CITY OF GAINESVILLE BOARD OF EDUCATION
HALL COUNTY, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2008
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL 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

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

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 3 SCHEDULE OF STATE REVENUE

Page
1 2 4 5 6 7 9 10
29
30
32

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY - TABLE OF CONTENTS -

SECTION I
FINANCIAL
SCHEDULES
SUPPLEMENTARY INFORMATION
4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 5 ALLOTMENTS AND EXPENDITURES
GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM

Page
33 35

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133

SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY - TABLE OF CONTENTS -
SECTION V MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

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

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 13, 2009

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the City of Gainesville Board of Education
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Ladies and Gentlemen:
We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the City of Gainesville Board of Education, as of and for the year ended June 30, 2008, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe City of Gainesville Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City of Gainesville Board of Education's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.

2008ARL- l 1X

The School District did not provide sufficient documentary evidence to support the amounts reported as beginning net assets in the governmental activities and beginning fund balances in each major fund and the aggregate remaining fund information, for fiscal year 2008, nor did the School District's records provide sufficient information for the application of other auditing procedures to reasonably determine whether beginning net assets in the governmental activities and beginning fund balances in each major fund and the aggregate remaining fund information were fairly stated.
In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to examine documentation supporting beginning net assets in the governmental activities and beginning fund balances in each major fund and the aggregate remaining fund information, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Gainesville Board of Education, as of June 30, 2008, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The City of Gainesville Board of Education has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States of America has determined is necessary to supplement, although not to be part of, the basic financial statements.
In accordance with Government Auditing Standards, we have also issued our report dated July 13, 2009, on our consideration of the City of Gainesville Board of Education's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 29, is not a required part of the basic financial statements but is 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 Gainesville 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.
2008ARL-11X

A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24.
Respectfully submitted,
~uJ.~~
Russell W. Hinton, CPA, CGFM State Auditor
RWH:as 2008ARL-11X

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY STATEMENT OF NET ASSETS JUNE 30, 2008

EXHIBIT"A"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Interest Taxes State Government Federal Government Other Inventories Capital Assets, Non-Depreciable Capital Assets, Depreciable (Net of Accumulated Depreciation)
Total Assets
LIABILITIES
Accounts Payable Salaries and Benefits Payable Payroll Withholdings Payable Short-Term Debt Contracts Payable Retainages Payable Deposits and Deferred Revenues Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Debt Service Capital Projects Unrestricted (Deficit)
Total Net Assets
Total Liabilities and Net Assets

GOVERNMENTAL ACTIVITIES

$

20,407,536.48

456,228.19

345.78 1,756,611.07 4,367,008.08 1,711,044.20
214,494.04 82,110.12
27,510,136.35 42,842,436.80

$ ==9=9,=3=47.,,,9=5=1=.1=1

$

572,805.43

6,749,238.25

304,820.23

7,500,000.00

1,134,223.20

1,196,234.00

3,796.23

5,559,186.76 28,092,050.19

$

51,112,354.29

$

36,950,525.20

473,086.08 3,260,630.28 14,327,448.05 -6,776,092.79

$

48,235,596.82

$ =====9,..9,=34=7=,9=5=1=.1=1

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

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2008

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations For Debt Services Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Other Sales Tax Investment Earnings Miscellaneous
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year (Restated)
Net Assets - End of Year

EXPENSES

CHARGES FOR SERVICES

$ 40,908,339.69 $
2,711,934.71 1,448,153.06 1,041,447.32 1,110,547.33 4,166,022.01
771,871.90 4,001,249.79 2,499,802.18 1,110,025.70 1,339,044.16
527,451.48 3,148,082.78 1,463,006.43
$ 66,246,978.54 $

312,645.02
16,208.17 146,398.73 82,470.00
328,234.60 310,002.02 1,195,958.54

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

EXHIBIT "B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$ 24,225,105.02 $
878,063.86 890,088.98 786,572.74 909,568.46 1,441,852.43
13,432.84 1,874,411.22
391,059.83 16,541.88
813,817.91
2,675,112.56
$ 34,915,627.73 $

7,478,024.75 $
3,049.33 382,549.13
4,887.85 711,057.30
13,464.45 251,017.69
55,311.00 270,370.22
17,032.78
785,020.40
9 971 784.90 $

-8,892,564.90
-1,833,870.85 -555,014.75 143,882.72 -196,091.02
-1,866, 713.55 -744,974.61
-1,793,350.88 -2,053,431.35
-823, 113.60 -508, 193.47
-199,216.88 622,052.20 -1 463 006.43
-20, 163,607.37

$

21,681,244.38

2,054,060.85

4,982,078.83 73,255.24
461,886.72 565 429.03

$

29,817,955.05

$

9,654,347.68

38 581 249.14

$ ===4=8=,2=3=5'=59=6=.8=2

- 3-

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2008

EXHIBIT"C"

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

Cash and Cash Equivalents Investments Accounts Receivable, Net
Interest Taxes State Government Federal Government Other Inventories

$ 2,185,664.18 $ 15,634,501.82 $ 2,587,370.48 $ 456,228.19

345.78 4,195,231.32 3,645,115.77 1,711,044.20
214,494.04 82,110.12

850,770.24 721,892.31

217,031.61

20,407,536.48 456,228.19
345.78 5,263,033.17 4,367,008.08 1,711,044.20
214,494.04 82110.12

Total Assets

$ 12,034,005.41 $ 17,207,164.37 $ 3,260,630.28 $=====3=2'=5==01=,8=0=0.=06==

LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries and Benefits Payable Payroll Withholdings Payable Short-Term Debt Contracts Payable Retainages Payable Deposits and Deferred Revenue
Total Liabilities
FUND BALANCES
Reserved for: Continuation of Federal Programs Debt Service Capital Projects
Unreserved Designated for Student Activities Undesignated Reported in: General Fund (Deficit) District-wide Capital Projects Fund
Total Fund Balances

$ 568,259.68 $

4,545.75

$

6,749,238.25

304,820.23

7,500,000.00

1,134,223.20

1,196,234.00

3,796.23

$ 15,126,114.39 $ 2,335,002.95

$

$ 473,086.08

$

$ 3,260,630.28

$ 14,327,448.05

213,698.53

-3,778,893.59

544 713.37

$ -3,092, 108.98 $ 14,872,161.42 $ 3,260,630.28 $

572,805.43 6,749,238.25
304,820.23 7,500,000.00 1,134,223.20 1,196,234.00
3,796.23
17461117.34
473,086.08 3,260,630.28 14,327,448.05
213,698.53
-3, 778,893.59 544 713.37
15,040,682.72

Total Liabilities and Fund Balances

$ 12,034,005.41 $ 17,207,164.37 $ 3,260,630.28 $=====3=2=,5=01=,8=0=0=.0=6

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

CITY OF GAINESVILLE BOARD OF EDUCATION- HALL COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2008

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 and Improvements 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 Long-Term Debt Agreement Capital Leases Installment Sales Agreement Unamortized Bond Premiums
Total Long-Term Liabilities

$ 15,040,682.72

$ 9,607,246.34 17,902,890.01 150,490.00 63,216,756.65 4,602,326.08 -25, 127,135.93

70,352,573.15

-3,506,422.10

$ -20, 160,000.00 -2,690,000.00 -5,334, 112.95 -4,545,000.00 -922, 124.00

-33,651,236.95

Net Assets of Governmental Activities (Exhibit "A")

$ 48,235,596.82

The notes to the basic financial statements are an integral part of this statement. - 5-

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2008

EXHIBIT"E"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Food Services Operation
Capital Outlay Debt Services
Principal Dues and Fees Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Sale of Equipment Insurance Proceeds Capital Leases 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

$ 22,618,292.32 73,255.24 $
26,889,345.04 8,081,593.69 1,195,958.54
6,992.46 451,864.43

$ 4,982,078.83 9,916,473.90
437,533.75 50,000.00

1,142,285.67 $ 23,760,577.99

5,055,334.07

36,805,818.94

8,081,593.69

1,195,958.54

17,360.51

461,886.72

501,864.43

$ 59,317,301.72 $ 15,386,086.48 $ 1,159,646.18 $ 75,863,034.38

$ 39,572,046.62

$ 39,572,046.62

2,711,934.71

1,447,410.82

965,845.02

1,109,357.58

4,022,133.58

768,563.82 $

30.71

3,940,149.73

2,622,154.09

1,191,994.70

1,334,898.22

527,451.48

3,014,107.99

14,797,787.71

2,711,934.71 1,447,410.82
965,845.02 1,109,357.58 4,022,133.58
768,594.53 3,940,149.73 2,622,154.09 1,191,994.70 1,334,898.22
527,451.48 3,014,107.99 14,797,787.71

637,897.72 71,658.99

365,681.52 $ 4,475,000.00

4,489.01

85,848.18

1,485,435.25

5,478,579.24 4,489.01
1,642,942.42

$ 63,937,605.07 $ 15,249,348.12 $ 5,964,924.26 $ 85,151,877.45

$ -4,620,303.35 $ 136,738.36 $ -4,805,278.08 $ -9,288,843.07

$

3,797.00

$

3,797.00

59,767.60

59,767.60

809,780.19

809,780.19

$ 123,599.42 $ 7,541,721.36 7,665,320.78

-123,599.42 -7,541,721.36

-7,665,320.78

$ 749 745.37 $ -7,418,121.94 $ 7,541,721.36 $ 873,344.79

$ -3,870,557 .98 $ -7,281,383.58 $ 2,736,443.28 $ -8,415,498.28

778,449.00 22,153,545.00

524,187.00 23,456,181.00

Fund Balances - Ending

$ -3,092, 108.98 $ 14,872,161.42 $ 3,260,630.28 $ 15,040,682.72

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

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2008

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.
Some of the Capital Assets acquired this year were financed with capital leases. In Governmental Funds, a capital lease arrangement is considered a source of financing, but in the Statement of Net Assets, the lease obligation is reported as a Long-Term Liability.
Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of:
Bond Principal Retirements Capital Lease Payments Long-Term Debt Retirements
Total Long-Term Debt Repayments
Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of:
Amortization of Bond Premiums
Change in Net Assets of Governmental Activities (Exhibit "B")

$ -8,415,498.28

$ 15,355,703.23 -2.113,808.22

13,241,895.01

-25,273.10

-809,780.19

$ 3,675,000.00 1,003,579.24 800,000.00

5,478,579.24

184,425.00 $ 9,654,347.68

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

(This page left intentionally blank)

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2008

EXHIBIT"G"

ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

AGENCY FUNDS
$ 78,615.99
$ 78,615.99

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

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT"H"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The City of Gainesville 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 and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity.
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 Gainesville Board of Education.
District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.
The School District reports the following major governmental funds:
- 10 -

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund.
District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST), proceeds from an installment sales agreement and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation of major capital facilities.
Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term 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 of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities, acquisition under an installment sales agreement and acquisitions under capital leases are reported as other financing sources.
- 11 -

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
RESTATEMENT OF PRIOR YEAR NET ASSETS
For fiscal year 2008, the School District restated various Capital Assets due to a change in the capitalization policy. The School District decreased, net ofaccumulated depreciation, buildings and improvements and equipment, $117,436.75 and $2,849,261.11, respectively. The result is a decrease in Net Assets at July 1, 2007, of $2,966,697.86. This change is in accordance with generally accepted accounting principles.
CASH AND CASH EQUIVALENTS
COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated Section 45-8-14 authorize the School District to deposit its funds in one or more solvent banks, insured Federal savings and loan associations or insured chartered building and loan associations.
INVESTMENTS
COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:
(1) Obligations issued by the State of Georgia or by other states,
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

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.

The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration of credit risks, interest rate risks or foreign currency risks.

RECEIVABLES

Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.

PROPERTY TAXES

The City of Gainesville fixed the property tax levy for the 2007 tax digest year (calendar year) on October 16, 2007 (levy date). Taxes were due on December 26, 2007 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2007 tax digest are reported as revenue in the governmental funds for fiscal year 2008. The Gainesville City Clerk bills and collects the property taxes for the School District, withholds 1% oftaxes collected as a fee for tax collection 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, 2008, for maintenance and operations amounted to $22,618,292.32 and for school bonds amounted to $1,142,285.67.

Tax millage rates levied for the 2007 tax year (calendar year) for the City of Gainesville Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations School Bonds

6.62 mills ___]_1 mills

6.96 mills

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $4,982,078.83 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

INVENTORIES

FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.

CAPITAL ASSETS

Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works ofart. During the fiscal year under review, no events or changes in circumstances affecting a capital asset that may indicate impairment were known to the School District.

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

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

All

NIA

$ 5,000.00

20 years

$ 5,000.00 IO to 50 years

$ 5,000.00 5 to 14 years

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives.
GENERAL OBLIGATION BONDS
The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. In the District-wide and fund financial statements, bond premiums and discounts, are deferred and amortized over the life ofthe bonds using the straight-line method.
In the fund financial statements, the School District recognizes bond issuance costs during the fiscal year bonds are issued. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. To conform to generally accepted accounting principles, bond issuance costs should be deferred and amortized over the life ofthe bonds using the straight-line method. The effect ofthis deviation is deemed to be immaterial to the fair presentation of the basic financial statements.
General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets.
NET ASSETS
The School District's net assets in the District-wide Statements are classified as follows:
Invested in capital assets, net of related debt - This represents the School District's total investment in capital assets, net ofoutstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt.
Restricted net assets - These represent resources for which the School District is legally or contractually obligated to spend resources for bus replacement, continuation of Federal programs, debt service and capital projects in accordance with restrictions imposed by external third parties.
Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes.

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DEFICIT FUND BALANCES

The fund reporting a deficit fund balance at June 30, 2008, is as follows:

Fund Type/Fund Name

Deficit Balance

Governmental Fund Type General Fund - Regular

$ 3,778,893.59

The School District plans to liquidate this deficit through a combination ofraising the millage rate, enacting a deficit reduction plan and reducing expenditures.

Note 3: DEPOSITS AND INVESTMENTS

COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. At June 30, 2008, $99,509.07 of deposits were not secured by surety bond, insurance or collateral as specified above. The School District is working with the affected financial institutions to ensure appropriate levels of collateral are maintained for all of the School District's deposits.

Acceptable security for deposits consists of any one of or any combination of the following:

(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,

(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,

(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,

(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,

(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS

(6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and

(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by or securities guaranteed 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, 2008, the bank balances were $23,432,661.22. The amounts ofthe total uninsured bank balances are classified into three categories of custodial credit risk:

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

The School District's uninsured deposits are classified by custodial credit risk category at June 30, 2008, as follows:

Custodial Credit Risk Category

Bank Balance

1

$ 99,509.07

2

19,952,187.15

3

0.00

Total

$ 20.051,696.22

CATEGORIZATION OF INVESTMENTS The School District's investments as of June 30, 2008, are presented below. All investments are presented by investment type and debt securities are presented by maturity.

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS

Investment Type

Fair Value

Investment Maturity Less than
1 Year

Debt Securities U. S. Treasuries Implicitly Guaranteed

$ 454,059.11 $ 454,059.11

Other Investments U.S. Treasury Money Market Funds

2,169.08

Total Investments

$ 456,228.19

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

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

At June 30, 2008, $456,228.19 of the School District's applicable investments were uninsured or unregistered, with securities held by the counterparty, or by its trust department or agent, but not in the School District's name.

Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The School District does not have a formal policy for managing credit quality risk.

The investments subject to credit quality risk are reflected below:

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS

Rated Debt Investments

Fair Value

Quality Ratings

AAA

Unrated

Debt Securities U. S. Agencies Implicitly Guaranteed Other Investments U.S. Treasury Money Market Funds

$ 454,059.11

$ 454,059.11

2,169.08 $_ __:2.LC.,1."'-"69c.:..:0:.:.-"'.8

Totals by Quality Ratings $ 456,228.19 $

2,169.08 $ 454,059.11

Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The School District does not have a formal policy for managing concentration of credit risk. More than 5% of the School District's investments are in Federal National Mortgage Association and Federal Home Loan Bank Debt Securities. These investments are 32% and 67%, respectively, of the School District's total investments.

Note 4: NON-MONETARY TRANSACTIONS

The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories

Note 5: CAPITAL ASSETS

The following is a summary of changes in the Capital Assets during the fiscal year:

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT"H"

Note 5: CAPITAL ASSETS

Governmental Activities Capital Assets, Not Being Depreciated:
Land Construction in Progress
Total Capital Assets Not Being Depreciated
Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements
Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements
Total Capital Assets, Being Depreciated, Net
Governmental Activity Capital Assets - Net

Balances July 1, 2007 (Restated}

Increases

Decreases

Balances June 30, 2008

$ 9,540,704.00 $ 66,542.34

$ 9,607,246.34

4,290,254.00 14,189,242.09 $ 576,606.08 17,902,890.01

$ 13,830,958.00 $ 14,255,784.43 $ 576,606.08 $27,510,136.35

$ 62,106,206.00 $ 1,110,550.65 $

4,036,351.85

565,974.23

150,490.00

0.00 $63,216,756.65 4,602,326.08 150,490.00

20,324,787.75 2,668,852.96 19,687.00

1,704,788.09 401,680.53 7,339.60

22,029,575.84 3,070,533.49 27,026.60

$43,279,720.14 $ -437,283.34 $

0.00 $ 42,842,436.80

$52,110,628.14 $13,818,501 Q2 $ 516 6Q6 Q8 $1Q 352 513 15

Capital assets being acquired under capital leases as of June 30, 2008, are as follows:

Governmental Funds

Buildings and Improvements Less: Accumulated Depreciation

$ 2,125,204.25 703,700.22

$ 1,421,504.03

Current year depreciation expense by function is as follows:

Instruction Support Services
Improvements 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 Food Services

$ 1,465,964.12

$

650.00

81,544.66

1,041.90

151,569.88

2,870.10

53,507.25

128,061.17

57,632.46

3,630.73

480,508.15 167,335.95

$ 2,113,808.22

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT"H"

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST) and Qualified Zone Academy Bonds (QZAB) escrow account, property tax levied specifically for retirement ofoutstanding bond principal, interest and paying agent's fees (Debt Service Funds) are restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2008, were as follows:

District-wide Capital Projects SPLOST

Debt Service Funds

Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions
Restricted Investments: Debt Services

$ 2,587,370.48 $15,089,788.45
$ 456,228.19

Note 7: INTERFUND TRANSFERS

Interfund transfers for the year ended June 30, 2008, consisted of the following:

Transfer to

Transfers From

District-wide

General

Capital

Fund

Projects

District-wide Capital Projects
Debt Service Fund

$ 123,599.42 $ 7,541,721.36

Total

$ 123,599.42 $ 7,541,721.36

Transfers are used to move revenues collected by the General Fund to the District-wide Capital Projects Fund as required match or supplemental funding source for capital construction projects and to move Special Purpose Local Option Sales Tax revenue (SPLOST) collected by the District-wide Capital Projects Fund to the Debt Service Fund as needed for repayment of bond principal and interest.

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.

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT "H"

Note 8: RISK MANAGEMENT

The School District has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions,job related illness or injuries to employees and acts ofGod. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years.

The School District 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:

2007 2008

Beginning of Year Liability

Claims and Changes in Estimates

$

0.00 $ 22,211.00 $

$

9,662.00 $

3,200.00 $

Claims Paid

End of Year Liability

12,549.00 $ 12,862.00 $

9,662.00 0.00

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

Position Covered

Amount

Superintendent Principals

$ 50,000.00 $ 50,000.00

Note 9: SHORT-TERM DEBT

The School District issues tax anticipation notes in advance of property tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution ofthe State ofGeorgia limits the aggregate amount ofshort-term debt to 75 percent ofthe total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 of the calendar year in which the debt was incurred.

Short-term debt activity for the fiscal year is as follows:

Beginning Balance

Issued

Redeemed

Ending Balance

Tax Anticipation Notes

$===!!0-.0-0 $7,500,000.00 $===!!0-.0-0 $7,500,000.00

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT"H"

Note 10: LONG-TERM DEBT

CAPITAL LEASES The City ofGainesville Board ofEducation has entered into various lease agreements for computers, portable classrooms, facilities, air/heat management system and a Qualified Zone Academy Bond lease for renovation projects and equipment. These lease agreements qualify as capital leases for accounting purposes, and, therefore, have been recorded at the present value ofthe future minimum lease payments as of the date of their inception.

INSTALLMENT SALES AGREEMENT The City of Gainesville Board of Education entered into an agreement dated January 1, 2007, with the Gainesville Redevelopment Authority for the acquisition of land, by paying off the Board of Education's Tax Anticipation Note, Series 2006, dated October 5, 2006, incurred to acquire the land, and construction and installation of site improvements for new middle school facilities to be constructed thereon. Under the terms of the agreement, the Board of Education will purchase the project by making annual payments through February I, 2018.

LONG-TERM DEBT AGREEMENT Prior to January 1, 1994, the School District was a component unit of the City of Gainesville, Georgia (City) and was not legally authorized to issue debt instruments. Accordingly, the City issued general obligation debt on behalf of the School District to finance the cost of acquiring, constructing, renovating, modifying, improving, extending and equipping capital outlay projects of the School District.

The Georgia General Assembly passed legislation effective January 1, 1994 authorizing the separation ofthe School District and the City. Under this legislation, the School District possesses all powers granted to Boards of Education under general law, including the power to issue debt instruments. Although the City is legally liable for the general obligation bonds issued on the School District's behalf, the legislation specified that the School District would be responsible for the retirement of the bonds according to the terms of the debt instrument.

At June 30, 2008, the School District is responsible for repayment of$2,690,000.00 in principal and $221,981.25 in interest on Series 1993 general obligation bonds issued by the City on the School District's behalf.

GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows:

Purpose

Interest Rates

Amount

General Government - Series 2006

4.0%- 5.5% $20,160,000.00

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "H"

Note 10: LONG-TERM DEBT

The changes in Long-Term Debt during the fiscal year ended June 30, 2008, were as follows:

Balance
July 1. 2007

Governmental Funds

Additions

Deductions

Balance June 30. 2008

Due Within One Year

G.0. Bonds

$ 23,835,000.00

Capital Leases

5,527,912.00 $

Long-Tenn Debt Agreement 3,490,000.00

Installment Sales Agreement 4,545,000.00

Bond Premiums Amortized 1,106,549.00

$ 3,675,000.00 $20,160,000.00 $ 3,565,000.00

809,780.19 1,003,579.24 5,334,112.95 959,761.76

800,000.00 2,690,000.00 850,000.00

4,545,000.00

184,425.00

922.124.00

184,425.00

$ 38.504 461 00 $ 809 780,19 $ 5.663.004,24 $ 33.651.236 95 $ 5.559.186 76

At June 30, 2008, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30

Capital Leases

Principal

Interest

Long-Term Debt Agreement

Principal

Interest

2009 2010 2011 2012 2013 2014-2018 2019 - 2023

$ 959,761.76 $ 890,148.73 497,074.18 263,899.83 102,975.45
1,209,357.00 1,410,896.00

124,992.93 $ 76,534.82 34,020.07 10,996.29 2,284.05

850,000.00 $ 895,000.00 945,000.00

72,294.25 98,900.00 50,787.00

Total Principal and Interest

$ 5.334.112,95 $ 248.828, 16 $ 2.690.000,00 $ 221,981.25

Fiscal Year Ended June 30

Installment Sales Agreement

Principal

Interest

General Obligation

Debt

Principal

Interest

Unamortized Bond
Premium

2009 2010 2011 2012 2013 2014- 2018

$ $ 4,545,000.00

179,527.50 $ 3,565,000.00 $ 1,003,650.00 $

179,527.50 3,865,000.00

836,050.00

179,527.50 4,190,000.00

646,050.00

179,527.50 4,535,000.00

440,050.00

179,527.50 4,005,000.00

218,800.00

552,407.50

184,425.00 184,425.00 184,425.00 184,425.00 184,424.00

Total Principal and

Interest

$ 4,545,000.00 $ 1,450,045.00 $20,160,000.00 $ 3,144,600.00 $ 922,124.00

Note 11: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $1,105,676.31 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT "H"

Note 11: ON-BEHALF PAYMENTS

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Non-Certified Personnel In the amount of $1,064,486.31

Paid to the Teachers Retirement System of Georgia For Teachers Retirement System (TRS) Employer's Cost In the amount of $37,026.00

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 $4,164.00

Note 12: SIGNIFICANT COMMITMENTS

The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2008, together with funding available:

Project

Unearned Executed Contracts

Funding Available From State

08RA-776-016

$ 8,904,290.48 $ 1,101,830.40

The amounts described in this note are not reflected in the basic financial statements.

Note 13: 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.

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT "H"

Note 14: POSTEMPLOYMENT BENEFITS

Georgia Retiree Health Benefit Fund

Plan Description. The School District contributes to the Georgia Retiree Health Benefit Fund ("GRHBF"), a cost-sharing multiple-employer defined benefit postemployment healthcare plan administered by the Department of Community Health. GRHBF provides health insurance benefits to eligible retirees and their qualified beneficiaries. Pursuant to Title 45, Chapter 18 of the Official Code of Georgia Annotated, the authority to establish and amend the benefit provisions ofthe plan is assigned to the Board of Community Health. The Department of Community Health issues a publicly available financial report that includes financial statements and required supplementary information for GRHBF. That report may be obtained from the Department ofCommunity Health at 2 Peachtree Street, Atlanta, Georgia 30303.

Funding Policy. The contribution requirements of plan members and participating employers are established and may be amended by the Board of Community Health. Contributions of plan members or beneficiaries receiving benefits vary based on plan election, dependent coverage, and Medicare eligibility and election. On average, plan members pay approximately twenty-five percent (25%) of the cost of health insurance coverage.

Participating employers are statutorily required to contribute in accordance with the employer contribution rate established by the Board of Community Health. This contribution rate is established to fund both the active and retired employee health insurance plans based on projected pay-as-you-go financing requirements. The employer contribution rates for the combined active and retiree plans for the fiscal year ended June 30, 2008, were as follows:

Teachers Non-Certificated Employees

18.534% of state-based salaries $162.72 per month

The School District's contribution to the health insurance plans for the fiscal year ended June 30, 2008, was $4,849,696.91, which equaled the required contribution.

Note 15: 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.

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008

EXHIBIT "H"

Note 15: RETIREMENT PLANS

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 9.28% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2008 2007 2006

100% 100% 100%

$ 2,999,303.86 $ 2,758,750.00 $ 2,432,618.00

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2008

SCHEDULE "1"

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

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$ 24,175,000.00 $ 23,500,000.00 $ 22,618,292.32

73,255.24

24,047,770.00

28,909,493.94

26,889,345.04

7,129,894.00

6,048,124.00

8,081,593.69

119,000.00

1,195,958.54

191,000.00

6,992.46

95,239.00

451 864.43

$ 55,352,664.00 $ 58,862,856.94 $ 59,317,301.72

$ 35,544,739.00 $ 38,475,885.82 $ 39,572,046.62

1,775,000.00 1,775,000.00
865,000.00 950,000.00 3,250,000.00 550,000.00 5,092,879.00 1,895,284.00 190,000.00 295,000.00
2,425,000.00 536,693.00

1,771,857.03 1,757,254.66
913,462.44 1,304,400.54 3,688,446.68
638,711.92 5,250,022.48 1,813,087.71
221,892.85 396,756.18
1,112,279.34

2,711,934.71 1,447,410.82
965,845.02 1,109,357.58 4,022,133.58
768,563.82 3,940,149.73 2,622,154.09 1,191,994.70 1,334,898.22
527,451.48 3,014,107.99
709 556.71

$ 55,144,595.00 $ 57 344 057.65 $ 63,937,605.07

$

208,069.00 $ 1,518,799.29 $ -4,620,303.35

$

873,344.79

-123 599.42

$

749 745.37

$

208,069.00 $ 1,518,799.29 $ -3,870,557.98

0.00

0.00

778 449.00

Fund Balances - Ending

$

208,069.00 $ 1 518 799.29 $ -3,092, 108.98

Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual

(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts.

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

See notes to the basic financial statements.

- 29 -

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2008

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Donation (1)
Total U. S. Department of Agriculture
Corporation for National and Community Service Pass-Through From Georgia Department of Education Learn and Serve America School and Community Based Programs
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Other Programs Direct Even Start Migrant Education Pass-Through From Georgia Department of Education Career and Technical Education - Basic Grants to States Education for Homeless Children and Youth English Language Acquisition Grants Enhancing Education Through Technology Program Improving Teacher Quality State Grants Migrant Education Safe and Drug-Free Schools and Communities - State Grants State Grants for Innovative Programs Title I Grants to Local Educational Agencies Twenty-First Century Community Learning Centers
Total U. S. Department of Education
Defense, U. S. Department of Direct Department of the Navy R.O.T.C. Program

Total Federal Financial Assistance
N/A = Not Available

- 30 -

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

* 10.553 * 10.555

N/A

(2)

N/A $ 2,694,677.21

$ 2,694,677.21

10.550

N/A

184 763.10

$ 2,879,440.31

94.004

N/A

$

5 713.11

84.027 84.173

N/A $ 1,093,466.62

N/A

30,549.02

$ 1,124,015.64

84.214
84.048 84.196 84.365 84.318 84.367 84.011 84.186 84.298 * 84.010 84.287

269,152.49

N/A

66,408.03

N/A

66,559.90

N/A

232,629.54

N/A

102,118.60

NIA

364,780.65

N/A

121,103.11

N/A

28,524.69

N/A

10,353.23

N/A

1,815,270.02

N/A

1,369,384.59

$ 5,570,300.49

$

72 573.85

$ ====8=,5=28=,0=2=7=7. =6

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2008

SCHEDULE "2"

Notes to the Schedule of Expenditures of Federal Awards
(1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year.
(2) Expenditures for the funds earned on the School Breakfast Program ($683,689.23) were not maintained separately and are included in the 2008 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 Gainesville Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 31 -

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2008

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program Early Intervention Program Primary Grades (1-3) Program Primary Grades Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Gifted Student - Category VI 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 Food Services Vocational Education Amended Formula Adjustment Other State Programs Charter Schools Graduation Coaches Health Insurance Middle School Math and Remediation and Intervention Grant National Teacher Certification Preschool Handicapped Program Special Education Low Incidence Grant Teachers' Retirement Virtual Schools Grant
Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Office of Treasury and Fiscal Services Public School Employees Retirement
OTHER Community Affairs, Georgia Department of Local Assistance Grant

See notes to the basic financial statements.

32

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$ 734,933.44

$

734,933.44

2,590,687.00 36,810.00
5,081,024.00 259,766.00
2,079,582.00 141,009.00
3,176,985.00 2,033,929.00
614,472.00
1,947,578.00 242,997.00 213,041.00
1,998,111.00 600,012.00 175,844.00 113,428.00
678,770.00 952,174.00 1.456,886.00
326,480.00 55,311.00 20,000.00
120,741.00 131,250.00
52,827.21 -498,636.00
123,985.08 84,192.00
1,064,486.31 4,719.00
76,447.00 105,653.00
26,986.00 37,026.00
675.00

2,590,687.00 36,810.00
5,081,024.00 259,766.00
2,079,582.00 141,009.00
3,176,985.00 2,033,929.00
614,472.00
1,947,578.00 242,997.00 213,041.00
1,998,111.00 600,012.00 175,844.00 113,428.00
678,770.00 952,174.00 1,456, 886. 00
326,480.00 55,311.00 20,000.00
120,741.00 131,250.00
52,827.21 -498,636.00
123,985.08 84,192.00
1,064,486.31 4,719.00
76,447.00 105,653.00
26,986.00 37,026.00
675.00

$ 9,916,473.90 4,164.00

9,916,473.90 4,164.00

25 000.00

25 000.00

$ 26,889,345.04 $ 9,916A73.90 $ 36,805,818.94

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2008

SCHEDULE "4"

PROJECT
Paying a portion of the payments, including principal and interest, due on the Series 1991 and 1993 Bonds.
Acquiring, constructing and equipping of two new elementary schools, additional classrooms, instructional and support space, remodeling, renovating and equipping of existing classrooms, instructional and support spaces, acquiring furnishings, equipment and fixtures for new and existing facilities and acquiring and conducting site preparation of real estate for School District purposes. In addition, the resolution authorized the issuance of$16,100,000.00 in general obligation debt. These bonds have been issued and the proceeds of the bonds will be used for the purposes set forth in the resolution. As a result, a portion of the SPLOST proceeds will be used to service these bonds.
Acquiring, constructing and equipping a new middle school, acquiring, constructing and equipping additional classrooms and instructional and support space, remodeling, renovating and equipping existing classrooms and instructional and support space at existing schools, acquiring and conducting site preparation of real estate for School District purposes, and acquiring furnishing, equipment and fixtures for new and existing facilities system-wide, including technology equipment. In addition, the resolution authorized the issuance of $25,000,000.00 in general obligation debt. These bonds have been issued and the proceeds of the bonds will be used for the purposes set forth in the resolution. As a result, a portion of the SPLOST proceeds will be used to service these bonds.

ORIGINAL ESTIMATED
COST(1l

CURRENT ESTIMATED COSTS(2l

AMOUNT EXPENDED IN CURRENT
YEAR/3)

AMOUNT EXPENDED
IN PRIOR YEARS/3)

PROJECT STATUS

$ 2,000,000.00 $ 2,000,000.00 $ 966,575.00 $ 967,725.00 Ongoing

23,462,770.00

29,142,481.05

183,298.05 28,959,183.00 Completed

32,000,000.00

32,000,000.00 15,450,273.16

7,847,904.00 Ongoing

$ 57,462,770.00 $ 63,142,481.05 $ 161600, 146.21 $ 37,774,812.00

(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 Hall 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.

See notes to the basic financial statements.

- 33-

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2008

SCHEDULE "5"

DESCRIPTION

ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2)

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

Direct Instructional Programs

Kindergarten Program

$

Kindergarten Program-Early Intervention Program

Primary Grades (1-3) Program

Primary Grades-Early Intervention (1-3) Program

Upper Elementary Grades (4-5) Program

Upper Elementary Grades-Early Intervention (4-5)

Program

Middle School (6-8) Program

High School General Education (9-12) Program

Vocational Laboratory (9-12) Program

Students with Disabilities

Category I

Category II

Category Ill

Category IV

Category V

Gifted Student - Category VI

Remedial Education Program

Alternative Education Program

English Speakers of Other Languages (ESOL)

3,210,026.00 $ 44,395.00
6,318,463.00 315,700.00
2,621,257.00

3,458,361.52 $ 41,744.54
6,477,740.19 446,685.20
3,439,881.81

167,652.25 $ 21,963.38 478,772.16 42,213.37 295,927.11

3,626,013.77 63,707.92
6,956,512.35 488,898.57
3,735,808.92

183,185.00 3,966,871.00 2,540,443.00
766,666.00 2,386,028.00
326,024.00 3,997.00
266,395.00 2,494,533.00

421,987.80 4,237,798.83 5,132,651.34
715,577.14
77,059.43 173,041.90 2,641,807.22 309,629.99
562,255.41
362,730.92 1,585,538.17

27,315.67 494,494.76 894,769.85
39,947.25
16,542.13 11,303.36
8,520.81 3,828.25
692.80 13,378.98
9,521.20 22,531.30

449,303.47 4,732,293.59 6,027,421.19
755,524.39
93,601.56 184,345.26 2,650,328.03 313,458.24
692.80 575,634.39
372,252.12 1,608,069.47

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

25,443,983.00 $ 30,084,491.41 $ 2,549,374.63 $ 32,633,866.04

Media Center Program Staff and Professional Development

750,366.00 144 219.00

829,050.05

86,144.42

915,194.47 453,334.35

TOTAL QBE FORMULA FUNDS

$

26,338,568.00 $ 30,913,541.46 $ 2,635,519.05 $ 34,002,394.86

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

See notes to the basic financial statements.

- 35 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

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

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 13, 2009

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the City of Gainesville Board of Education
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of City of Gainesville Board of Education as of and for the year ended June 30, 2008, which collectively comprise City of Gainesville Board of Education's basic financial statements and have issued our report thereon dated July I3, 2009. The report on governmental activities, each major fund and the aggregate remaining fund information was qualified because the School District did not provide sufficient documentary evidence supporting amounts reported as beginning net assets and fund balances. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered City of Gainesville Board of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose ofexpressing our opinions on the financial statements, but not for the purpose ofexpressing an opinion on the effectiveness ofthe City of Gainesville Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City of Gainesville Board of Education's internal control over financial reporting.

2008YB-60X

Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies.
A control deficiency exists when the design or operation ofa control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City of Gainesville Board of Education's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City of Gainesville Board of Education's financial statements that is more than inconsequential will not be prevented or detected by the City of Gainesville Board of Education's internal control. We consider items FS-7761-08-01, FS-7761-08-02, FS-7761-08-03, FS-7761-0804, FS-7761-08-05 and FS-7761-08-06 in the accompanying Schedule of Findings and Questioned Costs to be significant deficiencies in internal control over financial reporting.
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement ofthe financial statements will not be prevented or detected by the City of Gainesville Board of Education's internal control.
Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph ofthis section and would not necessarily disclose all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, of the significant deficiencies described above, we consider items FS-7761-08-01, FS-7761-08-02 and FS-7761-08-05 to be material weaknesses.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether City of Gainesville Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the accompanying Schedule of Findings and Questioned Costs as item FS-7761-08-01.
We also noted certain matters that we have reported to management of City of Gainesville Board of Education in a separate letter dated July 13, 2009.
City ofGainesville Board ofEducation's response to the findings identified in our audit is described in the accompanying Schedule of Management's Responses. We did not audit City of Gainesville Board of Education's response and, accordingly, we express no opinion on it.
2008YB-60X

This report is intended solely for the information and use of management, members of the City of Gainesville Board of Education, others within the entity, Federal awarding agencies and passthrough entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
?~w.~~
Russell W. Hinton, CPA, CGFM State Auditor
RWH:as 2008YB-60X

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

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
July 13, 2009

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the City of Gainesville Board of Education
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULARA-133
Ladies and Gentlemen:
Compliance
We have audited the compliance of City of Gainesville Board of Education with the types of compliance requirements described in the U.S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2008. City of Gainesville Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility ofCity ofGainesville Board of Education's management. Our responsibility is to express an opinion on City of Gainesville Board of Education's compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the City of Gainesville Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the

2008SA-10

circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on City ofGainesville Board of Education's compliance with those requirements.
In our opinion, the City of Gainesville Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2008.
Internal Control Over Compliance
The management of City of Gainesville 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 Gainesville 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 ofexpressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness ofthe City of Gainesville Board of Education's internal control over compliance.
A control deficiency in an entity's internal control over compliance exists when the design or operation ofa control does not allow management or employees, in the normal course ofperforming their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a Federal program on a timely basis. A significant deficiency is a control deficiency, or combination ofcontrol deficiencies, that adversely affects the entity's ability to administer a Federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a Federal program that is more than inconsequential will not be prevented or detected by the entity's internal control.
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a Federal program will not be prevented or detected by the entity's internal control.
Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above.
2008SA-10

This report is intended solely for the information and use of management, members of the City of Gainesville 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,
7~uJ.~~
Russell W. Hinton, CPA, CGFM State Auditor
RWH:as 2008SA-10

SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER

AUDITEE'S RESPONSE/STATUS

SEE AUDITOR'S COMMENTS

FS-7761-06-01 Further Action Not Warranted

(1)

FS-7761-06-03 Partially Resolved - See Corrective Action/Responses

FS-7761-07-01 Unresolved - See Corrective Action/Responses

FS-7761-07-02 Unresolved - See Corrective Action/Responses

FS-7761-07-03 Further Action Not Warranted

(1)

FS-7761-07-04 Unresolved - See Corrective Action/Responses

FS-7761-07-05 Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Incomplete General Ledger/DE046 Financial Report Finding Control Number: FS-7761-06-03

At fiscal year-end, the School District will review its funds and accounts to determine if any funds or accounts require the transfer of funds to eliminate any fund deficits. Additionally, entries necessary to record long-term debt and capital leases will be made to ensure that financial statements are prepared in accordance with generally accepted accounting principles and with the requirements of the Georgia Department of Education.

BUDGET PREPARATION/EXECUTION Deficit Fund Balance Finding Control Number: FS-7761-07-01

The School District has addressed the deficit fund balance by conducting a thorough review of its entire budget and the budget preparation process. In addition to determining expenditures that can be reduced, the School District has increased its millage rate for fiscal year 2009 and has adopted a deficit reduction plan in accordance with instructions and guidance from the Georgia Department of Education.

- 1-

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTION/RESPONSES
CASH AND CASH EQUIVALENTS Inadequate Internal Controls Finding Control Number: FS-7761-07-02
The School District is acutely aware of the need to correct the problems in the accounting system so that cash can be reconciled on a timely basis. Extensive use will be made ofsystem personnel (and outside additional personnel as needed) to rectify the situation and bring the School District's cash account into balance.
EMPLOYEE COMPENSATION Inadequate Internal Controls Finding Control Number: FS-7761-07-04
The School District will conduct a review of its human resources and payroll internal control procedures to determine the extent to which existing controls are effective and where additional controls, if needed, should be adopted. The School District will ensure that payments of employee compensation will be properly authorized and documented, and accurately calculated and disbursed.
FINANCIAL REPORTING Inadequate Controls over Financial Reporting Finding Control Number: FS-7761-07-05
The School District will develop and implement procedures to assure that all financial activity is properly and timely reported. An extensive review will be made of all financial statements prior to audit.
AUDITOR'S COMMENTS
(1) Findings/internal control deficiencies ofthis nature, that are not deemed significant deficiencies or material weaknesses and do not require reporting in the audit report in accordance with Statements on Auditing Standards (SAS) 112 or Governmental Auditing Standards (Yellow Book), will be communicated in a management letter.
-2 -

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER

AUDITEE'S RESPONSE/STATUS

SEE AUDITOR'S COMMENTS

FA-7761-06-01 Further Action Not Warranted

(1)

FA-7761-06-02 Further Action Not Warranted

(1)

CORRECTIVE ACTION/RESPONSES

ACTIVITIES ALLOWED OR UNALLOWED Inadequate Internal Control Procedures U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA 84.938) Finding Control Number: FA-7761-06-01

The School District is awaiting a review from Georgia Department of Education.

ELIGIBILITY Failure to Properly Document Displaced Students U.S. Department of Education Through Georgia Department of Education Hurricane Education Recovery (CFDA 84.938) Finding Control Number: FA-7761-06-02

The School District is awaiting a review from Georgia Department of Education.

AUDITOR'S COMMENTS

(1) Funding for the Hurricane Education Recovery program was a one year grant. Georgia Department ofEducation is reviewing this matter. In the current fiscal year, the School District refunded $30,615.00 in funds related to this program.

-3-

SECTION IV FINDINGS AND QUESTIONED COSTS

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008

I SUMMARY OF AUDITOR'S RESULTS

1. Type of Report Issued on the Financial Statements The auditor's opinion on the City of Gainesville Board of Education's financial statements was qualified for a scope limitation.

2. Significant Deficiencies in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the City ofGainesville Board ofEducation disclosed financial statement significant deficiencies related to the following control categories.

Cash and Cash Equivalents Employee Compensation Accounting Controls (Overall)

Expenditures/Liabilities/Disbursements Financial Reporting Budget Preparation/Execution

Of the significant deficiencies described above, Budget Preparation/Execution, Cash and Cash Equivalents and Financial Reporting are considered to be material weaknesses.

3. Noncompliance Material to the Financial Statements The audit of the City of Gainesville Board of Education disclosed one instance of noncompliance deemed material to the financial statements. This noncompliance involved the Board's deficit fund balance in the General Fund.

4. Significant Deficiencies in Internal Control Over Major Programs The audit report for the City of Gainesville Board of Education did not disclose any significant deficiencies in internal control over major programs.

5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the City of Gainesville 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 ofGainesville Board of Education's audit did not disclose audit findings required to be reported by section .510(a) ofOMB Circular A-133.

7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.010 Title I Grants to Local Educational Agencies

8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.00.

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008

I SUMMARY OF AUDITOR'S RESULTS

9. Low Risk Auditee The City of Gainesville Board of Education did not qualify as a low risk auditee as defined by Section .530 of 0MB Circular A-133.

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

BUDGET PREPARATION/EXECUTION Deficit Fund Balance Material Weakness Material Noncompliance Finding Control Number: FS-7761-08-01

Condition:

This is a repeat finding (FS-7761-07-0 I) from the year ended June 30, 2007. The General Fund of the School District reported a deficit fund balance.

Criteria:

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

Questioned Cost: NIA

Information:

The School District's General Fund reported a deficit fund balance in the amount of $3,778,893.59. Errors were also noted in the budget preparation process in which the budget approved by the School District did not agree to underlying supporting documentation.

Cause:
Effect: Recommendation:

Errors were made in the calculation ofprojected budget amounts causing an overestimate ofrevenues and an underestimate of expenditures. Procedures were not in place to detect these errors in a timely manner.
A financial statement irregularity in accordance with O.C.G.A. 20-2-67.
The School District should establish policies and procedures designed to ensure that in future periods the School District does not report a deficit fund balance.

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS Inadequate Controls over Bank Reconciliation Process Material Weakness Finding Control Number: FS-7761-08-02

Condition: Criteria:

This is a repeat finding (FS-7761-07-02) from the year ended June 30, 2007. The School District's accounting procedures were insufficient to provide for adequate internal controls over cash and cash equivalents.
The School District's management is responsible for designing and maintaining an adequate system of internal controls that ensure that all cash accounts are supported by and reconciled to either cash on hand or bank accounts held at authorized financial institutions.

Questioned Cost: NIA

Information:

A review of the School District's cash procedures revealed the following:

The bank reconciliations presented for audit did not consider interfund activity.
The bank reconciliations were not performed by fund type, even though at least two bank accounts included cash from multiple funds. Board's management did prepare monthly "consolidated reconciliations" for the various central office accounts; however, there were unidentified variances each month between the "reconciled cash" and the cash reported on the general ledger. The June 2008 reconciliation noted a significant unexplained variance ($182,303.37) between total cash on the general ledger and total reconciled cash.
Other adjustments and unknown variances included in the reconciliation were due to sweep activity and the improper implementation of the entity's financial accounting software system during fiscal year 2007.
The bank reconciliations were not performed in a timely manner. The reconciliation for June 2008 was not performed until the time of audit fieldwork (April 2009).

Cause:

These deficiencies were the result of errors during implementation of a new financial accounting software system and because procedures were not established to ensure the accuracy of cash activity recorded for each fund type on the general ledger.

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS Inadequate Controls over Bank Reconciliation Process Material Weakness Finding Control Number: FS-7761-08-02

Effect:

This could result in errors in financial reporting and increases the risk of material misstatement in the financial statements including misstatements due to fraud.

Recommendation: The School District should implement appropriate procedures and controls to ensure proper reconciliations are performed.

EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Controls over Subsidiary Ledgers Significant Deficiency Finding Control Number: FS-7761-08-03

Condition:

The School District failed to implement internal controls to ensure that general ledger balances are properly reconciled to the subsidiary ledgers.

Criteria:

The School District's management is responsible for designing and maintaining an adequate system of internal controls that ensure that all subsidiary ledger activity properly supports and is reconciled to amounts reported on the general ledger.

Questioned Cost: Information:

NIA
Our examination of the accounting records revealed that the open accounts payable listing for June 30, 2008, did not agree with the general ledger accounts payable balance by $210,097.00.

Cause: Effect:
Recommendation:

Management failed to reconcile subsidiary ledgers to the general ledger.
The failure of the School District to maintain accurate general ledger and subsidiary ledger activity can lead to inaccurate internal and external reporting. In addition, errors and/or irregularities may not be detected in a timely manner.
The School District should implement controls to ensure that all subsidiary records are properly reconciled to the general ledger.

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EMPLOYEE COMPENSATION Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-7761-08-04

Condition:

This is a repeat finding (FS-7761-07-04) from the year ended June 30, 2007. A review ofthe School District's internal control policies and procedures for employee compensation noted deficiencies in employee payroll records and personnel files.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that ensure employee compensation payments are properly calculated, disbursed, and documented.

Questioned Cost: NIA

Information:

Based on a review of thirty-five employees' payroll records the following deficiencies were noted:

Five employees were not paid according to the state or local board approved salary schedule.
One employee did not have adequate documentation on file for a permanent pay change.
Six employees were paid for additional time worked; however, the timesheets did not contain evidence of approval.
Documentation could not be provided for extra pay received in five separate instances.

Cause:

These deficiencies were the result of management's failure to implement adequate controls to ensure that internal controls were established, implemented and functioning.

Effect:

This could result in errors in financial reporting and increase the risk of material misstatement in the financial statements including misstatements due to fraud.

Recommendation:

The School District should implement appropriate procedures to strengthen internal controls over processing of employee compensation. Additionally, the School District should implement procedures to ensure that all payroll disbursements are based on approved contracts and time worked. The School District should review this matter to determine if recovery or payment of funds is needed.

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINANCIAL REPORTING Inadequate Controls over Financial Reporting Material Weakness Finding Control Number: FS-7761-08-05

Condition:

This is a repeat finding (FS-7761-07-05) from the year ended June 30, 2007. The School District did not have adequate controls in place over the financial statement reporting process.

Criteria:

Chapter 22 Annual Financial Reporting of the Financial Management for Georgia Local Units of Administration indicates the School Districts must prepare their financial statements in accordance with generally accepted accounting principles.

Questioned Cost: Information:
Cause:

NIA
Financial Statement "preparation entries" were proposed by the auditor and accepted by the client to prepare and properly present the entity's financial statements.
The School District did not implement an adequate system ofinternal control over the financial statement reporting process.

Effect:

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

Recommendation:

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

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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

ACCOUNTING CONTROLS (OVERALL) Inadequate Access Controls Significant Deficiency Finding Control Number: FS-7761-08-06

Condition:

The accounting procedures of the School District did not maintain adequate separation of duties in the Financial Accounting System.

Criteria:

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

Questioned Cost: NIA

Information:

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

Cause:

The School District's management has not limited the access rights of users of the Financial Accounting System so that only access is granted for functions that fall within the scope of the personnel's job description.

Effect:

Fraud, errors and/or irregularities may not be detected in a timely manner.

Recommendation:

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

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

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SECTIONV MANAGEMENT'S RESPONSES

CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2008
Finding Control Number: FS-7761-08-01
We concur with this finding. In the preparation ofbudgets for the fiscal years ended June 30, 2007, and June 30, 2008, errors were made in preparing the underlying details of budgeted revenues and expenditures, and in the subsequent summarization of these details into the District level budget. Problems with the implementation of a new accounting system in fiscal year 2007 delayed the closing of the 2007 fiscal year which postponed the realization of the budgeting errors in the two years until the end ofthe 2008 fiscal year. Unaware ofthese errors and oftheir detrimental impact, the School District had lowered its millage rate for fiscal year 2008 thus increasing the deficit fund balance. A small June 30, 2007 deficit fund balance grew substantially by June 30, 2008.
When the School District became aware ofthe problem, the District conducted a thorough review of its budget preparation process. Internal controls were instituted and used in the preparation of the 2009 budget. In addition to determining expenditures to be reduced, the Board increased its millage rate for fiscal year 2009, and adopted and received approval of a Deficit Elimination Plan in accordance with instructions and guidance from the Georgia Department ofEducation. The District will continue to update the plan and secure the necessary approvals for the updates as are necessary.
The School District anticipates making substantial progress toward reducing this deficit fund balance by the end ofthe 2009 fiscal year and to completely eliminate this deficit no later than by the end of the 2013 fiscal year. The School District makes monthly reports signed by its Board members to the Georgia Department of Education regarding the District's progress and its adherence to the plan.
Finding Control Number: FS-7761-08-02
We concur with this finding. The District has been unable to completely reconcile its cash accounts since the implementation of the new accounting system in fiscal year 2007. The School District is acutely aware of the need to correct the problems in the accounting system so that cash can be reconciled on a timely basis. Extensive use will be made of system personnel (and outside additional personnel as needed) to rectify the situation and bring the District's cash accounts into balance.
Additionally, procedures will be put into place to account for interfund receivables and payables on the monthly bank reconciliations. Sweep activity will be curtailed or eliminated until such time that the Board has improved its bank reconciliation process.
Additional bank accounts may be established to assist in reconciliation by fund. Any variances which have occurred will be identified and corrected. Bank reconciliations will be performed promptly ,after the end of each month. These procedures will be fully implemented by December 2009.
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CITY OF GAINESVILLE BOARD OF EDUCATION - HALL COUNTY SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2008

Finding Control Number: FS-7761-08-03

We concur with this finding. The School District will implement procedures and controls to ensure that its general ledger is properly reconciled with its subsidiary ledgers on a monthly basis. Any prior variances will be identified and corrected. These corrections will be made by the 2009 audit.

Finding Control Number: FS-7761-08-04

We concur with this finding. The District reviewed its timesheet procedures during fiscal year 2009 based on the 2007 audit report finding concerning employee compensation. Using the results ofthat review, the School District revised its controls and its forms to require that a supervisor's signature as well as an authorizing signature by Human Resources personnel be placed on all timesheets. In regard to other compensation findings, the District also clearly defined those responsible for ensuring that all employees are placed on the appropriate salary schedule in accordance with applicable certification level and experience factors. The District will continue to review its internal control procedures to determine the extent to which these improved controls as well as other existing controls are effective and where additional controls, if needed, should be adopted. These changes have been made to ensure that all payments of employee compensation will be properly authorized and documented, and accurately calculated and disbursed.

Finding Control Number: FS-7761-08-05

We concur with this finding. The District will develop applicable controls and implement procedures to ensure that all financial activity is properly and timely reported in accordance with generally accepted accounting procedures. An extensive review will be made of all fiscal year 2009 financial statements prior to the 2009 audit.

Finding Control Number: FS-7761-08-06

We concur with this finding. The School District is in the process of reviewing each employee's access rights to the financial accounting system. As these reviews are made, changes will be instituted to ensure that each employee has access to only those accounting functions necessary for the performance of that employee's job responsibilities. It is anticipated that these reviews and the applicable changes will be completed by September 30, 2009.

Contact Person: Title: Phone: Fax: Email:

Janet Allison, CPA Chief Financial Officer (770) 536-5275 (770) 287-9273 janet.allison@gcssk12.net

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