WASHINGTON COUNTY BOARD OF EDUCATION SANDERSVILLE, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor 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 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 8 H STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS 9 I NOTES TO THE BASIC FINANCIAL STATEMENTS 10 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERALFUND 23 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 24 3 SCHEDULE OF STATE REVENUE 25 WASHINGTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 4 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 27 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS WASHINGTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 April 20, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members ofthe 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 of Education, as of and for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility 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. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Washington County Board ofEducation, as ofJune 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-l 1 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. In accordance with Government Auditing Standards, we have also issued our report dated April 20, 2007, 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 grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 23, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the 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, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, w.4.:-k. R ssell W. Hinton, CPA, CGFM State Auditor RWH:gp 2006ARL-11 WASHINGTON COUNTY BOARD OF EDUCATION WASHINGTON COUNTY BOARD OF EDUCATION S'rATEMENT OF NET ASSETS JUNE 30, 2006 ASSETS Cash and Cash Equivalents Accounts Receivable, Net Taxes State Government Federal Government Inventories Capital Assets Land Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable 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 Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT"A" GOVERNMENTAL ACTIVITIES $ 3,918,746 315,274 1,948,816 154,022 23,922 483,646 489,394 22,450,319 3,362,493 -9,926,285 $ ===2=3=,2=2=0=,3=47= $ 1,130,091 2,431,512 9,958 840,000 7,081,967 $ 11,493,528 $ 9,014,567 4,671 88,224 79,617 2,539,740 $ 11,726,819 $ ===2=3=,2=2.,.0,=34=7= The notes to the basic financial statements are an integral part of this statement. -1- WASHINGTON COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Operations of Non-Instructional Services Food Services Interest on Short-Term and Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Sales Taxes Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year (Restated) EXPENSES CHARGES FOR SERVICES $ 18,245,866 $ 1,222,439 928,294 600,140 798,828 2,577,965 231,985 2,280,234 1,574,199 45,483 1,821,332 388 674 30 715 439 $ 239,829 100,850 340 679 Net Assets - End of Year The notes to the basic financial statements are an integral part of this statement. -2 - EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET {EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 13,127,168 396,140 505,161 324,453 491,313 846,748 895,098 747,153 $ 9,548 1,533,947 $ 18,876,729 $ $ 103,647 103 647 $ -4,878,869 -826,299 -423,133 -275,687 -307,515 -1,731,217 -231,985 -1,385, 136 -723,399 -35,935 -186,535 -388 674 -11,394,384 $ 10,937,297 1,278,648 36,766 535,898 16,182 812,535 $ 13,617,326 $ 2,222,942 9,503,877 $ ======11..,.7.,.2...,6=,8=19= -3- WASHINGTON COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 EXHIBIT"C" ~ Cash and Cash Equivalents Accounts Receivable, Net Taxes State Government Federal Government Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories 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 $ 3,872,034 $ 1,948,816 154,022 23 922 113 $ 46,599 $ 55,578 3,918,746 55,578 1,948,816 154,022 23 922 $ 5 998 794 $ 113 $ 102 177 $ =====6=1=0=1=0=84= $ 1,130,091 2,431,512 9 958 $ 3 571 561 $ 1,130,091 2,431,512 9958 $ 3 571 561 $ 4,671 64,302 23,922 67,557 2,266,781 $ $ 2A27,233 $ $ 5,998,794 $ $ 113 113 $ $ 102,177 102 177 $ 4,671 64,302 102,177 23,922 67,557 2,266,781 113 2,529,523 113 $ 102 177 $ 6 101 084 The notes to the basic financial statements are an integral part of this statement. -4 - WASHINGTON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Compensated Absences Total Long-Term Liabilities Net Assets of Governmental Activities (Exhibit "A") $ 2,529,523 $ 483,646 489,394 22,450,319 3,362,493 -9,926,285 16,859,567 259,696 $ -7,845,000 -76 967 -7,921,967 $ 11,726,819 The notes to the basic financial statements are an integral part of this statement. -5- WASHINGTON COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Food Services Operation Debt Services Principal Interest Total Expenditures Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 10,630,646 $ 36,766 15,644,581 3,871,693 340,679 14,959 813 449 $ 31,352,773 $ 0 $ 1,291,930 $ 11,922,576 36,766 15,644,581 3,871,693 340,679 1,223 16,182 813,449 0 $ 1,293,153 $ 32,645,926 $ 17,714,584 $ 1,222,439 928,294 600,140 795,725 2,570,172 218,747 2,278,340 1,507,657 50,238 1,809,328 263,718 8491 $ 29,967,873 $ $ 1,384,900 $ 1,042,333 $ 2,427,233 $ 0 $ 0 $ 0 $ 113 $ 793 810,000 380,183 1,190,976 $ 102,177 $ 0 17,714,584 1,222,439 928,294 600,140 795,725 2,570,172 219,540 2,278,340 1,507,657 50,238 1,809,328 1,073,718 388 674 31,158,849 1,487,077 1,042,446 113 $ 102 177 $ ====2..,,5=2=9=,5=23= 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 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. In the Statement of Activities, only the gain on the sale of the equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements Capital Lease Payments Total Long-Term Debt Repayments Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of: Increase in Compensated Absences $ 1,487,077 $ 124,566 -745,188 -620,622 293,369 -914 $ 810,000 263,718 1,073,718 -9686 Change in Net Assets of Governmental Activities (Exhibit "B") $ ....,.......,,2=,2=22=,9=4=2 The notes to the basic financial statements are an integral part of this statement. -7- WASHINGTON COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 EXHIBIT"G" ASSETS Cash and Cash Equivalents Investments Certificate of Deposit Total Assets LIABILITIES Funds Held for Others NET ASSETS Held in Trust for Private Purposes Total Liabilities and Net Assets PRIVATE PURPOSE TRUSTS AGENCY FUNDS $ 724 $ 45,068 45438 211037 $ 461162 $ ===6=61!::i,1.0..5. = $ 66,105 $ _ _--'4..a.6""1-.,a.;62ca... $ 46,162 $===6=61=1=05= The notes to the basic financial statements are an integral part of this statement. -8- WASHINGTON COUNTY BOARD OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2006 EXHIBIT"H" ADDITIONS Investment Earnings Interest DEDUCTIONS Scholarships Change in Net Assets Net Assets - Beginning Net Assets - Ending PRIVATE PURPOSE TRUSTS $ 1,226 $ 2,226 $ -1,000 47162 $==4=6::!::11=62= The notes to the basic financial statements are an integral part of this statement. -9- WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Washington County Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the 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 ofActivities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. - 10 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources 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 types: Private Purpose Trust funds report trust arrangements under which income may be expended to provide scholarships for selected students. Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless ofwhen the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable 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 - 11 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. RESTATEMENT OF PRIOR YEAR NET ASSETS For fiscal year 2006, the School District reported Compensated Absences activity in the basic financial statements. The result is a decrease in Net Assets at July 1, 2005, of$67,281 for the prior year liability. This change is in accordance with generally accepted accounting principles. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, - 12 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Washington County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on September 30, 2005 (levy date). Taxes were due on December 12, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Washington County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance oftaxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $10,630,646 and for school bonds amounted to $1,291,930. Tax millage rates levied for the 2005 tax year (calendar year) for the Washington County Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value): - 13 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES School Operations School Bonds 18.240 mills 1.906 mills 20.146 mills INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment All NIA $ 5,000 20 to 80 years $ 5,000 20 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. - 14 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement 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 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. 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 - 15 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 3: DEPOSITS (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $5,401,859. The amounts of the total bank balances are classified into four categories of custodial credit risk: Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name. Category 4 - Uncollateralized. The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows: Custodial Credit Risk Category Bank Balance 1 $ 402,666 2 4,815,414 3 183,779 4 0 Total $ 5,401.859 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: - 16 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 5: CAPITAL ASSETS Balances July 1, 2005 Increases Decreases Balances June 30, 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land $ 483,646 $ 0 $ 0 $ 483,646 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 22,447,599 $ 3,279,256 489,394 2,720 121,846 $ $ 22,450,319 38,609 3,362,493 489,394 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 6,625,034 2,323,387 270,371 518,247 211,186 15,755 37,695 7,143,281 2,496,878 286,126 Total Capital Assets, Being Depreciated, Net $ 16,997.457 $ -620,622 $ 914 $ 16,375,921 Governmental Activity Capital Assets - Net $ 12,481,103 $ -620,622 $ 214 $ 16.852,56:Z Current year depreciation expense by function is as follows: Instruction Support Services Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Food Services $ 534,002 $ 12,574 1,894 181,356 3,358 199,182 12,004 $======74=!5:!;.l!,:;8~8 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 statutory provisions. Restricted assets at June 30, 2006, were as follows: Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services $ 46,599 - 17 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 7: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk ofloss associated with 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 School District'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, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members ofthe system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse), errors and omissions and crime. Payment of excess insurance for the system varies by line of coverage. 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: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability 2005 $ 0 $ 9 192 $ 9 192 $ 0 2006 $ 0 $ 936 $ 936 $ 0 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Employees $ 100,000 $ 100,000 - 18 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 8: 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 $ 1,500,000 $ 1,500.000 $=====0 Note 9: LONG-TERM DEBT COMPENSATED ABSENCES Compensated absences represent obligations ofthe School District relating to employees' rights to receive compensation for future absences based upon service already rendered. This obligation relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. Typically, the General Fund is the fund used to liquidate this long-term debt. The School District uses the vesting method to compute compensated absences. GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Refunding - Series 1998 3.6% - 4.75% $ 7,845,000 Voters have authorized $13,600,000 in general obligation debt for capital outlay purposes which was not issued as of June 30, 2006. The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: - 19 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 9: LONG-TERM DEBT Capital Leases Governmental Funds General Compensated Obligation Absences ( 1) Bonds Total Balance July 1, 2005 $ 263,718 $ 0 $ 8,655,000 $ 8,918,718 Retroactive Restatement of Prior Year Balances 67,281 67,281 Balance July l, 2005 Restated $ 263,718 $ 67,281 $ 8,655,000 $ 8,985,999 Additions Annual Leave Earned 86,057 86,057 Deductions Annual Leave Utilized Debt Retired 263,718 76,371 810,000 76,371 1,073,718 Balance June 30, 2006 $ $ 76.,26.Z $ Z,845 QQQ $ Z,221,26.Z Portion of Long-Term Debt Due within One Year $ 0 $ 0 $ 840 000 $ 840,000 (1) The portion of Compensated Absences due within one year has been determined to be immaterial to the basic financial statements. At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2007 2008 2009 2010 2011 2012 - 2015 $ 840,000 $ 880,000 925,000 960,000 1,005,000 3,235.000 181,181 325,402 286,682 245,058 200,898 308.275 Total Principal and Interest $ 7,845.000 $ 1,547.496 Note 10: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. - 20 - WASHINGTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "I" Note 11: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% oftheir gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board ofTrustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2006 2005 2004 100% 100% 100% $ 1,578,024 $ 1,577,275 $ 1,420,939 - 21 - (This page left intentionally blank) WASHINGTON COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2006 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Food Services Operation Debt Service Total Expenditures Net Change in Fund Balances Fund Balances - Beginning NONAPPROPRIATED BUDGETS ORIGINAL (1} FINAL(1} ACTUAL AMOUNTS $ 11,203,815 $ 11,203,815 $ 10,630,646 25,000 25,000 36,766 14,674,208 14,674,208 15,644,581 3,871,693 340,679 5,000 5,000 14,959 305,000 305,000 813 449 $ 26,213,023 $ 26,213,023 $ 31,352,773 $ 18,334,798 $ 18,070,733 $ 17,714,584 1,223,035 1,125,124 610,079 950,328 2,678,976 234,081 2,312,615 1,377,938 6,000 75,729 184,057 1,319,413 1,076,432 610,619 866,981 2,707,626 232,281 2,314,990 1,353,756 6,000 60,664 184,051 1,222,439 928,294 600,140 795,725 2,570,172 218,747 2,278,340 1,507,657 50,238 1,809,328 272,209 $ 29,112,760 $ 28,803,546 $ 29,967,873 $ -2,899,737 $ -2,590,523 $ 1,384,900 710 840 710 840 1,042,333 Fund Balances - Ending $ -2,188,897 $ -1,879,683 $ ===2=.4=2=7'=23=3= Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 23- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Pass-Through From Bright From the Start: Georgia Department of Early Care and Learning Child and Adult Care Food Program Total U.S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Improving Teacher Quality State Grants Rural Education Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U. S. Department of Education Labor, U. S. Department of Pass-Through From East Central Georgia Consortium Workforce Investment Act Youth Activities CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 10.550 10.558 N/A N/A $ $ (2) 1,606,391 1,606,391 N/A N/A $ 90,298 (2) 1,696,689 84.027 84.173 84.318 84.367 84.358 84.186 84.298 84.010 84.048 17.259 N/A $ NIA $ 637,973 13 374 651,347 N/A N/A NIA N/A N/A N/A N/A $ 20,725 257,347 96,942 21,662 13,549 1,327,633 72 656 2 461 861 NIA $ 40489 Total Federal Financial Assistance $ 4 199 039 N/A = Not Available Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on Child and Adult Care Food Program ($7,075) and the School Breakfast Program ($407,155) were not maintained separately and are included in the 2006 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 fund financial statements. See notes to the basic financial statements. - 24 - WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 AGENCY/FUNDING GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Children and Youth Coordinating Council Community Enrichment/Outreach 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 Category II Category Ill Category IV CategoryV 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 K-8 Reading and Mathematics Program National Teacher Certification Preschool Handicapped Program Human Resources, Georgia Department of Family Connection OTHER Community Affairs, Georgia Department of Local Assistance Grant See notes to the basic financial statements. - 25- SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 281,921 157,739 961,888 107,485 2,096,812 219,419 1,032,366 129,286 2,221,041 1,891,832 737,920 79,531 590,822 917,832 157,323 28,758 137,945 53,099 178,678 319,194 107,372 62,164 450,274 742,911 891,531 636,086 103,647 20,000 80,438 11,943 7,967 92,437 535,898 111,272 35,366 -865,169 61,130 11,922 70,348 51,153 125 000 $ 15 644 581 (This page left intentionally blank) WASHINGTON COUNTY BOARD OF EDUCATION GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2006 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 $ 1,123,993 $ 599,142 $ 5,207 $ 604,349 136,546 394,931 2,500 397,431 2,510,058 1,966,121 38,832 2,004,953 255,497 845,341 300 845,641 1,245,450 1,037,576 30,520 1,068,096 181,192 2,674,723 2,260,449 867,922 2,104;526 173,658 71,161 213,520 288,361 2,696,670 2,620,522 691,823 283,610 1,473,737 226,021 249,374 421,820 1,600 49,947 80,980 45,134 465 100 2,041 300 250 3525 289,961 2,746,617 2,701,502 736,957 465 283,710 1,475,778 300 226,271 249,374 425,345 $ 13,818,695 $ 13,795,049 $ 261,701 $ 14,056,750 382,598 74616 556,591 26,482 36,594 39,572 593,185 66054 TOTAL QBE FORMULA FUNDS $ 14,275,909 $ 14,378,122 $ 337,867 $ 14,715,989 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 27 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 April 20, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education and Superintendent and Members of the Washington 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 Washington County Board of Education as ofand for the year ended June 30, 2006, which collectively comprise Washington County Board of Education's basic financial statements and have issued our report thereon dated April 20, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Washington County Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose ofexpressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect Washington County Board ofEducation'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 of Findings and Questioned Costs as items FS-7501-06-01, FS-7501-06-02, FS-7501-06-04, FS-7501-06-05, FS-7501-06-06, FS7501-06-07, FS-7501-06-08, FS-7501-06-09 and FS-7501-06-10. 2006YB-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 are material weaknesses. Compliance and Other Matters 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 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 Washington County Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:gp 2006YB-30 sell W. Hinton, CPA, CGFM State Auditor Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 April 20, 2007 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 its major Federal program for the year ended June 30, 2006. Washington County Board ofEducation's major Federal program is identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to its major Federal program is the responsibility of Washington 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 of compliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits 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 of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Washington County Board ofEducation's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Washington County Board ofEducation's compliance with those requirements. 2006SA-40 In our opinion, the Washington County Board ofEducation 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, 2006. The results of our auditing procedures disclosed a nonmaterial instance of noncompliance with those requirements which is described in the accompanying Schedule of Findings and Questioned Costs as item FA-7501-06-02. 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-7501-06-01. 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 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 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 2006SA-40 sell W. Hinton, CPA, CGFM 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, 2006 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7501-05-01 FS-7501-05-02 Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented CORRECTIVE ACTION/RESPONSES CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/DISBURSEMENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Controls Procedures Finding Control Number: FS-7501-05-01 Due to the timing of the fiscal year 2005 audit, the full implementation of the defined corrective action plan was not evident in fiscal year 2006. This plan has been implemented and the finding will be resolved in fiscal year 2007. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-7501-05-01 Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Controls Procedures Amount: $1,871 Finding Control Number: FA-7501-05-01 Due to the timing of the fiscal year 2005 audit, the full implementation of the defined corrective action plan was not evident in fiscal year 2006. This plan has been implemented and the finding will be resolved in fiscal year 2007. A program review by the Title I Area Specialist, Nancy Norton, in January 2007, resulted in a final report of "closed with suggestions" with no corrective actions required. SECTION IV FINDINGS AND QUESTIONED COSTS WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the Washington County Board ofEducation's financial statements was unqualified. 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 Capital Assets None ofthe reportable conditions described above 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 requirements. Activities Allowed/Unallowed Allowable Costs/Cost Principles 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 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 .5 IO(a) of 0MB Circular A-133 The Washington County Board ofEducation's audit disclosed an audit finding required to be reported by section .510(a) ofOMB Circular A-133. In addition, we noted an instance of nonmaterial noncompliance which 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- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 9. Low Risk Auditee The Washington 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 Inadequate Control Procedures at Central Office Reportable Condition Finding Control Number: FS-7501-06-01 Condition: This is a repeat finding (FS-7501-05-01) from the year ended June 30, 2005. The accounting procedures ofthe School District were insufficient to provide adequate internal controls over Cash and Cash Equivalents. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures. Questioned Cost: NIA Information: A review ofCash and Cash Equivalents revealed the following deficiencies: Bank reconciliations for the General Operating and the Bond Sinking Fund accounts were not properly reconciled to the general ledger cash balance. Bank reconciliations were not prepared for the Minority Scholarship account and the Custodial Construction account. No administrative review was performed to determine that the bank reconciliations for the General Operating and the Bond Sinking Fund accounts were correct and that all required adjustments had been made. A listing of outstanding checks and deposits in transit for the Bond Sinking Fund account was not available for testing. A listing ofoutstanding checks for the General Operating account did not agree with the amounts reported on the reconciliation. Cause: These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the School District level. Effect: Errors and/or irregularities may not be detected in a timely manner. -2 - WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS Inadequate Control Procedures at Central Office Reportable Condition Finding Control Number: FS-7501-06-01 Recommendation: Management should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures. CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7501-06-02 Condition: This is a repeat finding (FS-7501-05-01) from the year ended June 30, 2005. The accounting procedures ofthe School District were insufficient to provide adequate separation of duties and internal controls over school activity accounts. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide proper separation of duties and provide reasonable assurance that transactions are processed according to established procedures. Such internal controls would limit any one individual's access to both physical assets and the related accounting records. Questioned Cost: NIA Information: Cash and Cash Equivalents The bank reconciliation function was not separated from the record keeping and voucher payment functions. The bank reconciliation for the Band Booster account at the Washington County High School was not properly reconciled to the general ledger cash balance. Bank reconciliations were not prepared for the Elder Primary and Tennille Elementary School accounts. No administrative review was performed to determine that the bank reconciliations for DD Crawford, Sandersville Elementary, and Elder Middle Schools were correct and that all required adjustments had been made. -3- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7501-06-02 Revenues/Receivables/Receipts Deposit preparation function was not separated from the record keeping and cash custody functions. Based on a review of30 items, the following deficiencies were noted: 1) Fifteen receipts could not be traced to the general ledger because the documentation did not specify the correct account codes, 2) Four receipts were not deposited in a timely manner, and 3) Seventeen receipts were not supported by adequate documentation. Expenditures/Liabilities/Disbursements The check writing function was not separated from the record keeping or check signing function. Based upon a review of 30 vouchers, the following deficiencies were noted: 1) Two vouchers could not be located, 2) Twenty-two vouchers did not include a purchase order, 3) Twenty-nine vouchers had no documentation indicating prior approval of purchases, 4) Two vouchers were not supported by adequate documentation, 5) Five instances were noted where sales taxes was paid, and 6) Seven vouchers could not be traced to the general ledger because the documentation did not specify the correct account codes. Cause: These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the school level and to assign responsibilities to achieve appropriate separation ofduties and utilize management oversight of the incompatible activities to properly safeguard assets. Effect: Errors and/or irregularities may not be detected in a timely manner. -4- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7501-06-02 Recommendation: The School District should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures, implement procedures to ensure that key accounting functions of custody, record keeping and authorization are separated and/or utilize management oversight of these incompatible activities, and implement procedures to ensure that expenditures of school activity account funds are properly documented and approved prior to payment. BUDGET PREPARATION/EXECUTION Failure to Adopt a Balanced Budget Nonmaterial Noncompliance Finding Control Number: FS-7501-06-03 Condition: School District failed to adopt a balanced budget for the General Fund. Criteria: Chapter 32 Preparing Operating Budgets of the Financial Management for Georgia Local Units of Administration states in part: "The budget must be balanced for all budgeted funds. Total anticipated revenues should equal total estimated expenditures. In the event anticipated revenues are insufficient to fund anticipated expenditures, a portion of unreserved fund balance from previous years must be used to fund the shortfall. In the event there is insufficient unreserved fund balance from previous years to fund anticipated expenditures, then such expenditures must be reduced to equal anticipated revenues plus available fund balance". Questioned Cost NIA Information: The School District's General Fund budgeted a deficit fund balance in the General Fund in the amount of $1,870,390. Cause: The School District neglected the specific limitations imposed upon the School District by the Georgia Department of Education. -5- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS BUDGET PREPARATION/EXECUTION Failure to Adopt a Balanced Budget Nonmaterial Noncompliance Finding Control Number: FS-7501-06-03 Effect: Nonmaterial noncompliance with respect to Chapter 32 of the FMGLUA. Recommendation: Appropriate procedures should be implemented by the School District to ensure that the adopted budget for all budgeted funds is balanced as required. EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls/Inadequate Documentation Reportable Condition Finding Control Number: FS-7501-06-04 Condition: A review of expenditures revealed that the School District failed to implement internal controls to ensure that expenditures were properly documented and authorized. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are properly approved, documented, processed, and reported in accordance with State law, procedures established by the Georgia Department of Education and School District policies and procedures. Questioned Cost: NIA Information: A review of sixty-six vouchers revealed the following: Forty-two vouchers contained no indication of administrative approval prior to payment. One instance where sales taxes were paid. Cause: Management failed to adequately monitor and implement procedures to ensure that all expenditure voucher packages include required purchase orders and are documented prior to payment and recording ofexpenditures in the financial records. Effect: The lack of adequate control over expenditures may result in misstatements which would not be detected in a timely manner. Recommendation: The School District should review current policies regarding expenditures to ensure that expenditures are properly approved and documented. -6 - WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Follow State Travel Regulations Reportable Condition Nonmaterial Noncompliance Finding Control Number: FS-7501-06-05 Condition: The School District did not comply with travel regulations of the Georgia Department of Education as set forth in the Financial Management for Georgia Local Units of Administration. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures. Questioned Cost: $227 Information: Weaknesses in internal controls relating to travel payments were noted as follows: Procedures were not in place to ensure that meal limits were adhered to. Procedures were not in place to ensure that travel vouchers were properly completed and approved. A review of six travel vouchers for the Superintendent and Board Members noted the following deficiencies: One board member's travel was overstated by $367 on the Salary and Travel Report submitted to the Department of Audits and Accounts. Six travel vouchers were not approved by another member of management to verify that the travel was in compliance with state travel guidelines. Meal limitations of $28 per day were not adhered to. The dinner amount on one voucher was $227 in excess ofthe allowable amount. Two travel expenditures did not have adequate documentation. Only credit card statements were available. Six employee travel vouchers did not include all necessary requirements such as who was traveling, odometer readings, automobile license number, origin and destination, and explanation for the purpose of the trip. Cause: Management failed to implement internal controls to ensure that employee travel expenses are in compliance with state travel regulations. -7- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Failure to Follow State Travel Regulations Reportable Condition Nonmaterial Noncompliance Finding Control Number: FS-7501-06-05 Effect: The lack ofadequate control over expenditures may result in misstatements which would not be detected in a timely manner. Recommendation: The School District should review current policies regarding travel expenditures to ensure that expenditures are in compliance with state travel regulations. EMPLOYEE COMPENSATION Inaccurate Reporting of Senior Management Compensation Reportable Condition Nonmaterial Noncompliance Finding Control Number: FS-7501-06-06 Condition: Our examination of compensation paid to senior management ofthe School District indicated that the Oconee Regional Educational Service Agency (RESA) Executive Director's salary was included as salary from Washington County Board ofEducation, rather than paid through the RESA. In addition, our examination revealed an error in the amount reported as salary to the Department of Audits and Accounts. Criteria: O.C.G.A. 50-6-27 states in part: "Each office, institution, board, department commission, authority, university, college, and local board of education is required and directed to submit to the state auditor, in a format prescribed by the state auditor, a listing of all personnel of such office, institution, board, department, commission, authority, university, college, or local board of education showing name, title or functional area, salary, and travel expense for each individual". Questioned Cost: NIA Information: The Salary and Travel Report lists the Oconee RESA Executive Director's salary as paid through Washington County Board of Education rather than from Oconee RESA. Information provided indicates that the Executive Director signed a contract with Washington County Board of Education, when, in fact, he is employed by the RESA. -8- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EMPLOYEE COMPENSATION Inaccurate Reporting of Senior Management Compensation Reportable Condition Nonmaterial Noncompliance Finding Control Number: FS-7501-06-06 The Salary and Travel Report does not include $7,528 as earned compensation for the Executive Director's deferred annuity paid on his behalf and imputed income for a life and long-term disability policy. In addition, there is no indication in the contract that these amounts should have been paid on his behalf. The Salary and Travel Report for the period ended June 30, 2006, lists the Executive Director's salary as $110,948. The actual compensation totaled $118,476, which includes the $7,528 compensation referenced above. Cause: The Washington County Board of Education included a non-employee on their Salary and Travel reported to the Department ofAudits and Accounts. Effect: The inclusion ofa non-employee reported by the Washington County Board ofEducation, as well as an error in the calculation oftotal compensation paid to the Executive Director ofRESA, leads to inaccurate external reporting of salaries for both the RESA and Washington County Board of Education. Recommendation: The Washington County Board ofEducation should implement procedures to ensure that only employees of the School District are reported to the Department ofAudits and Accounts. In addition, the School District should ensure that employees' contracts issued by the School District are actual employees of the Board. GENERAL LEDGER Deficit Fund Balances Reportable Condition Finding Control Number: FS-7501-06-07 Condition: The School District's general ledger reported deficit fund balances in Lottery Funds and Federal Funds. Criteria: Chapter 22 Annual Financial Reporting of the Financial Management for Georgia Local Units of Administration indicates the School Districts must prepare their financial statements in accordance with generally accepted accounting principles. -9 - WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Deficit Fund Balances Reportable Condition Finding Control Number: FS-7501-06-07 Questioned Cost: NIA Information: Our examination of the accounting records revealed the following deficit balances at June 30, 2006: Lottery Funds Federal Funds $49,928 $12,450 Cause: The School District incurred expenditures in excess of revenues in prior fiscal years and failed to properly make prior year adjustments to correct the deficit balances. Effect: The failure ofthe School District to maintain an accurate general ledger and properly record audit adjustments can result in inaccurate internal and external reporting. Recommendation: The School District should establish policies and procedures designed to ensure that in future periods the School District does not report deficit fund balances in individual funds. GENERAL LEDGER Inadequate Control over Subsidiary Ledgers Reportable Condition Finding Control Number: FS-7501-06-08 Condition: The School District failed to implement internal controls to ensure that general ledger account balances are accurate and properly reconciled to the subsidiary records. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures. Questioned Cost: NIA - 10 - WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Inadequate Control over Subsidiary Ledgers Reportable Condition Finding Control Number: FS-7501-06-08 Information: Our examination ofthe accounting records revealed that the School District's general ledger included invalid Accounts Payable of$369,305 in the General Fund. In addition, the School District did not provide subsidiary records nor properly reconcile account balances. Cause: Management failed to follow established procedures and to reconcile general ledger accounts with the subsidiary records. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: The School District should implement internal controls to ensure established procedures are followed and to reconcile general ledger accounts with the subsidiary records. GENERAL LEDGER CAPITAL ASSETS Incomplete General Ledger/DE046 Financial Report Reportable Condition Finding Control Number: FS-7501-06-09 Condition: The School District failed to include all fiscal year activity in the DE046 financial report submitted to the Georgia Department of Education. Criteria: Chapter 22 Annual Financial Reporting of the Financial Management for Georgia Local Units of Administration indicates the School Districts must prepare their financial statements in accordance with generally accepted accounting principles. Questioned Cost: NIA Information: The following adjustments were necessary to present the School District's financial statements in accordance with generally accepted accounting principles: The VFW and Virginia Smith Scholarship accounts were not recorded on the School District's general ledger. An audit adjustment of $45,438 was necessary to report the investment balances of these scholarship accounts in the Private Purpose Trust Fund. - 11 - WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER CAPITAL ASSETS Incomplete General Ledger/DE046 Financial Report Reportable Condition Finding Control Number: FS-7501-06-09 The Capital Asset records revealed that the School District did not properly reconcile the Capital Asset listing to the general ledger. An audit adjustment of $1,400,005 was necessary to report the correct Capital Asset balances. Cause: Management failed to comply with the requirements of the Georgia Department of Education regarding financial reporting. Effect: The failure ofthe School District to maintain a complete and accurate general ledger can lead to inaccurate internal and external reporting. Recommendation: The School District should implement internal controls to ensure that Georgia Department ofEducation's policies and procedures are followed and establish procedures to ensure that all financial data is properly recorded in the general ledger and reported in the DE046. GENERAL LEDGER Failure to Report the Financial Statements in a Timely Manner Reportable Condition Finding Control Number: FS-7501-06-10 Condition: The School District failed to submit the DE046 to the Georgia Department of Education in a timely manner. Criteria: Chapter 1 Introduction to LUA Accounting ofthe Financial Management for Georgia Local Units of Administration indicates that "accounting records must provide meaningful, reliable, accurate and timely information to the many persons and groups with legitimate interests in the financial affairs of an LUA". Questioned Cost: NIA Information: The School District's DE046 financial report was submitted to the Georgia Department of Education on October 6, 2006. - 12 - WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Failure to Report the Financial Statements in a Timely Manner Reportable Condition Finding Control Number: FS-7501-06-10 Cause: Management failed to comply with the due date of September 30, 2006, as established by the Georgia Department of Education. Effect: The failure ofthe School District to prepare and submit the financial report in a timely manner prohibits legitimate users of the report from being able to have timely access to the financial information provided. Recommendation: The School District should implement controls to ensure that Georgia Department of Education policies and procedures are followed and that financial data is submitted to the Georgia Department of Audits and Accounts as required and available for audit upon request. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (CFDA 84.010) Finding Control Number: FA-7501-06-01 Condition: This is a repeat finding (FA-7501-05-01) from the year ended June 30, 2005. A review of expenditures charged to the Title I Grants to Local Educational Agencies (84.010) program revealed that the School District failed to implement internal controls to ensure that expenditures were properly documented, authorized, and in compliance with grant requirements. Criteria: Provisions of the 0MB Circular A-87, Cost Principles for Determining Allowable Costs, require that "to be allowable under Federal awards, costs must be ... authorized or not prohibited under state or local laws or regulations" and "supported by underlying documentation". Questioned Cost: NIA - 13 - WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ACTIVITIES ALLOWED/UNALLOWED ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Control Procedures Reportable Condition U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (CFDA 84.010) Finding Control Number: FA-7501-06-01 Information: A review ofthirty expenditures for the Title I program revealed the following deficiency: Twenty-six vouchers had no indication of administrative approval prior to purchase. Cause: Management failed to monitor compliance with Federal guidelines to ensure that expenditures charged to the Federal Program were allowable, approved, and properly documented. Effect: Failure to ensure that program costs are allowable, approved, and properly documented can result in noncompliance with the requirements of the Federal grant. Recommendation: The School District should implement procedures to ensure that all costs are allowable under 0MB Circular A-87, approved by appropriate management, and properly documented. In addition, the Georgia Department ofEducation should review this matter to determine if a reclaim of grant funds is appropriate. SPECIAL TESTS AND PROVISIONS Fiscal Requirements of Schoolwide Program Not Fully Implemented Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (84.010) Finding Control Number: FA-7501-06-02 Condition: During the year under review, the School District identified all of its schools as participating in a schoolwide program. While Federal provisions prescribe that multiple funding sources (Federal, State, or Local) are required to support a schoolwide program, we noted that the Title I program (CFDA No. 84.010) was identified as the only funding source supporting the schoolwide - 14 - WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of Schoolwide Program Not Fully Implemented Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (84.010) Finding Control Number: FA-7501-06-02 program concept at the participating schools and, in contrast with Federal requirements, the School District arbitrarily charged the Title I fund with schoolwide expenditures. Criteria: In accordance with provisions ofU. S. Department ofEducation Instructions and 0MB Circular A-133, 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 schoolwide program, U.S. Department of Education Instructions provide that specific schoolwide program costs lose their identity but only in those circumstances when funds are combined in a schoolwide program. In line with 0MB Circular A-87 requirements, schoolwide expenditures should be charged to those Federal funding sources supporting the schoolwide program in a reasonable manner. If there 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 schoolwide program, then schoolwide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support of the schoolwide program. To distribute such costs, provisions of 0MB Circular A-87, Attachment E, F.3 state that a cost allocation plan should be developed, documented, and maintained for audit. Questioned Cost: NIA - 15 - WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of Schoolwide Program Not Fully Implemented Nonmaterial Noncompliance U.S. Department of Education Through Georgia Department of Education Title I Grants to Local Educational Agencies (84.010) Finding Control Number: FA-7501-06-02 Information: The School District identified all of its schools as participating in a schoolwide program. While Federal provisions prescribe that multiple funding sources (Federal, State, or Local) are required to support a schoolwide program, we noted that the Title I program (CFDA No. 84.010) was identified as the only funding source supporting the schoolwide program concept at the participating schools and, in contrast with Federal requirements, the School District arbitrarily charged the Title I fund with schoolwide expenditures. Cause: School District personnel were not fully aware ofthese requirements and the School District believed that schoolwide program expenditures lose their identity and therefore any schoolwide program cost could be charged to the Title I program. Effect: Failure to appropriately allocate costs can result in noncompliance with requirements of the Federal grant. Recommendation: The School District should implement procedures to ( 1) charge costs to the Federal program based on the specific benefits derived from that cost or (2) identify other Federal funding sources for the schoolwide program, combine such funds as prescribed by the U. S. Department ofEducation, and in line with 0MB Circular A-87 provisions, allocate such schoolwide program costs to the respective Federal funds in a reasonable manner. The School District should seek additional guidance from the Georgia Department of Education to implement procedures for combining and allocating schoolwide program expenditures. - 16 - SECTIONV MANAGEMENT'S RESPONSES WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-7501-06-01 We concur with this finding. Bank reconciliation procedures will be revised to ensure that all accounts, including those with no activity, are reconciled on a monthly basis. Consistent and correct reports will be used for source and final amounts, and lists of outstanding checks and deposits in transit will be maintained for all accounts. The Director ofFinance will approve all Central Office bank reconciliations. Implementation: June 2007 Finding Control Number: FS-7501-06-02 We concur with this finding. The Board will design and implement increased internal controls for school activity accounts. Monthly bank reconciliations will be prepared for all school activity accounts and will be approved by the respective school's principal. Cash deposits will be defined and balanced before submission to the school bookkeeper. The school bookkeeper will retain all supporting documents submitted with cash for deposit and will ensure that the correct account coding, matching the actual recording ofthe deposit, is noted on the supporting documentation. Cash deposits will be taken to the bank in a timely fashion. Controls will be instituted to compensate for the numerous responsibilities ofa single bookkeeper at each school. Each school's principal will open and review the monthly bank statement(s) for any irregularities before reconciliation. All school purchases will be authorized by a purchase order. Vouchers will be paid only when authorized by a purchase order. Appropriate documentation for payment ofvouchers, with the correct account coding recorded, will be retained. Vouchers will be reviewed before payment to ensure that no inappropriate sales tax is paid. Discretionary agency accounts will be established at each school for expenditures associated with faculty and staffevents. Implementation: June 2007 Finding Control Number: FS-7501-06-03 We concur with this finding. Budget reports submitted to the GDOE for fiscal year 2006 included a balanced budget for Fund 100. Estimated revenues were not budgeted for the remaining funds. Future budget reports submitted to the GDOE will include a balanced budget for all required funds. Implementation: June 2007 Finding Control Number: FS-7501-06-04 We concur with this finding. All individual expenditures will be authorized in advance through a formalized requisition and purchase order approval process. Subsequent to the receipt ofthe goods and/or services authorized by the purchase order, the individual who ordered the item will confirm receipt of same. When the invoice is received, it will be approved for payment by the indicated - 1- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-7501-06-04 authorized approver. Efforts will be redoubled to ensure that no inappropriate sales tax is paid. Implementation: May 2007 Finding Control Number: FS-7501-06-05 We concur with this finding. The Board was following a long implemented local policy which was unknowingly in conflict with the State Travel Policy. The local policy has been modified to specifically dictate that the Statewide Travel Regulations will be followed. Receipts will be required for all expenses for which reimbursement is requested, along with identification of individual(s) traveling, odometer readings, trip origin and destination information, and trip explanations. All travel vouchers will be approved by the appropriate approving authority. Subsequent to the completion offieldwork by the audit team, additional documentation was located which determined that the questioned cost of $227 was properly expended by the Board. Implementation: May 2007 Finding Control Number: FS-7501-06-06 We concur with this finding. The Board will no longer compensate the Oconee RESA Director. Implementation: July 2007 Finding Control Number: FS-7501-06-07 We concur with this finding. The appropriate entries will be made to transfer funds to cover deficit balances. Implementation: June 2007 Finding Control Number: FS-7501-06-08 We concur with this finding. The Board's accounting software was recording invalid balances into subsidiary ledgers. The accounting software has been modified by the publisher to eliminate the invalid postings and the updated software has been installed by the Board. The affected accounts have been adjusted to reflect corrected balances. Implementation: July 2006 Finding Control Number: FS-7501-06-09 We concur with this finding. These longstanding scholarships have been administered by the Board outside ofthe central accounting system. Stringent financial controls defined by the contributors of the source funds were employed to ensure the integrity ofthe scholarship funds. The Board will add these scholarship funds to the School District's general ledger. The Board will properly reconcile the Capital Asset Listing to the general ledger. -2- WASHINGTON COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-7501-06-10 We concur with this finding. An extension was requested by the Board and granted by the GDOE for the submission ofthe Board's 2006 financial statements. The 2007 financial statements will be submitted when due. Implementation: 2007 Year End Finding Control Number: FA-7501-06-01 We concur with this finding. Due to the timing ofthe fiscal year 2005 audit, the full implementation of the previously defined plan to correct this finding was not evident in fiscal year 2006. The plan has been fully implemented and this finding will be resolved in fiscal year 2007. A program review in January 2007 by Title I Area Specialist Nancy Norton resulted in a final report requiring no corrective actions by the Board. Implementation: July 2006 Finding Control Number: FA-7501-06-02 We concur with this finding. Due to conflicting instructions from the Georgia Department of Education and various Title I administrators and authorities, the Board was unclear as to what the exact requirements were for schoolwide accounting. In fiscal year 2006, the Board opted to follow the instructions provided by Title I authorities which indicated that the recording offunds into fund 400 was optional. The Board has implemented schoolwide accounting procedures for fiscal year 2007 as directed by the Georgia Department of Education. It is the Board's expectation that this effort will resolve the finding. Implementation: July 2006. Contact Person: Sandra McMaster, Director of Finance Phone: (478) 553-2041, Ext. 1205 Fax Number: (478) 552-3128 E-mail Address: smcmaster@washington.kl2.ga.us -3-