CITY OF CARROLLTON BOARD OF EDUCATION CARROLL COUNTY, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL 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 B STATEMENT OF ACTIVITIES FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS H NOTES TO THE BASIC FINANCIAL STATEMENTS SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND Page 3 4 5 6 7 8 9 10 25 CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 26 3 SCHEDULE OF STATE REVENUE 29 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 30 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 33 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 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 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 July 9, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the City of Carrollton 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) ofthe City ofCarrollton Board of Education, as of and for the year ended June 30, 2003, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe City ofCarrollton 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 ofAmerica and the standards applicable to financial audits contained in Government Auditing 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 position ofthe governmental activities, each major fund, and the aggregate remaining fund information of the City of Carrollton Board of Education, as of June 30, 2003, and the respective changes in financial position thereoffor the year then ended in conformity with accounting principles generally accepted in the United States of America. 2003-34ARL-11 As discussed in Note 2 to the basic financial statements, during fiscal year 2003, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements and consolidated its individual school activity accounts for inclusion in the basic financial statements. These changes are in accordance with generally accepted accounting principles. As described in Note 2, the City of Carrollton Board ofEducation has implemented a new financial reporting model as required by provisions ofGovernmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003. In accordance with Government Auditing Standards, we have also issued our report dated July 9, 2004, on our consideration of the City of Carrollton Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. 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 Carrollton 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 ofGeorgia Annotated section 506-24. Respectfully submitted, RWH:gp 2003-34ARL-11 State Auditor CITY OF CARROLLTON BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Introduction Our discussion and analysis of the City of Carrollton Board of Education's financial performance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2003. 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. The reader should also note that this fiscal year (FY 2003) is the School District's first year of implementation of GASB 34, a new financial reporting model. Financial Highlights Key financial highlights for fiscal year 2003 are as follows: The School District implemented GASB 34 for fiscal year 2003. Due to this being the implementation year, many comparisons are not available that will be available in fiscal year 2004. On the district-wide financial statements, the assets of the School District exceeded liabilities by $37.7 million. Of this amount, $4.9 million is unrestricted and is available for spending at the School District's discretion. The School District had $31.7 million in expenses relating to governmental activities; only $18.7 million of these expenses were offset by program specific charges for services, grants and contributions. However, general revenues (primarily property and sales taxes) of $13.3 million were adequate to provide for these programs. As stated above, General Revenues accounted for $13 .3 million or about 41 % of all revenues totaling $32.1 million. Program specific revenues in the form of charges for services, grants and contributions accounted for the rest. 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. CITY OF CARROLLTON BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 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 Carrollton Board of Education, 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 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 Carrollton Board of Education 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. 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 detail information about the School District's significant or major funds. As discussed previously, the School District has no nonmajor Funds as defined by GASB 34. 11 CITY OF CARROLLTON BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 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 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 others and school clubs and organizations 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 district-wide 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 Carrollton Board of Education, assets exceeded liabilities by $37.7 million at June 30, 2003. 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 $37.7 million of net assets, almost $3 .4 million was restricted for continuation of Federal programs, debt service, and completion of ongoing 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 had $29.4 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 $4.9 million may be used to meet the School District's ongoing obligations to citizens and creditors. 111 CITY OF CARROLLTON BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Table 1 provides a summary of the School District's net assets for this fiscal year. Since this is the first year the School District has prepared financial statements following GASB 34, net asset comparisons to fiscal year 2002 are not available. Table 1 Net Assets Governmental Activities Fiscal Year 2003 Assets Current and Other Assets Capital Assets, Net $20,489,710 30,588,070 Total Assets $51,077,780 Liabilities Current and Other Liabilities Long-Term Liabilities $ 3,860,199 9,486,101 Total Liabilities $13,346,300 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $29,433,511 3,391,653 4,906,316 Total Net Assets $37,731.480 Table 2 shows the Changes in Net Assets for this fiscal year. Since this is the first year the School District has prepared financial statements following GASB 34, revenue and expense comparisons to fiscal year 2002 are not available. IV CITY OF CARROLLTON BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Table 2 Change in Net Assets Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Total Program Revenues General Revenues: Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Debt Service For Capital Projects Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Total Revenues 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 of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Expenses Increase in Net Assets Governmental Activities Fiscal Year 2003 $ 1,425,055 17,328,713 $18,753,768 $ 8,512,689 1,408,691 1,509,422 554,980 465,769 871,748 $13,323,299 $32,077,067 $19,378,320 845,187 1,417,110 502,458 658,578 2,238,454 483,455 2,125,001 992,820 148,501 19,626 318,587 436,232 1,641,987 549,519 $31,755,835 $ 321.232 V CITY OF CARROLLTON BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Governmental Activities 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. Since this is the first year the School District has prepared financial statements following GASB 34, cost of service comparisons for fiscal year 2002 are not available. Table 3 Governmental Activities Total Cost of Services Fiscal Year 2003 Net Cost of Services Fiscal Year 2003 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 Community Services Food Services Interest on Short-Term and Long-Term Debt $19,378,320 $ 6,149,633 845,187 1,417,110 502,458 658,578 2,238,454 483,455 2,125,001 992,820 148,501 19,626 405,138 1,029,314 212,019 212,556 1,693,767 483,455 1,252,300 581,043 146,001 2,269 318,587 436,232 1,641,987 549,519 -10,578 207,465 88,166 549,519 Total Expenses $31!755!835 $13!002!067 Financial Analysis of the School District's Funds The School District's governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of almost $32.2 million and total expenditures of $35.4 million. Included in the expenditures of $35.4 million were capital outlay expenditures of $2.8 million. Revenues to fund these capital outlay expenditures were received in a prior year through a combination of proceeds from a Special Purpose Local Option Sales Tax and sale of General Obligation Bonds. Vl CITY OF CARROLLTON BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 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 2003, the School District amended its general fund budget as needed. The School District uses site-based budgeting as a part of the budget process. The budgeting systems are designed to control total site budgets but provide flexibility for site management. The School District budget is formerly adopted at the aggregate level and maintained at the program, function, object, and site levels to facilitate budgetary control. For the General Fund, the final actual revenues of $28.9 million exceeded the final budgeted amounts of $28.1 million by over $.8 million. This difference (final actual vs. final budget) was due primarily to charges for services revenues over final budget of almost $.6 million, and miscellaneous revenues over final budget of $.5 million. The final actual General Fund expenditures of $30.4 million exceeded the final budgeted amount of $29.8 million by $.6 million. This difference (final actual vs. final budget) was due primarily because expenditures for Enterprise Operations of $.3 million and for Community Services of $.4 million were not included as a part of the School District's final budget. Expenditures for the General Fund exceeded revenues by $1.5 million. This current year shortfall was anticipated by the School District as reflected by the School District's final budget which reflected budgeted expenditures over budgeted revenues by $1.6 million. The intent of the School District was to use accumulated reserves to cover this shortfall. At June 30, 2003, the General Fund had a fund balance of $4.7 million, of which $4.6 million was unreserved, undesignated and therefore available for operations in the subsequent fiscal year. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At June 30, 2003, the School District had $30.6 million invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances net of accumulated depreciation. Since this is the first year the School District has prepared financial statements following GASB 34, capital assets comparisons to fiscal year 2002 are not available. Vll CITY OF CARROLLTON BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Table 4 Capital Assets (Net of Depreciation) Governmental Activities Fiscal Year 2003 Land Construction in Progress Land Improvements Buildings Equipment $ 1,094,500 2,849,689 529,376 24,426,252 1,688,253 Total $30,588.070 Additional information on the School District's Capital Assets can be found in the Notes to the Financial Statements. Debt At June 30, 2003, the School District had almost $9.5 million in debt outstanding. This debt is primarily the result of Capital Lease agreements to acquire assets to which the School District is a party and General Obligation Bonds sold by the City of Carrollton, on behalf of the City of Carrollton School District, for the purpose of the acquisition, construction, equipping, renovating, and repairing of school facilities. Payment of the General Bond Obligation debt is secured by a local option sales tax. Table 5 summarizes the School District's debt. Table 5 Debt at June 30 Governmental Activities Fiscal Year 2003 Capital Leases General Obligation Bonds $ 236,101 9,250,000 Total $ 9,486.101 Additional information can be found on the School District's Debt Obligations in the Notes to the Financial Statements. Vlll CITY OF CARROLLTON BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 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: As was the case in the prior year, the State of Georgia is suffering from the effects of the prevailing unfavorable economic conditions. Total revenue collections for the State for the 2003 fiscal year were down roughly 3% compared to the previous period. This has forced the State's Office of Planning and Budget to continue reducing the budgets of the various government agencies. State QBE Revenue Reductions - During fiscal year 2003, the State of Georgia implemented a 2.5% QBE revenue formula funding reduction to all state school districts. This funding reduction carried forward into the fiscal year 2004. Additionally, because state revenues are falling well below the projected amounts, all state school districts have been warned to expect a 5% reduction of revenues for fiscal year 2005. Considering the stagnant economy of the past few years, these formula funding reductions will seriously affect the long-term financial stability of the School District. Despite these challenges, the City of Carrollton Board of Education 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. 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, education local option sales taxes and anticipated annual receipts of capital outlay funds from the State of Georgia Department of Education. The School District regularly monitors anticipated capital outlay needs. Contacting the School District's Financial Management This financial report is designed to provide our citizens, 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 the City of Carrollton Board of Education, 106 Trojan Drive, Carrollton, Georgia 30117. ix CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY STATEMENT OF NET ASSETS JUNE 30, 2003 EXHIBIT"A" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Deferred Revenue Contracts Payable Retainages 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 Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets The notes to the basic financial statements are an integral part of this statement. -3- GOVERNMENTAL ACTIVITIES $ 8,448,384 7,868,687 911,321 2,002,930 1,229,293 29,095 1,094,500 2,849,689 2,006,085 30,585,165 3,570,977 -9,518,346 $ ===5;.;,,1,,;,07;.;,7=,;.7,;;;,8;;;,:0 $ 1,008,323 2,216,608 688 517,287 117,293 236,101 9,250,000 $ 13,346,300 $ 29,433,511 115,027 1,467,277 1,809,349 4 906 316 $ 37,731,480 $ ===5=1*,0=7=7=,7=80= CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30 2003 EXHIBIT"B" EXPENSES PROGRAM REVENUES OPERATING CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS 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 Community Services Food Services Interest on Long-Term Debt Total Governmental Activities $ 19,378,320 $ 845,187 1,417,110 502,458 658,578 2,238,454 483,455 2,125,001 992,820 148,501 19,626 318,587 436,232 1,641,987 549 519 $ 31,755,835 $ 271,483 $ 329,165 228,767 595,640 1,425,055 $ 12,957,204 $ 440,049 387,796 290,439 446,022 544,687 872,701 411,777 2,500 17,357 958,181 17,328,713 $ -6,149,633 -405,138 -1,029,314 -212,019 -212,556 -1,693,767 -483,455 -1,252,300 -581,043 -146,001 -2,269 10,578 -207,465 -88, 166 -549 519 -13,002,067 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 $ 8,512,689 1,408,691 1,509,422 554,980 465,769 871 748 Total General Revenues Change in Net Assets $ _ ___:_13:,,=32:::3::.,2:::9:..::9c.. $ 321,232 Net Assets - Beginning of Year 37 410 248 Net Assets - End of Year The notes to the basic financial statements are an integral part of this statement. -4- CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2003 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Inventories Total Assets GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 4,141,850 $ 4,306,534 $ 8,448,384 48,224 6,468,937 $ 1,351,526 7,868,687 91,759 2,002,930 1,229,293 29,095 484,874 576,633 2,002,930 1,229,293 29,095 $ 7,543,151 $ 10,775,471 $ 1,836,400 $ 20,155,022 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Deferred Revenue Contracts Payable Retainages Payable Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund Total Fund Balances Total Liabilities and Fund Balances $ 639,200 2,216,608 688 $ $ 2,856,496 $ $ 517,287 117,293 369,123 $ 1,008,323 2,216,608 688 517,287 117,293 634,580 $ 369,123 $ 3,860,199 $ 85,932 $ 85,932 $ 1,467,277 1,467,277 29,095 29,095 $ 10,140,891 10,140,891 4,571,628 4,571,628 $ 4,686,655 $ 10,140,891 $ 1,467,277 $ 16,294,823 $ 7,543,151 $ 10,775,471 $ 1,836,400 $ 20,155,022 The notes to the basic financial statements are an integral part of this statement. -5- CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2003 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 $ 16,294,823 $ 1,094,500 2,849,689 2,006,085 30,585,165 3,570,977 -9,518,346 30,588,070 334,688 $ -9,250,000 -236,101 -9,486,101 Net Assets of Governmental Activities (Exhibit "A") $ 37,731,480 The notes to the basic financial statements are an integral part of this statement. -6- CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30. 2003 EXHIBIT E 11 11 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 Community Services 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 GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 8,612,452 $ $ 1,509,422 $ 1,408,691 14,871,420 3,012,273 1,425,055 107,471 357,775 523 871 748 $ 28,900,419 $ 1,867,197 $ 1,409,214 $ 8,612,452 2,918,113 14,871,420 3,012,273 1,425,055 465,769 871 748 32,176,830 $ 18,956,172 $ 18,956,172 850,280 1,415,797 501,836 645,950 2,235,932 148,455 2,153,379 759,503 124,488 17,358 318,587 436,232 1,595,100 $ 2,828,860 850,280 1,415,797 501,836 645,950 2,235,932 148,455 2,153,379 759,503 124,488 17,358 318,587 436,232 1,595,100 2,828,860 224,395 24,023 $ 1,650,000 525,496 1,874,395 549,519 $ 30,407,487 $ 2,828,860 $ 2,175,496 $ 35,411,843 $ -1,507,068 $ -961,663 $ -766,282 $ -3,235,013 $ 733,333 $ 265,463 $ $ -998,796 998,796 -998,796 $ 733,333 $ -998,796 $ 265,463 $ 0 $ -773,735 $ -1,960,459 $ -500,819 $ -3,235,013 5,460,390 12,101,350 1,968,096 19,529,836 Fund Balances - Ending $ 4,686,655 $ 10,140,891 $ 1,467,277 $ The notes to the basic financial statements are an integral part of this statement. -7- 16,294,823 CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30. 2003 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. 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 $ -3,235,013 $ 2,944,301 -827,688 2,116,613 -99,763 $ 1,315,000 224,395 1,539,395 Change in Net Assets of Governmental Activities (Exhibit "B") $ ===32=1e!=,2=32= The notes to the basic financial statements are an integral part of this statement. -8- CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2003 EXHIBIT"G" ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others AGENCY FUNDS $===8=1=,2=49= $===8=1=,2=49= The notes to the basic financial statements are an integral part of this statement. -9- CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The City of Carrollton Board of Education (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 Carrollton 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. - 10 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 Bond Proceeds, grants from the 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 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. 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 - 11 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. A substantial number of personnel of the School District were employed for a one hundred and ninety day period beginning in August 2002 and ending in early June 2003. Employment contracts for these employment periods typically specify that compensation be paid in twelve equal monthly payments beginning in September 2002 and ending in August 2003. State grants to fund the State's share of these contracts are disbursed to the School District in the same twelve month period. In accordance with generally accepted accounting principles, salary and fringe benefit costs and the related revenue from the State to fund these contracts are recorded in the fiscal period covered by these financial statements. RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of $68,161 at July 1, 2002. For fiscal year 2003, these funds have been reported as part of the General Fund. In addition, governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been reported within the General Fund for fiscal year ended June 30, 2003. The governmental fund activity ofthe various school activity accounts had a fund balance of$150,438 at July 1, 2002. This change is in accordance with generally accepted accounting principles. General Fund Balance July 1, 2002 $ 5,241,791 Add Funds Consolidated with General Fund: School Food Services Fund School Activity Account - Governmental Activity 68,161 150,438 General Fund Balance July 1, 2002 (Restated) $ 5,460.390 CHANGES IN ACCOUNTING PRINCIPLES The City of Carrollton Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003. - 12 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The provisions of GASB Statement No. 34 require the inclusion ofa Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following: General Fund (Restated) July 1, 2002 Capital Projects Fund Debt Service Fund $ 5,460,390 12,101,350 1,968,096 Governmental Funds (Restated) July 1, 2002 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences Bonds Payable Capital Leases Payable $ 19,529,836 37,162,115 -8,690,658 434,451 -10,565,000 -460 496 Net Assets Beginning (See Exhibit "B") $ 37,410,248 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 Board 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 of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate 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, - 13 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 Carrollton City Clerk fixed the property tax levy for the 2002 tax digest year (calendar year) on September 16, 2002 (levy date). Taxes were due on December 20, 2002 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2002 tax digest are reported as revenue in the governmental funds for fiscal year 2003. The City of Carrollton 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, 2003, for maintenance and operations amounted to $8,612,452. The tax millage rate levied for the 2002 tax year (calendar year) for the City of Carrollton Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 16.62 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $2,918,113 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 CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City ofCarrollton Board ofEducation utilized $509,161 in Special Purpose Local Option Sales Tax (SPLOST) proceeds for payment of$335,000 in principal and $174,161 in interest ofthe City of Carrollton's (City Government) general obligation bond debt in accordance with SPLOST project expenditures requirements. The City ofCarrollton (Municipality) sold general obligation bonds to provide advance funding for Capital Outlay Projects associated with issuance of Special Purpose Local Option Sales Tax (SPLOST). In fiscal year 2003, the School District provided $1,666,335 ofSPLOST proceeds to the City Government for debt services on said general obligation debt. The School District has filed a law suit against the City of Carrollton (Municipality) for recovery of $2,044,519 in ad valorem taxes which were levied for school purposes and collected by the Municipality but not paid to the School District as of June 30, 2003. The School District has not recognized either revenue or receivable for these funds in the basic financial statements. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories ofdonated 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 ofpurchase. 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 fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost ofnormal maintenance and repairs that do not add to the value of assets 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. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: - 15 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment All NIA $ 5,000 15 to 20 years $ 5,000 30 to 80 years $ 5,000 5 to 15 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee ofinsurance, 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 ofthe 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 ofthe 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 ofdevelopment authorities created by the laws of the State of Georgia, and - 16 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS (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, 2003, the bank balances were $14,672,728. The amounts ofthe 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, 2003, as follows: Risk Category Bank Balance 1 $ 225,964 2 0 3 14,446,764 Total $ 14!672!728 CATEGORIZATION OF INVESTMENTS At June 30, 2003, the fair value of the School District's total investments was $2,613,847 and this entire amount consisted ofU. S. Treasury Money Market Mutual funds which are not required to be classified by categories of credit risk. 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 - 17 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2002 Increases Balances Decreases June 30, 2003 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 1,094,500 $ 99,000 $ 2,750,689 0 $ 1,094,500 2,849,689 Total Capital Assets Not Being Depreciated $ 1,193,500 $ 2,750,689 $ 0 $ 3,944,189 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 30,585,165 3,377,365 $ 2,006,085 $ 193,612 0 $ 30,585,165 3,570,977 2,006,085 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 5,771,086 1,552,248 1,367,324 387,827 330,476 109,385 6,158,913 1,882,724 1,476,709 Total Capital Assets, Being Depreciated, Net $ 27,277,957 $ -634,076 $ 0 $ 26,643,881 Governmental Activity Capital Assets - Net $ 28,471.457 $ 2,116.613 $ 0 $ 30,588.070 Capital assets being acquired under capital leases as of June 30, 2003, are as follows: Governmental Funds Equipment Less: Accumulated Depreciation $ 1,539,510 673,538 Current year depreciation expense by function is as follows: - 18 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 5: CAPITAL ASSETS Instruction Support Services Pupil Services Improvements of Instructional Services Educational Media Services General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Food Services $ 508,363 $ 1,331 1,200 568 11,538 2,304 22,347 213,183 24,013 276,484 42,841 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds, Georgia State Financing and Investment Commission (GSFIC) funds and property tax levied specifically for retirement ofoutstanding bond principal, interest and paying agent's fees (Debt Service Funds) 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, 2003, were as follows: Restricted Cash and Cash Equivalents: Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions District-wide Capital Projects Bond SPLOST Proceeds GSFIC Debt Service Funds $ 605,857 $ 3,428,401 $ $ 1,262,321 $ 5,206,616 272,276 $ 1,351,526 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2003, consisted of the following: Transfer to Transfers From District-wide Capital Projects General Fund Debt Service Funds $ 733,333 265,463 Total $,======9===98~,7~9~6 - 19 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30. 2003 EXHIBIT "H" Note 7: INTERFUND TRANSFERS Transfers are used (1) to move sales tax revenues and bond proceeds collected by the District-wide Capital Projects Fund to the Debt Service Fund for retirement of debt, and (2) to move sales tax revenues collected by the District-wide Capital Projects Fund to the General Fund to reimburse the General Fund for capital outlay expenditures incurred in prior years. 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 has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions and job related illness or injuries to employees. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the Board's insurance coverage in any of the past three years. 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 General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2002 2003 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End ofYear Liability $ 0 $ 170 $ 170 $ 0 $ 0 $ 8 464 $ 8 464 $ 0 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Employees $ 100,000 $ 25,000 -20 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 9: LONG-TERM DEBT CAPITAL LEASES The City of Carrollton Board of Education has entered into a lease agreement as lessee for buses. This lease agreement qualifies as a capital lease for accounting purposes and, therefore, has been recorded at the present value of the future minimum lease payments as of the date of its inception. CITY OF CARROLLTON DEBT PROCEEDS The School District entered into a joint resolution with the City of Carrollton, Georgia (Municipality) whereby the Municipality issued $6,000,000 of 1998 Series general obligation debt and $9,250,000 of2002 Series general obligation debt on behalfofthe School District to finance the cost ofacquiring, constructing, renovating, modifying, improving, extending and equipping capital outlay projects throughout the School District. The School District has agreed that Sales and Use Tax proceeds sufficient to retire the principal and interest will be placed in escrow to service the debt. The changes in Long-Term Debt during the fiscal year ended June 30, 2003, were as follows: Balance July 1, 2002 Deductions Payments Balance June 30, 2003 Portion of Long-Term Debt Due within One Year Governmental Funds City of Carrollton Capital Debt Leases Proceeds Total $ 460,496 $ 10,565,000 $ 11,025,496 224,395 1,315,000 1,539,395 $ 236,101 $ 9,250.000 $ 9,486.101 $ 236,101 $ 0 $ 236,101 At June 30, 2003, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 2004 2005 2006 2007 2008 2009 Total Principal and Interest Ca12ital Leases Principal Interest Ci~ of Carrollton Debt Proceeds Principal Interest $ 236,101 $ 12,317 $ $ 1,500,000 1,670,000 1,850,000 2,030,000 2,200,000 325,175 295,175 238,038 182,225 118,025 41,250 $ 236.101 $ 12 317 $ 9,250.000 $ 1,199.888 - 21 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 10: ON-BEHALF PAYMENTS The Board has recognized revenues and costs in the amount of $302,546 for health insurance and retirement contributions paid on the Board'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 $256,377 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 $46,169 Note 11: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2003, together with funding available: Project Unearned Executed Contracts Funding Available From State SA0lS-766-160 SA0lS-766-161 CHS Band Building and Athletic Fieldhouse $ 552,114 $ 8,664,910 943,139 93,333 795,454 $ 1021602163 $ 8882787 The amounts described in this note are not reflected in the basic financial statements. Note 12: 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. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. -22 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" 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 2003 2002 2001 100% 100% 100% $ 1,518,494 $ 1,372,530 $ 1,540,261 - 23 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY GENERAL FUND SCHEDULE OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30. 2003 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 Community Services Food Services Operation Capital Outlay Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES Other Sources Net Change in Fund Balances Fund Balances - Beginning Adjustments NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 8,434,862 $ 8,434,862 $ 8,612,452 14,649,705 14,900,648 14,871,420 2,284,061 3,386,559 3,012,273 874,110 874,110 1,425,055 200,000 200,000 107,471 293,710 350,030 871 748 $ 26,736,448 $ 28,146,209 $ 28,900,419 $ 17,952,787 $ 18,799,173 $ 18,956,172 766,824 1,183,430 519,833 586,288 2,010,614 165,808 2,050,596 1,004,755 108,770 225,660 1,532,951 270,773 1,024,534 1,375,983 519,833 587,903 2,005,685 158,808 2,057,596 1,039,611 111,270 297,575 1,540,106 270,773 850,280 1,415,797 501,836 645,950 2,235,932 148,455 2,153,379 759,503 124,488 17,358 318,587 436,232 1,595,100 248 418 $ 28,379,089 $ 29,788,850 $ 30,407,487 $ -1,642,641 $ -1,642,641 $ -1,507,068 733 333 $ -1,642,641 $ -1,642,641 $ -773,735 5,765,394 5,765,394 5,460,390 -3863 -3 863 Fund Balances - Ending $ 4,118,890 $ 4,118,890 $ ===4=1=,6=8=6'=,6=55= 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. See notes to the basic financial statements. - 25- CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2003 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U.S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food and Nutrition Program Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Distribution Program (1) Total U. S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Individuals with Disabilities Education Act Part B - Special Education Capacity Building Improvement Flow Through Preschool Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Elementary and Secondary Education Act Title I Grants to Local Educational Agencies School Improvement Title II Eisenhower Professional Development Enhancing Education Through Technology Improving Teacher Quality TitleV Innovative Education Program Strategies Reading Excellence - Local Reading Improvement Safe and Drug-Free Schools and Communities Stewart B. McKinney Homeless Assistance Act Education for Homeless Children and Youth Vocational Education - Basic Grants to States High School Program Basic Grant Total U. S. Department of Education CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 NIA N/A $ $ (2) 1,331,537 1,331,537 10.550 N/A $ 69045 1,400,582 84.027 84.027 84.173 N/A $ N/A NIA $ 17,629 563,198 77056 657,883 * 84.010 * 84.010 84.281 84.318 84.367 84.298 * 84.338 84.186 84.196 84.048 N/A N/A N/A N/A NIA N/A N/A N/A N/A N/A $ 565,249 8,425 17,045 30,790 121,396 19,232 646,779 15,526 40,000 40289 2,162,614 Total Federal Financial Assistance N/A = Not Available -26- $ =====i3,=56=3=,1=9=6 CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2003 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amounts shown for the Food Distribution 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 ($186.126) were not maintained separately and are included in the 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 Carrollton 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 basic financial statements. See notes to the basic financial statements. - 27- CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2003 AGENCY/FUNDING GRANTS 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 English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Austerity Reduction Other State Programs Extended Day - Technology/Career Grades 4-8 Statewide After School Program Health Insurance K-3 Statewide Reading Program National Teacher Certification Preschool Handicapped Program Vocational Construction Related Equipment Lottery Programs Assistive Technology Post Secondary Options Office of School Readiness Pre-Kindergarten Program Office of Treasury and Fiscal Services Public School Employees Retirement OTHER Community Affairs, Georgia Department of Governor's Emergency Funds See notes to the basic financial statements. -29- SCHEDULE "3" GOVERNMENTAL FUND TYPES GENERAL FUND $ 799,969 201,846 1,785,596 530,495 788,719 179,621 1,766,066 1,601,807 507,499 38,619 232,889 919,924 136,693 157,740 924,761 15,452 140,858 76,853 290,439 94,230 60,611 444,329 507,911 867,301 250,088 57,955 19,000 83,696 13,881 21,339 252,434 102,364 -390,765 17,842 29,325 256,377 44,361 13,799 82,020 55,000 8,836 4,424 825,047 46,169 8 000 $ 14,871,420 CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30 2003 SCHEDULE "4" PROJECT To pay the principal and interest coming due on the outstanding Series 1990 and Series 1995 General Obligation School Bonds of the City of Carrollton as the same come due on July 1, 1998 through July 1, 2003. Funding the acquisition, construction, renovation, modification, improvement, extending and equipping of capital outlay projects throughout the Carrollton School System, including, but without limitation, renovations, modifications, improvements, extensions and equipping of facilities at the Carrollton High School to include a band room, kitchen expansion and the addition of a science wing; at the Carrollton Junior High School to include a classroom addition of regular classrooms, science classrooms, a technology laboratory and a media center; at the Carrollton Elementary School to include a classroom addition of regular classrooms, restrooms, covered walkways; and improvements to the Maple Street Education Center; including the acquisition of all property, both real and personal. Funding the acquisition, construction, renovation, modification, improvement, extending and equipping of capital outlay projects throughout the Carrollton School System, including, but without limitation, the acquisition and construction of a new elementary school; additions, renovations and improvements at existing facilities of the Carrollton School System; system-wide technology improvements; the acquisition of school transportation vehicles; the acquisition of land for additional school facilities and all other properties, both real and personal, deemed necessary and advisable for the school system (the "Carrollton School Projects"), the maximum cost of such Carrollton School projects not to exceed $21,604, 140; to pay principal and interest coming due on the outstanding Series 1995 General Obligation School Bonds of the City of Carrollton as the same come due on January 1, 2004, through and including July 1, 2007, which principal and interest payments total $2,045,860, and calling for redemption at par on July 1, 2007 of all such remaining outstanding Bonds maturing July 1, 2008 through and including July 1, 2010, which principal and interest payments total $1,375,000; funding capitalized interest on the City of Carrollton debt hereinafter referred to. ORIGINAL ESTIMATED COST(1} CURRENT ESTIMATED COSTS (2} AMOUNT EXPENDED IN CURRENT YEAR(3} (4) AMOUNT EXPENDED IN PRIOR YEARS (3} (4) PROJECT STATUS $ 2,916,698 $ 2,916,698 $ 509,161 $ 1,979,350 Ongoing 12,743,303 12,743,303 2,291,729 9,502,617 Ongoing 25,025,000 25,025,000 835,208 Ongoing $ 40,685,001 $ 40,685,001 $ - 30 - 3,636,098 $ 11,481,967 CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30. 2003 SCHEDULE "4" (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 Carroll County 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. (4) In addition to the expenditures shown above, the School District has incurred interest to provide advance funding for the above projects as follows: Prior Years $ 692,003 Current Year Total $ ===7=4=5-=2=6,..1 See notes to the basic financial statements. - 31 - CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2003 SCHEDULE "5" DESCRIPTION Direct Instructional Programs Kindergarten Program Kindergarten Program-Ear1y Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Ear1y 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 English Speakers of Other Languages (ESOL) TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 936,665 $ 762,487 $ 20,992 $ 783,479 245,082 223,446 7,520 230,966 2,110,757 2,156,449 71,706 2,228,155 638,435 540,638 7,462 548,100 939,163 1,319,857 90,186 1,410,043 222,526 2,109,116 1,939,513 611,327 1,763,562 1,061,885 18,067 170,269 84,047 179,211 2,356,782 2,785,097 560,743 249,616 1,295,732 193,162 226,208 437,447 13,653 248,438 82,655 4,790 143,556 245,906 70,275 810 1,906 18,232 5,098 2,639 5,763 8,286 184,001 2,500,338 3,031,003 631,018 810 251,522 1,313,964 198,260 228,847 443,210 13,653 256,724 82,655 $ 12,850,414 $ 13,631,621 $ 705,127 $ 14,336,748 345,722 72,869 420,133 3,973 86,074 67,940 506,207 71,913 TOTAL QBE FORMULA FUNDS $ 13,269,005 $ 14,055,727 $ 859,141 $ =====1=-4,=91=4=,8=6=8 (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 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 July 9, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members ofthe City of Carrollton Board of Education REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 ofCarrollton Board ofEducation as ofand for the year ended June 30, 2003, which collectively comprise City of Carrollton Board of Education's basic financial statements and have issued our report thereon dated July 9, 2004. 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. Compliance As part of obtaining reasonable assurance about whether City of Carrollton Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination offinancial statement amounts. However, providing an opinion on compliance with those provisions was not an objective ofour audit, and accordingly, we do not express such an opinion. The results ofour tests disclosed no instances ofnoncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered City ofCarrollton Board ofEducation'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 assurance on the internal 2003-34YB-30 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 Carrollton Board of Education's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FS-7661-0301. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements 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. This report is intended solely for the information and use ofthe management, members ofthe City of Carrollton 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:gp 2003-34YB-30 Ru sell W. Hinton State Auditor RUSSELL W. HINTON STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 July 9, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the City of Carrollton 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 of Carrollton Board of Education with the types of compliance requirements described in the US. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2003. City ofCarrollton Board ofEducation'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 ofCity of Carrollton Board of Education's management. Our responsibility is to express an opinion on City ofCarrollton 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 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 Carrollton 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 ofCarrollton Board ofEducation's compliance with those requirements. 2003SA-10 In our opinion, the City ofCarrollton Board ofEducation complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2003. Internal Control Over Compliance The management of City of Carrollton 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 of Carrollton Board of Education'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 condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level of risk that noncompliance with applicable requirements of laws, regulations, contracts and grants 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 ofperforming 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 Carrollton 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:gp 2003SA-10 State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7661-01-01 FS-7661-02-01 Further Action Not Warranted Previously Reported Corrective Action Implemented SECTION IV FINDINGS AND QUESTIONED COSTS CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the City ofCarrollton Board ofEducation'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 Carrollton Board ofEducation 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 Carrollton 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 ofCarrollton Board ofEducation 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 of Carrollton Board of Education's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The City ofCarrollton 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: 84.010 Elementary and Secondary Education Act - Title I - Grants to Local Educational Agencies 84.010 Elementary and Secondary Education Act - Title I - School Improvements 84.338 Reading Excellence - Local Reading Improvement 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The City of Carrollton Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. - 1- CITY OF CARROLLTON BOARD OF EDUCATION - CARROLL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-7661-03-01 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. - Based on a test of twenty-five items, twenty-two receipts did not have adequate documentation. Expenditures/Liabilities/Disbursements - Based on a test of twenty-five items, ten voucher packets included purchase requisition forms which were dated and approved after the invoice date. These deficiencies were a result of management's decision to limit the number of administrative staff, at the various school sites, made responsible for accounting functions and failure to ensure established controls were functioning as designed. Management should implement procedures to ensure that the key accounting functions ofcustody, 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 -