City of Pelham Board of Education, Mitchell County, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2004

CITY OF PELHAM BOARD OF EDUCATION
MITCHELL COUNTY, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL 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

3

B

STATEMENT OF ACTIVITIES

5

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

6

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

7

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

8

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

9

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

10

H

STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

11

NOTES TO THE BASIC FINANCIAL STATEMENTS

12

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

25

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

26

3 SCHEDULE OF STATE REVENUE

28

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

29

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 PELHAM BOARD OF EDUCATION - MITCHELL COUNTY - TABLE OF CONTENTS -
SECTION V MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
January 20, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the City of Pelham 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 I) of the City of Pelham Board of Education, as of and for the year ended June 30, 2004, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe City of Pelham Board of Education'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 opm10ns.
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 ofPelham Board of Education, as of June 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
2004ARL-11

The City of Pelham Board of Education 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.
As discussed in Note 2 to the basic financial statements, during fiscal year 2004, the Board consolidated its individual school activity accounts for inclusion in the basic financial statements. This change is in accordance with generally accepted accounting principles.
As described in Note 2, the City of Pelham Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2004.
In accordance with Government Auditing Standards, we have also issued our report dated January 20, 2005, on our consideration of the City of Pelham 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 read in conjunction with this report in considering 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 Pelham 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.
2004ARL-11

A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code of Georgia Annotated section 506-24.
Respectfully submitted,

RWH:as 2004ARL-11

Russell W. Hinton State Auditor

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY STATEMENT OF NET ASSETS JUNE 30. 2004

EXHIBIT "A"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Prepaid Items Inventories Capital Assets Land Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Retainages Payable
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Bus Replacement Continuation of Federal Programs Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets
The notes to the basic financial statements are an integral part of this statement. -3 -

GOVERNMENTAL ACTIVITIES

$

3,021,310

1,230,000

230,769 925,749 283,233
237 3,181 26,739

124,184 1,493,934 8,183,656
553,625 -2,792,788

$ ===1=3,=28=3=,8=2=9=

$

338,025

973,309

66,125

78,023

$

1,455,482

$

7,562,611

3,257 290,118 242,458 3,729,903

$

11,828,347

$ ===1=3,=28=3=,8=2=9=

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30 2004

EXHIBIT"B"

EXPENSES

PROGRAM REVENUES

OPERATING

CHARGES FOR

GRANTS AND

SERVICES

CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

GOVERNMENTAL ACTIVITIES

Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt

$ 8,030,574
380,907 336,524 256,536 214,995 673,062 184,472 805,800
68,486 58,333 60,213
124,252 $ 696,630 147 573

$
102,656 112,063

6,509,288 $
86,779 125,691 160,458 426,679 381,819
457,049 33,896
30,482
610,945

-1,521,286
-294, 128 -210,833
-96,078 211,684 -291,243 -184,472 -348,751 -34,590 -58,333 -29,731
-21,596 26,378 -147 573

Total Governmental Activities

$ 12,038,357 $

General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Local Option Sales Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous

214 719 $ ======8=8'2=3=08=6= $ $

-3,000,552
329,408
148,623 608,175 413,504 2,388,837
50,892 128 918

Total General Revenues

$ _ _ _ _4~0_6_8~3_5_7_

Change in Net Assets

$

1,067,805

Net Assets - Beginning of Year

10 760 542

Net Assets - End of Year

$ ===1=1~8=2=8=34=7=

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

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30. 2004

EXHIBIT"C"

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

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 2,191,513 $ 1,230,000
76,096 925,749 283,233
237 3,181 26,739

829,797 $ 121,803

0 $

3,021,310

1,230,000

197,899 925,749 283,233
237 3,181 26,739

Total Assets

$ 4 736 748 $

951,600 $

0 $ ===5=06=8=8=3=48=

LIABILITIES AND FUND BALANCES

LIABILITIES

Accounts Payable

$

Salaries Payable

Contracts Payable

Retainages Payable

Total Liabilities

$

FUND BALANCES

Reserved for:

Bus Replacement

$

Continuation of Federal Programs

Inventories

Capital Projects

Unreserved

Designated for Self-Insurance

Undesignated Reported in:

General Fund

Capital Projects

Total Fund Balances

$

295,418 $ 973,309
1,268,727 $
3,257 263,379
26,739 $
156,040 3,018,606
3,468,021 $

42,607 66,125 78 023 186 755
242,458
522,387 $ 764 845 $

$

338,025

973,309

66,125

78 023

$

1,455,482

$

3,257

263,379

26,739

242,458

156,040

3,018,606

0

522 387

0 $

4,232,866

Total Liabilities and Fund Balances

$ 4 736 748 $

951 600 $

0 $ ===5="',6=8=8=,3=48===

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

CITY OF PELHAM BOARD OF EDUCATION- MITCHELL COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30. 2004

EXHIBIT"D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land 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.

$

4,232,866

$

124,184

1,493,934

8,183,656

553,625

-2,792,788

7,562,611

32,870

Net Assets of Governmental Activities (Exhibit "A")

$ 11,828,347

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

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30 2004

EXHIBIT"E"

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

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$

263.543

413,504 $

9,487,167

1,731,671

112,063

35,229

231,574

$ 12,274,751 $

608,175 $ 15,663
623,838 $

$ 148,623
148 623 $

263.543 1,170,302 9,487,167 1,731,671
112,063 50.892
231 574
13,047,212

$ 7,695,294

307,339 309,565 250,541 214.995 672,982 180,162 797,663
44,029 58,333 60,213 124,252 678,634
$

$ 1,692,089

$ 11,394,002 $ 1,692,089 $

$

880,749 $ -1,068,251 $

2,587,272

1,833,096

$
1,050
110,000 37 573
148,623 $ 0 $ 0

7,695,294
307,339 309,565 250,541 214,995 672,982 181.212 797,663
44,029 58,333 60,213 124,252 678,634 1,692,089
110,000 37 573
13,234,714
-187,502
4,420,368

$ 3,468,021 $

764 845 $

0 $

4,232,866

The notes to the basic financial statements are an integral part of this statement. -8-

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF
REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30. 2004

EXHIBIT"F"

Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")

Amounts reported for Governmental Activities in the Statement of Activities are different because:

Capital Outlays are reported as expenditures in Governmental Funds. However. in the Statement of Activities. the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period. these amounts are:

Capital Outlay

$

Depreciation Expense

Excess of Capital Outlay over Depreciation Expense

Because some property taxes will not be collected for several months after the School District's fiscal year ends. they are not considered "available" revenues.

$
1.529,595 -333,238

-187.502
1,196,357 58,950

Change in Net Assets of Governmental Activities (Exhibit "B")

$ =====1=,0=67=,8=0=5

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

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004

EXHIBIT G 11 11

ASSETS Cash and Cash Equivalents Investments
Certificate of Deposit Accounts Receivable, Net
Interest and Dividends
Total Assets
LIABILITIES Funds Held for Others
NET ASSETS Held in Trust for Private Purposes
Total Liabilities and Net Assets

PRIVATE PURPOSE TRUSTS

AGENCY FUNDS

$

8,469 $

46,368

20,000

301

$

28,770 $ ===4=6=,3=68=

$

46,368

$ _ _ _2--'-'8,'-77--'0'-

$

28,770 $ ===4==6,=36=8=

The notes to the basic financial statements are an integral part of this statement. - 10 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2004

EXHIBIT"H"

REVENUES Contributions Donors Investment Earnings Interest Total Revenues
EXPENSES Scholarships Change in Net Assets
Net Assets - Beginning
Net Assets - Ending

PRIVATE PURPOSE TRUSTS

$

1,000

349

$

1,349

$

918

$

431

28,339

$ ====2=8=,7=70=

The notes to the basic financial statements are an integral part of this statement. - 11 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004
Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The City ofPelham Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes. 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 Pelham 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 of goods 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.
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CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004
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 proceeds to be used for the acquisition, construction or renovation of major capital facilities.
Debt Service Fund accounts for sales taxes legally restricted for the payment of general longterm principal, interest and paying agent's fees, for the City of Pelham, Georgia, General Obligation School Bonds, Series 1993.
The School District reports the following fiduciary fund types:
Private Purpose Trust funds report trust arrangements under which income provides scholarships to the most outstanding graduating student in the Agriculture Education (Future Farmers of America) Program at Pelham High School. Principal must be invested and preserved intact.
Agency funds account for assets held by the School District as an agent for various funds or individuals.
BASIS OF ACCOUNTING
The basis of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
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CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources.

The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.

RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND

In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs and Federal Programs were reported as Special Revenue Funds. These funds had a combined fund balance of $241,349 at July 1, 2003. For fiscal year 2004, these funds have been reported as part of the General Fund. In addition, governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been reported within the General Fund for fiscal year ended June 30, 2004. The governmental fund activity of the various school activity accounts had a fund balance of$49,253 at July 1, 2003. This change is in accordance with generally accepted accounting principles.

General Fund Balance July 1, 2003

$ 2,296,670

Add Funds Consolidated with General Fund: School Food Services Fund School Activity Account - Governmental Activity

241,349 49,253

General Fund Balance July 1, 2003 (Restated)

$ 2,587,272

CHANGES IN ACCOUNTING PRINCIPLES

The City of Pelham Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2004.

The provisions of GASB Statement No. 34 require the inclusion of a Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following:

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CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Fund (Restated) July 1, 2003 Capital Projects Fund

$ 2,587,272 1,833,096

Governmental Funds (Restated) July 1, 2003 Capital Assets
Balance July 1, 2003 Construction in Progress Adjustments to Prior Year Balance Accumulated Depreciation Property Tax Revenue Timing Differences

$ 4,420,368

$ 8,218,307 584,496 23,001

8,825,804 -2,459,550
-26,080

Net Assets Beginning (See Exhibit "B")

$ 10,760.542

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 of deposit) 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,

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CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(5) Prime banker's acceptances,

(6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services,

(7) Repurchase agreements, and

(8) Obligations of other political subdivisions of the State of Georgia.

RECEIVABLES

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

PROPERTY TAXES

The City of Pelham fixed the property tax levy for the 2003 tax digest year (calendar year) on September 16, 2003 (levy date). Taxes were due on December 20, 2003 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2003 tax digest are reported as revenue in the governmental funds for fiscal year 2004. The City of Pelham City Clerk bills and collects the property taxes for the School District, and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2004, for maintenance and operations amounted to $263,543.

The tax millage rate levied for the 2003 tax year (calendar year) for the City of Pelham Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

6.983 mills

SALES TAXES

Local Option Sales Tax revenue, at the fund reporting level, during the fiscal year amounted to $413,504 and was recorded in the General Fund. Local Option Sales Tax is to be used for the maintenance and operation of the School District.

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $756,798 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.

- 16 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES

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

PREPAID ITEMS

Payments made to vendors for services that will benefit periods subsequent to June 30, 2004, are recorded as prepaid items.

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

$

0

NIA

$

5,000 20 to 80 years

$

5,000 10 to 80 years

$

5,000 3 to 20 years

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

- 17 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LONG-TERM DEBT AGREEMENT
The City ofPelham, Georgia (City Government) issued General Obligation Bonds to provide funds for the acquisition and construction of major capital facilities. The general obligation bonds are direct obligations and pledge the full faith and credit of the City Government. In accordance with the bond validation (Civil Action File No. 93-V-743) "...the City of Pelham shall provide for the assessment and collection ofan annual tax sufficient in amount to pay the principal ofand interest on said debt by the levy of an annual tax upon all property subject to taxation for school bond purposes within the corporate limits of the city... ".
Although not required by formal agreement to do so, during fiscal year 2004, the School District paid $148,623 for debt service on the City Government's general obligation bonds. However, as discussed above, the debt associated with those general obligation bonds is the liability of the City Government; therefore that debt is not recorded on the financial statements of the City of Pelham Board of Education.
Note 3: DEPOSITS
COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. If a depository elects the pooled method (OCGA 45-8-13 .1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts.
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,
(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,
- 18 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 3: DEPOSITS

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

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

(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.

CATEGORIZATION OF DEPOSITS At June 30, 2004, the bank balances were $4,805,576. The amounts of the total bank balances are classified into three categories of credit risk:

Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name.
Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name.
Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.)

The School District's deposits are classified by risk category at June 30, 2004, as follows:

Risk Category

Bank Balance

1

$ 404,271

2

30,000

3

4,371,305

Total

$ 4,805.576

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

- 19 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 5: CAPITAL ASSETS

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

Balances July 1, 2003

Increases

Decreases

Balances June 30, 2004

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

$ 100,284 $ 584,496

23,900 $

$ 584 496

124,184 0

Total Capital Assets Not Being Depreciated $ 684,780 $

23,900 $ 584,496 $ 124,184

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 6,935,072 $ 1,248,584

580,434

10,217 $

625,518

868,416

$ 37,026

8,183,656 553,625
1,493,934

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

1,765,931 418,741 274,878

279,113 38,164 52,987

37,026

2,045,044 419,879 327,865

Total Capital Assets, Being Depreciated, Net $ 5,681,474 $ 1,756,953 $

0 $ 7,438,427

Governmental Activity Capital Assets - Net $ 6,366.254 $ 1,780.853 $ 584.496 $ 7,562,611

Current year depreciation expense by function is as follows:

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

$ 245,365

$

73,568

4,387

58

2,386

13,432

17 898

111,729 13 170

$ 370,264

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST) proceeds are reported as restricted assets in the Statement of Net Assets because their use is limited by statutory provisions. Restricted assets at June 30, 2004, were as follows:

- 20 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 6: RESTRICTED ASSETS

District-wide Capital Projects SPLOST

Restricted Cash and Cash Equivalents: Capital Acquisitions
Note 7: RISK MANAGEMENT

$==2==77=2a4==9=9

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

The School District has obtained commercial insurance for risk of loss associated with torts, assets and errors or omissions. However, the errors or omissions policy excludes coverage for sexual harassment and discrimination. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years.

The School District has elected to self-insure for all losses related to acts of God. In addition, the School District has elected to self-insure for risks for sexual harassment and discrimination. The School District has not experienced any losses related to these risks in the past three years.

The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount ofthat loss can be reasonably estimated.

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

2003 2004

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End ofYear Liability

$

0 $

419 $

419 $

0

$

0 $

3 824 $

3,824 $

0

The School District participates in the Georgia Education Workers' Compensation Trust, a public entity risk pool organized on December 1, 1991, to develop, implement and administer a program of workers' compensation self-insurance for its member organizations. The School District pays an

- 21 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 7: RISK MANAGEMENT

annual premium to the Trust for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Trust with the Midwest Employers Casualty Company to provide coverage for potential losses sustained by the Trust in excess of $400,000 loss per occurrence, up to $2,000,000.

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

Position Covered

Amount

Superintendent Each Principal Office Manager/Bookkeeper Each Personnel/Payroll Clerk Accounts Payable Clerk All School Nutrition Managers

$ 100,000

$

5,000

$

5,000

$

5,000

$

5,000

$

10,000

Note 8: 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 9: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)

TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

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

- 22 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY EXHIBIT "I" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 9: RETIREMENT PLANS
Fiscal Year 2004 2003 2002

Percentage Contributed
100% 100% 100%

Required Contribution
$ 646,617 $ 641,548 $ 595,822

- 23 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2004

SCHEDULE "1"

REVENUES
Property Taxes 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

$

202,000 $

202,000 $

263,543

282,000

282,000

413,504

9,646,639

9,707,377

9,487,167

1,713,592

1,826,814

1,731,671

108,500

108,500

112,063

11,850

11,850

35,229

4 500

4 500

231,574

$

11,969,081 $

12 143,041 $

12,274,751

$

8,957,658 $

9,026,391 $

7,695,294

342,637 399,565 236,953 285,642 948,819 257,275 1,208,795
60,970 76,155 45,435
25,000 712 650

343,147 466,130 237,453 307,253 948,819 257,275 1,220,613
60,970 76,155 51,421
25,000 711 975

307,339 309,565 250,541 214,995 672,982 180,162 797,663
44,029 58,333 60,213 124,252
678,634

$

13,557,554 $

13,732,602 $

11,394,002

$

-1,588,473 $

-1,589,561 $

880,749

2,614,250

2,614,250

2,587,272

9,377

9,377

0

Fund Balances - Ending

$

1 035 154 $

1,034,066 $ ==,,,,;3~,4~6~8~,0~21~

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 PELHAM BOARD OF EDUCATION - MITCHELL COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30. 2004

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Donation (1)
Total U. S. Department of Agriculture
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Preschool Grants Grants to States
Total Special Education Cluster
Other Programs Direct Impact Aid Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Improving Teacher Quality State Grants Innovative Education Program Strategies Rural Education School Improvement Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Pass-Through From Mitchell County Board of Education Title I Grants to Local Educational Agencies
Total U. S. Department of Education
Labor, U.S. Department of Pass-Through From Georgia Department of Labor Workforce Investment Act Youth Activities
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) 578 107
578,107

10.550

N/A
$

52 367 630,474

84.173 84.027

NIA $ NIA
$

22,235 228 004
250,239

84.041
84.318 84.367 84.298 84.358 84.010 84.010 84.048
84.010

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

(3)
11,643 75,222 10,838 45,994 13,500 460,454 26,258
242,982
1,137,130

17.259

N/A

$

24,966

$ ===:!1=79=2=5=7=0

- 26 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2004

SCHEDULE "2"

Notes to the Schedule of Expenditures of Federal Awards
(1) The amounts 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 fund earned on the School Breakfast Program ($124,844) were not maintained separately and are included in the 2004 National School Lunch Program.
(3) Funds earned on the Impact Aid program, in the amount of$ 6,915, 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 Pelham Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the basic financial statements.

See notes to the basic financial statements.

- 27 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2004
AGENCY/FUNDING
GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category II Category Ill Category IV Supplemental Speech 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 Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs 4-8 Statewide After School Program K-3 Statewide Reading Program Preschool Handicapped Program Lottery Program Student Information System

SCHEDULE "3"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

248,782

384,871 94,660
1,056,549 141,991 458,228 85,895 967,127 672,858 320,998
192,492 700,405
41,068 405
197,847 59,974 73,014 14,918
149,376 46,579 31,252
345,142 365,957 444,326
30,639 3,257
19,500 46,842
5,783 9,008 109,914 2,365,807 48,160 7,817 -340,593
21,946 13,076 27,917
23,380
$ ====9:!:,4=8=7..,1,=67=

See notes to the basic financial statements.

- 28-

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30. 2004

SCHEDULE "4"

PROJECTS
The repayment of principal and interest on outstanding City of Pelham General Obligation Bonds, Series 1993, coming due on February 1, 1998, and semiannually thereafter as set forth in Exhibit "B" attached hereto and, by this reference thereto, incorporated herein, the maximum amount of debt to be retired not to exceed $1,612,300.
The repayment of principal and interest on outstanding City of Pelham General Obligation Bonds, Series 1993, coming due on February 1, 2003, and thereafter, the maximum amount of such repayment of principal and interest not to exceed $250,000.
The acquisition, construction, and equipping of capital outlay projects for the Pelham School System consisting of the renovation of the Pelham City High School and additions, expansions, improvements, renovations, modifications and equipping of existing school facilities of the Pelham School System, including the acquisition of all necessary property, both real and personal, necessary therefor, in an amount not to exceed $4,290,000.

ORIGINAL ESTIMATED
COST(1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT
YEAR (3)

AMOUNT EXPENDED
IN PRIOR YEARS (3)

PROJECT STATUS

$ 1,612,300 $ 1,612,300 $

148,623 $

881,387 Ongoing

250,000

250,000

Ongoing

4,290,000

4,290,000

1,292,338

582,330 Ongoing

$ 6,152,300 $ 6,152,300 $

1,440 961 $=====1.;,;46~3~7~17:,,.

(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 City of Pelham 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.

- 29-

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY GENERAL FUND - QUALITY BASIC EDUCATION PROGRAM (QBE)
ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2004

SCHEDULE "5"

DESCRIPTION
Direct Instructional Funds 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 II Category Ill Category IV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL)
TOTAL DIRECT INSTRUCTIONAL PROGRAMS
Media Center Program Staff and Professional Development

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

ELIGIBLE QBE PROGRAM COSTS

SALARIES OPERATIONS

TOTAL

$

397.781 $ 291.480 $

11,109 $

302.589

102,608

150.498

475

150.973

1.075.786

955.173

62.313

1,017,486

155,634

152,787

1,103

153,890

477,335

512,829

33,930

546,759

87,930 995,869 689,935 329,020 950,734
199,566 61,399 74,715 15,273

125,613 1,044,218
952,900 348,180
650,443 223,758
152,702 70,241 117,430
721

935 60,482 93,218 84,658
17,083 5,582 4,915 8,101 2,315 7,655 325

126,548 1,104,700 1,046,118
432,838
667,526 229,340
4,915 160,803
72,556 125,085
1,046

$

5,613,585 $ 5,748,973 $

394,199 $

6,143,172

153,183 31,964

171,849 423

41,360 32,196

213,209 32,619

TOTAL QBE FORMULA FUNDS

$====5=7=9=8,=7=32= $ 5,921,245 $

467 755 $ ===6=,3=89='=00=0=

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

See notes to the basic financial statements.

- 31 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
January 20, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the City of Pelham Board of Education
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of City of Pelham Board of Education as of and for the year ended June 30, 2004, which collectively comprise City of Pelham Board of Education's basic financial statements and have issued our report thereon dated January 20, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered City of Pelham Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in ourjudgment, could adversely affect City of Pelham Board of Education's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule ofFindings and Questioned Costs as item FS-7841-04-01.

2004YB-30

A material weakness is a reportable condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether City of Pelham Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of the management and members of the City ofPelham Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
~w.~
Russell W. Hinton State Auditor
RWH:as 2004YB-30

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
January 20, 2005

Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education
and Superintendent and Members of the City of Pelham Board of Education
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133
Ladies and Gentlemen:
Compliance
We have audited the compliance ofCity ofPelham Board ofEducation with the types ofcompliance requirements described in the US. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2004. City of Pelham Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of City of Pelham Board of Education's management. Our responsibility is to express an opinion on City of Pelham Board of Education's compliance based on our audit.
We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the City of Pelham Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on City of Pelham Board of Education's compliance with those requirements.
2004SA-10

In our opinion, the City of Pelham Board of Education 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, 2004.
Internal Control Over Compliance
The management of City of Pelham 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 ofPelham Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level ofrisk that noncompliance with applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses.
This report is intended solely for the information and use ofthe management, members ofthe City of Pelham 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,
~~~ Russell W. Hinton State Auditor
RWH:as 2004SA-10

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

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-7841-03-01

Previously Reported Corrective Action Implemented

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-7841-03-01

Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Finding Control Number: FA-7841-03-01

We concur with this recommendation. The School District is in the process of implementing a prescribed cost allocation plan to distribute School-wide program expenditures to each funding source.

SECTION IV FINDINGS AND QUESTIONED COSTS

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004

I SUMMARY OF AUDITOR'S RESULTS

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

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

Cash and Cash Equivalents Revenues/Receivables/Receipts

Expenditures/Liabilities/Disbursements

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

3. Noncompliance Material to the Financial Statements The audit ofthe City ofPelham Board ofEducation disclosed no instances ofnoncompliance that were deemed to be material to the financial statements.

4. Reportable Conditions in Internal Control Over Major Programs The audit report for the City of Pelham Board of Education did not disclose any reportable conditions in internal control over major programs.

5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the City ofPelham Board ofEducation's report on compliance with requirements applicable to major programs was unqualified.

6. Audit Findings Required to be Reported by Section .51 0(a) of 0MB Circular A-133 The City of Pelham Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) of 0MB Circular A-133.

7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program

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

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CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004
I SUMMARY OF AUDITOR'S RESULTS
9. Low Risk Auditee The City ofPelham Board ofEducation 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 Separation of Duties Reportable Condition Finding Control Number: FS-7841-04-01
Our examination ofprincipal accounts disclosed weaknesses in internal control as discussed below:
Cash and Cash Equivalents The bank reconciliation function was not separated from the record keeping and voucher payment functions.
Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions.
Expenditures/Liabilities/Disbursements The check writing function was not separated from record keeping or processing of signed checks.
These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible, at the various principal account sites, for accounting functions and failure to ensure established controls were functioning as designed. Management should implement procedures to ensure that the key accounting functions ofcustody, record keeping and authorization be segregated.
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
No matters were reported.
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SECTIONV MANAGEMENT'S RESPONSES

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004
Finding Control Number: FS-7841-04-01
We concur with this finding as a result of limited administrative staff made responsible, at the various principal account sites, for accounting functions and failure to ensure established controls were functioning as designed. However, due to limited staffand budget restraints the School District is unable to resolve this issue at this time.
Contact Person: Suzanne Pollock, Finance Office Manager Phone: (229) 294-8715 Fax Number (229) 294-2760 E-mail Address: SuzannePollock cy/k.12/GADOE