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

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION
WALTON 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 SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

3

B

STATEMENT OF ACTIVITIES

4

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

NOTES TO THE BASIC FINANCIAL STATEMENTS

11

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES - BUDGET AND ACTUAL

GENERAL FUND

27

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY - TABLE OF CONTENTS -

SECTION I

FINANCIAL

SCHEDULES

SUPPLEMENTARY INFORMATION

2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

28

3 SCHEDULE OF STATE REVENUE

29

4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

30

5 ALLOTMENTS AND EXPENDITURES

GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE)

BY PROGRAM

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

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY - TABLE OF CONTENTS -
SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS
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
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
March 11, 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 Social Circle Board of Education
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Ladies and Gentlemen:
We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the City of Social Circle 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 of the City of Social Circle 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 opm1ons.
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 of Social Circle Board ofEducation, as ofJune 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

As discussed in Note 2 to the basic financial statements, during fiscal year 2004, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements and consolidated its individual school activity accounts for inclusion in the basic financial statements. These changes are in accordance with generally accepted accounting principles.
As described in Note 2, the City of Social Circle 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 March 11, 2005, on our consideration of the City of Social Circle 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.
Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through ix and page 27 respectively, are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Social Circle Board ofEducation'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 ofGeorgia Annotated section 506-24.
Respectfully submitted,
~-~~
sell W. Hinton State Auditor
RWH:as 2004ARL-11

SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
INTRODUCTION
Our discussion and analysis of the Social Circle City School District's financial performance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2004. The intent of this discussion and analysis is to look at the School District's financial performance as a whole; readers should also review the notes to the basic financial statements and financial statements to enhance their understanding of the School District's financial performance.
FINANCIAL HIGHLIGHTS
Key financial highlights for 2004 are as follows:
The School District implemented GASB 34 for fiscal year 2004. Due to this being the implementation year, many comparisons are not available that will be available for fiscal year 2005.
On the District-wide financial statements, the assets of the School District exceeded liabilities by $19.6 million. Of this amount, $1.2 million is unrestricted and is available for spending at the School District's discretion.
The School District had $11.2 million in expenses relating to governmental activities; only $8.7 million of these expenses are offset by program specific charges for services, grants and contributions. General revenues (primarily property and sales taxes) of $3.6 million were adequate to provide for these programs.
As stated above, general revenues accounted for $3.6 million or 29% of all revenues totaling $12.4 million. Program specific revenues in the form of charges for services, grants and contributions accounted for the rest.
OVERVIEW OF THE FINANCIAL STATEMENTS
This report consists of several parts including management's discussion and analysis, the basic financial statements and required supplementary information. The basic financial statements include two levels of statements that present different views of the School District. These include the District-wide and fund financial statements.
The District-wide financial statements include the Statement of Net Assets and Statement of Activities. These statements provide information about the activities of the School District presenting both short-term and long-term information about the School District's overall financial status.
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SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
The fund financial statements focus on individual parts of the School District, reporting the School District's operation in more detail. The Governmental Funds statements disclose how basic services are financed in the short-term as well as what remains for future spending. The Fiduciary Funds statement provides information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. The fund financial statements reflect the School District's most significant funds. In the case of the Social Circle City School District, the General Fund, District-wide Capital Projects Funds and Debt Service Funds are the most significant funds.
The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. Additionally, other supplementary information (not required) is also presented that further supplements understanding of the financial statements.
District-wide Statements
The District-wide financial statements are basically a consolidation of all of the School District's operating funds into one column called governmental activities. In reviewing the District-wide financial statements, a reader might ask the question, are we in a better financial position than last year? The Statement of Net Assets and the Statement of Activities provides the basis for answering this question. These financial statements include all District's assets and liabilities and uses the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid.
These two statements report the School District's net assets and any changes in those assets. The change in net assets is important because it tells the reader that, for the School District as a whole, the financial position of the School District has improved or diminished. The causes of this change may be the results of many factors, including those not under the School District's control, such as the property tax base, facility conditions, required educational programs and other factors.
The Statement of Net Assets and the Statement of Activities reflects the School District's governmental activities.
Fund Financial Statements
The School District uses many funds to account for a multitude of financial transactions during the fiscal year. However, the fund financial statements presented in this report provide detail information about only the School District's significant or major funds.
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SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Governmental Funds - Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at yearend available for spending in future periods. These funds are reported using the modified accrual method ofaccounting which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds are reconciled within the financial statements. Fiduciary Funds - The School District is the trustee, or fiduciary, for assets that belong to others, such as school clubs and organizations within the principals' accounts. The School District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The School District excludes these activities from the District-wide financial statements because it cannot use these assets to finance its operations. FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE Recall that the Statement of Net Assets provides the perspective of the School District as a whole. Table 1 provides a summary of the School District's net assets for this fiscal year. Since this is the first year the School District has prepared financial statements following GASB Statement 34, net asset comparisons to fiscal year 2003 are not available.
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SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Table 1 Net Assets

Governmental Activities Fiscal Year 2004

Assets Current and Other Assets Capital Assets, Net

$ 8,283,876 18,167,157

Total Assets

$ 26,451,033

Liabilities Current and Other Liabilities Long-Term Liabilities

$ 1,510,541 5,275,000

Total Liabilities

$ 6,785,541

Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted

$ 15,154,009 3,310,537 1,200,946

Total Net Assets

$ 19.665.492

Table 2 shows the Changes in Net Assets for this fiscal year. Since this is the first year the School District has prepared financial statements following GASB Statement 34, revenue and expense comparisons to fiscal year 2003 are not available.

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SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Table 2 Change in Net Assets
Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions
Total Program Revenues
General Revenues: Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Debt Service Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Special Item Gain on Sale of Land
Total General Revenues
Total Revenues
Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Operations ofNon-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt
Total Expenses
Increase in Net Assets

Governmental Activities Fiscal Year 2004
$ 1,019,999 7,100,011 647 943
$ 8,767,953
$ 1,651,997
985,818
786,978 65,254 153,403
42 999
$ 3,686,449
$ 12,454,402
$ 7,033,975
210,205 108,687 241,635 475,929 757,910 72,875 833,298 453,609 231,390
68,384 642,481 149 600
$ 11,279,978
$ 1!174!424

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SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Governmental Activities

The Statement of Activities shows the cost of program services and the charges for services and grants offsetting these services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services. It identifies the cost of these services supported by tax revenue and unrestricted State entitlements. Since this is the first year the School District has prepared financial statements following GASB Statement 34, cost of service comparisons for fiscal year 2003 are not available.

Table 3 Governmental Activities

Total Cost of Services Fiscal Year 2004

Net Cost of Services Fiscal Year 2004

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 Other Support Services Operations ofNon-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt

$ 7,033,975 $
210,205 108,687 241,635 475,929 757,910 72,875 833,298 453,609 231,390
68,384 642,481 149,600

610,829
97,797 43,095 109,424 145,516 367,037 72,875 423,216 289,533 193,842
15,066 -5,805 149,600

Total Expenses

$ 11!279!978 $ 2!512!025

FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT'S FUNDS

The School District's governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues and other financing sources of $14.5 million and total expenditures and other financing uses of $13.7 million.

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SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
General Fund Budgeting Highlights The School District's budget is prepared according to Georgia Law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2004 the School District amended its general fund budget as needed. The School District uses site-based budgeting as a part of the budget process. The budgeting systems are designed to control total site budgets but provide flexibility for site management. For the General Fund, the actual revenues of $10.7 million was over the final budgeted amounts of $10 million by $0.7 million. This difference (actual vs. final budget) was due primarily to an increase in state revenues over final budget of $0.2 million; increase in charges for services of $0.3 million; and miscellaneous revenues over final budget of $0.2 million. The miscellaneous revenues over final budget were primarily due to the inclusion of the principals' accounts in our financial statements, but not in the budget. The actual expenditures of $10.6 million exceeded the final budgeted amount of $10.6 million by only $24,384. This difference was due in part to our school principals' accounts not being included in the budget process. General Fund revenues were more than expenditures by $0.1 million. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At fiscal year ended June 30, 2004 the School District had $18.1 million invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances net of accumulated depreciation. Since this is the first year the School District has prepared financial statements following GASB Statement 34, capital assets comparisons to fiscal year 2003 are not available.
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SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004

Table 4 Capital Assets (Net of Depreciation)
Land Land Improvements Buildings and Improvements Equipment Total

Governmental Activities Fiscal Year 2004

$

9

70,834

17,629,584

466,730

$ 18,167,157

Debt

At fiscal year ended June 30, 2004, the School District had $5.3 million in bonds outstanding, with $0.8 million due within one year. Table 5 summarizes the School District's debt for general obligation bonds.

Table 5 Debt at June 30

Governmental Activities Fiscal Year 2004

Bonds Payable

$ 5,275,000

CURRENT ISSUES

Currently known facts, decisions or conditions that are expected to have a significant effect on financial positions or results of operations.

Economic Slowdown - State funding for education has been stagnant and as a result more pressure is being placed on the local School Districts to prioritize its educational programs and provide additional local funding. Additional costs to the School District will be required with the continued implementation of House Bill 1187, which mandates lower teacher to student ratios, requiring additional teachers and additional classrooms. Despite these challenges, the Social Circle City School District is strong financially and we remain optimistic about the ability of the School District to maximize all of the financial resources to provide a quality education to our students.

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SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Capital Improvements - The School District plans capital improvements as future capital needs arise due to increased student population and facility repair and maintenance needs. Specific capital expenditure plans are formalized in conjunction with individual general obligation bond issues and anticipated annual receipts of capital outlay funds from the State of Georgia Department of Education. The School District regularly monitors anticipated capital outlay needs.
CONTACTING THE SCHOOL DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizen's, taxpayers, investors and creditors with a general overview of the School District's finances and to show the School District's accountability for the money it receives. If you have questions about this report or need additional financial information contact Mrs. Joan Stephens, Fiscal Officer for the Social Circle City School System, 240-B West Hightower Trail, Social Circle, Georgia 30025. You may also email your questions to Mrs. Stephens at jstephens@scboe.org.
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CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON 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 Inventories Capital Assets Land Land Improvements Buildings Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES
Accounts Payable Salaries Payable Contracts Payable Deferred Revenues Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Debt Service Capital Projects Unrestricted
Total Net Assets
Total Liabilities and Net Assets

GOVERNMENTAL ACTIVITIES

$

1,066,040

6,056,711

235,844 847,350
55,879 9,408 12,644

9 145,364 23,239,345 1,108,438 -6,325,999

$

26,451,033

$

243,965

994,661

265,343

6,572

775,000 4 500 000

$

6,785,541

$

15,154,009

91,611 1,429,972 1,788,954 1,200,946

$

19,665,492

$ ===2=6=,4=5=1=,0=33=

The notes to the basic financial statements are an integral part of this statement. -3-

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30. 2004

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 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 Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Special Item Gain on Sale of Land
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year
Net Assets - End of year

EXPENSES

CHARGES FOR SERVICES

$

7,033,975 $

210,205 108,687 241,635 475,929 757,910
72,875 833,298 453,609 231,390

68,384 642,481 149 600

$

11,279,978 $

767,926
8,596 53,318 190,159 1019999

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

EXHIBIT"B"

PROGRAM REVENUES

OPERATING

CAPITAL

GRANTS AND

GRANTS AND

CONTRIBUTIONS CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$

5,115,401 $

112,408 65,592 132,211 330,413 390,873

397,540 136,694 37,548

381,331

$

7100011 $

539,819 $
3,946 27,382 76,796 647 943 $

-610,829
-97,797 -43,095 -109,424 -145,516 -367,037 -72,875 -423,216 -289,533 -193,842
-15,066 5,805
-149,600
-2,512,025

$

1,651,997

985,818 786,978
65,254 153,403

42,999

$

3,686,449

$

1,174,424

18,491,068

$ ======19='=,6=6=5!==,4=92=

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CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON 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 Inventories

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$

560,917 $

505,123

2,973,800

2,914,936 $

785,582 55,879 9,408 12,644

61,768

$ 167,975
192,126

1,066,040 6,056,711
192,126 847,350
55,879 9,408 12 644

Total Assets

$ 4,398,230 $ 3,481,827 $

360 101 $=====8=,2=4=0=,1=58=

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

$

235,817 $

8,148

$

994,661

265,343

6 572

$ 1,237,050 $

273,491

$

$

78,967

1,069,871

$

12,644

$ 3,208,336

$ 360,101

1,999,698 $ 3,161,180 $ 3,208,336 $

360 101 $

243,965 994,661 265,343
6 572 1,510541
78,967 1,429,972
12,644 3,208,336
1,999,698 6,729,617

Total Liabilities and Fund Balances

$ 4,398,230 $ 3,481,827 $

360,101 $ =====8.,.,2=4=0=1,=58=

The notes to the basic financial statements are an integral part of this statement.
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CITY OF SOCIAL BOARD OF EDUCATION - WALTON 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.
Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:
Bonds Payable
Net Assets of Governmental Activities (Exhibit "A")

$

6,729,617

$

9

145,364

23,239,345

1.108,438

-6,325,999

18,167,157

43.718

-5,275,000 $ 19,665,492

The notes to the basic financial statements are an integral part of this statement.
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CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON 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 Other Support Services Enterprise Operations Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Proceeds of Long-Term Capital-Related Debt Sale of Equipment and Land Transfers In Transfers Out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 1,608,279
7,056,799 $ 808,239
1,019,999 43,869
200 569
$ 10 737 754 $

$ 617,678
21,868
639 546 $

$ 985,818

1,608,279 985,818
7,674,477 808,239
1,019,999 65,737
200,569

985 818 $ 12,363,118

$ 6,715,716

210,205 108,687 241,635 475,929 757,910
$ 830,971 391,323 231,390
68,384 598,905

72,875 2,010,333

$

$ 10,631,055 $ 2,083,208 $

$

106 699 $ -1,443,662 $

$

6,715,716

210,205 108,687 241,635 475,929 757,910
72,875 830,971 391,323 231,390
68,384 598,905 2,010,333

725,000 149 600

725,000 149 600

874 600 $ 13,588,863

111 218 $ -1,225,745

$ 2,000,000

$

56,200

10 $

-10

-152,532

$

56190 $ 1847478 $

$

162,889 $

403,816 $

2,998,291

2,804,520

$ 152,532
152,532 $ 263,750 $
96 351

2,000,000 56,200
152,542 -152 542
2,056,200
830,455
5 899 162

$ 3,161,180 $ 3,208,336 $

360 101 $

6 729 617

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

CITY OF SOCIAL BOARD OF EDUCATION - WALTON 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.

In the Statement of Activities, only the gain on the sale of land and equipment is reported, whereas in the Governmental Funds, the entire proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balances by the cost of the land and the carrying value of the equipment sold.

Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from:

General Obligation QZAB Bonds Issued

Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of:

Bond Principal Retirements

$

830,455

1,861,931 -278 046

1,583,885 43,718

-8,634

-2,000,000

725,000

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

$ ====1=17=4-=i4=24=

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

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004

EXHIBIT"G"

ASSETS Cash and Cash Equivalents Investments
Certificate of Deposit
Total Assets
LIABILITIES Funds Held for Others

AGENCY FUNDS

$

87,358

9,350

$ ===96='=70=8=

$===96='=70=8=

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

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT "H"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The City of Social Circle 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 and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements ofthe City of Social Circle 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.
The School District reports the following major governmental funds:
- 11 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY EXHIBIT "H" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund.
District-wide Capital Projects Fund accounts for financial resources including Bond Proceeds and grants from Georgia State Financing and Investment Commission to be used for the acquisition, construction or renovation of major capital facilities.
Debt Service Fund accounts for taxes (property and sales) legally restricted for the payment of general long-term principal, interest and paying agent's fees.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governmental or individuals.
BASIS OF ACCOUNTING
The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities are reported as other financing sources.
- 12 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY EXHIBIT "H" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

RESTATEMENT OF PRIOR YEAR 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 $94,217 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 ofthe various school activity accounts had a fund balance of$51,586 at July 1, 2003. This change is in accordance with generally accepted accounting principles.

General Fund Balance July 1, 2003

$ 2,852,488

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

94,217 51,586

General Fund Balance July 1, 2003 (Restated)

$ 2,998,291

CHANGES IN ACCOUNTING PRINCIPLES

The City of Social Circle 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 ofa Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following:

- 13 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY EXHIBIT "H" 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 Debt Service Fund

$ 2,998,291 2,804,520 96,351

Governmental Funds (Restated) July 1, 2003 Capital Assets Accumulated Depreciation Bonds Payable

$ 5,899,162 22,662,026 -6,070,120 -4,000,000

Net Assets Beginning (See Exhibit "B")

$ 18A91 2068

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 of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:

(1) Obligations issued by the State of Georgia or by other states,

(2) Obligations issued by the United States government,

(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,

(4) Obligations of any corporation of the United States government,

(5) Prime banker's acceptances,

- 14 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT "H"

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

(7) Repurchase agreements, and

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

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 Social Circle fixed the property tax levy for the 2003 tax digest year (calendar year) on October 26, 2003 (levy date). Taxes were due on December 26, 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 Social Circle 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 $1,608,279.

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

School Operations

14.42 mills

SALES TAXES

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $985,818 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 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

- 15 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY EXHIBIT "H" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.

CAPITAL ASSETS

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

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

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment

All

NIA

$

5,000 20 to 80 years

$

5,000 25 to 80 years

$

5,000 8 to 50 years

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

GENERAL OBLIGATION BONDS

The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bond issuance costs are recognized in the financial statements during the fiscal year bonds are issued. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets.

- 16 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT "H"

Note 3: DEPOSITS AND INVESTMENTS
COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee 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. 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 ofthe State of Georgia,
(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,
(6) Industrial revenue bonds and bonds 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 $5,046,800. The amounts of the total bank balances are classified into three categories of credit risk:

- 17 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY EXHIBIT "H" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 3: DEPOSITS AND INVESTMENTS

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

$ 232,338

2

3,314,462

3

1,500,000

Total

$ 5,046.800

CATEGORIZATION OF INVESTMENTS Investments are classified as to risk by the three categories described below:

Category 1 - Insured or registered, or securities held by the School District or the School District's agent in the School District's name.
Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the School District's name.
Category 3 - Uninsured or unregistered, with securities held by the counterparty, or by its trust department or agent but not in the School District's name.

Funds invested in an investment pool managed by another government are not required to be categorized unless the investing entity owns specific, identifiable investment securities in the pool.

At June 30, 2004, the carrying value ofthe School District's total investments was $2,652,782 which is materially the same as fair value. The investments are classified as to risk categories as follows:

- 18 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY EXHIBIT "H" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 3: DEPOSITS AND INVESTMENTS

TxQe oflnvestment

U. S. Government

$

Local Government Investment Pools

Total Investments

Risk Categories

2

3

Carrying Amount

Fair Value

0 $

$ 1,069.871 $ 1,069,871 $ 1,103,265

1,582,911

1,582,911

$ 2,652,182 $ 2,686,176

The carrying amounts shown above includes amounts maintained in an investment pool by the State ofGeorgia, Office ofTreasury and Fiscal Services in which the School District owns no identifiable securities. The investment policy ofthe State of Georgia, Office ofTreasury and Fiscal Services for the Local Government Investment Pool (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. A description ofthe Primary Liquidity Portfolio is as follows:

The Primary Liquidity Portfolio consists of Georgia Fund 1, which is a combination local and state government investment pool, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the Securities and Exchange Commission (SEC) as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds ofGeorgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund.

Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2004, was 24 days. The average investment duration for Fund 6 on June 30, 2004, was 0.22 years.

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 SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30. 2004

EXHIBIT "H"

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

$

IO

$

I $

9

Construction in Progress

651,689 $ 1,536,162

2,187,851

0

Total Capital Assets Not Being Depreciated $ 651,699 $ 1,536,162 $ 2,187,852 $

9

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

$ 20,804,300 $ 1,104,434 101,593

2,435,045 34,804 $ 43,771

$ 23,239,345

30,800

1,108,438

145,364

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

5,405,115 596,430 68,575

204,646 67,445 5 955

22,167

5,609,761 641,708 74 530

Total Capital Assets, Being Depreciated, Net $ 15,940,207 $ 2,235,574 $

8 633 $ 18,167,148

Governmental Activity Capital Assets - Net $ 16,591,906 $ 3,771,736 $ 2,196,485 $ 18,167,157

Current year depreciation expense by function is as follows:

Instruction Support Services
Maintenance and Operation of Plant Student Transportation Services Food Services

$ 204,643

$

1,496

43 887

45,383 28,020

$=~2==78~-~04-6

Note 6: RESTRICTED ASSETS

Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds and Georgia State Financing and Investment Commission (GSFIC) funds are reported as restricted assets in the Statement of Net Assets because their use is limited by applicable bond covenants or statutory provisions. Restricted assets at June 30, 2004, were as follows:

- 20 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT "H"

Note 6: RESTRICTED ASSETS

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

General Fund

District-wide Capital Projects

Bond

SPLOST

Proceeds

GSFIC

Debt Service Funds

$ $ 1,069,871

232,866 $

46,130 $

$ 2,914,936

226,127 $

167,975

Note 7: INTERFUND TRANSFERS

Interfund transfers for the year ended June 30, 2004, consisted of the following:

Transfer to

Transfers From

District-wide

General

Capital

Fund

Projects

District-wide Capital Projects Debt Service Funds

$
$_ _15_2,~53_2

Total

$====1eaa,0 $====15=2-===53==2

Transfers are used to open new bank account for QZAB Bond Issue and to move SPLOST proceeds collected by Capital Projects Fund to the Debt Service Fund for retirement of debt.

Note 8: RISK MANAGEMENT

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

The School District has obtained commercial insurance for risk of loss associated with job related illness or injuries to employees. The School District has neither significantly reduced coverage for this risk nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years.

- 21 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT "H"

Note 8: RISK MANAGEMENT

The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members ofthe system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse) and automobile risks. Payment of excess insurance for the system varies by line of coverage.

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

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

2003 2004

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End ofYear Liability

$

0 $

1 788 $

1 788 $

0

$

0 $

1,062 $

1,062 $

0

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

Position Covered

Amount

Superintendent Each Principal

$

25,000

$

5,000

Note 9: LONG-TERM DEBT

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

- 22 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT "H"

Note 8: RISK MANAGEMENT

Purpose

Interest Rates

Amount

General Government - Series 2002 General Government - QZAB Series 2003

3.74% 0%

$ 3,275,000 2,000,000

$ 5,275,000

The changes in Long-Term Debt during the fiscal year ended June 30, 2004, were as follows:

Governmental Funds General
Obligation Bonds

Balance July 1, 2003

$ 4,000,000

Additions G.O. Bonds

2,000,000

Deductions Debt Retired

725,000

Balance June 30, 2004

$ 5,275.000

Portion of Long-Term Debt Due within One Year

$ 775,000

At June 30, 2004, payments due by fiscal year which includes principal and interest for these items are as follows:

- 23 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT "H"

Note 8: RISK MANAGEMENT

Fiscal Year Ended June 30

General Obligation

Debt

Principal

Interest

2005 2006 2007 2008 2009 2010 - 2014 2015 - 2019 2020 - 2023

$ 775,000 $ 805,000 830,000 865,000 0 0 0
2,000,000

122,485 93,500 63,393 32,351
0 0 0 0

Total Principal and Interest

$ 5,275.000 $ 311.729

Note 10: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of$85,398 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.

Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $84,765

Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $633

Note 11: SIGNIFICANT CONTINGENT LIABILITIES

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

The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements.

- 24 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY EXHIBIT "H" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2004

Note 12: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)

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

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

Fiscal Year

Percentage Contributed

Required Contribution

2004 2003 2002

100% 100% 100%

$ 561,936 $ 552,504 $ 517,030

- 25 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON 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 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 Maintenance and Operation of Plant Student Transportation Services Other Support Services Enterprise Operations Food Services Operation
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Other Sources Other Uses
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning
Inventory - Net Change in Period

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL(1)

ACTUAL AMOUNTS

$

1,642,072 $

1,642,072 $

1,608.279

6,733.469

6,822.469

7,056.799

471.386

802.201

808.239

600.000

764,500

1,019,999

500

43,869

4 000

200 569

$

9 446 927 $

10 035 742 $

10 737 754

$

6,547,078 $

6,628,709 $

6,715,716

155,749 131,052 250,186 479,436 787,519 964,319 418,933 199,910
30 591

180,231 141,649 250,186 481,353 787,519 964,334 419,889 199,910
552 891

210,205 108,687 241,635 475,929 757,910 830,971 391,323 231,390
68,384 598 905

$

9 964 773 $

10 606 671 $

10 631 055

$

-517 846 $

-570 929 $

106 699

$

$

-1 069 871

56,200 -10

$

-1 069 871 $

56190

$

-517,846 $

-1,640,800 $

162,889

3,154,015

3,154,015

2,998,291

241

241

Fund Balances - Ending

$

2636410 $

1513456 $

3 161 180

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.

- 27 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON 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 Flow Through Preschool Grants
Total Special Education Cluster
Other Programs Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Improving Teacher Quality State Grants Safe and Drug-Free Schools and Communities Title I Grants to Local Educational Agencies State Grants for Innovative Programs Vocational Education - Basic Grants to States
Total U.S. Department of Education

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

* 10.553 * 10.555

N/A N/A $
$

(2) 516,656
516,656

10.550

N/A $

26,106 542,762

84.027 84.173

NIA

$

N/A

$

84.318 84.367 84.186 84.010 84.298 84.048

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

196,916 8,464
205,380
8,865 48,591
5,582 175,743
2,688 15,384
462,233

Total Federal Financial Assistance NIA = Not Available

$ ====='1,=00=4,l,:,9=95=

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 ($81,906) were not maintained separately and are included in the 2004 National School Lunch Program.

Major Programs are identified by an asterisk (*) in front of the CFDA number.

The School District did not provide Federal Assistance to any Subrecipient.

The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the City of Social Circle 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.

- 28 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30 2004

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program 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 4-8 Statewide After School Program K-3 Statewide Reading Program Health Insurance Mentor Teachers National Teacher Certification Next Generation Schools Preschool Handicapped Program
Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Office of School Readiness Pre-Kindergarten Program
Office of Treasury and Fiscal Services Public School Employees Retirement

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$

348,205

92,766

961,614

154,809

429,620

129,691

834,263

626,167

283,179

47,268 143,450 382,163 126,699
26,501 74,435 23,739 63,212 132,542 42,321 27,301

304,550 385,529 393,560

121,695 27,382 19,500 45,557 5,452
704,820 34,072 27,216
-312,565
12,000 25,427 84,765
2,690 7,864 10,960 33,306

$

348,205

92,766

961,614

154,809

429,620

129,691

834,263

626,167

283,179

47,268 143,450 382,163 126,699
26,501 74,435 23,739 63,212 132,542 42,321 27,301

304,550 385,529 393,560

121,695 27,382 19,500 45,557 5,452
704,820 34,072 27,216
-312,565
12,000 25,427 84,765
2,690 7,864 10,960 33,306

$ 172,441
633

617,678

617,678 172,441
633

$ 7 056 799 $

617 678 $ 7 674477

See notes to the basic financial statements.

-29-

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30. 2004

SCHEDULE "4"

PROJECT
Adding to, renovating, repairing, improving, furnishing and equipping existing educational buildings, properties and facilities of the City of Social Circle School District, including, but not limited to, the completing the construction and equipping of a new school built to accommodate grades 6-12 and, to the extent there are sufficient monies available and enrollment demand requires it, the acquisition, construction and equipping of a new elementary/primary school, including the acquisition of any necessary land, and paying expenses incident thereto

ORIGINAL ESTIMATED
COST(1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT
YEAR (3)

AMOUNT EXPENDED
IN PRIOR YEARS (3)

PROJECT STATUS

$ 5,000,000 $ 5,000,000 $

1,725,633 $

1,466,520 Ongoing

(1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax. The School District has two Local Option Sales Tax and the above project was authorized by each referendum.
(2) The School District's current estimate of total cost for the project. Includes all cost from project inception to completion.
(3) The voters of Walton and Newton Counties approved the imposition of a 1% sales tax to fund the above project and retire associated debt. Amounts expended for this project may include sales tax proceeds, state, local property taxes and/or other funds over the life of the project.

See notes to the basic financial statements.

- 30 -

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

SCHEDULE "5"

DESCRIPTION

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

ELIGIBLE QBE PROGRAM COSTS

SALARIES

OPERATIONS

TOTAL

Direct Instructional Programs

Kindergarten Program

$

Kindergarten Program-Early Intervention Program

Primary Grades (1-3) Program

Primary Grades-Early Intervention (1-3) Program

Upper Elementary Grades (4-5) Program

Upper Elementary Grades-Early Intervention (4-5)

Program

Middle School (6-8) Program

High School General Education (9-12) Program

Vocational Laboratory (9-12) Program

Students with Disabilities

Category I

Category II

Category Ill

Category IV

Category V

Gifted Student - Category VI

Remedial Education Program

Alternative Education Program

385,745 $ 107,379 1,048,101 174,671 467,446
143,413 921,270 680,844 316,783 807,224
85,343 25,036 69 876

398,162 $ 63,070
1,093,360 253,909 546,568
102,504 860,986 835,129 317,935
33,142 234,295 392,863
224 393 77,102 8,767 83,024

8,222 $ 2,200 25,733 5,916 17,743
203 40,428 38,798
9,222
1,728 23,956
1,364 175
1 839

406,384 65,270
1,119,093 259,825 564,311
102,707 901,414 873,927 327,157
33,142 236,023 416,819
224 393 78,466 8,942 84 863

TOTAL DIRECT INSTRUCTIONAL PROGRAMS

$

5,233,131 $ 5,301,433 $

177,527 $

5,478,960

Media Center Program Staff and Professional Development

145,358 30,016

171,005 10 109

68,291 22,536

239,296 32 645

TOTAL QBE FORMULA FUNDS

$

5,408 505 $ 5,482,547 $

268,354 $ ===5,.;,,75;;,;0~,9;;,;;0;,;,.1

(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
March 11, 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 Social Circle 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 Social Circle Board of Education as of and for the year ended June 30, 2004, which collectively comprise City of Social Circle Board of Education's basic financial statements and have issued our report thereon dated March 11, 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 Social Circle 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 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 ofthe internal control over financial reporting that, in ourjudgment, could adversely affect City of Social Circle 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 of Findings and Questioned Costs as items FS-7861-04-01 and FS-7861-04-03.
2004YB-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 ofobtaining reasonable assurance about whether City of Social Circle Board ofEducation'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 of Social Circle Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

RWH:as 2004YB-30

~IA)-~
Russell W. Hinton State Auditor

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
March 11, 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 Social Circle Board of Education
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133
Ladies and Gentlemen:
Compliance
We have audited the compliance of City of Social Circle Board of Education with the types of compliance requirements described in the US. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2004. City of Social Circle Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section ofthe accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of City of Social Circle Board of Education's management. Our responsibility is to express an opinion on City of Social Circle 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 Social Circle Board ofEducation's compliance with those

2004SA-10

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 Social Circle Board of Education's compliance with those requirements.
In our opinion, the City of Social Circle Board ofEducation 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, 2004.
Internal Control Over Compliance
The management of City of Social Circle 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 Social Circle Board of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133.
Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a 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 Social Circle Board of Education, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

RWH:as 2004SA-10

State Auditor

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

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON 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-7861-02-01 FS-7861-03-01

Further Action Not Warranted Previously Reported Corrective Action Implemented

SECTION IV FINDINGS AND QUESTIONED COSTS

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON 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 Social Circle 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 Social Circle Board of Education disclosed financial statement reportable conditions related to the following control categories.

Cash and Cash Equivalents Capital Assets

Employee Compensation Accounting Controls (Overall)

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 Social Circle 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 Social Circle 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 of Social Circle Board ofEducation's report on compliance with requirements applicable to major programs was unqualified.

6. Audit Findings Required to be Reported by Section .510(a) of 0MB Circular A-133 The City of Social Circle 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.

9. Low Risk Auditee The City of Social Circle Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133.

- 1-

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
ACCOUNTING CONTROLS (OVERALL) CASH AND CASH EQUIVALENTS EMPLOYEE COMPENSATION Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-7861-04-0 I
Our examination ofthe internal accounting control procedures revealed that the School District did not maintain adequate separation of duties for the following accounting functions and related procedures:
ACCOUNTING CONTROLS (OVERALL) Access controls in the Financial System do not prevent users from accessing accounting functions that are outside of their area ofresponsibility.
CASH AND CASH EQUIVALENTS (1) The reconciliation of the operating/payroll and construction bank accounts was not performed by someone independent of the payroll/general ledger functions.
(2) No evidence was presented that bank reconciliations were reviewed by supervisors.
EMPLOYEE COMPENSATION The personnel and payroll functions were not separated. The same individual maintains personnel records, enters employee information, salary and accounting information into the payroll system, has access to process payroll transactions, posts information to the general ledger and reconciles salary expense at fiscal year-end.
Separation ofduties involving key accounting functions is the basis for achieving an adequate system of internal control. These deficiencies were a result ofmanagement's decision to limit the number of administrative staff made responsible for accounting functions and failure to ensure established controls were functioning as designed. Management should periodically review this decision to determine ifemployee duties can be reassigned to achieve a higher degree ofinternal control with the existing staff and should also implement procedures to ensure that the key accounting functions of custody, record keeping and authorization are segregated. Additionally, management should ensure that the access controls in the accounting information system complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of that employee's duties.
-2 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS Failure to Properly Segregate Debt Service Funds Nonmaterial Noncompliance Finding Control Number: FS-7861-04-02
During the fiscal year under review, the School District maintained $874,600 of debt service tax collection moneys within the bond and building checking accounts. This combining ofdebt service and non-debt service funds is a violation of Article IX, Section V, Paragraph VI ofthe Constitution of the State of Georgia which provides in part as follows:
"The proceeds ofthis tax, together with any other moneys collected for this purpose, shall be placed in a sinking fund to be used exclusively for paying the principal ofand interest on such bonded debt. Such moneys shall be held and kept separate and apart from all other revenues collected... ".
Management should transfer these debt service funds plus applicable interest to a separate debt service bank account.
CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7861-04-03
The accounting procedures ofthe School District were insufficient to provide accurate and complete capital asset records. The following deficiencies were noted based on audit sampling and other procedures utilized to verify the validity and accuracy of the capital asset records as presented for audit:
(1) The fiscal year 2004 approved Capital Asset Policy did not contain required components, such as useful lives and depreciation methods, necessary to produce complete capital asset records. Depreciation records for the fiscal year under review were created based upon a tentatively approved fiscal year 2005 Capital Asset Policy.
(2) Two buildings were fully depreciated and still in use. Significant assets which are still in use should not be fully depreciated in the year of transition to Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments.
(3) A complete physical inventory ofthe School District's capital assets was not performed in the year under review.
-3 -

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7861-04-03
(4) Sampling and testing procedures performed on fifty capital asset items revealed one equipment item on the capital asset listing that was disposed of in a prior year and one equipment item located by the auditor during physical observation that was missing from the capital asset listing as presented to the auditor.
(5) Numerous audit adjustments were made to the values ofequipment items on the capital asset listing as presented to the auditor in order to reconcile values with appraisal values provided by an outside appraisal company or acquisition costs supported by documentation obtained from the School District.
Management should establish policies and procedures to ensure that capital asset records are accurate and complete. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.
-4 -

SECTIONV MANAGEMENT'S RESPONSES

CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2004
Finding Control Number: FS-7861-04-01
We concur with this finding. The Superintendent and Board are discussing the probability ofadding a staff member to assist in separating duties. Also, the Program bookkeeper will implement measures to have another staff member perform quarterly "audits" on employment compensation. The IT Department has been requested to assist in establishing access controls to the PCGenesis system.
Finding Control Number: FS-7861-04-02
We concur with this finding. A separate bank account for Debt Services will be opened as soon as possible. Transfer of funds will include any applicable interest.
Finding Control Number: FS-7861-04-03
We concur with this finding. A new Board policy regarding the capitalized amount ofassets will be approved. More complete policies and procedures to ensure that capital asset records are accurate and complete will be established.
Contact Person: Joan Stephens, Telephone: (770) 464-2731 Fax: (770) 464-0403 E-mail: jstephens@,scboe.org