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

WILKES COUNTY BOARD OF EDUCATION
WASHINGTON, 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

WILKES 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

B

STATEMENT OF ACTIVITIES

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

H

STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

I

NOTES TO THE BASIC FINANCIAL STATEMENTS

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 3 SCHEDULE OF STATE REVENUE

Page
1 2 4 5 6 7 8 9 10
23 24 25

WILKES COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

26

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

27

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133

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

SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

WILKES COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
May 22, 2007

Honorable Sonny Perdue, Governor Members ofthe General Assembly Members ofthe State Board of Education
and Superintendent and Members ofthe Wilkes 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 Wilkes County Board of Education, as of and for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe Wilkes County Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe Wilkes County Board ofEducation, as of June 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
2006ARL-11

The Wilkes County Board ofEducation 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 May 22, 2007, on our consideration ofthe Wilkes County Board ofEducation's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope ofour testing ofinternal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
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 Wilkes County Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24.
Respectfully submitted,

RWH:gp 2006ARL-11

R. sell W. Hinton, CPA, CGFM State Auditor

WILKES COUNTY BOARD OF EDUCATION

WILKES COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2006
ASSETS
Cash and Cash Equivalents Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Debt Service Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets
The notes to the basic financial statements are an integral part of this statement.
- 1-

EXHIBIT"A"

GOVERNMENTAL ACTIVITIES

$

11,883,904

315,993 889,423 385,153
9,789 41,222

450,083 126,875 107,396 6,562,505 2,541,040 -2,529,269

$ ===2=0=7,.,.,84='=11.,.4,...

$

410,082

1,302,412

305,000 10,355,000

$

12,372,494

$

5,888,611

149,146 228,561 757,834 1,387,468

$

8,411,620

$ ===2=0=,7=8=4,=11=4=

WILKES COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2006

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Intangible Recording Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year

EXPENSES

CHARGES FOR SERVICES

$

9,519,919 $

608,874 552,215 300,033 338,950 933,502 174,484 1,188,608 964,109
67,112

211,084 946,265 463 023

16,268,178 $

173,681
244,178 261,926 679 785

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

$

6,665,959 $

115,586 351,677 143,909 390,217 408,876

441,876 413,688
1,033

685,022

$

9,617,843 $

95,488 $
2,106 1,514 7,549 75,408
10,218 192,283 $

-2,584,791
-493,288 -200,538 -154,018
51,267 -523, 112 -174,484 -739,183 -475,013
-66,079
33,094 10,901 -463,023
-5,778,267

$

4,369,577

758,023 391,068 69,129 646,455 212,001 126102

$

6,572,355

$

794,088

7 617 532

$ ===8=,4=1=1,.,,.62=0=

-3-

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

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries Payable
Total Liabilities
FUND BALANCES
Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects
Unreserved Undesignated Reported in: General Fund
Total Fund Balances
Total Liabilities and Fund Balances

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 2,485,604 $ 9,398,300 $

95,086 889,423 385,153
9,789 41 222

206,482

0 $ 11,883,904
301,568 889,423 385,153
9,789 41 222

$ 3,906,277 $ 9,604,782 $====0= $ 13,511,059

$ 410,082 1,302,412
$ 1 712 494

$ 410,082 1,302,412
$ 1712494

$ 107,924 $ 228,561 $
41,222 9,376,221
2,044,637
$ 2,193,783 $ 9,604,782 $

$ 0

107,924 228,561
41,222 9,376,221

2,044,637 0 $ 11,798,565

$ 3,906,277 $ 9,604,782 $====0= $ 13,511.059

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

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

EXHIBIT"D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation
Total Capital Assets
Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures.
Bonds Payable, which are Long-Term Liabilities, are not due and payable in the current period and therefore are not reported as liabilities in the funds.

$ 11,798,565

$

450,083

126,875

107,396

6,562,505

2,541,040

-2,529,269

7,258,630

14,425 -10,660,000

Net Assets of Governmental Activities (Exhibit "A")

$ ==8=4=11==6=2=0

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

WILKES COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006

EXHIBIT"E"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Enterprise Operations Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 4,340,423 69,129 $
8,104,503 2,235,203
679,785 37,441
126,297
$ 15,592,781 $

391,068 $ 116,875
174,560
682,503 $

$ 758,023

4,340,423 1,218,220 8,221,378 2,235,203
679,785 212,001 126,297

758,023 $ 17,033,307

$ 9,356,623
602,310 $ 552,215 296,432 338,950 930,913 174,484 1,175,698 866,838 67,112 211,084 928,790

6,564
470,673 $

$ 15,501,449 $ 477 237 $

$

91,332 $ 205,266 $

2,102,451

9,399,516

$ 9,356,623

608,874 552,215 296,432 338,950 930,913 174,484 1,175,698 866,838 67,112 211,084 928,790 470,673

295,000 463,023

295,000 463,023

758,023 $ 16,736,709

0 $ 296,598

0 11,501,967

$ 2,193,783 $ 9,604,782 $====0= $ 11,798,565

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

WILKES 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

$

406,739

-233,208

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 land 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 cost of the land 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, this amount consists of Bond Principal Retirements.

296,598
173,531 29,154 -195
295,000

Change in Net Assets of Governmental Activities (Exhibit "B")

$ ===79=4=,0=8=8

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

WILKES COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS
FIDUCIARY FUNDS JUNE 30, 2006

EXHIBIT"G"

ASSETS Cash and Cash Equivalents Investments
Certificates of Deposit
Total Assets
LIABILITIES Funds Held for Others
NET ASSETS Held in Trust for Private Purposes
Total Liabilities and Net Assets

PRIVATE PURPOSE TRUSTS

AGENCY FUNDS

$

34,897 $

19,389

15,705

$

50,602 $ ==1=9-,3=89=

$

19,389

$ _ _..;;.5.;;.,0,.,;;;_60=2"-

$

50,602 $ ==1=9=,3=89=

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

WILKES COUNTY BOARD OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS
FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2006
ADDITIONS Contributions Donors Investment Earnings Interest Total Additions
DEDUCTIONS Scholarships Change in Net Assets
Net Assets - Beginning
Net Assets - Ending

EXHIBIT"H"

PRIVATE PURPOSE TRUSTS

$

1,470

1,270

$

2,740

600

$

2,140

48,462

$ ===50='=60=2=

The notes to the basic financial statements are an integral part of this statement. -9-

WILKES 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 Wilkes 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 Wilkes 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 -

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

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District reports the following major governmental funds:
General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund.
District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST), Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation ofmajor capital facilities.
Debt Service Fund accounts for taxes (sales) legally restricted for the payment ofgeneral longterm principal, interest and paying agent's fees.
The School District reports the following fiduciary fund types:
Private Purpose Trust funds report trust arrangements under which principal and 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 school activity accounts.
BASIS OF ACCOUNTING
The basis of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.

- 11 -

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

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds.
The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
CASH AND CASH EQUIVALENTS
COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.
INVESTMENTS
COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:
(1) Obligations issued by the State of Georgia or by other states,
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,

- 12 -

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

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(4) Obligations of any corporation of the United States government,

(5) Prime banker's acceptances,

(6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services,

(7) Repurchase agreements, and

(8) Obligations of other political subdivisions of the State of Georgia.

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 Wilkes County Board ofCommissioners fixed the property tax levy for the 2005 tax digest year (calendar year) on October 6, 2005 (levy date). Taxes were due on December 20, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Wilkes County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% oftaxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $4,340,423.

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

School Operations

16.33 mills

- 13 -

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

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $1,149,091 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

INVENTORIES

FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.

CAPITAL ASSETS

Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art.

Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows:

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

Any Amount

$

5,000

$

5,000

$

5,000

NIA 10 to 90 years 10 to 90 years 5 to 50 years

Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives.

- 14 -

WILKES 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. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement ofNet Assets.
Note 3: DEPOSITS
COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate of the 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 -

WILKES 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 $12,528,712. The amounts ofthe 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

$ 144,370

2

12,384,342

3

0

4

0

Total

$ 12,528,712

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 -

WILKES 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 Construction in Progress

$ 450,278 1,751.976 $

$

195 $

126,875

1,751,976

450,083 126,875

Total Capital Assets Not Being Depreciated $ 2,202,254 $ 126.875 $ 1,752.171 $ 576.958

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 4,657,456 $ 1,905,049 $

2,414,249

126,791

107,396

0 $ 6,562,505 2,541,040 107,396

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

1,156,580 1,138,592
889

82,202 147,426
3,580

1,238,782 1,286,018
4469

Total Capital Assets, Being Depreciated, Net $ 4.883,040 $ 1.798.632 $

0 $ 6.681.672

Governmental Activity Capital Assets - Net $ 7.085.294 $ 1,925.507 $ 1,752.171 $ 7.258.630

Current year depreciation expense by function is as follows:

Instruction Support Services
Educational Media Services School Administration Maintenance and Operation of Plant Student Transportation Services Food Services

$

89,830

$

1,981

1,424

7,102

123,258

133,765 9,613

Note 6: RESTRICTED ASSETS

$==23=3-,2=0=8

Special Purpose Local Option Sales Tax (SPLOST) and general obligation bond proceeds are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2006, were as follows:

- 17 -

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

EXHIBIT "I"

Note 6: RESTRICTED ASSETS

District-wide Capital Projects

Bond

SPLOST

Proceeds

Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions

$

228,561

$

124,147 $ 9,045,592

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 vehicles 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, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups ofself-insurance funds, including the processing and defense ofclaims brought against members of the 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. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount ofthat loss can be reasonably estimated.

Changes in the unemployment compensation claims liability during the last two fiscal years are as follows:

- 18 -

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

EXHIBIT "I"

Note 7: RISK MANAGEMENT

2005 2006

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End of Year Liability

$

0 $

1 099 $

1 099 $

0

$

0 $

0 $

0 $

0

The School District has purchased surety bonds to provide additional insurance coverage as follows:

Position Covered

Amount

Superintendent All Employees

$

50,000

$

50,000

Note 8: LONG-TERM DEBT

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

Purpose

Interest Rates

Amount

General Government - Series 2003

2.00% - 5.00% $ 10,660,000

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

Governmental Funds
General Obligation
Bonds

Balance July 1, 2005

$ 10,955,000

Deductions Debt Retired

295.000

Balance June 30, 2006

$ 10,660,000

Portion of Long-Term Debt Due within One Year

$ 305,000

At June 30, 2006, payments due by fiscal year which includes principal and interest for this item are as follows:

- 19 -

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

EXHIBIT "I"

Note 8: LONG-TERM DEBT

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

2007 2008 2009 2010 2011 2012 - 2016 2017 - 2021 2022 - 2026 2027 - 2029

$ 305,000 $ 457,122

310,000

449,498

320,000

439,887

325,000

428,047

335,000

415,860

1,860,000

1,888,222

2,275,000

1,485,938

2,860,000

916,263

2,070,000

199 975

Total Principal and Interest

$ 10,660,000 $ 6,680,812

Note 9: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $356,154 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $353,186

Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $2,968

Note 10: SIGNIFICANT COMMITMENTS

The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2006, together with funding available:

Project

Unearned Executed Contracts

Funding Available From State

05-757-055

$ 350,625 $ 6,632,190

The amounts described in this note are not reflected in the basic financial statements.

- 20-

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

EXHIBIT "I"

Note 11: SIGNIFICANT CONTINGENT LIABILITIES

Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position.

The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements.

Note 12: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)

TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System ofGeorgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% oftheir gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2006 2005 2004

100% 100% 100%

$ 780,040 $ 744,550 $ 739,112

- 21 -

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WILKES COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2006

SCHEDULE "1"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Enterprise Operations Food Services Operation
Capital Outlay
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING USES
Other Uses
Net Change in Fund Balances
Fund Balances - Beginning
Adjustments

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

4,296,730 $

4,296,730 $

4,340,423

6,000

7,000

69,129

7,680,045

7,710,495

8,104,503

2,089,916

2,235,285

2,235,203

209,800

209,800

679,785

21,000

21,000

37,441

10 000

10 000

126 297

$

14313491 $

14 490 310 $

15,592,781

$

9,089,720 $

9,210,500 $

9,356,623

591,850 496,130 302,901 348,116 924,254 187,668 1,034,376 940,982
67,062
851,477 15 000

621,804 536,027 302,901 351,057 924,254 187,668 1,034,376 944,382
67,062
852,573 15 000

602,310 552,215 296,432 338,950 930,913 174,484 1,175,698 866,838 67,112 211,084 928,790

$

14,849,536 $

15047604 $

15,501,449

$

-536,045 $

-557,294 $

91,332

-217 000

-217 000

$

-753,045 $

-774,294 $

91,332

2,171,186

2,171,186

2,102,451

4 827

4 827

Fund Balances - Ending

$

1,422,968 $

1 401 719 $ ===2=1=9=3=78=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 -

WILKES 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)
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 Reading First 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

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.553 10.555
10.550

NIA

(2)

N/A $ _ _ __:8;.::;3.=.a3L..:.4-"'85:;..

$

833,485

N/A

45 121

$ _ _ _ _8_7~8,~6_06_

84.027 84.173
84.318 84.367 84.357 84.358 84.186 84.298 84.010 84.048

NIA

$

N/A

$

337,186 17 486
354,672

N/A NIA NIA NIA N/A NIA NIA NIA
$

165,002 131,207 279,763 46,965
15,630 6,649
557,507 42 875
1,600,270

Total Federal Financial Assistance

$

2,478,876

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 the School Breakfast Program ($156,388) 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 Wilkes 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 -

WILKES COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Bright from the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I 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 - Alternative Program Nursing Services Principal Supplements Vocational Supervisors Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Health Insurance National Teacher Certification Preschool Handicapped Program Statewide K-8 Reading and Mathematics Program
Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Office of Treasury and Fiscal Services Public School Employees Retirement

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$

468,532

$

468,532

419,827 43,905 996,554 190,217
486,576 65,996
846,482 628,174 460,478
43,797 207,901 345,971
47,107 168,302 134,716 43,027 72,193 143,909
46,328 29,467
314,821 394,126 414,293
401,979 75,408 20,000 48,073 5,658 14,940 95,847
290,302 49,042 72,827
-402,312
353,186 5,660
27,776 30,450

$ 2 968

116,875

419,827 43,905
996,554 190,217 486,576 65,996 846,482 628,174 460,478
43,797 207,901 345,971
47,107 168,302 134,716 43,027 72,193 143,909
46,328 29,467
314,821 394,126 414,293
401,979 75,408 20,000 48,073 5,658 14,940 95,847
290,302 49,042 72,827
-402,312
353,186 5,660
27,776 30,450
116,875
2 968

See notes to the basic financial statements.

$ 8,104,503 $

116 875 $==8=,2...2,..1..,,3,..78.,,.

- 25-

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

SCHEDULE "4"

PROJECT
For acquiring, constructing and equipping new school buildings and other buildings or facilities useful or desirable in connection therewith, including, but not limited to, a new middle school and a new high school; adding to renovating, repairing, improving and equipping existing school buildings and other buildings and facilities useful or desirable in connection therewith; acquiring, installing and equipping system-wide technology improvements, and; acquiring any property useful or desirable therefor, both real and personal.

ORIGINAL ESTIMATED
COSTS (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT
YEAR (3)

AMOUNT EXPENDED
IN PRIOR YEARS (3)

PROJECT STATUS

$ 5,500,000 $ 11,351,079 $

940,260 $ 3,466,417 Ongoing

(1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax.
(2) The School District's current estimate of total cost for the project. Includes all cost from project inception to completion.
(3) The voters of Wilkes County approved the imposition of a 1% sales tax to fund the above project and retire associated debt. Amounts expended for this project may include sales tax proceeds, state, local property taxes and/or other funds over the life of the project.

See notes to the basic financial statements.

- 26 -

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

SCHEDULE "5"

DESCRIPTION
Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle 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

$

497,330 $

444,527 $

5,187 $

449,714

59,392

117,329

1,083

118,412

1,196,265

1,085,810

18,519

1,104,329

226,883

243,838

6,415

250,253

588,514

648,005

11,903

659,908

80,798 1,018,163
755,216 549,521 971,112
160,542 60,177 86445

189,036 1,285,549 1,226,468
384,522
483,068 391,283
33,076 90,481 100,273 87 252

9,081 27,961 34,443 20,126
12,391
1,678 1,262 4 078

198,117 1,313,510 1,260,911
404,648
12,391 483,068 391,283
33,076 92,159 101,535 91 330

$

6,250,358 $ 6,810,517 $

154,127 $

6,964,644

173,019 35 354

265,575 11 557

21,785 28 986

287,360 40 543

TOTAL QBE FORMULA FUNDS

$

6 458 731 $ 7,087,649 $

204,898 $ ===7=,2=92=,54====7

(1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction.

See notes to the basic financial statements.

- 27 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
May 22, 2007

Honorable Sonny Perdue, Governor Members ofthe General Assembly Members ofthe State Board of Education
and Superintendent and Members ofthe Wilkes 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 Wilkes County Board of Education as of and for the year ended June 30, 2006, which collectively comprise Wilkes County Board of Education's basic financial statements and have issued our report thereon dated May 22, 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 Wilkes County Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect Wilkes County Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-7571-06-01, FS-7571-06-02 and FS-7571-06-03.
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 of obtaining reasonable assurance about whether Wilkes County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of the management and members of the Wilkes 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

--;--~LO.~ Rus ell 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
May 22, 2007

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

In our opinion, the Wilkes County Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2006.
Internal Control Over Compliance
The management of Wilkes 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 Wilkes County Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses.
This report is intended solely for the information and use of the management, members of the Wilkes 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-10

ell W. Hinton, CPA, CGFM State Auditor

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

WILKES 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-7571-04-01 FS-7571-05-01

Further Action Not Warranted Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-7571-05-01

Action was taken that included periodic checks and monitoring of procedures at school level by central office personnel. However, the plan did not adequately address verification of individual school accounts nor required documentation. Measures have now been taken to implement a training session for school bookkeepers before preplanning and a schedule for reconciliations by central office.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

SECTION IV FINDINGS AND QUESTIONED COSTS

WILKES 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 Wilkes County Board of Education's financial statements was unqualified.

2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Wilkes County Board of Education disclosed financial statement reportable conditions related to the following control categories.

Cash and Cash Equivalents Revenues/Receivables/Receipts Capital Assets

Expenditures/Liabilities/Disbursements General Ledger

None ofthe reportable conditions described above are considered to be material weaknesses.

3. Noncompliance Material to the Financial Statements The audit of the Wilkes 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 Wilkes County Board of Education did not disclose any reportable conditions in internal control over major programs.

5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the Wilkes County Board of Education's report on compliance with requirements applicable to major programs was unqualified.

6. Audit Findings Required to be Reported by Section .51 0(a) of 0MB Circular A-133 The Wilkes County Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) ofOMB Circular A-133.

7. Major Programs Federal awards audited as major programs are as follows: 84.010 Title I Grants to Local Educational Agencies 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants

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

9. Low Risk Auditee The Wilkes County Board ofEducation qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133.

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WILKES 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-7571-06-01

Condition:

This is a repeat finding (FS-7571-05-01, FS-7571-04-01 andFS-7571-03-01) from the years ended June 30, 2005, 2004, and 2003, respectively. The accounting procedures of the 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 function.

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) Twelve receipts were not deposited in a timely manner, 2) Six receipts were not supported by adequate documentation, and 3) One instance was noted where an unapproved expenditure was netted against a cash receipt and recorded in the general ledger at the net amount.

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WILKES 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-7571-06-01

Expenditures/Liabilities/Disbursements Based on a review of 30 items, the following deficiencies were noted: 1) Eight vouchers contained no mv01ce or supporting documentation, 2) Fourteen vouchers contained no evidence of approval prior to purchase, 3) Eight vouchers contained no evidence of receipt, and 4) Ten vouchers indicated that the School District paid sales tax on the purchases.

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 ofthe incompatible activities to properly safeguard assets.

Effect:

Errors and/or irregularities may not be detected in a timely manner.

Recommendation:

The School District should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures and 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.

CASH AND CASH EQUIVALENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Accounting Procedures/Improper Expenditures Reportable Condition Finding Control Number: FS-7571-06-02

Condition:

The School District failed to implement internal controls to ensure that all financial activity from the collection and expenditure ofbus shop testing fees is properly recorded in the General Ledger and expended for educational purposes.
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WILKES 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 EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Accounting Procedures/Improper Expenditures Reportable Condition Finding Control Number: FS-7571-06-02

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: $1,310

Information:

Cash and Cash Equivalents A Bank Reconciliation was not performed for Wilkes County Bus Shop Account. Checks written on this account were signed by a driving instructor.

Expenditures/Liabilities/Disbursements Payments in the amount of$1,310, which include amounts expended for gift cards, meals, and cookouts, do not appear to be for educational purposes. There was no independent review to determine that expenditures were appropriate, accurate and properly documented prior to payment. Purchase orders were not included in the payment voucher package to document expenditures.

General Ledger The activity of the Bus Shop bank account was not recorded in the School District's general ledger.

Cause:

This condition occurred because management failed to monitor all bank accounts in the School District's name and ensure that all bank account activity is recorded in the general ledger.

Effect:

The failure ofthe School District to ensure that all financial data is recorded in the General ledger and that all funds are expended for educational purposes can lead to inaccurate internal and external reporting, as well as noncompliance with State law and generally accepted accounting principles.

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WILKES 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 EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Accounting Procedures/Improper Expenditures Reportable Condition Finding Control Number: FS-7571-06-02

Recommendation:

The School District should establish policies and procedures to ensure that all bank account activity is properly recorded in the general ledger and that expenditures are utilized only for educational purposes. In addition, the School District should review the total expenditures of $1,310 made from proceeds of bus shop fees to identify whether refunds should be secured.

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7571-06-03

Condition:

The School District failed to adequately maintain the capital assets listing and properly record capital assets in the general ledger.

Criteria:

Chapter 37 Fixed Assets of the Financial Management for Georgia Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records.

Questioned Cost: NIA

Information:

A review of the School District's capital assets policies and procedures and the related capital assets records revealed that capital asset totals were not correctly recorded from the capital asset listing to the general ledger. In addition, a parcel of land was sold and not removed from the capital assets listing. Construction in Progress was understated by $126,875, Land was overstated by $194, Equipment was understated by $558, and Accumulated Depreciation was overstated by $104,590. These variances were reclassified and corrected in the financial statements.

Cause:

The School District failed to properly record its capital assets and maintain the capital assets records in accordance with the School District's approved capital assets policy.

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

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7571-06-03

Effect:

The failure ofthe School District to maintain a complete and accurate capital assets listing as well as not recording correct totals for capital assets on the financial records can lead to inaccurate internal and external reporting, as well as noncompliance with generally accepted accounting principles.

Recommendation:

The School District should review its capital assets records and make appropriate adjustments to ensure that capital assets records conform to the School District's approved capital assets policy and generally accepted accounting principles. The School District should also implement controls to ensure that amounts recorded on the general ledger are accurate.

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

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SECTIONV MANAGEMENT'S RESPONSES

WILKES COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2006
Finding Control Number: FS-7571-06-01
We concur with these findings. The School District will review guidelines now in place and begin modifications to procedures for all bookkeepers in the system. These modifications will include periodic reviews by Director of Finance to determine that expenditures are appropriate, properly documented and recorded, to ensure proper separation of duties, and to ensure adherence to established procedures. These changes will be implemented by June 30, 2007.
Finding Control Number: FS-7571-06-02
We concur with these findings. The School District will review guidelines now in place and begin modifications to procedures for all bookkeepers in the system. These modifications will include periodic reviews by Director of Finance to determine that expenditures are appropriate, properly documented and recorded, to ensure proper segregation of duties, and to ensure adherence to established procedures. These changes will be implemented by June 30, 2007.
Finding Control Number: FS-7571-06-03
We concur with this finding. The School District will review its capital assets records and make appropriate adjustments to correct the general ledger. The Director of Finance will begin a review process to ensure that all amounts have been accurately recorded in a timely manner. This process will be implemented by June 30, 2007.
Contact person: Elaine Wheatley, Director of Finance Phone: (706) 678-2718 Fax Number: (706) 678-3799 E-mail Address: wheatleye@wilkes.k12.ga.us