CITY OF BREMEN BOARD OF EDUCATION HARALSON COUNTY, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 3 B STATEMENT OF ACTIVITIES 4 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 6 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 9 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 10 H NOTES TO THE BASIC FINANCIAL STATEMENTS 11 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 25 CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY -TABLE OF CONTENTS- SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 27 3 SCHEDULE OF STATE REVENUE 28 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 30 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 31 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY - TABLE OF CONTENTS - SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION V MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 June 3, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the City of Bremen Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the City of Bremen Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe City of Bremen Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of Americl'! and the standards applicahle to financial audits contained in Q:9y~-mm~.nL.t\mJjting Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm1ons. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the City ofBremen Board of Education, as ofJune 30, 2004, 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. 2004ARL-11 In accordance with Government Auditing Standards, we have also issued our report dated June 3, 2005, on our consideration ofthe City ofBremen Board ofEducation's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope ofour testing of internal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through ix and page 25 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 have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe 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 City of Bremen Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, 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 in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code of Georgia Annotated section 506-24. Respectfully submitted, ~~-~ Russell W. Hinton State Auditor RWH:as 2004ARL-11 CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 INTRODUCTION Our discussion and analysis of the City of Bremen School District's financial performance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2004. The intent of this discussion and analysis is to look at the School District's financial performance as a whole. Readers should also review the notes to the basic financial statements and financial statements to enhance their understanding of the School District's financial performance. FINANCIAL HIGHLIGHTS The net assets of the District at June 30, 2003, were unintentionally overstated by $1,223,291 due an understatement of Capital Assets of $374,860 and an overstatement of revenues for property taxes of $1,598,151. Appropriate restatements have been made in the comparative data for the prior year that are included within this discussion. Key financial highlights for fiscal year 2004 are as follows: On the District-wide financial statements: Total assets of the School District exceeded liabilities by approximately $7.8 million. This represented an increase of $1.8 million in net assets when compared to the restated net assets of the prior year. The School District had $11.7 million in expenses relating to governmental activities; only $8.9 million of these expenses were offset by program specific charges for services, grants and contributions. However, general revenues (primarily property and sales taxes) and special items of approximately $4.7 million were adequate to provide for these programs. As stated above, general revenues and special items accounted for approximately $4.7 million or approximately 34.5% of all revenues totaling $13.5 million. Program specific revenues in the form of charges for services, grants, and contributions accounted for the balance of these revenues. On the fund financial statements: Among major funds, the General Fund had $11.6 million in revenues and approximately $11.3 in expenditures. The general fund balance of $1.2 million at June 30, 2004, increased over $0.3 million when compared to the prior year. OVERVIEW OF THE FINANCIAL STATEMENTS This annual financial report consists of three parts; management's discussion and analysis (this section), the basic financial statements and required supplementary information. The basic financial statements include two levels of statements that present different views of the School District. These include the District-wide and fund financial statements. - 1- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 The District-wide financial statements include the 'Statement of Net Assets' and 'Statement of Activities'. These statements provide information about the activities of the School District presenting both short-term and long-term information about the School District's overall financial status. The fund financial statements focus on individual parts of the School District, reporting the School District's operation in more detail. The 'Governmental Funds' statements disclose how basic services are financed in the short-term as well as what remains for future spending. The 'Fiduciary Funds' statement provides information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. In the case of the City of Bremen School District, the General Fund, Capital Projects Fund, and Debt Service Fund are all considered to be major funds. The District has no nonmajor funds as defined by GASB Statement 34 for the purposes of this report. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. Additionally, other supplementary information (not required) is also presented that further supplements understanding of the financial statements. District-wide Statements Since the City of Bremen School District has no operations that have been classified as "Business Activities", the District-wide financial statements are basically a consolidation of all of the District's operating funds into one column called governmental activities. In reviewing the District-wide financial statements, a reader might ask the question, are we in a better financial position now than last year? The 'Statement of Net Assets' and the 'Statement of Activities' provides the basis for answering this question. These financial statements include all School District's assets and liabilities and uses the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid. These two statements report the School District's net assets and any changes in those assets. The change in net assets is important because it tells the reader that, for the School District as a whole, the financial position of the School District has improved or diminished. The causes of this change may be the results of many factors, including those not under the School District's control, such as the property tax base, facility conditions, required educational programs, student-teacher ratios, and other factors. The 'Statement of Net Assets' and the 'Statement of Activities' reflects 100% of the School District's governmental activities. Fund Financial Statements The School District uses many funds or sub-funds to account for a multitude of financial transactions during the fiscal year. The fund financial statements presented in this report provide - 11 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 detail information about the School District's significant or major funds. As discussed previously, the School District has no nonmajor funds as defined by generally accepted accounting principles. Governmental Funds - Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at yearend available for spending in future periods. These funds are reported using the modified accrual method of accounting which measures cash and all other financial assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The differences between government activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds are reconciled in the financial statements. Fiduciary Funds - The School District is the trustee, or fiduciary, for assets that belong to clubs, organizations and others within the principals' accounts. The School District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The School District excludes these activities from the Districtwide financial statements because it cannot use these assets to finance its operations. FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE Recall that the Statement of Net Assets provides the perspective of the School District as a whole. The reader can think of the School District's net assets as the difference between its assets (i.e., what the School District owns) and its liabilities (i.e., what the School District owes) at the end of a fiscal year. This balance represents one way to measure the School District's financial health or its financial position. In the case of the City of Bremen School District, assets exceeded liabilities by approximately $7.8 million at June 30, 2004. To better understand the School District's actual financial position and ability to deliver services in future periods, the reader will need to review the various components of the net asset category. For example, of the $7.8 million of net assets, approximately $0.8 million was restricted for bus replacement, continuation of Federal programs, debt service and completion of capital projects. Accordingly, these funds were not available to meet the School District's ongoing obligations to citizens and creditors. In addition, the School District also had approximately $6.1 million (net of related debt) invested in capital assets (e.g., land, buildings, and equipment). The School District uses these capital assets to provide educational services to students within geographic boundaries served by the School District. Because of the very nature and on-going use of the assets being reported in this component of net assets, it must be recognized that this portion of the net assets is not available for future spending. The remaining balance of unrestricted net assets of over $0.9 million may be used to meet the School District's ongoing obligations to citizens and creditors. - 111 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Table 1 provides a summary of the School District's net assets as of June 30 for this fiscal year as compared to the prior fiscal year as restated. Table 1 Net Assets Governmental Activities Fiscal Fiscal Year 2004 Year 2003 Assets Current and Other Assets Capital Assets, Net $ 3,459,137 $ 4,129,403 9,642,091 8,295,448 Total Assets $ 13,101,228 $ 12,424,851 Liabilities Current and Other Liabilities Long-Term Liabilities $ 1,483,014 $ 1,848,559 3,814,502 4,577,093 Total Liabilities $ 5,297,516 $ 6,425,652 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 6,071,834 $ 4,670,145 771,514 566,460 960,364 762,594 Total Net Assets $ 7,803,712 $ 5,999,199 Table 2 shows the Changes in Net Assets for this fiscal year as compared to the prior fiscal year as restated. - iv - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Table 2 Change in Net Assets Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions Governmental Activities Fiscal Fiscal Year 2004 Year 2003 $ 967,516 $ 900,036 7,779,707 7,568,658 125,497 414 763 Total Program Revenues $ 8,872,720 $ 8,883,457 General Revenues: Taxes Property Taxes For Maintenance and Operations $ Sales Taxes Special Purpose Local Option Sales Tax For Debt Service For Capital Projects Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Special Items Donation 1,677,046 $ 959,292 410,540 674,246 25,969 493,673 422,811 1,487,462 909,352 306,952 14,930 965,232 76,001 480,488 Total General Revenues and Special Items $ 4,663,577 $ 4,240,417 Total Revenues $ 13,536.297 $ 13,123.874 Program Expenses Instruction $ 8,048,886 $ 7,717,428 Support Services Pupil Services 345,053 300,390 Improvement of Instructional Services 179,792 289,842 Educational Media Services 227,580 191,019 General Administration 271,593 229,176 School Administration 728,388 629,211 Business Administration 111,701 100,855 Maintenance and Operation of Plant 556,823 841,441 Student Transportation Services 157,248 51,962 Central Support Services 3,917 3,651 Other Support Services 70,899 25,667 Operations of Non-Instructional Services Enterprise Operations 298,684 326,642 Food Services 568,636 509,398 Interest on Short-Term and Long-Term Debt 162,584 185.575 Total Expenses $ 11,731.784 $ 11,402.257 Increase in Net Assets $ 1,804,513 $ 1,721,617 -v- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Governmental Activities Table 3 shows, for governmental activities, the total cost of services and the net cost of services. Net cost of services can be defined as the total cost less fees generated by the activities and intergovernmental revenue provided for specific programs. The net cost reflects the financial burden on the School District's taxpayers by each activity as compared to the prior fiscal year. Table 3 Governmental Activities Total Cost of Services Fiscal Fiscal Year 2004 Year 2003 Net Cost of Services Fiscal Fiscal Year2004 Year 2003 Instruction $ 8,048,886 $ 7,717,428 $ 1,596,503 $ 1,483,250 Support Services Pupil Services 345,053 300,390 226,937 181,082 Improvement of Instructional Services 179,792 289,842 2,597 44,570 Educational Media Services 227,580 191,019 79,953 50,977 General Administration 271,593 229,176 -119,476 -289,408 School Administration 728,388 629,211 355,590 273,216 Business Administration 111,701 100,855 111,701 100,855 Maintenance and Operation of Plant 556,823 841,441 121,981 379,622 Student Transportation Services 157,248 51,962 142,863 -30,739 Central Support Services 3,917 3,651 3,917 3,651 Other Support Services 70,899 25,667 68,797 25,667 Operations of Non-Instructional Services Enterprise Operations 298,684 326,642 146,058 155,095 Food Services 568,636 509,398 -40,941 -44,613 Interest on Short-Term and Long-Term Debt 162,584 185,575 162,584 185,575 Total Expenses $ 11,731,784 $ 11,402.257 $ 2,859,064 $ 2,518,800 FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT'S FUNDS Information about the School District's governmental funds is presented starting on Exhibit "C" of this report. Governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of $13 .1 million and total expenditures of $13.5 million in fiscal year 2004. Total governmental fund balances of $1.9 million at June 30, 2004, decreased $0.3 million from the prior year. This decrease occurred mainly because expenditures for capital outlay of approximately $0.6 million were made from reserves that had been accumulated in prior years. General Fund Budget Highlights The School District's budget is prepared according to Georgia Law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2004, the School District amended its general fund budget as needed. - Vl - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 The School District budget is adopted at the aggregate level and maintained at the program, function, object, and site levels to facilitate budgetary control. The budgeting systems are designed to control the total budget, but provide flexibility to meet the ongoing programmatic needs. The budgeting systems are also designed to control total site budgets but provide flexibility for site management as well. For the General Fund, the final actual revenues of $11.6 million were over the final budgeted amount of approximately $10.9 million by $0.7 million. This difference (final actual vs. final budget) was primarily attributable to State Funds exceeding the final budget by approximately $171,000 and miscellaneous revenues exceeding the final budget by approximately $366,000. The final actual expenditures of approximately $11.3 million exceeded the final budget by approximately $0.5 million. This difference was primarily attributable to expenditures for instruction exceeding the final budget by approximately $96,000, expenditures for school administration exceeding the final budget by approximately $81,000, and expenditures for enterprise operations exceeding the final budget by approximately $225,000. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At fiscal year ended June 30, 2004, the School District had over $9.6 million invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances net of accumulated depreciation as compared to the prior fiscal year as restated. Table 4 Capital Assets (Net of Depreciation) Governmental Activities Fiscal Fiscal Year 2004 Year 2003 Land Construction in Progress Land Improvements Buildings and Improvements Equipment $ 522,166 $ 15,000 190,673 2,624,190 35,138 37,327 8,654,703 5,448,706 239,411 170,225 Total $ 9,642,091 $ 8,295,448 Debt At fiscal year ended June 30, 2004, the School District had $3.8 million in debt outstanding. This debt is primarily the result of bonds sold by the City of Bremen, on behalf of the City of Bremen -Vll - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 School District, for the purpose of acquisition, construction, equipping, renovating, and repairing of school facilities. Payment of this debt is secured by Haralson and Carroll County local option sales taxes. Table 5 summarizes the School District's debt for general obligation bonds and capital leases outstanding as compared to the prior fiscal year. Table 5 Debt at June 30 Governmental Activities Fiscal Fiscal Year 2004 Year 2003 Bonds Payable Capital Leases $ 3,755,000 $ 4,555,000 59,502 22,093 Total $ 3,814.502 $ 4,577.093 CURRENT ISSUES Currently known facts, decisions or conditions that are expected to have a significant effect on financial positions or results of operations in future years are as follows: The School District will continue to face challenges from the implementation of the A+ Education Reform Act, which mandates lower teacher to student ratios. The School District will also be impacted by the remedial actions required for under-performing schools under the No Child Left Behind Act. In the midst of these challenges, the School District remains confident in the ability to maximize resources to provide the best possible educational experience for all of our students. State QBE Revenue Reductions - During fiscal year 2004, the State of Georgia implemented a 2.5% QBE revenue formula funding reduction to all state School Districts. This reduction was top of the 2.5% reduction for fiscal year 2003. These two cuts resulted in State funding for the fiscal year 2005 budget being 5% less than its original level. Considering the stagnant economy of the past few years, these formula funding reductions challenge the long-term financial stability of the School District. However, despite these conditions, the City of Bremen School District is strong financially and we remain optimistic about the ability of the School District to maximize all of the financial resources to provide a quality education to our students. - vm - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 As authorized by the Georgia Legislature, effective January 1, 2005, the School District assumed sole authority to approve and amend its budget, establish appropriate rates for the taxing of property in the incorporated limits of the City of Bremen, and vest title of all property owned in the name of the Board of Education. Prior to enactment of this legislation, the authority for these functions was vested in the City of Bremen local government. We believe this change will enable the School District to better control and maintain its financial affairs in the future. Capital Improvements - The School District plans capital improvements as future capital needs arise due to increased student population and facility repair and maintenance needs. Specific capital expenditure plans are formalized in conjunction with individual general obligation bond issues and anticipated annual receipts of capital outlay funds from the State of Georgia Department of Education. CONTACTING THE SCHOOL DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizen's taxpayers, investors and creditors with a general overview of the School District's finances and to show the School District's accountability for the money it receives. If you have questions about this report or need additional financial information contact Dr. Stanley McCain, Superintendent, City of Bremen Board of Education, 504 Laurel Street, Bremen, Georgia 30110. You may also email your questions to Dr. McCain at smccain@doe.kl2.ga.us. - IX - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY STATEMENT OF NET ASSETS JUNE 30. 2004 EXHIBIT"A" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable 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 Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets GOVERNMENTAL ACTIVITIES $ 1,646,808 500,000 295,707 906,353 93,415 853 16,001 522,166 190,673 95,174 10,553,613 422,375 -2,141,910 $ ===1=3=,1=0=1,=22=8= $ 452,036 1,030,978 27,221 3,787 281 $ 5,297,516 $ 6,071,834 22,562 143,392 1,028 604,532 960,364 $ 7,803,712 $ ===1=3..,,1=0=1='2=28== The notes to the basic financial statements are an integral part of this statement. -3- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2004 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 Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Long-Term Debt Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Special Items Donation Total General Revenues and Special Items Change in Net Assets Net Assets - Beginning of Year (Restated) Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 8,048,886 $ 345,053 179,792 227,580 271,593 728,388 111,701 556,823 157,248 3,917 70,899 298,684 568,636 162 584 $ 11 731 784 $ 439,404 152,626 375,486 967 516 The notes to the basic financial statements are an integral part of this statement. -4- EXHIBIT "B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 5,902,553 $ 118,116 177,195 147,627 388,843 372,111 433,379 11,029 2,102 226,752 $ 7 779 707 $ 110,426 $ 2,226 687 1,463 3,356 7,339 125 497 $ -1,596,503 -226,937 -2,597 -79,953 119,476 -355,590 -111,701 -121,981 -142,863 -3,917 -68,797 -146,058 40,941 -162,584 -2,859,064 $ 1,677,046 959,292 410,540 674,246 25,969 493,673 422,811 $ 4,663,577 $ 1,804,513 5,999,199 $ 7803712 -5- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30. 2004 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 1,132,518 $ 500,000 14,408 906,353 93,415 853 16 001 513,120 $ 241,766 1,170 $ 1,646,808 500,000 256,174 906,353 93,415 853 16,001 Total Assets $ 2,663,548 $ 754,886 $ 1 170 $ ======3=4=1=9=60=4= LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Total Liabilities FUND BALANCES Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund Total Fund Balances $ 451,325 $ 1,030,978 $ 1,482,303 $ $ 22,562 127,391 16,001 $ 1,015,291 $ 1,181,245 $ 569 $ 569 $ $ 754,317 754 317 $ 142 $ 142 $ $ 1,028 1 028 $ 452,036 1,030,978 1,483,014 22,562 127,391 1,028 16,001 754,317 1,015,291 1,936,590 Total Liabilities and Fund Balances $ 2,663,548 $ 754 886 $ 1170 $===3=4=1=9=60=4= The notes to the basic financial statements are an integral part of this statement. -6- CITY OF BREMEN BOARD OF EDUCATION- HARALSON COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30. 2004 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 Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. 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: Bonds Payable Capital Leases Total Long-Term Liabilities Net Assets of Governmental Activities (Exhibit "A") $ 1,936,590 $ 522,166 190,673 95,174 10,553,613 422,375 -2,141,910 9,642,091 39,533 $ -3,755,000 -59,502 -3,814,502 $ =====7'=80=3=7,=12= The notes to the basic financial statements are an integral part of this statement. -7- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2004 EXHIBIT"E" 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 Enterprise Operations Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES Capital Leases Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 1,672,086 $ 7,677,380 776,271 967,516 12,517 484,844 $ 11,590,614 $ 410,540 $ 125,799 13,405 11 429 561,173 $ $ 959,292 47 959,339 $ 1,672,086 1,369,832 7,803,179 776,271 967,516 25,969 496,273 13,111,126 $ 7,666,182 337,251 $ 179,792 227,580 268,239 726,008 111,701 717,369 103,930 3,917 70,899 298,684 543,201 7,802 167,468 90,794 974,815 7,469 1,559 45,916 $ 1 591 $ 11,263,781 $ 1,288,386 $ $ 326,833 $ -727,213 $ $ 800,000 159,434 959,434 $ -95 $ 7,666,182 345,053 179,792 227,580 268,239 726,008 111,701 884,837 194,724 3,917 70,899 298,684 543,201 974,815 853,385 162,584 13,511,601 -400,475 90,794 $ 326,833 $ -636,419 $ 854,412 1,390,736 -95 $ 1123 90,794 -309,681 2,246,271 $ 1 181 245 $ 754 317 $ 1 028 $ ===1=,9=36=''=59=0= The notes to the basic financial statements are an integral part of this statement. -8- CITY OF BREMEN BOARD OF EDUCATION- HARALSON COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30. 2004 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 Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District"s fiscal year ends, they are not considered "available" revenues. In the Statement of Activities, only the gain on the sale of the equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the carrying value of the equipment sold. Some of the Capital Assets acquired this year were financed with capital leases. In Governmental Funds, a capital lease arrangement is considered a source of financing, but in the Statement of Net Assets, the lease obligation is reported as a Long-Term Liability. Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Bond Principal Retirements Capital Lease Payments Total Long-Term Debt Repayments $ -309,681 $ 1,533,774 -184,531 1,349,243 4,960 -2,600 -90,794 $ 800,000 53,385 853,385 Change in Net Assets of Governmental Activities (Exhibit "B") $ ==1='8=04=,5=1=3 The notes to the basic financial statements are an integral part of this statement. -9- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004 EXHIBIT"G" ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others AGENCY FUNDS $ ==9=0==,4=86= $ ===90='=48=6= The notes to the basic financial statements are an integral part of this statement. - 10 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The City ofBremen Board ofEducation (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. Accordingly, the School District is a primary government and consists ofall the organizations that compose its legal entity. 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 ofthe City of Bremen Board of Education. 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. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. 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 and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: - 11 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 Bond Proceeds, grants from Georgia State Financing and Investment Commission and Special Purpose Local Option Sales Tax proceeds to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (sales) legally restricted for the payment of general longterm principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund 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 claims and judgments, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources. - 12 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" 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. RESTATEMENT OF PRIOR YEAR NET ASSETS For fiscal year 2004, the School District restated Net Assets due to an invalid maintenance and operations taxes receivable. The School District decreased net assets at July 1, 2003, in the amount of $1,598,151. This change is in accordance with generally accepted accounting principles. For fiscal year 2004, the School District restated Capital Assets due to errors and omissions noted during the initial year ofimplementation ofGASB Statement No. 34. The School District increased Construction in Progress by $239,505. Additionally, the School District increased, net of accumulated depreciation, building and improvements and equipment, $123,974 and $11,381, respectively. The result is an increase in Net Assets at July 1, 2003, of$374,860. This change is in accordance with generally accepted accounting principles. 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. Georgia Laws OCGA 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 are reported at fair value. The Official Code ofGeorgia 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 ofreturn 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, - 13 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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. 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. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The City of Bremen fixed the property tax levy for the 2003 tax digest year (calendar year) on October 16, 2003 (levy date). Taxes were due on December 22, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The Bremen City Clerk bills and collects the property taxes for the School District and remits the taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2004, for maintenance and operations amounted to $1,672,086. The tax millage rate levied for the 2003 tax year (calendar year) for the City of Bremen Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 5.301 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $1,369,832 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. - 14 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. 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 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 are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment All NIA $ 10,000 10 to 60 years $ 50,000 45 to 60 years $ 10,000 5 to 30 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. GENERAL OBLIGATION BONDS The School District entered into a joint agreement with the City of Bremen whereby the City of Bremen issued general obligation bonds on behalf of the School District. The bond issuance costs are recognized in the financial statement of the School District during the year bonds are issued. - 15 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES According to the terms ofthe aforementioned agreement, the bonds are the direct obligations ofthe School District; therefore, the outstanding amount ofthese bonds is recorded in the Statement ofNet Assets. Note 3: DEPOSITS 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 ofmoney 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. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts. 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 of the 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. - 16 - CITY OF BREMEN BOARD OF EDUCATJON - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 3: DEPOSITS CATEGORIZATION OF DEPOSITS At June 30, 2004, the bank balances were $2,475,898. The amounts of the total bank balances are classified into three categories of credit risk: Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2004, as follows: Risk Category Bank Balance 1 $ 664,468 2 1,586,120 3 225,310 Total $ 2,475.898 Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (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: - 17 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 5: CAPITAL ASSETS Balances July 1, 2003 Restated Increases Decreases Balances June 30, 2004 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 15,000 $ 2,624,190 507,166 $ 190 673 $ 2,624,190 522,166 190 673 Total Capital Assets Not Being Depreciated $ 2,639,190 $ 697 839 $ 2,624,190 $ 712,839 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 7,197,368 $ 3,356,245 374,495 103,880 $ 95,174 $ 10,553,613 56,000 422,375 95,174 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 1,748,662 204,270 57 847 150,248 32,094 2 189 53,400 1,898,910 182,964 60,036 Total Capital Assets, Being Depreciated, Net $ 5,656,258 $ 3,275,594 $ 2,600 $ 8,929,252 Governmental Activity Capital Assets - Net $ 8,295,448 $ 3,973,433 $ 2,626,790 $ 9,642,091 Capital assets being acquired under capital leases as of June 30, 2004, are as follows: Governmental Funds Equipment Less: Accumulated Depreciation $ 106,421 8 446 Current year depreciation expense by function is as follows: $====97='=9===7===5 Instruction Support Services General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 146,825 $ 2,961 913 1,945 22,129 27,948 9 758 $ 184,531 - 18 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) and general obligation bond proceeds are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2004, were as follows: District-wide Capital Projects Bond SPLOST Proceeds Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions $ $ 358,383 $ 154,737 1,170 Note 7: 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; acts of God and unemployment compensation. The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members ofthe system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse) and automobile risks. Payment of excess insurance for the system varies by line of coverage. The School District has elected to self-insure for all losses related to acts of God. The School District has not experienced any losses related to this risk in the past three years. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the same fund that the employee's salary and benefits were paid. Claims are accounted for with expenditure 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 unemployment compensation claims liability during the last two fiscal years are as follows: - 19 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT"H" Note 7: RISK MANAGEMENT 2003 2004 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0 $ 0 $ 0 $ 0 $ 0 $ 13 070 $ 13 070 $ 0 The School District participates in the Georgia Education Workers' Compensation Trust, a public entity risk pool organized on December 1, 1991, to develop, implement and administer a program of workers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Trust for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Trust with the Midwest Employers Casualty Company to provide coverage for potential losses sustained by the Trust in excess of $400,000 loss per occurrence, up to $2,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Other Employees $ 50,000 $ 50,000 Note 8: LONG-TERM DEBT CAPITAL LEASES The City of Bremen Board of Education has entered into various lease agreements as lessee for buses and copiers. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of the future minimum lease payments as of the date of their inception. GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 2001 (Carroll) General Government - Series 2001 (Haralson) 3.6% 3.9% $ 2,030,000 1,725,000 $ 3,755,000 The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows: - 20 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 8: LONG-TERM DEBT Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2003 $ 22,093 $ 4,555,000 $ 4,577,093 Additions Capital Leases 90,794 90,794 Deductions Debt Retired 53,385 800,000 853,385 Balance June 30, 2004 $ 59,502 $ 3,755,000 $ 3,814,502 Portion of Long-Term Debt Due within One Year $ 27,221 $ 0 $ 27,221 At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 Capital Leases Principal Interest 2005 2006 2007 $ 27,221 $ 28,512 3 769 2,772 1,481 151 Total Principal and Interest $ 59,502 $ 4 404 Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2005 2006 2007 2008 2009 $ $ 915,000 1,050,000 1,190,000 600,000 65,778 115,618 81,382 42,343 10,800 Total Principal and Interest $ 3,755.000 $ 315,921 - 21 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30. 2004 EXHIBIT "H" Note 9: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of$94,240 for health insurance and retirement contributions 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 $93,534 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $706 Note 10: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. Note 11: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: - 22 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "H" Note 11: RETIREMENT PLANS Fiscal Year 2004 2003 2002 Percentage Contributed 100% 100% 100% Required Contribution $ 628,506 $ 626,656 $ 580,998 - 23 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY GENERAL FUND SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2004 SCHEDULE "1" REVENUES Property 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 Enterprise Operations Food Services Operation Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Adjustments NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 1,718,103 $ 1,718,103 $ 1,672,086 7,559,257 7,506,195 7,677,380 613,346 698,443 776,271 834.400 834.400 967,516 19,500 19,500 12,517 119 014 119,014 484,844 $ 10,863,620 $ 10,895,655 $ 11,590,614 $ 7,552,126 $ 7,569,328 $ 7,666,182 292,918 197,314 201,168 242,969 641,634 111,536 787,368 69,331 11,500 27,268 74,073 527,300 292,918 212,009 201,168 243,371 645,443 111,536 787,368 69,331 11,500 27,268 74,073 527,300 337,251 179,792 227,580 268,239 726,008 111,701 717,369 103,930 3,917 70,899 298,684 543,201 9,028 $ 10,736,505 $ 10,772,613 $ 11,263,781 $ 127,115 $ 123,042 $ 326,833 $ 8,798 $ 8,396 -8 798 -8,396 $ 0 $ 0 $ 127,115 $ 123,042 $ 1,096,094 1,096,094 -402.424 -402,424 326,833 854,412 Fund Balances - Ending $ 820 785 $ 816 712 $===1=1=8=1=2=45= Notes to the Schedule of Revenues. Expenditures 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. 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. - 25- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2004 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U.S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U. S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Comprehensive School Reform Demonstration Education for Homeless Children and Youth Enhancing Education Through Technology Program Improving Teacher Quality State Grants State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U.S. Department of Education CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 N/A N/A $ $ (2) 462,965 462,965 10.550 N/A $ 41,532 504 497 84.027 84.173 N/A $ N/A $ 84.332 84.196 84.318 84.367 84.298 84.010 84.048 N/A N/A N/A N/A N/A N/A N/A $ 269,001 32,006 301,007 71,398 15,000 3,360 48,004 5,596 135,188 8,798 588,351 Total Federal Financial Assistance $ ==~1,~09::,::2;,i;,8~4~8 N/A = Not Available Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($22,631) were not maintained separately and are included in the 2004 National School Lunch Program. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the City of Bremen Board of Education and 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. - 27 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004 SCHEDULE "3" AGENCY/FUNDING GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program $ 371,845 $ 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 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 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 Sparsity Nursing Services Principal Supplements Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs 4-8 Statewide After School Program Health Insurance K-3 Statewide Reading Program National Teacher Certification Preschool Handicapped Program Technology/Career Education - Supervision Vocational Construction Related Equipment - State Bonds Lottery Program Student Information System Conversion 518,545 65,092 1,081,179 86,102 451,622 42,771 988,019 686,733 353,810 79,630 92,312 435,024 149,884 59,097 117,242 11,477 76,082 147,614 47,418 28,744 328,691 357,396 420,442 11,042 3,356 34,907 46,982 5,707 578,152 38,832 -325,944 12,000 93,534 14,828 5,625 33,085 9,008 55,000 33,789 Georgia State Financing and Investment Commission Reimbursement on Construction Projects $ 122,141 TOTAL 371,845 518,545 65,092 1,081,179 86,102 451,622 42,771 988,019 686,733 353,810 79,630 92,312 435,024 149,884 59,097 117,242 11,477 76,082 147,614 47,418 28,744 328,691 357,396 420,442 11,042 3,356 34,907 46,982 5,707 578,152 38,832 -325,944 12,000 93,534 14,828 5,625 33,085 9,008 55,000 33,789 122,141 - 28 - CITY OF BREMEN BOARD OF EDUCATION-HARALSON COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30. 2004 SCHEDULE "3" AGENCY/FUNDING GRANTS Office of Planning and Budget Art Challenge Office of Treasury and Fiscal Services Public School Employees Retirement CONTRACT Transportation, Georgia Department of Paving Project Reimbursement GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 30,000 706 $ 30,000 706 $ 3,658 3,658 $ 7,677,380 $ 125 799 $ ==7=8=0=3=1=79=== See notes to the basic financial statements. - 29- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2004 SCHEDULE "4" PROJECT HARALSON COUNTY Acquiring, constructing and equipping school buildings and other buildings and facilities useful or desirable in connection therewith, adding to, renovating, repairing, improving and equipping existing school buildings and other buildings and facilities, useful or desirable in connection therewith, including constructing, modifying and equipping classrooms, acquiring system-wide technology improvements, acquiring school transportation vehicles and acquiring the necessary property for such schools, both real and personal, and for the future school sites, all at a maximum cost of $4,900,000 CARROLL COUNTY Funding the acquisition, construction, renovation, modification, improvement, extending and equipping of projects throughout the City of Bremen School System, including, but without limitation, additions, renovations, and improvements of certain existing system facilities, systemwide technology improvements, the acquisition of school transportation vehicles; the acquisition of land for additional schools, and the acquisition of all property, both real and personal, deemed necessary and advisable therefor including the funding of capitalized interest on debt of the City of Bremen with respect to the Bremen School Projects (the "Bremen School Projects"), the maximum cost of such Bremen School Projects not to exceed $4,840,000 ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS(2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS $ 4,900,000 $ 4,900,000 $ 838,572 $ 1,570,300 Ongoing 4,840,000 4,840,000 609,248 2,348,383 Ongoing $ 9,740,000 $ 9,740,000 $ 1,447,820 $ 3,918,683 (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 Haralson County, Carroll County and the City of Bremen 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. - 30- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE} ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2004 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2} ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL 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 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 Category V Gifted Student - Category VI Remedial Education Program Alternative Education Program 560,613 $ 70,637 1,151,505 96,832 508,681 42,913 1,063,418 752,149 366,033 78,474 94,572 471,776 168,530 58,460 131,666 11,236 81,782 513,340 $ 64,297 1,529,372 94,507 620,080 13,996 1,049,577 1,074,359 241,045 10,650 48,857 427,490 131,403 4,903 88,429 3,747 36 969 11,841 $ 7 39,498 1,986 10,143 7 23,972 52,665 1,923 269 441 22,828 525,181 64,304 1,568,870 96,493 630,223 14,003 1,073,549 1,127,024 242,968 10,919 48,857 427,490 131,403 4,903 88,870 3,747 59,797 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 5,709,277 $ 5,953,021 $ 165,580 $ 6,118,601 Media Center Program Staff and Professional Development 159,165 31 232 166,656 26,999 20,029 193,655 20,029 TOTAL QBE FORMULA FUNDS $ 5 899,674 $ 6 119,677 $ 212,608 $ ===6,"=3=32=,2=8=5 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 31 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 June 3, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the City of Bremen Board of Education REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ladies and Gentlemen: We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of City of Bremen Board of Education as of and for the year ended June 30, 2004, which collectively comprise City of Bremen Board of Education's basic financial statements and have issued our report thereon dated June 3, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered City of Bremen Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect City of Bremen Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule ofFindings and Questioned Costs as item FS-7631-04-01. 2004YB-30 A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether City of Bremen Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the City ofBremen Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, 0#4.,~~~ ~~ell W. Hinton State Auditor RWH:as 2004YB-30 Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 June 3, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the City of Bremen Board of Education REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 Ladies and Gentlemen: Compliance We have audited the compliance of City ofBremen Board ofEducation with the types ofcompliance requirements described in the U.S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2004. City of Bremen Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of City of Bremen Board of Education's management. Our responsibility is to express an opinion on City of Bremen Board of Education's compliance based on our audit. We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the City of Bremen Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on City of Bremen Board of Education's compliance with those requirements. 2004SA-10 In our opinion, the City of Bremen Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2004. Internal Control Over Compliance The management of City of Bremen Board of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered City ofBremen Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use ofthe management, members ofthe City of Bremen Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:as 2004SA-10 State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7631-03-01 Unresolved - See Corrective Action/Reponses CORRECTIVE ACTION/RESPONSES REVENUES/RECEIPTS/RECEIVABLES EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-7631-03-01 The Board of Education is in the process of implementing procedures to further segregate duties of staff members made responsible for account functions. The Board is currently working to meet this audit requirement. SECTION IV FINDINGS AND QUESTIONED COSTS CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the City of Bremen Board of Education's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the City of Bremen Board of Education disclosed a financial statement reportable condition related to the following control categories. Expenditures/Liabilities/Disbursements Revenues/Receivables/Receipts The reportable condition described above is not considered to be a material weakness. 3. Noncompliance Material to the Financial Statements The audit of the City of Bremen Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the City of Bremen Board of Education did not disclose any reportable conditions in internal control over major programs. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the City ofBremen Board ofEducation's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .51 0(a) of 0MB Circular A-133 The City ofBremen Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The City of Bremen Board of Education did not qualify as a low risk auditee as defined by Section .530 of 0MB Circular A-133. - 1- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-7631-04-01 Our examination of the principals' accounts disclosed weaknesses in internal control as discussed below: Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions. Expenditures/Liabilities/Disbursements Based on a test of twenty-five items, fourteen (14) voucher packets included purchase request forms which were dated and approved after the invoice date and three (3) voucher packets did not include any supporting documentation. These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible for account functions and failure to ensure established controls were functioning as designed. Management should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization be segregated. Additionally, controls should be revised and monitored to provide reasonable assurance that transactions are processed according to established procedures. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -2 - SECTIONV MANAGEMENT'S RESPONSES CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004 Finding Control Number: FS-7631-04-01 School bookkeepers will implement procedures to insure purchase orders are approved and dated prior to invoices. The School Principals will insure that deposit preparation duties are separated from record keeping and cash custody functions. Contact Person: Judy Sweatt, Bookkeeper Phone: (770) 537-5508, Fax Number: (779) 537-0610 Email: judy.sweat@bremencs.k12.ga.us