Atlanta Independent School System, Atlanta, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2007, June 30, 2007

ATLANTA INDEPENDENT SCHOOL SYSTEM
ATLANTA, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2007
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 REPORT

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

1

B

STATEMENT OF ACTIVITIES

2

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

4

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE 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 STATEMENT OF ACTIVITIES

10

G

STATEMENT OF NET ASSETS

PROPRIETARY FUNDS

11

H

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

PROPRIETARY FUNDS

12

I

STATEMENT OF CASH FLOWS

PROPRIETARY FUNDS

13

J

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

15

K

NOTES TO THE BASIC FINANCIAL STATEMENTS

16

ATLANTA INDEPENDENT SCHOOL SYSTEM - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

45

2 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

TITLE I FUND

47

SUPPLEMENTARY INFORMATION

3 COMBINING BALANCE SHEET

NONMAJOR GOVERNMENTAL FUNDS

48

4 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES

NONMAJOR GOVERNMENTAL FUNDS

50

5 COMBINING BALANCE SHEET

NONMAJOR GOVERNMENTAL FUNDS - CHARTER SCHOOLS

52

6 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES

NONMAJOR GOVERNMENTAL FUNDS - CHARTER SCHOOLS

54

7 SCHEDULE OF STATE REVENUE

56

8 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

57

9 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BYPROGRAM

59

SECTION II FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

ATLANTA INDEPENDENT SCHOOL SYSTEM - TABLE OF CONTENTS -
SECTION III MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

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

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
October 20, 2008

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 REPORT
Ladies and Gentlemen:
We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information (Exhibits A through K) of the Atlanta Independent School System (School System), as of and for the year ended June 30, 2007, which collectively comprise the School District's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the 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 the 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. In addition, we did not audit the financial statements of the School District's blended component units which represent 0.7% and 0.5%, respectively, of the assets and revenues of the governmental activities and 36.9% and 10.4%, respectively, of the assets and revenues of the aggregate remaining fund information. The financial statements of these component units, except as discussed in the sixth paragraph, were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for those financial statements, is solely based upon the reports of the other auditors.
Except as discussed in the following paragraphs three through six, 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the School System's internal control over financial reporting.
2007 ARL-APS

Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 and the report of other auditors provide a reasonable basis for our opinions.
The School System did not maintain adequate accounting records related to capital assets activity. The accounting records did not provide an adequate accounting for the $-20,399,249 restatement of beginning net assets for capital assets in the governmental activities, disclosed in Notes 2 and 5 to the basic financial statements. Capital assets additions and deletions were not properly accounted for in the governmental activities. In addition, accounting records did not provide adequate accounting of current year depreciation expenses and accumulated depreciation for the governmental activities and business-type activities. We were therefore, unable to examine sufficient evidence in support of the capital assets amounts and disclosures, and we were unable to satisfy ourselves by other means as to its accuracy.
The School System did not provide certain customary accounting records and supporting documents relating to employee compensation transactions nor, in our opinion, is the system of internal control adequate to provide safeguards of assets. Accordingly, we were unable to satisfy ourselves as to the amounts recorded for employee compensation for the governmental activities, business-type activities, General Fund, Title I Fund and remaining aggregate fund information.
The School System has not maintained complete and accurate records of amounts recorded in the Debt Service Fund. We were therefore, unable to examine sufficient evidence in support of amounts recorded in the Debt Service Fund, and we were unable to satisfy ourselves by other means as to its accuracy.
The financial statements of Education Reform Success, Inc., Charter School - School for Integrated Academics and Technologies at Georgia, Inc., and Charter School - Achieve Academy of Atlanta, Inc. have not been audited, and we were not engaged to audit these blended component units. These blended component units' financial activities are included in the School District's basic financial statements as aggregate remaining fund information and represent 21.4%, 18.1% and 16.2% of the assets, fund balance, and revenues, including other financing sources, respectively, of the School System's aggregate remaining fund information.
In our opinion, because the debt service activity could not be adequately documented, as discussed above, the scope of our work was not sufficient to enable us to express and we do not express an opinion on the Debt Service Fund as of and for the year ended June 30, 2007.
In our opinion, because the blended component units financial statements have not been audited, as discussed above, the scope of our work was not sufficient to enable us to express and we do not express an opinion on the aggregate remaining fund information as of and for the year ended June 30, 2007.
2007 ARL-APS

In addition, in our opinion, based on our audit and the report of other auditors, except for the effects of not providing adequate documentation for capital assets and employee compensation activity, as discussed in paragraphs three and four, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business-type activities, General Fund and Title I fund of the Atlanta Independent School System, as of June 30, 2007, and the respective changes in financial position and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Further, in our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Capital Projects Fund and the discretely presented component unit of the Atlanta Independent School System, as of June 30, 2007, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Management's Discussion and Analysis and the Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through xiii and pages 45 and 47 respectively, are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We and other auditors have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the School System's basic financial statements. The accompanying supplementary information which consist of Schedules 3 through 9 are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements, and in our opinion, based on our audit and the report of other auditors, except for the matters discussed in paragraphs three through six on which we express no opinion, such information, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24.
Respectfully submitted,
-=R~A>,,Q;)__ 0 . ~
~usJen W. Hinton, CPA, CGFM State Auditor
RWH:as 2007 ARL-APS

ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007
The discussion and analysis of the School System's financial performance provides an overview of the financial year ended June 30, 2007. 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 to provide basic financial statements. The basic financial statements and notes to the financial statements should be reviewed by the readers to enhance their understanding of the 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 of Net 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.
3) Notes to the Basic Financial Statements.
This report also presents the highlights for the year ended June 30, 2007, and contains other supplementary information.
FINANCIAL HIGHLIGHTS
Overall, net assets in fiscal year 2007 increased by 13.6% over fiscal year 2006. This is evidence of management's ability to maintain a balanced budget and effectively control expenses, despite austerity reductions due to economic downturns affecting district revenues. The key financial highlights for fiscal year 2007, as represented are:
District-wide Financial Statements:
Total net assets, including restatements, for the School System increased from $963.78 million in fiscal year 2006 to $1,094.94 million in fiscal year 2007, an increase of approximately $131.16 million or 13.6%. Net assets increased by $114.76 million for Governmental Activities and increased by $16.40 million for Business-type Activities.
Total revenues increased from $732.99 million in fiscal year 2006 to $835.22 million in fiscal year 2007, an increase of approximately $102.23 million or 13.95%. Revenue for Governmental Activities increased $101.52 million while revenue for Business-type activities increased by $0.71 million.
Total expenses increased $20.70 million or 3.1 % from $670.05 million in fiscal year 2006 to $690.75 million in fiscal year 2007. Expenses increased in Governmental Activities by $20.78 million and decreased by $0.08 million in Business-type Activities.
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ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 Fund Financial Statements: 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.
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ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007
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, presenting an aggregate and long-term perspective of the finances. These statements include all assets and liabilities using the accrual basis ofaccounting. This basis of accounting includes all of the current year's revenues and expenses regardless of when cash is received or paid.
o The Statement ofNet Assets presents information on all of the Schools 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.
o The Statement of Activities 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 of the timing of the related cash flows. 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).
Included in the Statement of Net Assets and Statement of Activities for the School System are two distinct kinds ofactivities:
Governmental Activities - Most of the School System's programs and services are reported here including instruction, pupil services, improvement of instruction, 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 ofthe expenses ofthe goods or services provided. The Food Services proprietary fund is reported as a Business-type activity.
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ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Table 1 - Condensed Statement of Net Assets (in millions of dollars)

Governmental Activities Business-tm!. Activities

2007

2006

2007

2006

2007

Total School System Percentage Chan&l
2006

Current and Other Assets Net Capital Assets

$ 366.45 $ 250.81 $ -8.14 $ -23.43 $ 358.31 $ 227.38

860.50

854.96

5.30

5.78

865.80

860.74

57.6% 0.6%

Total Assets

$1,226.95 $1,105.77 $ -2.84 $ -17.65 $1,224.11 $1,088.12

12.5%

Long-Term Debt Outstanding $ 48.84 $ 35.22

$ 48.84 $ 35.22

Other Liabilities

79.22

86.42 $ 1.11 $ 2.70

80.33

89.12

38.7% -9.9%

Total Liabilities

$ 128.06 $ 121.64 $ 1.11 $ 2.70 $ 129.17 $ 124.34

3.9%

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

$ 825.58 106.98 166.33

$ 832.04 $ 22.22 129.87

5.30 -9.25

$ 5.78 -26.13

$ 830.88 106.98 157.08

$ 837.82 22.22 103.74

-0.8% 381.5%
51.4%

Total Net Assets

$1.098.89 $ 984.13 $ -3.95 $ -20.35 $1.094.94 $ 963.78

13.6%

Total assets increased 12.5% or $135.99 million.

Current and other assets increased by $130.93 million or 57.6 %.

Capital Assets, net of depreciation for all activities increased $5.06 million or 0.6%. For governmental activities the increase primarily represents additions to buildings and building improvements.

Long-Term Debt outstanding increased 38.7% or $13.62 million. The increase was primarily due to the debt issued by Education Reform Success, Inc., and new bonds issued by the City ofAtlanta on behalfofthe School System.

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ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007

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

Governmental Activities Business-~ Activities

2007

2006

2007

2006

2007

Total School System Percentage Change
2006

Revenues

Program Revenues:

Charges for Services

$ 2.07 $ 2.10 $ 2.54 $ 2.58 $ 4.61 $ 4.68

Operating Grants and

Contributions

222.39

203.64

19.00

18.27

241.39

221.91

Capital Grants and

Contributions

1.19

1.64

1.19

1.64

General Revenues:

Taxes

Property Taxes

437.94

365.95

437.94

365.95

SPLOST and Other

Sales Taxes

121.58

115.95

121.58

115.95

Grants and Contributions

Not Restricted to

Specific Programs

9.41

9.41

Investment Earnings

13.30

7.32

13.30

7.32

Other

15.13

6.07

0.08

0.06

15.21

6.13

-1.5% 8.8% -27.4%
19.7% 4.9%
-100.00% 81.7% 148.1%

Total Revenues

$ 813.60 $ 712.08 $ 21.62 $ 20.91 $ 835.22 $ 732.99

13.9%

Program Expenses:

Instruction

$ 425.38

Support Services

Pupil Services

23.64

Improvement of Instructional

Services

31.48

Educational Media

9.11

General Administration

24.25

School Administration

28.16

Business Administration

15.85

Maintenance and Operations

of Plant

60.21

Student Transportation

18.84

Food Services

Central Support

27.91

Other Support Services

3.03

Community Services

0.07

Interest Expense

___1_,_1.2

$ 389.46

29.26

29.95 12.52 25.65 36.32 12.98

60.11 22.59
26.39 1.25

$ 21.63

1.86

$ 21.71

$ 425.38
23.64
31.48 9.11 24.25 28.16 15.85
60.21 18.84 21.63 27.91 3.03 0.07
1.19

$ 389.46
29.26
29.95 12.52 25.65 36.32 12.98
60.11 22.59 21.71 26.39
1.25
1.86

9.2%
-19.2%
5.1% -27.2%
-5.5% -22.5% 22.1%
0.2% -16.6% -0.4%
5.8% 142.4% 100.0% -36.0%

Total Expenses

$ 669.12 $ 648.34 $ 21.63 $ 21.71 $ 690.75 $ 670.05

3.1%

Special Items Charter Schools Closed Gain (Loss) on Sale of Capital Assets

$ -1.98 3.13 $ 2.75 $ -0.01

$ -1.98 3.12 $ 2.75

100.0% 13.5%

Total Special Items

$ 1.15 $ 2.75 $ -0.01

$ 1.14 $ 2.75

-58.5%

Transfers

$ -16.41 $ -1.04 $ 16.41 $ 1.04 $ 0.00 $ 0.00

0.0%

Change in Net Assets $ 122.22 $ 65.45 $ 16.32 $ 0.24 $ 145.61 $ 65.62

121.7%

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ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Sources of Revenues

Fiscal Year 2007

SPLOST 14.6%

Investment earnings 1.6%

Other 1.8%

Program revenues 29 .6 %

Property taxes 52.4%
Total revenues, overall, increased $102.23 million or 13.9%, from fiscal year 2006 to fiscal year 2007, with an increase in program revenues of$18.96 million.
Program revenues are primarily grant related and account for 29.6%, or $247.19 million, of total revenues received.
General revenues represent the major revenue stream for the district. They account for 70.4%, or $588.03 million, of total revenues received in fiscal year 2007. Between fiscal years 2006 and 2007, an increase of $71.99 million in property tax collections occurred with an increase in SPLOST sales tax collections of $5.47 million.
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ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Expenses

Maintenance and operation of facilities

Fiscal Year 2007

Student transportation

Food services 3.1 %

Business services 2.3 %

Central support 4 .0 %

0.4%

School administration 4.1%

Interest Expense
~ ~~~====- - - 7 0.2%

General administration

1.3%

Improvement of inst ru ct ion
4 .6 %

Community Services 0.1%

Instruction 61.6%

Total expenses increased from 2006 to 2007 by 3.1 % or $20.70 million. Management continues to accurately forecast spending levels and manage spending throughout the year.
Governmental activities account for 96.9 %, or $669.12 million of total district spending. Four groups of activities account for 91 .0%, or $608.97 million of governmental spending: instruction ($425.38 million or 63.6%), pupil and improvement of instructional services ($55.12 million or 8.2%), administration and business services ($68.26 million or 10.2%), and maintenance and operations ($60.21 million or 9.0%).
Business-activities revenues increased and expenses decreased respectively, with revenue increasing by $0.71 million or 3.4% and expenses decreasing by $0.08 million or 0.4%. These improvements are a direct result of District-wide priorities to operate competitively and control costs.

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ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Table 3 - Net Cost of Governmental Activities (in millions of dollars)

2007

Total Cost of Services Percentage Change

Net Cost of Services

Percentage

2006

Change

Instruction Support Services
Pupil Services Improvement of Instructional
Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operations
of Plant Student Transportation Services Central Support Services Other Support Services Community Services Interest Expense

$ 425.38
23.64
31.48 9.11 24.25 28 . 16 15 .85
60.21 18.84 27.91 3.03 0.07
1.19

$ 389.46
29.26
29.95 12.52 25.65 36.32 12.98
60.11 22.59 26.39
1.25
1.86

9.2%
-19.2%
5.1% -27.2% -5 .5% -22.5% 22.1%
0.2% -16.6%
5.8% 142.4% 100.0% -36.0%

$ 268.30
8.69
15.40 6.69 20.91 22.10 14.75
50.40 12.44 26 .92 -4.34
1.20

$ 240.56
24.79
25.00 8.13 23.69 25.12 11.30
43.45 15.34 20.63
1.09
1.85

11 .5%
-64.9%
38.4% -17.7% -11.7% -12.0% 30.5%
16.0% -18.9% 30.5% -498 .2%
-35 .1%

Total Expenses

$ 669.12

$ 648.34

3.2%

$ 443.46 $ 440.95

0.6%

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 expenditures as discussed above.

Land Construction in Progress Construction in Progress
Charter Schools Construction in Progress
Education Reform Buildings Building Improvements Land Improvements Equipment Furniture and Fixtures Vehicles Charter Schools
Total

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

Governmental Activities Business-type Activities

2007

2006

2007

2006

Total School System Percentage Change

$ 23.86 $ 24.36

69.09

35.83

$ 23.86 $ 24.36

69.09

35.83

-2.1% 92.8%

0.51

0.49

0.51

0.49

4.1%

7.61 673.86
47.53 10.33 6.51 16.59 1.77 2.84

700.25 32.02 9.77 26.87 $ 5.30 $ 5.78 20.86 3.19 1.32

7.61 673.86
47.53 10.33 11.81 16.59 1.77 2.84

700.25 32.02 9.77 32.65 20.86 3.19 1.32

100.0% -3.8% 48.4% 5.7% -63.8% -20.5% -44.5%
115.2%

$ 860.50 $ 854.96 $ 5.30 $ 5.78 $ 865.80 $ 860.74

0.6%

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ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007
Fiscal Year 2007

Furniture and Fixtures, 1.9o/c Land Improvements, 1.2% Building Improvements, 5.5%

Vehicles, 0.2% Land, 2.8% Construction in Progress, 8.9%

Buildings, 77.8%

Construction in Progress and Buildings SPLOST II construction programs to renovate academic facilities are near completion. For more detailed information on the School System's capital assets, see Note 5 in the Notes to the Basic Financial Statements.

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

2007

Total School System Percentage Change
2006

Capital Leases Capital Leases - Charter Schools Notes Payable - Charter Schools Intergovernmental Agreement -
City of Atlanta Certificates of Participation Compensated Absences Worker's Compensation

$ 5.03 0.03 0.10
22.11 10.12 5.99 5.46

$ 4.22 0.21 18.70 6.24 5.85

19.2% 100.0% -52.4%
18.2% 100.0%
-4.0% -6.7%

$ 48.84

$ 35.22

38.7%

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ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007
Outstanding Long-Term Debt increased, in the current fiscal year, due to debt issued by Education Reform Success, Inc. and new bonds issued by the City of Atlanta on behalf of the School System For more detailed information on the School System's Long-Term Debt, see Note 10 in the Notes to the Basic Financial Statements.
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.
The School System has three kinds offunds:
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 consist of 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 Service. 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 statements 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, 2007 as compared to June 30, 2006.
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ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Table 6 - Revenues (in millions of dollars)

2007

Governmental Funds Increase Percentage
2006 (Decrease) Change

Local Taxes Sales Taxes State Revenues Federal Revenues Investment Earnings Charges for Services Other

$ 415.69 $ 369.49 $ 46.20

121.57

115.95

5.62

151.92

140.88

11.04

71.66

66.54

5.12

13.32

7.32

6.00

2.07

2.10

-0.03

15.13

15.01

0.12

12.5% 4.8% 7.8% 7.7% 82.0% -1.4% 0.8%

Total Revenues

$ 791.36 $ 717.29 $ 74.07 10.3%

The following table presents a summary of the General Fund, Capital Projects Fund and Other Governmental Funds by type of expenditure for the fiscal year ended June 30, 2007, as compared to June 30, 2006.

Table 7 - Expenditures (in millions of dollars)

2007

Governmental Funds Increase Percentage
2006 (Decrease) Change

Instruction Pupil Services Improvement oflnstructional Services Educational Media General Administration School Administration Business Administration Maintenance and Operations ofPlant Student Transportation Central Support Services Other Support Services Community Services Capital Outlay Debt Services

$ 405.02 23.65 31.50 9.12 15.83 28.21 15.63 60.20 17.34 28.15 2.85 0.07 56.74 3.84

$ 358.02 28.35 29.86 12.33 15.06 35.59 12.96 59.94 20.03 26.18 1.26
78.37 5.10

$ 47.00 -4.70 1.64 -3.21 0.77 -7.38 2.67 0.26 -2.69 1.97 1.59 0.07
-21.63 -1.26

13.1% -16.6%
5.5% -26.0%
5.1% -20.7% 20.6%
0.4% -13.4%
7.5% 126.2% 100.0% -27.6% -24.7%

Total Expenditures

$ 698.15 $ 683.05 $ 15.10

2.2%

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

- xi -

ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007
Analysis of Major Funds
The School System has four major funds: the General Fund, the Capital Projects Fund, the Debt Service Fund, and the Title I Fund. The General Fund is the general operating fund of the School System and is used to account for all financial resources except those funds accounted for in another fund. The Capital Projects Fund is used for the acquisition or construction of major capital facilities and to account for the bond proceeds restricted to renovation and school construction. The Debt Service Fund accounts for the resources accumulated and payments made for principal and interest on long-term general obligation debt ofgovernmental funds. The Title I Fund is a Federal grant used to supplement the general operating fund by ensuring students gain knowledge and skills, as well as upgrade the entire educational program for systemic reform.
General Fund
As of June 30, 2007, total fund balance in the General Fund was $108.45 million, reserved $17.95 million and $90.50 million in unreserved undesignated. As a result of operations and the restatement of beginning fund balance in fiscal year 2007, the fund balance increased by $19.79 million. For Budget to Actual comparison purposes, the operating transfers to Charter Schools of$20.02 million were budgeted in the Instruction function.
Capital Proiects Fund
As of June 30, 2007, total fund balance in the Capital Projects Fund was $134.68 million, reserved $100.49 million for Special Purpose Local Option Sales Tax (SPLOST) and undesignated unreserved $34.18 million for Capital Projects. The fund balance increased by $73.08 million due primarily to SPLOST collections exceeding capital expenditures.
Debt Service Fund
As of June 30, 2007, total fund balance in the Debt Service Fund was $3.84 million.
Title I Fund
As of June 30, 2007, the Title I Funding sources had a zero fund balance. Revenues equaled expenditures.
Other Governmental Funds
As of June 30, 2007, total fund balance in Other Governmental Funds was $14.60 million. This balance included reserved of $2.65 million for capital projects, $9.40 million designated for Special Revenue Fund and undesignated unreserved for special revenue $2.55 million.
- xii-

ATLANTA INDEPENDENT SCHOOL SYSTEM MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2007
Current Issues Currently known facts, decisions or conditions that are expected to have a significant effect on the financial position or results ofoperations are as follows: Overall, the School System's financial position for the next year is expected to remain stable. The School System is currently working to fund the Food Services - Nutrition Fund deficit and hopes to eliminate the deficit during the 2008 fiscal year. On March 20, 2007, the voters of City of Atlanta extended the Special Option Local Sales Tax for educational purposes for five additional years. Specific capital expenditures plans are formalized in conjunction with anticipated SPLOST receipts. The School System regularly monitors anticipated capital outlay needs. Despite the challenges, the School System is strong financially and remains optimistic about the ability of the School System to maximize all of the financial resources to provide quality education for our students. General Fund Budgetary Highlights The School System's budget is prepared by the Finance Division and is a collaborative effort between the School System and the Atlanta community. The basis for preparation utilizes a zero-based approach because it has systematically provided a more accurate account of anticipated spending levels for the year. Details of the original budget and the amended budgets are presented on pages 45 and 47 in the Financial Section ofthis report. 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 Chief Financial Officer, 130 Trinity Street SW, Atlanta Georgia 30303.
- xiii -

ATLANTA INDEPENDENT SCHOOL SYSTEM

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Due from City of Atlanta Prepaid Items Internal Balances Inventories
Total Current Assets
Capital Assets Land Construction in Progress Land Improvements Furniture and Fixtures Vehicles Buildings Building Improvements Equipment Charter Schools Education Reform Success Less: Accumulated Depreciation
Total Noncurrent Assets
Total Assets

ATLANTA INDEPENDENT SCHOOL SYSTEM STATEMENT OF NET ASSETS JUNE 30, 2007

Governmental Activities

Business-Type Activities

Total

EXHIBIT"A"
Com1:1onent Unit Atlanta Educational Telecommunications Collaborative, Inc.

$

2,273,731 $

245,549,043

11,071,776 $

13,345,507 $ 245,549,043

52,004,552 20,184,852 14,284,399
2,856,891 7,762,439 1,235,595 19,874,337
423,680

152,547 68,140
-19,874,337 439,539

52,004,552 20,184,852 14,436,946
2,925,031 7,762,439 1,235,595
0 863 219

$ 366,449,519 $

-8,142,335 $ 358,307,184 $

$ 23,856,323 69,093,985 12,319,900 31,237,244 20,810,327 873,042, 142 73,428,610 93,302,636 $ 4,559,433 7,609,587
-348, 757,850
$ 860,502,337 $

$
10,890,580 -5,589,839

23,856,323 69,093,985 12,319,900 31,237,244 20,810,327 873,042,142
73,428,610 104,193,216 $
4,559,433 7,609,587
-354,34 7,689

5,300,741 $ 865,803,078 $

3,450,481 1,587,998
966,346 104,390 6 109 215
2,493,701 -1 912 047
581 654

$ 1,226,951,856 $

-2,841,594 $ 1,224,110,262 $

6,690,869

LIABILITIES
Accounts Payable Salaries and Benefits Payable Contracts Payable Retainages Payable Deposits and Deferred Revenues Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Capital Projects Debt Service Endowment Unrestricted (Deficit)
Total Net Assets

$ 29,700,105 $ 42,019,460 2,687,913 3,446,985 1,368,300
6,091,584 42,749,200
$ 128,063,547 $

778,813 $ 293,613
38,946

30,478,918 $ 42,313,073
2,687,913 3,446,985 1,407,246

6,091,584 42,749,200

1111 372 $ 129,174,919 $

$ 825,579,544 $ 103,139,827 3,840,761
166,328, 177 $ 1,098,888,309 $

5,300,741 $ 830,880,285 $

103, 139,827 3,840,761

-9,253,707

157,074,470

-3,952,966 $ 1,094,935,343 $

143,137 583,461
44,855
771453
581,654
42,378 5,295,384 5919416

Total Liabilities and Net Assets

$ 1,226,951,856 $

-2,841,594 $ 1,224,110,262 $

The notes to the basic financial statements are an integral part of this statement. - 1-

6,690,869

ATLANTA INDEPENDENT SCHOOL SYSTEM STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2007

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Community Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
BUSINESS-TYPE ACTIVITIES
Food Services
Total School System
COMPONENT UNIT
Public Broadcasting Services
General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Service Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Intangible Recording Tax Real Estate Investment Earnings Miscellaneous
Special Items Charter Schools Closed Gain (Loss) on Sale of Capital Assets
Transfers
Total General Revenues, Special Items and Transfers
Change in Net Assets
Net Assets - Beginning of Year (Restated)

Expenses

Charges for Services

Program Revenues Operating Grants and
Contributions

$

425,383,084 $

23,640,338 31,474,575
9,112,722 24,245,855 28,160,287 15,849,937 60,209,758 18,836,530 27,906,578
3,025,596 73,808
1 199 662

$

669,118,730 $

1,004,517 $ 1,067,404

156,075,020
14,951,701 16,073,230 2,424,655 3,336,077 6,065,020
1,102,416 8,740,838 5,206,251
984,451 7,365,780
65,551

2,071,921 $

222,390,990

21627175

$

690 745 905 $

2 534 746

18 998 732

4 606 667 $ ==a2.4..1..,3..8.9.,.,=72=2=

$ _ _.;_11:.J-'6:..:.7..:::.91.-'-4;::.;97'-

$ _ _....:1-=.2i..:::,6.::;98::..,.:..:15::.::6:...

Net Assets - End of Year

The notes to the basic financial statements are an integral part of this statement. -2 -

EXHIBIT"B"

Capital Grants and Contributions

Net (ExE!enses)

Governmental Activities

Business-Type Activities

TOTAL

ComE!onent Unit Atlanta Educational Telecommunications Collaborative, Inc.

$ -268,303,547

$

1,191,630

-8,688,637 -15,401,345
-6,688,067 -20,909,778 -22,095,267 -14,747,521 -50,401,516 -12,438,649 -26,922, 127
4,340,184 -8,257
-1 199 662

$

1,191,630 $ -443,464, 189

$ -268,303,547
-8,688,637 -15,401,345
-6,688,067 -20,909,778 -22,095,267 -14,747,521 -50,401,516 -12,438,649 -26,922, 127
4,340,184 -8,257
-1,199,662
$ -443,464, 189

- - - - - - $ _ _ _ _-~93~69~7_

-93 697

$

1 191 630 $ -443,464,189 $ _ _ _ _-_93~,_69_7_ $ -443,557,886

$ 436,902,846 1,036,250

$ 436,902,846 1,036,250

106,698,618 10,097,475 4,772,742 13,315,151 15,129,339 $

79,445

106,698,618 10,097,475 4,772,742 13,315,151 15,208,784 $

-1,981,811 3,129,377 -16 416 074

-9,535 16416074

-1,981,811 3,119,842
0

$ 572,683,913 $

16 485 984 $ 589,169,897 $

$ 129,219,724 $

16,392,287 $ 145,612,011 $

969,668,585

-20,345,253

949,323,332

$ 1,098,888,309 $

-3 952 966 $ 1,094,935,343 $

584,295
584 295 1,602,954 4316462 5 919 416

-3-

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Due From City of Atlanta Prepaid Items Due From Other Funds Inventories

ATLANTA INDEPENDENT SCHOOL SYSTEM BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2007
General Fund

Districtwide
Capital Projects
Fund

$ $ 149,063,928
35,669,847 19,407,128
73,406 1,053,523
1,235,595 21,683,806
423 680

31,719,832 91,600,846 17,452,181
543,079 3,921,678

Total Assets

$ 228,610,913 $ =====14=5=,2=3=7,..,6=16=

LIABILITIES AND FUND BALANCES
LIABILITIES
Cash Overdraft Accounts Payable Salaries and Benefits Payable Contracts Payable Retainages Payable Due To Other Funds Deposits and Deferred Revenue
Total Liabilities
FUND BALANCES
Reserved for: Board Action Items Encumbrances Inventories Transfers to Nutrition Capital Projects Debt Service
Unreserved Designated for: Nonmajor Governmental Funds Undesignated Reported in: General Fund Capital Projects Nonmajor Governmental Funds
Total Fund Balances

$

34,039,716

20,449,295 $

38,900,185

26 772 649 $ 120 161 845 $

2,577,659 2,687,913 3,446,985 1,847,786
10,560,343

$

6,530,000

5,990,588

423,680

5,000,000

$ 100,493,844

90,504,800

34,183,429

$ 108 449 068 $ 134 677 273

Total Liabilities and Fund Balances

$ 228,610,913 $ ==14=5=,2=3=7,=61=6=

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

EXHIBIT"C"

Debt Service
Fund

Title I
Fund

Nonmajor Governmental
Funds

Total

$

$

12,604,971

$

3,840,761

12,370,736 $
4,884,269
777,724 1,606,022 1,260,289
39,395

44,090,568 245,549,043
53,122,028 20,184,852 14,284,399
2,856,891 7,762,439 1,235,595 21,723,201
423 680

$

3,840,761 $

12604971 $

20,938,435 $ 411,232,696

$

7,777,121

2,263,855 $

1,370,371

1 193 624

$

12604971 $

$
4,409,296 1,748,904
1,078 174 676
6 333 954 $

41,816,837 29,700,105 42,019,460
2,687,913 3,446,985 1,848,864 28 140 949
149 661 113

$

3,840,761

$

$

3 840 761 $

$

6,530,000

5,990,588

423,680

5,000,000

$

2,645,983

103,139,827

3,840,761

0
0 $

9,403,144
2,555,354
14604481 $

9,403,144
90,504,800 34,183,429
2,555,354
261 571 583

$

3 840 761 $

12 604 971 $

20,938,435 $ 411,232,696

-5-

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ATLANTA INDEPENDENT SCHOOL SYSTEM RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2007

EXHIBIT"D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land Construction in Progress Land Improvements Buildings Building Improvements Equipment Furniture and Fixtures Vehicles Charter Schools Education Reform Success Accumulated Depreciation
Total Capital Assets
Accounts receivables allowances used in Governmental Activities represent amounts that are not reported in the Governmental Funds.
Deferred Revenues in the Governmental Funds represent amounts that are not available and are reported as Revenues in the Governmental Activities.
Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:
Capital Leases Compensated Absences Education Reform Success Intergovernmental Agreements Notes Payable Workers' Compensation
Total Long-Term Liabilities

$ 261,571,583

$ 23,856,323 69,093,985 12,319,900 31,237,244 20,810,327
873,042,142 73,428,610 93,302,636 4,559,433 7,609,587
-348,757,850

860,502,337 -1,117,476 26,772,649

$

-5,053,997

-5,990,950

-10, 115,000

-22, 112,675

-105,417

-5,462,745

-48 840 784

Net Assets of Governmental Activities (Exhibit "A")

$ 1,098,888,309

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, 2007

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Community Services
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES {USES)
Proceeds of Debt Proceeds of Long-Term Capital Related Debt Transfers In Transfers Out
Total Other Financing Sources (Uses)
SPECIAL ITEMS
Charter Schools Closed Proceeds from Sale of Capital Assets
Total Special Items
Net Change in Fund Balances
Fund Balances - Beginning (Restated)

General Fund

Districtwide
Capital Projects
Fund

$ 414,651,415 14,870,217 $
145,105,716 1,112,951 2,071,921
10,675,070 6,322,167

106,698,618 2,640,081

$ 594,809,457 $ 109,338,699

$ 347,370,620

10,491,218 15,284,559 8,393,521 6,950,876 27,512,540 14,120,261 $ 57,867,020 15,076,856 27,926,400
1,354,535 6,752
2,638,066

165,371 45,012,995

1,595,481 188,825

$ 536,777,530 $ 45,178,366

$ 58,031,927 $ 64,160,333

$ 2,638,066 $ -44,051,769
$ -41 413 703 $

3,921,678 5,000,000
8,921,678

$ 3,169,238

$ 3,169,238

$ 19,787,462 $ 73,082,011

88,661,606

61,595,262

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

$ 108,449,068 $ 134,677,273

EXHIBIT"E"

Debt Service
Fund

Title I
Fund

Nonmajor Governmental
Funds

Total

$ 1,036,250

$ 415,687,665

121,568,835

$

6,818,673

151,924,389

$ 46,397,604

24,147,676

71,658,231

2,071,921

13,315,151

8,807,172

15,129,339

$ 1,036,250 $ 46,397,604 $ 39,773,521 $ 791,355,531

$ 26,235,701 $ 31,410,554 $ 405,016,875

6,997,157 7,556,308
14,035 2,887,575
376,408 196,803 14,492 974,265 179,875 964,985

6,165,851 8,660,960
711,444 5,994,669
318,584 1,149,880 2,320,907 1,292,993
41,453 532,426 67,056 9,084,878

23,654,226 31,501,827 9,119,000 15,833,120 28,207,532 15,632,315 60,202,419 17,344,114 28,147,728 2,851,946
73,808 56,735,939

$

724,625

781 763

318,062 229 074

2,638,168 1,199,662

$ 1,506,388 $ 46,397,604 $ 68,298,791 $ 698, 158,679

$ -470 138 $

0 $ -28,525,270 $ 93,196,852

$ 10,115,000 $ 10,115,000

6,559,744

22,635,695

27,635,695

-44,051,769

$ 32,750,695 $

258,670

$ -470,138 4,310,899 $

$ -1,981,811 $ -1,981,811 3,169,238

$ -1 981 811 $ 1 187 427

$

2,243,614 $ 94,642,949

0

12,360,867

166,928,634

$ 3,840,761 $

0 $ 14 604 481 $ 261,571,583

-9-

ATLANTA INDEPENDENT SCHOOL SYSTEM RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2007

EXHIBIT"F"

Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")
Amounts reported for Governmental Activities in the Statement of Activities are different because:
Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are:
Capital Outlay Charter School Education Reform Success Depreciation Expense
Excess of Capital Outlay over Depreciation Expense
In the Statement of Activities, only the disposal of Capital Assets is reported, whereas in the Governmental Funds, the loss is not reflected.
Property tax revenue that is not available to pay for current period expenditures has been deferred in the Governmental Funds but is recognized as revenue in the Governmental Activities. The change in deferred revenue from prior year to current year is recorded as revenue in the Statement of Activities.
Issuance of Long-Term Debt provides current financial resources to Governmental Funds, while the repayment of the principal of Long-Term Debt consumes the current financial resources of Governmental Funds; however, neither transaction has any effect on net assets.
Increase in Capital Leases Increase in Capital Leases - Charter Schools Issuance of Certificates of Participation - Education Reform Success Increase in Intergovernmental Agreement Capital Lease Payments Capital Lease Payments - Charter Schools Notes Payable Retirement - Charter Schools Intergovernmental Agreement Payments
Total Additional Expenditures
Some items 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. These activities consist of:
Decrease in Compensated Absences Decrease in Workers' Compensation

$ 94,642,949

$ 56,746,565 2,051,568 7,609,587
-40,422,235

25,985,485 -39,861

22,251,431

$ -2,638,066 -41,506
-10,115,000 -3,921,678 1,830,334 15,192 103,803 506,137

-14,260,784

$

253,154

387,350

640,504

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

$ 129,219,724

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

ATLANTA INDEPENDENT SCHOOL SYSTEM STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2007
ASSETS Current Assets
Cash and Cash Equivalents Accounts Receivable, Net
Federal Government Other Inventories
Total Current Assets Noncurrent Assets
Capital Assets Equipment Less: Accumulated Depreciation Total Noncurrent Assets
Total Assets
LIABILITIES Current Liabilities
Accounts Payable Salaries and Benefits Payable Due To Other Funds Deposits and Deferred Revenues
Total Current Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Unrestricted (Deficit) Total Net Assets
Total Liabilities and Net Assets

EXHIBIT"G"

School Food Service Fund

$

11,071,776

152,547 68,140 439,539

$

11,732,002

$

10,890,580

-5,589,839

$

5,300,741

$ ===17=,0=3=2=7,=43=

$

778,813

293,613

19,874,337

38 946

$

20,985,709

$

5,300,741

-9,253,707

$

-3,952,966

$ ===17=,0=3=2=7,=4===3

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 FUNDS YEAR ENDED JUNE 30, 2007

EXHIBIT"H"

OPERATING REVENUES Charges for Services Miscellaneous Total Operating Revenues
OPERATING EXPENSES Personnel Costs Contractual Services Supplies and Materials Other Operating Depreciation Total Operating Expenses Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES) State Grants Federal Grants - Child Nutrition Cluster Other Nonoperating Revenues (Expenses) Net Nonoperating Revenues Income (Loss) Before Transfers Transfers In Change in Net Assets
Total Net Assets - Beginning
Total Net Assets - Ending

School Food Service Fund

$

2,534,746

79445

$

2,614,191

$

4,096,355

8,607,980

7,346,549

1,013,977

562,314

$

21,627,175

$ -19,012,984

$

1,159,347

17,839,385

-9 535

$

18,989,197

$

-23,787

16 416 074

$

16,392,287

-20,345,253

$ ==-=3,.9.5.=2=,9=66=

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

ATLANTA INDEPENDENT SCHOOL SYSTEM STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers Payments to Suppliers Payments to Employees Net Cash Provided (Used) by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Operating Subsidies and Transfers In
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of Capital Assets
Net Increase (Decrease) in Cash and Cash Equivalents Balances - Beginning of Year
Balances - End of Year
RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Operating Income (Loss) Adjustments to Reconcile Operating Income to Net Cash Provided (Used)
by Operating Activities Depreciation Expense Donated Food Commodities
Change in Assets and Liabilities Receivables, Net Inventories Accounts Payables Deposits and Deferred Revenues
Net Cash Provided (Used) By Operating Activities
Non-Cash Non-Capital Financing Activities USDA Donated Food Commodities

EXHIBIT"!"

School Food Service Fund

$

4,179,407

-18,279,674

-4 114 142

$ -18,214,409

$ 22,166,063

$

-96,202

$

3,855,452

7,216,324

$ 11 071 776

$ -19,012,984
562,314 981,571 1,008,601 -170,472 -1,328,956 -254 483
$ -18,214,409
$ ===9=8=1=5=7=1

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

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ATLANTA INDEPENDENT SCHOOL SYSTEM STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2007
ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

EXHIBIT"J"
Agency Funds $ ==7=0=9=44=2=
$ =====7=0=9=44=2=

The notes to the basic financial statements are an integral part of this statement. - 15 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY

REPORTING ENTITY

The Atlanta Independent School System (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists ofall the organizations that compose its legal entity.

Blended Component Units Education Reform Success, Inc., (ERS) (a non-profit corporation) was established by the School System for the purpose of providing financing for some of the School System's buildings and equipment. ERS is governed by a seven member board. ERS has issued certificates ofparticipation (COPS) for the acquisition and construction of facilities and equipment. The COPS are repayable solely from payments made by the School System to ERS 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 10). Separate financial statements are not prepared for this component unit.

Included within the School District are eight Charter Schools. Each Charter School is responsible for the public education of all students attending its school. The Charter Schools were created through a contract between the School District and each Charter School whereby all State funding associated with the students attending the Charter Schools and certain specified local funds are remitted to the Charter Schools to cover the cost oftheir operations. The financial statements ofthe Charter Schools have been blended with the School District's nonmajor governmental funds.

A listing of the Charter Schools follows:

School for Integrated Academics and Technologies at Georgia, Inc.
239 West Lake Avenue Atlanta, Georgia 30314

KIPP West Atlanta Young Scholars Academy, Inc.
80 Joseph E. Lowery Blvd. Atlanta, Georgia 30314

Achieve Academy of Atlanta, Inc. 1335 Kimberly Road SW Atlanta, Georgia 30331

University Community Academy, Inc. Tiger Flowers Drive NW Atlanta, Georgia 30314

Tech High School, Inc. 1043 Memorial Drive SE Atlanta, Georgia 30316

Drew Charter School, Inc. 301 East Lake Blvd. Atlanta, Georgia 30317

- 16 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY

Southeast Atlanta Charter Middle School, Inc.
820 Essie Avenue SE . Atlanta, Georgia 30316

Neighborhood Charter School, Inc.
688 Grant Street SE Atlanta, Georgia 30315

School Buildings, Inc. (SBI) (anon-profit corporation) was established by the School System for the purpose of providing financing for some of the 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 offacilities 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 10). Separate financial statements are not prepared for this component unit. Since the defeasance of the COPS debt in 2002, no activities have been recorded in SBI.

Discretely Presented Component UnitAtlanta Educational Telecommunications Collaborative, Inc. (AETC) is a non-profit corporation established by the School System for the purpose of operating the Corporation for Public Broadcasting radio and television broadcast station licenses owned by the School System. The School System owns substantially all assets used to operate the stations and is providing support for capital improvements. Separate financial statements ofAETC are available from the School System.

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Atlanta Independent School System.

District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. These statements distinguish between the governmental and business-type activities ofthe School District. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. Business-type activities are financed in whole or in part by fees charged to employees, students or to external parties.

The Statement ofActivities presents a comparison between direct expenses and program revenues for each different business-type activity of the School District and each function of the School District's governmental activities.

- 17 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"K"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental, proprietary, and fiduciary) are presented. The emphasis offund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds.
The School District reports the following major governmental funds:
General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund.
District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST) and Intergovernmental Agreement with the City ofAtlanta to be used for the acquisition, construction or renovation of major capital facilities.
Debt Service Fund accounts for taxes (property) legally restricted for the payment of general long-term principal, interest and paying agent's fees.
Title I Fund was established to account for Federal grant funds passed through the Georgia Department of Education to provide remedial education in the areas of reading and math.
Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or from ancillary activities. Enterprise fund operating revenues are related to charges for food services. The primary nonoperating revenues are Child Nutrition grants.
Principal operating expenses are the costs ofproviding goods or services and include depreciation of capital assets.
- 18 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District reports the following major proprietary fund:
Food Service Funds - The primary purpose ofthe 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 of Agriculture, passed through the Georgia Department of Education.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various local school student club and class accounts.
BASIS OF ACCOUNTING
The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental, proprietary and fiduciary fund and the discretely presented component unit financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt and compensated absences which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds oflong-term liabilities are reported as other financing sources.

- 19 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
All business-type activities and enterprise funds ofthe School District follow Financial Accounting Standards Board (FASB) Statements and Interpretations issued on or before November 30, 1989; Accounting Principles Board Opinions; and Accounting Research Bulletins, unless those pronouncements conflict with or contradict Governmental Accounting Standards Board pronouncements. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to the same limitations. The School District has elected not to follow subsequent private-sector guidance.

RESTATEMENT OF PRIOR YEAR NET ASSETS AND FUND BALANCE
For fiscal year 2007, the School District restated beginning Governmental Activities Net Assets for errors and omissions of Capital Assets, Property Taxes and the inclusion of a Debt Service Fund. These errors and omissions resulted in an overall overstatement of beginning Net Assets. The elements comprising Net Assets - June 30, 2006, include the following:

Net Assets June 30, 2006, as originally reported

$ 984,123,905

Adjustment for Capital Assets, Net of Accumulated Depreciation Adjustment for Proper Recognition of Property Taxes Adjustment to General Fund - Debt Service
Activity Posted in the Debt Service Fund Adjustment for Inclusion of Debt Service Fund

-20,399,249 6,029,535
-4,396,505 4,310,899

Net Assets June 30, 2006, as Restated

$ 969,668,585

For fiscal year 2007, the School District restated beginning Governmental Funds Fund Balance for errors and omissions ofProperty Taxes and the inclusion ofa Debt Service Fund. These errors and omissions resulted in an overall understatement of beginning Fund Balance. The elements comprising Fund Balance - June 30, 2006, include the following:

Fund Balance June 30, 2006, as originally reported

$ 160,984,705

Adjustment for Proper Recognition of Property Taxes Adjustment to General Fund - Debt Service
Activity Posted in the Debt Service Fund Adjustment for Inclusion of Debt Service Fund

6,029,535
-4,396,505 4,310,899

Fund Balance June 30, 2006, as Restated

$ 166,928.634

- 20 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
An adjustment was required in the separation of the Debt Service activity from the prior year General Fund balance in the amount of $85,606. This variance was due to reconciliation of beginning balance with amounts presented by the City of Atlanta government.
CASH AND CASH EQUIVALENTS
COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated Section 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.
INVESTMENTS
COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year and equity investments are reported at fair value. The Official Code of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate of return shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:
(1) Obligations issued by the State of Georgia or by other states,
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,
(4) Obligations of any corporation of the United States government,
(5) Prime banker's acceptances,
(6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services,
(7) Repurchase agreements, and
(8) Obligations of other political subdivisions of the State of Georgia.

- 21 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"K"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The School District does not have a formal policy regarding investment policies that address interest rate risks and foreign currency risks. However, the School District does have investment policies that address (1) credit quality risks for repurchase agreements and certificates of deposit which indicates that the financial institution must have at least an AA rating and (2) concentration ofcredit risks.

RECEIVABLES

Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities ofthe current period.

PROPERTY TAXES

The DeKalb County Board ofCommissioners fixed the property tax levy for the 2006 tax digest year (calendar year) on June 15, 2006 (levy date). Taxes were due on September 15, 2006 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2006 tax digest are reported as revenue in the governmental funds for fiscal year 2007. The DeKalb County Tax Commissioner bills and collects the property taxes for the School District and remits taxes collected to the School District.

The tax millage rate levied for the 2006 tax year (calendar year) for Atlanta Public Schools (DeKalb County) was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

22.649 mills

The Atlanta City Council fixed the property tax levy for the 2006 tax digest year (calendar year) on July 1, 2006 (levy date). Taxes were due on October 1, 2006 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2006 tax digest are reported as revenue in the governmental funds for fiscal year 2007. The Atlanta City Clerk bills and collects the property taxes for the School District, withholds 1% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District.

Tax millage rates levied for the 2006 tax year (calendar year) for Atlanta Public Schools (City of Atlanta) were as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations School Bonds

22.649 mills .054 mills

22.703 mills

-22 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SALES TAXES
Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $106,698,618 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.
DUE FROM CITY OF ATLANTA
The amount shown as due from City ofAtlanta represents balances ofproperty taxes collected by the City and held to fund future debt payments and bond proceeds from the issuance of bonds.
INVENTORIES
CONSUMABLE SUPPLIES On the basic financial statements, consumable supplies are reported at cost (first-in, first-out). The School District uses the purchases method to account for the consumable supplies inventory whereby an asset is recorded when supplies are purchased and expenses are recorded at the time the supplies are consumed. To conform to generally accepted accounting principles, all inventories should be accounted for using the consumption method whereby an asset is recorded when items are purchased/received and expenses are recorded at the time the items are consumed. The effect ofthis deviation is deemed immaterial to the fair presentation of the basic financial statements.
FOOD INVENTORIES Inventories of donated food commodities used in the preparation of meals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the purchases method to account for inventories whereby expenditures are recorded at the time of purchase or when received. To conform to generally accepted accounting principles, all food inventories should be accounted for using the consumption method whereby an asset is recorded when foods are purchased/received and expenses are recorded at the time the food items are consumed. The effect ofthis deviation is deemed to be immaterial to the fair presentation of the basic financial statements.
PREPAID ITEMS
Payments made to vendors for services that will benefit periods subsequent to June 30, 2007, are recorded as prepaid items.
CAPITAL ASSETS
Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are
- 23 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art.

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

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings Building Improvement Furniture and Fixtures Vehicles Equipment

All

NIA

$

20,000 10 to 20 years

$

20,000 20 to 50 years

$

20,000 10 to 30 years

$

5,000 3 to 15 years

$

5,000

5 to 8 years

$

5,000 3 to 15 years

Capital assets ofthe discretely presented component unit are recorded at cost. Capital assets donated to proprietary fund type operations 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 of five to twenty years.

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

NET ASSETS

The School District's net assets in the District-wide Statements are classified as follows:

Invested in capital assets, net of related debt - This represents the School District's total investment in capital assets, net ofoutstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt.

Restricted net assets - These represent resources for which the School District is legally or contractually obligated to spend resources for debt service and capital projects in accordance with restrictions imposed by external third parties.

- 24 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes.
FUND BALANCES RESERVED
Reserves represent those portions of fund balance equity that are legally segregated for a specific future use.
Reserved for Board Action Items - resources of the School System for various Board approved projects.
Reserved for Encumbrances - resources of the School System which have been encumbered or appropriated for purchase orders or contractual obligations.
Reservedfor Inventories - resources of the School System in connection with inventory on hand at year-end.
Reserved for Transfers to Nutrition - resources of the General Fund for use in eliminating the Proprietary Fund School Food Services deficit.
Reservedfor Capital Outlays - resources of the School System which have been formally set aside for capital outlays.
Reserved for Debt Service Fund - resources accumulated for future payments of principal and interest on long-term general obligation.
UNRESERVED-DESIGNATED Designated fund balances represent tentative plans for future use of financial resources.
Balances related to Nonmajor Governmental funds related to special projects totaling $9,403,144.
New Accounting Pronouncement
The School System will adopt the following new accounting pronouncement in future years:
GASB Statement No. 45 - Accounting and Financial Reporting by Employers for Postretirement Benefits Other Than Pensions, effective for fiscal year ended June 30, 2008.
The impact of this pronouncement on the School System's financial statements has not been assessed.
- 25 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation offinancial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differ from those estimates.

DEFICIT FUND BALANCES

The fund reporting deficit net assets at June 30, 2007, is as follows:

Fund Type/Fund Name

Deficit Balance

Proprietary Fund School Food Service Fund

$ 9,253,707

The Food Services Fund has an unrestricted fund deficit of$9,253,707 at year-end. The management of the School System has taken the following actions to stop the annual deficit:

I. Transferred $16,416,074 from General Fund to reduce the deficit, during fiscal year 2007.

2. Implementing a three year plan, ending in 2009, to eliminate the deficit.

3. Entered into management contract which requires vendor penalties for selected areas ofnonperformance.

4. Replaced program management personnel.

5. Installed Point of Sale technology to provide expanded and more accurate cost data for management decision-making.

6. Initiated actions to adjust staffing levels to better match meal demands.

7. Placed greater emphasis on government commodity utilized to reduce food cost.

8. Developed protocols to focus local school nutrition managers' attention on profitability.

9. Refined outreach and processing for free and reduced-cost meal eligible students.

- 26 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 3: DEPOSITS AND INVESTMENTS
COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. At June 30, $1,798,405 ofdeposits were not secured by surety bond, insurance or collateral as specified above. The School District is working with the affected financial institutions to ensure appropriate levels of collateral are maintained for all of the School District's deposits.
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,
(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,
(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use ofthe bonds for this purpose,
(6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and
(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.
CATEGORIZATION OF DEPOSITS At June 30, 2007, the bank balances were $31,115,968. The amounts of the total uninsured bank balances are classified into three categories of custodial credit risk:

- 27 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 3: DEPOSITS AND INVESTMENTS

Category 1 - Uncollateralized, Category 2 - Cash collateralized with securities held by the pledging financial institution, or Category 3 - Cash collateralized with securities held by the pledging financial institution's
trust department or agent but not in the School District's name.

The School District's uninsured deposits are classified by custodial credit risk category at June 30, 2007, as follows:

Custodial Credit Risk Category

Bank Balance

1

$ 1,798,405

2

28,432,380

3

0

Total

$ 30,230,785

At June 30, 2007, the carrying amount of deposits for AETC, the discretely presented component unit, was $4,515,028 and the bank balance was $4,691,534. Of the bank balance, $4,348,909 was
uninsured and uncollateralized.

CATEGORIZATION OF INVESTMENTS
The School District's investments as of June 30, 2007, are presented below. All investments are
presented by investment type and debt securities are presented by maturity.

Investment Type

Fair Value

Investment Maturity Less than
1 Year

Debt Securities U.S. Agencies Implicitly Guaranteed Repurchase Agreements

$ 124,085,946 $ 124,085,946

83,629,000

83,629,000

$ 207,714,946 $ 207,714.946

Other Investments U. S. Treasury Money Market Mutual Funds (Open-End)

28,715,553

Total Investments

$ 236,430.499

- 28 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"K"

Note 3: DEPOSITS AND INVESTMENTS

The investments for AETC, the discretely presented component unit, as of June 30, 2007, are presented below. All investments are presented by investment type and debt securities are presented by maturity.

Investment Type

Fair Value

Investment Maturity

1- 5

More than

Years

5 Years

Debt Securities U. S. and Agency Obligations $ Corporate Bonds Preferred/Fixed Rate Securities

29,147 $ 53,999 180,619

29,147 53,999
$

180,619

$ 263,765 $

83,146 $ 180.619

Other Investments Equity and Equity Funds

259,686

$ 523,451

AETC, the discretely presented component unit, does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates.

Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value ofan investment. The School District does not have a formal policy for managing interest rate risk.

Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event ofthe failure ofthe counterparty to a transaction, the School District will not be able to recover the value ofthe investment or collateral securities that are in the possession ofan outside party. The School District does not have a formal policy for managing custodial credit risk.

AETC, the discretely presented component unit, maintains equity securities in investment account at a financial institution, which are protected by Securities Investor Protection Corporation ("SIPC") up to $500,000 in the aggregate, from which $100,000 is used to protect cash. As ofJune 30, 2007, all equity investment balances were fully protected by SIPC.

- 29 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 3: DEPOSITS AND INVESTMENTS

Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The School District's policy for managing credit quality risk related to certificates of deposit and repurchase agreements states such investments will only be purchased through banks having at least an AA rating. The School District does not have a formal policy for other investments not mentioned in previous sentence.

The investments subject to credit quality risk are reflected below:

Rated Debt Investments
Debt Securities U. S. Agencies Implicitly Guaranteed
Repurchase Agreements
Totals by Quality Ratings

Fair Value

AAA

Quality Ratings Al

Unrated

$ 124,085,946 83.629.000
$ 207.714.946

$ 11,616,060 $ 11 616 060

$ 57,000.000 $ 57.000,000

$ 112,469,886 26.629.000
$ 139.098,886

AETC, the discretely presented component unit, has no formal policy regarding credit risk for its investments including certificates of deposits.

The investments subject to credit quality risk are reflected below for AETC:

Rated Debt Investments
Debt Securities U. S. and Agency Obligations Corporate Bonds Preferred/Fixed Rate Securities
Totals by Quality Ratings

Fair Value

Quality Ratings

AAA

AA

A+

$

29,147 $

29,147

53,999

$

180.619

129 975

$ 263,765 $ 152,122 $

53,999 $
53 222 $

50 644 50,644

Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The School System does have a policy concerning the composition of its investment portfolio and is in compliance with its investment policy.

The investment policy establishes the following eligible investments individually are not to exceed the following composition in the portfolios of the General and SPLOST funds:

- 30 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 3: DEPOSITS AND INVESTMENTS

U. S. Treasury Bills Federal Agencies (No more than 40% per issuer) Certificates of Deposit Commercial Paper Repurchase Agreements State of Georgia - Georgia Fund 1 Bank Special Purpose Money Market Funds

100% 65% 10% 20% 30% 25% 25%

Investments in any one issuer that represents 5% or more ofthe total investments were as follows as of June 30, 2007:

Issuer

Investment Type

% of Total Investments

Federal National Mortgage Association
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
Lehman Brothers STl Classic Fund -
U. S. Money Market

Federal Agency Securities
Federal Agency Securities
Federal Agency Securities Repurchase Agreements
Bank Special Purpose Money Market Funds

24.79% 21.79% 13.54% 27.82%
11.63%

AETC, the discretely presented component unit, does have a policy concerning the composition of its investment portfolio.

Investments in any one issuer that represents 5% or more of the total investments were as follows:

Issuer

Investment Type

% of Total Investments

Equity Mutual Funds Fixed Rate Cap Securities

Equity Preferred/Fixed Rate

9.00% 11.00%

Foreign Currency Risk Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or deposit. The School District does not have a formal policy for managing foreign currency risk.

As ofyear-end, AETC, the discretely presented component unit, had investments in foreign equity mutual funds totaling $55,486.

- 31 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"K"

Note 3: DEPOSITS AND INVESTMENTS
Although all the foreign equity securities are American Depository Receipts (ADR's) this does not eliminate the foreign currency risk involved in purchasing foreign securities.
Note 4: NON-MONETARY TRANSACTIONS
The School District receives food commodities from the United States Department ofAgriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories
Note 5: CAPITAL ASSETS
The following is a summary of changes in the Capital Assets during the fiscal year:

- 32 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 5: CAPITAL ASSETS

Beginning Balance
as Originally
Stated

Governmental Activities

Land

$

Construction in Progress

Construction in Progress

Charter Schools

Construction in Progress

Education Reform

Success

24,356,399 35,831,982
489,083

Total Non-Depreciable

Assets

$ 60 677 464

Buildings

$ 874,782,593

Building Improvements 49,934,385

Land Improvements

10,575,340

Equipment

94,159,238

Furniture and Fixtures

30,600,197

Vehicles

24,070,396

Charter Schools

2,018,782

Total Depreciable Assets

$1,086,140,931

Totals at Historical Cost

$1,146,818,395

Less: Accumulated Depreciation Buildings Building Improvements Land Improvements Equipment Furniture and Fixtures Vehicles Charter Schools

$ 174,533,402
17,916,182
806,805 67,288,487
9,736,518 20,880,712
700 327

Total Accumulated Depreciation

$ 29 I ,862,433

Governmental Activities Capital Assets, Net

$ 854 955 962

Business-Type Activities: Equipment

$ 10,831,507

Less: Accumulated Depreciation Equipment

5,055,119

Business-Type Activities Capital Assets, Net

$ 5 776 388

Restatement of
Beginning Balance

Beginning Balance,
as Restated (See Note 2}

Retirements/ Additions Reclassifications Transfers

Ending Balance

$ . ] ,086,003 $ 23,270,396 35,831,982
489,083

$ 585,927 $ 34,774,052
19,960

0

$ 23,856,323

$-1,512,049

69,093,985

509,043

7,609,587

7,609,587

$ -1,086,003 $ 59,591,461
$ -2,230,013 $ 872,552,580 5,288,479 55,222,864 -1,005 10,574,335 -2,227,862 91,931,376 -91 30,600,106 -1,947,295 22,123,101 2,018,782

$42,989,526 $

0 $-1,512,049 $ 101,068,938

$ 753,592 18,205,746 233,516 1,419,860 637,138 136,734 2,031,608

$ -264,030
-48,600 -1,449,508

$1,512,049

$ 873,042,142 73,428,610 12,319,900 93,302,636 31,237,244 20,810,327 4,050.390

$ I 117 787 $1,085,023,144 $23,4 I 8,194 $-1,762, I 38 $ 1,512,049 $1,108,191,249

$ -2,203,790 $1,144,614,605 $66,407,720 $-1,762,138 $

0 $1,209,260, I 87

$ 7,839,079 $ 182,372,481 $17,024,205 $ -226,626 $

3,687,604 21,603,786

4,284,153

409,855 5,936,483

1,216,660 73,224,970

779,240 13,618,546

-46,143

1,854,007 -1,531,569

11,590,525 19,349,143
700.327

3,060,011 1,145,275
510,805

-1,449,508

$18,195,459 $ 310,057,892 $40,422,235 $-1,722,277 $

$-20,399,249 $ 834,556,713 $25 985 485 $ -39 861 $

$

0 $ 10,831,507 $ 96,202 $ -37,129 $

0 $ 199,170,060 25,887,939 1,995,900 86,797,373 14,650,536 19,044,910 l,211,132
0 $ 348,757,850
0 $ 860 502 337
0 $ 10,890,580

5,055,119

562,314

-27 594

5,589,839

$

$ 5 776,388 $ -466 I I 2 $ -9 535 $

0 $ 5 300 741

Capital assets being acquired under capital leases as of June 30, 2007, are as follows:

- 33 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 5: CAPITAL ASSETS

Governmental Funds

Equipment Vehicles Less: Accumulated Depreciation

$ 11,147,582 2,638,066 3,457,274

$ 10,328,374

Current year depreciation expense by function is as follows:

Instruction Pupil Services Improvement of Instructional Services Educational Media Services General Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services

$ 29,417,826 21,521 7,534 6,817
8,981,798 13,509 95,999
1,615,349 66,109 195,773

Total

$ 40A22,235

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

Food Service

$=====5==62='=,3===1==4

Component Unit

Fixed asset balances of AETC (component unit) as of June 30, 2007, are as follows:

Equipment and Furniture Equipment Purchased under Capital Leases Leasehold Improvements

$ 2,206,583 186,416 100,702

$ 2,493,701

Less: Accumulated Depreciation

1,912,047

Net Fixed Assets

$ 581,654

Depreciation expense of AETC for the year ended June 30, 2007 was $186,093.

- 34 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 5: CAPITAL ASSETS

As part of the operation agreement with the School System for the (AETC) radio and television stations, all real and personal property comprising the physical facilities of the stations remains the property of the School System. The School System is responsible for routine maintenance and insurance of the facilities. AETC, in tum, leases the facilities from the School System for $10 a year.

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST) is restricted assets in the Statement ofNet Assets because its use is limited by statutory provisions. Restricted assets at June 30, 2007, were as follows:

District-wide Capital Projects SPLOST

Restricted Investments: Capital Acquisitions

$ 91,600,846

Note 7: INTERFUND ASSETS AND LIABILITIES

Due to and due from other funds are recorded for interfund receivables and payables which arise from interfund transactions. Interfund balances at June 30, 2007, consisted of the following:

Due From Other Funds

Due To Other Funds

General Fund District-wide Capital Projects Nonmajor Governmental Funds Business-Type Activities

$ 21,683,806 39,395

$ 1,847,786 1,078
19,874,337

$ 21,723,201 $ 21,723,201

Transfers are used to provide funding ofoperations ofvarious funds. The balance ofBusiness-Type Activities is not expected to be repaid within 1 year.

Note 8: INTERFUND TRANSFERS

Interfund transfers for the year ended June 30, 2007, consisted of the following:

- 35 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 8: INTERFUND TRANSFERS

Transfer to

Transfers From General Fund

District-wide Capital Projects
Nonmajor Governmental Funds Proprietary Fund

$ 5,000,000 22,635,695 16,416,074

Total

$ 44,051,769

Transfers are used (1) to move property tax revenues collected by the General Fund to the Districtwide Capital Projects Fund as required match or supplemental funding source for capital constructions projects, (2) to transfer State revenue and allocable property taxes to the individual charter schools to fund their operations and (3) to partially eliminate the deficit in the Proprietary Fund.

Note 9: RISK MANAGEMENT

The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees and acts of God.

The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions and acts ofGod. However, the errors or omissions policy excludes coverage for sexual harassment and discrimination. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years.

The School District has established a limited risk management program for workers' compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated.

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

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End of Year Liability

2006 2007

$ 2,943,922 $ 5,580,917 $ 2,674,744 $ 5,850,095 $ 5,850,095 $ 2,285,256 $ 2,672,606 $ 5,462,745

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

- 36 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 9: RISK MANAGEMENT

Position Covered

Amount

Superintendent Employee Theft Employee Forgery and Alteration

$

50,000

$ 2,500,000

$

50,000

Note 10: LONG-TERM DEBT

CAPITAL LEASES The Atlanta Independent School System has entered into various lease agreements as lessee for purchases of equipment and vehicles. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value ofthe future minimum lease payments as of the date of their inception.

COMPENSATED ABSENCES Compensated absences represent obligations ofthe School District relating to employees' rights to receive compensation for future absences based upon service already rendered. This obligation relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. Typically, the General Fund is the fund used to liquidate this long-term debt. The School District uses the vesting method to compute compensated absences.

INTERGOVERNMENTAL AGREEMENT Over the years, the City of Atlanta has issued various annual general obligation bonds, general obligation refunding bonds on behalf of the School System. During the current fiscal year, $4,000,000 was issued on behalf of the School System. The Intergovernmental Agreement as of June 30, 2007, amounted to $22.1 million. 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 of property taxes collected by the City on behalfofthe School System are retained by the City and used to pay the annual debt service on the outstanding bonds. As of June 30, 2007, $3,480,761 is available in the bond sinking fund held by the City.

GENERAL OBLIGATION DEBT OUTSTANDING The changes in Long-Term Debt during the fiscal year ended June 30, 2007, were as follows:

- 37 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 10: LONG-TERM DEBT
Balance July 1, 2006 Additions
Annual Leave Earned Capital Leases Certificates of Participation Intergovernmental Agreements Workers Compensation Deductions Annual Leave Utilized Debt Retired Intergovernmental Agreements Balance June 30, 2007 Portion of Long-Term Debt Due within One Year
Balance July I, 2006 Additions
Annual Leave Earned Capital Leases Certificates of Participation Intergovernmental Agreements Workers Compensation Deductions Annual Leave Utilized Debt Retired Intergovernmental Agreements Balance June 30, 2007 Portion of Long-Term Debt Due within One Year

Capital Leases

Governmental Funds

Capital

Leases -

Charter

Compensated

Schools

Absences

Education Reform Success

$ 4,219,951 $

0 $ 6,244,104 $

0

2,638,066

41,506

2,214,122

10,115,000

1,830,334

15,192

2,467,276

$ S,021683 $

26,314 $ 5,22Q,2SQ $ 10,115,QQQ

$ 1.516.461 $

19 545 $ 2,639,137 $

0

Notes Payable Charter Schools

Governmental Funds
InterWorkers Governmental Com12ensation Agreements

Total

$ 209,220 $ 5,850,095 $ 18,697,134 $ 35,220,504

2,285,256

3,921,678

2,214,122 2,679,572 10,115,000 3,921,678 2,285,256

103,803

2,672,606

506,137

2,467,276 4,621,935
506,137

$ IQS,411 $ S,462,745 $ 22,112,615 $ 48 84Q 184

$

43 315 $ 1,146,251 $ 726,875 $ 6,091,584

- 38 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 10: LONG-TERM DEBT

At June 30, 2007, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30
2008 2009 2010 2011 2012 2013-2017 2018 - 2022 2023 - 2027
Total Principal and Interest
Fiscal Year Ended June 30
2008 2009 2010 2011 2012 2013 - 2017 2018 - 2022 2023 - 2027
Total Principal and Interest

Capital Leases

Principal

Interest

$ 1,516,461 $ 1,583,646 244,726 254,319 264,135 1,164,396

212,644 145,459 75,561 65,968 56,152 116,310

Intergovernmental Agreements

City of Atlanta

Principal

Interest

$ 726,875 896,750
1,026,875 1,022,875 1,040,875 5,691,250 7,019,625 4,687,550

$ 1,002,035 961,620 919,100 873,515 824,100
3,321,392 1,886,654
203,883

$ 5,027.683 $

672.094 $ 22,112.675 $ 9.992.299

Education Reform Success, Inc.

Certificates of Participation

Principal

Interest

$ 417,699

$ 550,000

417,699

570,000

394,987

595,000

371,449

620,000

346,878

3,500,000

1,328,873

4,280,000

544,268

$ 10.115.000 $ 3,821.853

Note 11: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $5,811,198 for health insurance paid on the School District's behalf by the following State Agencies.

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $5,811,198

Note 12: SPECIAL ITEMS

During fiscal year 2007, the School System sold several pieces of Capital Assets. A net gain of $3,129,377 from sale is reported as a special item on the Statement of Activities.

- 39 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 12: SPECIAL ITEMS
During fiscal year 2007, Achieve Academy of Atlanta, Inc., and School for Integrated Academics and Technologies at Georgia, Inc., closed. Financial information for these charter schools was not available at June 30, 2007. Therefore, a Special Item has been reflected in the financial statements to close out any balances remaining from these blended charter schools.
Note 13: SIGNIFICANT COMMITMENTS
The School System has active construction projects as of June 30, 2007. The projects relate to construction and renovation of school buildings. At year-end the School System's commitments with contractors were $27.9 million. Additionally, Education Reform Success entered into a construction contract which had $3.38 million in commitments as of June 30, 2007.
The amounts described in this note are not reflected in the basic financial statements.
Note 14: SIGNIFICANT CONTINGENT LIABILITIES
The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements.
Note 15: RETIREMENT PLANS
TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)
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 Systems' employees participate in TRS.
TRS provides service retirement, disability retirement and survivor's benefits for its members. A member is eligible for service retirement after 30 years of creditable service, regardless of age, or after 10 years ofservice 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% of each 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 ofyears 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.

- 40 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"K"

Note 15: RETIREMENT PLANS

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 disability 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 at www.trsga.com.

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 9.28% at June 30, 2007.

Total actual and required contributions were as follows:

2007

2006

2005

School System Employees

$28,437,198 15,299,294

$27,154,487 14,691,312

$26,202,224 14,180,084

$43,736.492

$41,845,799

$40,382.308

City of Atlanta General Employees Pension Plan

Plan Description All permanent employees of the School System who are not covered under the TRS are eligible to participate in the City ofAtlanta 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 ChiefFinancial Officer, one member ofCity Council, one member ofthe School System, (the "Board") one member elected by eligible employees ofthe City, one member elected by eligible employees of the School System, one member elected by retired employees of the School System and one member elected by retired employees ofthe City. The Board ofTrustees has the authority to establish and amend the benefit provisions of the Plan.

- 41 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 15: RETIREMENT PLANS

On December 12, 2005, the Board adopted the following changes to the Plan:

1. 10 year vesting. 2. 2.5% benefit multiplier (capped at 80%). 3. Unreduced retirement at 30 years of service regardless of age.

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, GA Telephone Number: (404) 330-6000

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.

The School System's membership in the Plan as of July 1, 2007, is as follows:

Active employees Inactive members Retirees and beneficiaries

1,026 154
2,479

Total membership

Method Used to Value Investments Investments are stated at fair value. Fair value of Plan assets at July 1, 2007, was $161,816,360.

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% ofpay (8% ifparticipant has a covered beneficiary or is married). The School System's contribution percentage is the actuarial determined amount necessary to fund Plan benefits after consideration of employee contributions.

-42 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "K"

Note 15: RETIREMENT PLANS

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 payrolls (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, 2006 and related information for the Plan is as follows:

Contribution rates as a percent of covered payroll:

Employee Employer

7.0% or 8.0% 8.0%

Annual pension cost

$47,925,431

Employer Contributions made

$49,265,266*

*This amount is based on the fiscal year vs. amounts provided by the actuarial report in the

following page, which are presented on a calendar year.

Actuarial valuation date

7/1/07

Actuarial cost method

Entry age normal

Amortization method

Level% of pay, closed

Actuarial assumptions: Investment rate of return Projected salary increases: Inflation Merit or seniority and productivity Post retirement benefit increases

8.0% per year
3.0% per year 4.5% per year
NIA

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.

Effective July 1, 2007, the Plan Year was changed from January 1 to July 1. Therefore, the valuation presented below, dated December 31, 2006, is based on the most current actuarial tables available at the School System's fiscal year end of June 30, 2007. Data as of July 1, 2007, will be presented in the School System's 2008 Comprehensive Annual Financial Report.

Five Year Trend Information as of December 31 is as follows:

- 43 -

ATLANTA INDEPENDENT SCHOOL SYSTEM NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"K"

Note 15: RETIREMENT PLANS

Year

Annual Required Contribution (ARC)

2002 2003 2004 2005 2006

$ 34,950,601 $ 38,812,022 $ 40,937,888 $ 43,537,755 $ 46,116,267

Actual Contribution
$ 35,136,900 $ 38,675,940 $ 36,321,730 $ 45,125,221 $ 46,116,267

%of ARC Contributed
100.53% 99.65% 88.72% 103.65% 100.00%

Net Pension Obligation

$ -186,299

$ 136,082

$ 4,616,158

$ -1,587,466

$

0

Actuarial Valuation Date

Actuarial Value of Assets
(a)

1/1/02 1/1/03 1/1/04 1/1/05 1/1/06

$117,546,260 $109,367,500 $107,323,985 $102,301,954 $116,866,067

Actuarial Accrued Liability (AAL) Entry Age
(b)
$563,396,789 $579,890,481 $581,451,634 $580,470,790 $600,055,443

Unfunded AAL
(UAAL) (b-a)
$445,850,529 $470,522,981 $474,127,649 $478,168,836 $483,189,376

Funded Ratio (alb)

Covered Payroll (c)

UAAL as a Percentage of Covered Payroll ((b-a)/c)

20.9% 18.9% 18.5% 17.6% 19.5%

$40,666,479 $47,042,418 $45,898,463 $40,366,756 $26,185,568

1,096.4% 1,000.3% 1,033.0% 1,184.6% 1,845.3%

-44-

ATLANTA INDEPENDENT SCHOOL SYSTEM GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2007

SCHEDULE "1"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Community Services
Capital Outlay Debt Service
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Other Sources Other Uses
Total Other Financing Sources (Uses)
SPECIAL ITEMS
Proceeds from Sale of Capital Assets
Net Change in Fund Balances
Fund Balances - Beginning (Restated)

Nonaeeroeriated Budgets

Original (1)

Final (1)

Actual Amounts (2)

$

432,339,767 $

432,339,767 $

414,651,415

14,870,217

136,400,000

136,400,000

145,105,716

1,200,000

1,200,000

1,112,951

25,000

25,000

2,071,921

5,625,000

5,625,000

10,675,070

1,250,000

1250000

6,322,167

$

576,839,767 $

576,839,767 $

594,809,457

$

392,793,400 $

374,041,998 $ 347,370,620

12,539,551 3,143,437 9,722,422 8,214,546
32,852,029 13,241,216 64,574,745 15,084,785 30,657,236
16,400

12,501,089 3,098,212
10,036,173 8,673,443
32,873,279 14,029,842 64,153,599 15,191,469 32,593,754 21,096,948
9,700 152,500 1408818

10,491,218 15,284,559
8,393,521 6,950,876 27,512,540 14,120,261 57,867,020 15,076,856 27,926,400 1,354,535
6,752 2,638,066 1784306

$

582,839,767 $

589,860,824 $

536,777,530

$

-6 000 000 $

-13021057 $

58,031,927

$

2,638,066

-44 051 769

$

-41 413 703

$

3,169,238

$

-6,000,000 $

-13,021,057 $

19,787,462

77,223,030

77,223,030

88,661,606

Fund Balances - Ending

$

71,223,030 $

64 201 973 $

108,449,068

Notes to the Schedule of Revenues, Ex12enditures and Changes in Fund Balances Budget and Actual
(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. (2) Property taxes and State fund revenues related to Charter Schools are not budgeted for, these amounts are shown as
Other Uses (transfer) in the actual column.
The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 45 -

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ATLANTA INDEPENDENT SCHOOL SYSTEM TITLE I FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2007

SCHEDULE "2"

REVENUES
Federal Funds
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning

Nonaeeroeriated Budgets

Original

Final

Actual Amounts

$

45,204,274 $

49,366,386 $

46,397,604

$

41,664,917 $

46,205,324 $

26,235,701

744,756 2,116,042
678,559

447,778 2,083,918
629,366

6,997,157 7,556,308
14,035 2,887,575
376,408 196,803
14,492 974,265 179,875 964,985

$

45,204,274 $

49,366,386 $

46,397,604

$

0 $

0 $

0

0

0

0

Fund Balances - Ending

$

0 $

0 $=====0=

The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 47 -

ATLANTA INDEPENDENT SCHOOL SYSTEM COMBINING BALANCE SHEET
NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2007

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable
State Government Federal Government Other Due from Other Funds
Total Assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Cash Overdraft Accounts Payable Salaries and Benefits Payable Due to Other Funds Deposits and Deferred Revenue
Total Liabilities
FUND BALANCES
Reserved for: Capital Projects
Unreserved Designated for: Nonmajor Governmental Funds Undesignated Reported in: Nonmajor Governmental Funds
Total Fund Balances
Total Liabilities and Fund Balances

Title II

Title VI-B

Lottery Grants

$

325,495 $

204,566

$

983,252

1 416

198,938 37,979

$

984,668 $

562,412 $==2=04=,5=6=6

$

456,591

199,659 $

64,038 $

3,622

301,458

477,093

199,597

1,078

26,960

21,281

269

$

984,668 $

562,412 $

204,566

$

0 $

0 $

0

$

0 $

0 $

0

$

984,668 $

562,412 $====2=04..,,5..,6=6

See notes to the basic financial statements.

- 48-

SCHEDULE "3"

Special Revenue Funds

Other Federal Funds

Other Special Projects

Charter Schools

Education Reform Success

Total

$ 10,790,371 $ 2,317,597

$ 13,638,029

$ 4,884,269

4,884,269

$

777,724

423,832

1,237,402

22,887

777,724 1,606,022 1,260,289
39,395

$

1,201,556 $ 10,790,371 $ 3,554,999 $ 4,907,156 $ 22,205,728

$

810,702

$ 1,267,293

240,013 $

1,338,278 $

302,513 $ 2,261,173

4,409,296

40,032

33,592

697,132

1,748,904

1,078

110 809

15 357

174 676

$

1,201,556 $

1,387,227 $

999,645 $ 2,261,173 $ 7,601,247

$ 2,645,983 $ 2,645,983

$

9,403,144

$ _____0 - - - - - $

$ _ _ _ _ _0_$

9 403 144 $

2,555,354 2,555,354 $

9,403,144 2,555,354 2,645,983 $ 14,604,481

$

1,201,556 $ 10,790,371 $ 3,554,999 $ 4,907,156 $ 22,205,728

-49-

ATLANTA INDEPENDENT SCHOOL SYSTEM COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2007

REVENUES
State Funds Federal Funds Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Community Services
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES}
Proceeds of Debt Transfers In
Total Other Financing Sources (Uses)
SPECIAL ITEM
Charter Schools Closed
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

Title II

Title VI-B

Lottery Grants

$ 320,742 $ $ 6,921,687 10,575,397

2,492,394

$ 6,921,687 $ 10,896,139 $ 2,492,394

$ 2,950,345 $ 4,643,375 $ 1,991,776

793,298 3,142,989

4,418,809 804,698

500,618

90,653

97,459

1,682 33,373

802,874 38,271

$ 6,921,687 $ 10,896,139 $ 2,492,394

$

0 $

0 $

0

$

0 $

0 $

0

0

0

0

$

0 $

0 $

0

==== ===== ======

See notes to the basic financial statements.

- 50 -

SCHEDULE "4"

Special Revenue Funds

Other Federal Funds

Other Special Projects

Charter Schools

Education
Reform Success

Total

$

75,434 $

5,313,430

17,957

$

5,406,821 $

3,435,044 $
243,059 6,251,818

495,059
1,094,103 2,250,293 $

9,929,921 $ 3,839,455 $

$ 287,104

6,818,673
24,147,676 8,807,172

287,104 $ 39,773,521

$

3,538,941 $

4,003,891 $ 14,282,226

$ 31,410,554

646,869 1,826,468
175,539
23,272 89
97,836
15,561 67,056

306,875 2,335,650
711,444 2,158,002
3,908 582,639 448,648 392,283
1,500 240,271
37,500

50,537
3,570,475 314,676 445,010 $
1,872,170

1,500

243,221 1,437,791

7,609,587

6,165,851 8,660,960
711,444 5,994,669
318,584 1,149,880 2,320,907 1,292,993
41,453 532,426
67,056 9,084,878

234,853 68,734

83,209 15,306

145,034

318,062 229,074

$

6,391,631 $

11,526,198 $ 22,314,621 $ 7,756,121 $ 68,298,791

$

-984 810 $

-1,596,277 $ -18,475,166 $ -7,469,017 $ -28,525,270

$ 10,115,000 $ 10,115,000

$

2,612,000 $ 20,023,695 - - - - 22,635,695

$

2,612,000 $ 20,023,695 $ 10,115,000 $ 32,750,695

$ -1,981,811

$ -1,981,811

$

-984,810 $

1,015,723 $ -433,282 $ 2,645,983 $ 2,243,614

984,810

8,387,421

2,988,636

0

12,360,867

$

0 $

=====

9,403,144 $ 2,555,354 $ 2,645,983 $ 14,604,481

- 51 -

ATLANTA INDEPENDENT SCHOOL SYSTEM COMBINING BALANCE SHEET
NONMAJOR GOVERNMENTAL FUNDS - CHARTER SCHOOLS JUNE 30, 2007

ASSETS Cash and Cash Equivalents Accounts Receivable
Other
Total Assets
LIABILITIES AND FUND BALANCES LIABILITIES
Accounts Payable Salaries and Benefits Payable
Total Liabilities FUND BALANCES
Unreserved Undesignated Reported in: Nonmajor Governmental Funds
Total Liabilities and Fund Balances

School for Integrated Academics and Technologies at Georgia, Inc.

KIPP West Atlanta Young
Scholars Academy, Inc.

Achieve Academy of Atlanta, Inc.

$

0 $

664,605 $

0

347 875

$

0 $

======

1,012,480 $

0

=====

$

64,695

$

64,695

$ _ _ _ _ _ _0

947,785 $ _ _ _ _o_

$

0 $

======

1,012,480 $

0

=====

See notes to the basic financial statements.

- 52 -

SCHEDULE "5"

Special Revenue Funds

University Community Academy, Inc.

Tech High School, Inc.

Drew Charter School, Inc.

Southeast Atlanta
Charter Middle School, Inc.

Neighborhood
Charter School, Inc.

Total

$

387,072 $

19,192 $

383,022 $

107 753

166,422

531 210

$

494,825 $

185,614 $

914,232 $

216,152 $ 84 142

647,554 $ 2,317,597 1,237,402

300,294 $

647,554 $

======

3,554,999

$

54,297 $

180,043 $

3,478

118341

391 563 $

$

172,638 $

180,043 $

395,041 $

$ 49047 $ _ _ _ _13_8~1_8_1

49,047 $

138,181 $

302,513 697,132
999,645

322,187

5,571

519,191

$

494,825 $

185,614 $

914,232 $

251,247

509,373

2,555,354

300,294 $

647,554 $

======

3,554,999

- 53 -

ATLANTA INDEPENDENT SCHOOL SYSTEM COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
NONMAJOR GOVERNMENTAL FUNDS - CHARTER SCHOOLS FOR THE YEAR ENDED JUNE 30, 2007

REVENUES
State Funds Federal Funds Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Improvement of Instructional Services General Administration School Administration Business Administration Central Support Services Other Support Services Capital Outlay Debt Services Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES
Transfers In
SPECIAL ITEM
Charter Schools Closed
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

School for Integrated Academics and Technologies at Geo!];!ia, Inc.

KIPP West Atlanta Young
Scholars Academt, Inc.

Achieve Academy of Atlanta, Inc.

$

0 $

437,229 $

0

779,133

$

0 $ 1,216,362 $

0

$

0 $ 2,769,892 $

0

195,818

60,256 221,854

37,797 4 695

$

0 $ 3,290,312 $

0

$

0 $ -2,073,950 $

0

$

830 641 $ 2,312,081 $ 538,970

$

-1161411

$ -820,400

$

-330,770 $

238,131 $ -281,430

330770

709,654

281,430

$ ======0 $

947,785 $= = = =0

See notes to the basic financial statements.

- 54 -

SCHEDULE "6"

Special Revenue Funds

University Community Academy, Inc.

Tech High School, Inc.

Drew Charter School, Inc.

Southeast Atlanta Charter Middle School, Inc.

Neighborhood Charter School,
Inc.

Total

$

$

107,753

$

531,210

43,773 $ 833,101

11,278

$

151 526 $ 833,101 $

542,488 $

295,059 $ 17,911
278,348
591 318 $

200,000 $ 304,660

495,059
1,094,103 2,250,293

504,660 $ 3,839,455

$

1,904,539 $ 1,642,825 $

4,547,917 $

6,405 409,671 314,676

367,101 129,646

2,392,425 315,364

30,090 217,775

45,063

64,725 506,604

$ 3,462,064 $ 2,487,244 $ 8,424,785 $ $ -3,310,538 $ -1,654, 143 $ -7,882,297 $

702,466 $
5,489 62,280
43,087 328,646
31,484 4 822
1,342,185 $ -750 867 $

2,714,587 $ 14,282,226

38,643 143,180
162,912

50,537 3,570,475
314,676 445,010
0 243,221 1,437,791

13,928 5 789

83,209 15 306

3,308,031 $ 22,314,621

-2,803,371 $ -18,475,166

$

3,226,323 $ 1,593,817 $

7 724 454 $

748 678 $

3 048 731 $ 20,023,695

$

-84,215 $

-60,326 $

-157,843 $

406 402

65 897

677 034

$

322,187 $

5,571 $

519,191 $

- - - - - $ -1,981,811

-2,189 $

245,360 $ -433,282

253 436

264 013

2,988,636

251,247 $

509,373 $ 2,555,354

- 55 -

ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2007

SCHEDULE "7"

AGENCY/FUNDING
GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Nursing Services Principal Supplements Food Services Amended Formula Adjustment Other State Programs Career, Technical and Agriculture Charter Schools Comprehensive Academic Performance System (CAPS) Health Insurance K-8 Statewide Reading and Mathematics Program National Teacher Certification Preschool Handicapped Program Pupil Transportation - State Bonds Residential Facilities Teacher's Retirement Technology Career Education Virtual Schools Grant Vocational Construction Related Equipment - State Bonds
Technical and Adult Education, Georgia Department of Adult Education

Governmental Fund T:lees

Other

General

Governmental

Fund

Funds

BusinessType
Activities

Total

$

2,510,752

$ 2,510,752

$ 9,982,514 3,565,992
22,740,710 6,827,210 9,086,143 5,093,716 1,490,213
15,765,083 14,402,435 4,028,219
1,532,518 2,745,322 7,887,941 1,149,404
238,563 4,178,925 1,359,842 1,310,281 1,437,101 2,498,639 1,778,136
639,675
2,656,541 7,396,077 8,437,677
3,581,789 391,630 840,244 168,859
-4,319,040
5,811,198
244,223 157,936

9,982,514 3,565,992 22,740,710 6,827,210 9,086,143 5,093,716 1,490,213 15,765,083 14,402,435 4,028,219
1,532,518 2,745,322 7,887,941 1,149,404
238,563 4,178,925 1,359,842 1,310,281 1,437,101 2,498,639 1,778,136
639,675
2,656,541 7,396,077 8,437,677

$ 1,159,347
350,087 980,559 480,900
495,233 303,573 320,741 800,000
75,434 1,925
11,415

3,581,789 391,630 840,244 168,859
1,159,347 -4,319,040
350,087 980,559 480,900 5,811,198 495,233 303,573 320,741 800,000 244,223 157,936
75,434 1,925
11,415

488 054

488,054

See notes to the basic financial statements.

$ 145,105,716 $

6,818,673 $ 1,159,347 $ 153,083,736

-56-

ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2007

SCHEDULE "8"

PROJECT
1997 SPLOST
DeKalb County Renovations, modifications, additions and equipment for the following facilities: Crim High School, Coan Middle School, Marshall Middle School, Burgess Elementary School, Drew Elementary School, East Lake Elementary School, Lin Elementary School, Peterson Elementary School, Toomer Elementary School and Whitefoord Elementary School.
Fulton County New schools and facilities, school renovations and additions, building upgrades and critical infrastructure improvements, technology, lease purchase payments and land acquisition; and for the retirement of previously incurred debt.
2003 SPLOST
DeKalb County Renovations, modifications, additions and equipment for the following facilities: Crim High School, Coan Middle School, Burgess/Peterson Elementary School, East Lake Elementary School, Lin Elementary School, Toomer Elementary School and Whitefoord Elementary School; and acquisition and installation of information systems, hardware and infrastructure at the above schools and related facilities.
Fulton County New school construction, classroom additions, renovations, infrastructure improvements, security system improvements, technology improvements, land acquisition, site preparation, new staff development and instructional support facilities, new maintenance facility, new stadium, new school buses and new support vehicles.

Original Estimated Cost (1)

Current Estimated Costs (2)

Amount Expended In Current Year (3)

Amount Expended
In Prior Years (3)

Project Status

$ 10,240,967 $ 15,559,529

$ 15,559,529 Completed

538,713,487 519,183,943

519,183,943 Completed

21,355,321

23,472,500 $ 2,417,061

16,253,313 Ongoing

481,538,295 426,839,322 32,356,991 340,429,253 Ongoing $ 1,051,848,070 $ 985,055,294 $ 34,774,052 $ 891,426,038

(1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax.
(2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion.
(3) The voters of Fulton and DeKalb Counties approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects.
See notes to the basic financial statements.
-57-

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ATLANTA INDEPENDENT SCHOOL SYSTEM GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2007

SCHEDULE "9"

DESCRIPTION
Direct Instructional Programs Kindergarten Program Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL)
TOTAL DIRECT INSTRUCTIONAL PROGRAMS
Media Center Program Staff and Professional Development

Allotments From Georgia Department of Education (1) (2)

Eligible QBE Program Costs

Salaries

Operations

Total

$

17,362,961 $

16,198,706

$

16,198,706

6,401,215

6,686,551

6,686,551

39,505,283

55,741,890 $

2,119,041

57,860,931

12,391,432

28,889,660

28,889,660

15,921,999

18,897,974

18,897,974

9,179,358 2,609,351 27,976,084 25,335,793 6,980,441 23,787,435
7,248,805 2,175,715 2,346,524 2,505,268

7,659,798
37,143,091 40,809,988
6,592,546
29,369,178 2,315,917 3,207,113 123,639 7,203,654 1,532,837 933,340 3,242,938

853,224 2,117,300
909,943
1,047,477
19,970 82,558 7,066,269

7,659,798
37,996,315 42,927,288
7,502,489
30,416,655 2,315,917 3,207,113 123,639 7,223,624 1,615,395 7,999,609 3,242,938

$

201,727,664 $ 266,548,820 $ 14,215,782 $ 280,764,602

5,753,330 1,130,295

8,314,659 4,062,522

575,799

8,890,458 4,062,522

TOTAL QBE FORMULA FUNDS

$

208,611,289 $ 278,926,001 $ 14,791,581 $ 293,717,582

(1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State amended formula adjustment.

See notes to the basic financial statements.

59

SECTION II FINDINGS AND QUESTIONED COSTS

ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

COMMUNICATION OF INTERNAL CONTROL DEFICIENCIES

The auditor is required to communicate to management and those charged with governance control deficiencies identified during the course of the financial statement audit that, in the auditor's judgment, constitute significant deficiencies or material weakness.

A control deficiency exists when the design or operation ofa control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affect the Atlanta Independent School System's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Atlanta Independent School System's financial statements that is more than inconsequential will not be prevented or detected by the Atlanta Independent School System's internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement ofthe financial statements will not be prevented or detected by the Atlanta Independent School System's internal control.

Any identified deficiencies in internal controls that we did not consider to be significant deficiencies and/or material weaknesses have been communicated to management and those charged with governance within a separate management letter dated October 20, 2008. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below:

CASH AND CASH EQUIVALENTS EXPENDITURES/PAYABLES/DISBURSEMENTS Inadequate Accounting System Internal Controls Material Weakness Finding Control Number: FS-7611-07-01

Condition:

The accounting procedures related to the accounting system of the School District were insufficient to ensure proper accounting and reporting for Cash and Cash Equivalents and Accounts Payables.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed and reported in accordance with generally accepted accounting principles.

Questioned Cost: NIA

- 1-

ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

CASH AND CASH EQUIVALENTS EXPENDITURES/PAYABLES/DISBURSEMENTS Inadequate Accounting System Internal Controls Material Weakness Finding Control Number: FS-7611-07-01

Information:

A review of supporting documentation for Accounts Payables revealed expenditures for which payment had not been made, and were not recorded in the correct fund and opinion unit. The general fund's Cash and Cash Equivalents and Accounts Payables were overstated and all other funds and opinion units' Cash and Cash Equivalents and Accounts Payables were understated. Audit adjustments were proposed and made to adjust general ledger balances for both Cash and Cash Equivalents and Accounts Payables accounts to ensure these balances were materially correct for financial reporting.

Cause:

The accounting system was designed to adjust Cash and Cash Equivalents and Accounts Payables between funds and opinion units for those disbursements that are to be made from the general operating bank account prior to the actual disbursement taking place.

Effect:

Cash and Cash Equivalents and Accounts Payables are improperly recognized and recorded in those funds and opinion units for which disbursements are made from the general operating bank account.

Recommendation:

The School District should establish accounting system procedures necessary to ensure that Cash and Cash Equivalents and Accounts Payables are accurately reported within the financial statements.

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Controls over School Activity Accounts Significant Deficiency Finding Control Number: FS-7611-07-02

Condition:

This is a repeat finding (FS-7611-06-06) from the year ended June 30, 2006. The accounting procedures ofthe School District were insufficient to provide for adequate internal controls over the school activity accounts.

-2 -

ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Controls over School Activity Accounts Significant Deficiency Finding Control Number: FS-7611-07-02

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures and provide assurance of proper separation of duties, which would limit any one individual's access to both physical assets and the related accounting records.

Questioned Cost: NIA

Information:

The following was noted in our examination of bank reconciliations:

Year-end bank statement reconciliations for thirty-five schools were prepared by central office personnel instead of school personnel as required by the APS School Based Services Procedures Manual.
Nine year-end bank reconciliations were not signed or dated by a preparer. Seven of these were signed by an approver.
Three year-end bank reconciliations were prepared and approved by the same person.
Eleven schools had reconciling items for unrecorded checks. These checks had cleared the bank but had not been recorded on the general ledger. In addition, three of these schools had reconciling items for unrecorded deposits. These deposits had cleared the bank but had not been recorded on the general ledger.
Several deposits in transit at year-end did not clear the bank through review of September, 2007 bank statements.
Variances were noted between amounts posted to the general ledger and amounts on the bank reconciliations.

Cause:

The deficiencies were a result of school level administrators lack of compliance with established policies and procedures. Management must ensure that established internal controls are implemented and functioning at the school level.

Effect:

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

-3-

ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Controls over School Activity Accounts Significant Deficiency Finding Control Number: FS-7611-07-02

Recommendation:

Management should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures and supporting documentation is available for review.

REVENUES/RECEIVABLES/RECEIPTS Inadequate Internal Controls Material Weakness Finding Control Number: FS-7611-07-03

Condition:

This is a repeat finding (FS-7611-06-05, FS-7611-05-04 and FS-7611-04-05) from the years ended June 30, 2006, June 30, 2005, and June 30, 2004, respectively. The accounting procedures of the School District were insufficient to ensure proper accounting and reporting for revenues, receivables and receipts activities.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures.

Questioned Cost: NIA

Information:

A review of revenues and receivables revealed the School District did not have proper internal controls to detect significant errors in a timely manner. Numerous audit adjustments were proposed and made to adjust general ledger balances for both Accounts Receivables and Revenue accounts to ensure these balances were materially correct for financial reporting. Included in these audit adjustments was an adjustment to beginning fund balance and beginning net assets for property tax revenues.

Cause:

These deficiencies were a result of management's failure to ensure adequate accounting policies and procedures were in place to properly account for revenues, receivables and receipts.

Effect:

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

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

REVENUES/RECEIVABLES/RECEIPTS Inadequate Internal Controls Material Weakness Finding Control Number: FS-7611-07-03

Recommendation:

The Atlanta Independent School System (APS) should establish accounting procedures adequate to ensure grant revenues, property tax revenues and related receivables are accurately reported within the financial statements and subsidiary detail records should be maintained to ensure proper reporting to Georgia Department of Education and other grantors as required.

PROCUREMENT EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Debit/Procurement Card Expenditures Significant Deficiency Finding Control Number: FS-7611-07-04

Condition:

This is a repeat finding (FS-7611-06-07) from the year ended June 30, 2006. School District personnel did not ensure that purchases made with the Board's debit/procurement card (P-card) were properly documented and/or authorized.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures.

Questioned Cost: $267.26

Information:

Deficiencies in internal controls established for the P-card policy adopted by the School District related to the debit/procurement card transactions were:

Ten of the sixty-six requested transaction logs were not provided. Twenty-two of the transaction logs were not approved by a budget manager.
Invoices were not provided for sixteen transactions. Expenditure amount recorded for one of these transactions did not agree to supporting documentation.
One transaction recorded in the year under review occurred in the subsequent fiscal year.
One transaction was with a class of vendor that was prohibited. Eight transactions were determined to be splitting of payments to
circumvent the single transaction limit. Sales tax was paid on three transactions.

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

PROCUREMENT EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Debit/Procurement Card Expenditures Significant Deficiency Finding Control Number: FS-7611-07-04

Twenty-six of forty-three employee agreements requested were not provided.
One transaction for $267.26 did not appear to be for educational purposes and is deemed a fraud risk factor.

Cause:

These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning with regard to debit/procurement card transactions.

Effect:

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

Recommendation:

The School District should establish policies and procedures to monitor Peard transactions and to ensure that expenditures are utilized only for educational purposes, and properly documented. In addition, the School District should review all P-Card transactions and identify any questioned costs and determine the amount of reimbursement due from individuals involved and take any other action deemed appropriate.

EXPENDITURES/PAYABLES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Controls Material Weakness Finding Control Number: FS-7611-07-05

Condition:

This is a repeat finding (FS-7611-06-08, FS-7611-05-05 and FS-7611-04-06) from the years ended June 30, 2006, June 30, 2005, and June 30, 2004, respectively. The accounting procedures of the School District were insufficient to ensure proper accounting and reporting for expenditures, payables and disbursements activity.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures.

Questioned Cost: NIA

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

EXPENDITURES/PAYABLES/DISBURSEMENTS GENERAL LEDGER Inadequate Internal Controls Material Weakness Finding Control Number: FS-7611-07-05

Information:

A review of expenditures and payables revealed the School District did not have proper internal controls to detect significant errors in a timely manner. Amounts presented for various Accounts Payable accounts were not reconciled to the general ledger. A review of the subsequent period ledger revealed transactions that should have been recorded in the year under review.

Cause:

These deficiencies were a result of management's failure to ensure adequate accounting policies and procedures were in place to properly account for expenditures, payables and disbursements.

Effect:

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

Recommendation:

The School District should establish accounting procedures necessary to ensure that expenditures and related payables are accurately reported within the financial statements and subsidiary detail records should be maintained to ensure proper reporting to Georgia Department of Education and other grantors as required.

EMPLOYEE COMPENSATION Payroll Sample Exceptions Material Weakness Finding Control Number: FS-7611-07-06

Condition:

This is a repeat finding (FS-7611-06-10) from the year ended June 30, 2006. The accounting procedures ofthe School District were insufficient to provide for adequate internal controls over employee compensation.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures and that there is adequate separation of duties involving key accounting functions, both manual and automated. In addition, all payroll expenditures should be properly documented.

Questioned Cost: $601,759.43

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

EMPLOYEE COMPENSATION Payroll Sample Exceptions Material Weakness Finding Control Number: FS-7611-07-06

Information:

An examination ofthe internal accounting procedures revealed the following deficiencies:

Adequate documentation was not always maintained to support base pay amounts and additional payments made to employees.
Six personnel files were not provided to support the existence of employees and/or the compensation paid.
Timesheets for all employees requested were not provided.

Cause:

These deficiencies were the result of management's failure to ensure that appropriate accounting control procedures were established, implemented and functioning.

Effect:

Without satisfactory controls and procedures in place, the School District is placed in a position where potential misappropriation of assets could occur. Additionally, due to the lack of supporting documentation for employee compensation we were unable to determine if salary transactions were properly recorded in the accounting records.

Recommendation:

The Management of the School District should establish policies and procedures to ensure that all employee compensation is approved, properly calculated, well documented and reported accurately.

EMPLOYEE COMPENSATION GENERAL LEDGER Inaccurate Reporting of Compensation Material Noncompliance Finding Control Number: FS-7611-07-07

Condition:

This is a repeat finding (FS-7611-06-09) from the year ended June 30, 2006. The detailed listing ofsalary and travel paid to employees as submitted to the Georgia Department of Audits and Accounts was not reconciled to the general ledger as presented for audit.

Criteria:

O.C.G.A. 50-6-27 states in part: "Each ... local board of education is required and directed to submit to the state auditor, in a format prescribed by the state auditor, a listing of all personnel ofsuch ... local board ofeducation showing name, title or functional area, salary and travel expense for each individual".

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

EMPLOYEE COMPENSATION GENERAL LEDGER Inaccurate Reporting of Compensation Material Noncompliance Finding Control Number: FS-7611-07-07

Questioned Cost: NIA

Information:

The detailed listing of salaries should have been reported on the cash basis; however, it appears the School District submitted salaries on an accrual basis. Therefore, a variance of $27,268,123 for salaries remained between the detailed listing and the general ledger. In addition, an unidentifiable variance of$527,709 for travel remained between the detailed listing and the general ledger.

Cause:

Management failed to implement procedures to ensure that accurate employee compensation was reported to the Department of Audits and Accounts.

Effect:

The failure of the School District to submit accurate compensation paid to employees leads to inaccurate external reporting.

Recommendation:

Administrative procedures should be implemented by management to ensure that the detailed listing ofsalaries and travel is complete and accurate prior to submission to the Georgia Department of Audits and Accounts.

GENERAL LEDGER Inadequate Documentation and Approval of Journal Entries Significant Deficiency Finding Control Number: FS-7611-07-08

Condition:

School District personnel did not ensure that journal entries were properly approved and documented based on the policies and procedures established.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that journal entries are properly approved and documented.

Questioned Cost: NIA

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

GENERAL LEDGER Inadequate Documentation and Approval of Journal Entries Significant Deficiency Finding Control Number: FS-7611-07-08

Information:

The following deficiencies were noted related to the journal entry process:

Nearly 4,300 manual journal entries were posted to the general ledger. Many of these were to correct previously posted journal entries.
Supporting documentation for several journal entries posted to the general ledger was not provided.
Several journal entries examined were not approved as required by established policies and procedures.

Cause:

These deficiencies were a result of management's failure to adequately monitor and implement procedures to ensure that journal entries were properly documented and approved. In addition, the School District did not fully utilize the capabilities of the available accounting system's modules. The underutilization ofthe accounting system's modules produced the need for many of these journal entries.

Effect:

The lack of adequate controls over the journal entry process may result in errors in the financial reporting process and increases the risk of material misstatements.

Recommendation:

The School District should strengthen internal controls over the journal entry process to ensure that journal entries are properly documented and approved. In addition, the School District should effectively and efficiently implement available accounting system's modules.

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Material Weakness Finding Control Number: FS-7611-07-09

Condition:

This is a repeat finding (FS-7611-06-11, FS-7611-05-06 and FS-7611-04-13) from years ended June 30, 2006, June 30, 2005, and June 30, 2004, respectively. The School District failed to adequately maintain internal controls to ensure accurate and proper reporting of capital asset activity.

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Material Weakness Finding Control Number: FS-7611-07-09

Criteria:

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

Questioned Cost: NIA

Information:

A review of the School District's capital assets policies and procedures and related capital assets records noted the following deficiencies:

Supporting documentation for the restatement of beginning Net Assets in the amount of $-20,399,249 was not provided.
The capital assets listing and the School District's financial statements presented for audit failed to include a current year addition for a building in the amount of $5,248,024.
Supporting documentation was not provided for several current year additions of capital assets.
Assets disposed of were not removed from the capital assets listing. Depreciation expense was not applied to the capitalized items based
on the School District's approved policy. A recalculation of the total current year depreciation expense
revealed an overstatement of$7,006,382 for governmental activities and $31,987 for business-type activities. A recalculation of total accumulated depreciation revealed an overstatement of $2,549,405 for governmental activities and $339,804 for business-type activities. The School District has not implemented GASB 42 which requires accounting for impairment of capital assets.

Cause:

The School District failed to ensure adequate accounting procedures were in place to process, record and report capital assets and related activity.

Effect:

The failure ofthe School District to maintain a complete and accurate capital assets listing can lead to inaccurate internal and external reporting, as well as noncompliance with general accepted accounting principles.

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Material Weakness Finding Control Number: FS-7611-07-09

Recommendation:

The School District should review its capital assets records and make appropriate adjustments to ensure that the capital assets records conform to the School District's approved capital assets policy and generally accepted accounting principles.

ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls Significant Deficiency Finding Control Number: FS-7611-07-10

Condition:

This is a repeat finding (FS-7611-06-01, FS-7611-05-01 andFS-7611-04-01) from the years ended June 30, 2006, June 30, 2005, and June 30, 2004, respectively. The accounting procedures of the School District did not properly restrict users access rights to the Financial Accounting System.

Criteria:

Separation of duties involving key accounting functions, both manual and automated, is the basis for achieving an adequate system of internal control.

Questioned Cost: NIA

Information:

Access controls in the Financial Accounting System do not prevent users from accessing accounting functions that are outside of their area of responsibility.

Cause:

The School District's management is responsible for designing and maintaining internal controls that restrict access to programs or data. Management has not limited the access rights of users of the Financial Accounting System.

Effect:

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

Recommendation:

Management should ensure that the access controls in the accounting information system complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of the employee's duties.

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

FINANCIAL REPORTING Inadequate Controls over Financial Reporting Material Weakness Finding Control Number: FS-7611-07-11

Condition:

This is a repeat finding (FS-7611-06-12, FS-7611-05-07 and FS-7611-04-14) from the years ended June 30, 2006, June 30, 2005, and June 30, 2004, respectively. The School District did not have adequate controls in place over the financial statement reporting process.

Criteria:

Management is responsible for having adequate controls over the financial reporting process, which not only includes proper recording oftransactions to the general ledger, but extends to accurate preparation and presentation ofthe financial statements, including note disclosures.

Questioned Cost: NIA

Information:

The Governmental Accounting Standards Board (GASB) Statement 34 reporting model requires the presentation ofboth fund level and entity-wide level statements in the School District's financial statements. During the audit, numerous correcting entries were proposed by the auditor and accepted by the client to properly present the entity's fund level and entity-wide level financial statements.

Cause:

The School District did not implement an adequate system ofinternal control over the financial statement reporting process.

Effect:

The School District does not have adequate controls in place to ensure that the financial statements were properly prepared and in accordance with generally accepted accounting principles.

Recommendation:

The School District should develop and implement internal controls over the financial statement reporting process to ensure that activity is properly recorded in the general ledger; to verify that financial statements (including note disclosures) properly reflect activity reported in the general ledger; and to include a monitoring process to evaluate the accuracy of the financials presented for audit.

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

FINANCIAL REPORTING Inadequate Internal Controls over Blended Component Units Material Weakness Finding Control Number: FS-7611-07-12

Condition:

The School District did not monitor activity of closed charter schools to ensure adequate accounting ofassets, including capital assets, revenues and expenditures.

Criteria:

The School District's management is responsible for preparing basic financial statements in accordance with generally accepted accounting principles. In addition, O.C.G.A. 20-2-2065 requires an annual financial audit to be performed.

Questioned Cost: NIA

Information:

The following was noted related to the closing of two charter schools reported as blended component units of the School District:

Two charter schools, School for Integrated Academics and Technologies at Georgia, Inc. and Achieve Academy ofAtlanta, Inc., operated during the year under review.
The School District's Board did not renew the charters of the two charter schools to operate in the subsequent fiscal year.
The School District did not record the revenues and expenditures of the two charter schools in the basic financial statements.
An adequate accounting ofassets, including but not limited to capital assets, was not made for the two closed charter schools.
Annual financial audits were not performed as required for the two closed charter schools.

Cause:

These deficiencies were a result ofmanagement's failure to monitor blended component units' activity to ensure proper accounting of amounts and disclosures in the financial statements.

Effect:

The lack of adequate monitoring for closed charter schools activities may result in errors in financial reporting and misappropriation of assets.

Recommendation:

The School District should implement and monitor internal controls over the activities of the blended component units to ensure that amounts and disclosures in the basic financial statements are presented in accordance with generally accepted accounting principles and to ensure that misappropriation of assets does not occur. In addition, the School District should implement and monitor internal controls to ensure that annual financial audits are performed, as required.
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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

FINANCIAL REPORTING GENERAL LEDGER Inadequate Internal Controls for Debt Service Fund Material Weakness Finding Control Number: FS-7611-07-13

Condition:

The School District did not provide supporting documentation of amounts disclosed for the Debt Service Fund.

Criteria:

The School District's management is responsible for preparing basic financial statements in accordance with generally accepted accounting principles.

Questioned Cost: NIA

Information:

The following was noted related to account balances of the Debt Service Fund:

In prior fiscal years, Debt Service activities were recorded and presented on the Governmental Funds basic financial statements within the General Fund.
The School District's property tax revenues for Debt Service are collected and maintained by the City of Atlanta government.
The City of Atlanta government disburses bond debt payment on behalf of the School District.
In the fiscal year under review, the School District's management determined that the Debt Service activity should be reflected in the Governmental Funds as a Debt Service Fund.
The School District restated the beginning fund balances for the General Fund and the Debt Service Fund in the amounts of $-4,396,505 and $4,310,899, respectively. The difference of $85,606 is noted as being due to a reconciliation of beginning balances with amounts presented by the City ofAtlanta government.
The School District did not provide the reconciliation presented by the City of Atlanta government.
Amounts confirmed with the City of Atlanta government do not agree to amounts presented on the Governmental Funds Debt Service Fund.

Cause:

These deficiencies were a result of management's failure to provide supporting documentation for amounts and disclosures in the financial statements. In addition, the School District did not monitor property tax revenues collected and disbursed by the City of Atlanta government on behalf of the School District.

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

FINANCIAL REPORTING GENERAL LEDGER Inadequate Internal Controls for Debt Service Fund Material Weakness Finding Control Number: FS-7611-07-13

Effect:

The lack of adequate controls over the Debt Service Fund activity results in uncertainties in amounts and disclosures in the basic financial statements.

Recommendation:

The School District should implement and monitor internal controls over the Debt Service Fund activity to ensure that amounts and disclosures in the basic financial statements are presented in accordance with generally accepted accounting principles. In addition, the School District should implement and monitor internal controls to effectively communicate with the City of Atlanta government to ensure that Debt Service activity held on behalf of the School District is properly accounted for and reported.

BUDGET PREPARATION/EXECUTION Deficit Fund Balance Significant Deficiency Finding Control Number: FS-7611-07-14

Condition:

This is a repeat finding (FS-7611-06-02, FS-7611-05-02 and FS-7611-04-02) from the years ended June 30, 2006, June 30, 2005, and June 30, 2004, respectively. The Proprietary Fund - Food Service Fund of the School District reported a deficit fund balance.

Criteria:

Chapter 25 Reporting for LUAs with General Fund Deficit Balances of the Financial Management for Georgia Local Units of Administration states in part: "The seriousness of fund balance deficits cannot be overstated. The Georgia Department of Education requires those LUAs with deficit balances to meet certain reporting requirements".

Questioned Cost: NIA

Information:

The School District's Proprietary Fund reported a deficit fund balance in the amount of $9,253,707. This balance has decreased from the prior years' amount primarily due to transfers from the General Fund to assist in eliminating the deficit.

Cause:

The School District's Proprietary Fund was carrying a deficit from prior year and incurred expenditures in excess of revenues during the year under review.

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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

BUDGET PREPARATION/EXECUTION Deficit Fund Balance Significant Deficiency Finding Control Number: FS-7611-07-14

Effect:

A financial statement irregularity in accordance with O.C.G.A. 20-2-67.

Recommendation:

The School District should establish policies and procedures designed to ensure that in future periods the School District's Proprietary does not report a deficit fund balance.

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SECTION III MANAGEMENT'S RESPONSES

ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2007
Atlanta Independent School System's responses to the findings described below were not audited and accordingly, we express no opinion on them.
Finding Control Number: FS-7611-07-01
Management concurs with this finding. The Atlanta Independent School System's financial accounting system, Lawson, was designed to create an intercompany transaction when account payables were set up. These balances were not shown as cash, but rather as intercompany transactions. The net effect ofthese transactions was zero to the fund balances. The School System is currently in the process of upgrading the financial accounting system for fiscal year end June 30, 2010. As part of this upgrade, the processes that record transactions are being reviewed to ensure that any deficiencies in internal controls are addressed as part of the system reimplementation and upgrade.
Finding Control Number: FS-7611-07-02
Management concurs with this finding. In response to previous audit findings, management made an effort to strengthen its controls by transferring the responsibility of performing year-end bank reconciliations from school based staff to central office personnel. Unfortunately, this control change was not reflected in the School Based Services procedures manual which requires a review of all activity accounts to ensure that reconciling items are cleared and accounts are balanced to the general ledger. To remedy this, the procedures manual will be updated to reflect this control change.
Management will also put into effect internal controls to ensure segregation ofduties related to bank reconciliation. Additionally, procedures will be modified to improve upon the timeliness of reconciling items. Also, year end close procedures will be incorporated into standard operating procedures to control for and eliminate old deposits in transit. Management will also obtain the additional information needed to reconcile and account for the variances between bank reconcilements and the general ledger. These changes will be made during the current fiscal year and documented in the procedures manual.
Finding Control Number: FS-7611-07-03
Management concurs with this finding. During fiscal year 2008, the Atlanta Independent School System placed into operations controls that closely monitor and review all revenue and receivable balances to ensure proper recording of transactions in the proper periods. These controls are documented in the Treasury Services procedures manual and transactions are reviewed by the supervisor to ensure compliance.
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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2007
Finding Control Number: FS-7611-07-04
Management concurs with this finding. Management will put internal controls into operations to monitor compliance of current procurement policies related to transaction logs, invoices, split payments, employee agreements and undocumented signatures. These changes will be made in fiscal year 2009.
Business practices associated with sales tax charges on purchases cannot be totally eliminated on the front end. However, procedures will be implemented to mitigate and reduce the risk of erroneous charges made to the School District for sales tax on purchased goods. Training will also be offered on an on-going basis.
Finding Control Number: FS-7611-07-05
Management concurs with this finding. As part of the upgrade of the financial accounting system during fiscal year 2009, management is reviewing internal processes to ensure proper reporting of transactions. Additional compensating controls will be documented and placed into operation during the current fiscal year to ensure that accounts payables are properly recorded in the appropriate period.
Finding Control Number: FS-7611-07-06
Management concurs with this finding. Management will review, during fiscal year 2009, existing internal policies and procedures to make revisions and/or develop new internal policies and procedures to ensure that all employee compensation is approved, properly calculated, well documented and reported accurately. Further, management intends to perform sample audits on a quarterly basis to strengthen internal controls.
Finding Control Number: FS-7611-07-07
Management concurs with this finding. For fiscal year 2008, the salary information provided to the Department ofAudits will only include activity from July I, 2007 to June 30, 2008. Management is currently working on strengthening internal controls and processes for processing travel payments. These changes should be completed by June 30, 2009.
Finding Control Number: FS-7611-07-08
Management concurs with this finding. Management is currently in the process of upgrading the financial accounting system for fiscal year end June 30, 2010. As part ofthis upgrade, the processes that record transactions are being reviewed to ensure that any deficiencies in internal controls are addressed as part ofthe system reimplementation and upgrade. This review will include utilizing the subsystems to account for and record transactions.
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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2007
Finding Control Number: FS-7611-07-09
Management concurs with this finding. In response to the restatement ofthe capital assets beginning balance, this adjustment was due to the re-implementation of the Asset module in 2007. This software module maintains the financial information for all recorded assets. Adjustments became necessary once the module was upgraded. The School District anticipates yet another prior year adjustment in 2008 due to the comprehensive inventory performed by a third party group.
Management has also put into effect in fiscal year 2008, strengthened internal controls to eliminate deficiencies regarding the updating ofasset records and maintaining proper documentation. Further, management intends to work closely with State Auditors to verify and adopt their recalculation methodology to eliminate this finding going forward.
Finding Control Number: FS-7611-07-10
Management concurs with this finding. As part of management's efforts to strengthen controls in this area, security guides will be distributed annually to ensure business owners are aware of the process to request access to the system. In addition, quarterly security reports will be provided to the functional business owners to review and approve (via signature) system access levels for their respective areas. During this quarterly review, business owners will be required to define the levels of access and permissions needed based upon the specific roles of their staff to ensure proper separation of duties.
Finding Control Number: FS-7611-07-11
Management concurs with this finding. During fiscal year 2008, checklist reviews were developed and utilized to ensure that controls are in place to create a Comprehensive Annual Financial Report (CAFR) as required by the Governmental Accounting Standards Board (GASB) Statement 34 reporting model. In addition, management is currently in the process of upgrading the financial accounting system for fiscal year end June 30, 2010. As part ofthis upgrade, the processes to record and report financial transactions are being reviewed to ensure that any deficiencies in internal controls are addressed as part of the system reimplementation and upgrade.
Finding Control Number: FS-7611-07-12
Management concurs with this finding. Due to the legal issues surrounding the closure ofthese two charter schools, the school system was unable to obtain their audited financial statements. The Atlanta Independent School System requires that all charter schools provide audited financial statements, annually. During the current fiscal year, action was taken to improve coordination with the School District's Charter School office to ensure compliance.
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ATLANTA INDEPENDENT SCHOOL SYSTEM SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2007
Finding Control Number: FS-7611-07-13 Management concurs with this finding. During fiscal year 2008, the Atlanta Independent School System created a debt service fund to ensure the proper recording and reporting of the activity related to the City of Atlanta Bond issues. Additionally, during fiscal year 2009, the School System's legal department initiated discussions with the City ofAtlanta to explore the possibility of establishing specific agreements with the City. In doing so, the school system would be able to obtain more accurate and transparent information from the City to properly record and report transactions. Finding Control Number: FS-7611-07-14 Management concurs with this finding. During fiscal year 2008, the Atlanta Independent School System eliminated this deficit. Contact Person: Nader Sohrab Title: Executive Director, Accounting/Comptroller Phone: (404) 802-2416 E-mail: nsohrab@atlanta.kl2.ga.us
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