CITY OF JEFFERSON BOARD OF EDUCATION
JACKSON COUNTY, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2006
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON 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

1

B

STATEMENT OF ACTIVITIES

2

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

4

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

5

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

6

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

7

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

9

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

10

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

25

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

26

3 SCHEDULE OF STATE REVENUE

28

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

30

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

31

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

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

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

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY - TABLE OF CONTENTS -
SECTIONV 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
May 21, 2007

Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education
and Superintendent and Members ofthe City ofJefferson Board of Education
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Ladies and Gentlemen:
We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) ofthe City ofJefferson Board of Education, as of and for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe City ofJefferson Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe City ofJefferson Board ofEducation, as ofJune 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
2006ARL-ll

The City ofJefferson Board ofEducation has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States 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 May 21, 2007, on our consideration of the City of Jefferson Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose ofthat report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 25, 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 Jefferson Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

A copy 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,

'

LO.~

ell W. Hinton, CPA, CGFM State Auditor

RWH:as 2006ARL-11

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY STATEMENT OF NET ASSETS JUNE 30, 2006

EXHIBIT"A"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenues Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets
The notes to the basic financial statements are an integral part of this statement. - 1-

GOVERNMENTAL ACTIVITIES

$

3,509,180

12,412,941

570,544 2,676,867
78,169 125,489
6,249

713,483 5,637,874 1,401,898 12,776,808 1,116,015 -3,153,322

$ ===3=7,.8..7.=2=1,.9..5. =

$

791,506

1,300,375

943,650

447,314

103

987,679 25,262,521

$

29,733,148

$

2,794,476

28,291 189,877 669,729 2,665,848 1,790,826

$

8,139,047

$=====3=7'=87=2,i.;1,,=95=

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2006

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services 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 Real Estate Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year
Net Assets - End of Year

EXPENSES

CHARGES FOR SERVICES

$

11,241,305 $

456,951 374,557 459,308 612,228 844,993 311,574 875,842 649,706 136,684
16,208

645,669 81,430
813,080 785,285

$

18,304,820 $

702,886
133,263 79,169 369,879 1,285,197

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

$

7,821,275 $

148,115 146,781 187,030 403,763 400,991

554,037 67,357

332,120

$

10,061,469 $

1,024,016 $
117,658 41,947 12,029 10,991 29,598
106,365 1,342,604 $

-1,693,128
-308,836 -227,776 -154,620 -208,465 -402,055 -311,574 -309,776 -571,358 -107,086
-16,208
-512,406 -2,261 -4,716
-785,285
-5,615,550

$

4,231,649

1,091,755

1,755,941 44,724 737,813
522,100 262,100

$

8,646,082

$

3,030,532

5,108,515

s - - - - 8 = .1...,3..,9=.04=7=

-3-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2006

EXHIBIT"C"

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

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 2,988,502 $ 359,746 $ 1,176 12,411,765

86,717 1,345,254
78,169 125,489
6249

313,023 1,331,613

160,932 $ 19,904

3,509,180 12,412,941
419,644 2,676,867
78,169 125,489
6249

Total Assets

$ 4,631.556 $ 14,416,147 $

180,836 $ ===1=9=,2=2.,.8,=53..,9.,.

LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits and Deferred Revenue
Total Liabilities
FUND BALANCES
Reserved for: Bus Replacement Continuation of Federal Programs Debt Service Inventories Capital Projects
Unreserved Undesignated Reported in: General Fund
Total Fund Balances

$

791,506

1,300,375

$ 943,650

447,314

103

$ 2,091,984 $ 1,390,964

$

791,506

1,300,375

943,650

447,314

103

$

3,482,948

$

28,291

$

183,628

342,744

$

180,836

6,249

$ 13,025,183

1,978,660 $ 2,539,572 $ 13,025,183 $

180,836 $

28,291 183,628 523,580
6,249 13,025,183
1,978,660
15,745,591

Total Liabilities and Fund Balances

$

4,631,556 $ 14,416,147 $

180,836 $ ===1=9=,2=2=-8,..,53..,9.,.

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

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2006

EXHIBIT"D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation
Total Capital Assets
Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures.
Long-Term Liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:
Bonds Payable Unamortized Bond Premiums
Total Long-Term Liabilities
Net Assets of Governmental Activities (Exhibit "A")

$ 15,745,591

$

713,483

5,637,874

1,401,898

12,776,808

1,116,015

-3,153,322

18,492,756

150,900

$ -25,550,000 -700 200

-26,250,200

$ =====8=1,=39=,0=4=7

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

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006

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 Community Services Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Accrued Interest on Bonds Sold Proceeds of Refunding Bonds Proceeds of Long-Term Capital Related Debt Premiums on Bonds Sold Payment to Bond Refunding Escrow Agent Refunding Bond Issuance Cost
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 4,202,436

$

44,724 $ 1,755,941

9,745,658

1,331,613

1,064,615

1,285,197

7,751

514,349

261,452

648

$ 16,611,833 $ 3,602,551 $

945,606 $ 945,606 $

5,148,042 1,800,665 11,077,271 1,064,615 1,285,197
522,100 262,100
21,159,990

$ 10,080,350

456,951 381,137 274,369 612,228 779,059
96,354 $ 868,884 265,189
90,160 16,208 645,669 81,430 645,890

192,599 36,802
7,787,713

$

$ 15,293,878 $ 8 017114 $ $ 1,317,955 $ -4 414 563 $

$
155,000 798436 953,436 $
-7 830 $

10,080,350
456,951 381,137 274,369 612,228 779,059 288,953 868,884 301,991 90,160
16,208 645,669
81,430 645,890 7,787,713
155,000 798436
24,264,428
-3 104 438

$

36,807 $

1,015,000

$ 14,200,000

715,900

11,059

-1,000,415

-22,621

36,807 1,015,000 14,200,000
726,959 -1,000,415
-22,621

$ 14,915,900 $

39830 $ 14,955,730

$ 1,317,955 $ 10,501,337 $

32,000 $ 11,851,292

1,221,617

2,523,846

148 836

3,894,299

Fund Balances - Ending

$ 2,539,572 $ 13,025,183 $ 180,836 $ 15,745,591

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

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006

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.
Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from:
General Obligation Bonds Issued, including a premium of $715,900 Refunding Bonds Issued
Total Bond Proceeds
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 Payments to Bond Refunding Agent Amortization of Bond Premium
Total Long-Term Debt Repayments
Change in Net Assets of Governmental Activities (Exhibit "B")

$ 11,851,292

$ 6,111,372 -297,294

5,814,078 175,362

$ -14,915,900 -1,015,000

-15,930,900

$ 155,000 950,000 15 700

1,120,700

$ ==3=,0=30=,5=3=2

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

(This page left intentionally blank)

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006

EXHIBIT"G"

ASSETS Cash and Cash Equivalents
LIABILITIES Funds Held for Others

AGENCY FUNDS
$ ==2=0=,8=62=
$ ======2=0=,8=62....

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

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT "H"

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

- 10 -

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT "H"

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

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 and acquisitions under capital leases are reported as other financing sources.
The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
CASH AND CASH EQUIVALENTS
COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations.
INVESTMENTS
COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:
(1) Obligations issued by the State of Georgia or by other states,
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,
(4) Obligations of any corporation of the United States government,
(5) Prime banker's acceptances,

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(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 Jefferson Board of Education certified to the mayor and city council the rate of the property tax levy for the 2005 tax digest year (calendar year) on October 20, 2005 (levy date). Taxes were due on December 20, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The City ofJefferson City Clerk bills and collects the property taxes for the School District and remits taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $4,202,436 and for school bonds amounted to $945,606.

Tax millage rates levied for the 2005 tax year (calendar year) for the City of Jefferson Board of Education were as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations School Bonds

14.0 mills 3.3 mills

17.3 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $1,755,941 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.

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES

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

CAPITAL ASSETS

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

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

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

All

NIA

$

5,000 20 to 80 years

$

5,000 10 to 80 years

$

5,000 5 to 30 years

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

GENERAL OBLIGATION BONDS

The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT"H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
statements during the fiscal year bonds are issued. In addition, general obligation bonds have been issued to refund existing general obligation bonds. 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 ofNet Assets.
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 ofsuch 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, $248,153 ofdeposits were not secured by surety bond, insurance or collateral as specified above. The School District is working with the affected financial institutions to ensure appropriate levels of collateral are maintained for all of the School District's deposits.
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,
(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,
(5) Bonds of any public authority created by the laws ofthe State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,
(6) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia, and
(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.
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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS

CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $6,954,346. The amounts ofthe total bank balances are classified into four categories of custodial credit risk:

Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name.
Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name.
Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.
Category 4 - Uncollateralized.

The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows:

Custodial Credit Risk Category

Bank Balance

1

$ 420,213

2

6,285,980

3

0

4

248,153

Total

$ 6,954.346

CATEGORIZATION OF INVESTMENTS At June 30, 2006, the carrying value ofthe School District's total investments was $9,374,954 which is materially the same as fair value. This investment consisted entirely offunds invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State ofGeorgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description of the Primary Liquidity Portfolio is as follows:

The Primary Liquidity Portfolio consists ofGeorgia Fund 1, which is a combination local and state government investment pool. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT"H"

Note 3: DEPOSITS AND INVESTMENTS

to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund.

Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U.S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days.

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:

Balances July 1, 2005

Increases

Balances Decreases June 30, 2006

Governmental Activities Capital Assets, Not Being Depreciated:
Land Construction in Progress

$ 713,483

$ 713,483

233,280 $ 5.637.874 $ 233,280

5,637.874

Total Capital Assets Not Being Depreciated $ 946.763 $ 5,637.874 $ 233.280 $ 6.351,357

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 12,637,886 $ 991,112 958,945

138,922 $ 124,903 442,953

0 $ 12,776,808 1,116,015 1,401,898

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

1,886,209 318,366 651,453

167,439 94,926 34.929

2,053,648 413,292 686.382

Total Capital Assets, Being Depreciated, Net $ 11,731,915 $ 409.484 $

0 $ 12,141.399

Governmental Activity Capital Assets - Net $ 12,678,678 $ 6,047,358 $ 233,280 $ 18,422,756

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT"H"

Note 5: CAPITAL ASSETS

Current year depreciation expense by function is as follows:

Instruction Support Services
Educational Media Services School Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Food Services

$ 170,230

$

26,268

9,365

2,686

58,390

6 608

103,317 23.747

$ 297,294

Note 6: RESTRICTED ASSETS

Ad valorem taxes collected in the General Fund, Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds, Georgia State Financing and Investment Commission (GSFIC) funds and property tax levied specifically for retirement of outstanding bond principal, interest and paying agent's fees (Debt Service Funds) are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory prov1s1ons. Restricted assets at June 30, 2006, were as follows:

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

General Fund

District-wide Capital Projects

Bond

SPLOST

Proceeds

GSFIC

Debt Service Funds

$ 342,744

$ 404,041

$

$ 1,474,351 $ 10,937,414

$ 59,351

160,932

Note 7: RISK MANAGEMENT

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

The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members ofthe system. The School District pays an annual premium to the

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT"H"

Note 7: RISK MANAGEMENT

system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse), errors and omissions, crime and automobile risks. Payment of excess insurance for the system varies by line of coverage.

The School District 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 ofthat loss can be reasonably estimated.

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

2005 2006

Beginning ofYear Liability

Claims and Changes in Estimates

Claims Paid

EndofYear Liability

$

0 $

5 348 $

5 348 $

0

$

0 $

4998 $

4998 $

0

The School District participates in the Georgia School Boards Association Workers' Compensation Fund, a public entity risk pool organized on July 1, 1992, to develop, implement, and administer a program ofworkers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Fund for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Fund with the Safety National Casualty Corporation to provide coverage for potential losses sustained by the Fund in excess of $400,000 loss per occurrence, up to $1,000,000.

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

Position Covered

Amount

Superintendent All Employees

$

50,000

$ 200,000

Note 8: LONG-TERM DEBT

ADVANCE REFUNDING During fiscal year 2006, the City of Jefferson Board of Education issued $1,015,000 in General Obligation Refunding Bonds to advance refund $950,000 of outstanding bonds. The bond issue, including premium and accrued interest, of $1,027,988 less underwriters and bond issue cost of $22,621 provided net proceeds of $1,005,367. Proceeds of $1,000,415 were deposited in an

- 19 -

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT "H"

Note 8: LONG-TERM DEBT

irrevocable trust with an escrow agent to provide for future debt service payments on portions ofthe 1996 Bond issue. As a result, portions of the 1996 Series Bonds are considered defeased, and the liability for these portions has been removed from the District-wide Statement of Net Assets. The City of Jefferson Board of Education refunded the aforementioned bonds to increase its total Debt Service payments over 7 years beginning subsequent to fiscal year 2007 by $65,000 and to obtain an economic gain (difference between the present values oftotal debt service payments and the old and new debt) of $52,819.

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

Purpose

Interest Rates

Amount

General Government - Series 1996 General Government - Series 2000 General Government - Refunding - Series 2004 General Government - Series 2005A General Government - Refunding - Series 2005B

4.30% - 5.35% 5.20% - 5.65%
3.58% 3.00% - 5.00% 3.00% - 4.00%

$ 110,000 735,000
9,490,000 14,200,000
1,015,000

$ 25,550,000

The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows:

Governmental Funds

General

Unamortized

Obligation

Bond

Bonds

Premium

Total

Balance July 1, 2005

$ 11,440,000 $

0 $ 11,440,000

Additions
G. 0. Bonds
Unamortized Bond Premium

15,215,000

715,900

15,215,000 715,900

Deductions Bonds Defeased Debt Retired Unamortized Bond Premium

950,000 155,000

15,700

950,000 155,000
15,700

Balance June 30, 2006

$ 25,550.000 $ 700.200 $ 26,250.200

Portion of Long-Term Debt Due within One Year

$ 950,000 $

37 679 $ 987,679

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT"H"

Note 8: LONG-TERM DEBT

At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows:

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

Unamortized Bond
Premium

2007 2008 2009 2010 2011 2012 - 2016 2017 - 2021 2022 -2025

$ 950,000 $ 1,047,161 $

990,000

1,012,310

1,020,000

978,234

1,055,000

942,598

1,095,000

903,151

6,110,000

3,887,067

7,340,000

2,517,200

6.990.000

781.419

37,679 37,679 37,679 37,679 37,679 188,395 188,394 135.016

Total Principal and Interest

$ 2515501000 $ 12.062.140 $

Note 9: PRIOR YEAR DEFEASEMENT OF DEBT

100.200

In fiscal year 2004, the School District defeased certain general obligation bonds by placing the proceeds ofnew bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the School District's basic financial statements. At June 30, 2006, $8,210,000 ofbonds are outstanding and are considered defeased.

Note 10: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $257,479 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $255,640

Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $1,839

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT "H"

Note 11: SIGNIFICANT COMMITMENTS

The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2006, together with funding available:

Project

Unearned Executed Contracts

Funding Available From State

07G-779-049 07RA-779-019 High School Canopy/Cafeteria High School Media Center High School Performing Arts Center

$ 841,420

9,785,854 $ 2,004,880

164,369

54,459

1,000

4,571,950

$ 15,364.593 $ 2,059.339

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

Note 12: SIGNIFICANT CONTINGENT LIABILITIES

Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position.

Note 13: SUBSEQUENT EVENTS

On September 19, 2006, the voters of City of Jefferson School District voted in favor of a Special Purpose Local Option Sales Tax referendum for educational purposes. The imposition of the tax approved by the voters, as stated on the Official Ballot of City of Jefferson, is as follows:

"Shall a special one percent sales and use tax be imposed in City ofJefferson (such tax to be a continuation ofthe existing 1% sales and use tax and not an additional sales and use tax) for a period oftime not to exceed five years (20 calendar quarters) commencing upon the expiration of the existing one percent sales and use tax previously imposed for the raising of not more than $22,302,000 for the purposes ofthe City ofJefferson School District: (i) paying a portion of the debt service on the outstanding Series 2000 General Obligation Bonds, previously issued by the City of Jefferson, Series 2004 General Obligation Bonds, Series 2005(A) and Series 2005(B) General Obligation Bonds previously issued by the City of Jefferson School District (the "Outstanding Jefferson Debt"), the maximum amount ofdebt service to paid with sales tax proceeds will be $9,996,000 and (ii) acquiring, constructing and equipping new school buildings and other buildings or facilities useful or desirable in connection therewith, including, but not limited to a new bus maintenance depot, (iii) acquiring new school

-22 -

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT"H"

Note 13: SUBSEQUENT EVENTS

equipment, (iv) acquiring school buses, school vehicles and transportation equipment; (v) acquiring land and any improvements thereon, and modifying those improvements as desired; (vi) adding to, renovating, repairing, improving and equipping existing school buildings or other buildings or facilities useful or desirable in connection therewith, (vii) acquiring any property necessary or desirable therefore, both real and personal, (viii) acquiring a portion ofa psychoeducational facility, (ix) acquiring textbooks system-wide; (the "Jefferson School Projects"), the maximum amount of the Jefferson School Projects to be paid with sales tax proceeds will be $22,302,000 less the amount of Jefferson School System's share of such proceeds used to pay the Outstanding Jefferson Debt."

Note 14: 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 ofGeorgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2006 2005 2004

100% 100% 100%

$ 783,789 $ 701,723 $ 653,224

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2006

SCHEDULE "1"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning
Adjustments

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

4,032,000 $

4,249,303 $

4,202,436

44,724

8,043,673

9,263,157

9,745,658

983,721

1,019,120

1,064,615

469,741

565,996

1,285,197

1,560

5,774

7,751

63,000

66 781

261,452

$

13,593,695 $

15,170,131 $

16,611,833

$

9,353,340 $

9,598,010 $

10,080,350

530,895 367,845 265,156 575,751 759,220
97,306 818,392 216,657
79,717 32,492
619,303

530,895 370,283 265,156 575,751 765,220
97,306 818,392 216,657
79,717 32,492
79,152 619 303

456,951 381,137 274,369 612,228 779,059
96,354 868,884 265,189
90,160 16,208 645,669 81,430 645,890

$

13,716,074 $

14,048,334 $

15,293,878

$

-122,379 $

1,121,797 $

1,317,955

1,324,868

1,350,642

1,221,617

5 129

-320,733

Fund Balances - Ending

$

1,207,618 $

2,151,706 $ ===2..,,5..,3.9..,.5..7=2=

Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual
(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts.
The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 25-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U.S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Donation (1)
Total U.S. Department of Agriculture
Education, U.S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Other Programs Pass-Through From Georgia Department of Education Advanced Placement Testing Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality State Grants Migrant Education Rural Education Safe and Drug-Free Schools and Communities State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States
Total U. S. Department of Education
Labor, U.S. Department of Pass-Through From Lanier Technical College School To Work Grant
Total Federal Financial Assistance
N/A = Not Available

CFDA NUMBER.

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

. 10.553 . 10.555

N/A

N/A

$

$

(2) 582 140
582,140

10.550

N/A $

23 586 605,726

. 84.027 . 84.173

N/A

$

N/A

$

304,826 8 807
313,633

84.330 84.318 84.938 84.367 84.011 84.358 84.186 84.298 84.010 84.048

N/A NIA N/A NIA NIA NIA N/A N/A N/A
N/A
$

753 5,145 (3) 56,660
950 58,709
7,187 4,834 275,053 12 877
735 801

17.258

N/A

$

8 325

$ =====!1,=34=9=,8=5=2

- 26-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006

SCHEDULE "2"

Notes to the Schedule of Expenditures of Federal Awards
(1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year.
(2) Expenditures for the funds earned on the School Breakfast Program ($56,712) were not maintained separately and are included in the 2006 National School Lunch Program.
(3) Funds earned on the Hurricane Education Recovery program, in the amount of $28,533, do not require reporting of expenditures.
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 Jefferson 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.

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006

SCHEDULE "3"

AGENCY/FUNDING

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

GRANTS

Bright From the Start:

Georgia Department of Early Care and Learning

Pre-Kindergarten Program

$

260,963

$

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) Progra 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) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Health Insurance National Teacher Certification Preschool Handicapped Program Statewide K-8 Reading and Mathematics Program Virtual Schools State Grant

471,735 226,468 1,189,502 219,151 588,560
82,141 1,086,131
896,072 231,344
143,718 115,492 813,537
77,149 157,306 630,278
48,666 79,636 10,998 187,030 55,382 41,730
377,417 384,199 554,037
63,832 10,991 35,802 55,849
7,560 44,546 451,801 40,164 158,154 -368,508
255,640 12,227 20,208 26,261 650

TOTAL
260,963
471,735 226,468 1,189,502 219,151 588,560
82,141 1,086,131
896,072 231,344
143,718 115,492 813,537
77,149 157,306 630,278
48,666 79,636 10,998 187,030 55,382 41,730
377,417 384,199 554,037
63,832 10,991 35,802 55,849
7,560 44,546 451,801 40,164 158,154 -368,508
255,640 12,227 20,208 26,261 650

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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Office of Treasury and Fiscal Services Public School Employees Retirement

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$ 1,331,613 $ $ _ __..:,;1,.:,;B::::.:39::....

1,331,613 1 839

$ 9,745,658 $ 1,331,613 $ ===1_1=07=7=2=71=

See notes to the basic financial statements.

-29-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2006

SCHEDULE "4"

PROJECT
Payment of principal and interest due on Series 1973 and 1996 Bonds
Construction of additional classrooms, remodeling and.renovating existing classrooms, instructional and support space, recreational fields and grounds and to provide furnishings, equipment and fixtures for such areas at Jefferson High School, Jefferson Middle School, and Jefferson Elementary School.
Payment of principal and interest due on Series 1996 and 2000 Bonds.
Acquiring, constructing and equipping new school buildings and other buildings or facilities useful or desirable in connection therewith; acquiring new school equipment; and adding to, renovating, repairing, improving and equipping existing school buildings or other buildings or facilities useful or desirable therefor, both real and personal.

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT
YEAR (3)

AMOUNT EXPENDED
IN PRIOR YEARS (3)

$

978,678 $

928,026

$

862,437

3,276,322 1,750,000

3,650,000 1,750,000

3,642,806 613,612

6,385,600

9,722,093 $ 7,824,529

1 196 776

PROJECT STATUS Completed
Completed Ongoing
Ongoing

$ 12,390,600 $ 16,050,119 $ 7,824,529 $ 6,315,631

(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 Jackson County approved the imposition of a 1% sales tax to fund the above projects. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects.

See notes to the basic financial statements.

- 30 -

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES BY PROGRAM YEAR ENDED JUNE 30, 2006

SCHEDULE "5"

DESCRIPTION

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

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

Direct Instructional Programs

Kindergarten Program

$

Kindergarten Program-Early Intervention Program

Primary Grades (1-3) Program

Primary Grades-Early Intervention (1-3) Program

Upper Elementary Grades (4-5) Program

Upper Elementary Grades-Early Intervention (4-5)

Program

Middle School (6-8) Program

High School General Education (9-12) Program

Vocational Laboratory (9-12) Program

Students with Disabilities

Category I

Category II

Category Ill

Category IV

CategoryV

Gifted Student - Category VI

Remedial Education Program

Alternative Education Program

English Speakers of Other Languages (ESOL)

524,284 $ 250,767 1,316,136 246,183 648,379
100,173 1,207,214
988,115 261,729 1,444,553
707,319 52,463 88,437 14 788

-466,484 $ 297,583 1,564,723 350,655 749,404
41,794 1,426,871 1,606,499
295,783
245,283 164,172 794,344 39,463 114,256 588,802 29,250 89,550
12,388

10,151 $ 3,793 57,219 5,226 19,684
3,071 49,046 67,729 29,591
251 251 5,808 251
3,158 2,306 6,824
166

-456,333 301,376 1,621,942 355,881 769,088
44,865 1,475,917 1,674,228
325,374
245,534 164,423 800,152 39,714 114,256 591,960 31,556 96,374
12,554

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

7,850,540 $ 7,944,336 $

264,525 $

8,208,861

Media Center Program Staff and Professional Development

208,262 47 809

247,582 1,623

21,029 33,037

268,611 34660

TOTAL QBE FORMULA FUNDS

$

811061611 $ 8,193,541 $

3181591 $ ___8,=5=12.,1_3=2

(1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction.

See notes to the basic financial statements.

- 31 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

Russell W. Hinton
STATE AUDITOR
(404) 658-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
May 21, 2007

Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education
and Superintendent and Members of the City ofJefferson 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 ofCity ofJefferson Board ofEducation as ofand for the year ended June 30, 2006, which collectively comprise City of Jefferson Board of Education's basic financial statements and have issued our report thereon dated May 21, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered City ofJefferson Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect City of Jefferson Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-7791-06-01, FS-7791-06-02, FS-7791-06-03 and FS-7791-06-04.
2006YB-50

A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above are material weaknesses.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether City of Jefferson 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 an instance of noncompliance or another matter that is required to be reported under Government Auditing Standards and which is described in the accompanying Schedule of Findings and Questioned Costs as item FS-7791-06-05.
This report is intended solely for the information and use of the management and members of the City of Jefferson Board of Education and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
LO.~
Ru sell W. Hinton, CPA, CGFM State Auditor
RWH:as 2006YB-50

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
May 21, 2007

Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education
and Superintendent and Members of the City of Jefferson Board of Education
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133
Ladies and Gentlemen:
Compliance
We have audited the compliance of City of Jefferson Board of Education with the types of compliance requirements described in the U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. City ofJefferson Board ofEducation's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of City of Jefferson Board of Education's management. Our responsibility is to express an opinion on City ofJefferson Board of Education's compliance based on our audit.
We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General 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 Jefferson Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit
2006SA-30

does not provide a legal determination on City of Jefferson Board of Education's compliance with those requirements.
In our opinion, the City ofJefferson Board ofEducation complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2006.
Internal Control Over Compliance
The management of City of Jefferson 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 Jefferson Board of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
We noted a certain matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the City of Jefferson Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FA-7791-06-01.
A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level ofrisk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness.
This report is intended solely for the information and use ofthe management, members ofthe City of Jefferson 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,
~~
Ru ell W. Hinton, CPA, CGFM State Auditor
RWH:as 2006SA-30

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

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-7791-04-01 FS-7791-05-01

Further Action Not Warranted Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Separation of Duties Finding Control Number: FS-7791-05-01

The School System concurs with this audit finding. Adjustments are being made in financial transaction processing and analysis to enhance internal controls within the school bookkeeping functions. These changes will ensure that essential accounting functions have a proper check and balance procedure.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-7791-04-01

Further Action Not Warranted

SECTION IV FINDINGS AND QUESTIONED COSTS

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

I SUMMARY OF AUDITOR'S RESULTS

1. Type of Report Issued on the Financial Statements The auditor's opinion on the City ofJefferson Board ofEducation's financial statements was unqualified.

2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the City of Jefferson Board of Education disclosed financial statement reportable conditions related to the following control categories.

Cash and Cash Equivalents Employee Compensation Capital Assets

Expenditures/Liabilities/Disbursements Revenues/Receivables/Receipts

None ofthe reportable conditions described above are considered to be material weaknesses.

3. Noncompliance Material to the Financial Statements The audit of the City of Jefferson Board of Education disclosed one instance of noncompliance deemed material to the financial statements. This noncompliance involved the School District's temporarily loaning SPLOST funds to the General Fund and Debt Service Fund.

4. Reportable Conditions in Internal Control Over Major Programs The audit report for the City of Jefferson Board of Education disclosed a reportable condition in internal control over major programs for the following compliance requirement.

Allowable Costs/Cost Principles

The reportable condition described above is not considered to be a material weakness.

5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the City of Jefferson 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) ofOMB Circular A-133 The City of Jefferson Board of Education's audit disclosed an audit finding required to be reported by section .510(a) of 0MB Circular A-133. This audit finding is included in section IV of this report.

- 1-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

I SUMMARY OF AUDITOR'S RESULTS

7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants

8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000.

9. Low Risk Auditee The City of Jefferson Board of Education qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133.

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7791-06-01

Condition:

This is a repeat finding (FS-7791-05-01 and FS-7791-04-01) from the years ended June 30, 2005, and 2004, respectively. The accounting procedures of the School District were insufficient to provide adequate internal controls over the school activity accounts.

Criteria:

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

Questioned Cost: NIA

Information:

Cash and Cash Equivalents Completion ofbank reconciliations was not evidenced by signature of
individual performing this function or by the individual performing review of this function. In one instance, the subsidiary ledger detail did not agree with the general ledger.

-2-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7791-06-01

Revenues/Receivables/Receipts Deposit preparation was not adequately separated from the record
keeping and cash custody functions. Based on a review of twenty receipts, one deposit lacked adequate
documentation and could not be traced to the original receipt.

Expenditures/Liabilities/Disbursements
Based upon a review of twenty vouchers, the following deficiencies were noted: o Nine vouchers had no evidence of approval for payment, o Three vouchers did not include a purchase requisition, o Two vouchers had no invoice or supporting documentation, and o Three vouchers contained no evidence of receipt.

Cause:

These deficiencies were a result of management's decision to limit the number ofadministrative staffmade responsible for accounting functions and management's failure to ensure that established internal controls were being properly implemented and functioning at the school level.

Effect:

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

Recommendation:

Management should implement additional procedures to ensure that the key accounting functions of custody, record keeping and authorization are separated and that adequate monitoring is performed on a routine basis. Periodic reviews should be performed on the school activity accounts in order to ensure adherence to established policies and procedures.

EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Corporate Credit Card Expenditures Reportable Condition Finding Control Number: FS-7791-06-02

Condition:

The School District failed to monitor credit card expenditures to ensure that State law and local policies were properly followed.

-3 -

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Corporate Credit Card Expenditures Reportable Condition Finding Control Number: FS-7791-06-02

Criteria:

The School District's management is responsible for designing and

maintaining internal controls that provide reasonable assurance that

transactions are processed according to established procedures. Credit card

transactions are inherently high risk and should be governed by formal

~~

.

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

Chapter 2 Authorizationfor Travel ofthe State ofGeorgia- Statewide Travel Regulations indicates that employees, who are eligible for travel reimbursement, should receive authorization prior to performing the travel. This chapter specifically states, "Signature of the approving official on the travel expense form constitutes authorization of employee travel."

Chapter 3 Reimbursement of Meal Expenses of the State of Georgia Statewide Travel Regulations states, "All meal expenses must be itemized on the employee travel expense statement, indicating the date, location, and the actual cost of each meal." Additionally, the travel regulations identify maximum reimbursement limits for meal expenses.

Chapter 9 Reimbursement Procedures of the State of Georgia - Statewide Travel Regulations states, "Employees requesting reimbursement for travel expenses are required to submit their claim to authorized personnel on the employee travel expense statement" ... "Employees are also required to submit receipts for the following expenses; ...Lodging and Airline fares".

Questioned Cost: $4,624

Information:

Based on a review of twelve credit card expenditures, the following deficiencies were noted:

-4-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS Undocumented/Improper Corporate Credit Card Expenditures Reportable Condition Finding Control Number: FS-7791-06-02

Nine vouchers contained the credit card invoice with no supporting documentation of original vendor invoices. These expenditures, for travel related activities including meals, lodging and transportation costs, were incorrectly charged as Other Purchased Services. These transactions violated State Travel regulations because no required travel voucher or required supporting documentation was submitted by the individual employee who traveled.

Additionally, O.C.G.A. 50-6-27 was violated because these travel related expenditures were not reported in the School District's detail listing of salaries and travel made to employees.

Cause:

These deficiencies were a result of management's failure to monitor credit card transactions to ensure that established internal controls regarding travel related expenditures were met.

Effect:

Errors and/or irregularities may not be detected in a timely manner. In addition, failure to submit a complete salary and travel listing leads to inaccurate external reporting.

Recommendation:

Management should revise and monitor controls to provide reasonable assurance that credit card transactions are processed according to established procedures and State laws. Additionally, management should implement procedures to identify travel related expenses to individuals and ensure that they are properly reported within the accounting records.

EMPLOYEE COMPENSATION Salary Underpayments/Overpayments Reportable Condition Finding Control Number: FS-7791-06-03

Condition:

A salary overpayment totaling $1,598 and a salary underpayment in the amount of$139 were noted during the review ofemployees' payroll records.

Criteria:

The School District's management is responsible for ensuring that all employee salaries are based on School District approved salary schedules.

-5-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EMPLOYEE COMPENSATION Salary Underpayments/Overpayments Reportable Condition Finding Control Number: FS-7791-06-03

Questioned Cost: NIA

Information:

Based on a review of 19 non-certificated employees, the following deviations were noted: One employee was being paid an hourly rate greater than the maximum
rate specified on the School District approved salary schedule for the job classification. This resulted in an overpayment of $1,598.

One employee was being paid an hourly rate less than the rate specified on the School District approved salary schedule for the corresponding job classification and years of experience. This resulted in an underpayment of$139.

Cause:

Management failed to adequately implement and monitor procedures to ensure that payments made to employees are based on an approved rate of pay that is adequately documented in the employees' personnel files.

Effect:

Failure to monitor payments to employees and ensure employees are paid in accordance with approved salary scales can result in over/under payment of employees.

Recommendation:

Internal controls should be implemented by the School District to ensure that personnel files are properly maintained and all payments to employees are based on approved salary scales. Also, the School District should review this matter to determine if recovery or payment of funds is necessary.

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7791-06-04

Condition:

The School District failed to adequately maintain an accurate capital assets listing and follow its' approved capital assets policy.

Criteria:

Chapter 37 Fixed Assets of the Financial Management for Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system, and maintain fixed asset inventory records.
-6-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7791-06-04

Questioned Cost: NIA

Information:

A review ofthe Capital Assets listing and comparison to the general ledger, identified the following deficiencies: A new bus was added to the Capital Assets listing at the incorrect cost
amount and two other Equipment items, meeting the School District's capitalization threshold, were not included on the Capital Assets listing. This resulted in an understatement of $20,256 on both the Capital Assets listing and the general ledger. Two items showing under Land Improvements should have been listed as Equipment. Depreciation expense for equipment, reported on the Capital Assets listing, did not agree with depreciation expense reported on the general ledger. The general ledger did not include current year depreciation expense for the new bus. Depreciation on a new server was overstated because a full year's depreciation was taken instead of a half year, per the School District's policy. Buildings were understated by $218,360 due to a change in the asset cost reported on the Capital Assets listing for fiscal year 2006. No actual decrease in value occurred during the year under review. Recalculation ofthe depreciation expense for ten assets noted problems with five ofthese assets related to useful lives not being in line with the School District's capital assets policy. Additional testing identified 51 assets, including the five previously mentioned, that had useful lives that were not in line with the School District's policy. Four Equipment items were shown on the Capital Assets listing with no accumulated depreciation. A review ofthese items indicated that they were all fully depreciated and should have had accumulated depreciation equal to asset costs of $189,199. Decreases in construction in progress totaling $233,280 on the Summary Schedule ofChanges in Capital Assets could not be traced to current year additions on the Capital Assets listing. The Capital Assets listing did not show a decrease in Land of$16,561 for a sale of a portion of land that occurred during the current fiscal year.

-7-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7791-06-04

Cause:

The School District failed to properly maintain its capital assets records in accordance with the School District's approved capital assets policy.

Effect:

The failure ofthe School District to maintain a complete and accurate capital assets listing and properly record these capital assets to the financial records could lead to inaccurate internal and external reporting.

Recommendation:

The School District should review its capital assets records and make appropriate adjustments to ensure that the capital assets records conform to the School District's approved capital assets policy. In addition, management should implement procedures to ensure that capital asset amounts are recorded on the general ledger, in accordance with generally accepted accounting principles.

GENERAL LEDGER Improper Use of SPLOST Proceeds Material Noncompliance Finding Control Number: FS-7791-06-05

Condition:

Improper use of Special Purpose Local Option Sales Tax (SPLOST) proceeds.

Criteria:

O.C.G.A. 48-8-121(a)(l) states, "The proceeds received from the tax authorized by this part shall be used ... exclusively for the purpose or purposes specified in the resolution or ordinance calling for imposition ofthe tax. Such proceeds shall be kept in a separate account from other funds ... and shall not in any manner be commingled with other funds ... prior to the expenditure."

Questioned Cost: $3,304

Information:

During the year under review, the General Fund and Debt Service Fund borrowed $541,347 and $68,659, respectively, from the Special Purpose Local Option Sales Tax Fund to finance current operations. Subsequently, the General Fund and Debt Service Fund repaid the loan; however, no provision was made to repay lost interest on SPLOST funds. The Questioned Cost noted above relates to lost interest revenues.

-8-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Improper Use of SPLOST Proceeds Material Noncompliance Finding Control Number: FS-7791-06-05

Cause:

The School District loaned SPLOST proceeds to the General Fund to cover current cash flow needs prior to the receipt of property tax revenues.

Effect:

Noncompliance with O.C.G.A. 48-8-121(a)(l).

Recommendation:

In the future, the School District should refrain from borrowing SPLOST proceeds to fund current operations. The School District should reimburse the SPLOST account for the interest that would have been earned.

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Controls Reportable Condition U.S. Department of Education Through Georgia Department of Education Special Education - Grants to States (CFDA 84.027) Finding Control Number: FA-7791-06-01

Condition:

A review of salaries charged to the Special Education - Grants to States Program (CFDA 84.027) revealed that employee time and attendance records were not being utilized as required by 0MB Circular A-87.

Criteria:

Provisions of the 0MB Circular A-87, Cost Principles for Determining Allowable Costs, require that "Where employees work on multiple activities or cost objectives, a distribution oftheir salaries or wages will be supported by personnel activity reports or equivalent documentation that meets the following standards:
a) They must reflect an after-the-fact distribution ofthe actual activity of each employee,
b) They must account for the total activity for which the employee is compensated,
c) They must be prepared at least monthly and must coincide with one or more pay periods, and
d) They must be signed by the employee. Such documentary support will be required where employees work on:
a) More than one Federal award, or b) A Federal award and a non-Federal award."
-9-

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ALLOWABLE COSTS/COST PRINCIPLES Inadequate Internal Controls Reportable Condition U.S. Department of Education Through Georgia Department of Education Special Education - Grants to States (CFDA 84.027) Finding Control Number: FA-7791-06-01

Questioned Cost: NIA

Information:

The School District did not require employees to maintain time and attendance records for split funded Special Education employees, thereby, failing to ensure that employee compensation payments were allowable.

Cause:

Management failed to implement internal controls for monitoring compliance with Federal guidelines and to ensure that employee salaries are being properly documented.

Effect:

Failure to require timesheets and/or time schedules for split-funded employees can result in noncompliance with the requirements ofthe Federal grant.

Recommendation:

The School District should implement procedures to ensure that adequate time records, that support the basis for compensation, are maintained for all split funded employees. The Georgia Department of Education should determine ifa refund will be required for the undocumented salary payments.

- 10 -

SECTIONV MANAGEMENT'S RESPONSES

CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006
Finding Control Number: FS-7791-06-01
We concur with this finding. We are and will continue to make adjustments as deemed necessary in financial transaction processing and analysis to enhance internal controls within the school bookkeeping functions. Additional training with the bookkeepers, principals, and respective staff members will also improve the accounting process. These changes will ensure that essential accounting functions have a proper check and balance procedure.
Finding Control Number: FS-7791-06-02
We concur with this finding. We are requesting all supporting documentation relative to credit card transactions to support the billing statement from the credit card company. In cases, where expenses are incurred related to travel of an individual and/or group of individuals, journal entries will be prepared to distribute these expenses to be properly reflective against that individual on the CS- I report submitted annually to the State.
Finding Control Number: FS-7791-06-03
We concur with this finding. In cases where an employee's pay rate is different than the established pay schedule, documentation will be provided to state the reason for the deviation. All salaries are approved by the Superintendent and the Board annually via the budget process. In addition, a secondary review will be conducted to ensure that any rounding discrepancies are addressed prior to finalization ofthe noncertified pay schedules.
Finding Control Number: FS-7791-06-04
We concur with this finding. A thorough review of our current asset report will be conducted and adjusted to be in compliance with our internal capital asset policy. Adjustments reported by the auditors will be implemented and reconciled to our current year assets.
Finding Control Number: FS-7791-06-05
We concur with this finding. We have beenapprisedoftheO.C.G.A. 48-8-121(a)(l) regarding use oftax proceeds and will comply with this State regulation. We would like it duly noted that we were provided guidance on September 26, 2003, by the State Department ofAudits that we could borrow from the SPLOST account prior to this audit. This loan/repayment transaction reported in fiscal year 2006 occurred within a 3 month period.
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CITY OF JEFFERSON BOARD OF EDUCATION - JACKSON COUNTY SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006
Finding Control Number: FA-7791-06-01 We concur with this finding. We will require timesheets for all certified and classified staff to support any split funding. These will be signed monthly at a minimum to properly document the distribution of employee's compensation. Contact Person: Kimberly Navas, Financial Officer Phone: (706) 367-2880 Fax Number: (706) 367-2291 E-mail Address: knavas@jeffcityschools.org
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