Atlanta Independent School System, Atlanta, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2003, June 30, 2003

GA
ASDO .RI E33 A7
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ATLANTA INDEPENDENT SCHOOL SYSTEM
ATLANTA. GEORGIA
REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30. 2003

STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

ATLANTA INDEPENDENT SCHOOL SYSTEM - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

3

B

ST ATEMENT OF ACTIVITIES

4

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

6

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE DISTRICT-WIDE STATEMENT OF NET ASSETS

7

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

8

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE DISTRICT-WIDE STATEMENT OF ACTIVITIES 9

G

SCHEDULE OF REVENUES, EXPENSES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

10

H

ST ATEMENT OF PROPRIETARY NET ASSETS

PROPRIETARY FUND - FOOD SERVICES

11

ST ATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN NET ASSETS

PROPRIETARY FUND - FOOD SERVICES

12

J

STATEMENT OF CASH FLOWS

PROPRIETARY FUND - FOOD SERVICES

13

K

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

14

L

NOTES TO THE BASIC FINANCIAL STATEMENTS

15

ATLANTA INDEPENDENT SCHOOL SYSTEM - TABLE OF CONTENTS -
SECTION II FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
February 22,2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Atlanta Independent School System
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying financial statements ofthe governmental activities, the businesstype activities, the aggregate discretely presented component unit, each major fund, and the aggregate remaining fund information (Exhibits A through L) ofthe Atlanta Independent School System as of and for the year ended June 30, 2003, which collectively comprise the System's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Atlanta Independent School System's management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of Atlanta Independent School System's discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for Atlanta Educational Telecommunications Collaborative, Inc., is based on the report of other auditors.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.

2003ARL-24

The System did not perform reconciliation procedures on its capital asset activity for the fiscal year 2003. An unidentified variance of $43,879,670 existed between capital assets of $834,160,110 reported for Governmental Activities in the Statement of Net Assets on June 30, 2003, and the underlying detailed records. Accounting principles generally accepted in the United States of America require that capital assets be accurately capitalized and depreciated. The System's records did not provide sufficient information for the application of other auditing procedures to reasonably determine whether the assets, net assets and expenses ofthe governmental activities are fairly stated.
The System did not provide sufficient documentary evidence to support the amounts reported as beginning Net Assets for Governmental Activities on the Statement of Activities, nor did the System's records provide sufficient information for the application of other auditing procedures to reasonably determine whether beginning net assets were fairly stated.
In our opinion. except for the effects of such adjustments, if any, as might have been determined to be necessary had the System reconciled capital assets to detailed records and provided sufficient documentation to support beginning net assets for governmental activities as described in the two preceding paragraphs, the financial statements referred to above present fairly, in all material respects, the financial statements ofthe governmental activities of the Atlanta Independent School System, as of June 30, 2003, and the respective changes in financial position thereoffor the year then ended in conformity with accounting principles generally accepted in the United States ofAmerica.
In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities, the aggregate discretely presented component unit, each major fund, and the aggregate remaining fund information of the Atlanta Independent School System, as of June 30, 2003, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Management's Discussion and Analysis as presented on pages i through viii is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it.
A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code of Georgia Annotated section 506-24.
Respectfully submitted,
~..m~.~
Russell W. Hinton State Auditor
RWH:gp 2003ARL-24

ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
Introduction
The discussion and analysis of the Atlanta Independent School System's (the "School System") financial performance provides an overview of the financial year ended June 30, 2003. The intent of this discussion and analysis is to examine the School System's financial performance as a whole, identify changes in financial position as well as providing basic financial statements. The basic financial statements and notes to the financial statements should be reviewed by the readers to enhance their understanding ofthe School System's financial performance as a whole or as an entire operating entity. The basic financial statements contain the following components:
1) District-wide financial statements including the Statement ofNet Assets and the Statement of Activities which provide a broad, long-term overview of the School System's finances,
2) Fund-level financial statements provide a greater level of detail about the School System's major funds and focus on how well the School System has performed in the short-term in the most significant funds, and
3) Notes to the Financial Statements.
This report also presents the highlights for the year ended June 30, 2002 and contains other supplementary information.
Financial Highlights
Key financial highlights for 2003 of the District-wide financial statements are as follows:
>- Total net assets for the School System increased from $718.0 million in fiscal year 2002 to
$796.1 in fiscal year 2003, an increase of approximately $78.1 or 10.9%. Net assets increased by $83.5 million for Governmental Activities and decreased by $5.4 million for Business-type Activities.
>- Total revenues decreased from $718.2 million in fiscal year 2002 to $713.8 million in
fiscal year 2003, a decrease of approximately $4.4 million or 0.6%. Revenue for Governmental Activities decreased $4.4 million while revenue for Business-type Activities remained the same for two years at $21.9 million.
>- Total expenses increased $18.3 million or 3.0% from $617.4 million in fiscal year 2002 to
$635.7 million in fiscal year 2003. Expenses increased in both Governmental Activities and Business-type Activities by $16.7 million and $1.6 million, respectively.
>- The School System has prepared its annual financial reports corresponding to the
Governmental Accounting Standards Board No. 34 financial reporting model. The following graphic is provided to give the reader an overview of the new reporting model.

ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
Graph 1

Management's Discussion & Analysis

.
......

. ...................................................................................

District-wide Financial Statements

Fund Financial Statements

Notes to the Financial Statements

.......

...................... .....................................................,

.

OVERVIEW OF FINANCIAL STATEMENTS
District-wide Financial Statements
The District-wide financial statements are designed to provide the reader with a broad overview of the School System's finances in a manner similar to those used by private-sector businesses. The Statement of Net Assets and the Statement of Activities provide information about the activities of the whole School System, both an aggregate and long-term view ofthe finances. These statements include all assets and liabilities using the accrual basis of accounting. This basis of accounting includes all of the current year's revenues and expenses regardless ofwhen cash is received or paid.
The Statement ofNet Assets presents information on all ofthe School System's assets and liabilities, with the difference between the two reported as net assets. Increases or decreases in net assets may serve as a useful indicator of whether the financial position is improving or deteriorating.
The Statement ofActivities presents information showing how net assets changed during the fiscal year. All changes in the net assets are reported as soon as the underlying event giving rise to the change occurs, regardless ofthe timing ofthe related cash flaws. Thus, revenues and expenses are reported in the statement for some items that will result in cash flows in future fiscal periods (for example, uncollected taxes and earned but unused vacation leave).

11

ATLANTA INDEPENDENT SCHOOL SYSTEM
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Included in the Statement ofNet Assets and Statement of Activities for the School System are two distinct kinds of activities:

~ Governmental Activities - Most ofthe School System's programs and services are reported here including instruction, pupil services, improvement ofinstruction, educational media, general administrative, school administrative, business services, maintenance and operations of facilities, student transportation, and central support.

~ Business-type Activities - This service is provided on a charge for goods or services basis to recover all of the expenses of the goods or services provided. The Food Services proprietary fund is reported as a Business-type activity.

Table I - Condensed Statement of Net Assets (in millions of dollars)

Governmental Activities Business-type Activities

2003

2002

2003

2002

2003

Total School System Percentage Change
2002

Current and Other Assets Net Capital Assets
Total Assets

$ 289.9 644.1
s 934.0

$ 338.1 501.0
$ 839.1

S -15.6 -----.b2
$----=.l.U

$ -9.3
-1J.
$~

$ 274.3 647.0
$ 921.3

S 328.8 503.7
$ 832.5

-16.6% 28.4%
10.7%

Long-Term Debt Outstanding Other Liabilities
Total Liabilities

$ 22.9 99.2
$-.JR.l

S 26.6 ~
$-.l.QD

$-.1..Q S-.1..Q

$-----.l.Q $-----.l.Q

$ 22.9 102.2
$ 125.1

$ 26.6 ~
$ 108.7

-13.9% 24.5%
15.08%

Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted
Total Net Assets

$ 629.8
-.lR.l
$ 811.9

$ 482.0 2.5
249.5
S 734.0

$ 2.9 ~ $ -15.7

$ 2.7
--=.!.U
$ -10.2

$ 632.7 163.5
$ 796.2

$ 484.7 2.5
236.6
$ 723.8

30.5% -100.0%
-30.9%
10.0%

~ Current and other assets decreased $54.5 million, or 16.6%.

~ Capital assets, net of depreciation for the total School System increased $143.4 million or 30.5%. This represents a $164.5 million in additions and an increase of$21.0 million in accumulated depreciation. Net capital assets in Governmental Activities for fiscal year 2002 totaled $501.0 and $644.1 million in fiscal year 2003. The increase in primarily due to new schools and the new administration building (Center for Leadership and Learning) construction and major school renovation projects.

~ Long-Term debt outstanding decreased 13.9% or $3.7 million. This decrease was primarily due to an approximate $4.6 million decrease in capital leases combined with a $0.9 million increase in compensated absences at the end of fiscal year 2003.

1ll

ATLANTA INDEPENDENT SCHOOL SYSTEM
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Table 2 - Condensed Changes in Net Assets (in millions of dollars)

Governmental Activities Business-type Activities

2003

2002

2003

2002

Revenues Program Revenues
Charges for Services Operating Grants and
Contributions Capital Grants and
Contributions General Revenues
Property Taxes SPLOST Investment Earnings Other

$ 239.5
2.1
353.5 79.3 11.6
----..i.2

Total Revenues

$ 691.9

Expenses: Instruction Pupil/Instructional/Media Services Administration and Business Services/Central Support Maintenance and Operations Transportation Services Food Services Other

$ 404.3
52.7
69.4 58.9 16.7
~

Total Expenses Change in Net Assets

$ 608.4
s 83.5

$ 244.6
8.6
325.5 93.9 16.9
~ $ 696.3
$ 369.4
63.1
75.9 61.2 17.0 _ _5_.1
$ 591.7
$ 104.6

$ 2.4 19.5
$-----.11.2
s 27.3
$----.1.U.
$ -5.4

$ 1.9 20.0
$-----.11.2
$ 25.7 S 25.7 $ -3.8

2003

Total School System Percentage Change
2002

$ 2.4
259.0
2.1
353.5 79.3 11.6
----..i.2
$ 713.8

$ 1.9
264.6
8.6
325.5 93.9 16.9
~
$ 718.2

$ 404.3
52.7
69.4 58.9 16.7 27.3
~
$ 635.7
$ 78.1

$ 369.4
63.1
75.9 61.2 17.0 25.7
-----.D
$ 617.4
$ 100.8

26.5%
-2.1%
-75.3%
8.6% -15.6% -31.3% -13.2%
-0.6%
9.4%
-16.5%
-8.5% -3.8% -1.8% 6.2% 25.5%
3.0%
-22.5%

IV

ATLANTA INDEPENDENT SCHOOL SYSTEM
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Sources of Revenue

Graph 2 FISCAL YEAR 2003

Expenses

Federal & State Categortcal Grants 34%
\

Food Services4%

Property Taxes 51%

PupiV InstructionaV Media Services 8%

Total revenue decreased by $4.4 milli on, 0.6% , from fiscal year 2002 to fiscal year 2003. This decrease is the net result of a $5.6 million decrease in operating grants and contributions related to state and Federal funds, a $6.5 million decrease in capital grants and contributions, a $14.6 million decrease in Special Purpose Loca l Option Sales Tax (SPLOST) and a decrease in investment earnings of $5.3 million. How ever, these decreases where offset by a $28.0 million increase in property taxes. Lower sales tax collections, as in the previous year are consistent with national economic trends. The decrease in investment earnings resulted from lower yields on governmental instruments that provide varying returns and from having less funds invested during the year due to cuts in state funding.

Total expenses increased between fiscal years by 3.0% or $18.3 million. The major contributing factor was the implementation of phase one ofthe new compensation and classification program.

Table 3 - Net Cost of Govemmental Activities (in million s of do llars)

2003

Total Cost of Services

Percentage

2002

Change

Instr uct io n

$ 404.3

Pup il/Instru ctional/Media Services

52 .7

Adm inistr ation and Business Services!

Central Support

69 .4

Maintenance and Oper ations

58 .9

Transportation Services

16.7

Other

-M

Tota l Expenses

s 608 .4

S 369.4 63 . 1
75.9 6 1.2 17.0
-----.ll
$ 591.7

9.4 % - 16.5%
-8.5% -3. 8% - 1.8% 25.5%
2.8 %

2003
s -19G.4
-34 .6

Net Cost of Services

Pe rce ntage

2002

Change

S - 147.5 -39.2

29.1 % - 11.7%

-64 .6 -58 .7 -15 .6
-2 .8
s -366.7

- 72 .6 -6 1.1 - 16.2 ~
S -338.4

- 11. 1% -4 .0% -3 .7% 50%
8.3%

v

ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

The Net Cost of Governmental Activities represents the cost of operating the School System to be covered by general revenues, including property taxes. The net cost of services increase is attributable to reduction in program revenues, primarily Quality Basic Education funds received from the State Department of Education and increases in expenses as discussed above.

Table 4 - Capital Assets (net of depreciation, in millions of dollars)

Land Buildings Building Improvements Construction in Progress Furniture Equipment Vehicles
Total

Governmental Activities Business-type Activities

2003

2002

2003

2002

$ 17.7 445.3 18.3 117.7 5.3 32.3
-22
$ 644.1

$ 17.7 335.8 18.5 95.0 6.0 18.1
~
$ 500.9

$ 2.9 $ 2.9

$ 2.7 $ 2.7

Total School System Percentage Change

$ 17.7 445.3 18.3 117.7 5.3 35.2
-22
$ 647.0

$ 17.7 335.8 18.5 95.0 6.0 20.8
~
$ 503.6

-0.1% 32.6% -1.0% 23.9% -11.7% 69.2% -23.4%
28.5%

Construction in Progress and Buildings increased $22.7 million and $109.5 million, respectively, for the year. These increases account for 57% of the total capital assets increase and are due to accelerated school and new administration building construction.

For more detailed information on the School System's Capital Assets, see Note G in the Notes to the Basic Financial Statements.

Table 5 - Outstanding Long-Term Debt (in millions of dollars)

Total School System Percentage Change

Capital Leases

$ 14.4

$ 19.0

-24.3%

Outstanding long-term debt decreased due to scheduled capital lease payments.

Fund Financial Statements

Fund financial statements provide detailed information regarding the resources segregated for specific activities or objectives, not District-wide. Funds are used to track specific sources of revenue and expenditures for particular programs.

VI

ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

The School System has three kinds of funds:

Governmental funds include most of the School System's basic services and focus on providing cash flow available for spending. These funds include the General Fund, Capital Projects and Other Governmental Funds of lesser magnitude. Fund accounting statements use the modified accrual method of accounting, which measures cash and other financial assets that can be readily converted to cash. These statements present a short-term view ofthe School System's operations and services and do not include the long-term focus presented in the new District-wide financial statements. For an explanation of the differences see the reconciliations included with the Governmental Fund Statements.

Proprietary funds report on services provided by the School System for a fee and employ the full accrual method of accounting in the same manner as the District-wide statements. The School System has one proprietary fund, Food Services. This fund provides student meals at a cost based on the student's ability to pay, subsidized by Federal funds and the School System.

Fiduciary funds account for assets not owned by the School System but for which the School System is responsible for ensuring that the assets in the funds are used for their designated purposes. These funds are not included in the District-wide financial statement because they cannot be used to finance the School System operations. The School System has one fiduciary fund - Agency Funds (Local School, Club and Class Funds).

The following presents a summary of the General Fund, Capital Projects Fund and Other Governmental Funds by type of revenue for the fiscal year ended June 30, 2003, as compared to June 30, 2002.

Table 6 - Revenues (in millions of dollars)

Local Taxes Sales Taxes State Revenues Federal Revenues Investment Income Other
Sub-Total Other Financing Sources
Total Revenues

2003

Governmental Funds Percentage
2002 Inc.lCDec.) Inc.lCDec.)

$ 347 $ 314

79

94

178

190

58

45

12

17

11

25

$ 33 -15 -12 13 -5 -14

10.55% -16.0%
-6.3% 28.9% -29.4% -56.0%

$ 685 $ 685 $ 0

6

4

2

50.0%

$ 691 $ 689 $ 2

Fluctuations in these accounts are consistent with those discussed above under the Changes in Net Assets at the District-wide level section.

Vll

ATLANTA INDEPENDENT SCHOOL SYSTEM
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

The following table presents a summary of the General Fund, Capital Projects Fund and Other Governmental Funds by type ofexpenditure for the fiscal year ended June 30, 2003, as compared to June 30, 2002.

Table 7 - Expenditures (in millions of dollars)

2003

Governmental Funds

2002

Inc./(Dec.)

Percentage Change

Instruction Pupil/Instructional/Media
Services Administrative and Business
Services/Central Support Maintenance and Operations Transportation Services Other Capital Outlays Debt Service

$ 387 $ 353

62

84

81

76

62

61

14

16

9

5

141

78

9

49

$ 34
-22
5 1 -2 4 63 -40

9.6%
-26.2%
6.6% 1.6% -12.5% 80.0% 80.8% 81.6%

Total Expenditures

$ 765 $ 722 $ 43

6.0%

Fluctuations in these accounts are consistent with those discussed in the Changes in Net Assets at the District-wide level.

General Fund Budgetary Highlights

There were no revisions to the total General Fund budget during the year. Differences in function areas between the original and the final amended budget were immaterial.

Requests for Information

This financial report is designed to provide a general overview of the School System's finances for all those with an interest in the School System's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the School System's ChiefFinancial Officer, 130 Trinity Street, S.W., Atlanta, Georgia 30303.

V111

ATLANTA INDEPENDENT SCHOOL SYSTEM

page intentionally left blank

ATLANTA INDEPENDENT SCHOOL SYSTEM STATEMENT OF NET ASSETS JUNE 30 2003

EXHIBIT "A"

The notes to the basic financial statements are an integral part of this statement. -3-

ATLANTA INDEPENDENT SCHOOL SYSTEM STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30 2003

FUNCTIONS/PROGRAMS
Govemmental Activities: Instruction Support services Pupil Services
Improvement ot Instruction
Educational Media General Administrative SChool Administrative Business services
Maintenance and Operation ot Facilities
Student Transportation Central Support Other Depreciation - Unallocated
Total Govemmental Activities
Business-type Activities Food Services
Total SChool System
Component Unit Public Broadcasting Station
General Revenues Taxes
Property Taxes Levied torGeneral Purposes
Special purpose Local Option Sales Tax Investment Earnings Other
Total General Revenues
Change in Net Assets
Net Assets - Beginning ot Year (Restated)
Net Assets - End ot Year

EXPENSES

PROGRAM REVENUES

OPERATING

CHARGES FOR

GRANTS AND

SERVICES

CONTRIBUTIONS

$ 404.300.173 $
21.649.868 23,447.177
7,615.931 13.622.9&9 25.948.073
6.452.828 58.896.420 16.678.855 23.404.234
6.116.012 249.094
s $ 608.381,634

0$

211,745,193
4,428.193 13.528.687
121.737 2.648.088 2.097.074
222.320 1.046,705
108.992 3,597,754

0$

239,544,743

27,325,463

2,388.324

19.527.656

$ 635,707.097 $

2,388,324 $

259.072,399

$ 10,942,309 $

228.880 $ _ _..1:.0:.:3~4;;6:,;8.2::2:=-

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

EXHIBIT"B"

CAPITAL GRANTS AND CONTRIBUTIONS

NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS

COMPONENT UNIT

ATLANTA EDUCATIONAL

GOVERNMENTAL BUSINESS-TYPE

TELECOMMUNICATIONS

ACTMTIES

ACTIVITIES

TOTALS

COLLABORATIVE, INC.

s

2,124,937 s

-190,430,043 $

-17 ,221,675 -9,918,490 -7,494,194
-10,974,881 -23,850,999
-6,452,828 -58,674,100 -15,632,150 -23,295,242
-2,518,258 -249,094

s

2,124,937 $

-366,711,954 $

0$ 0$

-190,430,043
-17,221,675 -9,918,490 -7,494,194
-10,974,881 -23,850,999
-6,452,828 -58,674,100 -15,632,150 -23,295,242
-2,518,258 -249,094
-366,711,954

-5,409,483

-5,409,483

$

2,124,937 $

-366,711,954 $

-5,409,483 $

-372,121,437

1,055,324

$

353,451,241

79,256,916

11,616,090

5,935,088

$

450,259,335

$

83,547,381 $

728,274,190

$
$ -5,409,483 $ -10,275,254

353,451,241 79,256,916 11,616,090 5,935,088
450,259,335
78,137,898 $
717,998,936

s

811,821,571 $

-15,684,737 $

796,136,834 $

688,717 1,739,186
2,427,903

- 5-

ATLANTA INDEPENDENT SCHOOL SYSTEM BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30 2003

EXHIBIT"C"

ASSETS
Cash and Cash Equivalents Restricted Cash Investments Property Taxes Receivable, Net Due from Other Govemments Accrued Interest Due from Other Funds Other Receivables Inventories
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Cash Overdraft Accounts Payable and Accrued Liabilities Due to Other Funds
Total Liabilities
FUND BALANCES
Reserved for: Inventories Capital Outlays Encumbrances
Unreserved for: Designated Local Programs General Contingencies Special Revenue Fund Undesignated, Reported In: General Fund Special Revenue Fund
Total Fund Balances
Total Liabilities and Fund Balances

GENERAL FUND

CAPITAL PROJECTS
FUND

OTHER GOVERNMENTAL
FUNDS

TOTAL GOVERNMENTAL
FUNDS

$

$

12,334

144,428,678

972,912

25,706,004

57,410,377 1,152,186 1,381,413

51,218,163 $ 283,615
50,346,274
12,910,870 324,110
2,506,124

43,983,143 $
8,336,683 13,548,920

95,201,306 295,949
194,774,952 972,912
46,953,557 324,110
73,465,421 1,152,186 1,381,413

$ 231,063,904 $ 117,589,156 $

65,868,746 $

414,521,806

$ 75,363,460

68,034,039 $ 24,507,689 $

13,643,058

112,615

$ 157,040,557 $ 24,620,304 $

$ 5,584,092 42,257,196
47,841,288 $

75,363,460 98,125,820 56,012,869
229,502,149

$ 1,381,413

12,334 $ 38,532,934

10,545,132

42,435,918

6,815,621 11,900,000
43,368,847

12,000,000 $

$ 74,023,347 $ 92,968,852 $

$
16,692,530 1,334,928
18,027,458 $

1,381,413 38,545,268 52,981,050
18,815,621 11,900,000 16,692,530
43,368,847 1,334,928
185,019,657

$ 231,063,904 $ 117,589,156 $

65,868,746 $

414,521,806

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

ATLANTA INDEPENDENT SCHOOL SYSTEM RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET
TO THE DISTRICT-WIDE STATEMENT OF NET ASSETS JUNE 30, 2003

EXHIBITnDn

Total Fund Balances - Governmental Funds (Exhibit "COO)
Amounts reported for Govemmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the above funds. These assets consist of:
Cost of Capital Assets Less: Accumulated Depreciation
Other Long-Term Assets are not available to pay for current-period expenditures and, therefore are deferred in the above funds.
Proceeds from bonds issued by the City of Atlanta on behalf of the School System are repayable through the City in future periods and therefore are not reported in the fund.
Long-Term Liabilities, including capital leases, are not due and payable in the current period and therefore are not reported as liabilities in the above funds.
Capital Leases Compensated Absences Workers' Compensation

$ 185,019,657

$ 834,160,110 -190,028,394

644,131,716

6,682,851

-2,129,553

$ -14,363,415 -4,173,312 -3,346,373

-21,883,100

Net Assets of Governmental Activities (Exhibit nAn)

$ 811,821,571

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

ATLANTA INDEPENDENT SCHOOL SYSTEM. STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2003

EXHIBIT"E"

REVENUES
Local Taxes Sales Taxes State Revenues Federal Revenues Investment Income Facility Rental Fees Tuition Other
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instruction Educational Media General Administrative School Administrative Business services Maintenance and Operation of Facilities Student Transportation Central Support Other Support
Capital Outlay Debt service
Capital Lease Principal/Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
From Bonds From Capital Leases Transfers In Transfers Out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning (Restated)

GENERAL FUND

CAPITAL PROJECTS
FUND

OTHER GOVERNMENTAL
FUNDS

TOTAL GOVERNMENTAL
FUNDS

$ 346,768,390 $
170.033,573 427,849
8,887,800 436,094 30,800
5A68,194

79,256,916 174,119 $
2,728,290
1,950,818

$ 532,052,700 $ 84,110,143 $

$ 7,495,149 57.132,166
4A56,006 69,083,321 $

346,768,390 79,256.916
177,702,841 57,560,015 11,616.090 436,094 30,800 11,875,018
685,246,164

$ 343,085,735 $ 1,436,786 $

17,131.932 6,331,613 7,485,864 7,314,514 26.224,521 6,452,828 56,474,833 13,083,723 26,139,723

9,725,999
245,761 1,666,195
4.873,212 173,251

141,088,759

7,470,378

$ 517,195,664 $ 159,209,963 $

$ 14,857,036 $ -75,099,820 $

42,776,982 $
4,480,842 16,933,569
115,744 5,466,066 7,566,014
696,928 1,038,489
125,239 8,582,226
947,448
88,729,547 $
-19,646,226 $

387,299.503
21,612,774 32,991,181
7,601,608 13,026,341 35,456,730
6,452,828 62,044,973 14,295,463 26,264,962
8,582,226 141,088.759
8,417,826
765,135,174
-79,889,010

$ 2,129,553 $ 3,814,304
2,482,792 $

$ 3,814,304 $ 4,612,345 $

$ 18,671,340 $ -70,487,475 $

55,352,007

163,456,327

$
-2,482,792 -2,482,792 $ -22,129,018 $ 40,156.476

2,129,553 3,814,304 2,482,792 -2,482,792
5,943,857
-73,945,153
258,964,810

Fund Balances - Ending

$ 74,023,347 $ 92,968,852 $

18,027,458 $

185,019,657

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

ATLANTA INDEPENDENT SCHOOL SYSTEM RECONCILIATION OF GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
TO THE DISTRICT-WIDE STATEMENT OF ACTIVITIES JUNE 30, 2003
Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")
Amounts reported for Governmental Activities in the Statement of Activities are different because:
Governmental Funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period.
Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds.
The issuance of Long-Term Debt (capitalized leases) provides current financial resources to governmental funds. Repayment of debt (capitalized leases) is an expenditure in the governmental funds but the repayments reduce Long-Term Liabilities in the Statement of Net Assets. This amount is the net effect of these differences in treatment of Long-Term Debt.
Bond Funds received to provide for the repayment of debt that provide current financial resources to governmental funds, however, the transaction has no effect on the changes in net assets but rather increases the amount of Long-Term Debt.
Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in Governmental Funds.
Change in Net Assets of Governmental Activities (Exhibit "B")

EXHIBIT"F"
$ -73,945,153
150,029,273 6,682,851 4,603,522 -2,129,553 -1,693,559
$ 83,547,381

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

ATLANTA INDEPENDENT SCHOOL SYSTEM GENERAL FUND
STATEMENT OF REVENUES; EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2003

EXHIBIT"G"

REVENUES
Local Taxes Investment Income Tuition Charges Facility Rental Fees State Revenues Federal Revenues Other
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instruction Educational Media General Administrative School Administrative Business Services Maintenance and Operation of Facilities Student Transportation Central Support Debt Service Capital Lease Principalllnterest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures
Fund Balances - Beginning

BUDGETED AMOUNTS

ORIGINAL

FINAL

ACTUAL (BUDGETARY
BASIS)

VARIANCE WITH FINAL BUDGET
POSITIVE (NEGATIVE)

$ 341,353,181 $ 341,353,181 $

11,100,000

11,100,000

145,000

145,000

610,000

610,000

174,808,160 174,808,160

1,050,373

1,050,373

2,920,705

2,920,705

346,768,390 $ 8,875,466 30,800 436,094
169,069,172 915,515
4,399,804

$ 531,987,419 $ 531,987,419 $ 530,495,241 $

5,415,209 -2,224,534
-114,200 -173,906 -5,738,988 -134,858 1,479,099
-1,492,178

$ 322,766,486 $ 346,902,032 $ 341,862,150 $

20,279,763 18,738,022 10,663,620
6,711,255 29,394,988 12,457,294 61,701,443 12,931,568 26,118,509

21,794,727 5,928,650
11,398,129 6,811,923
30,474,100 12,614,313 62,554,748 13,202,472 26,404,568

17,131,932 6,331,613 7,485,864 7,118,516
26,420,519 5,660,657
56,474,834 13,083,723 24,071,165

10,224,471

10,224,471

7,470,378

$ 531,987,419 $ 548,310,133 $ 513,111,351 $

$

0 $ -16,322,714 $ 17,383,890 $

67,492,048

67,492,048

95,244,466

5,039,882
4,662,795 -402,963 3,912,265 -306,593 4,053,581 6,953,656 6,079,914 118,749 2,333,403
2,754,093
35,198,782
33,706,604
27,752,418

Fund Balances - Ending

$ 67,492,048 $ 51,169,334 $ 112,628,356 $=====61=,4=5=9=,0=22-=

The notes to the basic financial statements are an integral part of this statement. -10 -

ATLANTA INDEPENDENT SCHOOL SYSTEM STATEMENT OF PROPRIETARY NET ASSETS
PROPRIETARY FUND - FOOD SERVICES JUNE 30, 2003

EXHIBIT"H"

ASSETS
Current Assets: Due from Other Governments Due from Other Funds Inventories
Total Current Assets
Noncurrent Assets: Furniture and Equipment, Net
Total Assets
LIABILITIES
Accounts Payable and Accrued Liabilities Due to Other Funds Deferred Revenue
Total Liabilities
NET ASSETS
Invested in Capital Assets Unrestricted (Deficit)
Total Net Assets

$

860,600

888,682

1,013,823

$

2,763,105

2,887,616

$

5,650,721

$

2,434,741

18,341,234

559,483

$

21,335,458

$

2,887,616

-18,572,353

-15,684,737

The notes to the basic financial statements are an integral part of this statement. - 11 -

ATLANTA INDEPENDENT SCHOOL SYSTEM STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
PROPRIETARY FUND - FOOD SERVICES YEAR ENDED JUNE 30, 2003

EXHIBIT "I"

OPERATING REVENUES Sales Miscellaneous Total Operating Revenues
OPERATING EXPENSES Personnel Costs Professional and Contract Services Supplies and Materials Depreciation Other Operating Costs Total Operating Expenses Operating Loss
NONOPERATING REVENUES Grants - Child Nutrition Program Changes in Net Assets
Net Assets - Beginning
Net Assets - Ending

$

1,820,212

568,112

$

2,388,324

$

14,527,411

10,915,709

1,087,722

511,734

282,887

$

27,325,463

$

-24,937,139

$

19,527,656

$

-5,409,483

-10,275,254

-15,684,737

The notes to the basic financial statements are an integral part of this statement. - 12-

ATLANTA INDEPENDENT SCHOOL SYSTEM STATEMENT OF CASH FLOWS
PROPRIETARY FUND - FOOD SERVICES YEAR ENDED JUNE 30. 2003
CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from User Charges Cash Payments to Employees for Services Cash Payments to Suppliers for Goods and Services
Net Cash Used for Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Nonoperating Grants Received
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of Capital Assets
Net Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Loss Adjustments to Reconcile Operating Loss to Net Cash
Provided (Used) by Operating Activities Depreciation Decrease in Receivables Decrease in Inventories Increase in Accrued Liabilities
Net Cash Used for Operating Activities

EXHIBIT"J"

$

1,820,212

-12,055,620

-14,950,013

$

-25,185,421

$

24,363,393

$

816,853

$

-5,175

5,175

$ = = = = = =o

$

-24,937,139

511,734 5,917,871 -411,692 -6,266,195

$==~-2=5=,1=85=,4=21=

The notes to the basic financial statements are an integral part of this statement. - 13-

ATLANTA INDEPENDENT SCHOOL SYSTEM STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2003
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others
Due to Local Schools and Student Groups

EXHIBIT"K"
AGENCY FUND LOCAL SCHOOL, CLUB AND CLASS
FUNDS 266,142
266,142

The notes to the basic financial statements are an integral part of this statement. - 14 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"L"

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of Atlanta Independent School System (the "School System") have been prepared in conformity with generally accepted accounting principles ("GAAP") as applicable to government units. The more significant ofthe School System's accounting policies are summarized below.
1. Reporting Entity
The Board ofEducation ofthe City ofAtlanta was established by the Georgia State Legislature and is composed ofnine publicly elected members serving four year terms. The City ofAtlanta issues and services general obligation debt to be used for the School System. However, the Board is financially independent of the City as it has the authority to approve its own budget and to provide for the levy of taxes to cover the cost of operating and maintaining the School System and to cover debt service payments on lease purchase agreements. Additionally, the Board has decision making authority, the power to approve selection ofmanagement personnel, the ability to significantly influence operations, and primary accountability for fiscal matters.
As required by generally accepted accounting principles, these financial statements present the School System and its component units, entities for which the School System is considered to be financially accountable. The blended component unit, although a legally separate entity, is, in substance, part ofthe School System's operations. Therefore, data from this unit is combined with data of the School System. The School System's financial statements include two component units described below.
Blended Component Unit. School Buildings, Inc. (SBI) (a non-profit corporation) was established by the School System for the purpose ofproviding financing for some ofthe School System's buildings and equipment. SBI is governed by a five member board appointed by the School System's Board. SBI has issued certificates ofparticipation (COPS) for the acquisition and construction of facilities and equipment used by the School System. The COPS are repayable solely from payments made by the School System to SBI under a lease agreement for the related facilities and equipment. Accordingly, the COPS and the related capital assets are reported in the District-wide financial statements (See Note H). Separate financial statements are not prepared for this component unit. Since the defeasance in 2002 ofthe COPS debt, SBI has been inactive.
Discretely Presented Component Unit. Atlanta Educational Telecommunications Collaborative, Inc. (AETC) is a non-profit corporation established by the School System for the purpose of operating the FCC radio and television broadcast station licenses owned by the School System. The Board of AETC is appointed under approval of the School System's Board and AETC is partially funded by the School System. Separate financial statements of AETC are available from the School System.

- 15 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"L"

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2. District-wide and fund financial statements
The District-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all ofthe nonfiduciary activities of the School System and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the School System is reported separately from certain legally separate component units for which the School System is financially accountable.
The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to applicants who use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues.
Separate financial statements are provided fiji overnmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the District-wide financial statements. Major individual governmental funds are reported as separate columns in the governmental fund financial statements.
3. Measurement Focus and Basis of Accounting
The District-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the School System considers revenues to be available if they are collected within 60 days ofthe end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.
- 16-

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "L"

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property taxes, sales taxes and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues ofthe current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the School System.
The School System reports the following major governmental funds:
General Fund - The General Fund is the School System's primary operating fund. It accounts for all financial transactions of the School System, except those required to be accounted for in another fund.
Capital Projects Funds - These funds account for resources which are used exclusively for acquiring school sites, constructing and equipping new school facilities, and renovating existing facilities. The major revenue sources are proceeds from debt proceeds, bond sales, property tax revenue, special purpose local option sales tax revenues and amounts received from the State of Georgia.
The School System reports the following major proprietary fund:
Food Service Funds - The primary purpose of the food service funds is to account for activities of the School System's school breakfast and lunch programs, which are funded primarily by the United States Department of Agriculture, passed through the Georgia Department of Education.
Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the District-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The School System has elected not to follow subsequent private-sector guidance.
Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. Operating expenses for the enterprises fund includes the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

- 17 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30. 2003

EXHIBIT ilL"

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The AETC component unit is accounted for on a flow of economic resources measurement focus and uses the accrual basis of accounting. This means that all assets and liabilities associated with the component unit's activities are included on the balance sheet. Underthis method, revenues are recognized when they are earned, and expenses are recognized when they are incurred.
The School System reports the following fiduciary fund:
Agency Fund - This fund is used to account for local school, student club and class accounts. It is custodial in nature and does not involve measurement of results of operations.
The fiduciary fund accounts for assets held by the School System in a trustee capacity or as an agent on behalfofothers. The fiduciary fund is excluded from the District-wide fmancial statements.
4. Assets, liabilities and net assets or equity
a. Cash Equivalents
The School System considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
b. Investments
Investments are recorded at fair value based on quoted market prices.
c. Inventories
Inventories are valued at cost using the first-in, first-out method ofaccounting. The costs of general fund inventories are recorded as expenditures when purchased rather than when consumed (purchase method). The costs of food services fund inventories are recorded as expenditures when consumed (consumption method).
d. Capital Assets
Capital assets used in governmental fund types of the School System are recorded in the statement of net assets at historical cost (or estimated historical cost). Donated fixed assets are recorded at their estimated market value at the date of donation. The School System maintains a capitalization threshold of $5,000.
The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not included in the cost of capital assets.

- 18 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"L"

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

All reported capital assets are depreciated. Depreciation is computed using the straight-line method over the following estimated useful lives:

Capital Asset

Governmental Activities
Estimated Lives

Business-Type Activities
Estimated Lives

Buildings Building Improvements Furniture and Equipment Vehicles

20-50 years 10-50 years 3-10 years 5-10 years

3-15 years

Capital assets ofthe discretely presented component unit are recorded at cost. Capital assets donated to proprietary fund type operation are recorded at their estimated fair value at the date of donation. These capital assets, are depreciated using the straight-line method over their estimated useful lives.

e. Compensated Absences

The School System reports compensated absences in accordance with the provisions of GASB Statement No. 16, "Accounting for Compensated Absences". Vacation benefits are accrued as a liability as the benefits are earned if the employees' rights to receive salary related compensation are attributable to services already rendered and it is probable that the School System will compensate the employees for the benefits through paid time offor some other means. The School System records a liability for accumulated unused vacation time when earned for all employees with more that one year of service.

The entire compensated absence liability is reported on the District-wide financial statements. For governmental fund financial statements, the current portion of unpaid compensated absences is the amount due and payable at year-end. These amounts are recorded in the account "compensated absences payable" in the fund from which the employees who have accumulated unpaid leave are paid. The noncurrent portion of the liability is not reported.

f. Long-Term Obligations

All payables, accrued liabilities and long-term obligations are reported in the District-wide fmancial statements, and all payables, accrued liabilities and long-term obligations payable from proprietary funds are reported on the proprietary fund financial statements.

- 19 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "L"

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In general, payables, compensated absences and accrued liabilities that will be paid from governmental funds are reported on the governmental fund financial statements regardless of whether they will be liquidated with current resources. However, claims and judgments, the noncurrent portion ofcapital leases, contractually required pension contributions and special termination benefits that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they will be paid with current, expendable, available financial resources. In general, payments made within 60 days after year end are considered to have been made with current available financial resources. Bonds and other long-term obligations that will be paid from governmental funds are not recognized as a liability in the fund financial statements until due.
g. Fund Equity
In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriations or are legally restricted by outside parties for use for a specific purpose. The following reservations have been established by the School System:
Fund Balances - Reservedfor Inventory - resources ofthe School System in connection with inventory on hand at year end.
Fund Balance - Reservedfor Encumbrances - resources of the School System which have been encumbered or appropriated for purchase orders or contractual obligations.
Fund Balances - Reservedfor Capital Outlays - resources ofthe School System which have been formally set aside for capital outlays.
Designations of Fund Balance represent tentative management plans that are subject to change.
h. Net Assets
Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net ofrelated debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances ofany borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through external restrictions imposed by creditors, grantors or laws or regulations of other governments.
The School System applies restricted resources first when an expense is incurred for purposes for which both restricted and unrestricted net assets are available.

- 20-

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"L"

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts ofassets and liabilities, the disclosure ofcontingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Stewardship, Compliance and Accountability
B. BUDGETS AND BUDGETARY ACCOUNTING
The School System follows these procedures in establishing the budgetary data reflected in the financial statements:
1. Budget requests are completed in January.
2. Proposed budgets are reviewed and prepared by the CFO/Comptroller, Superintendent of Schools and Budget Commission for submission and approval to the Atlanta Board of Education ("the Board"). A copy of the final adopted budget shall be submitted to the grand juries of Fulton and DeKalb counties then in session, the Atlanta City Council, the AtlantaFulton Public Library, and the State Auditor.
3. Public hearings on the proposed budget are held in March through May.
4. The budget is adopted by the Board in May for the General and Special Revenue Funds.
5. All budget revisions or changes must be approved as required in the charter of the School System and administrative policy. The administrative level ofbudgetary control as the budget is adopted is at the function level within funds where budgets are adopted. The Board must approve revisions that alter the total expenditures ofany function or fund. Transfer ofbudgeted amounts between object categories within program functions requires the approval of the Superintendent.
6. Revenues and expenditures of the Capital Projects Funds are budgeted on a project basis and are, therefore, excluded from presentation in the financial statements.

- 21 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "L"

B. BUDGETS AND BUDGETARY ACCOUNTING

The budget for the General Fund is adopted on a non-GAAP basis. The budgetary comparisons in these financial statements are presented on a non-GAAP budgetary basis. The primary differences between the budget basis and generally accepted accounting principles are:

1. Salaries and employee benefits paid to teachers under contract are recorded when paid (budget) ratherthan when the liability is incurred (GAAP).

2. State revenue relating to Quality Basic Education expenditures is recorded when received (budget) rather than when susceptible to accrual (GAAP).

3. Payments made by the State of Georgia for School System employee benefits are recognized as revenues and expenditures under GAAP and are not recognized on the budget basis.

4. Capital leases are recorded as capital outlay and proceeds from other financing sources under GAAP and are not recorded under the budgetary basis.

5. Transfer of prior year General Fund project reserves are not recorded under budgetary basis.

Adjustments necessary to convert the General Fund's excess ofrevenues and other financing sources over (under) expenditures and other financing uses, from the GAAP basis to the budget basis, are shown below:

Net Change in Fund Balances - GAAP Basis Adjustments for:
Salaries and Benefits Accrual State QBE Revenue Accrual On-behalf Payments Revenue On-behalf Payments Expenditures Capital Lease Proceeds Capital Lease Expenditures

$18,671,340
-3,647,260 2,359,810 3,324,211 -3,324,211 -3,814,304 3,814,304

Net Change in Fund Balances - Budget Basis

$17,383,890

Encumbrances

Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure ofresources are recorded to reserve that portion ofthe applicable appropriation, is used in the governmental funds. Encumbrances outstanding at year end are reported as reservations of fund balances in the governmental funds and do not constitute expenditures or liabilities because the

- 22-

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "L"

B. BUDGETS AND BUDGETARY ACCOUNTING
commitments will be honored during the subsequent year. Unencumbered appropriations lapse at the end of the year. Encumbrances are re-appropriated in the subsequent year, except the Capital Projects Funds encumbrances are continuing.
C. FUND DEFICITIEXCESS EXPENDITURES OVER APPROPRIA nONS OF INDIVIDUAL FUNDS
The Food Services Fund had a fund deficit of$18,572,353 at yearend.
The following steps are currently being taken to eliminate the annual operating deficit of this program:
a. Entering into management contract which requires vendor penalties for selected areas of nonperformance.
b. Replacing program management personnel.
c. Installing Point of Sale technology to provide expanded and more accurate cost data for management decision-making.
d. Initiating actions to adjust staffing levels to better match meal demands.
e. Placing greater emphasis on government commodity utilization to reduce food cost.
f. Developed protocols to focus local school nutrition managers' attention on profitability.
g. Refined outreach and processing for free and reduced-cost meal eligible students.
Detailed Notes on All Funds
D. CASH AND INVESTMENTS
Cash and Cash Equivalents
Georgia law authorizes the School System to deposit its funds in one or more Federally insured or state chartered banks.
At year-end, the carrying amount of the School System's deposits, including cash accounts, certificates of deposit, and short-term investments, was $20,399,937 and the bank balance was $40,352,772. The amount ofthe total bank balance is classified into the following three categories of credit risk:

- 23-

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"L"

D. CASH AND INVESTMENTS

1. Cash that is insured or collateralized with securities held by the School System or by its agent in the School System's name.

2. Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School System's name.

3. Uncollateralized bank accounts.

The bank balance is classified as follows at June 30, 2003:

Category

2

3

Bank Balance

Carrying Amount

Cash and Cash Equivalents:

Primary Government $ 40,352,772 $

Component Unit

2,156,734

$ 42,509,506 $

0$

0 $ 40,352,772 $ 20,399,937

2,156,734

2,065,626

s 0 $====="0

42509506 $ 22.465563

Investments

Georgia law authorizes the School System to invest its funds in obligations ofthe State ofGeorgia or other states, issues by the United States government, obligations fully insured or guaranteed by the United States government or a United States government agency, obligations of any corporation of the United States government, prime banker's acceptance, the Local Government Investment Pool (LGIP) administered by the Office of Treasury and Fiscal Services, repurchase agreements, anJ obligations of political subdivisions of the State of Georgia,

Investment categories of credit risk are as follows:

1. Insured or registered securities held by the School System or by its agent in the School System's name,

2. Uninsured and unregistered, with securities held by the counterparty's trust department or by its agent in the School System's name.

3. Uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent, but not in the School System's name.

The School System's investment, categorized to give an indication of the level of risk assumed by the School System at year end, are summarized below:

- 24-

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "L"

D. CASH AND INVESTMENTS

Primary Government: U. S. Government Obligations Certificates of Deposit
Total Primary Government

Category 2

$ 184,110,019 $

0$

10,664,933

s 194774952 $

0$

Fair

3

Value

0 $ 184,110,019 10,664,933
0 $ 194,774952

A reconciliation of cash and investments as shown on the statement of net assets for the primary government follows:

Carrying Amounts Shown Above: Cash and Cash Equivalents Investments
Total Investments
Amounts on Statement of Net Assets: Cash and Cash Equivalents Restricted Cash Investments
Amounts on Statement of Net Assets - Fiduciary Funds: Cash and Cash Equivalents

$ 20,399,937 194,774,952
$ 215,174.889
$ 19,837,846 295,949
194,774,952 $ 214,908,747
266,142 $ 215.174.889

E. DUE FROM OTHER GOVERNMENTS

Due from other governments consists of grant reimbursements due primarily from the Georgia Department of Education for expenditures made, but not yet reimbursed.

F. TAXES RECEIVABLE

Property taxes are levied in early July based on property values assessed as ofJanuary 1, on all real and personal property located within the City of Atlanta. Property taxes are due on or before August 15, at which time they become delinquent and penalties and interest may be assessed and liens may be attached to property. An allowance has been established for estimated amounts that will not be collected.

Taxes Receivable

Allowance

Net Taxes Receivable

General Fund

$ 13.213.659 $ 5.557,696 $ 7.655.963

- 25 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"L"

G: CAPITAL ASSETS

Capital asset activity for the year ended June 30, 2003, was as follows:

Primary Government
Governmental Activities Land Buildings Building Improvements Construction in Progress Furniture Equipment Vehicles
Totals at Historical Cost
Less: Accumulated Depreciation Buildings Building Improvements Furniture Equipment Vehicles
Total Accumulated Depreciation
Governmental Activities Capital Assets, Net

Beginning Balance

Retirements/ Additions Reclassifications

Ending Balance

$ 17,700,387

464,101,271 $

38,360

25,715,699

1,422,654

94,977,463 141,804,233

7,904,541

119,376

36,384,554 25,651,834

23,373,816

55,647

$

-17,365

118,882,641

-119,128,805 -5,000
-4,870,871 49,675

$ 17,683,022 583,022,272 27,138,353 117,652,891 8,018,917 57,165,517 23,479,138

$ 670,157,731 $ 169,092,104 $ -5,089,725 $ 834,160,110

$ 128,261,941 $ 7,194,242 1,890,240 18,265,996 13,602,611

9,523,235 $ 1,602,868
819,327 7,876,343 2,395,616

-109,712
-750 -1,293,563

$ 137,675,464 8,797,110 2,708,817
24,848,776 15,998,227

$ 169,215,030 $ 22,217,389 $ -1.404,025 $ 190,028,394

$ 500,942,701 $ 146,874,715 $ -3,685,700 $ 644,131.716

Business-type Activities: Equipment

$ 6,388,018 $ 816,853 $ -286,209 $ 6,918,662

Totals at Historical Cost

$ 6,388,018 $ 816,853 $ -286,209 $ 6,918,662

Less: Accumulated Depreciation Equipment

3,667,756

511,734

-148,444

4,031.046

Business-type Activities Capital Assets, Net $ 2,720.262 $ 305,119 $ -137,765 $ 2,887,616

Depreciation expense was charged to governmental functions as follows:

Instruction Pupil Services Educational Media General Administrative Maintenance and Operation of Facilities Student Transportation Depreciation not Allocated to Specific Functions

$ 16,378,369 37,094 14,323
3,150,046 5,071
2,383,392 249,094

Total

$ 22.217.389

Depreciation expense was charged to business-type activities as follows: Food Service

$ 511.734

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ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "L"

G: CAPITAL ASSETS

Construction Commitments

The School System has active construction projects as of June 30, 2003. The projects relate to construction and renovation of school buildings. At year end, the School System's commitments with contractors were $42,435,918. The commitments include $14,459,532 related to the final construction phase of a new administration building budgeted at $45 million.

Component Unit

Fixed asset balances of AETC (component unit) as of June 30, 2003, are as follows:

Equipment and Furniture Equipment Purchased Under Capital Leases

$ 1,408,342 186,416

$ 1,594,758

Less: Accumulated Depreciation

-1,405,460

Net Fixed Assets

$ 189.298

Depreciation expense of AETC for the year ended June 30, 2003, was $102,440.

As part of the operation agreement with the School System for the radio and television stations, all real and personal property comprising the physical facilities ofthe stations remain the property ofthe School System. The School System is responsible for routine maintenance and insurance of the facilities. AETC, in turn, leases the facilities from the School System for $1.00 a year.

H: LONG-TERM DEBT

Changes in long-term debt during the year ended June 30, 2003, were as follows:

Governmental Activities: Long- Term Debt
Capital Leases
Other Long- Term Liabilities Compensated Absences Workers Compensation
Total Other Long-Term Liabilities
Total Long- Term Liabilities

Beginning Balance
$ 18.966,937
$ 4,160,094 3,426.971
$ 7.587.065 $ 26554,002

Additions
$ 3.814.304
$ 3,689,398 1.865,272
$ 5.554,670 $ 9.368.974

Deductions

Ending Balance

Amounts Due Within One Year

$ 8,417,826 $ 14,363.415 $ 5,093,802

$ 2,761,498 $ 5,087,994 $ 2,332,550

1,886,\09

3,406,\34

335,452

$ 4.647,607 $ 8,494,128 $ 2,668,002

$ 13.065.433 $ 22.857.543 $ 7.761.804

- 27-

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "L"

H: LONG-TERM DEBT

Over the years, the City of Atlanta has issued various annual general obligation bonds, general obligation refunding bonds and a 1993 School Improvement Bond on behalf ofthe School System. The debt service for the bonds has been funded through the School System's bonded debt portion of the annual tax levy. The bonded debt portion ofproperty taxes collected by the City on behalfofthe School System are retained and used to pay the annual debt service on the outstanding bonds. During the current fiscal year, the balance of bonds outstanding amounted to $8,000,000.

Under the terms of the Special Purpose Local Option Sales Tax (SPLOST) that was approved in March 1997, by referendum, the School System was required to use a portion of the tax to prepay outstanding debt - both outstanding bonds and certificates of participation (COPS). During fiscal year 2001, the School System defeased $128,655,000 of outstanding bonds, using $108,114,608 of proceeds from the SPLOST and the remainder from bond sinking funds. The funds have been placed in an irrevocable trust with an escrow agent for the purpose of generating resources for all future debt service payments on the outstanding bonds as they become due. During fiscal year 2002, the School System defeased $37,430,000 of outstanding COPS debt, using $37,991,608 ofproceeds from the SPLOST. The funds have been placed in an irrevocable trust with an escrow agent for the purpose of generating resources for all future debt service payments on the outstanding bonds as they become due.

The School System has entered into various lease agreements for the purchase of equipment. These lease agreements are capital leases for accounting purposes and, therefore, have been recorded at the present value of the future minimum lease payments as ofthe date of inception. The following is a schedule of the future minimum lease payments under capital leases and their total present value.

Fiscal Year Ending June 30

2004 2005 2006 2007 2008 2009

$ 5,784,638 3,973,430 1,941,509 1,575,382 1,408,818 1,408,818

Total Minimum Lease Payments Less: Amount Representing Interest

$ 16,092,595 1,729,180

Present Value of Minimum Lease Payments

$ 14.363.415

Interest expense relating to the lease obligations for the year ended June 30, 2003, totaled $1,166,139.

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ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "L"

H: LONG-TERM DEBT

AETC has entered into two lease agreements for financing the purchase of equipment. The leases transfer substantially all the risks of ownership to AETC and accordingly should be accounted for as capital leases. Future minimum lease payments and the present value of minimum capital lease payments of AETC are as follows:

Year Ending June 30

2004

$==~1.5~56

Interest expense relating to the lease obligations of AETC for the year ended June 30, 2003, amounted to $665.

I. INTERFUND RECEIVABLES AND PAYABLES

Interfund receivables and payables balances within governmental and proprietary funds as of June 30, 2003 are as follows:

Due from Other Funds

Due to Other Funds

General Fund Capital Projects Nonmajor Government Funds Food Service Fund

$ 57,410,377 2,506,124 13,548,920 888,682

$ 13,643,058 112,615
42,257,196 18,341,234

$ 74,354.103 $ 74.354,103

During the course of its operations, the School System makes transfers between funds to finance operations, provide services, acquire assets and service debt. To the extent that certain transfers between funds had not been received as of year end, balances of interfund amounts receivable or payable have been recorded. It is management's intent to repay interfund balances within the next fiscal year.

Interfund receivables and payables are not reported in the District-wide financial statements but are netted to zero as internal balances in the District-wide statement of net assets.

J. INTERFUND TRANSFERS

Transfers within the governmental and proprietary funds for the year ended June 30,2003, are as follows:

- 29-

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"L"

J. INTERFUND TRANSFERS

Transfers In Transfers Out

Transfers TolFrom Primary Government: Capital Projects Funds Nonmajor Governmental Funds

$ 2,482,792 $ 2,482,792

Total Primary Government

$ 2.482,798 $ 2.482,792

Transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. The current year transfers do not occur on a routine basis.

Other Information

K. RISK MANAGEMENT

The School System is exposed to various risks of losses related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and acts of God. The School System is self-insured for workers' compensation claims. The School System purchases commercial insurance in amounts deemed prudent by management for all other risks ofloss. Settled claims have not exceeded purchased commercial insurance coverage in any of the past three years.

Workers' Compensation:

The School System is fully self-insured for workers' compensation claims ofits employees and has accrued a liability for the estimated costs ofclaims and related settlement costs incurred but not paid as of year end. Liabilities include an amount of$123,304 for claims that have been incurred but not reported (IBNR). The calculation ofthe present value of future workers' compensation liabilities is based on a discount rate of 7.0%. Changes in the claims liability during the last two fiscal years are as follows:

Fiscal Year 2002 Fiscal Year 2003

Balance at Beginning of Year

Claims and Changes in Estimates

Claim Payments

Balance at End of Year

$ 3,350,942 $ 1,881,619 $ 1,805,590 $ 3.426,971 $ 3.426,971 $ 1,865,272 $ 1,886,109 $ 3,406,134

- 30-

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "L"

L. NON-MONETARY TRANSACTIONS
School Food Services Fund
The School System received from the United States Department ofAgriculture through the Georgia Department ofEducation approximately $1,082,104 in donated food commodities for its lunchroom programs. The Federally assigned value ofthese commodities is reflected as revenue and expense in the basic financial statements.
M. ON-BEHALF PAYMENTS FOR FRINGE BENEFITS
The School System has recognized revenues and expenditures in the amount of $3,324,211 for health insurance paid by the Georgia Department of Education to the Department of Community Health for non-certified personnel on the School System's behalf.
N. RETIREMENT PLANS
Plan Description
Substantially all teachers, administrative and clerical personnel employed by local school systems of the State of Georgia are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer public employee retirement system sponsored by the State of Georgia. Most School System employees participate in TRS.
TRS provides service retirement, disability retirement and survivors benefits for its members. A member is eligible for service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment ofage 60. A member is eligible for early retirement after 25 years ofcreditable service. Early retirement benefits are reduced by the lesser of 1/12 of7% ofeach month the member is below age 60, or by 7% ofeach year or fraction thereof by which the member has less than 30 years of service.
Normal retirement benefits paid to members are equal to 2% of the average of the member's two consecutive highest paid years ofservice multiplied by the number of years ofcreditable service up to 40 years. The normal retirement pension is payable monthly for life. Options are available for distribution of the member's monthly pension at a reduced rate to a designated beneficiary on the member's death.
Retirement benefits also include death and disability benefits whereby the disabled member or surviving spouse is entitled to receive annually an amount equal to the member's service retirement benefit or liability retirement, whichever is greater. The benefit is based on member's creditable service (minimum of 10 years) and compensation up to the date of death.
TRS issues a publicly available financial report that includes financial statements and required supplementary information for the Plan. That report may be obtained by calling 404-352-6500, or by accessing their website @ www.trsga.com.
- 31 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"L"

N. RETIREMENT PLANS

Funding Policy

Employees of the School System who are covered by TRS are required to pay 5% of their gross earnings to TRS. The School System makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees as advised by their independent actuary. The employer contribution rate is 9.24% at June 30, 2003.

Total actual and required contributions were as follows:

2003

2002

2001

School System Employees

$ 27,639,184 $ 24,567,789 $ 28,482,893

14,956,261

13,294,258

12,614,213

$ 42,595.445 $ 37,862,047 $ 41.097,106

City of Atlanta General Employees Pension Plan
Plan Description
All permanent employees ofthe School System who are not covered under the Teachers Retirement System of Georgia (TRS) are eligible to participate in the City of Atlanta General Employees' Pension Plan (the "Plan"). In addition, certain School System employees employed prior to July 1, 1979, also participate in the Plan.
The Plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. The Plan is an agent multiple-employer pension plan administered by a Board of Trustees, which includes the Mayor of the City of Atlanta or designee, the City's Chief Financial Officer, one member of City Council, one member ofthe Atlanta Board of Education (the "Board"), one member elected by eligible employees ofthe City, one member elected by eligible employees ofthe School System, one member elected by retired employees ofthe School System and one member elected by retired employees of the City. The Board of Trustees has the authority to establish and amend the benefit provisions of the plans that participate in the Plan.
The Plan issues a publicly available financial report that includes financial statements and required supplementary information for the Plan. The report may be obtained by writing or by calling the Plan at:
City of Atlanta General Employees Pension Plan 68 Mitchell Street Atlanta, Georgia Telephone Number: (404) 330-6000
- 32-

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT"L"

N. RETIREMENT PLANS

The Plan provides retirement benefits that, initially, are 2% of the employee's highest average monthly base compensation over any 36-month period. A participant may retire at age 65 or, after 15 years ofservice, at age 60. Cost-of-living increases are awarded annually, up to a 3% maximum increase. Partial vesting percentages based on years of creditable service and provisions for early retirement are included in the Plan. Benefits also may be payable at termination, death, or disability. Membership in the Plan as of January 1, 2003, is as follows:

Active Employees Retirees and Beneficiaries

1,774 2,479

Method Used to Value Investments
Investments are stated at fair value. Fair value of Plan assets at January 1, 2003, was $94,312,000.
Funding Policy and Annual Pension Cost
The School System's funding policy is to contribute a percentage of covered employee payroll as developed in the actuarial valuation for the Plan. Obligations to contribute to the Plan are established by the Board, subject to minimum financing standards established by the State of Georgia.
Active participants are required to contribute 7% of pay (or 8% if participant has a covered beneficiary). The School System's contribution percentage is the actuarial determined amount necessary to fund Plan benefits after consideration of employee contributions.
The actuarial determined contribution amount is the sum of the annual normal cost (determined under the entry age normal actuarial cost method) and the amortization of the unfunded actuarial accrued liability as a level percentage of future payroll (over 40 years from January 1, 1979).
The Plan's annual pension cost for the current year, based on actuarial valuations performed as of January 1,2003, and related information for the Plan, is as follows:

- 33 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBlT"L"

N. RETIREMENT PLANS

Contribution Rates as a Percent of Covered Payroll:

Employee Employer

7.0% 8.0%

Annual Pension Cost Contributions Made

$ 38,812,022 $ 38,053,600

Actuarial Valuation Date Actuarial Cost Method Amortization Method

January 1,2003 Entry Age Normal Level % of Pay, Closed

Actuarial Assumptions: Investment Rate of Return Projected Salary Increases: Inflation Merit or Seniority and Productivity Post Retirement Benefit Increases

8% Per Year
3.0% Per Year 4.5% Per Year
N/A

The asset valuation method used is the actuarial value from the prior year plus net new money plus 20% of the asset appreciation/(depreciation) for the current year and each of the prior four years.

Three Year Trend Information as of January 1, is as follows:

Annual

Pension

%ofAPC Net Pension

Year

Cost (APC)

Contributed Obligation

2001 2002 2003

$ 35,168,700 $ 34,950,601 $ 38,812,022

100%

N/A

100%

N/A

100%

N/A

- 34-

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30,2003

EXHIBIT"L"

N. RETIREMENT PLANS

Actuarial Valuation
Date
1/1/98 111/00 1/1101 1/1/02 1/1/03

Actuarial Value of Assets"
(a)
$ 109,278,000 $ 123,501.000 $ 120,809,700 $ 117,546,260 $ 109,367,500

Actuarial Accrued Liability (AAL) Entry Age
(b)
$ 574,839,200 $ 584,106,700 $ 566,340,700 $ 563,396,789 $ 579,890,481

Unfunded AAL
(UAAL)
(b-a)
$ 465,561 ,200 $ 460,605,700 $ 445,531,000 $ 445,850,529 $ 470,522,981

Funded Ratio
(alb)
19.0% 21.1% 21.3% 20.9"10 18.9%

Covered Payroll
(c)
$ 43,611,700 $ 40,327,000 $ 39,299,400 $ 40,666,479 $ 47,042,418

UAAL asa
Percentage of
Covered Payroll b-aVc)
1,067% 1,142.2% 1,133.70% 1,096.4% 1,000.3%

Prior to January 1, 1998, the actuarial value ofPlan assets was computed based upon historical cost. Accordingly, the January 1, 1996, actuarial value of Plan assets reflects amortized historical cost. The January 1, 1998, actuarial value of Plan assets reflects the market value of Plan assets.

O. CONTINGENCIES

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

The School System is a defendant in various lawsuits which arose in the ordinary course of its activities. The School System believes its liability in these matters, if any, will not be material.

P. PRIOR PERIOD ADJUSTMENTS

During the fiscal year, the School System merged the Expendable Trust Fund (Employee Benefits Funds) within the Special Revenue Funds, resulting in an increase of$12,295,227 to the beginning fund balance of the Other Special Projects Fund.

- 35 -

SECTION II FINDINGS AND QUESTIONED COSTS

ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

I SUMMARY OF AUDITOR'S RESULTS

1. Type of Report Issued on the Financial Statements The auditor's opinion on the Atlanta Independent School System's financial statements was qualified for a scope limitation and a departure from generally accepted accounting principles.

2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the Atlanta Independent School System disclosed financial statement reportable conditions related to the following control categories.

Budget Preparation and Execution Cash and Cash Equivalents Expenditures/Liabilities/Disbursements Employee Compensation

General Ledger Capital Assets Financial Reporting

Of the reportable conditions described above, Cash and Cash Equivalents, Employee Compensation, General Ledger and Capital Assets are considered to be material weaknesses.

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

General Comments from Atlanta Independent School System's Management

The Atlanta Public Schools transitioned to a new management information system in October 2003. During the year the district operated with two management information systems, the legacy system and the new Lawson system. This led to many of the reconciling items. This transition to the new system will be referred to repeatedly in our responses.

Governmental entities were required to record fixed assets on their books for the first time beginning June 30, 2002. This was required by Governmental Accounting Standards Board rule 34, commonly referred to as GASB 34.

Prior to GASB 34, governmental entitres did not record capital assets. As a result, the implementation of the GASB 34 process was the first time that Atlanta Public Schools recorded its capital assets. Errors were made while gathering information from different sources about the value of the district's assets.

According to the American Institute of Certified Public Accountants (AICPA), many governments have had transitional problems with the recording of capital assets required by GASB 34 and have been making subsequent year adjustments to those numbers to properly state the value.

What is more, because this was the first year in which the State audited the capital assets in APS's financial statements, there was no prior year for auditor comparison, which is an automatic cause for scope limitation.

- 1-

ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
Of the total capital assets of the school district, approximately 84 percent are buildings. Because those buildings were funded primarily with certificates of participation (COPS) or with Special Purpose Local Option Sales Taxes (SPLOST) dollars, we are confident of those recorded values.
Since the state audit ofthe fiscal year ending June 30, 2003, staffhas implemented invoice review and physical inspection procedures to validate other assets. When these reviews and inspections are complete, the district's books will be adjusted.
BUDGET PREPARATIONIEXECUTION Deficit Fund Balance Reportable Condition Finding Control Number: FS-7611-03-01
At June 30, 2003, the Proprietary Fund - Food Services Fund of the Atlanta Independent School System reported a deficit fund balance in the amount of$18,572,353 which is considered to be an irregularity in accordance with O.C.G.A. 20-2-67. This condition occurred because management approved expenditures in excess of funds available in the Proprietary Fund - Food Services Fund.
The School District should establish appropriate policies and procedures designed to ensure that in future periods the School District does not report a deficit.
Management's Response:
We concur. The notes to the financial statements include information about the steps taken to eliminate the annual operating deficit of this program.
Contact: Minerva Nixon, Director of Accounting, (404) 802-2400
CASH AND CASH EQUIVALENTS Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7611-03-02
Accounting procedures of the Atlanta Independent School System were insufficient to provide adequate control over cash and cash equivalents. The following deficiencies were noted affecting the general operating account.
(1) Bank reconciliations were not performed in a timely manner. The June 30, 2003, general operating account bank reconciliation was not performed until December 2003.
-2-

ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7611-03-02
(2) Reconciling items disclosed through the bank reconciliation process were not posted to the general ledger in a timely manner. Unposted reconciling items date back to December 22, 1998.
(3) At June 30, 2003, unposted reconciling items totaled $42,926,716 and the June 30 reconciliation did not agree with the general ledger by $987,651.
(4) Two bank accounts identified during the bank reconciliation process were not recorded on the general ledger. At June 30, 2003, these accounts had balances of$12,233 and $283,614.
These deficiencies occurred because management failed to ensure that adequate accounting procedures and policies were in place to manage cash and cash equivalents.
The School District should establish accounting procedures adequate to ensure that cash reconciliations are performed on a timely basis, reconciling items are properly posted to the general ledger in a timely manner and all bank accounts are included within the general ledger.
Management's Response:
We concur. The completion of bank reconciliations was dependent upon the implementation of a new management information system in October 2002, which was part ofthe 2003 fiscal year. The 2003 fiscal year-end closing was the first for the school district after conversion to the new management information system. As with most new technology systems, the conversion led to a large number ofreconcilements. Most ofthe conversion and reconcilement problems encountered as a result ofthe conversion affected cash, specifically the inter-company cash account. While the June bank reconciliation was begun in July 2003, it could not be completed until conversion issues with the general ledger's cash account were resolved in a manner that provided APS management and the Board of Education with reasonable assurance of the accuracy of the recorded information.
Concurrent with the switch to the new computer system, APS switched from 22 individual checking accounts to a cash pool portfolio. Some of the old items on the 22 individual bank recons, which pre-date the employment ofthe current staff, had to be researched. In spite oflengthy research, staff could find no documents or explanations to support the 1998 adjusting entries. The decision was made to leave the old entries on the recons until the Lawson system was implemented and stabilized. Writing off these old items after stabilization of the Lawson system provided a clear and well documented audit trail of the write-off, enabling staff to trace the effect on all accounts.
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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7611-03-02
The $42 million ofunposted reconciling items resulted from normal movement ofcash among the 22 accounts mentioned previously.
The two bank accounts that are not part of the general ledger are lease escrow accounts. It is acceptable accounting practice to not record such accounts in an entity's general ledger. These accounts are known as "off balance sheet" or "off book" accounts. Both are treated as year-end adjusting journal entries and reflected as "restricted cash" on page 14 of the district's 2003 Comprehensive Annual Financial Statement with $12,223 lease escrow recognized in the general fund and $283,614 lease escrow recognized in capital projects. These accounts were closed during the 2004 fiscal year.
Procedures were put in place during fiscal 2004 to ensure timely bank reconciliations, full and complete documentation of reconciling items, and the journalizing of reconciling items, where appropriate, prior to month-end close. In addition, a project team was put in place to recommend the appropriate disposal ofold reconciling items. The project team completed its work in July 2004 and the appropriate entries were made.
Contact: Minerva Nixon, Director of Accounting (404) 802-2400
EXPENDITURESILIABILITIES/DISBURSEMENTS Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-7611-03-03
An examination of 50 expenditure vouchers was performed to test the validity and accuracy of the expenditure transactions. The following deficiencies were noted:
(1) Three (3) vouchers could not be located. (2) Three (3) vouchers did not include documentation of approval for payment. (3) Eleven (11) vouchers included no or inaccurate account distribution information. (4) One (1) invoice was dated after check was issued to vendor and cashed by the vendor. (5) Two (2) vouchers did not contain original invoices.
These deficiencies occurred due to the School District's failure to adequately monitor and control procedures for operating costs. The School District did not have adequate control procedures over the filing of expenditure vouchers.
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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EXPENDITURESILIABILITIESIDISBURSEMENTS Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-7611-03-03
The School District should establish accounting procedures adequate to ensure that all expenditures are accurately documented, processed and reported within the basic fmancial statements and retained for subsequent review and/or audit.
Management's Response:
We concur. The voucher storage and retrieval function was moved from accounts payable to another department in the 2004 fiscal year. Procedures are in place to ensure that files are stored for a predetermined period and can be retrieved as needed. Although accounts payable procedures require that only original invoices are used for payment, exceptions are granted for invoices that are occasionally misplaced, misrouted or never received after determination of receipt of services or goods. Procedures exist whereby management grants authorization to pay from a faxed copy of an invoice to ensure continuation ofcritical services. When vouchers are the result ofa purchase order, there is no need for account distribution information since that information is embedded in the purchase order detail.
Contact: Alton Myers, Director ofSPLOST and Fixed Assets, (404) 802-2400
EMPLOYEE COMPENSATION EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-7611-03-04
During the fiscal year ended June 30, 2003, the School District may have under paid employer cost associated with health insurance plans administered by the Georgia Department of Community Health (DCH). The School District has employees with health insurance under the Health Insurance Plan for Public School Teachers (See OCGA Title 20, Chapter 2, Article 17, Part 6, Sub Part 1) and Health Insurance Plan for Public School Employees (See OCGA Title 20, Chapter 2, Article 17,Part 6, Sub Part 2). While the employee costs and benefits are identical under either plan the employer costs varies by plan.
Employer costs for the Health Insurance Plan for Public School Teachers is determined by multiplying the State based component of teacher's salary by 13.1 percent. Employer cost for the Health Insurance Plan for Public School Employees is a flat rate of$162.72 per month per employee.
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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EMPLOYEE COMPENSAnON EXPENDITURESILIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-7611-03-04
Inquiries made during the audit disclosed that the data file utilized in calculating employer contributions for the Health Insurance Plan for Public School Teachers was not updated accurately or timely.
The School District should establish policies and procedures to ensure that employer contributions for employee health insurance plans are paid in accordance with State Laws. In addition, the School District should contact the Georgia Department of Community Health to determine whether the School District should make payment to DCH for employer cost under payments.
Management's Response:
We concur. The school district established necessary protocol for accurate and timely updating of employer contributions in accordance with State Laws. The school district is in contact with the Department of Community Health regarding employer contributions. A final report is expected from the Department of Community Health by end of fiscal 2005.
Contact: Millicent Few, Chief Human Resource Officer, (404) 802-2300
GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7611-03-05
A review of the School District's internal control policies and procedures noted deficiencies in providing adequate internal control over accounts payable. The School District was unable to provide adequate supporting documentation for accounts payable in the amount of$4,061 ,683 as of June 30, 2003. Internal control deficiencies contributing to this problem are as follows.
(1) Accounts payable balances converted from the School District's old "legacy" accounting system to the current accounting software (Lawson) could not be supported by a subsidiary listing showing individual vendors and amounts.
(2) School District personnel were unable to explain and/or document the accounts payable conversion process associated with implementing the new accounting software (Lawson).
(3) School District personnel were not able to produce a year end accounts payable listing with detailed information by vendor and amount.
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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7611-03-05

These deficiencies occurred because management failed to ensure that adequate accounting

procedures were in place to maintain accounts payable subsidiary records that are accurate and

properly support general ledger balances.

.

The School District should establish accounting procedures adequate to ensure that accounts payable reconciliations are performed monthly and subsidiary detail listings are in balance with the general ledger control totals.

Management's Response:

We concur. We have developed and implemented, during the 2005 fiscal year, procedures to reconcile accounts payable detail to the general ledger lead account on a monthly basis. We acknowledge that the detail maintained by the school district to support the accounts payable balance at June 30 is not in the format needed by the state auditors. A report in the format required by the auditors is available online at June 30. This report, however, must be run and preserved on June 30 since the information contained therein updates daily as new transactions are processed. If this report is not preserved on June 30, it cannot be run at a later date. This report will be preserved, in a separate electronic file and in hard copy, as of June 30 for each year - beginning with June 30, 2005.

Contact: Minerva Nixon, Director of Accounting, (404) 802-2400

EMPLOYEE COMPENSATION Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7611-03-06

As a part of our testing related to employee compensation, we reviewed the internal control procedures related to employee compensation in order to gain an understanding of the School District's control over this area and we noted the following:

(l) The School District outsourced an employee compensation study which included the process of calculating individual employee salaries.
(2) The School District hired an additional outside consultant to load the new salary data into the payroll system. The School District's human resource department could not provide documentation to verify that the data was reviewed for accuracy by the School District.

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EMPLOYEE COMPENSATION Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7611-03-06
(3) Of the 9,255 employees subject to the compensation study, approximately 1,108 employees subsequently protested their new salary amounts. The School District did not review nor have a consultant review the salary amounts not protested.
(4) These appeals were also outsourced to the firm which originally performed the compensation study. Twenty-two percent of the appeals resulted in salary amount changes.
(5) Based on our discussions with the School District's human resource personnel, the School District's staff did not demonstrate a sufficient understanding of the salary determination process.
Additionally, we selected 15 employees to determine if the appropriate years of experience and teaching certificate type were used to calculate their salaries. Ofthe 15 tested, 3 were found to be in error resulting in a potential misstatement of$3,363,365 when we project the error rate to the salary cost associated only with the 8,147 employees not protesting the employee compensation study.
These conditions occurred because management failed to ensure that established accounting procedures were adequately implemented and monitored to ensure that payments made to employees are supported by accurate rate of pay documentation.
The School District should implement procedures to ensure that the human resources staff is knowledgeable ofall aspects ofpayroll calculation and processing. In addition, data obtained from outside consultants should be reviewed for accuracy before the data is loaded into the payroll processing system and used to compensate personnel.
Management's Response:
We do not concur. Training regarding salary determination was conducted by IBM, PricewaterhouseCoopers and training internally for the Human Resource staff is on-going.
The Human Resource department, in conjunction with consultants, developed and established compensation guidelines to determine employee salaries. The process included the collection ofdata about employee certification, prior service, and APS experience credit from APS personnel files by consultants. The consultants calculated salaries using this information and developed a letter for each employee that included future job title and salary. These letters were reviewed by the consultants and forwarded to APS. The APS Human Resource department reviewed each letter for
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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EMPLOYEE COMPENSATION Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7611-03-06
accuracy prior to sending the letter to the employees. Employees reviewed their letter and, where appropriate, appealed salary level, experience, certification, etc.
Contact: Millicent Few, Chief Human Resource Officer, (404) 802-8300
CAPITAL ASSETS Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7611-03-07
A review of the Capital Assets detail listing provided by the School District to support the amounts reported on the Statement ofNet Assets disclosed significant variances between the detailed listing provided and Capital Asset amounts reported. Additionally, the additions and deletions listing provided by the School District did not support the amounts reported as increases and decreases within the Notes to the Basic Financial Statements.
(1) Unidentified variances between the Capital Assets detail listing and the financial statements in the amount of $43,879,670 were disclosed.
(2) Accumulated depreciation in the amount of$8,868,956 was unsupported. (3) Variances between Construction in Progress and supporting documentation amounted to
$12,219,790.
These deficiencies occurred because management failed to ensure that adequate accounting procedures and appropriately trained staffwere in place to manage Capital Assets and its subsidiary reports. The variances between the detailed capital asset records and the financial statements are considered to be irregularities in accordance with O.C.G.A. 20-2-67.
The School District should establish accounting procedures adequate to ensure that Capital Assets are accurately reported within the basic financial statements and subsidiary detail records should be maintained which support financial statement amounts.
Management's Response:
We concur. The variance between the detail list and the financial statements is related to in-house establishment ofGASB-34 and implementation ofthe new computer system. The responsibility for preparing capital asset schedules has been moved to fixed asset staff. All non-property-related items are being reviewed to ensure that they fall within established guidelines.
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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CAPITAL ASSETS Inadequate Accounting Procedures Reportable Condition - Material Weakness Finding Control Number: FS-7611-03-07
We do not concur that there was a variance between Construction in Progress and the amount identified as capital outlay. We have reviewed the supporting documentation. It does not indicate a variance.
Contact: Alton Myers, Director ofSPLOST and Fixed Assets, (404) 802-2400
GENERAL LEDGER FINANCIAL REPORTING Failure to Properly Disclose Debt Activity Reportable Condition Finding Control Number: FS-7611-03-08
During our audit we noted that the Atlanta Public School System reported $2,129,553 as Due to Other Governments in the Statement of Net Assets and $8,000,000 of bonds outstanding were disclosed in the Notes to the Basic Financial Statement'; both of which are a reflection of general obligation bonds that were issued by the City of Atlanta on behalf of the System. Debt service for these bonds is funded through the System's bonded debt portion ofthe annual tax levy as disclosed in Note H to the Basic Financial Statements. The City of Atlanta confirmed that at June 30, 2003, bonds outstanding for which the System is obligated totaled $7,897,500. The System could not provide documentation to explain why this debt activity was disclosed by two different methods within their financial statements. Additionally, the System could not provide an agreement which would document the process established between the System and the City of Atlanta for disbursement ofbond proceeds, and the ad valorem tax collections and expenditures for servicing the debt.
These deficiencies occurred due to management's failure to ensure that the bonds outstanding issued by the City ofAtlanta and the related servicing ofthis debt were properly disclosed within their basic financial statements.
The System should establish procedures to ensure that debt issued by the City of Atlanta is properly disclosed within their basic financial statements to reduce the risk of reporting incomplete and/or inaccurate financial information to the users ofthe System's basic financial statements. Additionally, the System should work with the City of Atlanta to formalize the process related to this debt in order to ensure that the bond liability and the revenue stream and expenditures related to the servicing of this debt is properly and consistently disclosed within both of their financial statements.
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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER FINANCIAL REPORTING Failure to Properly Disclose Debt Activity Reportable Condition Finding Control Number: FS-7611-03-08 Management's Response: We do not concur. This information, consistent with past years' presentations, is reported as a note to the financial statements. The debt is issued by the City of Atlanta. The bond proceeds go to the directly to the City of Atlanta. The sinking fund for debt servicing is maintained by the City of Atlanta. Further, the millage rate for the servicing of debt goes directly to the City of Atlanta. Atlanta Public Schools receive funds only after requesting and attesting that the funds have been spent for specified capital projects. The difference between the APS bonds outstanding at June 30, 2003, of $8,000,000 and the $7,897,500 confirmed by the City of Atlanta at that date relates to a $205,000 principal payment made by the City of Atlanta in December 2002. One-half of that payment, $102,500, was APS' responsibility. This payment was not disclosed to APS when financials were prepared. The $2,129,553 represents revenue received from the City of Atlanta as bond proceeds. The $8,000,000, on the other hand, represents the district's obligation for the $8,000,000 of bonds outstanding and was the source of the $2,129,553 revenue listed above. Contact: Alton Myers, Director ofSPLOST and Fixed Assets, (404) 802-2400
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