware County Board of Education has operated the Board through sound, fiscally responsible practices. While challenges clearly lie ahead, the Board and staff remain committed to continuing these practices. Contacting the Board's Financial Management This financial report is designed to provide our citizens, taxpayers, investors, and creditors with a general overview of the Board's finances and to show the Board's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Loretta Holmes, Financial Director at Ware County Board of Education, 1301 Bailey Street, Waycross, Georgia 31501, or email at lholmes@ware.kl2.ga.us. IX WARE COUNTY BOARD OF EDUCATION WARE COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30. 2004 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages 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 Permanent Fund Unrestricted Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. -3- EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 13,345,409 8,531,233 1,614,418 3,596,862 924,912 121,426 106,678 831,951 2,536,028 3,194,621 58,460,569 4,795,441 -22,251,165 $ ===7=5=,8=0=8,.,.38=3= $ 1,709,198 4,551,634 312,286 111,417 34,264 3,188,399 16,892,910 $ 26,800,108 $ 30,417,041 438,599 737,928 13,691,238 105,171 3,000 3,615,298 $ 49,008,275 $ ===7=5=,8=0=8,=38=3= WARE COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2004 EXPENSES CHARGES FOR SERVICES 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 Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities $ 33,951,010 $ 2,145,081 1,232,125 923,018 566,125 2,933,445 333,608 3,320,081 2,261,515 383,615 624,106 317,433 2,926,567 1,050,613 52,968,342 $ 1,158,407 12,387 664,107 1834901 General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects 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 Net Assets - End of Year The notes to the basic financial statements are an integral part of this statement. -4- EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 25,070,957 $ 690,983 586,971 573,352 1,096,456 1,424,575 1,699,429 805,760 87,518 2,174,292 $ 34 210,293 $ 68,301 $ 70 2,289 2,050 713 1,274 137,524 5,288 217,509 $ -7,653,345 -1,454,028 -642,865 -349,666 532,381 -1,508,870 -332,895 -1,606,991 -1,318,231 -383,615 -536,588 -317,433 -82,880 -1050613 -16,705,639 $ 8,176,321 374 125,685 3,930,520 1,676,284 77,485 31,643 4,714,541 259,616 1405061 $ 20 397 530 $ 3,691,891 45 316 384 $ 49,008,275 -5- WARE COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2004 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND $ 3,857,316 $ 99,518 533,414 3,693,405 484,789 3,596,862 899,179 121,426 106 678 997,269 25,733 Total Assets $ 9,599,664 $ ==4=,8=1=5-=,9=25= LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories Capital Projects Permanent Fund Unreserved Designated for Self-Insurance Undesignated Reported in: General Fund Capital Projects Permanent Fund Total Fund Balances $ 1,684,812 $ 4,551,634 34 264 $ 6,270,710 $ 24,386 312,286 111,417 448 089 $ 438,599 631,250 106,678 $ 3,020,763 178,093 1,974,334 1,347,073 $ 3,328,954 $ 4,367,836 Total Liabilities and Fund Balances The notes to the basic financial statements are an integral part of this statement. -6- $ 9,599,664 $ ==4=,8=1=5-=,9=25= EXHIBIT"C" DEBT SERVICE FUND NONMAJOR GOVERNMENTAL FUNDS TOTAL $ 9,388,532 $ 4,300,045 48 43 $ 4,369 13,345,409 8,531,233 1,482,106 3,596,862 924,912 121,426 106 678 $ 13,688,625 $ 4 412 $ 28,108,626 $ 13,688,625 $ $ 13,688,625 $ $ 13,688,625 $ $ 1,709,198 4,551,634 312,286 111,417 34 264 $ 6 718 799 $ 3,000 1 412 4,412 $ 438,599 631,250 13,688,625 106,678 3,020,763 3,000 178,093 1,974,334 1,347,073 1 412 21,389,827 4,412 $ 28,108,626 -7- WARE COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30. 2004 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings 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 Capital Leases Total Long-Term Liabilities $ 21.389.827 $ 831,951 2,536,028 3,194,621 58,460,569 4,795,441 -22,251,165 47,567,445 132,312 $ -19,950,000 -131 309 -20,081,309 Net Assets of Governmental Activities (Exhibit "A") $ The notes to the basic financial statements are an integral part of this statement. -9- WARE COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2004 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 Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES} Capital Leases Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND $ 8,479,604 109,128 $ 32,694,957 6,367,401 1,834,901 74,144 1,405,061 $ 50,965,196 $ 1,676,284 79,985 56,864 1,813,133 $ 33,318,063 2,166,897 1,270,409 923,018 547,125 2,933,445 321,199 $ 3,324,049 2,100,363 383,615 624,106 317,433 2,883,440 276 3,027,895 156,454 16 605 $ 51,286,221 $ 3,028,171 $ -321,025 $ -1,215,038 $ 22,241 $ -13,195,823 $ 22,241 $ -13,195,823 $ -298,784 $ -14,410,861 3,627,738 18,778,697 Fund Balances - Ending The notes to the basic financial statements are an integral part of this statement. - 10 - $ 3,328,954 $ 4,367,836 EXHIBIT "E" DEBT SERVICE FUND NONMAJOR GOVERNMENTAL FUNDS TOTAL $ 1,004 3,930,520 128,560 $ $ 4,060,084 $ $ 48 48 $ 8,480,608 5,715,932 32,694,957 6,447,386 1,834,901 259,616 1 405,061 56,838,461 $ $ 5,530 3,520,000 1 034,008 $ 4,559,538 $ $ -499 454 $ $ 13,195,823 $ 13,195,823 $ 12,696,369 $ 992,256 $ 13,688,625 $ 0 $ 0 $ 48 $ 33,318,063 2,166,897 1,270,409 923,018 547,125 2,933,445 327,005 3,324,049 2,100,363 383,615 624,106 317,433 2,883,440 3,027,895 3,676,454 1050613 58,873,930 -2,035,469 $ 22,241 13,195,823 -13,195,823 $ 22 241 48 $ -2,013,228 4,364 23,403,055 4,412 $ 21,389,827 - 11 - WARE COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30. 2004 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. Some of the Assets acquired this year were financed with capital leases. In Governmental Funds, a capital lease arrangement is considered a source of financing, but in the Statement of Net Assets, the lease obligation is reported as a Long-Term Liability. 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 Capital Lease Payments Total Long-Term Debt Repayments $ -2,013,228 $ 3,265,687 -1,036,553 2,229,134 -178,228 -22,241 $ 3,520,000 156 454 3,676,454 Change in Net Assets of Governmental Activities (Exhibit "B") $ ====3,!=69=1=,8=9=1 The notes to the basic financial statements are an integral part of this statement. - 12 - WARE COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004 ASSETS Cash and Cash Equivalents Accounts Receivable, Net Other Total Assets LIABILITIES Accounts Payable Funds Held for Others Total Liabilities EXHIBIT"G" AGENCY FUNDS $ 71,416 9 750 $ ===8=1=16=6= $ 1,032 80,134 The notes to the basic financial statements are an integral part of this statement. - 13 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Ware County Board of Education (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 Ware 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 of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofintemal 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. All remaining governmental funds are aggregated and reported as nonmajor funds. - 15 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 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 Proceeds, Bond Proceeds and Federal grants from the Georgia Department of Education to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various clubs, organizations or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt which are recognized - 16 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds 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. RESTATEMENT OF NET ASSETS - BEGINNING OF YEAR In the prior year, the financial activity ofthe School District's Gilchrist Trust Fund was reported as a Private-Purpose Trust Fund. This fund had a fund balance of$4,364 atJuly 1, 2003. For fiscal year 2004, this fund has been reported as a Permanent Fund. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, - 17 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables 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 Ware County Board of Commissioners fixed the property tax levy for the 2003 tax digest year (calendar year) on September 15, 2003 (levy date). Taxes were due on November 15, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Ware County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2004, for maintenance and operations amounted to $8,353,919 and for school bonds amounted to $1,004. The tax millage rate levied for the 2003 tax year (calendar year) for the Ware County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 15 .261 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $5,606,804 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. - 18 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories ofdonated 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: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment Any Amount $ 5,000 $ 5,000 $ 5,000 NIA 15 years 10 to 80 years 5 to 15 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. - 19 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee 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. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities ofthe State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2004, the bank balances were $14,676,610. The amounts ofthe total bank balances are classified into three categories of credit risk: - 20 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2004, as follows: Risk Category Bank Balance 1 $ 104,357 2 0 3 14,572,253 Total $ 14,676,610 CATEGORIZATION OF INVESTMENTS At June 30, 2004, the carrying value ofthe School District's total investments was $8,526,864 which is materially the same as fair value. This investment consisted entirely offunds invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows: The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. - 21 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U. S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2004, was 24 days. The average investment duration for Fund 6 on June 30, 2004, was 0.22 years. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories The School District has received a three year operating lease for ten acres at no cost from the International Paper Company for the Ware County High School Forestry Program. This was the third year of the lease. Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July I, 2003 Increases Balances Decreases June 30, 2004 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 831,951 139,738 $ 2,442,819 $ $ 831,951 46,529 2,536,028 Total Capital Assets Not Being Depreciated $ 971,689 $ 2,442,819 $ 46,529 $ 3,367,979 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 57,694,788 $ 4,724,243 3,194,621 765,781 103,616 $ $ 58,460,569 32,418 4,795,441 3,194,621 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 16,107,959 3,297,875 1,841,196 585,774 282,685 168,094 32,418 16,693,733 3,548,142 2,009,290 Total Capital Assets, Being Depreciated, Net $ 44,366,622 $ -167,156 $ 0 $ 44,199,466 Governmental Activity Capital Assets - Net $ 45,338,311 $ 2,275,663 $ 46,529 $ 47,567,445 Capital assets being acquired under capital leases as of June 30, 2004, are as follows: - 22 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 5: CAPITAL ASSETS Governmental Funds Buildings Less: Accumulated Depreciation $ 1,407,072 (1) $ 1,407.072 (1) The Accumulated Depreciation amount could not be separated for the Building Improvements acquired by capital lease. Current year depreciation expense by function is as follows: Instruction Support Services Pupil Services Improvements of Instructional Services General Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 727,061 $ 749 24,371 21,825 7,585 13,561 185,114 253,205 56,287 $ 1,036,553 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds, Federal Funds, property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) and corpus of the Gilchrist Trust Fund are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2004, were as follows: Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions Corpus District-wide Cagital Projects Bond Federal Proceeds Debt Service Funds Permanent Fund $ 21,919 $ 9,388,532 $ 4,300,045 $ 3,693,405 $ 3,000 - 23 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2004, consisted of the following: Transfer to Transfers From District-wide Capital Projects Debt Service Funds $ 13,195,823 Transfers are used to move Special Purpose Local Option Sales Tax revenues collected by the District-wide Capital Projects Fund to the Debt Service Fund to pay long-term debt requirements. Note 8: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God; unemployment compensation and dental claims. The School District has obtained commercial insurance for risk ofloss associated with torts, assets and errors or omissions. The School District has not significantly reduced coverage for these risks but has incurred losses (settlements) which exceeded the School District's insurance coverage in the past three years. For the 2002 fiscal year, an employee dishonesty claim filed by the School District exceeded commercial insurance coverage by $66,139. Settled claims did not exceed commercial insurance for the fiscal year 2004. The School District has elected to self-insure for all losses related to flood. The School District has not experienced any losses related to this risk in the past three years. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount ofthat loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2003 2004 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 233 $ 10 199 $ 2,593 $ 7 839 $ 7 839 $ 2,278 $ 10 117 $ 0 - 24 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 8: RISK MANAGEMENT The School District is self-insured with regard to employee and dependent dental claims. The School District accounts for claims within the General Fund with expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. This program is funded through a combination ofemployer and employee contributions. Changes in the dental claims liability during the past two fiscal years are as follows: 2003 2004 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0 $ 507,824 $ 507,824 $ 0 $ 0 $ 536,588 $ 536,588 $ 0 The School District participates in the Georgia School Boards Association Workers' Compensation Fund, a public entity risk pool organized on July 1, 1992, to develop, implement, and administer a program ofworkers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Fund for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Fund with the Safety National Casualty Corporation to provide coverage for potential losses sustained by the Fund in excess of $400,000 loss per occurrence, up to $1,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent Each Employee $ 100,000 $ 100,000 Note 9: LONG-TERM DEBT CAPITAL LEASES The Ware County Board of Education has entered into various lease agreements as lessee for building energy management systems and equipment. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value ofthe future minimum lease payments as of the date of their inception. GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: - 25 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 9: LONG-TERM DEBT Purpose Interest Rates Amount General Government - Series 1995 General Government - Series 2002 4.35% - 5.85% 3.00%- 4.00% $ 9,440,000 10,510,000 $ 19,950,000 The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows: Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2003 $ 265,522 $ 23,470,000 $ 23,735,522 Additions Capital Leases 22,241 22,241 Deductions Debt Retired 156,454 3,520,000 3,676,454 Balance June 30, 2004 $ 131,309 $ 19,950.000 $ 20,081,309 Portion of Long-Term Debt Due within One Year $ 123,399 $ 3,065,000 $ 3,188,399 At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 Capital Leases Principal Interest 2005 2006 $ 123,399 $ 7 910 5,962 542 Total Principal and Interest $ 131,309 $====6=,5~0-4 - 26 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 9: LONG-TERM DEBT Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2005 2006 2007 2008 2009 2010 - 2014 2015 - 2019 $ 3,065,000 $ 923,078 3,200,000 793,750 3,345,000 667,512 3,505,000 538,378 775,000 395,060 4,850,000 1,245,437 1,210,000 70,785 Total Principal and Interest $ 19,950,000 $ 4,634,000 Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $457,829 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 $453,055 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 $4,774 Note 11: SIGNIFICANT COMMITMENTS The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2004, together with funding available: - 27 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 11: SIGNIFICANT COMMITMENTS Project Unearned Executed Contracts Funding Available From State Athletic Field Improvements Waycross Middle and Ware Middle Ware County High School Corridor Tile Replacement Ware County High School Performing Arts Building 04-FED-748-077 $ 2,689 6,643 2,234,009 154,006 $ 150,015 $ 2!397!347 $ 150!015 The amounts described in this note are not reflected in the basic financial statements. Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. Note 13: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: - 28 - WARE COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 13: RETIREMENT PLANS Fiscal Year 2004 2003 2002 Percentage Contributed 100% 100% 100% Required Contribution $ 2,735,210 $ 2,732,263 $ 2,603,274 - 29 - WARE COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30. 2004 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES {USES} Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Adjustments Fund Balances - Ending NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 8,500,000 $ 8,500,000 $ 8,479,604 150,000 150,000 109,128 32,861,251 32,861,251 32,694,957 6,112,260 6,112,260 6,367,401 757,100 757,100 1,834,901 91,000 91,000 74,144 157 000 157 000 1 405 061 $ 48,628,611 $ 48,628,611 $ 50,965,196 $ 32,128,790 $ 32,128,790 $ 33,318,063 2,194,328 1,493,351 1,016,918 577,329 2,705,338 310,163 3,359,969 2,065,637 394,589 67,179 2,533,770 2,194,328 1,493,351 1,016,918 577,329 2,705,338 310,163 3,359,969 2,065,637 394,589 67,179 2,533,770 2,166,897 1,270,409 923,018 547,125 2,933,445 321,199 3,324,049 2,100,363 383,615 624,106 317,433 2,883,440 173 059 $ 48 847 361 $ 48,847,361 $ 51,286,221 $ -218,750 $ -218 750 $ -321 025 $ 360,000 $ 360,000 $ -45,000 -45 000 22,241 $ 315 000 $ 315 000 $ 22 241 $ 96,250 $ 96,250 $ -298,784 2,980,887 2,980,887 3,627,738 -76 135 -76 135 $ 3,001,002 $ 3,001,002 $ 3,328,954 Notes to the Schedule of Revenues. Exi;1enditures 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. - 31 - WARE COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture. U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U.S. Department of Agriculture Corporation for National and Community Service Pass-Through From Georgia Department of Education Learn and Serve America School and Community Based Programs Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Coastal Plains Regional Educational Service Agency d/b/a Southern Pine Migrant Education Agency Migrant Education Pass-Through From Coffee County Board of Education Fund for the Improvement of Education Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Improving Teacher Quality State Grants Rural Education School Renovation - Schools State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Pass-Through From Okefenokee Regional Educational Service Agency Safe and Drug-Free Schools and Communities Total U.S. Department of Education Defense, U. S. Department of Direct Department of the Army R.O.T.C. Program CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 NIA N/A $ $ (2) 2,524,207 2.524,207 10.550 N/A $ 175 743 2,699,950 94.004 N/A $ 21,525 84.027 84.173 N/A $ N/A $ 945,255 96 035 1,041,290 84.011 84.215 84.318 84.367 84.358 84.352 . 84.298 84.010 84.048 84.186 N/A NIA N/A N/A N/A N/A N/A N/A N/A N/A $ 57,703 110,233 60,076 482,538 149,271 79,985 49,756 2,209,303 86,152 29 311 4 355,618 $ 63,381 - 32 - WARE COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Labor, U. S. Department of Pass-Through From Southeast Georgia Regional Development Center Workforce Investment Act Youth Activities CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 17.259 N/A $ _ _ _ _1_6~0_6_0 Total Federal Financial Assistance N/A = Not Available $ =====-7=15=6=5=3=4 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 ($441,469.) were not maintained separately and are included in the 2004 National School Lunch Program. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Ware 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. - 33 - WARE COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30 2004 AGENCY/FUNDING GRANTS Bright from the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program 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 Nursing Services Principal Supplements Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Health Insurance Preschool Handicapped Program Special Education Low Incidence Grant Student Information System - Upgrade Lottery Program Assistive Technology Office of Treasury and Fiscal Services Public School Employees Retirement OTHER Community Affairs, Georgia Department of Local Assistance Grant See notes to the basic financial statements. - 35- SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 1,111,925 1,634,753 246,901 3,647,951 726,490 1,721,255 541,069 326,601 3,246,066 2,551,354 834,993 72,430 626,116 2,296,961 796,936 65,504 1,868,358 85,528 253,928 35,472 573,298 170,153 120,873 858,965 1,269,486 1,657,517 723,260 137,524 19,500 127,454 23,854 35,244 4,555,811 183,490 166,006 -1,394,605 48,557 94,533 453,055 86,582 31,582 46,691 4,515 4,774 6 247 $ 32,694,957 WARE COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30. 2004 SCHEDULE "4" PROJECT Retiring previously incurred General Obligation Debt of the School District. Acquiring, constructing, and equipping the following Capital Outlay Projects: adding to, remodeling, renovating, improving and equipping existing educational buildings, properties and facilities of the School District, acquiring any necessary personal property and equipment, including computers and related technology, copiers, energy management, HVAC, lighting and similar equipment, relocating or expanding, remodeling and renovating the existing transportation and bus garage and remodeling and renovation necessary to convert Center Junior High School into school district administrative offices and purchasing school buses. Retiring the School District's General Obligation Bonds, Series 1995 debt. Acquiring, constructing, and equipping the following Capital Outlay Projects: renovations and improvements at Memorial Stadium; acquisition, construction, renovation and equipping of fine arts facilities, including the construction of a new performing arts center and choral lab at Ware County High School; renovations at the Waycross Middle School auditorium; renovations to the Ware County Middle School auditorium and enlargements and renovations to the band room at Ware County High School; site improvements including purchase of equipment, providing fencing, demolition, paving, construction of sidewalks and covered areas at various schools; construction of soccer fields and improvements to the softball, football fields, tennis courts, physical education and/ or any other athletic field, providing lighting, bleachers, fencing and equipment at Ware County High School; improvements to the softball, baseball field, soccer field, football field, physical education and/or any other athletic field, fencing, paving, reworking the bus loading area and providing lighting and bleachers at Waycross Middle School; improvements to the softball, baseball, soccer, football, physical education and/or any other athletic field, fencing, paving and providing lighting and bleachers at Ware County ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 15,100,000 $ 15,100,000 $ 3,484,817 $ 4,745,281 Ongoing 15,900,000 15,900,000 1,985,000 1,985,000 144,649 14,659,993 Completed 1,074,721 Ongoing - 36 - WARE COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30. 2004 SCHEDULE "4" PROJECT Middle School; providing lighting and installing bleachers at the softball and baseball fields at Ware County Magnet School; construction of classrooms at Ruskin, Memorial Drive, Waresboro and Wacona Elementary schools; construction of a JROTC building at Ware County High School; acquisition offurnishings and equipment at Ware Middle, Waycross Middle, Memorial Drive, Wacona, Waresboro and Ware Magnet schools making exterior improvements including painting and repairs to all schools; acquisition of new technology, copiers, materials and equipment; purchase and installation of HVAC, electrical and energy controls at Waresboro, Wacona, Memorial Drive elementary schools, Ware County and Waycross Middle schools, Ware Magnet and Ware County High School acquisition of new school buses and renovations and improvements to the bus shop; and payment of contingencies, surveys, geotechnical services, architectural and engineering fees, testing services and fees, together with capitalized interest and legal administrative costs related to issuance of the bonds. ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS 25,515,000 25,515,000 2,803,537 4,019,784 Ongoing $ 58,500,000 $ 58,500,000 $ 7,507,724 $ 23,425,058 (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 Ware County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. See notes to the basic financial statements. - 37 - WARE COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2004 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle 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 Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 1,781,097 $ 1,636,274 $ 68,428 $ 1,704,702 308,503 540,304 1,203 541,507 3,983,454 4,158,390 224,818 4,383,208 839,281 874,841 3,202 878,043 1,878,252 2,059,446 102,902 2,162,348 619,682 361,763 3,571,559 2,821,482 918,952 4,247,282 2,047,787 96,155 280,505 39,103 620,932 289,958 3,505,697 3,879,886 1,245,382 52,680 866,248 2,373,274 679,643 18,104 1,375,310 88,581 424,473 45,754 1,909 14,301 155,365 157,959 61,978 41 14,340 6,746 411 24 27,688 197 57 622,841 304,259 3,661,062 4,037,845 1,307,360 52,721 880,588 2,380,020 680,054 18,128 1,402,998 88,778 424,473 45,811 $ 23,794,857 $ 24,735,177 $ 841,569 $ 25,576,746 629,311 132 670 842,184 38 317 60,401 80,384 902,585 118 701 TOTAL QBE FORMULA FUNDS $ 24,556,838 $ 25,615,678 $ 982,354 $ =~2,;;.6,.;;,59;;,;8;,.;,0;;,;;3;,;;,,2 (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. - 39 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 May 2, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members ofthe Ware 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 Ware County Board of Education as of and for the year ended June 30, 2004, which collectively comprise Ware County Board ofEducation's basic financial statements and have issued our report thereon dated May 2, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Ware County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect Ware County Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-7481-04-01 and FS-7481-04-02. 2004YB-30 A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above is a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether Ware County Board ofEducation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the Ware County Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:gp 2004YB-30 State Auditor Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 May 2, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Ware County Board of Education REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 Ladies and Gentlemen: Compliance We have audited the compliance of Ware County Board of Education with the types of compliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to its major Federal program for the year ended June 30, 2004. Ware County Board of Education's major Federal program is identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to its major Federal programs is the responsibility of Ware County Board of Education's management. Our responsibility is to express an opinion on Ware 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 of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Ware County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Ware County Board of Education's compliance with those requirements. 2004SA-30 In our opinion, the Ware County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to its major Federal program for the year ended June 30, 2004. Internal Control Over Compliance The management of Ware County Board ofEducation 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 Ware County Board of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. We noted a certain matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the Ware County Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FA-7481-04-01. A material weakness is a reportable condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. This report is intended solely for the information and use ofthe management, members ofthe Ware 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, ~M~ RWH:gp 2004SA-30 State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS WARE COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7481-03-01 Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Finding Control Number: FS-7481-03-01 Implemented compensating controls and school activities software in fiscal year 2005. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-7481-03-01 Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Finding Control Number: FA-7481-03-01 Implemented School-wide accounting procedures per GDOE instructions in fiscal year 2005. Auditor's Note: The School District has implemented changes to resolve this finding in fiscal year 2005 and this finding will be shown as resolved in the fiscal year 2005 audit report. SECTION IV FINDINGS AND QUESTIONED COSTS WARE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Ware 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 Ware County Board of Education disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts Expenditures/Liabilities/Disbursements Employee Compensation None ofthe reportable conditions described above are considered to be material weaknesses. 3. Noncompliance Material to the Financial Statements The audit ofthe Ware 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 Ware County Board ofEducation disclosed a reportable condition in internal control over major programs for the following compliance requirements. Special Tests and Provisions The reportable condition described above is not considered to be a material weakness. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Ware County Board ofEducation's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .5 lO(a) of 0MB Circular A-133 The Ware County Board of Education's audit disclosed an audit finding required to be reported by section .51 0(a) of0MB Circular A-133. This audit finding is included in section IV of this report. 7. Major Programs The Federal award audited as a major program is as follows: 84.010 Title I Grants to Local Educational Agencies 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. - 1- WARE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 9. Low Risk Auditee The Ware County Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Reportable Condition Repeated From Prior Year Finding Control Number: FS-7481-04-01 The Ware County Board of Education (School District) did not provide for adequate separation of employee duties related to principals' (school activity) accounts in the performance ofthe following accounting functions and procedures: Cash and Cash Equivalents The bank reconciliation function is not separated from the record keeping and voucher payment functions Revenues/Receivables/Receipts Cash receipt function was not separated from deposit preparation and record keeping functions Expenditures/Liabilities/Disbursements Claims processing function was not separated from record keeping and claims approval functions These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible, at the various principals' account sites, for the accounting functions. Management should implement additional procedures to ensure that the key accounting functions of custody, record keeping and authorization are segregated. EMPLOYEE COMPENSATION EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-7481-04-02 During the fiscal year ended June 30, 2004, the School District entered into a contract with Live Oak Consulting, Inc. (LOC). The firm assists local school boards in reducing employer cost associated with health insurance plans administered by the Georgia Department ofCommunity Health (DCH). -2 - WARE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EMPLOYEE COMPENSATION EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-7481-04-02 LOC is paid a fee equal to 50 percent ofthe first year employer cost savings identified by LOC. The School District, following the recommendations ofLOC, moved various employees from the Health Insurance Plan for Public School Teachers (See OCGA Title 20, Chapter 2, Article 17, Part 6, Sub Part 1) to the Health Insurance Plan for Public School Employees (See OCGA Title 20, Chapter 2, Article 17, Part 6, Sub Part 2). According to DCH, School District employees who are to be included as members of the Health Insurance Plan for Public School Teachers (PST) are either: 1. Employed in a professionally certificated position; employee holds a valid certification; employee is assigned to a position that requires a certification as a qualification ; employee's compensation is determined, at least in part, based upon the certificate; and employee is a member of the Teachers Retirement System or other public school retirement system. Or: 2. Employed in a professionally certificated capacity; employee holds a valid certification; employee is not assigned to a position that requires a certification as a qualification; employee's compensation is determined, at least in part, based upon the certificate; and employee is a member of the Teachers Retirement System or other public school retirement system. With respect to membership in the Health Insurance Plan for Public School Employees (PSE) Georgia Laws OCGA 20-2-910 and 47-4-2 (20) provide that the definition of public school employee, for the purpose ofmembership in the Health Insurance Plan for Public School Employees, means classroom aides, paraprofessionals, noncertified administrative and clerical employees, school bus drivers, school lunchroom personnel, school maintenance personnel and school custodial personnel. Generally, in order to determine which School District employees are eligible for the PSE or for the PST insurance plans, a comparison should be made ofthe employee's position and DCH's criteria listed above. Ifthe employee meets either test, then the employee is eligible for the Health Insurance Plan for Public School Teachers. If the employee fails both of the above tests, the employee is eligible for the Health Insurance Plan for Public School Employees. From information provided by the School District, it is not clear that all of these employees who were moved from the PST plan to the PSE plan are eligible for membership in the PSE plan under DCH's criteria. -3- WARE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EMPLOYEE COMPENSATION EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-7481-04-02 In addition, the School District ceased paying employer contributions on additional employees which had elected not to have State insurance coverage. However, the employer contribution rates associated with School District employees covered by the Health Insurance Plan for Public School Teachers is calculated by multiplying the total payments for salaries ofall such teachers employed by the School District by the percentage rate established by the Governor and the DCH Board, see OCGA 20-2-892 (b). The School District should establish policies and procedures to ensure that employer contributions for employee health insurance plans are paid in accordance with State Laws. In addition, the School District should contact the Georgia Department of Community Health to determine whether the employees who were moved from the PST plan were moved in error. Ifemployees were moved in error, the affected employees should be returned to the PST plan and the School District should make payment to DCH for those employees. Ifall above referenced employees should have remained in the PST plan the amount due to DCH would be $75,250. Additionally, the School District should consult with its legal counsel regarding obtaining a refund for those employees who should not have been moved to the PSE plan. The amount of the refund from LOC could be as much as $37,625. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Repeated From Prior Year Finding Control Number: FA-7481-04-01 During the year in review, there were seven schools that the School District identified as participating in a school-wide program. While Federal provisions prescribe that multiple funding sources (Federal, State or Local) are required to support a school-wide program, we noted that the Title I program was identified as the only funding source supporting the school-wide program concept at the participating schools and, in contrast with Federal requirements, the School District arbitrarily charged the Title I fund with school-wide expenditures. -4- WARE COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Repeated From Prior Year Finding Control Number: FA-7481-04-01 In accordance with provisions ofU. S. Department ofEducation Instructions and 0MB Circular A133, Compliance Supplement provisions, eligible schools are able to use their Title I, Part A funds, in combination with other Federal, State and local funds, in order to upgrade the entire educational program of the school and to raise academic achievements for all students. By combining funds from Title I and other eligible U. S. Department of Education funded programs in support of a school-wide program, U.S. Department ofEducation Instructions provide that specific school-wide program costs lose their identity but only in those circumstances when funds are combined in a school-wide program. In line with 0MB Circular A-87 requirements, school-wide expenditures should be charged to those Federal funding sources supporting the school-wide program in a reasonable manner. Ifthere is only one Federal funding source, then costs should be charged to the Federal program based on the specific benefits derived from that cost. When more than one Federal program supports a school-wide program, then school-wide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support of the school-wide program. It was the School District's understanding that costs related to a school-wide program lose their identity and therefore any school-wide program cost can be charged to the Title I program. They were unaware that this was only applicable when there is more than one funding source supporting the school-wide program. The School District should implement procedures to assure that ifthe Title I program continues to be the only funding source in support of a school-wide program, only those costs that specifically relate to the Title I program may be charged to the Title I fund. Ifmore than one funding source is to support the school-wide program in the future, then procedures should be developed to ( 1) combine such funds as prescribed by U.S. Department ofEducation and (2) in line with 0MB Circular A-87 provisions, allocate such school-wide program costs to the respective Federal fund in a reasonable manner. The Board should seek Georgia Department ofEducation guidance in implementing fiscal procedures for combining and allocating school-wide program expenditures to Federal programs. -5- SECTIONV MANAGEMENT'S RESPONSES WARE COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FS-7481-04-01 The School District concurs with this finding and has implemented central accounting system for local school activities accounts in January 2005. In addition, the School District has implemented additional accounting procedures to address inadequate separation ofduties to eliminate this finding. Finding Control Number: FS-7481-04-02 The School District has retained legal counsel in the above-referenced dispute with Department of Community Health. Ware County School System does not agree with the findings ofDCH. If the School District were forced to pay the disputed amount to DCH, it would be done under protest. The classification ofemployees was appropriate under the existing guidance received by the DCH at the time this change was implemented by the School District. In fiscal year 2005, the School District reclassified the employees in question in accordance with DCH's revised definitions. The School District is aware that there is litigation regarding this issue with Live Oak Consulting and Department of Community Health. The School District is anticipating a resolution to this matter before additional action is taken on its part. Hopefully, this matter will be settled by December 31, 2005. Finding Control Number: FA-7481-04-01 The Ware County Board of Education concurs with this finding and has followed the guidance of Georgia Department of Education, Financial Review Department to implement School-wide accounting procedures. This was done at the beginning of fiscal year 2005 for every school that qualified as a Title I School-wide School. The School District utilized the proportional method of allocating Federal funds for expenditures in those applicable schools. All documentation is available to verify the allocation plan, budget, and consolidated monthly expenditures for each Title I Schoolwide School. Contact Person: Loretta Holmes, Financial Director Phone: (912) 283-8656 Ext. 113 Fax Number: (912) 287-2312 E-mail address: lholmes@ware.k12.ga.us