STATE OF GEORGIA 
DEPARTMENT OF AUDITS AND ACCOUNTS 
Russell W. Hinton State Auditor 
MANAGEMENT REPORT DEPARTMENT OF EDUCATION AN ORGANIZATIONAL UNIT OF THE STATE OF GEORGIA YEAR ENDED JUNE 30, 2003 
 
 DEPARTMENT OF EDUCATION MANAGEMENT REPORT -TABLE OF CONTENTS- 
 
LETTER OF TRAN SMITTAL 
 
SECTION I 
 
SELECTED FINANCIAL INFORMATION 
 
EXHIBITS 
 
A ANALYSIS OF CHANGES IN FUND BALANCE 
 
BUDGET FUND 
 
SCHEDULES OF FUNDS AVAILABLE AND EXPENDITURES 
 
COMPARED TO BUDGET 
 
BUDGET FUND 
 
B 
 
"A" DEPARTMENT OF EDUCATION 
 
C 
 
"B" LOTTERY FOR EDUCATION 
 
D RECONCILIATION OF SALARIES AND TRAVEL 
 
E RECONCILIATION OF PER DIEM AND FEES 
 
Page 
1 2 4 5 6 
 
SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS 
 
SECTION Ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS 
 
 DEPARTMENT OF AUDITS AND ACCOUNTS 
 
254 Washington Street, S.W., Suite 214 
 
w. RUSSELL 
 
HINTON 
 
STATE AUDITOR 
 
(404) 656-2 I74 
 
Atlanta, Georgia 30334-8400 
 
February 13, 2004 
 
Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the State Board of Education 
and Honorable Kathy Cox, State Superintendent of Schools Department of Education 
 
Ladies and Gentlemen: 
 
As part of our audit of the statutory basis financial statements of the State of Georgia presented in the State of Georgia Report of the State Auditor, the basic financial statements of the State of Georgia presented in the State of Georgia 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, 2003, 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 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 controls 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 of Education as of and for the year ended June 30, 2003. 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 State of Georgia 
 
and members of the Board and is not intended to be and should not be used by anyone other 
 
than these specified parties. 
 
I  Respectfully submitted,  
 
f\ 
 
a<l.~ 
 
RWH:mah 
 
 SECTION I SELECTED FINANCIAL INFORMATION 
 
 DEPARTMENT OF EDUCATION ANALYSIS OF CHANGES IN FUND BALANCE 
BUDGET FUND YEAR ENDED JUNE 30, 2003 
 
EXHIBIT"A" 
 
FUND BALANCE - JULY 1, 2002 
Reserved Surplus 
ADDrflONS 
Adjustments to Prior Year's Accounts Payable Grants Payable 
Excess of Funds Available 011er Expenditures Exhibit"B" Exhibit"C" 
Reimbursement of Prior Year's Expenditures Grants Other 
Residual Equity Transfer per Executi11e Order dated January 31, 2003 State Data Research Center 
DEDUCTIONS 
Unreserved Fund Balance (Surplus) Returned to Office of Treasury and Fiscal Services Year Ended June 30, 2002 
Adjustments to Prior Year's Accounts Receivable 
Decrease in Reserve for ln11entories Reserved Fund Balance Carried O11er from 
Prior Year as Funds Available 
FUND BALANCE - JUNE 30. 2003 
SUMMARY OF FUND BALANCE 
Reserved Federal Financial Assistance Inventories Georgia Academic and Medical System (GSAMS) Training State Data Research Center Other Funds Copeland Glenn Georgia Partnership for Excellence in Education Next Generation Schools - Private Grant Partner Donations for Technology United States Senate and Youth Program 
Undesignated Surplus Regular Lottery for Education 
 
"A" DEPARTMENT OF 
EDUCATION 
 
"B" LOTTERY FOR 
EDUCATION 
 
$ 
 
8,620,198.04 
 
14,960,514.09 $ 
 
$ 1,021,126.69 
 
$ 
 
23,580,712.13 $ 
 
1,021,126.69 $ 
 
TOTAL 
8,620,198.04 15 981 640.78 
24,601,838.82 
 
$ 
 
1,947,092.05 
 
107,456,030.36 $ 
 
-103,027,486.78 
 
4,971,538.69 124,978.94 
 
14,843,966.55 
 
$ 
 
26,316,119.81 $ 
 
$ 
 
1,947,092.05 
 
240,956.96 
 
107,696,987.32 
 
-14,929.39 
 
-103,027,486.78 -14,929.39 
 
38,318.13 
 
5,009,856.82 124,978.94 
 
322 867.00 587,212.70 $ 
 
15,166,833.55 26,903,332.51 
 
$ 
 
14,960,514.09 $ 
 
29,912.17 1,971,744.41 
 
4,293,168.45 
 
$ 
 
21,255,339.12 $ 
 
$ 
 
28,641,492.82 $ 
 
1,021,126.69 $ 1,021,126.69 $ 
 
15,981,640.78 
29,912.17 1,971,744.41 
4,293,168.45 22,276,465.81 
 
587,212.70 $ 29,228,705.52 
 
$ 
 
655,880.31 
 
2,440,285.18 
 
9,701.88 14,571,516.55 $ 
 
3,240.00 163,081.85 
4,326.03 2,679,009.04 
7202.67 
 
$ 
 
20,534,243.51 $ 
 
8,107,249.31 
 
$ 
 
28,641,492.82 $ 
 
$ 307,937.61 
307,937.61 $ 
 
655,880.31 2,440,285.18 
9,701.88 14,879,454.16 
3,240.00 163,081.85 
4,326.03 2,679,009.04 
7,202.67 
20,842,181.12 
 
279,275.09 
 
8,107,249.31 279,275.09 
 
587,212.70 $ 29,228,705.52 
 
-1- 
 
 DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES 
COMPARED TO BUDGET BUDGET FUND 
"A" DEPARTMENT OF EDUCATION YEAR ENDED JUNE 30, 2003 
 
BUDGET 
 
ACTUAL 
 
EXHIBIT"B" 
VARIANCEFAVORABLE (UNFAVORABLE) 
 
FUNDS AVAILABLE 
 
REVENUES 
 
State Appropriation Federal Revenues Other Revenues Retained 
 
$ 6,031,254,008.00 $ 6,031,179,008.00 $ 
 
-75,000.00 
 
1,310,006,409.00 1,093,304,889.73 
 
-216,701,519.27 
 
20,198,624.00 
 
10,822,481.65 
 
-9,376, 142.35 
 
$ 7,361,459,041.00 $ 7,135,306,379.38 $ -226, 152,661.62 
 
CARRY-OVER FROM PRIOR YEAR 
 
Transfer from Reserved Fund Balance 
 
0.00 
 
4,293,168.45 
 
4,293,168.45 
 
$ 7,361,459,041.00 $ 7,139,599,547.83 $ -221,859.493.17 
 
EXPENDITURES 
Personal Services Regular Operating Expenses Travel Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem and Fees Contracts Capital Outlay Other 
Utilities QBE Formula Grants: 
Kindergarten/Grades 1-3 Grades4-8 Grades 9-12 Limited English-Speaking Students Program Alternative Programs Vocational Education Laboratories Special Education Gifted Remedial Education Additional Instruction Staff Development and Professional Development Media Indirect Cost Pupil Transportation Local Five Mill Share Mid-Term Adjustment Reserve Other Categorical Grants: Equalization Formula Sparsity Grants Special Education Low - Incidence Grants Non-QBE Grants: Next Generation School Grants Youth Apprenticeship Grants 
 
$ 
 
44,270,833.00 $ 
 
38,942,179.45 $ 
 
6,040,690.00 
 
4,142,399.49 
 
1,581,430.00 
 
705,707.76 
 
270,834.00 
 
71,866.00 
 
10,830,548.00 
 
6,325,118.43 
 
1,259,838.00 
 
1,209,962.31 
 
944,946.00 
 
676,067.90 
 
4,886,020.00 
 
2,514,846.05 
 
48,003,481.00 
 
24,498,637.48 
 
30,569,700.00 
 
30,569,699.00 
 
801,541.00 
 
771,020.83 
 
1,643,027,088.00 1,509,214,465.00 
727,300,107.00 64,153,959.00 60,968,843.00 
189,596,166.00 734,609,193.00 167,209,720.00 
21,203,970.00 35,637,546.00 25,465,114.00 141,665,063.00 900,856,636.00 164,765,207.00 -1, 101,591,195.00 12,699,776.00 
 
1,643,027,088.00 1,509,214,465.00 
727,300,107.00 64,153,959.00 60,968,843.00 
189,596,166.00 734,609,193.00 167,209,720.00 
21,203,970.00 35,637,546.00 25,465,114.00 141,665,063.00 900,841,636.00 164,765,207.00 -1, 101,591,195.00 12,476,340.00 
 
268,203,935.00 6,201,415.00 826,722.00 
 
268,203,932.00 6,201,415.00 804,401.00 
 
1,350,300.00 4,125,604.00 
 
975,000.00 4,123,000.00 
 
5,328,653.55 1,898,290.51 
875,722.24 198,968.00 4,505,429.57 
49,875.69 268,878.10 2,371,173.95 23,504,843.52 
1.00 
30,520.17 
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 15,000.00 0.00 0.00 223,436.00 
3.00 0.00 22,321.00 
375,300.00 2,604.00 
 
-2- 
 
 DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES 
COMPARED TO BUDGET BUDGET FUND 
"A" DEPARTMENT OF EDUCATION YEAR ENDED JUNE 30, 2003 
 
EXHIBIT"B" 
 
High School Program Payment of Federal Funds to Board of 
Technical and Adult Education Vocational Research and Curriculum Title I-A Improving Basic Programs - LEA's Title 1-B Even Start Instructional Services for the Handicapped Retirement (H.B. 272 and H.B. 1321) Tuition for the Multi-Handicapped PSAT School Lunch (Federal) Joint Evening Programs Education of Homeless Children/Youth Pay for Performance Pre-School Handicapped Program Mentor Teachers Environmental Science Grants Advanced Placement Exams Serve America Program Title IV-Al, Safe and Drug Free Schools School Lunch (State) Charter Schools Refugee School Impact Title V, Innovative Programs Health Insurance - Non-Cert. Personnel and 
Retired Teachers Migrant Education (State) Regional Education Service Agencies Severely Emotionally Disturbed Georgia Leaming Resources System Special Education at State Institutions Byrd Honor Scholarships Title 1-F, Comprehensive School Reform Character Education National Teacher Certification Principal Supplements Grants For School Nurses Reading Programs Student Testing Internet Access School Improvement Teams Communities In Schools Knowledge is Power Program Postsecondary Options Title 1-C Migrant Education (Federal) Title 1-D Neglected and Delinquent Title II-A Improving Teacher Quality Title 11-D Enhancing Education Thru Technology Title Ill-A English Language Title 1\/-8 21st Century Communication Title Vl-8 Rural and Low-Income Temporary QBE Reduction Title VI-A State Assessment Programs 
 
$ 
 
55,875,068.00 $ 51,130,788.45 $ 
 
4,744,279.55 
 
16,909,425.00 111,795.00 
358,417,718.00 7,771,675.00 
256,715,397.00 5,508,750.00 1,813,433.00 719,129.00 
312,214,898.00 254,127.00 
1,746,542.00 6,718,400.00 22,207,231.00 1,188,250.00 
50,000.00 2,808,000.00 2,511,749.00 13,067,629.00 37,175,668.00 8,873,381.00 
639,390.00 10,389,202.00 
 
15,108,102.16 0.00 
343,127,263.33 7,814,109.00 
245,016,633.00 5,450,829.74 1,790,800.00 719,129.00 
308,621,508.52 253,204.24 
1,367,968.00 6,718,400.00 22,207,231.00 1,182,750.00 
50,000.00 2,808,000.00 
400,630.00 12,970,116.00 37,026,890.00 
7,252,664.52 600,000.00 
10,026,433.00 
 
1,801,322.84 111,795.00 
15,290,454.67 -42,434.00 
11,698,764.00 57,920.26 22,633.00 0.00 
3,593,389.48 922.76 
378,574.00 0.00 0.00 
5,500.00 0.00 0.00 
2,111,119.00 97,513.00 
148,778.00 1,620,716.48 
39,390.00 362,769.00 
 
102,434,767.00 274,395.00 
11,665,026.00 70,720,000.00 
7,091,505.00 3,817,586.00 1,188,000.00 15,394,413.00 
305,000.00 3,535,677.00 5,787,990.00 30,000,000.00 75,956,332.00 13,559,338.00 3,931,456.00 21,138,580.00 1,476,944.00 
570,360.00 3,336,062.00 9,626,018.00 4,200,255.00 76,520,695.00 17,784,390.00 7,786,358.00 8,691,764.00 6,941,685.00 
-339,397.00 7,427,490.00 
 
102,434,766.00 274,395.00 
11,514,098.00 69,757,847.00 
6,418,515.00 3,814,150.00 1,188,000.00 6,725,269.00 
303,840.00 3,528,022.00 5,787,990.00 30,000,000.00 56,167,527.07 13,559,338.00 3,826,814.58 21,138,580.00 1,476,012.00 
0.00 3,336,062.00 8,895,920.00 3,448,692.00 76,046,233.00 17,730,038.30 7,687,837.00 4,695,477.00 6,941,587.00 
-419 ,390.00 7,427,490.00 
 
1.00 0.00 150,928.00 962,153.00 672,990.00 3,436.00 0.00 8,669,144.00 1,160.00 7,655.00 0.00 0.00 19,788,804.93 0.00 104,641.42 0.00 932.00 570,360.00 0.00 730,098.00 751,563.00 474,462.00 54,351.70 98,521.00 3,996,287.00 98.00 79,993.00 0.00 
 
$ 7,361,459,041.00 $ 7,242,627,034.61 $ 118,832,006.39 
 
Excess of Funds Available over Expenditures 
 
$ -103,027,486.78 $ -103,027,486.78 
 
-3- 
 
 DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES 
COMPARED TO BUDGET BUDGET FUND 
"B" LOTTERY FOR EDUCATION YEAR ENDED JUNE 30, 2003 
 
EXHIBIT "C" 
 
FUNDS AVAILABLE REVENUES 
Other Revenues Retained 
 
BUDGET 
 
ACTUAL 
 
VARIANCEFAVORABLE (UNFAVORABLE) 
 
$ 
 
322,867.oo $ _ _ _ _ _o_.o_o $ _ _ _-3_2~2,_86_7_.o_o 
 
EXPENDITURES Computers in the Classroom 
Excess of Funds Available over Expenditures 
 
$ 
 
322,867.00 $ _ _ _14~,9_2_9_.3_9 $ _ _ _3_0~7,_93_7_.6_1 
 
$ 
 
-14,929.39 $===-=14=,9=2=9=.39= 
 
-4- 
 
 DEPARTMENT OF EDUCATION RECONCILIATION OF SALARIES AND TRAVEL 
YEAR ENDED JUNE 30, 2003 
 
EXHIBIT"D" 
 
Totals per Annual Supplement 
Accruals June 30, 2002 June 30, 2003 
Adjustment Fiduciary Fund Travel Included in Annual Supplement (Not reported in statutory basis financial statements) 
 
SALARIES 
 
TRAVEL 
 
$ 30,181,858.39 $ 714,086.47 
 
-275,298.42 14,289.84 
 
-8,378.71 
$ 29,920,849.81 $ 705,707.76 
 
-5- 
 
 DEPARTMENT OF EDUCATION RECONCILIATION OF PER DIEM AND FEES 
YEAR ENDED JUNE 30, 2003 
 
EXHIBIT"E" 
 
Totals per Annual Supplement 
Adjustment Fiduciary Fund Per Diem and Fees Included in Annual Supplement {Not reported in statutory basis financial statements) 
 
FEE AMOUNT 
 
EXPENSE AMOUNT 
 
TOTAL 
 
$ 2,137,351.20 $ 400,194.93 $ 2,537,546.13 
 
-22,700.08 
 
-22,700.08 
 
$ 2,114,651.12 $ 400,194.93 $ 2,514,846.05 
 
-6- 
 
 SECTION II 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, 2003 
 
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS 
 
FINDING CONTROL NUMBER AND STATUS 
 
FS-414-01-01 FS-414-01-02 FS-414-02-01 FS-414-02-02 FS-414-02-03 FS-414-02-04 FS-414-02-05 
 
Further Action Not Warranted Further Action Not Warranted Further Action Not Warranted Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses 
 
CORRECTIVE ACTION/RESPONSES 
 
EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contracting Practices Finding Control Number: FS-414-02-02 
 
See our corrective action/responses to finding number FA-414-02-03 in the Prior Year Federal Awards Findings and Questioned Costs. 
 
EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequacies in Information System Operations, Changes to Applications, Security and Audit Trail Maintenance Finding Control Number: FS-414-02-04 
 
We concur with this finding. GAORS 1. a) Configuration and Change Management 
 
Presently there is an application and process available that documents and controls requests for system changes to the GAORS system as well as all other applications at Department of Education (DOE). This application is the I/S Request for Services. It is an automated system that creates and tracks all requests from their creation through their final disposition. These requests are initiated by the user community for all their requested modifications and enhancements to the applications. The I/S Manager, Program Managers, and DBAs can initiate requests for all other system changes. The first step in this process is the creation of the IS request. This first must be approved by the IS Manager. After approval, the Program Manager for the specified system assigns the requests to the appropriate developer. The developers assigned to the request review and analyze the specifications described in the IS request by the initiator. They then make the described modifications and enhancements needed to satisfy the request. Modifications and enhancements are made first in the development environment and unit tested by the developer to ensure compliance with the request and that the changes lead to no inadvertent negative behavior in the existing application. After unit testing is complete, the Program Manager forwards the request to the DBA for code migration to the test 
 
-1- 
 
 DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS 
CORRECTIVE ACTION/RESPONSES 
EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequacies in Information System Operations, Changes to Applications, Security and Audit Trail Maintenance Finding Control Number: FS-414-02-04 (continued) 
system. Once the code is in test system, and after OBA and developer signoff on the changes, selected requests then are sent to the QA staff for system testing. Once the QA staff has tested the application and given its approval to the modifications, a notification is sent to the initiator of the request for user testing of the changes. The developer is not involved in the user-testing process, unless the user requests additional resource support for the testing. Once the initiator is satisfied with the changes, the request will be sent to the Program Manager for production authorization. After approval by the Program Manager and IS Manager, the request is sent to the OBA for compilation and migration of the changes to production. Notifications are then sent to all involved parties documenting the production move. 
The IS Request for Services process is being enhanced to include the use of an IS Request number in the remarks section of changed code. This will improve traceability of requests to actual code changes. The new development process for the QBE system is using the Rational Unified Process (RUP), which provides a new source code library system that will be used in conjunction with its change management tool. This will provide a more robust configuration management process. All new application development and all application redevelopment will use this new process. 
b) Quality Assurance and Testing 
The user community tests all modifications to the GAORS application. No changes are put into production unless the user places a formal request for that change through the I/S Request for Services application. In addition, this migration will not occur until the developer has performed unit testing and requested the changes be moved to the test system. Finally, the user is responsible for testing the changes made at their request and for authorizing the code for production use. 
At this time, users are not required to develop any formal testing documents, such as testing scripts and documented data. DOE, with the addition of QA and testing personnel, is addressing the issue of formalizing the test process. This QA testing process was first used in the Student Record Data Collections System. DOE is in the process of rolling out a comprehensive QA function that will be responsible for creating and documenting test cases, testing the enhancements and modifications to the applications, and collecting the results. 
-2 - 
 
 DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS 
 
CORRECTIVE ACTION/RESPONSES 
 
EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequacies in Information System Operations, Changes to Applications, Security and Audit Trail Maintenance Finding Control Number: FS-414-02-04 (continued) 
 
These results will be used by Project Managers to determine the effectiveness of the Development process. 
 
c) Permissions 
 
The appropriate changes have been instituted to ensure that only the developer and administrator responsible for the application can access the application source code. The IT LAN administrator controls this process. 
 
2. Database Controls 
 
Information has been provided the auditor by the OBA and no further feedback has been received. 
 
Auditing 
 
The GAORS application currently performs auditing on three forms, the Grants Master, Completion Report and the D147 report. This audit function tracks the user id, timestamp, and modifications made to these forms. This audit capability will be expanded to cover the entire application and is being analyzed to determine the impact and effort required to implement these modifications. Once the scope of this effort is determined, a report will be given to senior management for review and approval. 
 
CAPITAL ASSETS/PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-414-02-05 
 
See our corrective action/responses to finding number FA-414-02-01 in the Prior Year Federal Awards Findings and Questioned Costs. 
 
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
 
FINDING CONTROL NUMBER AND STATUS 
 
FA-414-01-01 FA-414-01-02 FA-414-01-03 
 
Further Action Not Warranted Further Action Not Warranted Further Action Not Warranted 
 
-3- 
 
 DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
 
FINDING CONTROL NUMBER AND STATUS 
 
FA-414-02-01 FA-414-02-02 FA-414-02-03 FA-414-02-04 FA-414-02-05 FA-414-02-06 
 
Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses 
 
CORRECTIVE ACTION/RESPONSES 
 
EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-02-01 
 
We concur with this finding. The Georgia Department of Education (DOE) is currently in the process of installing the following rules, policies and procedures to rectify the previous issues and findings for the Operation of the Property Management System. 
 
1. DOE hired a new Property and Supply Supervisor on August 1, 2003. After research into the PeopleSoft Database for DOE, it has been determined that currently DOE has around 16,800 total assets on the database. By using Acquisition Date of before 1996 and Asset Description referring to Information Technology equipment, DOE currently has around 11,500 assets that need to be retired. The manual process of retiring these assets began on January 7, 2004. 
 
2. DOE has purchased equipment for Public School Systems in the past, buying the equipment out of DOE funds and sending the assets to the schools. This poses severe property management issues as well as reconciling problems for DOE. The new procedures will include the process of writing a grant to the Public School System by DOE with specific requirements to purchase the assets for the various programs. 
 
3. DOE has not had a Physical Inventory completed by the Property Manager in a few years. It will be in DOE policy that a full physical inventory will be completed every fiscal year to ensure accuracy. Upon the first physical inventory, all assets will receive a new color-coded barcode decal. The color blue will indicate an asset below $5,000.00 and the color red will indicate above $4,999.99. Physical Inventory for DOE began December 29, 2003. 
 
4. An issue at DOE that has become a problem has been the location codes issued to assets. The location codes currently are very generic and not specific. A new location code system is being installed as well as location code decals with a barcode. These location code decals will be assigned to each cubicle, room 
 
-4- 
 
 DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
CORRECTIVE ACTION/RESPONSES 
EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-02-01 (continued) 
and office. This will help to speed up the inventory process as well as the accuracy. Location code changes began December 30, 2003. 
5. An issue at DOE has been responsibility and accountability; therefore, each employee will become the custodian of the assets assigned to him/her. In cases where it is used by many employees, it will be assigned to the department or organization, and organizational custodians will be assigned. Custodian changes began December 30, 2003. 
6. Previously, DOE was not using the Asset Interface in PeopleSoft. By not using this, it makes reconciliation a very tedious and time consuming process and there is not a clear audit trail. Also, it does not allow DOE to use the current processes and queries that have been designed for reconciliation of asset purchases. DOE is now using the Asset Interface in PeopleSoft. 
7. Previously, DOE did not reconcile asset management properly or in some cases at all. Currently, asset reconciliation will be done on a monthly basis. 
EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Expenditures Finding Control Number: FA-414-02-02 
We do not concur with this finding. The Title VI innovative funds guidelines were met by the five contracts identified in the audit. The Department feels the funds were spent in support of local school system programs and activities, which meets Title VI regulations. The Department asked U.S. Department of Education personnel to review the contracts to verify that they are within guidelines and regulations. Copies of the contracts were sent to a Title V (formerly Title VI) program coordinator with the U.S. Department of Education. The coordinator has agreed to review the contracts for compliance with Title VI regulations and guidelines. 
EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contracting Practices Finding Control Number: FA-414-02-03 
We concur with this finding. The Department of Education (DOE) is in the process of re-examining its current procedures, and will make any necessary changes. In addition, DOE will be re-training its staff who handle contract matters. 
-5- 
 
 DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
CORRECTIVE ACTION/RESPONSES 
EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contracting Practices Finding Control Number: FA-414-02-04 
We concur with this finding. This matter has been turned over to the U.S. Department of Education for their review. In addition, the Georgia Attorney General's office is looking at this matter. The Department of Education (DOE) will follow whatever guidance is issued from these two agencies. DOE will examine its policies and train staff accordingly. 
SUBRECIPIENT MONITORING Inappropriate Issuance of Management Decision Finding Control Number: FA-414-02-05 
We concur with this finding. This audit finding is partially resolved. The Georgia Department of Education refunded to the United States Department of Education (USDOE) $102, 129.32 for the resolution of the finding related to Okefenokee Technical College. 
We have contacted the USDOE for a resolution of the finding related to Augusta, Dekalb, and Savannah Technical Institutes. 
SUBRECIPIENT MONITORING Subrecipient Audit Reports Not Received Within the Required Time Period Finding Control Number: FA-414-02-06 
We concur with this finding. The Department of Education (DOE) is responsible for tracking and reviewing the audits of local units of administration (LUA). However, the Department of Audits is required by state law to audit the LUAs because LUAs receive the majority of their 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 of LUAs to be audited, the Department of Audits cannot complete the audits in the time period required by 0MB Circular A-133. The U.S. Department of Education is aware of the problem, and realizes there is not currently a viable solution to the finding. The LUA audits are normally completed within a 15 to 18 month time period. DOE has a six-month resolution period to resolve findings in the LUA audits after being received from the Department of Audits. 
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 SECTION Ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS 
 
 DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS 
 
BUDGET PREPARATl ON/EXECUTION Expenditures in Excess of Budget Unit Object Class Finding Control Number: FS-414-03-01 
 
Condition: 
 
A comparison of anticipated funds available and budgeted expenditures to actual funds available and expenditures by object class for fiscal year 2003 indicated the object class Non-QBE Grants, Title 1-8 Even Start, was overspent in the amount of $42,434.00. 
 
Criteria: 
 
Section 62 of the Amended Appropriations Act of 2002-2003 provides that the State Auditor shall make a report to the Appropriations Committees of the Senate and House of Representatives of all instances where expenditures by object class exceed the budgeted amount. An exception to this rule applies to the "common object classes" where expenditures are authorized up to 102% of the stated amount for the common object class. However, the total expenditures for the group may not exceed the sum of the stated amounts for the separate object classes for the group. The common object classes are defined as personal services, regular operating expenses, travel, motor vehicle equipment purchases, postage, equipment purchases, computer charges, real estate rentals and telecommunications. 
 
Cause: 
 
Department of Education failed to monitor the expenditure of funds against the budgeted expenditures by object class. 
 
Effect: 
 
The condition identified above is in violation of Section 62 of the Amended Appropriations Act of 2002-2003. In addition, this condition could impact the Department's financial reporting to its management as well as senior management for the State of Georgia. 
 
Recommendation: 
 
The Department of Education 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. 
 
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 DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS 
 
CAPITAL ASSETS/PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-414-03-02 
 
Condition: 
 
Our examination included a review of the internal accounting controls used by the Department of Education in maintaining their capital asset inventory and also included testing the system for compliance with State laws and regulations. A number of conditions relating to inappropriate accounting practices were found to exist and have been identified in detail within the Federal Award Findings and Questioned Costs, finding control number FA-414-03-01. 
 
Criteria: 
 
The Accounting Procedures Manual for the State of Georgia (Manual), Section Three, Page 3-1-23 states in part: "Accurate subsidiary capital asset inventory records must be maintained. Balances and additions to the capital asset inventory records should be reconciled periodically (monthly) to the general ledger." 
 
Cause: 
 
Management's failure to follow capital asset accounting procedures as detailed in the Manual. 
 
Effect: 
 
Failure to maintain accurate capital asset records may result in inaccurate internal management reports and resulting decisions concerning current and future capital asset needs, and possible misappropriation of assets. 
 
Recommendation: 
 
The Department should establish the necessary internal controls and implement procedures to ensure capital asset inventories are maintained in compliance with requirements of state law and the Manual. 
 
CAPITAL ASSETS/PROPERTY MANAGEMENT Inadequate Capital Asset Records Finding Control Number: FS-414-03-03 
 
Condition: 
 
Our examination of the accounting records of the Department of Education disclosed that land and buildings (net of accumulated depreciation) owned by the Department are reported in the capital asset inventory at $10,130,908.00 and $61,258,246.51, respectively. The Department failed to provide an audit trail leading to documentation supporting the reported amounts. 
 
Criteria: 
 
The State of Georgia Capital Asset Guide requires that capital assets be reported by category at historical cost or estimated historical cost 
 
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 DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS 
 
CAPITAL ASSETS/PROPERTY MANAGEMENT Inadequate Capital Asset Records Finding Control Number: FS-414-03-03 (continued) 
 
when actual records are not available. Donated assets should be reported at fair value at the time of donation. Capital assets, except for land and other inexhaustible assets, should be depreciated over their estimated useful life. 
 
Cause: 
 
These deficiencies are a result of management's failure to implement adequate policies and procedures to ensure that the Department's capital assets are properly maintained. 
 
Effect: 
 
The dollar value reported for land and buildings may contain misstatements; however, the extent of these misstatements could not be determined. 
 
Recommendation: 
 
Management should develop appropriate policies and procedures to ensure that all of the Department's capital assets are properly accounted for and reported in accordance with the State of Georgia Capital Asset Guide. 
 
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
 
EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-03-01 
 
Condition: 
 
Our examination included a review of the internal accounting controls utilized by the Department of Education in maintaining their capital asset inventory. 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 were not reconciled to the general ledger expenditure accounts. 
 
2. Equipment inventory records for additions were updated incorrectly. Testing of current year additions revealed three (3) additions that had been updated onto the equipment inventory records incorrectly by the amount of $27,115.00. 
 
In addition, twenty-five (25) equipment items were selected from certain locations to test the accuracy of the Department's property management records. These items contained a value of $348,467.76 
 
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 DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
 
EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-03-01 (continued) 
 
out of a population of $2,107,223.06 and were selected for the purpose of locating the equipment as recorded in the inventory records. The following deficiencies were noted: 
 
1. One (1) item totaling $5,000.00 could not be located. 
 
2. One (1) item was found in a location other than the location indicated in the equipment inventory records. 
 
3. One (1) item totaling $16,820.00 was surplused, but was not removed from the equipment inventory records. 
 
4. One (1) item was transferred, but was not updated on the equipment inventory records. 
 
Criteria: 
 
The Department is required to maintain equipment inventories in accordance with provisions of Title 34 CFR 80.32 Equipment (Office of the Secretary of Education). 
 
Cause: 
 
The discrepancies identified above were caused by the Department's failure to follow guidelines for maintaining equipment inventories. 
 
Effect: 
 
Failure to maintain accurate equipment inventory records causes internal reports to management to be misleading and can result in erroneous decisions by management concerning current and future equipment needs. 
 
Recommendation: 
 
The Department should establish the necessary internal controls to ensure that equipment inventories are maintained in accordance with federal regulations. 
 
Maior Federal Program/Award Affected: 
 
U.S. Department of Education Title I - Grants to Local Educational Agencies - CFDA No. 84.010 Vocational Education - Basic Grants to States - CFDA No. 84.048 
 
Federal Agencies With Other Affected Programs: 
 
U.S. Department of Agriculture U.S. Department of Education 
 
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 DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
 
EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Accounting Records Title I - Grants to Local Educational Agencies (CFDA 84.010) Finding Control Number: FA-414-03-02 
 
Condition: 
 
Our examination included a review of the internal accounting controls utilized by the Department of Education in computing Title I allocations to local units of administration (LUA). The Department was unable to provide supporting documentation for the calculations of fiscal year 2003 allocations to the LUAs. 
 
Criteria: 
 
Under U.S. Department of Education policy Title I - Improving the Academic Achievement of the Disadvantaged, SUBPART 2 ALLOCATIONS, SEC. 1122 ALLOCATIONS TO STATES, (c) HOLD-HARMLESS AMOUNTS, (1) AMOUNTS FOR SECTIONS 1124, 1124A, AND 1125: "For each fiscal year, the amount made available to each local educational agency under each of sections 1124, 1124A, and 1125 shall be - 
 
(A) not less than 95 percent of the amount made available for the preceding fiscal year if the number of children counted for grants under section 1124 is not less than 30 percent of the total number of children aged 5 to 17 years, inclusive, in the local educational agency; 
 
(B) not less than 90 percent of the amount made available for the preceding fiscal year if the percentage described in subparagraph (A) is between 15 percent and 30 percent; and 
 
(C) not less than 85 percent of the amount made available for the preceding fiscal year if the percentage described in subparagraph (A) is below 15 percent." 
 
Cause: 
 
Formula spreadsheets supporting fiscal year 2003 allocations, created by the Department of Education, were missing from the agency's files. These files were allegedly destroyed by the Federal Financial Accountability Division under the previous Superintendent during the transition to the new Superintendent in January 2003. 
 
Effect: 
 
Fiscal year 2003 allocations could not be verified for compliance with federal regulations for each subpart of the grants on an individual LUA level. 
 
Recommendation: The Department of Education should implement an internal control policy for safeguarding critical computer data. 
 
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 DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
 
ELIGIBILITY Inadequate Accounting Records Improving Teacher Quality State Grants (CFDA 84.367) Finding Control Number: FA-414-03-03 
 
Condition: 
 
Our examination included a review of the internal accounting controls utilized by the Department of Education in computing Title IIA allocations to local units of administration (LUA). The Department was unable to provide supporting documentation for the calculations of fiscal year 2003 allocations to the LUAs. 
 
Criteria: 
 
Under U.S. Department of Education policy Title II Preparing, Training, and Recruiting High Quality Teachers and Principals, Subpart 1 - Grants to States, SEC. 2113, STATE USE OF FUNDS, (a) IN GENERAL: "A State that receives a grant under section 2111 shall - (1) reserve 95 percent of the funds made available through the grant to make subgrants to local educational agencies as described in subpart 2;" 
 
Subpart 2 - Subgrants to Local Educational Agencies, SEC. 2121, ALLOCATIONS TO LOCAL EDUCATIONAL AGENCIES, section (a), part (3) ALLOCATION OF ADDITIONAL FUNDS: "For any fiscal year for which the funds reserved by a State under section 2113(a)(1) exceed the total amount required to make allocations under paragraph (2), the State educational agency shall allocate to each of the eligible local educational agencies in the State the sum of - 
 
(A) an amount that bears the same relationship to 20 percent of the excess amount as the number of individuals age 5 through 17 in the geographic area served by the agency, ... ; and 
 
(8) an amount that bears the same relationship to 80 percent of the excess amount as the number of individuals age 5 through 17 from families with incomes below the poverty line in the geographic area served by the agency, ... " 
 
Cause: 
 
Formula spreadsheets supporting fiscal year 2003 allocations, created by the Department of Education, were missing from the agency's files. These files were allegedly destroyed by the Federal Financial Accountability Division under the previous Superintendent during the transition to the new Superintendent in January 2003. 
 
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 DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
 
ELIGIBILITY Inadequate Accounting Records Improving Teacher Quality State Grants (CFDA 84.367) Finding Control Number: FA-414-03-03 (continued) 
 
Effect: 
 
Fiscal year 2003 allocations could not be verified for compliance with federal regulations for each subpart of the grants on an individual school system level. 
 
Recommendation: The Department of Education should implement an internal control policy for safeguarding critical computer data. 
 
ELIGIBILITY Inadequate Accounting Records School Renovation Grants (CFDA 84.352) Finding Control Number: FA-414-03-04 
 
Condition: 
 
Our examination included a review of the internal accounting controls utilized by the Department of Education in maintaining the School Renovation grant. Our review revealed that the Department lacks supporting documentation for a ranking sheet used to determine which local units of administration (LUA) are considered high poverty. 
 
Criteria: 
 
The U.S. Department of Education's guidelines for School Renovation Grants state that: "States are required to provide total amounts for successful high-poverty and rural LUA applicants that are proportionate to the Title I shares of these types of LUAs in aggregate." 
 
Cause: 
 
Turnover in personnel responsible for eligibility determination resulted in the GDOE being unable to provide documentation that the eligibility criteria were met. 
 
Effect: 
 
Auditor was unable to verify whether GDOE is in compliance with this requirement. 
 
Recommendation: 
 
The GDOE should establish policies and procedures to ensure compliance with the U.S. Department of Education's guidelines for School Renovation. 
 
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 DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
 
ELIGIBILITY Inadequate Accounting Records School Renovation Grants (CFDA 84.352) Finding Control Number: FA-414-03-05 
 
Condition: 
 
Our examination revealed that several local units of administration (LUA) were obligated more funds than they requested in their applications. GDOE was unable to provide supporting documentation for these additional amounts. In addition, the GDOE was unable to provide an application for one of the LUAs. 
 
Criteria: 
 
The U.S. Department of Education's guidelines for School Renovation Grants state that: "States are required to distribute the funds on a competitive basis". 
 
Cause: 
 
Turnover in personnel responsible for eligibility determination resulted in the GDOE being unable to provide documentation that the eligibility criteria were met. 
 
Effect: 
 
LUAs receive funds under School Renovation Grants, IDEA, and Technology activities. For the IDEA and Technology portions of the grant, 13 LUAs who applied for funds were obligated more than they applied for. For the amounts that were over obligated, the LUAs applied for $740,800.78 of IDEA funds and were obligated $2,343,256.00 for IDEA activities (an over obligation of $1,602,455.22). For the Technology portion of over obligations, the LUAs applied for $0.00 and were obligated $78,000.00 (an over obligation of $78,000.00). In addition, GDOE was unable to provide an application for one of the LUAs. That LUA was obligated $97,448.00 for IDEA activities. 
 
Recommendation: 
 
The GDOE should establish policies and procedures to ensure compliance with the U.S. Department of Education's guidelines for School Renovation. 
 
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 DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
 
MAINTENANCE OF EFFORT Inadequate Accounting Records Vocational Education - Basic Grants to States (CFDA 84.048) Finding Control Number: FA-414-03-06 
 
Condition: 
 
Our examination revealed that the GDOE was unable to provide adequate documentation regarding their maintenance of effort calculations. 
 
Criteria: 
 
U.S. Public Law 105-332, Title Ill - General Provisions, Part A - Federal Administrative Provisions, Section 311 Fiscal Requirements states that for maintenance of effort calculations, "fiscal effort" or "aggregate expenditures" must be used in the computation. 
 
Cause: 
 
The GDOE did not have policies and procedures in place in order to ensure that maintenance of effort calculations are documented as set forth by Federal law. There was no system in place for obtaining the correct state expenditures needed in order to calculate the maintenance of effort. The delegation of this responsibility was also overlooked by the GDOE. 
 
Effect: 
 
Auditors could not substantiate that the GDOE met the fiscal year 2003 maintenance of effort requirements. 
 
Recommendation: 
 
The GDOE should establish a system which will allow them to obtain information regarding actual expenditures involving the Local Units of Administration (LUAs), Department of Technical and Adult Education (DTAE), and the administration of the Vocational Education program. Policies and procedures should also be developed to ensure that maintenance of effort calculations are made in accordance with Federal law. 
 
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 DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS 
YEAR ENDED JUNE 30, 2003 
 
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 
 
SUBRECIPIENT MONITORING Subrecipient Audit Reports Not Received Within the Required Time Period Finding Control Number: FA-414-03-07 
 
Condition: 
 
As part of our examination, we reviewed tracking documents used by the GDOE to determine the status of subrecipient audit reports for the year ended June 30, 2002. Of the two-hundred-thirty-eight (238) subrecipients identified on the tracking documents, onehundred-eighty-five (185) had not submitted their audits within the nine-month period as required by Office of Management and Budget (0MB) Circular A-133. 
 
Criteria: 
 
0MB Circular A-133 requires that subrecipient audit reports be submitted for review within nine months of the fiscal year end. 
 
Cause: 
 
This noncompliance is due to subrecipient audits not being performed in a timely manner. 
 
Effect: 
 
The condition identified above is in violation of 0MB Circular A133. 
 
Recommendation: 
 
The GDOE should review and strengthen its in-house monitoring function in an effort to bridge the monitoring gap for those subrecipiients whose audit reports fail to meet the nine month deadline. 
 
Maior Federal Program/Award Affected: U.S. Department of Education 
Food Distribution - CFDA No. 10.550 Child Nutrition Cluster-CFDA No. 10.CNC Vocational Education - Basic Grants to States - CFDA No. 84.048 School Renovation Grants - CFDA No. 84.352 Improving Teacher Quality State Grants - CFDA No. 84.367 
 
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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