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MANAGEMENT REPORT NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY

AN ORGANIZATIONAL UNIT OF THE STATE OF GEORGIA YEAR ENDED JUNE 30, 2001
Russell W. Hinton State Auditor

NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY MANAGEMENT REPORT - TABLE OF CONTENTS -

Page

LETTER OF TRANSMITTAL

SECTION I

SELECTED FINANCIAL INFORMATION

EXHIBITS

A COMBINED SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL AND SPECIAL REVENUE FUNDS

1

B SCHEDULEOFSTATEREVENUE

2

C SCHEDULE OF FEDERAL REVENUE

3

D SCHEDULE OF OTHER REVENUE

4

E SCHEDULE OF SALARIES AND TRAVEL

5

SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS VllV.11""U'-Y SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SECTION ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS


RUSSELL W. HINTON
STATE AUDITOR (404) 656-2174

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DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-H400
November 29,2001

Honorable Roy E. Barnes, Governor Members of the General Assembly of Georgia Members of the State Board of Education
and Director and Members of the North Georgia Regional Educational Service Agency Board of Control
Ladies and Gentlemen:
As part of our audit ofthe general purpose financial statements ofthe State of Georgia presented in the State o/Georgia Comprehensive Annual Financial Report and the issuance ofaState o/Georgia Single Audit Report pursuant to the Single Audit Act Amendments of 1996, as of and for the year ended June 30, 2001, we have performed certain audit procedures at the North Georgia Regional Educational Service Agency. Accordingly, the financial statements and compliance activities ofthe North Georgia Regional Educational Service Agency were examined to the extent considered necessary in order to express an opinion as to' the fair presentation of the financial statements contained in the State ofGeorgia Comprehensive Annual Financial Report and to issue reports on compliance and internal control as required by the Single Audit Act Amendments of 1996.
This Management Report contains information pertinent to the financial and compliance activities of the North Georgia Regional Educational Service Agency as ofand for the year ended June 30, 2001. The particular information provided is enumerated in the Table of Contents.
This report is intended solely for the information and use of management of the North Georgia Regional Educational Service Agency and members of the Board and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

w.
Ru sell W. Hinton
State Auditor
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SECTION I
,
SELECTED FINANCIAL INFORMATION

NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY COMBINED SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
BUDGET AND ACTUAL GENERAL AND SPECIAL REVENUE FUNDS
YEAR ENDED JUNE 3D, 2001

EXHIBIT "A"

REVENUES
State Funds Federal Funds Other Funds
Total Revenues
EXPENDITURES
Current Support Services Pupil Services Improvement of Instructional Services General Administration Business Administration Maintenance and Operation of Plant Other Support Services Enterprise Operations
Total Expenditures
Excess of Revenues over (under) Expenditures
FUND BALANCE JULY 1, 2000
Adjustments

GENERAL FUND

BUDGET

ACTUAL

$ 731,857.26 $ 790,738.66
767,611.12 1,174,868.56
$ 1,499,468.38 $ 1,965,607.22


$ 38,106.44 $ 23,071.04

254,983.33

275,431.76

293,439.61

288,143.69

160,149.95

163,632.97

44,103.18

45,598.72

83,814.62

667,375.08 1,037,757.18

$ 1,458,157.59 $ 1,917,449.98

$ 41,310.79 $ 48,157.24

509,201.15

488,225.59

5,000.00

SPECIAL REVENUE FUND

BUDGET

ACTUAL

$ 93,484.00 $ 93,484.00

917,503.00

926,287.35

$ 1,010,987.00 $ 1,019,771.35

$ 950,725.00 $ 958,254.47

59,712.00

60,566.88

550.00

950.00

$ 1,010,987.00 $ 1,019,771.35

$

0.00 $

0.00

97,357.62

0.00

FUND BALANCE JUNE 3D, 2001

$ 555,511.94 $ 536,382.83

$ 97,357.62 $====0.=00=

SUMMARY OF FUND BALANCE
Reserved Inventories Sick and Personal Leave
Unreserved Designated for Self-Insurance Program Undesignated

$ 157,321.16 322.00
$ 157,643.16
30,704.87 348,034.80

$ _ _---"0=.0=-0

$ 536,382.83

$ ==~O.='O=O

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NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2001

EXHIBIT "B"

AGENCY/FUNDING
GRANTS

Education. Georgia Department of Vocational Education Other State Programs Georgia Learning Resources System Health Insurance Regional Educational Service Agencies Retirement
CONTRACTS Education, Georgia Department of Georgia Evaluation Program Commission. Georgia Professional Standards Title II Middle Grades Mathematics and Science
OTHER Curriculum Materials Printing Services Workshop Fees

GENERAL FUND

SPECIAL REVENUE
FUND

$ 174,000.00
$
22.747.95 513,334.00
6,694.32

93,484.00

45,003.12 13,800.00
79.52 1,034.75 14,045.00

$

790,738.66 $ =~93;;;,;,,4;;;;;;8~4;,;;;.0~0

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NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY SCHEDULE OF FEDERAL REVENUE YEAR ENDED JUNE 30, 2001

EXHIBIT "C"

AGENCY/FUNDING
GRANTS Education, U. S. Department of Through Georgia Department of Education Safe and Drug-Free Schools Individuals with Disabilities Education Act Part B - Special Education Special Projects Georgia Learning Resources System Vocational Education - Basic Grants to States High School Program Basic Grant Tech-Prep Education
CONTRACTS Education, U. S. Department of Through Georgia Department of Education Technical Assistance Program Elementary and Secondary Education Act Title I Grants to Local Educational Agencies Health and Human Resources, U. S. Department of Through Georgia Department of Education . AIDS School Health Education Implementation of a Program in Comprehensive Health Education

SPECIAL REVENUE
FUND
$ 27,098.96
140,408.00 639,250.39
19,230.00
100,000.00
300.00 $ 926,287.35

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NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY SCHEDULE OF OTHER REVENUE
YEAR ENDED JUNE 30, 2001

EXHIBIT "0"



Indirect Cost Special Revenue Fund
Interest Earned Medicaid Reimbursements Sales and Services
Internal Service Printing Less: Cost of Goods Sold
Internal Service Repairs Less: Cost of Goods Sold
Vocational Education Curriculum Center Less: Cost of Goods Sold
Services Provided Shared Services Projects (Various Boards of Education)
Workshop Fees Other

GENERAL FUND

$

60,277.36

32,824.85

81,968.30



112,104.38

-64,376.68

332,539.51

-114,260.39

12,611.36

-5,445.96

178,550.00 479,029.40
69,046.43

$ 1,174,868.56

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NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY SCHEDULE OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2001

EXHIBIT "E"

NAME
ALLEN, CHARLA H ARP, BENNETT LELAND BROOKS, LORI J CANTRELL, WILLIAM L JR CLAMPITT, VANNA M COX, RALPH N ELLIS, ALICE M ENIS, DONALD F ENIS, GERTRUDE A FOSTER, LINDA W GANTT, SHIRLEY M HARMON, LARRY G JOHNSON, JOHNNY KINGSLEY, CURTIS W KIRKLAND, VIRGINIA C MULKEY, CINDY NORTON, LELAND EUGENE SUTTON, JOHN Q SR TANKERSLEY, WILLIAM LARRY WEAVER, CANDACE LYNN WEAVER, CARA WEAVER, CAROL A WEAVER, JOSEPH BENNY WILLIAMS, ARTHUR M

TITLE CATEGORY
FFAlFCCLA Consultant RESA Director Staff Development Enterprise Technician Support Serv Secretary/Clerk Enterprise Tech Coordinator IP Personnel-Finance & Business Director of GLRS Support Serv Secretary/Clerk IS Personnel-Finance & Business Staff Development RESA Director Enterprise Technician Youth Apprenticeship Director Plant Operations Support Serv Secretary/Clerk Deputy/Assoc/Assistant Supt Enterprise Technician Enterprise Technician School Improvement Specialist Secretary Support Serv Secretary/Clerk Enterprise Technician Enterprise Technician

SALARIES

TRAVEL

$ 53,591.15 $
94,996.06 5,476.95
41,085.60 31,123.44 59,294.64 62,088.24 76,012.80 30,733.68 62,088.24 15,501.52 20,452.11 52,045.92 60,661.20 12,360.00 31,123.44 45,696.72 25,787.75 40,352.52 79,327.80 34,999.92 38,484.48 49,058.40 41,097.84

5,984.71
262.64
1,137.58 5,347.22
101.08 1,101.52 1,302.46
733.08
3,902.60
143.36 1,232.06
30.52 257.43 2,523.53 584.32
73.92 87.92 263.88

$ 1,063,440.42 $ 25,069.83

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SECTIONll AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2001

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-8524-99-01 FS-8524-00-01 FS-8524-00-02 FS-8524-00-03

Further Action Not Warranted Previously Reported Corrective Action Implemented Unresolved - See Corrective ActionlResponses Unresolved - See Corrective ActionlResponses

CORRECTIVE ACTIONIRESPONSES

GENERAL LEDGER Failure to Implement a Deficit Reduction Plan Finding Control Number: FS-8524-00-02

North Georgia RESA has been actively reviewing the deficit spending ofthe printing and repairs department since FY96. The printing and repairs department provide essential services to our local school systems. System surveys indicate continued need and support of these departments. In addition to providing needed equipment repair services the repairs department provides technology training and assistance to our school systems.

Printing: Recognizing the need to address the deficit spending in the printing area, the following corrective measures have been implemented:

During FY96 a break-even analysis for the printing department was prepared and implemented. .
During FY98, North Georgia RESA lost the membership ofits largest school system. The number of personnel in the printing department was reduced from 2 to 1.6 positions.
In preparation of the FY99 budget North Georgia RESA projected revenues and . expenditures for the printing department. The approved budget recognized a deficit
spending in this area and that this deficit would be supported by fund equity and the general operating fund.

The FY2001 approved budget recognizes a reorganization ofthe printing department with a decrease in personnel expenditures and an increase in printing orders.

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NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY AUDITEE'S RESPONSE

SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2001
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
GENERAL LEDGER Failure to Implement a Deficit Reduction Plan Finding Control Number: FS-8524-00-02
It is to be noted that school system surveys, reflect a continued high need for the services of this department.
The FY2002 budget will take into consideration additional deficit reduction policies.
Repairs: Recognizing the need to address the deficit spending in the repairs area, the following corrective measures have been implemented:
An equity adjustment was made at the beginning ofFY96 to transfer FY95 general membership to support the repairs department. It is to be noted that the FY95 audit recommended the covering of the repair department deficit by the General Fund.
During FY96, a break-even analysis for the repair department was l?repared and implemented during FY97.
During FY98, North Georgia RESA lost the membership ofits largest school system. It was determined that due to the specialized training of each member of the repair team, and the need for these services, that the team would be kept intact. It was recognized that the break-even analysis would not be effective and funding would have to be supplemented by the General Fund. The reentry ofthis system is actively being sought.
In preparation of the FY99 budget, North Georgia RESA projected revenues and expenditures for the repairs department. The approved budget recognized a deficit spending in the repairs department to be supported by the fund equity and the General Fund.
The FY2000 budget reflected the replacement of a mid-level repairs salaried employee by an entry-level employee, thereby decreasing the salary and benefit expenditures. The approved budget recognized a deficit spending in the repairs department to be supported by fund equity and the General Fund.
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NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2001

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CORRECTIVE ACTIONIRESPONSES

GENERAL LEDGER Failure to Implement a Deficit Reduction Plan Finding Control Number: FS-8524-00-02

It is to be noted that the actual budget deficit was $124,653.00, while the actual deficit was $112,088.22. This was accomplished by additional services provided to school systems, as well as management's review of revenue and expenditures on a monthly basis.

The FY2001 approved budget recognizes a continued support of the repairs department by the General Fund. It is to be noted, that school system surveys reflect a continued high need for the services provided by this department.

The FY2002 budget will take into consideration additional deficit reduction policies. The management ofNorth Georgia RESA, the finance committee, and the Board of Directors as a whole will develop these policies.

GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Failure to Maintain General Fixed Assets Account Group Finding Control Number: FS-8524-00-03

North Georgia RESA does not maintain a General Fixed Assets Account Group within the formal accounting records. At this time the Board ofControl has determined that it is not cost effective to implement and maintain a General Fixed Assets Account Group.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-8524-00-01 FA-8524-00-02 FA-8524-00-03 FA-8524-00-04

Previously Reported Corrective Action Implemented Further Action Not Warranted Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented

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NOR" TH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2001
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
ALLOWABLE COSTS/COST PRINCIPLES Improper Indirect Cost Expenditures Vocational Education - Basic Grants to States (CFDA 84.048) Amount: $36,608.00 Finding Control Number: FA-8524-00-03 North Georgia RESA provided enumerable services to Vocational-Technical Education in the areas of State Administration, Leadership and the Georgia Vocational Staff Development Consortium. The agreed upon and approved rate for providing these services to Vocational-Technical Education was 6.9% of the total grant for. State

Administration and Leadership and 7.45% for the Georgia Vocational StaffDevelopment Consortium. The agreed upon rates are documented by signed DE0448 grant budgets. These grant budgets were approved by the RESA official, the Vocational-Technical Education official and the Grants Accounting official. Currently the Georgia Department ofEducation has requested a review ofthis finding by the U. S. Department of Education.
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"
SECTION ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS


NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2001
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Failure to Implement an Adequate Deficit Reduction Plan Finding Control Number: FS-8524-01-01
The Printing Fund and Repair Fund at North Georgia Regional Educational Service Agency (RESA) ended the year with deficit balances of $126,214.66 and $458,217.31, respectively. The Printing Fund deficit was reduced by $2,255.86 from the prior year, however, the Repair Fund deficit increased by $85,647.94. These deficits have occurred primarily because expenditures have consistently exceeded revenues. The deficits in these funds, ifnot corrected, could eventually cause the RESA as a whole to be in a deficit position.
Management should develop a deficit reduction plan and implement sound business practices to ensure that additional deficits do not occur for the Printing Fund and Repair Fund in subsequent periods.
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Failure to Maintain General Fixed Assets Account Group Finding Control Number: FS-8524-01-02
The North Georgia Regional Educational Service Agency (RESA) did not maintain a General Fixed Assets Account Group within the formal accounting records. This condition results in the financial statements ofthe RESA being incomplete and not in accordance with generally accepted accounting principles. Appropriate action should be taken by the RESA to establish accounting controls and procedures to provide for maintenance ofa General Fixed Assets Account Group. These subsidiary records should include an inventory ofequipment owned by the RESA and should include, but may not be limited to, date acquired, acquisition cost, estimated replacement cost, location and description. Detailed records should be maintained of all additions and deletions to the General Fixed Assets Account Group.
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
ALLOWABLE COSTS/COST PRINCIPLES Improper Indirect Cost Expenditures Vocational Education - Basic Grants to States (CFDA 84.048) Amount: $12,628.77 Finding Control Number: FA-8524-01-01
An examination ofthe Vocational Education - Basic Grants to States program (perkins Ill) at North Georgia Regional Educational Service Agency (RESA) revealed excessive and unallowable costs being charged to the Federal program through an indirect cost rate.
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NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2001

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ALLOWABLE COSTS/COST PRINCIPLES

Improper Indirect Cost Expenditures

.

Vocational Education - Basic Grants to States (CFDA 84.048)

Amount: $12,628.77

Finding Control Number: FA-8524-01-01

In accordance with OMB Circular A-87, costs can be charged to the Perkins III funds as long as they are necessary and reasonable. For the RESA, indirect costs are claimed against Federal grants through a Georgia Department ofEducation (GDOE) approved indirect cost rate. Such a rate is to be applied to those Federal funds where the RESA carries out program and administrative responsibilities of the grant. For FY 2001, GDOE approved an 8.56% indirect cost rate for the RESA.

Our review noted the RESA performed as a fiscal agent for administering State Administration and Leadership program activities supported with Perkins III funds while GDOE carried out the program related responsibilities for these activities. As fiscal agent for these two program activities, the RESA was allowed to claim indirect costs at a negotiated 6.9% indirect cost rate through a GDOE approved budget. The RESA also served as fiscal agent for the Georgia Vocational Staff Development Consortium. The Consortium was also funded with Perkins III funds designated for Secondary School Programs. As a fiscal agent for this program activity, the RESA was allowed to claim indirect costs at a negotiated 7.45% indirect cost rate through a GDOE approved budget. The RESA claimed a total of$43,938.60 against these three program activities in fiscal year 2001. The GDOE approved rate of 8.56% would have been permitted ifthe RESA carried out all the program services and administrative functions for these three program activities instead ofmerely acting as a fiscal agent. Neither the RESA nor GDOE was able to provide documentation justifying that the two negotiated indirect cost rates would result in necessary and reasonable costs incurred by the RESA. Indirect costs charged by the RESA to the State Administration, Leadership and Consortium funds should have been based on a lower indirect cost rate commensurate with the costs incurred by the RESA in performing its duties as a fiscal agent.

Additionally, Section 124 of P.L. 105-332 specifically prohibits the use of Leadership funds for administrative purposes and accordingly the $1,818.62 ofindirect cost charged by the RESA to the Leadership funds are unallowable. Furthermore, the RESA charged $38,765.00 to Perkins III Secondary School Program funds to serve as a fiscal agent for the Consortium. Section 135(d) of P.L. 105-332 states that no more than 5% ofthe Secondary School Program funds may be used by an entity for administrative costs. Since the RESA claimed indirect costs based on the 7.45% indirect cost rate, which exceeded the maximum of 5%, the RESA overcharged $10,810.15 to these funds.

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NORTH GEORGIA REGIONAL EDUCATIONAL SERVICE AGENCY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2001
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
ALLOWABLE COSTS/COST PRINCIPLES Improper Indirect Cost Expenditures Vocational Education - Basic Grants to States (CFDA 84.048) Amount: $12,628.77 Finding Control Number: FA-8524-01-01
The RESA and GDOE should evaluate, determine and document an appropriate indirect cost rate for fiscal agent responsibilities performed by the RESA. Such a rate should result in a reasonable amount that would be charged to State Administration and Secondary School program activities
supported with Perkins ill funds. With regard to Leadership funds, the United States Department of
Education should be consulted to determine ifindirect costs or another acceptable means can be used to charge Leadership Program funds for costs associated with a fiscal agent. The Georgia Department of Education should review this matter and take appropriate steps to resolve the
unallowable and/or excessive indirect costs charged to Perkins ill program funds.
CASH MANAGEMENT Excessive Cash Balances Vocational Education - Basic Grants to States (CFDA 84.048) Amount: $2,778.45 Finding Control Number: FA-8524-01-02
A review ofcash management procedures and internal controls for the Vocational Education - Basic Grants to States program (CFDA 84.048) disclosed that cash draws utilizing DE Form 147, "Quarterly Report of Expenditures and Estimated Requirement for Grant Funds", were made in advance of immediate cash needs, resulting in the accumulation of excessive ending monthly cash balances for ten months during the year under review.
In accordance with A-102 Common Rule paragraph 21 (h)2(l), interest earned on advances by local government grantees is required to be submitted promptly to the Federal grantor agency. Up to $100 per year may be kept for administrative expenses. The Vocational Education - Basic Grants to States program earned interest amounting to $2,878.45 ofwhich $2,778.45 should have been submitted to the Georgia Department ofEducation. The interest earned on these program funds was recorded in the North Georgia Regional Educational Service Agency's General Fund.
Management should become familiar with the Federal regulations for the Vocational Education program in order to develop adequate control procedures to ensure that the cash drawdowns ofthe Vocational Education Program are made based on immediate cash needs. The excessive interest earnings totaling $2,778.45 should be refunded to the Georgia Department of Education.
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