CITY OF SOCIAL CIRCLE BOARD OF EDUCATION WALTON COUNTY, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor CITY OF 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 I B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 9 H NOTES TO THE BASIC FINANCIAL STATEMENTS I 0 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION I SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERALFUND 25 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 26 3 SCHEDULE OF STATE REVENUE 28 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 29 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 31 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY - TABLE OF CONTENTS - SECTIONV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 April 30, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members ofthe 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 ofEducation, as ofand for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility 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 opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information ofthe City ofSocial Circle Board ofEducation, as ofJune 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-11 In accordance with Government Auditing Standards, we have also issued our report dated April 30, 2007, 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 considered in assessing 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 25 respectively, are not a required part ofthe 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. A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, .::t.;: '=:i:)~{A ~~ ~lell W. Hinton, CPA, CGFM State Auditor RWH:as 2006ARL-11 CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 INTRODUCTION Our discussion and analysis of the City of Social Circle Board of Education's financial performance provides an overview of the School District's financial activities for the fiscal year ended June 30, 2006. 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 fiscal year 2006 are as follows: On the District-wide financial statements, the assets of the School District exceeded liabilities by $21.0 million. Of this amount, $0.3 million is unrestricted and is available for spending at the School District's discretion. The School District had $13.8 million in expenses relating to governmental activities; only $10.1 million of these expenses were offset by program specific charges for services, grants and contributions. However, general revenues (primarily property and sales taxes) of $4.4 million were adequate to provide for these programs. As stated above, General Revenues accounted for $4.4 million or about 30.3% of all revenues totaling $14.5 million. Program specific revenues in the form of charges for services, grants and contributions accounted for the rest. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of three parts; management's discussion and analysis (this section), 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. 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' statements provide information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. In the case of the City of - I- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Social Circle Board of Education, the General Fund, Capital Projects Funds, and Debt Service Funds are all considered to be major funds. The School District has no nonmajor funds as defined by GASB Statement 34 for the purposes of this report. 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 Since the City of Social Circle Board of Education has no operations that have been classified as "Business Activities", 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 now than last year? The 'Statement of Net Assets' and the 'Statement of Activities' provide the basis for answering this question. These financial statements include all School District's assets and liabilities and use 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, student-teacher ratios, and other factors. The 'Statement of Net Assets' and the 'Statement of Activities' reflects 100% of the School District's governmental activities. Fund Financial Statements The School District uses many funds or sub-funds to account for a multitude of financial transactions during the fiscal year. The fund financial statements presented in this report provide detail information about the School District's significant or major funds. As discussed previously, the School District has no nonmajor funds as defined by GASB Statement 34. 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 of accounting 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. - ii - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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 government activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds are reconciled in the financial statements. Fiduciary Funds - The School District is the trustee, or fiduciary, for assets that belong to others and 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. The reader can think of the School District's net assets as the difference between its assets (i.e., what the School District owns) and its liabilities (i.e., what the School District owes) at the end of a fiscal year. This balance represents one way to measure the School District's financial health or its financial position. In the case of the City of Social Circle Board of Education, assets exceeded liabilities by $21.0 million at June 30, 2006. To better understand the School District's actual financial position and ability to deliver services in future periods, the reader will need to review the various components of the net asset category. For example, of the $21.0 million of net assets, approximately $3.1 million was restricted for continuation of Federal programs, debt service, and completion of ongoing capital projects. Accordingly, these funds were not available to meet the School District's ongoing obligations to citizens and creditors. In addition, the School District had $17.6 million (net of related debt) invested in capital assets (e.g., land, buildings, and equipment). The School District uses these capital assets to provide educational services to students within geographic boundaries served by the School District. Because of the very nature and on-going use of the assets being reported in this component of net assets, it must be recognized that this portion of the net assets is not available for future spending. The remaining balance of unrestricted net assets of $0.3 million may be used to meet the School District's ongoing obligations to citizens and creditors. Table 1 provides a summary of the School District's net assets for this fiscal year compared to fiscal year 2005. - iii - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table 1 Net Assets Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Assets Current and Other Assets Capital Assets, Net $ 8,461,880 $ 8,252,489 17,912,598 18,175,780 Total Assets $ 26,374,478 $ 26,428,269 Liabilities Current and Other Liabilities Long-Term Liabilities $ 1,670,372 $ 1,534,345 3,695,000 4,500,000 Total Liabilities $ 5,365,372 $ 6,034,345 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 17,607,079 3,092,591 309,436 $ 16,893,876 2,577,344 922,704 Total Net Assets $ 21,009.106 $ 20,393.924 Table 2 shows the Changes in Net Assets for this fiscal year compared to fiscal year 2005. - iv - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Table 2 Change in Net Assets Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions Governmental Activities Fiscal Fiscal Year 2006 Year 2005 $ 1,107,818 8,942,607 18,666 $ 1,076,429 7,741,076 21,440 Total Program Revenues $ 10,069,091 $ 8,838,945 General Revenues: Taxes Property Taxes For Maintenance and Operations $ Sales Taxes Special Purpose Local Option Sales Tax For Debt Service For Capital Projects Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous 1,756,337 1,293,185 226,139 1,034,205 162,487 -77 436 $ 1,702,195 1,037,667 131,254 907,505 182,542 -5 995 Total General Revenues $ 4,394,917 $ 3,955,168 Total Revenues $ 14,464,008 $ 12,794,113 Program Expenses 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 Operations of Non-Instructional Services Enterprise Operations Food Services Interest on Short-Term and Long-Term Debt $ 8,499,950 240,191 220,992 291,702 643,295 887,217 1,301,543 580,589 305,289 46,959 737,518 93,581 $ 7,519,571 250,275 190,776 280,278 542,042 801,140 965,652 446,265 244,292 73,120 629,785 122,485 Total Expenses $ 13,848,826 $ 12,065,681 Increase in Net Assets $ 615,182 $ 12si432 -v- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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. Net cost of services can be defined as the total cost less fees generated by the activities and intergovernmental revenue provided for specific programs. The net cost reflects the financial burden on the School District's taxpayers by each activity. Table 3 Governmental Activities Total Cost of Services Fiscal Fiscal Year2006 Year2005 Net Cost of Services Fiscal Fiscal Year2006 Year2005 Instruction $ 8,499,950 $ 7,519,571 $ 1,091,885 $ 1,182,454 Support Services Pupil Services 240,191 250,275 157,129 128,862 Improvement of Instructional Services 220,992 190,776 44,315 39,013 Educational Media Services 291,702 280,278 132,348 144,216 General Administration 643,295 542,042 230,769 164,316 School Administration 887,217 801,140 457,836 400,380 Maintenance and Operation of Plant 1,301,543 965,652 860,080 551,932 Student Transportation Services 580,589 446,265 414,644 278,263 Other Support Services 305,289 244,292 234,395 202,974 Operations ofNon-Instructional Services Enterprise Operations 46,959 73,120 12,347 15,902 Food Services 737,518 629,785 50,406 -4,061 Interest on Short-Term and Long-Term Debt 93,581 122,485 93,581 122,485 Total Expenses $ 13.848.826 $ 12,065.681 $ 3,112,7.35 $ 3,226,136 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 of approximately $14.7 million and total expenditures of $14.6 million. General Fund Budget 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 2006, 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. The School District budget is formerly adopted at the aggregate level and maintained at the program, function, object, and site levels to facilitate budgetary control. - VI - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 For the General Fund, the final actual revenues of $13.1 million exceeded the final budgeted amounts of $11.7 million by over $1.4 million. This difference (actual vs. final budget) was due primarily to an increase in state revenues over final budget of approximately $1.2 million and increase in charges for services of approximately $0.2 million. The miscellaneous revenues over final budget were primarily due to the inclusion of the principals' accounts in the financial statement, but not in the budget. The final actual General Fund expenditures of $13 .1 million exceeded the final budgeted amount of$12.3 million by $0.8 million. This difference (final actual vs. final budget) was due primarily because expenditures for Instruction exceeded the final budget in the amount of approximately $0.5 million, Pupil Services exceeded the final budget in the amount of approximately $49 thousand, School Administration exceeded the final budget in the amount of approximately $58 thousand, Maintenance and Operation of Plant exceeded the final budget in the amount of approximately $81 thousand, Food Services Operation exceeded the final budget in the amount of approximately $56 thousand and was due in part to the school principals' accounts not being included in the budget process. General Fund revenues were less than expenditures by $20 thousand. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At June 30, 2006, the School District had $17.9 million invested in capital assets, all in governmental activities. Table 4 reflects a summary of these balances net of accumulated depreciation. Table 4 Capital Assets (Net of Depreciation) Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Land Land Improvements Buildings and Improvements Equipment $ 9 203,120 17,385,098 324,371 $ 9 216,560 17,664,400 294,811 Total $ 17.212.528 $ 18.175.:Z8Q Additional information on the School District's Capital Assets can be found in the Notes to the Basic Financial Statements. -vu - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Debt At fiscal year ended June 30, 2006 the School District had $3.7 million in bonds outstanding with $0.8 million due on the bonds in one year. This debt is the primarily the result of General Obligation Bonds sold by the City of Social Circle, on behalf of the City of Social Circle School District, for the purpose of the acquisition, construction, equipping, renovating, and repairing of school facilities. Payment of the General Bond Obligation debt is secured by a local option sales tax. Table 5 summarizes the School District's debt. Table 5 Debt at June 30 Governmental Activities Fiscal Fiscal Year 2006 Year 2005 Bonds Payable $ 3,695.000 $ 4,500,000 Additional information can be found on the School District's Debt obligations in the Notes to the Basic Financial Statements. CURRENT ISSUES Currently known facts, decisions or conditions that are expected to have a significant effect on financial positions or results of operations in future years are as follows: As was the case in the prior year, the State of Georgia is suffering from the effects of the prevailing unfavorable economic conditions. This has forced the State's Office of Planning and Budget to continue reducing the budgets of the various government agencies. State QBE Revenue Reductions - During fiscal year 2005, the State of Georgia continued a 2.5% QBE revenue formula funding reduction to all state School Districts started in fiscal year 2003, along with an additional 5% reduction for fiscal year 2004. This funding reduction carried forward into fiscal year 2006. Considering the stagnant economy of the past few years, these formula-funding reductions will seriously affect the long-term financial stability of the School District. Despite these challenges, the City of Social Circle Board of Education 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. - viii - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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, education local option sales taxes 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 citizens, 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 the City of Social Circle Board of Education, 240-B West Hightower Trail, Social Circle, Georgia 30025. Questions may be emailed to jstephens@scboe.org. - ix - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT"A" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable 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 $ 4,580,716 2,459,709 317,575 1,018,845 62,629 3,976 18,430 9 277,561 23,421,160 1,032,934 -6,819,066 $ ===2=6=,3=7aa=4=,4=78= $ 218,392 1,451,980 830,000 2,865,000 $ 5,365,372 $ 17,607,079 110,413 2,234,905 747,273 309436 $ 21,009,106 $ ===2=6=3=7=4=4=78= The notes to the basic financial statements are an integral part of this statement. - 1- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration 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 For Capital Projects Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year EXPENSES CHARGES FOR SERVICES $ 8,499,950 $ 240,191 220,992 291,702 643,295 887,217 1,301,543 580,589 305,289 46,959 737,518 93 581 $ 13,848,826 $ 849,851 5,252 34,612 218,103 1,107,818 The notes to the basic financial statements are an integral part of this statement. -2- EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 6,558,214 83,062 176,677 159,354 412,526 429,381 436,211 147,279 $ 70,894 469,009 $ 8,942,607 $ $ 18,666 18666 $ -1,091,885 -157,129 -44,315 -132,348 -230,769 -457,836 -860,080 -414,644 -234,395 -12,347 -50,406 -93 581 -3,779,735 $ 1,756,337 1,293,185 226,139 1,034,205 162,487 -77 436 $ 4 394 917 $ 615,182 20,393,924 $ =====21=,0=0=9=1'..,06= -3- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 2,688,029 $ 1,391,615 $ 1,193,740 947,956 1,018,845 62,629 3,976 18430 33,333 501,072 $ 318,013 226,141 4,580,716 2,459,709 259,474 1,018,845 62,629 3,976 18430 Total Assets $ 4,985,649 $ 2,372,904 $ 1,045,226 $ =====8=4=0=31==77=9= LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable $ 197,590 $ 20,802 $ 1,451,980 Total Liabilities $ 1,649,570 $ 20,802 $ FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Encumbrances Inventories Capital Projects Unreserved Undesignated Reported in: General Fund $ 91,983 $ 1,189,679 $ 1,045,226 135,200 18,430 $ 2,352,102 1,900,787 Total Fund Balances $ 3,336,079 $ 2,352,102 $ 1,045,226 $ 218,392 1 451 980 1,670,372 91,983 2,234,905 135,200 18,430 2,352,102 1900787 6 733 407 Total Liabilities and Fund Balances $ 4,985,649 $ 2,372,904 $ 1,045,226 $ =====8=4=0=3=77=9= The notes to the basic financial statements are an integral part of this statement. -4- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land $ Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. 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 $ 9 277,561 23,421,160 1,032,934 -6,819,066 6,733,407 17,912,598 58,101 -3,695,000 Net Assets of Governme~tal Activities (Exhibit "A") $ ====2.1.,..,00.,.9.,1,.0..6= The notes to the basic financial statements are an integral part of this statement. -5- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2006 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration 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} Sale of Equipment 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 $ 1,815,383 $ 8,861,871 1,133,607 1,107,818 86,198 92,730 $ 13,097,607 $ $ 226,139 $ ,1,293,185 76,289 302,428 $ 1,293,185 $ 1,815,383 1,519,324 8,861,871 1,133,607 1,107,818 162,487 92,730 14,693,220 $ 8,246,910 $ 240,191 220,992 291,702 632,292 887,217 1,071,430 460,009 305,289 46,959 715,053 14,685 10 228,412 70,830 230,323 $ $ 13,118,044 $ $ -20,437 $ 544,260 $ -241,832 $ $ 8,261,595 240,191 220,992 291,702 632,302 887,217 1,299,842 530,839 305,289 46,959 715,053 230,323 805,000 93,581 805,000 93,581 898,581 $ 14,560,885 394,604 $ 132,335 $ 75 $ $ -150,038 $ 75 $ -150,038 $ $ -20,362 $ -391,870 $ 3,356,441 2,743,972 $ 150,038 150,038 $ 544,642 $ 500,584 75 150,038 -150,038 75 132,410 6,600,997 $ 3,336,079 $ 2,352,102 $ 1,045,226 $......===16,=73=3..,,4==07= The notes to the basic financial statements are an integral part of this statement. -6- CITY OF SOCIAL CIRCLE 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, 2006 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense Because some property taxes will not be collected for several months after the School District's fiscal year ends, they are not considered "available" revenues. In the Statement of Activities, only the loss on the sale of the building 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 carrying value of the building sold. 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 Change in Net Assets of Governmental Activities (Exhibit "8") $ 132,410 $ 190,776 -283,717 -92,941 -59,046 -170,241 805,000 $===6=15..,,1=8=2 The notes to the basic financial statements are an integral part of this statement. -7- {This page left intentionally blank) CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 EXHIBIT"G" ASSETS Cash and Cash Equivalents Investments Certificate of Deposit Total Assets LIABILITIES Funds Held for Others AGENCY FUNDS $ 113,822 2,729 $ ==1=1=6=,5=51= $ ==1=1=6=,5=51= The notes to the basic financial statements are an integral part of this statement. -9- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The City ofSocial 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 ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting of internal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. - 10 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District reports the following major governmental funds: General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including Special Purpose Local Option Sales Tax (SPLOST) and Bond Proceeds to be used for the acquisition, construction or renovation of major capital facilities. Debt Service Fund accounts for taxes (sales) legally restricted for the payment ofgeneral longterm principal, interest and paying agent's fees. The School District reports the following fiduciary fund type: Agency funds account for assets held by the School District as an agent for various funds, governments or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless ofwhen the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund - 11 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities and acquisitions under capital leases are reported as other financing sources. The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. CASH AND CASH EQUIVALENTS COMPOSITION OF DEPOSITS Cash and cash equivalents consist ofcash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Georgia Laws OCGA 45-8-14 authorize the School District to deposit its funds in one or more solvent banks or insured Federal savings and loan associations. INVESTMENTS COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates ofdeposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase ofone year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year are reported at fair value. The Official Code ofGeorgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, - 12 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration ofcredit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The City of Social Circle fixed the property tax levy for the 2005 tax digest year (calendar year) on November 18, 2005 (levy date). Taxes were due on January 18, 2006 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The Social Circle City Clerk bills and collects the property taxes for the School District and remits taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $1,815,383. The tax millage rate levied for the 2005 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 14.62 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $1,519,324 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. - 13 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value ofassets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment All NIA $ 10,000 20 to 80 years $ 10,000 25 to 80 years $ 10,000 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. - 14 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FUND BALANCES RESERVED Reserves represent those portions of fund balance equity that are legally segregated for a specific future use. For Encumbrances -This reserve constitutes the unperformed portion ofpurchase orders, contracts and other commitments for goods and services at year end. Encumbrances outstanding are reported as a reservation of fund balance and do not constitute expenditures or liabilities in the current year because the commitments will be honored during the subsequent year. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate of the 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. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and - 15 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $6,807,163. The amounts of the total bank balances are classified into four categories of custodial credit risk: Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name. Category 4 - Uncollateralized. The School District's deposits are classified by custodial credit risk category at June 30, 2006, as follows: Custodial Credit Risk Category Bank Balance 1 $ 273,792 2 3,177,802 3 3,355,569 4 0 Total $ 6,807.163 CATEGORIZATION OF INVESTMENTS Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the School District will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The School District does not have a formal policy for managing custodial credit risk. Investments are classified as to custodial credit risk by the categories described below: - 16 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS 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's 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. Also, the money market mutual funds are not required to be classified by categories of credit risk. At June 30, 2006, the carrying value ofthe School District's total investments was $2,455,648 which is materially the same as fair value. These investments included funds in the amount of$1,265,969 invested in the Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services which are not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy of the 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 of the 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. Georgia Fund J is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the SEC as an investment company but does operate Georgia Fund 1 in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participant's shares sold and redeemed at the pool's share price, $1.00 per share. Pooled cash and cash equivalents and investments are reported at cost. The pool does not issue any legally binding guarantees to support the value of the shares. Participation in the pool is voluntary and deposits consist of funds from local governments; operating and trust funds of Georgia's state agencies, colleges and universities; and current operating funds of the State of Georgia's General Fund. Investments in Georgia Fund 1 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U.S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2006, was 28 days. - 17 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS The investments are classified as to custodial credit risk categories as follows: Type of Investment Risk Category 3 Carrying Amount Fair Value Debt Securities U.S. Agencies $ 1,189.526 $ 1,189.526 $ 1,189.526 Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value of an investment. The School District does not have a formal policy for managing interest rate risk. Investments are classified as to investment maturity as follows: Investment Type Investment Maturity 1- 5 Years Debt Securities U. S. Agencies $ 1,189.526 Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The School District does not have a formal policy for managing credit quality risk. Investments are classified as to quality ratings as follows: Rated Debt Investments Quality Ratings AAA U.S. Agencies Money Market Mutual Fund $ 1,189,526 153 Totals by Quality Ratings $ 1)89.679 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 - 18 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY EXHIBIT "H" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2005 Increases Balances Decreases June 30, 2006 Governmental Activities Capital Assets, Not Being Depreciated: Land $ 9 $ 0 $ 0 $ 9 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 23,487,754 $ 951,654 277,561 109,496 $ 81,280 176,090 $ 23,421,160 1,032,934 277,561 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 5,823,354 656,843 61,001 218,557 51,720 13,440 5,849 6,036,062 708,563 74 441 Total Capital Assets, Being Depreciated, Net $ 18,175,771 $ -92 941 $ 170,241 $ 17,912,589 Governmental Activity Capital Assets - Net $ 18,175.780 $ -92.941 $ 170.241 $ 17,912.598 Current year depreciation expense by function is as follows: Instruction Support Services General Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ 209,195 $ 9,648 1,493 43,664 54,805 19 717 Note 6: RESTRICTED ASSETS $=====!!!!2-83-,7!=!1:a!:7 Special Purpose Local Option Sales Tax (SPLOST), general obligation bond proceeds and Qualified Zone Academy Bonds (QZAB) escrow account 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, 2006, were as follows: - 19 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 6: RESTRICTED ASSETS Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Debt Services Capital Acquisitions General Fund District-wide Capital Projects Bond SPLOST Proceeds Debt Service Funds $ $ 1,189,679 395,954 $ $ $ 995,661 $ 947,956 501,072 318,013 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2006, consisted of the following: Transfer to Transfers From District-wide Capital Projects Debt Service Fund Transfers are used to move sales tax revenues collected by the District-wide Capital Projects to the Debt Service Fund to cover principal and interest payments. 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 ofloss associated with job related illness or injuries to employees. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years. The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July I, 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 - 20- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 8: RISK MANAGEMENT (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse), errors and omissions, crime and automobile risks. Payment of excess insurance for the system varies by line of coverage. The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Changes in the unemployment compensation claims liability during the last two fiscal years are as follows: 2005 2006 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0 $ 2 603 $ 2 603 $ 0 $ 0 $ 0 $ 0 $ 0 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Employees Each Principal $ 25,000 $ 100,000 $ 5,000 Note 9: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 2002 General Government - QZAB Series 2003 3.74% 0% $ 1,695,000 2,000,000 $ 3,695.000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: - 21 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 9: LONG-TERM DEBT Governmental Funds General Obligation Bonds Balance July 1, 2005 $ 4,500,000 Deductions Debt Retired 805,000 Balance June 30, 2006 $ 3,695,000 Portion of Long-Term Debt Due within One Year $ 830,000 At June 30, 2006, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2007 2008 2023 $ 830,000 $ 865,000 2,000,000 63,393 32,351 Total Principal and Interest $ 3,695.000 $ 95,744 Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $240,451 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 $238,821 Office of Treasury and Fiscal Services Paid to the Public School Employees Retirement System For Public School Employees Retirement (PSERS) Employer's Cost In the amount of $1,630 - 22- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY EXHIBIT "H" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 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. 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 2006 2005 2004 100% 100% 100% $ 646,853 $ 582,093 $ 561,936 - 23 - (This page left intentionally blank) 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, 2006 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 Other Sources Net Change in Fund Balances Fund Balances - Beginning NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 1,851,357 $ 1,851,357 $ 1,815,383 7,545,539 7,678,897 8,861,871 396,500 1,216,053 1,133,607 931,050 931,050 1,107,818 600 600 86,198 1 300 20132 92 730 $ 10,726,346 $ 11,698,089 $ 13,097,607 $ 7,206,975 $ 7,760,173 $ 8,246,910 132,302 71,186 298,124 564,292 829,104 974,017 414,168 209,965 656,972 191,326 219,615 298,124 633,051 829,104 990,103 430,368 281,709 658 418 240,191 220,992 291,702 632,292 887,217 1,071,430 460,009 305,289 46,959 715 053 $ 11,357,105 $ 12,291,991 $ 13118044 $ -630,759 $ -593,902 $ -20,437 75 $ -630,759 $ -593,902 $ -20,362 2,553,820 3,179,564 3,356,441 Fund Balances - Ending $ 1,923,061 $ 2,585,662 $ ===3=,3=3=6=,0=79= Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 25 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food Donation (1) Total U.S. Department of Agriculture Education, U.S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality State Grants Rural Education Safe and Drug-Free Schools and Communities - State Grants State Grants for Innovative Programs Title I Grants to Local Educational Agencies Vocational Education - Basic Grants to States Total U.S. Department of Education Total Federal Financial Assistance N/A = Not Available CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 N/A NIA $ $ (2) 638,462 638,462 10.550 NIA $ 16 162 654,624 84.027 84.173 N/A $ N/A $ 209,891 6 665 216,556 84.318 84.938 84.367 84.358 84.186 84.298 84.010 84.048 N/A N/A N/A N/A N/A N/A N/A N/A $ 135,488 (3) 52,012 46,337 4,653 3,914 206,721 16 057 681,738 $ ===1,..,,3=36=,3=6=2 - 26- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2006 SCHEDULE "2" Notes to the Schedule of Expenditures of Federal Awards (1) The amount shown for the Food Donation Program represents the Federally assigned value of nonmonetary assistance for donated commodities received and/or consumed by the School District during the current fiscal year. (2) Expenditures for the funds earned on the School Breakfast Program ($109,290) were not maintained separately and are included in the 2006 National School Lunch Program. (3) Funds earned on the Hurricane Education Recovery program, in the amount of $22,820, do not require reporting of expenditures. Major Programs are identified by an asterisk (*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the City of 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. - 27 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 SCHEDULE "3" AGENCY/FUNDING GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs Health Insurance K-8 Statewide Reading and Mathematics National Teacher Certification Preschool Handicapped Program Technology/Career Education - Extended Day Technology/Career Education - High Schools that Work Technology/Career Education - Supervision Office of Treasury and Fiscal Services Public School Employees Retirement See notes to the basic financial statements. -28- GOVERNMENTAL FUND TYPE GENERAL FUND $ 331,680 504,887 128,286 1,024,002 175,122 553,084 142,620 915,215 728,732 307,403 89,747 174,581 569,408 172,832 48,761 99,651 20,188 71,513 24,305 155,386 49,366 32,058 340,954 423,759 435,412 133,387 18,666 20,000 46,760 5,555 1,034,205 37,232 55,125 -342,440 238,821 25,609 16,353 27,756 13,714 6,000 4,546 1630 $ 8,861,871 CITY OF SOCIAL CIRCLE BOARD OF EDUCATION-WALTON COUNTY SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2006 SCHEDULE "4" PROJECT ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) PROJECT STATUS Walton County SPLOST Projects: 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 $ 5,000,000 $ 5,000,000 $ 255,311 $ 3,661,270 Ongoing Newton County SPLOST Projects: Adding to, renovating, repairing, improving and equipping existing school buildings and other buildings and facilities useful or desirable in connection therewith, acquiring school buses and system-wide technology improvements, and acquiring any necessary property therefor, both real and personal 2,000,000 2,000,000 100,596 Ongoing $ 7,000,000 $ 7,000,000 $ 355,907 $ 3,661,270 (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 Sales Tax and all of the above projects were authorized by each referendum. (2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion. (3) The voters of Walton and Newton Counties approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. See notes to the basic financial statements. - 29- (This page left intentionally blank) 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, 2006 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 527,153 $ 135,950 1,084,978 204,169 593,647 150,006 984,914 783,210 333,262 1,119,801 103,324 22,445 77,381 23733 454,427 $ 99,493 1,213,488 290,089 596,090 149,482 945,519 1,044,451 374,585 91,154 442,324 382,635 114,523 20,458 91,560 12,764 $ 1,897 46,188 4,764 33,734 2,545 67,857 78,763 13,830 1,673 23,877 1,055 418 467,191 101,390 1,259,676 294,853 629,824 152,027 1,013,376 1,123,214 388,415 91,154 443,997 406,512 115,578 20,458 91,978 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 6,143,973 $ 6,310,278 $ 289,365 $ 6,599,643 Media Center Program Staff and Professional Development 166,377 34886 218,090 8,365 62,627 24,568 280,717 32,933 TOTAL QBE FORMULA FUNDS $ s 61345.236 6,536,733 $ s_ _ _ 376,560 6.,9.1..3_12_9...,3 (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) 856-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 April 30, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the City of 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 ofCity of Social Circle Board ofEducation as ofand for the year ended June 30, 2006, which collectively comprise City of Social Circle Board of Education's basic financial statements and have issued our report thereon dated April 30, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered City of Social Circle Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose ofexpressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over financial reporting that, in our judgment, could adversely affect City ofSocial Circle Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule of Findings and Questioned Costs as items FS-7861-06-01 and FS-7861-06-02. 2006YB-30 A material weakness is a reportable condition in which the design or operation ofone or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above are material weaknesses. Compliance and Other Matters As part ofobtaining reasonable assurance about whether City ofSocial 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 ofSocial Circle Board ofEducation and is not intended to be and should not be used by anyone other than these specified parties. ,----j: w .. \ ~ Respectfully submitted, >-4.A.~ ~~ : sell W. Hinton, CPA, CGFM State Auditor RWH:as 2006YB-30 Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 April 30, 2007 Honorable Sonny Perdue, Governor Members ofthe 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 U.S. Office ofManagement and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. City of Social Circle Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to each ofits 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 of compliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the City ofSocial Circle Board ofEducation's compliance with those requirements and performing such other procedures as we considered necessary in the 2006SA-10 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, 2006. 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 ofexpressing 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 ofone 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, ~1,@LU.c:t:lh Russell W. Hinton, CPA, CGFM State Auditor RWH:as 2006SA-10 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, 2006 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7861-04-01 FS-7861-04-03 FS-7861-05-01 FS-7861-05-02 FS-7861-05-03 Further Action Not Warranted Further Action Not Warranted Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented CORRECTIVE ACTION/RESPONSES CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Finding Control Number: FS-7861-05-02 The board policy regarding school activity accounts will be reviewed and workshops will be conducted for all school bookkeepers and principals. Internal controls will also be reviewed and expectations of compliance shared with all bookkeepers and principals. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-7861-05-01 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, 2006 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the City ofSocial Circle Board ofEducation's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the City of Social Circle Board of Education disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts Expenditures/Liabilities/Disbursements Capital Assets 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 ofSocial 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) ofOMB Circular A-133 The City ofSocial Circle Board ofEducation's audit did not disclose audit findings required to be reported by section .510(a) ofOMB Circular A-133. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 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 ofOMB Circular A-133. - 1- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND OlJESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7861-06-01 Condition: This is a repeat finding (FS-7861-05-02) from the year ended June 30, 2005. The accounting procedures ofthe School District were insufficient to provide for adequate internal controls and separation of duties over the school activity accounts. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures and provide assurance of proper separation of duties, which would limit any one individual's access to both physical assets and the related accounting records. Questioned Cost: NIA Information: Cash and Cash Equivalents The bank reconciliation function was not separated from record keeping and voucher payment functions. Revenues/Receivables/Receipts The deposit preparation function was not separated from record keeping and cash custody. Expenditures/Liabilities/Disbursements The check writing function was not separated from record keeping or processing of signed checks. Based on a review of 40 items, numerous voucher packages did not contain purchase orders and 39 voucher packages did not contain approval by appropriate school personnel. Cause: These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the school level. The School District has neither assigned responsibilities to achieve appropriate separation of duties nor utilized management oversight of the incompatible activities to properly safeguard assets. -2- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7861-06-01 Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: Management should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures and ensure that the key accounting functions ofcustody, record keeping and authorization are separated and/or utilize management oversight of these incompatible activities. CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7861-06-02 Condition: The School District failed to adequately maintain an accurate capital assets listing. Criteria: Chapter 37 Fixed Assets of the Financial Management for Local Units of Administration indicates that School Districts must establish fixed asset policies, define system requirements, implement a fixed asset system and maintain fixed asset inventory records. Questioned Cost: NIA Information: A review of current year expenditures indicated that building and land improvement items which met the $10,000 capitalization threshold (amounts totaling $139,815) were omitted from the capital assets listing. Depreciation expense was not applied to the capitalized items based on School District's approved policy. Estimated useful lives were not applied correctly to the capitalized mobile classrooms. -3- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Failure to Adequately Maintain Capital Assets Reportable Condition Finding Control Number: FS-7861-06-02 A complete physical inventory ofthe School District's capital assets was not performed during the year under review. Cause: The School District failed to properly maintain its capital assets records in accordance with the School District's approved capital assets policy. Effect: The failure ofthe School District to maintain a complete and accurate capital assets listing can lead to inaccurate internal and external reporting, as well as noncompliance with generally accepted accounting principles. Recommendation: The School District should review its capital assets records and make appropriate adjustments to ensure that the capital assets records conform to the School District's approved capital assets policy and generally accepted accounting principles. 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, 2006 Finding Control Number: FS-7861-06-01 We concur with this finding. Procedures will be reviewed with all school principals and accounting staff. Adequate controls regarding the receipt and expending of funds will be determined and new procedures implemented. Responsibility for the various duties will be reviewed and will be separated by the reassigning of said duties as much as is possible at each school level. These corrective actions will be in place prior to July 31, 2007. Finding Control Number: FS-7861-06-02 We concur with this finding. Procedures will be amended to alleviate the possibility of omitting assets from accounting records. The six-month depreciation method will be utilized on future asset acquisitions. The fixed asset policy and the recording ofassets will be monitored for compliance. A physical inventory offixed assets will be formulated and will be conducted by July 15th ofeach year. All corrective actions will be in place by July 31, 2007. Contact Person: Joan Stephens, Fiscal Officer Phone: (770) 464-2731 Fax Number: (770) 464-0403 E-mail Address: jstephens@scboe.org