CITY OF BREMEN BOARD OF EDUCATION HARALSON COUNTY, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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 1 B STATEMENT OF ACTIVITIES 2 COMPONENT UNIT FINANCIAL STATEMENTS C BALANCE SHEET 4 D STATEMENT OF SUPPORT, REVENUES, EXPENSES AND CHANGES IN NET ASSETS 5 FUND FINANCIAL STATEMENTS E BALANCE SHEET GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 7 G STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 8 H RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 9 I STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 10 J NOTES TO THE BASIC FINANCIAL STATEMENTS 12 CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERALFUND 27 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 28 3 SCHEDULE OF STATE REVENUE 30 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 32 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 33 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 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 February 16, 2007 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 J) of the City of Bremen Board of Education, as of and for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe City ofBremen Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit. Except as discussed in the following paragraph, 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. The financial statements of Bremen Educational Foundation, Inc. (Foundation) have not been audited, and we were not engaged to audit the Foundation's financial statements as part of our audit ofthe School District's basic financial statements. The Foundation's financial activities are included in the School District's basic financial statements as a discretely presented component unit. 2006ARL-25X Because the Foundation's financial statements have not been audited, the scope ofour work was not sufficient to enable us to express, and we do not express, an opinion on the financial statements of the Foundation as of and for the year ended June 30, 2006. In addition, 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 for the City of Bremen Board of Education, as of June 30, 2006, 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. In accordance with Government Auditing Standards, we have also issued our report dated February 16, 2007, on our consideration of the City of Bremen Board of Education'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 of our testing of internal control over financial reporting and compliance and the results of that 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 considered in assessing 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 27 respectively, are not a required part ofthe 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, such information, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. 2006ARL-25X 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, RWH:as 2006ARL-25X Rus 11 W. Hinton, CPA, CGFM State Auditor CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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, 2006. 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 to enhance their understanding of the School District's financial performance. The reporting model is a combination of both government-wide financial statements and fund financial statements. The basic financial statements contain three components: 1) District-wide financial statements including the Statement of Net Assets and the Statement of Activities, which provide both short-term and long-term overviews of the School District's finances. 2) Fund financial statements including the balance sheets that provide a greater level of detail and focus on how well the School District has performed in the short-term in the most significant or major funds. 3) Notes to the Basic Financial Statements. FINANCIAL HIGHLIGHTS Key financial highlights for fiscal year 2006 are as follows: On the District-wide financial statements: Total assets of the School District exceeded liabilities by $11.6 million. This represented an increase of $2.1 million in net assets when compared to the prior year as restated. The School District had $13.7 million in expenses relating to governmental activities; $9.8 million of these expenses were offset by program specific charges for services, grants and contributions. However, general revenues (primarily property and sales taxes) of$6.l million were adequate to provide for these programs. As stated above, general revenues accounted for $6.1 million or about 38% of all revenues totaling $15.9 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 $13.9 million in revenues and $13.2 million in expenditures. The General Fund balance of $2.2 million at June 30, 2006, increased approximately $0.8 million when compared to the prior year. - 1- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 OVERVIEW OF THE FINANCIAL STATEMENTS This annual 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. 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' statements provide 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 Funds, and Debt Service Funds are all considered to be major funds. The School 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 School 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. - 11 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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 subfunds to account for a multitude of financial transactions during the fiscal year. The fund financial statements presented in this report provide 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 be 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 As discussed previously, the Statement of Net Assets provides a financial snapshot 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 $11.6 million at June 30, 2006. To better understand the School District's actual financial position and ability to deliver services in future periods, it is necessary to review the various components of the net asset category. For example, of the $11.6 million of net assets, about $1.5 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. - l1l - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 In addition, the School District also had $8.0 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 $2 million may be used to meet the School District's ongoing obligations to citizens and creditors. Table 1 provides a summary of the School District's net assets for this fiscal year as compared to the prior fiscal year as restated. Table 1 Net Assets Governmental Activities Fiscal Fiscal Year 2005 Year 2006 (Restated) Assets Current and Other Assets Capital Assets, Net $ 5,137,770 $ 3,783,344 9,853,819 9,975,432 Total Assets $ 14,991,589 $ 13,758,776 Liabilities Current and Other Liabilities Long-Term Liabilities $ 1,608,604 $ 1,415,736 1,793,768 2,872,281 Total Liabilities $ 3,402,372 $ 4,288,017 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 8,060,595 1,472,594 2,056,028 $ 7,180,798 990,706 1,299,255 Total Net Assets $ 11!589!217 $ 9!470!759 Table 2 shows the Changes in Net Assets for this fiscal year as compared to the prior fiscal year. - IV - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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 2006 Year 2005 $ 1,025,847 8,729,515 3 056 $ 983,786 7,863,327 2,628 Total Program Revenues $ 9,758,418 $ 8,849,741 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 2,247,183 1,149,674 834,839 1,049,628 82,016 739 659 $ 1,816,611 1,046,557 507,640 63,626 1,022,709 65,793 545,510 Total General Revenues $ 6,102,999 $ 5,068,446 Total Revenues $ 15,861,417 $ 13,918,187 Program Expenses 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 ofNon-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt $ 9,840,385 387,989 222,919 220,376 334,172 765,960 112,290 810,587 118,574 10,689 40,829 112,947 664,084 101,158 $ 8,388,456 343,283 251,268 238,957 248,618 754,020 110,111 711,375 117,462 6,607 62,303 312,278 635,715 134,329 Total Expenses $ 13,742,959 $ 12,314,782 Increase in Net Assets $ 2!11si45s $ 1!603!405 - V- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Cost of Providing Services The Statement of Activities shows the cost of program services and the charges for services and grants offsetting these services. 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 2006 Year 2005 Net Cost of Services Fiscal Fiscal Year2006 Year2005 Instruction $ 9,840,385 $ 8,388,456 $ 2,601,209 $ 1,849,635 Support Services Pupil Services 387,989 343,283 273,154 227,668 Improvement of Instructional Services 222,919 251,268 100,194 96,419 Educational Media Services 220,376 238,957 53,773 89,030 General Administration 334,172 248,618 -104,466 -120,801 School Administration 765,960 754,020 361,551 384,870 Business Administration 112,290 110,111 110,228 110,111 Maintenance and Operation of Plant 810,587 711,375 354,480 280,521 Student Transportation Services 118,574 117,462 100,567 103,465 Central Support Services 10,689 6,607 8,059 6,607 Other Support Services 40,829 62,303 40,155 64,424 Operations ofNon-Instructional Services Enterprise Operations 112,947 312,278 -66,381 225,356 Food Services 664,084 635,715 50,860 13,407 Interest on Short-Term and Long-Term Debt 101,158 134,329 101,158 134,329 Total Expenses $13,742.959 $12,314.782 $ 3,984.541 $ 3,465,041 The table above shows that while the total cost of services for providing services increased about 12% from the prior year, the net cost to the local taxpayers increased almost 15% from the prior year. In other words, as compared to the proceeding fiscal year, a slightly larger percentage of the cost of providing services is falling to the taxpayers of the City of Bremen. This condition is occurring because increased costs for such items as salaries, benefits, maintenance, fuel, etc. is occurring at a marginally higher rate than is being funded from program revenues (State, Federal, and revenues for services and sales). FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT'S FUNDS Information about the School District's governmental funds is presented starting on Exhibit "E" of this report. Governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of almost $16 million and total - Vl - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 expenditures of $14.7 million in fiscal year 2006. Total governmental fund balances of almost $3.5 million at June 30, 2006, increased almost $1.3 million from the prior year. This increase in fund balance occurred because revenues exceeded expenditures in both the General Fund and Capital Projects Fund. 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 2006, the School District amended its general fund budget as needed. 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 $13.9 million were over the final budgeted amount of $12 million by almost $2 million. This difference (final actual vs. final budget) was primarily attributable to revenues for Property taxes over budget of $262,000, State Funds over final budget of about $386,000, Federal Funds over final budget of about $572,000, and miscellaneous revenues over final budget by about $591,000. The School District traditionally estimates revenue on a conservative basis to avoid shortfalls in actual revenues. Additionally, the School District did not include revenues for school activity accounts (included in miscellaneous revenues) in the final budget. The General Fund's final actual expenditures of $13.2 million exceeded the final budget amount of $11.6 million by almost $1.6 million. This difference (final actual vs. final budget) was primarily attributable to actual expenditures for instruction exceeding the final budget $1.4 million. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At fiscal year ended June 30, 2006, the School District had almost $9.9 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. -vu - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table 4 Capital Assets (Net of Depreciation) Governmental Activities Fiscal Fiscal Year 2005 Year 2006 (Restated) Land Land Improvements Buildings and Improvements Equipment $ 1,009,996 56,023 8,547,277 240,523 $ 1,009,996 33,924 8,728,089 203,423 Total $ 9,853,819 $ 9,975,432 Additional information about the School District's Capital Assets can be found in the Notes to the Basic Financial Statements. Debt At June 30, 2006, the School District had approximately $1.8 million in total debt outstanding. This debt is primarily the result of bonds sold by the City of Bremen, on behalf of the City of Bremen 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 2006 Year 2005 Bonds Payable Capital Leases $ 1,790,000 $ 2,840,000 3 768 32,281 Total $ 1,793,768 $ 2,872,281 Additional information about the School District's debt can be found in the Notes to the Basic Financial Statements. - viii - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 FACTORS BEARING ON THE SCHOOL DISTRICT'S FUTURE Currently known circumstances that are expected to have a significant effect on financial position 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 continue to 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. 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. The School District is currently constructing a new Middle School which is scheduled to open in the summer of 2008. This school will create new demands on the School District for continuing funding requirements for personnel and operating costs associated with this facility. 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 stanley.mccain@bremencs.com. - IX - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT"A" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land 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 $ 2,341,744 1,250,000 324,823 975,852 102,816 130,022 12,513 1,009,996 120,084 10,805,815 477,796 -2,559,872 $ ===1=4=9=9=1=5=89=== $ 481,412 1,127,192 3,768 1790000 $ 3 402 372 $ 8,060,595 28,246 130,314 1,451 1,312,583 2,056,028 $ 11 589 217 $ ===14=9=9=1=5=89= The notes to the basic financial statements are an integral part of this statement. -1- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 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 Short-Term and 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 Total General Revenues Change in Net Assets Net Assets - Beginning of Year (Restated) Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 9,840,385 $ 387,989 222,919 220,376 334,172 765,960 112,290 810,587 118,574 10,689 40,829 112,947 664,084 101 158 $ 13,742,959 $ 481,673 179,328 364,846 1,025,847 The notes to the basic financial statements are an integral part of this statement. -2- EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 6,757,503 114,835 122,725 166,603 438,638 404,409 2,062 456,107 14,951 $ 2,630 674 248,378 $ 8,729,515 $ $ 3,056 3 056 $ -2,601,209 -273,154 -100,194 -53,773 104,466 -361,551 -110,228 -354,480 -100,567 -8,059 -40,155 66,381 -50,860 -101158 -3,984,541 $ 2,247,183 1,149,674 834,839 1,049,628 82,016 739 659 $ 6,102,999 $ 2,118,458 9 470 759 $ ====11=,5=8=9=,2=17= -3- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY BALANCE SHEET COMPONENT UNIT JUNE 30, 2006 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Total Assets NET ASSETS Unrestricted BREMEN EDUCATIONAL FOUNDATION, INC. $ 118,404 996 694 $ ===1=1=1=5=0=98= $ ===1=1=1=5=09=8= The notes to the basic financial statements are an integral part of this statement. -4- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY STATEMENT OF SUPPORT, REVENUES, EXPENSES AND CHANGES IN NET ASSETS COMPONENT UNIT YEAR ENDED JUNE 30, 2006 EXHIBIT "D" REVENUES Gifts and Contributions OPERATING COSTS Accounting Fees Advertising Annual Registration Bank Charge Blue Devil Dash Brick Program Gifts Given Grant Requests Scholarships Total Operating Costs Net Change OTHER INCOME AND EXPENSE Interest Income Increase in Net Assets Beginning Net Assets Ending Net Assets BREMEN EDUCATIONAL FOUNDATION, INC. $ 1 015 667 $ 300 100 30 19 708 397 2,046 10,500 2 250 $ 16 350 $ 999,317 -6 811 $ 992,506 122,592 $ ==1=1=1=-5=09=8= The notes to the basic financial statements are an integral part of this statement. -5- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 EXHIBIT"E" 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 $ 1,342,935 $ 1,250,000 975,852 102,816 130,022 12 513 997,358 $ 315,225 1,451 $ 2,341,744 1,250,000 315,225 975,852 102,816 130,022 12 513 Total Assets $ 3,814,138 $ 1,312,583 $ 1 451 $ ==~5;,i,,1~2,;;;,i8.:,17~2= 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 $ 481,412 1,127,192 1,608,604 28,246 117,801 12,513 $ 2,046,974 2,205,534 $ $ 1,312,583 1,312,583 $ $ $ $ 1,451 1 451 $ 481,412 1127 192 1 608 604 28,246 117,801 1,451 12,513 1,312,583 2 046 974 3 519 568 Total Liabilities and Fund Balances $ 3,814,138 $ 1,312,583 $ 1 451 $ =====5=-1=2=8!::1=72= 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, 2006 EXHIBIT"F" Total Fund Balances - Governmental Funds (Exhibit "E") 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 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") $ 3,519,568 $ 1,009,996 120,084 10,805,815 477,796 -2,559,872 9,853,819 9,598 $ -1,790,000 -3 768 -1,793,768 $ 11,589,217 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, 2006 EXHIBIT"G" 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 (USES} Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 2,336,115 $ 8,971,755 810,444 1,025,847 50,971 729,207 $ 13,924,339 $ $ 834,839 $ 1,149,674 30,804 241 10452 876,095 $ 1,149,915 $ 2,336,115 1,984,513 8,971,755 810,444 1,025,847 82,016 739,659 15,950,349 $ 9,528,814 387,989 222,919 220,376 323,691 764,366 112,290 791,761 $ 75,574 10,689 40,829 112,947 646,075 5,646 594 $ 13,244,560 $ $ 679 779 $ $ 14,163 267,705 22,867 $ 1,050,000 886 99 678 305,621 $ 1,149,678 $ 570 474 $ 237 $ 9,528,814 387,989 222,919 220,376 323,691 764,366 112,290 805,924 75,574 10,689 40,829 112,947 646,075 267,705 1,078,513 101 158 14,699,859 1,250,490 $ 150,342 $ -150,342 $ 150,342 $ -150,342 $ 830,121 $ 420,132 $ 1,375,413 892,451 $ $ 237 $ 1 214 150,342 -150 342 0 1,250,490 2,269,078 $ 2,205,534 $ 1,312,583 $ 1451 $====3,=51=9=,5=68= 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, 2006 EXHIBIT"H" Total Net Change in Fund Balances - Governmental Funds (Exhibit "G") 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. 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 $ 101,331 -222 944 1,050,000 28 513 1,250,490 -121,613 -88,932 1 078 513 Change in Net Assets of Governmental Activities (Exhibit "B") $ ==2==1'=1=8==,4=5=8 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, 2006 EXHIBIT"!" ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others AGENCY FUNDS $ =====85==64=2= $ ===8=5'=64=2= The notes to the basic financial statements are an integral part of this statement. - 10 - (This page left intentionally blank) CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" 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 and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. DISCRETELY PRESENTED COMPONENT UNIT The Bremen Educational Foundation, Inc. is a non-profit organization established in 2001 as a permanent endowment created by alumni and supporters of the Bremen City School District to support the tradition of excellence in the system. The purpose of the Foundation is to improve the quality ofeducation in the system and act as a fiscal agent for donors who wish to sponsor approved projects for the system, its teachers and students. The Bremen Educational Foundation's financial data (Balance Sheet and Statement of Support, Revenues, Expenses and Changes in Net Assets) is included within the School District's basic financial statements as a discretely presented component unit. See Note 14 for additional component unit disclosure. 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. - 12 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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: 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 Bond 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 ofgeneral 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 ofaccounting 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 ofwhen 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. - 13 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 of accounting. 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. 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 2006, the School District restated Capital Assets due to errors and omissions. The School District increased Land by $63,642. 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 of one 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 - 14 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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, (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. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency 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. 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 2005 tax digest year (calendar year) on October 29, 2005 (levy date). Taxes were due on December 29, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Bremen City Clerk bills and collects the property taxes for the School District and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $2,336,115. - 15 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The tax millage rate levied for the 2005 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 12.950 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $1,984,513 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. 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: - 16 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 ofthe School District. The bond issuance costs are recognized in the financial statement ofthe School District during the year the bonds are issued. 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 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. 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, - 17 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 3: DEPOSITS (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. CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $4,668,893. The amounts of the total bank balances are classified into four categories of custodial credit risk: Category 1 - Cash that is insured (e.g., Federal Deposit 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 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name. Category 4 - Uncollateralized. The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows: Custodial Credit Risk Category Bank Balance 1 $ 917,670 2 0 3 3,751,223 4 0 Total $ 4,668,893 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 - 18 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2005 (Restated) Increases Decreases Balances June 30, 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land $ 1,009,996 $ 0 $ 0 $ 1,009,996 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 10,805,815 495,875 $ 95,174 76,421 $ 24,910 $ 10,805,815 94,500 477,796 120,084 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 2,077,726 292,452 61,250 180,812 39,321 2 811 94,500 2,258,538 237,273 64 061 Total Capital Assets, Being Depreciated, Net $ 8,965,436 $ -121,613 $ 0 $ 8,843,823 Governmental Activity Capital Assets - Net $ 9,975,432 $ -121,613 $ 0 $ 9,853,819 Capital assets being acquired under capital leases as of June 30, 2006, are as follows: Governmental Funds Equipment Less: Accumulated Depreciation $ 15,627 7,032 Current year depreciation expense by function is as follows: Instruction Support Services General Administration $ School Administration Maintenance and Operation of Plant Student Transportation Services Food Services $====8'="5==9==5 $ 6,002 913 2,670 24,624 $ 178,422 34,209 10,313 222!944 - 19 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) proceeds are reported as restricted assets in the Statement ofNet Assets because their use is limited by applicable statutory provisions. Restricted assets at June 30, 2006, were as follows: District-wide Capital Projects SPLOST Debt Service Funds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions $ $ 997,358 1,451 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2006, consisted of the following: Transfer to Transfers From District-wide Capital Projects General Fund $====1==50=",3===4==2 Transfers are used to reimburse the General Fund for funds transferred in the prior years to the Haralson County Bond Proceeds Account in Capital Projects for the purchase of land. Note 8: 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 - 20 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 8: RISK MANAGEMENT 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), errors and omissions, crime 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: Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability 2005 2006 $ 0 $ 0 $ 0 $ 0 $ 0 $ 4 954 $ 4 954 $ 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 $500,000 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 - 21 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 9: 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% $ 645,000 1,145,000 $ 1,790.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: Governmental Funds General Capital Obligation Leases Bonds Total Balance July 1, 2005 $ 32,281 $ 2,840,000 $ 2,872,281 Deductions Debt Retired 28.513 1,050,000 1,078.513 Balance June 30, 2006 $ 3,768 $ 1,790,000 $ 1,793,768 Portion of Long-Term Debt Due within One Year $ 3 768 $ 0 $ 3 768 At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows: - 22- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 9: LONG-TERM DEBT Fiscal Year Ended June 30 CaQital Leases PrinciQal Interest 2007 $ 3 768 $ 150 Fiscal Year Ended June 30 General Obligation Debt Princi2al Interest 2007 2008 2009 $ $ 1,190,000 600,000 31,543 42,343 10 800 Total Principal and Interest $ 1)90,000 $ 84,686 Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $243,481 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 ofNon-Certified Personnel In the amount of $242,185 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 $1,296 Note 11: 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 12: SUBSEQUENT EVENTS In the subsequent fiscal year, voters authorized the School District to issue general obligation bonds in the amount of $6,000,000. The proceeds from these bonds will be used for paying the cost ofthe acquisition, construction, renovation and equipping of new and existing educational facilities and cost of issuance thereto. - 23 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 13: 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: Fiscal Year Percentage Contributed Required Contribution 2006 2005 2004 100% 100% 100% $ 779,112 $ 669,309 $ 628,506 Note 14: COMPONENT UNIT The Bremen Educational Foundation, Inc. (Foundation) is a legally separate tax-exempt component unit ofthe City ofBremen Board ofEducation (School District). It was organized on December 17, 2001, as a Georgia Corporation pursuant to the provisions of the Georgia Non-Profit Corporation Code. The Foundation's governing board consists of 8 members consisting of alumni and or local business persons plus ex-officio member to include the superintendent of the Bremen City School system. New members are elected by the Foundation Board. Although the School District does not control the timing or amount ofreceipts from the Foundation, the majority ofresources or income thereon the Foundation holds and invests are restricted to the improvement of the quality of education of the School District and act as a fiscal agent for donors who wish to sponsor approved projects for the system, its teachers and students. Consequently, the Foundation is considered a component unit of the School District and is discretely presented in the School District's financial statements. The Foundation utilizes the accrual method of accounting. The Foundation is subject to Statement ofFinancial Standards (SFAS) 117, "Financial Statement ofNot-for-Profit Organizations". As such, certain revenue recognition criteria and presentation features are different from GASB revenue - 24- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "J" Note 14: COMPONENT UNIT recognition criteria and presentation features. No modifications have been made to the Foundation's financial information in the School District's financial reporting entity for these differences. The Foundation's fiscal year is July 1, 2005, through June 30, 2006. During the year ended June 30, 2006, the Foundation made contributions in the form of teacher grants and gifts to all three schools. These contributions totaled $12,500 with $1,200 to Sewell Middle School, $1,500 to Jones Elementary, $7,800 to Bremen High School, and $2,000 was given to Bremen High School as pass-through gift. Scholarships to individuals and colleges totaled $2,250. Complete audited financial statements for the Foundation were not available as of the date of this report. Any inquiries or information about the Foundation can be obtained from Bremen Educational Foundation, Inc. The contacts are as follows: Mr. Vann Pelt, President, 810 Valley Run Drive, Bremen, Georgia 30110, 770-834-0738, Ext. 134, e-mail address, vpelt@silvey.com or Ms. Joanie Lowe, Treasurer, 121 Buchanan Street North, Bremen, Georgia 30110, 770-537-1110, e-mail address, joanielowe@bellsouth.net - 25 - (This page left intentionally blank) 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, 2006 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 Other Sources Net Change in Fund Balances Fund Balances - Beginning NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 2,074,000 $ 2,074,000 $ 2,336,115 8,200,924 8,586,103 8,971,755 219,353 238,727 810,444 895,906 895,906 1,025,847 19,500 19,500 50,971 136 848 137 848 729 207 $ 11546531 $ 11,952,084 $ 13,924,339 $ 8,134,661 $ 8,134,646 $ 9,528,814 332,012 171,420 207,897 238,969 752,894 112,268 762,329 80,790 10,745 40,892 101,654 600,000 349,512 172,920 207,897 238,969 752,894 112,268 762,329 80,790 10,745 40,892 101,654 600,000 387,989 222,919 220,376 323,691 764,366 112,290 791,761 75,574 10,689 40,829 112,947 646,075 6 240 $ 11546531 $ 11,565,516 $ 13,244,560 $ 0 $ 386,568 $ 679,779 150 342 $ 0 $ 386,568 $ 830,121 1,365,394 1365394 1375413 Fund Balances - Ending $ 1,365,394 $ 1,751,962 $ ===2='=,2=0='5,=53=4= 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. - 27 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT CFDA NUMBER Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program 10.553 10.555 Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) 10.550 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 * 84.027 * 84.173 Total Special Education Cluster Other Programs Direct Safe And Drug-Free Schools And Communities National 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 Safe And Drug-Free Schools And Communities National Programs Title I Grants to Local Educational Agencies State Grants for Innovative Programs Vocational Education - Basic Grants to States 84.184 84.332 84.196 84.318 84.367 84.184 84.010 84.298 84.048 Total U. S. Department of Education PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD N/A N/A $ $ (2) 573 725 573,725 N/A $ 17 736 591 461 N/A $ N/A $ 322,168 33,023 355,191 NIA N/A NIA N/A N/A N/A N/A N/A $ 15,313 52,100 15,000 1,889 47,673 6,240 97,023 3,165 12,523 606117 Total Federal Financial Assistance N/A = Not Available $ =====1=19=7=5=78= - 28- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" 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 ($32,674) were not maintained separately and are included in the 2006 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. - 29- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" 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 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 Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Health Insurance K-3 Statewide Reading Program National Teacher Certification Preschool Handicapped Program Virtual Schools Grant Office of Treasury and Fiscal Services Public School Employees Retirement GOVERNMENTAL FUND TYPE GENERAL FUND $ 451,093 513,898 78,859 1,240,510 90,979 607,885 30,790 904,129 822,601 308,589 123,418 45,390 429,006 235,620 89,625 206,680 10,750 78,893 162,379 51,885 31,453 353,310 378,395 441,488 11,849 3,056 35,802 47,299 5,509 4,546 1,049,628 37,094 136,744 -357,754 242,185 25,000 6,028 35,698 150 1 296 See notes to the basic financial statements. - 30- $ ======8=,9=7=1'=75=5= (This page left intentionally blank) CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 SCHEDULE "4" PROJECT ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS 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 $ 4,900,000 $ 4,900,000 $ 346,979 $ 2,976,048 Ongoing 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, system-wide 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 therefore 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 4,840,000 4,840,000 58,320 3,083,496 Ongoing $ 9,740,000 $ 9,740,000 $ 405,299 $ 6,059,544 (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. - 32 - CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2006 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 Gifted Student - Category VI Remedial Education Program Alternative Education Program 560,137 $ 85,828 1,341,419 100,787 647,262 33,502 994,052 884,763 339,398 1,002,372 220,205 11,696 85124 563,650 $ 90,137 1,743,298 110,328 795,417 23,569 1,067,071 1,056,933 273,036 12,327 73,003 398,831 204,397 387,034 20,881 90454 12,324 $ 595 54,424 754 14,815 346 47,779 61,381 12,281 7,862 2,426 282 758 511 575,974 90,732 1,797,722 111,082 810,232 23,915 1,114,850 1,118,314 285,317 20,189 75,429 399,113 204,397 387,792 20,881 90965 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 6,306,545 $ 6,910,366 $ 216,538 $ 7,126,904 Media Center Program Staff and Professional Development 175,931 34436 188,543 4985 26,992 28455 215,535 33440 TOTAL QBE FORMULA FUNDS $====6=,5=16=,9=1=2 $ 7,103,894 $ 271985 $===7=3=75=8=7=9 (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. - 33- SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS 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 February 16, 2007 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, 2006, which collectively comprise City of Bremen Board of Education's basic financial statements and have issued our report thereon dated February 16, 2007. This report was qualified for a scope limitation, as identified in the auditor's report on the basic financial statements. Except as discussed in the following paragraph, 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. The financial statements of Bremen Educational Foundation, Inc. (Foundation) have not been audited, and we were not engaged to audit the Foundation's financial statements as part ofour audit ofthe School District's basic financial statements. The Foundation's financial activities are included in the School District's basic financial statements as a discretely presented component unit. We do not express an opinion for the discretely presented component unit. 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 opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control over financial reporting 2006YB-10X would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one 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. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. 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 of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~-. ID ~.4.:t.s. Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2006YB-10X 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 February 16, 2007 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 ofCity 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 ofits major Federal programs for the year ended June 30, 2006. City of Bremen Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule ofFindings 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 ofAmerica; 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 of compliance 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 ofBremen Board ofEducation's compliance with those requirements and performing such other procedures as we considered necessary in the 2006SA-10 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. 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, 2006. 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 of Education, 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 2006SA-10 Ru sell W. Hinton, CPA, CGFM 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, 2006 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7631-04-01 FS-7631-05-01 Further Action Not Warranted Previously Reported Corrective Action Implemented SECTION IV FINDINGS AND QUESTIONED COSTS CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 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 qualified for a scope limitation. 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 did not disclose any reportable conditions related to the financial statements. 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 .510(a) ofOMB Circular A-133 The City of Bremen Board of Education's audit did not disclose audit findings required to be reported by section .510(a) ofOMB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 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 qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. - 1- CITY OF BREMEN BOARD OF EDUCATION - HARALSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -2 -