City of Pelham Board of Education, Mitchell County, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2006

CITY OF PELHAM BOARD OF EDUCATION MITCHELL 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 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

B

STATEMENT OF ACTIVITIES

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

H

STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

I

NOTES TO THE BASIC FINANCIAL STATEMENTS

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND

SUPPLEMENTARY INFORMATION

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

Page
1 2 4 5 6 7 8 9 10
23 24
26

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

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

Page
27 29

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 -
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
February 1, 2007

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the City of 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, 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 ofPelham 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 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 of the City ofPelham Board of Education, as of June 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
2006ARL-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.
In accordance with Government Auditing Standards, we have also issued our report dated February 1, 2007, 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 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 23, 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.
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,
~ 4 ' JXJ. IJ. ~~
Russell W. Hinton, CPA, CGFM State Auditor
RWH:as 2006ARL-11

CITY OF PELHAM BOARD OF EDUCATION -MITCHELL COUNTY

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL 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 Prepaid Items Inventories Capital Assets Land Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries 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

GOVERNMENTAL ACTIVITIES

$

2,770,362

2,230,000

199,385 992,763 451,614
2,146 4,574 12,366

124,184 1,493,934 8,794,558
522,209 -3,504 550

$ ===1=4=0=9=3=5=45=

$

89,352

1 345 635

$

1434987

$

7,430,335

11,586 216,246 986,446 4,013,945

$

12,658,558

$ =====14=0=9=3=5=45===

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

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

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Local Option Sales Tax Intangible Recording Tax 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

$

8,648,955

461,922 438,609 306,252 230,406 915,710 213,195 904,324
55,120 60,875 59,987

136,609 782,106 $ 152 050

$

13,366,120 $

120,970 120 970

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

EXHIBIT"B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

6,677,713

100,604 116,107 181,010 467,583 436,575

446,059 33,291 $

25,830

603,307

$

9,088,079 $

$ 5,779 5 779 $

-1,971,242
-361,318 -322,502 -125,242 237,177 -479,135 -213,195 -458,265
-16,050 -60,875 -34,157
-136,609 -57,829
-152 050
-4, 151,292

$

318,557

153,100 790,194 385,874
203 4,236 2,422,671 71,464 228 059

$

4 374 358

$

223,066

12,435,492

$ =====12=,6=5=8=,5=58=

-3-

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL 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 Prepaid Items Inventories

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 1,509,272 $ 1,261,090 $ 2,230,000

11,549 992,763 451,614
2,146 4,574 12 366

146,170

0 $

2,770,362 2,230,000
157,719 992,763 451,614
2,146 4,574 12 366

Total Assets

$ 5,214,284 $ 1,401,260 $ =====o= $ ======6=6=2=1-=54=4=

LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries 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

$

79,927 $

1,345,635

$ 1,425,562 $

9,425 9 425

$

11,586

203,880

12,366

$

986,446

152,356

3,408,534

411 389 $

$ 3,788,722 $ 1,397,835 $

$

89,352

1 345 635

$

1434987

$
0 0 $

11,586 203,880
12,366 986,446
152,356
3,408,534 411 389
5 186 557

Total Liabilities and Fund Balances

$ 5,214,284 $ 1,401,260 $ = = = = = o = $ ====6!=6=2="1,=54=4=

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

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL 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 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.
Net Assets of Governmental Activities (Exhibit "A")

$

5,186,557

$

124,184

1,493,934

8,794,558

522,209

-3,504,550

7,430,335

41 666

$ 12,658,558

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

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTALFUNDS 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 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

$

301,245

390,313 $

9,671,631

1,852,163

120,970

60,708

228,059

$ 12,625,089 $

790,194 $ 10,756
800,950 $

$ 153,100
153 100 $

301,245 1,333,607 9,671,631 1,852,163
120,970 71,464 228,059
13,579,139

$ 8,379,963
365,120 438,609 263,537 230,406 902,784 210,252 892,031
43,589 60,875 59,987 136,609 756,553
$
$ 12,740,315 $
$ -115,226 $
3,903,948

$
325,559
325,559 $ 475,391 $ 922,444

$
1,050
125,000 27,050 153 100 $
0 $ 0

8,379,963
365,120 438,609 263,537 230,406 902,784 211,302 892,031
43,589 60,875 59,987 136,609 756,553 325,559
125,000 27 050
13,218,974
360,165
4,826,392

$ 3,788,722 $ 1,397,835 $

0 $ =====5.,,;1,=86=!'=55=7=

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

$

360,165

$ 254,052 -401 198

-147,146 10 047

$ ===22=3='=,0=6=6

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 FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006

EXHIBIT"G"

ASSETS Cash and Cash Equivalents Investments
Certificate of Deposit
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

$

8,348 $

20,000

77,444

$

28 348 $ ===77====44=4=

$

77,444

$ _ _2~8,~34_8_

$

28,348 $ ===77====44=4=

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

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2006

EXHIBIT "H"

ADDITIONS Contributions Donors Investment Earnings Interest Total Additions
DEDUCTIONS Scholarships Change in Net Assets
Net Assets - Beginning
Net Assets - Ending

PRIVATE PURPOSE TRUSTS

$

1,000

350

$

1,350

2,000

$

-650

28,998

$ ===2=8,=34=8=

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

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

EXHIBIT "I"

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 ofActivities 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 PELHAM BOARD OF EDUCATION - MITCHELL COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006

EXHIBIT "I"

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) to be used for the acquisition, construction or renovation of major capital facilities.
Debt Service Fund accounts for taxes (sales) legally restricted for the payment 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 ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.

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

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources.
The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
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,
- 12 -

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

EXHIBIT "I"

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.

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

RECEIVABLES

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

PROPERTY TAXES

The City of Pelham fixed the property tax levy for the 2005 tax digest year (calendar year) on August 15, 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 of Pelham 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 $301,245.

The tax millage rate levied for the 2005 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 $385,874 and was recorded in the General Fund. Local Option Sales Tax is to be used for the maintenance and operation of the School District.

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

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $943,294 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

INVENTORIES

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

PREPAID ITEMS

Payments made to vendors for services that will benefit periods subsequent to June 30, 2006, 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

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

EXHIBIT "I"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives.
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 of an 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 2006, the School District paid $152,050 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 of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance.
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,
(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,
- 15 -

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

EXHIBIT "I"

Note 3: DEPOSITS

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

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

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

CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $5,657,396. The amounts of the total bank balances are classified into four categories of custodial credit risk:

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

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

Custodial Credit Risk Category

Bank Balance

1

$ 300,000

2

5,357,396

3

0

4

0

Total

$ 5,657,396

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

- 16 -

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

EXHIBIT "I"

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

$ 124,184 $ 368,855

0

$ 124,184

$ 368 855

0

Total Capital Assets Not Being Depreciated $ 493 039 $

0 $ 368 855 $ 124 184

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 8,183,656 $ 557,161
1,493,934

610,902 12,005 $

$ 46,957

8,794,558 522,209
1,493,934

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

2,324,530 445,300 380 479

318,980 11,527 70 691

46,957

2,643,510 409,870 451 170

Total Capital Assets, Being Depreciated, Net $ 7 084 442 $ 221 709 $

0 $ 7,306,151

Governmental Activity Capital Assets - Net $ 7577481 $ 221 709 $ 368 855 $ 7,430,335

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

$ 230,344

$

96,802

21,428

10,596

1,552

10,077

9 452

149,907 20 947

Note 6: RESTRICTED ASSETS

$====4===01~19='=8

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, 2006, were as follows:

- 17 -

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

EXHIBIT "I"

Note 6: RESTRICTED ASSETS

District-wide Capital Projects SPLOST

Restricted Cash and Cash Equivalents: Capital Acquisitions

$ 840,276

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 has obtained commercial insurance for risk ofloss associated with torts, assets and errors or omissions. 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. The School District has not experienced any losses related to this risk in the past three years.

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

Claims and Changes in Estimates

Claims Paid

EndofYear Liability

$

0 $

6,222 $

6,222 $

0

$

0 $

2,502 $

2,502 $

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

- 18 -

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

EXHIBIT "I"

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 $500,000 loss per occurrence, up to $2,000,000.

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

Position Covered

Amount

Superintendent 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: SUBSEQUENT EVENTS

On September 19, 2006, the voters of Mitchell County voted in favor of a Special Purpose Local Option Sales Tax of one percent to be imposed on all sales in Mitchell County for a period of time not to exceed 20 calendar quarters, beginning upon termination ofthe current such sales and use tax, to raise not more than $14,000,000. A portion of the proceeds from the tax are to be used for the benefit of the City of Pelham Board of Education as stated in part on the Official Ballot of Mitchell County as follows:

- 19 -

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

EXHIBIT "I"

Note 9: SUBSEQUENT EVENTS
"Shall the Pelham Independent School District issue general obligation school bonds in the aggregate principal amount not to exceed $6,000,000 to pay the costs of (i) acquiring, constructing and equipping a new high school; (ii) rehabilitating, repairing, renovating, extending and improving existing schools and related facilities useful or desirable in connection therewith, including without limitation, additional classrooms, roof replacements and repairs, mechanical system repairs and replacements, wiring and infrastructure modifications, renovations and improvements to physical education and athletic facilities; (iii) acquiring and installing systemwide instructional and administrative technology, safety and security equipment; (iv) acquiring vocational, fine arts, physical education and athletic equipment; (v) acquisition of school buses, vehicles and transportation equipment; (vi) acquiring any necessary property, both real and personal and acquiring any necessary or desirable rights in connection therewith, (vii) payment of capitalized interest through September 1, 2007; and (viii) paying costs incident to accomplishing the foregoing; and, in order to raise not more than $14,000,000 to pay a portion of the debt service on such bonds and to pay a portion of the costs of acquiring, constructing and equipping the Pelham Projects, shall a one percent sales and use tax for educational purposes be reimposed in Mitchell County for a period of time not to exceed 20 consecutive calendar quarters?"
Note 10: 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:

- 20 -

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

EXHIBIT "I"

Note 10: RETIREMENT PLANS
Fiscal Year
2006 2005 2004

Percentage Contributed
100% 100% 100%

Required Contribution
$ 704,773 $ 669,570 $ 646,617

- 21 -

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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, 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

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

$

202,000 $

282,000

10,198,018

1,478,982

118,400

12,500

5 000

202,000 $ 282,000 10,383,890 1,959,475 118,400
12,500 5 000

301,245 390,313 9,671,631 1,852,163 120,970
60,708 228 059

$

12,296,900 $

12,963,265 $

12,625,089

$

9,895,774 $

10,285,833 $

8,379,963

358,408 785,336 267,485 367,779 922,986 384,800 1,383,820
77,150 95,700 54,803
25,000 742 200

384,053 846,615 272,431 388,907 922,986 384,800 1,391,300
79,258 95,700 50,617
25,000 741 571

365,120 438,609 263,537 230,406 902,784 210,252 892,031
43,589 60,875 59,987 136,609
756 553

$

15 361 241 $

15 869 071 $

12 740 315

$

-3,064,341 $

-2,905,806 $

-115,226

3,026,038

3,026,038

3 903 948

Fund Balances - Ending

$

-38,303 $

120232 $===3=,7=8=8'=72=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.

- 23 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL 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 Direct Impact Aid Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Improving Teacher Quality State Grants Rural Education State Grants for Innovative Programs 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
Total Federal Financial Assistance
N/A = Not Available

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

* 10.553 * 10.555

NIA

N/A

$

$

(2) 686 680
686,680

10.550

N/A
$

26 613 713 293

* 84.027 * 84.173

N/A

$

N/A

$

297,345 20 997
318,342

84.041
84.318 84.367 84.358 84.298 84.010 84.048
84.010

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

(3)
8,196 81,700 47,766
4,957 568,905
27,320
227 834
1 285 020

$ ===1=9=9=8=,3=13=

- 24 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL 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 ($133,912) were not maintained separately and are included in the 2006 National School Lunch Program.
(3) Funds earned on the Impact Aid Program, in the amount of $7,265, 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 fund financial statements.

See notes to the basic financial statements.

- 25 -

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV 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 Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Preschool Handicapped Program Statewide K-8 Reading and Mathematics Program

GOVERNMENTAL FUND TYPE GENERAL FUND

$

269,508

455,365 118,469 1,214,936
72,499 475,883
79,302 822,693 702,288 344,648
15,200 272,546 665,903
73,813 75,068 220,146 41,843 67,174
7,807 153,741
47,873 32,007
364,896 375,296 432,177
32,786 5,779
20,000 45,060
5,219 2,422,671
43,260 10,936 -375,223
30,122 29 940

$ ======9=1=6=7=1!=63=1=

See notes to the basic financial statements.

- 26 -

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

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 $

153,100 $ 1,178,573 Ongoing

250,000

250,000

Ongoing

4,290,000

4,290,000

257 340

2,243,523 Ongoing

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

410 440 $ 3,422,096

(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.

- 27 -

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CITY OF PELHAM BOARD OF EDUCATION - MITCHELL 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 II

Category Ill

Gifted Student - Category VI

Remedial Education Program

Alternative Education Program

English Speakers of Other Languages (ESOL)

453,476 $ 119,387 1,232,374
81,497 488,585

361,809 $ 149,571 1,066,251 145,192 608,459

81,264 855,418 710,989 349,759 1,112,945
227,948 45,393 69,554 8 000

140,572 973,834 1,022,978 379,256
709,469 383,924 230,525
72,918 230,984
10 477

8,429 $ 1,199 37,370 2,787 15,302
1,152 32,412 122,047 101,795
17,310 8,148 5,704 1,807
13,739 689

370,238 150,770 1,103,621 147,979 623,761
141,724 1,006,246 1,145,025
481,051
726,779 392,072 236,229
74,725 244,723
11 166

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

5,836,589 $ 6,486,219 $

369,890 $

6,856,109

Media Center Program Staff and Professional Development

156,983 32 862

193,471 4 824

50,358 34 450

243,829 39 274

TOTAL QBE FORMULA FUNDS

$====6:!.0=2=6;,,;4=34= $ 6 684 514 $

454698 $=====7~1=3:9~2=12=

(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.

- 29 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

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

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

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the City of 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, 2006, which collectively comprise City of Pelham Board of Education's basic financial statements and have issued our report thereon dated February 1, 2007. 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 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 ofPelham Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-7841-06-02 and FS-7841-06-03.
2006YB-30

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 is 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 oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of the management and members of the City ofPelham Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
~~-ll w..zj~
Russell W. Hinton, CPA, CGFM State Auditor
RWH:as 2006YB-30

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

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

Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the City of 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 of City ofPelham Board of Education with the types of compliance requirements described in the U.S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2006. 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 of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the City ofPelham Board ofEducation'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 Pelham Board of Education's compliance with those requirements.
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 of its major Federal programs for the year ended June 30, 2006.
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 of Pelham 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 Pelham 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-7841-06-01.
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 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 Pelham Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

RWH:as 2006SA-30

Russell W. Hinton, CPA, CGFM State Auditor

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, 2006

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-7841-04-01 FS-7841-05-01

Further Action Not Warranted Unresolved - See Corrective Action/Reponses

CORRECTIVE ACTION/RESPONSES

REVENUES/RECEIVABLES/RECEIPTS Inadequate Separation of Duties Finding Control Number: FS-7841-05-01

This deficiency was a result of management's decision to limit the number of administrative staff made responsible for accounting functions applicable to various Principal's accounts and failure to ensure established controls were functioning as designed.

As stated in the corrective action plan, due to limited staffing, the Board is unable to resolve this finding.

SECTION IV FINDINGS AND QUESTIONED COSTS

CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006
I SUMMARY OF AUDITOR'S RESULTS
1. Type of Report Issued on the Financial Statements The auditor's opinion on the City of 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 financial statement reportable conditions related to the following control categories.
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 Pelham Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements.
4. Reportable Conditions in Internal Control Over Major Programs The audit report for the City of Pelham 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 Pelham Board of Education'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 of Education's audit disclosed an audit finding required to be reported by section .5 lO(a) of 0MB Circular A-133. This audit finding is included in section IV of this report.
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.
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CITY OF PELHAM BOARD OF EDUCATION - MITCHELL COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

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 of 0MB Circular A-133.

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Excessive Fund Balance Nonmaterial Noncompliance Finding Control Number: FS-7841-06-01

Condition:

The School District did not comply with provisions ofO.C.G.A. 20-2-167 as defined by Chapter 32 ofthe Financial Management for Georgia Local Units ofAdministration (FMGLUA). "The purpose ofthis paragraph is to prohibit local school systems from accumulating surplus funds through taxation without accounting to the taxpayers for how such funds will be expended, and this paragraph shall be liberally construed to accomplish this purpose." The School District's General Fund had an excessive unreserved, undesignated fund balance at fiscal year end.

Criteria:

O.C.G.A. 20-2-167 states in part: "The budget of each local school system shall designate all of such anticipated revenues among the several funds or accounts of the system and shall not leave any anticipated revenues undesignated. (Except as otherwise provided in this paragraph, all amounts allocated to each fund or account in the nature of a 'surplus' or 'unobligated surplus' fund or account.) Each local school system may, however, establish a single reserve fund or reserve account intended to cover unanticipated deficiencies in revenue or unanticipated expenditures. Provided that the budget for any year shall not allocate to such reserve fund or reserve account any amounts which, when combined with the existing balance in such fund or account, exceed 15 percent of that years total budget."

Questioned Cost: NIA

Information:

The School District's General Fund reported an unreserved, undesignated fund balance that exceeded 15 percent of the 2007 fiscal year budgeted general fund expenditures.

Cause:

The School District neglected the specific limitations imposed by the provisions as set forth in O.C.G.A. 20-2-167, as defined by the Georgia Department of Education.

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

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Excessive Fund Balance Nonmaterial Noncompliance Finding Control Number: FS-7841-06-01

Effect:

Nonmaterial noncompliance with respect to Chapter 32 of the FMGLUA.

Recommendation:

The School District should ensure that in future periods the School District complies with the provisions ofO.C.G.A. 20-2-167. Specifically, the School District should either reduce the millage rate or adequately identify and designate fund balance to properly reflect future needs ofthe School District.

REVENUES/RECEIVABLES/RECEIPTS Inadequate Separation of Duties over School Activity Accounts Reportable Condition Finding Control Number: FS-7841-06-02

Condition:

This is a repeat finding (FS-7841-05-01 and FS-7841-04-01) from the years ended June 30, 2005 and 2004, respectively. The accounting procedures of the School District were insufficient to provide for adequate separation of duties over the school activity accounts.

Criteria:

The School District's management is responsible for designing and maintaining internal controls that provide proper separation of duties. Such internal controls would limit any one individual's access to both physical assets and the related accounting records.

Questioned Cost: NIA

Information:

Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions.

Cause:

The School District has not assigned responsibilities to achieve appropriate separation of duties nor utilized management oversight of the incompatible activities to properly safeguard assets.

Effect:

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

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

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS Inadequate Separation of Duties over School Activity Accounts Reportable Condition Finding Control Number: FS-7841-06-02

Recommendation:

The School District should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization are separated and/or utilize management oversight of these incompatible activities.

EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls Reportable Condition Finding Control Number: FS-7841-06-03

Condition:

The accounting procedures ofthe School District were insufficient to provide for adequate internal controls over the Expenditures/Liabilities/Disbursement control category.

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:

Expenditures/Liabilities/Disbursements Based upon a review of 30 vouchers, the following deficiency was noted: Thirteen lacked purchase orders and/or approval of expenditures prior to checks being written.

Cause:

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

Effect:

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

Recommendation:

Management should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures.

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

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ALLOWABLE COSTS/COST PRINCIPLES Time and Attendance Records Not Utilized Reportable Condition U.S. Department of Education Through Georgia Department of Education Special Education - Grants to States (CFDA 84.027) Finding Control Number: FA-7841-06-01

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 of their 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."

Questioned Cost: $17,933

Information:

The School District did not have adequate procedures in place to conform to these requirements and ensure that employee compensation payments were allowable.

Cause:

Management failed to require timesheets and/or time schedules for employees that were split-funded between Federal programs and other programs.

Effect:

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

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

III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ALLOWABLE COSTS/COST PRINCIPLES Time and Attendance Records Not Utilized Reportable Condition U.S. Department of Education Through Georgia Department of Education Special Education - Grants to States (CFDA 84.027) Finding Control Number: FA-7841-06-01

Recommendation:

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

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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, 2006
Finding Control Number: FS-7841-06-01
We concur with this finding. In future periods we will comply with the provisions ofO.C.G.A. 202-167, and we will identify and designate fund balance to properly reflect future needs ofthe school system.
Finding Control Number: FS-7841-06-02
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 staff and budget restraints the Board is unable to resolve this issue at this time. However, we will utilize management procedures to the fullest extent.
Finding Control Number: FS-7841-06-03
We concur with this finding. Management will monitor controls to provide reasonable assurance that transactions are processed according to established procedures and policies.
Finding Control Number: FA-7841-06-01
We concur with this finding. We will establish procedures to ensure that adequate time records that support the basis for compensation are maintained for all split-funded employees.
Contact Person: Will Jenkins, Interim Superintendent Phone: (229) 294-8715 Fax Number: (229) 294-2760 E-mail Address: jenkinsw@pelham-city.kl2.ga.us