Management report, Department of Education, an organizational unit of the state of Georgia, year ended June 30, 2000

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DEPARTMENT OF EDUCATION
MANAGEMENT REPORT
- TABLE OF CONTENTS -

LETTER OF TRANSMITTAL

SECTION I

SELECTED FINANCIAL INFORMATION

EXHIBITS

A ANALYSIS OF CHANGES IN FUND BALANCE

BUDGET FUND

SCHEDULEOFFUNDSAV~ABLEANDEXPENDTILrnES

COMPARED TO BUDGET

BUDGET FUND

B

"A" DEPARTMENT OF EDUCATION

C

"B" LOTTERY FOR EDUCATION

D RECONCILIATION OF TRAVEL

ES

Y OF SALARIES, TRAVEL, AND PER DIEM AND FEES

Page
1 2
4
5
6

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

SECTIONlli CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street. S.w., Suite 214 Atlanta, Georgia 30334-R400
February 16,2001

Honorable Roy E. Barnes, Governor Members of the General Assembly of Georgia Members of the State Board ofEducation
and Honorable Linda C. Schrenko, State Superintendent of Schools Department ofEducation
Ladies and Gentlemen:
As part ofour audit ofthe statutory basis financial statements ofthe State ofGeorgia presented in the State ofGeorgia Report ofthe State Auditor, the general purpose financial statements ofthe State of Georgia presented in the State ofGeorgia Comprehensive Annual Financial Report, and the issuance of a Statewide Single Audit Report pursuant to the Single Audit Act Amendments, as of and for the year ended June 30, 2000, we have performed certain audit procedures at the Department of Education. Accordingly, the financial statements and compliance activities of the Department of Education 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 foregoing documents 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 Department ofEducation as of and for the year ended June 30, 2000. 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 Department of Education 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,

RWH:jb

R ssell W. Hinton
State Auditor

SECTION I SELECTED FINANCIAL INFORMATION

DEPARTMENT OF EDUCATION ANALYSIS OF CHANGES IN FUND BALANCE
BUDGET FUND YEAR ENDED JUNE 30, 2000

EXHIBIT "A"

FUND BALANCE - JULY 1, 1999
Reserved Surplus
ADDITIONS
Adjustments to Prior Year's Accounts Payable Grants Payable
Excess of Funds Available over Expenditures Exhibit "B"
Increase in Reserve for Inventories Prior Years Checks Voided Reimbursement of Prior Year's Expenditures
Grants Other
DEDUCTIONS
Unreserved Fund Balance (Surplus) Returned to Office of Treasury and Fiscal Services Year Ended June 30, 1999
Refund of Private Grant Reserved Fund Balance Carried Over from
Prior Year as Funds Available
FUND BALANCE - JUNE 30, 2000

"Al t DEPARTMENT OF
EDUCATION

"B" LOTIERYFOR
EDUCATION

$

16,034,568.00

789,587.78 $

$
4,941,263.77

$

16,824,155.78 $

4,941,263.77 $

TOTAL
16,034,568.00 5,730,851.55
21,765,419.55

$

2,339,159.75 $

55,907,293.30

51,010,195.62 253,988.25 15,598.78

7,232,303.21 1,160,947.11

$ 117,919,486.02 $

242,578.16 $
500,727.50

2,581,737.91 56,408,020.80

12,529,605.68

63,539,801.30 253,988.25 15,598.78

948,774.03

8,181,077.24 1,160,947.11

14,221,685.37 $ 132,141,171.39

$

789,587.78 $

3,196.00

13,899,992.81

$

14,692,776.59 $

4,941,263.77 $ 4,941,263.77 $

5,730,851.55 3,196.00
13,899,992.81
19,634,040.36

$ _.:.:12;,:,:,0,050,865.21 $ _....:1~4,221,685.37 $ 134,272,550.58

SUMMARY OF FUND BALANCE
Reserved State Funds Lottery for Education Federal Financial Assistance Inventories Georgia Academic and Medical System (GSAMS) Training Georgia School for the Deaf School Improvements Technology General Obligation Funds Other Funds France-Mediaction Mission Program French Cultural Services Program Georgia Partnership for Excellence in Education LUA Audit Contract Next Generation Schools-Private Grant CCSSO Teacher of the Year Program Reading First Program United States Senate and Youth Program Standards of Care (OSR) Pre-K Innovation Program
Surplus

$

8,646,378.50

$

90,917,522.88

2,47~,563.44

9,282.14

38,922.60 2,563,174.69

16,981.00 32,808.75 100,000.00 709,671.86
622.17 1,776.32 87,200.00 5,202.67 96,800.17
289.03

$ 105,700,196.22 $
14,350,668.99

$
10,000,000.00

8,646,378.50 10,000,000.00 90,917,522.88 2,473,563.44

9,282.14

38,922.60 2,563,174.69

16,981.00 32,808.75 100,000.00 709,671.86
622.17 1,776.32 87,200.00 5,202.67 96,800.17
289.03

10,000,000.00 $ 115,700,196.22

4,221,685.37

18,572,354.36

$ 120,050,865.21 $

14,221,685.37 $ 134,272,550.58

- 1-

DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
"An DEPARTMENT OF EDUCATION YEAR ENDED JUNE 30, 2000

EXHIBIT "B"

FUNDS AVAILABLE REVENUES
State Appropriation Federal Revenues Other Revenues Retained
CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance

BUDGET

ACTUAL

VARIANCE FAVORABLE jUNFAVORABLEl

$ 5,111,284,113.00 $
997,909,657.00 13,504,820.00

5,111,284,113.00 $ 872,204,796.22 8,319,034.43

0.00 -125,704,860.78
-5,185,785.57

$ 6,122,698,590.00 $ 5,991,807,943.65 $ -130,890,646.35

0.00

13,899,992.81

13,899,992.81

$ 6,122,698,590.00 $ 6,005,707,936.46 $ -116,990,653.54

EXPENDITURES
Personal Services Regular Operating Expenses Travel Motor Vehide Purchases Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem, Fees and Contracts Utilities QBE Formula Grants:
Kindergarten/Grades 1-3 Grades 4-8 Grades 9-12 High School Laboratories Vocational Education Laboratories Special Education Gifted Remedial Education Staff Development and Professional
Development Media Indirect Cost Pupil Transportation Local Fair Share Mid-Term Adjustment Reserve Other Categorical Grants: Equalization Formula Sparsity Grants In School Suspension Special Instructional Assistance Middle School Incentive Special Education Low - Incidence Grants Limited English-Speaking Students Program Non-QBE Grants: Education of Children of Low-Income Families Retirement (H.B. 272 and H.B. 1321) Instructional Services for the Handicapped Tuition for the Multi-Handicapped Severely Emotionally Disturbed School Lunch (Federal)

$ 42,815,877.00 $
8,535,182.00 1,871,691.00
156,000.00 387,590.00 13,702,297.00 1,291,187.00 2,231,965.00 70,211,799.00 818,452.00

38,035,341.59 $
5,702,829.12 988,934.90 153,237.99 123,312.19
9,587,203.31 1,070,594.77 1,220,792.30 60,295,064.74
656,361.80

1,246,928,019.00 1,057,747,868.00
436,873,709.00 207,679,609.00 156,945,877.00 548,792,945.00
98,679,526.00 104,495,375.00

1,246,928,019.00 1,057,747,868.00
436,873,709.00 207,679,609.00 156,945,877.00 548,792,945.00
98,679,526.00 104,495,375.00

36,602,631.00 134,010,159.00 800,161,761.00 152,021,075.00 -869,432,749.00
66,951,970.00

36,602,631.00 134,010,159.00 800,161,761.00 152,008,380.00 -869,432,750.00
66,570,388.00

246,132,902.00 3,158,000.00
24,040,020.00 98,870,519.00 100,117,895.00
620,134.00 28,122,176.00

246,132,702.00 3,157,998.00
24,040,020.00 98,870,519.00 99,647,560.00
605,134.00 28,122,176.00

239,123,393.00 6,008,750.00
135,408,184.00 1,900,000.00
54,154,574.00 257,868,722.00

238,687,529.41 5,915,382.11
131,977,360.00 1,510,01 0.44
54,107,318.00 256,508,391.06

-2-

4,780,535.41 2,832,352.88
882,756.10 2,762.01
264,277.81 4,115,093.69
220,592.23 1,011,172.70 9,916,734.26
162,090.20
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 12,695.00 1.00 381,582.00
200.00 2.00 0.00 0.00
470,335.00 15,000.00 0.00
435,863.59 93,367.89
3,430,824.00 389,989.56 47,256.00
1,360,330.94

DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
"A" DEPARTMENT OF EDUCATION YEAR ENDED JUNE 30, 2000

EXHIBIT "B"

EXPENDITURES
Non-QBE Grants: School Lunch (State) State and Local Education Improvement Regional Education Service Agencies Georgia Learning Resources System High School Program Special Education in State Institutions Governor's Scholarships Counselors Vocational Research and Curriculum Even Start PSAT Year 2000 Project Funding Child Care Lunch Program (Federal) Chapter II - Block Grant Flow Through Payment of Federal Funds to Board of Technical and Adult Education Education of Homeless ChildrenlYouth Innovative Programs Next Generation School Grants Drug Free School (Federal) At Risk Summer School Program Emergency Immigrant Education Program Title II Math/Science Grant (Federal) Robert C. Byrd Scholarship (Federal) Health Insurance - Non-Cert. Personnel and Retired Teachers Pre-School Handicapped Program Mentor Teachers Advanced Placement Exams Serve America Program Youth Apprenticeship Grants Remedial Summer School Alternative Programs Joint Evening Programs Environmental Science Grants Pay for Performance Mentoring Program Charter Schools Technology Specialist Migrant Education State Fund Reserve Troops To Teachers Comprehensive School Reform Character Education Standards of Care Test Development Contracts Information Technology Contracts National Teacher Certification Class Size Reduction

BUDGET

ACTUAL

VARIANCE FAVORABLE jUNFAVORABLEL

$ 35,282,461.00 $
36,923,356.00 10,745,889.00
4,474,785.00 37,687,556.00
3,884,639.00 4,989,029.00 13,524,863.00
293,520.00 3,840,097.00
656,500.00 2,605,394.00 132,117,711.00 19,278,842.00
27,650,639.00 1,409,680.00 1,690,215.00 875,000.00
13,060,943.00 4,632,785.00 2,981,927.00
12,748,612.00 1,059,000.00
99,547,892.00 19,434,853.00
1,250,000.00 2,258,000.00 1,528,922.00 4,340,000.00 1,689,931.00 20,238,290.00
267,333.00 100,000.00 10,254,000.00 500,000.00 1,269,604.00 15,401,810.00 274,395.00 3,769,183.00 111,930.00 5,089,865.00 595,000.00 134,500.00 8,600,000.00 7,567,000.00 148,210.00 29,909,345.00

34,478,849.00 $
21,340,346.24 10,697,901.00
4,246,755.00 29,285,749.06
3,824,985.00 4,989,029.00 13,524,863.00
88,600.00 3,694,122.00
631,011.00 578,176.00 65,005,930.25 10,596,421.00
14,981,754.45 746,832.00 472,900.00 875,000.00
11,958,643.00 4,632,785.00 2,906,646.00 7,917,481.00 1,059,000.00
99,547,892.00 19,431,559.00
1,249,020.00 2,107,000.00 1,009,159.22 4,340,000.00 1,678,290.39 19,914,477.00
265,000.00 99,750.00
10,226,000.00 499,890.00
1,250,000.00 15,401,810.00
274,370.00 0.00
111,930.00 4,361,899.00
350,000.00 43,000.00
6,400,000.00 2,592,690.50
108,972.00 29,721,983.00

803,612.00 15,583,009.76
47,988.00 228,030.00 8,401,806.94
59,654.00 0.00 0.00
204,920.00 145,975.00
25,489.00 2,027,218.00 67,111,780.75 8,682,421.00
12,668,884.55 662,848.00
1,217,315.00 0.00
1,102,300.00 0.00
75,281.00 4,831,131.00
0.00
0.00 3,294.00
980.00 151,000.00 519,762.78
0.00 11,640.61 323,813.00
2,333.00 250.00
28,000.00 110.00
19,604.00 0.00
25.00 3,769,183.00
0.00 727,966.00 245,000.00
91,500.00 2,200,000.00 4,974,309.50
39,238.00 187,362.00

$ 6,122,698,590.00 $ 5,954,697,740.84 $ 168,000,849.16

Excess of Funds Available over Expenditures

$

51,010,195.62 $

51,010,195.62

-3-

DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
"B" LOTIERY FOR EDUCATION YEAR ENDED JUNE 30, 2000

EXHIBIT "C"

FUNDS AVAILABLE REVENUES
State Appropriation

BUDGET

ACTUAL

VARIANCE FAVORABLE jUNFAVORABLEt

$ 354,373,083.00 $ 354,373,083.00 $

...0:..:...0::.0.:;,.

EXPENDITURES
Capital Outlay Pre-Kindergarten - Grants Pre-Kindergarten - Personal Service Pre-Kindergarten - Operations Educational Technology Centers Distant Learning - Satellite Dishes Post Secondary Options Assistive Technology Computers in the Classroom

$ 75,165,604.00 $ 73,865,604.00 $

217,971,579.00

217,977,680.79

2,051,953.00

2,031,613.50

5,148,630.00

5,164,409.07

858,000.00

858,000.00

936,000.00

926,109.00

4,500,000.00

3,379,038.96

5,000,000.00

5,000,000.00

42,741,317.00

32,641,022.00

1,300,000.00 -6,101.79 20,339.50
-15,779.07 0.00
9,891.00 1,120,961.04
0.00 10,100,295.00

,

$

Excess of Funds Available over Expenditures

341,843,477.32 $ _--:.1=2~,:5:2.9:,6:0.5::.6=8-

$

s 12,529,605.68 =~12~ ,52~ 9,6~ 05.~ 68

-4-

DEPARTMENT OF EDUCATION RECONCILIATION OF TRAVEL YEAR ENDED JUNE 30, 2000
Totals per Annual Supplement
Accruals June 30, 1999
Adjustment Prior Year's Accounts Payable

EXHIBIT "0"
$ 1,122,653.10
-2,388.46 113.50
$ 1,120,378.14

- 5-

DEPARTMENT OF EDUCATION SUMMARY OF SALARIES, TRAVEL, AND PER DIEM AND FEES
YEAR ENDED JUNE 30, 2000

EXHIBIT "E"

Totals per Annual Supplement Department of Education Office of School Readiness

,
SALARIES

TRAVEL

PER DIEM AND FEES

$ 26,751,957.85 $
3,096,446.65

874,301.15 $
248,351.95

1,633,209.59 349,202.07

$ 29,848,404.50 $ 1,122,653.10 $ 1,982,411.66

- 6-

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

DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2000

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-414-98-03 FS-414-98-04 FS-414-99-0 I
FS-414-99-02 FS-414-99-03
FS-414-99-04

Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Further Action Not Warranted - See Corrective
ActionlResponses Partially Resolved - See Corrective ActionlResponses Significantly Differing Corrective Action Implemented -
See Corrective ActionlResponses Partially Resolved - See Corrective ActionlResponses

CORRECTIVE ACTIONIRESPONSES

BUDGET PREPARATIONIEXECUTION Overexpenditure of Budget Unit Object Classes Finding Control Number: FS-414-99-01

I. Overexpenditure of the Middle School Incentive and Limited English Speaking Categorical Grants was due to the final FTE data resulting in two school systems earning more funds than were appropriated. This was discovered too late to seek additional funds. To prevent this from re-occurring, FTE data changes will be more closely examined.

2. Non-QBE Grants

A. Next Generation Schools' private donations were not budgeted as required. When we realized that they were not budgeted, it was too late for funds to be budgeted. To prevent this from re-occurring, budget meetings will be held with program managers to ensure that all funds including private donations are properly budgeted.

B. A school system incorrectly reported the number of certificated personnel
eligible to receive this award. When the error was discovered, it was too late to seek additional funds. To prevent this from re-occurring, we will instruct school systems to be more cautious in reporting their certificated teachers for this program.

-I -

DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2000
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
EXPENDITURESILIABILITIESIDISBURSEMENTS Failure to Comply With the Fair and Open Grants Act Finding Control Number: FS-414-99-02
We concur with the finding stating that the Office of School Readiness failed to comply and file with the Secretary ofState a list of grants awarded and disbursed as required by the Official Code ofGeorgia Annotated Section 28-5-124. This was certified by the Secretary of State as received on January 5, 2000.
OSR submitted to the Secretary of State a description ofthe grant programs on December 14, 1999. This action met the requirement of the Official Code of Georgia Annotated Section 28-5-122. It is OSR's understanding that we are not required to publish any grant descriptions unless there are changes or terminations.
OSR has contacted the Secretary of State's office to become more informed of its requirements for meeting FOGA guidelines. The Office ofSchool Readiness will strive to take any appropriate action to ensure that we complywith the "Fair and Open Grants Act of 1993".
EXPENDITURESILIABILITIESIDISBURSEMENTS Failure to Monitor QBE Program Expenditure Requirements
in School Systems with Charter Schools Finding Control Number: FS-414-99-03
The department initially planned to establish new program codes for charter schools. The implementation ofH.B. 1187 (Education Reform Act) included school level expenditure control, so it was decided not to use new program codes to capture charter school expenditures. The reporting of expenditures at the school level should resolve the questions raised in this audit finding.
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-414-99-04
See our corrective action/responses to finding number FA-414-99-01 in the Prior Year Federal Awards Findings and Questioned Costs.
-2-

DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2000

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-414-98-01 FA-414-98-02 FA-414-99-01 FA-414-99-02 FA-414-99-03

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

CORRECTIVE ACTIONIRESPONSES

EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-99-01

Department of Educations' Response

A. 1. This, primarily, resulted in equipment paid in Accounting Services and the DE Form 0513, Receipt of Equipment form, not received from initiating units until after June 30, 1999, along with changes on invoices after the receiving report was received in Accounting Services. Also, unit's failure to follow through with changes on invoices associated with field purchase orders to Property Control.

2. This resulted in changes on invoices after the receiving report was received in Accounting Services.

B.
1. Failure by unit to properly account for their inventory whether the item was moved by an employee of the unit or Technology Services.

2. Equipment not controlled properly will result in surprise findings of equipment.

3. A unit who fails to properly inventory equipment or inventories completed quickly will result in equipment being indicated as "missing". This is a result of poor inventory inspection techniques by the unit.

4. These recordings in the comments column ofthe property record were added after the FY 1999 Physical Inventory but prior to the FY 2000 Physical Inventory. These entries will be validated by proper documentation during the upcoming FY 2000 Physical Inventory period, which will commence at mid-February 2000.

-3-

DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2000
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-99-01
Department of Educations' Response
B.
5. DOE decals had been removed by unknown circumstances, but new decals were affixed to this equipment at time of inspection sample.
6. This equipment was purchased in 1991 and had been identified by the SIS
coordinator by SIS documentation. It was found during this inspection sample that
the description was incorrect and was corrected on the DOE Property System. The twenty (20) items of equipment found were for equipment under the $1,000 threshold for capturing on the DOE Property System.
Office of School Readiness' Response
We concur with these findings. The Office of School Readiness has a limited amount of real property (as defined by Georgia Law), but steps have been taken to address the audit finding dealing with equipment inventory. FY99 was a transition year ofnew accounting systems and responsibilities for the Office of School Readiness (OSR). Since this Audit, OSR has defined more clearly that OSR does have complete and total control ofinventory maintenance, both physical and computerized inventory records. We have recently separated and assigned the responsibility for asset management to a new section with two staff positions. Monthly reconciliations will be performed to assure the balance of the fixed asset inventory records with the general ledger purchases. A physical inventory count will be performed annually, and equipment custodians will be assigned and held accountable for the safekeeping of OSR fixed assets through the employee performance evaluation process.
These steps will put OSR in position to meet the guidelines established by the Georgia Department of Administrative Services (DOAS) for fixed asset management and the OMB's Common Rule governing the Uniform Administrative Requirements for Grants. Management audits have already confirmed the improvements from implementing these internal controls.
-4-

DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2000
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
SUBRECIPIENT MONITORING Subrecipient Audit Reports Not Received Within the Required Time Period Finding Control Number: FA-414-99-03
Department of Educations' Response
Although the Department ofEducation is responsible for tracking and reviewing the audits oflocal units of administration (LUAs), the Department ofAudits is required by State law to audit the LUAs, because LUAs receive the majority oftheir funding from the state. In addition to the LUA audits, the Department of Audits has the responsibility to audit all state agencies, commissions, etc. The LUAs are audited after the state agencies, commissions, etc. Because the LUAs are audited last and the large number ofLUAs to be audited, the Department of Audits cannot complete the audits in the time period required by OMB Circular A-133. The U.S. Department ofEducation is aware ofthe problem, and realizes there is not currently a viable solution to the finding. The LUA audits are normally
,
completed within a 15-18 month time period. The department has a six-month resolution period to resolve findings in the LUA audits after being received from the Department of Audits.
Office of School Readiness' Response
In response to this audit finding which detail 346 audits not received before the nine-month Federal deadline, the Office ofSchool Readiness (OSR) has received documentation of 163 participants that belong to OSR. Eighty-three (83) participants are for profit entities and are not subj ect to the A-133 requirement. Therefore, they should not have been included in the calculation.
The audits for nonprofit organizations that are subject to the OMB Circular A-133 deadline includes school systems. These audits are performed by the Georgia Department ofAudits and Accounts (DOAA) and are not completed and submitted to the Boards ofEducation in a timely manner as stated in the finding. It concerns OSR that we would receive a finding from DOAA, when DOAA makes it impossible for us to get the audit before the deadline. The exclusion of those fifty-four (54) organizations in this finding would lessen our noncompliance.
Based on the 163 items of noncompliance provided, OSR should have been cited for twenty-six (26). OSR has and will continue to take steps to meet our Federal and State requirements.
-5-

SECTION ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS

DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2000

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

BUDGET PREPARATIONIEXECUTION Overexpenditure of Budget Unit Object Classes Finding Control Number: FS-414-00-01
The total approved budget for the Department of Education - "B" Budget unit provided for expenditures totaling $354,373,083.00. A comparison of anticipated funds available and budgeted expenditures to actual funds available and expenditures by object class indicates that the following object classes were overspent by the Office of School Readiness by the amounts identified below:

"B" Lottery for Education Pre-Kindergarten - Grants Pre-Kindergarten - Operations

$ 6,101.79 $ 15,779.07

The overexpenditures identified above are in violation ofSection 58 ofthe Amended Appropriations Act of 1999-2000. These overexpenditures were caused by the Office's failure to monitor the expenditure of funds against the budgeted expenditures by object class.

The Office ofSchool Readiness should review its internal control procedures over budget operations, design procedures that would prohibit the expenditure of funds in excess of budget approval, and implement those procedures to strengthen the internal controls over the budget function.

EXPENDITURESILIABILITIESIDISBURSEMENTS Failure to Comply With the Fair and Open Grants Act Finding Control Number: FS-414-00-02
As part ofour examination, we reviewed the Office ofSchool Readiness' compliance with the "Fair and Open Grants Act of 1993". The following instance of noncompliance was found:
The Office failed to compile and file with the Secretary of State a list of grants awarded and disbursed in fiscal year 1999 as required by the Official Code of Georgia Annotated Section 28-5-124. OCGA 28-5-124 states, in part, as follows:
"Before December 31 ofeach calendar year, each state agency shall compile and file with the Secretary of State a list of grants awarded and disbursed in the prior fiscal year, ..."

This instance of noncompliance occurred because the Office of School Readiness (Office) failed to submit information to the Secretary ofState as required by the Official Code ofGeorgia. The Office should take appropriate action to ensure that the Office complies with the "Fair and Open Grants Act
of 1993".

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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2000
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EXPENDITURESILIABILITIESIDISBURSEMENTS Failure to Monitor QBE Program Expenditure Requirements
in School Systems with Charter Schools Finding Control Number: FS-414-00-03
The Official Code ofGeorgia Annotated Section 20-2-167 (a) requires the State Board ofEducation to annually adjust a School System's local fair share amount in the event the School System does not meet the program expenditure requirements stipulated in the law. In order to perform this function, the State Board must annually determine each School System's expenditure requirements and monitor actual expenditures for compliance.
Subsequent to passage ofthe aforementioned law, the General Assembly enacted legislation, which exempts a charter school from the expenditure requirements as discussed above. As a result ofthis legislation, the State Board must now exclude any duly created charter school from the computations in determining a School System's expenditure requirements for purposes ofdetermining compliance with Code Section 20-2-167 (a).
In fiscal year 2000, fifteen (15) School Systems had charter schools operating within their jurisdiction. However, the State Board did not exclude these charter schools in determining expenditure requirements for the affected School Systems for the purpose ofdetermining expenditure requirements for the non-charter schools in the district. Consequently, because the State Board did not provide a basis for complying with Section 20-2-167 (a), it is not possible for the State Board to monitor affected School Systems actual expenditures for purposes ofannually adjusting that School System's local fair share.
Effective July 1, 2000, H.B. 1187 (Education Reform Act) was implemented. As noted in the "Auditee's Response to the Prior Year Findings", the implementation of H.B. 1187 (Education Reform Act) mandated expenditure control be monitored at the individual school level.
GENERAL LEDGER Inadequate Accounting Procedures (Overall) Finding Control Number: FS-414-00-04
Accounting procedures of the Office of School Readiness (Office) were insufficient to provide adequate internal controls over Cash and Cash Equivalents, Revenues/Receivables/Receipts, ExpenditureslLiabilitieslDisbursements and Fund Equities control categories as noted below:
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2000
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Inadequate Accounting Procedures (Overall) Finding Control Number: FS-414-00-04
Cash and Cash Equivalents
1. A review of the June 30, 2000 bank reconciliations indicated numerous reconciling items in the following accounts:
Operating Account: Reconciling items totaling $5,133,302.97 (net) were identified on the June 2000 bank reconciliation. Ofthese reconciling items, $37,218.02 were carried over from the prior fiscal year. The remaining items occurred throughout the current fiscal year. The reconciling items consisted ofpayments recorded on the general ledger but not clearing the bank, withdrawals (ACH) clearing the bank but never recorded on the general ledger, ACH items returned but not recorded on the general ledger, and manual journal entries posted to the general ledger but the activity was not on the bank statement. Audit adjustments were made for $1,232,691.61 (net) leaving $3,900,611.36 (net) not adjusted in this report.
Operating Account for Manual Checks: Reconciling items totaling $150,420.94 (net) were identified on the June 2000 bank reconciliation. All ofthese items were from the current fiscal year activity. These reconciling items consisted ofchecks clearing the bank but never recorded on the general ledger and transfers of money from the Office of School Readiness' (Office) other Operating Account but never recorded on the general ledger. An audit adjustment was made for $64,617.01 leaving $215,047.95 (net) not adjusted in this report.
2. Subsequent to June 30, 2000, the Director ofthe Office ofSchool Readiness resigned. The Director's resignation was effective on August 15, 2000, but the Director's signature continued to be used for all disbursements through November 2000. The Office should ensure that a current bonded employee signs all checks.
Revenues/Receivables/Receipts
1. Travel advances to employees were not monitored throughout the year. A receivable balance of $5,734.18, brought forward from July 1, 1999, remained on the general ledger at June 30, 2000. Although documentation was received showing that all travel advances had been received, as ofJune 30, 2000, no activity had been recorded on the general ledger. An audit adjustment was made to reflect the correct balance in the report.
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2000

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Inadequate Accounting Procedures (Overall) Finding Control Number: FS-414-00-04

Revenues/Receivables/Receipts

2. The general ledger receivable account of$l ,318,106.89 at June 30, 2000, for advances ofthe Child and Adult Care Food Program and the Summer Food Service Program did not agree with program subsidiary ledgers by an amount of$5,931.11. This condition resulted, in part, because financial activity that flowed through program subsidiary ledgers was not reflected on the general ledger.

3. State Revenue Collections received for both fiscal years 1999 and 2000 were not transferred to the Office of Treasury and Fiscal Services (OTFS). The cumulative balance at June 30, 2000, was $17,277.00.

Expenditures/Liabilities/Disbursements
1. The Office has not established an accounting system whereby the subsidiary ledgers for the Pre-Kindergarten Program, Child and Adult Care Food Program, and SummerFood Service Program interface into the general ledger. Instead, manual journal entries were made to the general ledger to record the activity of the subsidiary ledgers. A reconciliation between the general ledger and the subsidiary ledger was not provided by the Office in order to ensure all expenditures of the aforementioned programs were recorded on the general ledger.

Fund Equities

1. The general ledger at June 30, 2000 had not been reviewed at the program level in order to determine the correct amount of reserves or surplus. Numerous audit adjustments were necessary to reflect the overall financial status of the Office. The following accounts were adjusted as follows:

Per Book

Per Audit

Reserves Surplus

$ 5,722,822.65 $34,749,357.64

$34,692,369.97 $ 1,120,778.20

These deficiencies occurred because ofmanagement's failure to establish procedures to analyze and reconcile balances on the general ledger with supporting records. The failure to monitor the general ledger could lead to inaccurate financial records.

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DEPARTMENT OF EDUCAnON SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2000
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Inadequate Accounting Procedures (Overall) Finding Control Number: FS-414-00-04
The Office should establish appropriate procedures to ensure that the general ledger is posted, balanced and reviewed on a monthly basis and that detailed records supporting the general ledger are complete, accurate and reliable.
GENERAL LEDGER REVENUEIRECENABLESIRECEIPTS Inappropriate Accounting Practice Finding Control Number: FS-414-00-05
Our examination included a review of the methodology utilized by the Department of Education (DOE) in recording Federal revenue. Our testing revealed that DOE recorded revenue based on grant awards rather than when earned as required by the Accounting Procedures Manual for the State of Georgia. This methodology results in Federal revenues, Federal accounts receivable and Federal reserved fund balance for Federal Financial Assistance being overstated.
The Department ofEducation should record Federal revenue in accordance with procedures outlined in the Accounting Procedures Manual for the State ofGeorgia.
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-414-00-06
Our examination included a review ofthe internal accounting controls utilized by the Department of Education (Department) and the Office of School Readiness (Office) in maintaining their State Property System and also included testing the system for compliance with State laws and regulations. A number ofconditions relating to inappropriate accounting practices were found to exist and have been identified in detail within the Federal Awards Findings and Questioned Costs, finding control number FA-414-00-01.
The Department and the Office are required to maintain equipment inventories in accordance with provisions of State laws and regulations. The discrepancies identified were caused by the Department's and the Office's failure to follow guidelines for maintaining equipment inventories.
The Department and the Office should establish the necessary internal controls to ensure that equipment inventories are maintained in accordance with State laws and regulations.
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2000
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS
EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-00-01
Our examination included a review ofthe internal accounting controls utilized by the Department of Education (Department) and the Office of School Readiness (Office) in maintaining their property management system. This review also included testing the system for compliance with Federal laws and regulations. The following conditions relating to inappropriate accounting practices were found to exist:
1. Equipment additions for both the Department and the Office were not reconciled to the general ledger expenditure accounts.
2. The total additions and deletions listed on the General Ledger Reconciliation Detail/Summary Report from Asset Management for both the Department and the Office did not agree with the General Fixed Asset Account Group (GFAAG) trial balance by Business Unit.
3. Equipment inventory records for additions were updated incorrectly for both the Department and the Office. Testing of current year additions revealed thirty-seven (37) additions were updated onto the equipment inventory records incorrectly by an amount of $204,930.53. Eight (8) of those items in the amount of $38,450.98 were related to the Department of Education. The remaining twenty-nine (29) items in the amount of $166,479.55 were related to the Office of School Readiness. A review of the Office's additions revealed that ninety-five (95) items with a description ofcomputers were added to the equipment inventory records at a cost of $1.00 each.
4. Equipment inventory items at the Department were deleted from the inventory system without adequate supporting documentation or proper authorization. Testing of current year deletions revealed two (2) items in the amount of $2,165.00 that had been deleted from the inventory records without supporting documentation.
5. Four (4) equipment items acquired through installment purchases at the Department were included on the equipment inventory records at an incorrect amount. The difference in the acquisition cost and the amount recorded on the inventory records amounted to $1,678.92 (net). These same equipment items were identified in the prior year report as being recorded incorrectly and had not been corrected.
In addition, four-hundred-seventy-five (475) equipment items were selected from certain locations to test the accuracy ofthe Department's property management records. These items contained a value of$l ,496,165.15 out ofa population of$8,566,924.15 and were selected for the purpose oflocating
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2000
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS
EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-4l4-00-0l
the equipment as recorded in the inventory records. The general fixed assets of the Department amounted to $46,530,787.73. The following deficiencies were noted:
1. Twenty-two (22) items totaling $48,213.05 could not be located.
2. Four (4) items were found in locations other than the location indicated in the equipment inventory records.
3. One (l) item was found that was recorded as missing on the inventory records.
Also, during the physical inspection testing, six (6) items ofequipment were located which were not included in the equipment inventory records.
The Department and Office are required to maintain equipment inventories in accordance with provisions of paragraph 32 of OMB's Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments (Common Rule). The discrepancies identified above were caused by the Department's and the Office's failure to follow guidelines for maintaining equipment inventories.
The Department and Office should establish the necessary internal controls to ensure that equipment inventories are maintained in accordance with provisions of OMB's Common Rule.
Major Federal Programs/Awards Affected:
U. S. Department of Education Title I Grants to Local Educational Agencies - CFDA No. 84.010 Special Education Cluster Special Education - Grants to States - CFDA No. 84.027 Special Education - Preschool Grants - CFDA No. 84.173
Federal Agencies With Other Affected Programs:
u. S. Department of Agriculture
U. S. Department of Education U. S. Department of Defense
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2000
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS
SUBRECIPIENT MONITORING Failure to Establish Administration Agreement/Contracts Vocational Education - Basic Grants to States (CFDA 84.048) Finding Control Number: FA-414-00-02
The Technology/Career Education Division of the Georgia Department of Education (GDOE) did not have established written agreements or contracts in place to assure that Vocational Education Basic Grants to States (perkins ill) program funds earmarked for State Administration and Leadership program activities were properly administered. Our review revealed the following:
1. There was no formal agreement between the Technology/Career Education Division of GDOE and the North GeorgiaRegional Educational Service Agency (RESA) to define the responsibilities ofthe RESA as a fiscal agent ofPerkins ill funds. For fiscal year 2000, the Technology/Career Education Division of GDOE provided the RESA with Perkins ill funds, of which $225,325.00 was earmarked for State Administration purposes and $481,904.00 was earmarked for Leadership program purposes.
According to OMB Circular A-133 and provisions ofP.L. 105-332, a written agreement should have been in place to describe the specific activities to be carried out by the RESA relative to vocational education programs funded with Perkins ill funds.
The Technology/Career Education Division ofGDOE should establish a formal agreement with the RESA to ensure that RESA responsibilities as fiscal agent are clearly defined.
2. The Technology/Career Education Division ofGDOE gave approval to the RESA to make payments to two contractors totaling $82,222.50 during fiscal year 2000. The RESA also paid the two contractors $4,013.94 forreimbursement oftravel expenses. It was noted that there was no written contractual agreements executed with the two contractors detailing the services to be performed, the amount ofcompensation to be paid or the period the services were to be performed. The RESA made monthly payments to the contractors based on Technology/Career Education Division ofGDOE approved contractor invoices.
We further found that Technology/Career Education Division gave the RESA approval to make periodic payments to a vendor for monthly services associated with the planning and operation ofa related vocational instruction program. For the fiscal year 2000, the vendor was paid $15,996.00. We were advised that Technology/Career Education Division managed the negotiations with the vendor for the services to be rendered and the cost of providing such. However, we found no written contract between the vendor and Technology/Career Education Division relative to the monthly services to be provided, documentation of the services to be provided, compensation for the services rendered by the vendor and other applicable terms required by State policy and law. Furthermore, the
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2000
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS
SUBRECIPIENT MONITORING Failure to Establish Administration Agreement/Contracts Vocational Education - Basic Grants to States (CFDA 84.048) Finding Control Number: FA-414-00-02
vendor was not required to submit documentation of the services provided during the .period covered by each invoice.
Procedures should be implemented to assure that fully executed current contracts are in place that clearly define the work/services to be performed, the amount and terms of compensation, and other related provisions which would assure that funds are paid for appropriate purposes and that services were rendered.
SUBRECIPIENT MONITORING Approval for Improper Expenditure Vocational Education - Basic Grants to States (CFDA 84.048) Amount: $18,178.00 Finding Control Number: FA-414-00-03
The following direct costs approved by the Technology/Career Education Division and charged by the North Georgia Regional Education Agency (RESA) to the Vocational Education - Basic Grants to States (perkins III) funds either did not conform to OMB Circular A-87 requirements or lacked sufficient documentation to support charges to the program:
1. During the year under review, Technology/Career Education Division gave the RESA approval to purchase administrative computer equipment totaling $8,978.00 with Perkins ill Administration funds. This expenditure does not appear to be a proper charge to the program in accordance with cost allowability criteria defined in OMB Circular A-87.
Provisions of OMB Circular A-87 require that a cost charged directly to a Federal award should be directly related to the program. The Technology/Career Education Division approved the expenditure for the primary purpose of the RESA to acquire the computer equipment to up-grade RESA computer hardware to facilitate accounting software required by the Georgia Department ofEducation (GDOE). Such a cost was not totally and directly related to Perkins ill.
The Technology/Career Education Division of GDOE should implement measures to assure that only expenditures related to the Perkins ill program are approved as a direct expenditure to the program. GDOE should consult with the U. S. Department ofEducation to resolve and, if applicable, refund the Perkins ill funds expended for this unallowable cost.
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2000
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS
SUBRECIPIENT MONITORING Approval for Improper Expenditure Vocational Education - Basic Grants to States (CFDA 84.048) Amount: $18,178.00 Finding Control Number: FA-414-00-03
2. During fiscal year 2000, the Technology/Career Education Division of GDOE officials approved a payment of $9,200.00 to a vendor for preparation of instructional materials, delivery of administrative/vocational handbooks and audio/video material. The invoice was dated June 15,2000. Technology/Career Education Division ofGDOE officials and RESA personnel were unable to provide sufficient documentation that the materials were delivered by the vendor as indicated on the invoice. Without proper documentation that services were rendered by the vendor, the payment to the vendor and charges to Perkins III funds are unallowable.
It should be noted that the vendor is an immediate family member of the RESA's bookkeeper who handles the Perkins III accounting records and payments made from those accounts. It was also disclosed that the address and the telephone number on the vendor's invoice was that of an accounting business which is operated by the RESA's bookkeeper and that same immediate family member. Provisions included in GDOE's policy manual, Financial Management For Georgia Local Units ofAdministration, indicate that officials must avoid all situations in which their public actions may be affected by or come into conflict with their personal interests. Officials should also be wise to avoid situations that, even though legally permissible, place them into a conflict of interest situation.
Given the circumstances surrounding this transaction, GDOE officials should take action to review this transaction to determine ifthe transaction was appropriate or ifan inappropriate activity occurred. Without substantial documentation that services were in fact delivered, the $9,200.00 should be refunded to the Perkins III program.
SUBRECIPIENT MONITORING Subrecipient Audit Reports Not Received Within the Required Time Period Finding Control Number: FA-414-00-04
As part of our examination, we reviewed tracking documents used by the Department ofEducation and Office of School Readiness to determine the status of subrecipient audit reports for the year ended June 30, 1999. Of the four-hundred-sixteen (416) subrecipients identified on the tracking documents, two-hundred-ninety-two (292) had not submitted their audits within the nine-month period as required by OMB Circular A-B3. This noncompliance is due to subrecipient audits not being performed in a timely manner.
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2000
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS
SUBRECIPIENT MONITORING Subrecipient Audit Reports Not Received Within the Required Time Period Finding Control Number: FA-414-00-04
A subsequent review of the status of the two-hundred-ninety-two (292) audits not submitted by the due date indicated that all had been submitted by January 11, 2001. It was noted during our examination that the Department ofEducation and the Office ofSchool Readiness utilized a program review stafffor interim compliance reviews ofall subrecipients in accordance with the provisions of OMB Circular A-133.
Major Federal Programs/Awards Affected:
U. S. Department of Agriculture Food Distribution - CFDA 10.550 Child Nutrition Cluster School Breakfast Program - CFDA 10.553 National School Lunch Program - CFDA 10.555 Special Milk Program - CFDA 10.556 Summer Food Service Program - CFDA 10.559 Child and Adult Food Care Program - CFDA 10.558
U. S. Department of Education Vocational Education - Basic Grants to States - CFDA No. 84.048 Class Size Reduction - CFDA No. 84.340
Federal Agencies With Other Affected Programs:
u. S. Department of Agriculture
Corporation for National and Community Service U. S. Department of Defense U. S. Department of Education U. S. Department of Health and Human Services
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