WASHINGTON COUNTY BOARD OF EDUCATION SANDERSVILLE, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor WASHINGTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 6 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 9 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 10 H STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS 11 I NOTES TO THE BASIC FINANCIAL STATEMENTS 12 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 27 WASHINGTON COUNTY BOARD OF EDUCATION -TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 28 3 SCHEDULE OF STATE REVENUE 30 4 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 31 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 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 July 15, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Washington County Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through I) of the Washington County Board ofEducation, as ofand for the year ended June 30, 2003, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Washington 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. As discussed in Note 2 to the financial statements, management has not recorded school activity (principals) accounts maintained at the individual schools in the governmental activities, general fund or fiduciary fund (which comprise a material portion of the aggregate remaining fund information) as appropriate. Accounting principles generally accepted in the United States of America require that the assets, liabilities, revenues, expense or expenditures, as appropriate, and the 2003-34ARL-14 respective changes in financial position ofthese accounts be reflected in these financial statements. The aggregate effect on the financial statements of this variance or omission has not been determined, but is believed to be material. In our opinion, because of the effects of the matters discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States ofAmerica, the financial position ofthe aggregate remaining fund information of the Washington County Board of Education, as of June 30, 2003, and the changes in financial position thereof for the year then ended. In addition, in our opinion, except for the effects ofnot recording school principal account activity in the governmental activities and general fund as described in the third paragraph, the financial statements referred to above present fairly, in all material respects, the respective financial position ofthe governmental activities and general fund ofthe Washington County Board ofEducation, as of June 30, 2003, 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. In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the district-wide capital projects fund and the debt service fund ofthe Washington County Board ofEducation, as ofJune 30, 2003, and the respective changes in financial position thereoffor the year then ended in conformity with accounting principles generally accepted in the United States of America. The Washington County Board of Education has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements. As discussed in Note 2 to the basic financial statements, during fiscal year 2003, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements. This change is in accordance with generally accepted accounting principles. As described in Note 2, the Washington County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003. In accordance with Government Auditing Standards, we have also issued our report dated July 15, 2004, on our consideration of the Washington County Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. 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. 2003-34ARL-14 The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 27, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Washington County Board ofEducation's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 4, 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, except for the effects ofthe matters referred to in the third paragraph, such information, 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 ofGeorgia Annotated section 506-24. espectfully submitted, LU.~ RWH:gp 2003-34ARL-14 State Auditor WASHINGTON COUNTY BOARD OF EDUCATION WASHINGTON COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2003 EXHIBIT "A" ASSETS Cash and Cash Equivalents Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable 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 Continuation of Federal Programs Debt Service Unrestricted Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. -3- GOVERNMENTAL ACTIVITIES $ 1,763,083 238,558 2,033,379 649,859 85,089 20,571 483,646 438,416 22,300,850 3,029,118 -7,750,522 $ ===2=3=,2=9=2=,0=47= $ 916,420 2,650,338 110,973 1,037,030 10,016,280 $ 14 731 041 $ 7,448,198 432,824 15,218 664 766 $ 8,561,006 $ ===2=3=,2=9=2,=04=7= WASHINGTON COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2003 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 Food Services Interest on Short-Term and Long-Term Debt $ 18,041,274 1,029,467 711,052 593,328 766,949 2,379,475 182,987 2,474,075 1,697,115 1,875 64,025 1,665,835 $ 578 786 127,441 Total Governmental Activities $ 30,186,243 $ ===1=2;,;,,7!,,;,4.;,,41;,., General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Sales Taxes Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Changes 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 $ 13,242,146 $ 389,473 344,795 332,243 523,554 723,384 2,131 974,758 894,525 11,156 1,431,739 $ 18,869,904 $ 69,722 $ 26,102 2,070 97 894 $ -4,729,406 -639,994 -366,257 -261,085 -243,395 -1,656,091 -180,856 -1,499,317 -776,488 -1,875 -52,869 -104,585 -578 786 -11,091,004 $ 8,562,521 255,334 18,666 906,374 44,740 292,626 $ 10,080,261 $ -1,010,743 9 571 749 $===8,,.,,5..,6=1,=00=6= -5- WASHINGTON COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2003 EXHIBIT"C" ASSETS Cash and Cash Equivalents Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Unreserved Designated for Self-Insurance Undesignated Reported in: General Fund Capital Projects Total Fund Balances Total Liabilities and Fund Balances GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 1,759,282 $ 151,641 2,033,379 649,859 85,089 20,571 112 $ 3,689 $ 1,763,083 4,879 156,520 2,033,379 649,859 85,089 20,571 $ 4,699,821 $ 112 $ 8,568 $ 4,708,501 $ 916,420 2,650,338 110,973 $ 3,677,731 $ 916,420 2,650,338 110 973 $ 3,677,731 $ 412,253 20,571 80,952 508,314 $ $ 1,022,090 $ $ 112 112 $ $ 8,568 412,253 8,568 20,571 80,952 508,314 112 8,568 $ 1,030,770 $ 4,699,821 $ 112 $ 8,568 $ 4,708,501 The notes to the basic financial statements are an integral part of this statement. -6- WASHINGTON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30. 2003 EXHIBIT "D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District"s property tax revenues will be collected after year-end but are not available soon enough to pay for the current period"s expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Capital Leases Total Long-Term Liabilities $ 1,030,770 $ 483,646 438,416 22,300,850 3,029,118 -7,750,522 18,501,508 82,038 $ -10,145,000 -908,310 -11,053,310 Net Assets of Governmental Activities (Exhibit "A") $ ==8,1=,56=1;,.;,0;,;;0=6 The notes to the basic financial statements are an integral part of this statement. -7- WASHINGTON COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2003 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 8,493,493 18,666 16,033.512 $ 3,742,766 127,441 33,481 292,626 $ 28,741,985 $ $ 248,684 $ 97,894 24 11,235 97,918 $ 259,919 $ 8,742,177 18,666 16,131,406 3,742,766 127,441 44,740 292,626 29,099,822 $ 17,402,424 1,029,467 711,052 593,328 766,949 2,379,475 252,529 2,474,075 1,668,343 1,875 64,025 1,659,747 $ 309,328 73101 $ 29,385,718 $ $ -643,733 $ $ $ 1,293 138,487 685,000 505,685 138,487 $ 1,191,978 $ -40,569 $ -932,059 $ 17,402,424 1,029,467 711,052 593,328 766,949 2,379,475 253,822 2,474,075 1,668,343 1,875 64,025 1,659,747 138,487 994,328 578,786 30,716,183 -1,616,361 $ $ -40,593 $ -40,593 $ $ -684,326 $ 1,706,416 40,593 $ 40,593 $ 24 $ -932,059 $ 88 940,627 40,593 -40,593 0 -1,616,361 2,647,131 $ 1,022,090 $ 112 $ 8,568 $ 1,030,770 The notes to the basic financial statements are an integral part of this statement. -8- WASHINGTON 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. 2003 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay $ Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements $ Capital Lease Payments Total Long-Term Debt Repayments $ -1,616,361 294,109 -758 497 -464,388 75,678 685,000 309,328 994,328 Change in Net Assets of Governmental Activities (Exhibit "B") $ -1010743 The notes to the basic financial statements are an integral part of this statement. -9- WASHINGTON COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2003 ASSETS Cash and Cash Equivalents Investments Certificate of Deposit Accounts Receivable, Net Interest and Dividends Total Assets NET ASSETS Held in Trust for Private Purposes EXHIBIT"G" PRIVATE PURPOSE TRUSTS $ 6,400 45,438 965 $ ===52='=80=3= $ ===52='=80=3= The notes to the basic financial statements are an integral part of this statement. - 10 - WASHINGTON COUNTY BOARD OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2003 EXHIBIT"H" REVENUES Investment Earnings Interest EXPENSES Scholarships Change in Net Assets Net Assets - Beginning Net Assets - Ending PRIVATE PURPOSE TRUSTS $ 1 462 $ 2,801 $ -1,339 54,142 $ ===52='=80=3= The notes to the basic financial statements are an integral part of this statement. - 11 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Washington 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 Washington County Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds. - 12 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (property) 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: Private - Purpose Trust funds report trust arrangements under which income may be expended to provide scholarships for selected students. 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 as expenditures to the extent they have matured. Capital asset acquisitions are reported as - 13 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES expenditures in governmental funds. Proceeds ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. Although "school activity accounts" are maintained at the individual schools, neither the assets, liabilities and fund balances, nor the revenues, expenses/expenditures and changes in net assets/fund balances of these accounts are reflected in these financial statements. To conform to generally accepted accounting principles, these accounts should be recorded in the basic financial statements. A substantial number of personnel of the School District were employed for a one hundred and ninety day period beginning in August 2002 and ending in early June 2003. Employment contracts for these employment periods typically specify that compensation be paid in twelve equal monthly payments beginning in September 2002 and ending in August 2003. State grants to fund the State's share of these contracts are disbursed to the School District in the same twelve month period. In accordance with generally accepted accounting principles, salary and fringe benefit costs and the related revenue from the State to fund these contracts are recorded in the fiscal period covered by these financial statements. RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of $511,754 at July 1, 2002. For fiscal year 2003, these funds have been reported as part of the General Fund. This change is in accordance with generally accepted accounting principles. General Fund Balance July 1, 2002 $ 1,194,662 Add Funds Consolidated with General Fund: School Food Services Fund 511,754 General Fund Balance July 1, 2002 (Restated) $ 1,706.416 CHANGES IN ACCOUNTING PRINCIPLES The Washington County Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003. - 14 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The provisions of GASB Statement No. 34 require the inclusion of a Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following: General Fund (Restated) July 1, 2002 Capital Projects Fund Debt Service Fund $ 1,706,416 88 940,627 Governmental Funds (Restated) July 1, 2002 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Bonds Payable Capital Leases Payable $ 2,647,131 25,957,921 -6,992,025 6,360 -10,830,000 -1,217,638 Net Assets Beginning (See Exhibit "B") $ 9!571!749 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 Board 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 of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, - 15 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" 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 Washington County Board ofCommissioners fixed the property tax levy for the 2002 tax digest year (calendar year) on October 10, 2002 (levy date). Taxes were due on December 10, 2002 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2002 tax digest are reported as revenue in the governmental funds for fiscal year 2003. The Washington County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes 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, 2003, for maintenance and operations amounted to $8,493,493 and for school bonds amounted to $248,684. Tax millage rates levied for the 2002 tax year (calendar year) for the Washington County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): School Operations School Bonds 17.173 mills .436 mills 17.609 mills - 16 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time ofpurchase. 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 fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost ofnormal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment All NIA $ 5,000 20 to 80 years $ 5,000 10 to 80 years $ 5,000 3 to 20 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been - 17 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets. Note 3: DEPOSITS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. If a depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. - 18 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 3: DEPOSITS CATEGORIZATION OF DEPOSITS At June 30, 2003, the bank balances were $3,902,195. The amounts of the total bank balances are classified into three categories of credit risk: Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. 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, 2003, as follows: Risk Category Bank Balance 1 $ 288,089 2 3,498,615 3 115,491 Total $ 3,902,195 Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: - 19 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 5: CAPITAL ASSETS Balances July I, 2002 Increases Balances Decreases June 30, 2003 Governmental Activities Capital Assets, Not Being Depreciated: Land $ 483,646 $ 0 $ 0 $ 483,646 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 22,300,850 2,735,009 $ 438,416 $ 294,109 0 $ 22,300,850 3,029,118 438,416 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 5,056,734 1,707,432 227,859 515,985 229,305 13,207 5,572,719 1,936,737 241,066 Total Capital Assets, Being Depreciated, Net $ 18,482,250 $ -464,388 $ 0 $ 18,017,862 Governmental Activity Capital Assets - Net $ 18,965.896 $ -464.388 $ 0 $ 18,501.508 Capital assets being acquired under capital leases as of June 30, 2003, are as follows: Governmental Funds Buildings Less: Accumulated Depreciation $ 1,888,251 178,158 $ 1,710.093 Current year depreciation expense by function is as follows: Instruction Support Services Student Transportation Services Food Services $ 540,217 202,242 16,038 $.=:=d:7~58~,4~9~7 Note 6: RESTRICTED ASSETS Property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2003, were as follows: -20 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 6: RESTRICTED ASSETS Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services $ 3,689 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2003, consisted of the following: Transfer to Transfers From General Fund District-wide Capital Projects $====40"""5'=='9=""'3 Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as supplemental funding source for capital construction projects. 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 and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with assets and job related illness or injuries to employees. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the Board's insurance coverage in any of the past three years. The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for general liability (including coverage for sexual harassment, molestation and abuse). Payment ofexcess insurance for the system varies by line of coverage. The School District has elected to self-insure for all losses related to acts of God. The School District has not experienced any losses related to this risk in the past three years. - 21 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 8: RISK MANAGEMENT The School District is self-insured with regard to unemployment compensation claims. In connection with this program, a self-insurance reserve has been established within the General Fund by the School District. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2002 2003 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End ofYear Liability $ 0 $ 0 $ 0 $ 0 $ 0 $ 376 $ 376 $ 0 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent Finance Director All Other Employees $ 100,000 $ 475,000 $ 25,000 Note 9: SHORT-TERM DEBT The School District issues tax anticipation notes in advance of property tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution ofthe State ofGeorgia limits the aggregate amount ofshort-term debt to 75 percent ofthe total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 of the calendar year in which the debt was incurred. Short-term debt activity for the fiscal year is as follows: Beginning Balance Issued Redeemed Ending Balance Tax Anticipation Notes $=====0 $ 750.065 $ 750.065 $=====0 - 22- WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 10: LONG-TERM DEBT CAPITAL LEASES The Washington County Board of Education entered into an agreement with the Georgia School Boards Association (GSBA), Incorporated for the lease-purchase of new administrative office facilities for the School District. Under the terms of the agreement, the School District will make quarterly payments through January 15, 2006. The lease includes an annual renewable clause. This lease agreement qualifies as a capital lease for accounting purposes and, therefore, has been recorded at the present value of the future minimum lease payments as of the date of inception. GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 1994 General Government - Refunding - Series 1998 4.9%-6.3% 3.6%-4.75% $ 1,225,000 8,920,000 $ 10,145.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2003, were as follows: Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2002 $ 1,217,638 $ 10,830,000 $ 12,047,638 Deductions Debt Retired 309,328 685,000 994,328 Balance June 30, 2003 $ 908,310 $ 10,145,000 $ 11,053.310 Portion of Long-Term Debt Due within One Year $ 312,030 $ 725,000 $ 1,037,030 At June 30, 2003, payments due by fiscal year which includes principal and interest for these items are as follows: - 23 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 10: LONG-TERM DEBT Fiscal Year Ended June 30 Capital Leases Principal Interest 2004 2005 2006 $ 312,030 $ 332,562 263,718 50,782 30,250 8 491 Total Principal and Interest $ 908,310 $ 89,523 Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2004 2005 2006 2007 2008 2009 - 2013 2014 $ 725,000 $ 765,000 810,000 840,000 880,000 5,050,000 1,075,000 242,990 443,565 398,002 362,363 325,402 989,850 51,063 Total Principal and Interest $ 10,145.000 $ 2,813.235 Note 11: PRIOR YEAR DEFEASEMENT OF DEBT In fiscal year 1998, the School District defeased certain general obligation bonds by placing the proceeds ofnew bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the School District's basic financial statements. At June 30, 2003, $8,015,000 ofbonds are outstanding and are considered defeased. Note 12: ON-BEHALF PAYMENTS The Board has recognized revenues and costs in the amount of $214,706 for health insurance and retirement contributions paid on the Board's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $181,057 - 24 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "I" Note 12: ON-BEHALF PAYMENTS Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $33,649 Note 13: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 14: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2003 2002 2001 100% 100% 100% $ 1,533,612 $ 1,469,861 $ 1,711,239 - 25 - WASHINGTON COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30. 2003 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services Operation Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING USES Other Uses Net Change in Fund Balances Fund Balances - Beginning Inventory - Net Change in Period Fund Balances - Ending NONAPPROPRIATED BUDGETS ORIGINAL FINAL ACTUAL AMOUNTS $ 9,276,210 $ 9,279,655 $ 8,493,493 50,000 50,000 18,666 15,707,923 16,009,252 16,033,512 541,294 2,904,928 3,742,766 127,441 72,000 72,000 33,481 137 598 165 529 292,626 $ 25,785,025 $ 28,481,364 $ 28,741,985 $ 15,747,125 $ 17,685,135 $ 17,402,424 913,842 389,492 598,901 693,969 2,442,844 233,613 2,949,971 1,558,137 6,700 40,070 1,049,550 888,213 614,060 781,824 2,496,489 168,588 2,999,548 1,619,087 6,700 60,556 1,029,467 711,052 593,328 766,949 2,379,475 252,529 2,474,075 1,668,343 1,875 64,025 1,659,747 382 429 $ 25,574,664 $ 28,369,750 $ 29,385,718 $ 210,361 $ 111,614 $ -643,733 -40 593 $ 210,361 $ 111,614 $ -684,326 2,437,849 2,437,849 1,706,416 -9 447 -9 447 0 $ 2,638,763 $ 2,540,016 $===1=,0=2=2=,0=90= See notes to the basic financial statements. - 27 - WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2003 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture. U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food and Nutrition Program Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Distribution Program (1) Total U. S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Individuals with Disabilities Education Act Part B - Special Education Flow Through Preschool Capacity Building Improvement Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Elementary and Secondary Education Act Title I Grants to Local Educational Agencies Delinquent Project School Improvement Title II Enhancing Education Through Technology Improving Teacher Quality Title Ill Technology Literacy Challenge Fund Grant Title IV Safe and Drug-Free Schools and Communities TitleV Innovative Education Program Strategies Title VI Rural and Low Income Schools Vocational Education - Basic Grants to States High School Program Basic Grant Total U. S. Department of Education -28- CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 N/A N/A $ $ (2) 1417902 1.417,902 10.550 N/A $ 99170 1,517,072 84.027 84.173 84.027 N/A $ N/A N/A $ 411,810 50,242 12 089 474.141 84.010 * 84.010 * 84.010 84.318 84.367 84.318 84.186 84.298 84.358 84.048 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A $ 1,279,375 53,626 13,531 34,001 246,356 7,116 56,939 29,573 77,044 73 719 2,345,421 WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2003 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Justice. U.S. Department of Direct Office of Community Oriented Policing Services Public Safety Partnership and Community Policing Grants Defense. U. S. Department of Direct Department of the Air Force R.O.T.C. Program CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 16.710 $ _ _ _-=58=5=7-=-3 $ _ _ ____:.;46::..,.0::..::8:..=...9 Total Federal Financial Assistance N/A = Not Available Notes to the Schedule of Expenditures of Federal Awards (1) The amounts shown for the Food Distribution 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 ($323,642) were not maintained separately and are included in the 2003 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 Washington 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 basic financial statements. See notes to the basic financial statements. - 29- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30 2003 SCHEDULE "3" AGENCY/FUNDING GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Gifted Student - Category VI Remedial Education Program Alternative Education Program Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Vocational Supervisors 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 Mentor Teachers National Teacher Certification Post Secondary Options Preschool Handicapped Program Lottery Programs Assistive Technology Educational Technology Centers Student Information System Human Resources, Georgia Department of Family Connection Georgia State Financing and Investment Commission Reimbursement on Construction Projects Office of Treasury and Fiscal Services Public School Employees Retirement See notes to the basic financial statements. - 30- GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 241,788 $ 241,788 856,079 123,362 1,787,981 692,584 1,079,358 456,717 2,214,291 1,645,293 580,658 1,518,233 121,966 106,152 161,398 316,417 109,364 64,627 260,472 752,723 949,920 617,913 144,330 19,000 88,949 14,508 25,045 23,632 817,378 127,238 8,084 --412,435 21,969 55,264 181,057 8,134 7,222 1,180 65,199 3,355 59,960 443 83,055 856,079 123,362 1,787,981 692,584 1,079,358 456,717 2,214,291 1,645,293 580,658 1,518,233 121,966 106,152 161,398 316,417 109,364 64,627 260,472 752,723 949,920 617,913 144,330 19,000 88,949 14,508 25,045 23,632 817,378 127,238 8,084 --412,435 21,969 55,264 181,057 8,134 7,222 1,180 65,199 3,355 59,960 443 83,055 $ 33649 97,894 97,894 33649 $ 16,033,512 $ 97894 $ 16,131,406 WASHINGTON COUNTY BOARD OF EDUCATION GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2003 SCHEDULE "4" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Gifted Student - Category VI Remedial Education Program Alternative Education Program TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 955,509 $ 776,132 $ 30,973 $ 807,105 186,522 373,582 1,560 375,142 2,111,793 2,106,836 44,635 2,151,471 827,808 887,868 2,043 889,911 1,281,923 1,339,031 26,878 1,365,909 517,745 2,565,156 1,944,679 686,887 1,753,792 148,351 121,704 189,236 422,942 2,612,914 2,468,519 757,347 274,567 1,150,984 215,340 218,433 191,527 1,689 83,676 78,446 31,247 828 3,983 7,305 2,093 2,701 1,503 424,631 2,696,590 2,546,965 788,594 828 278,550 1,158,289 2,093 218,041 218,433 193,030 $ 13,291,105 $ 13,796,022 $ 319,560 $ 14,115,582 372,313 75,967 526,542 32,799 35,515 39,691 562,057 72,490 TOTAL QBE FORMULA FUNDS $ 13.739,385 $ 14,355,363 $ 394,766 $==::,1_;.4,.;,75;;,,;0;,:.,1;,;;2~9 (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. - 31 - 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 July 15, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education and Superintendent and Members ofthe Washington County Board of Education REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 Washington County Board of Education as of and for the year ended June 30, 2003, which collectively comprise Washington County Board of Education's basic financial statements and have issued our report thereon dated July 15, 2004. This report was qualified for a departure from generally accepted accounting principles, as identified in the auditor's report on the basic financial statements. 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. Compliance As part ofobtaining reasonable assurance about whether Washington County Board ofEducation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination offinancial statement amounts. However, providing an opinion on compliance with those provisions was not an objective ofour audit, and accordingly, we do not express such an opinion. The results ofour tests disclosed no instances ofnoncompliance that are required to be reported under Government Auditing Standards. 2003-34YB-40 Internal Control Over Financial Reporting In planning and performing our audit, we considered Washington 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 assurance 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 Washington County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-7501-03-01, FS-7501-03-02 and FS-7501-03-03. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements 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, ofthe reportable conditions described above, we consider items FS-7501-0301 and FS-7501-03-02 to be material weaknesses. This report is intended solely for the information and use of the management, members of the Washington County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:gp 2003-34YB-40 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 July 15, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the Washington 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 Washington County Board of Education with the types of compliance requirements described in the U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2003. Washington County Board of Education's major Federal programs are identified in the Summary ofAuditor's Results Section ofthe accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to each ofits major Federal programs is the responsibility ofWashington County Board of Education's management. Our responsibility is to express an opinion on Washington County Board of Education's compliance based on our audit. We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits 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 Washington County Board ofEducation's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. 2003SA-45 We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Washington County Board of Education's compliance with those requirements. In our opinion, the Washington County Board ofEducation complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2003. Internal Control Over Compliance The management of Washington County Board of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered Washington 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 Washington County Board ofEducation'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-7501-03-01. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level of risk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants 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 of the 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, the reportable condition noted above is also considered to be a material weakness. This report is intended solely for the information and use of the management, members of the Washington County Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:gp 2003SA-45 State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS WASHINGTON COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7501-01-01 FS-7501-02-01 FS-7501-02-02 FA-7501-02-01 Further Action Not Warranted Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Control Procedures Finding Control Number: FS-7501-02-01 Accounting procedures and internal controls currently in place have been updated. Changes in the processing of School Food Service functions have been implemented and will continue to be evaluated to provide the maximum internal control with the staffing available. ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Finding Control Number: FA-7501-02-01 Accounting procedures and internal controls currently in place have been updated. Changes in the processing of School Food Services functions have been implemented and will continue to be evaluated to provide the maximum internal control for staffing available. SECTION IV FINDINGS AND QUESTIONED COSTS WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Washington County Board of Education's financial statements was qualified for a departure from generally accepted accounting principles. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Washington County Board of Education disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts General Ledger Expenditures/Liabilities/Disbursements Employee Compensation Of the reportable conditions described above, Cash and Cash Equivalents, Revenues/ Receivables/Receipts, Expenditures/Liabilities/Disbursements and General Ledger are considered to be material weaknesses. 3. Noncompliance Material to the Financial Statements The audit of the Washington County Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the Washington County Board of Education disclosed a reportable condition in internal control over major programs for the following compliance requirement. Allowable Costs/Cost Principles The reportable condition described above is considered to be a material weakness. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Washington County Board ofEducation's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The Washington County Board of Education's audit disclosed audit findings required to be reported by section .510(a) of 0MB Circular A-133. These audit findings are included in section IV of this report. - 1- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 I SUMMARY OF AUDITOR'S RESULTS 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food and Nutrition Program - Food Services - School Breakfast Program 10.555 Food and Nutrition Program - Food Services - National School Lunch Program 84.010 Elementary and Secondary Education Act - Title I - Grants to Local Educational Agencies 84.010 Elementary and Secondary Education Act - Title I - Delinquent Program 84.010 Elementary and Secondary Education Act - Title I - School Improvement 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The Washington County Board ofEducation did not qualify as a low risk auditee as defined by Section .530 ofOMB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Control Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7501-03-01 For the School Food Services program, one employee, the bookkeeper, has control over the functions of check preparation, invoice approval and payment, maintenance of the general ledger and bank reconciliation preparation. The School District official responsible for the School Food Services program does not properly approve the expenditures of the program before they are paid. In addition, the bookkeeper performs the bank reconciliations each month, and there is no other review of these reconciliations by an individual independent of the cash operations for the School Food Services program. This condition does not provide for adequate separation of duties in the performance ofaccounting functions and related procedures for the School Food Services program. These deficiencies were a result ofmanagement's lack ofproper internal control procedures over the cash, expenditures and bank reconciliation processes that are necessary to adequately safeguard assets and record the cash operations and expenditures ofthe School District. The School District should review the accounting procedures in place, design procedures that would enhance segregation of duties relative to the above control categories and implement those procedures to strengthen the internal control over the School Food Services' accounting functions. -2- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES /RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Report School Activity Accounts Reportable Condition - Material Weakness Finding Control Number: FS-7501-03-02 The Washington County Board of Education did not report assets, liabilities and fund balance, nor the revenues, expenses/expenditures and changes in net assets/fund balance of the school activity accounts which are maintained at the individual schools within its basic financial statements. This omission of material amounts, by management, is considered to be a financial irregularity in accordance with O.C.G.A. 20-2-67 and this condition results in the basic financial statements ofthe School District being incomplete and not in accordance with generally accepted accounting principles. The School District should establish appropriate polices and procedures designed to ensure that all financial activity ofthe various school activity accounts are reported within its basic financial statements as required. EMPLOYEE COMPENSATION Salary Overpayments/Underpayments Reportable Condition Finding Control Number: FS-7501-03-03 A sample of forty employees' payroll records was selected and examined to test the accuracy of payroll records of the Washington County Board of Education. The following deficiencies were noted: (1) The School District overpaid employees in seven instances. (2) The School District underpaid one employee. These deficiencies were as a result of employees being paid at levels other than what was documented in their payroll files. The School District should implement procedures to ensure that all payroll disbursements are based on approved contracts, salary scales and time worked. -3- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Reportable Condition - Material Weakness U. S. Department of Agriculture Through Georgia Department of Education Finding Control Number: FA-7501-03-01 A review of the School District's policies and procedures noted deficiencies in providing for adequate internal control over the Food and Nutrition Program - Food Services - School Breakfast Program (CFDA 10.553) and the Food and Nutrition Program - Food Services - National School Lunch Program (CFDA 10.555). Tests of controls over expenditures revealed that the School District official responsible for costs of these programs did not properly approve expenditures as required by the Office of Management and Budget Circular A-87 and A-133 Compliance Supplement (See Finding Control Number FS-7501-03-01). This condition was a result of management's failure to implement adequate internal controls for monitoring purchases for the programs listed above. The School District should review the control procedures in place, design procedures which would enhance administrative review ofFederal expenditures for these programs and implement these procedures to strengthen the internal control over these Federal programs. REPORTING Failure to File Accurate and Timely Completion Report Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-7501-03-02 An examination of the School District's compliance with regulations for the Elementary and Secondary Education Act-Title I- Grants to Local Educational Agencies (CFDA 84.010) Program revealed that the School District failed to file an accurate completion report for this program as required by guidelines established by the Georgia Department ofEducation. A review ofthe School District's accounting records revealed that the completion report was not supported by the total expenditures for this program as indicated below: Actual Program Expenditures $1,279,375 Expenditures Per Completion Report $1,293,994 Difference $14,619 It was also noted that the Completion report submitted by the School District to the Georgia Department of Education was not submitted by the due date as listed below: -4- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS REPORTING Failure to File Accurate and Timely Completion Report Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-7501-03-02 Due Date September 30, 2003 Date Submitted December 11, 2003 These deficiencies occurred because management neglected the specific requirement imposed upon the School District by the Georgia Department of Education. Appropriate procedures should be implemented to ensure that accurate and timely reports are submitted as required by the Georgia Department of Education. The Georgia Department of Education should review this matter and determine if a reclaim of grant funds is appropriate. -5 -