CITY OF SOCIAL CIRCLE BOARD OF EDUCATION WALTON COUNTY, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2008 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 EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET ASSETS 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS 4 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 5 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 6 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 7 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 9 H NOTES TO THE BASIC FINANCIAL STATEMENTS 10 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 27 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 28 3 SCHEDULE OF STATE REVENUE 29 CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 30 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 31 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS CITY OF 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 November 19, 2009 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the City of Social Circle Board of Education INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the City of Social Circle Board of Education, as of and for the year ended June 30, 2008, 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City of Social Circle Board of Education's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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. 2008ARL-21X As discussed in Note 2 to the basic financial statements, for fiscal year 2008, management did not record any current year capital asset additions, deletions or related effects on depreciation expense or accumulated depreciation in the governmental activities. These omissions are not in accordance with generally accepted accounting principles. The amounts by which these departures would effect the assets, net assets and expenses of the governmental activities are not reasonably determinable, but are believed to be material. Additionally, as discussed in Note 2 to the financial statements, management has not recorded any of the current fiscal year activity for the school activity (principal) accounts maintained at the individual schools. Therefore, no current year activity has been reported in the governmental activities, the general fund or fiduciary fund (which comprises a material portion of the aggregate remaining fund information) as appropriate. Accounting principles generally accepted in the United States of America require that the assets, liabilities, revenues, expense or expenditures, as appropriate, for the current year activity for the School Activity Accounts be reported and properly separated in these financial statements. The aggregate effect on the financial statements of this omission has not been determined, but is believed to be material to the aggregate remaining fund information. In our opinion, because of the effects of the matter discussed in the third paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States ofAmerica, the financial position ofthe governmental activities ofthe City of Social Circle Board of Education, as of June 30, 2008, and the changes in financial position thereof for the year then ended. Additionally, in our opinion, because of the effects of the matter discussed in the fourth paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States ofAmerica, the financial position ofthe aggregate remaining fund information of the City of Social Board of Education, as of June 30, 2008, and the changes in financial position thereof for the year then ended. Furthermore, in our opinion, the financial statements referred to previously present fairly, in all material respects, the respective financial position of each major fund of the City of Social Circle Board of Education, as of June 30, 2008, 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. The City of Social Circle Board of Education has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States of America has determined is necessary to supplement, although not to be part of, the basic financial statements. In accordance with Government Auditing Standards, we have also issued our report dated November 19, 2009, on our consideration ofthe City of Social Circle Board of Education's internal control over financial reporting and on 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 2008ARL-21X of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 27, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of 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, except for the effects of the matters referred to in the third and fifth paragraphs, such information, 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, .LcJ. J ~ ell W. Hinton, CPA, CGFM State Auditor RWH:as 2008ARL-21X CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY STATEMENT OF NET ASSETS JUNE 30, 2008 EXHIBIT"A" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Local Other Inventories Capital Assets, Non-Depreciable Capital Assets, Depreciable (Net of Accumulated Depreciation) Total Assets LIABILITIES Accounts Payable Salaries and Benefits Payable Contracts 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 Bus Replacement Continuation of Federal Programs Debt Service Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets GOVERNMENTAL ACTIVITIES $ 2,511,462.49 4,206,743.61 449,863.83 1,230,690.61 125,964.10 10,732.42 539.34 12,855.13 1,186,672.00 18.479,318.00 $ =====2=8,=2=14=,8=4=1=.5=3 $ 295,706.73 1,785,484.65 199,331.47 8,040.00 2,114,120.00 $ 4.402,682.85 $ 18,212,869.92 25,100.00 153,480.59 1,290,321.54 1,790,184.47 2,340,202.16 $ 23,812,158.68 $ =====2=8,=2=14=,8=4=1=.5=3 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, 2008 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 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 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 $ 11,906,952.68 $ 404,190.36 312,708.69 368,054.63 819,926.19 1,105,142.82 1,377,617.25 1,035,291.99 302,010.36 972,985.41 37,048.96 $ 18,641,929.34 $ 1,992,920.82 257,193.85 2,250,114.67 The notes to the basic financial statements are an integral part of this statement. -2- EXHIBIT"B" PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS NET {EXPENSES) REVENUES AND CHANGES IN NET ASSETS $ 7,767,320.17 177,237.95 231,390.21 216,484.16 525,761.73 566,503.77 522,902.60 159,627.63 $ 50,213.86 557,544.59 $ 10,774,986.67 $ $ 25,100.00 25,100.00 $ -2, 146,711.69 -226,952.41 -81,318.48 -151,570.47 -294, 164.46 -538,639.05 -854,714.65 -850,564.36 -251,796.50 -158,246.97 -37,048.96 -5,591,728.00 $ 2,484,541.32 1,488,606.50 1,533,664.00 153,053.01 117,862.85 $ 5,777,727.68 $ 185,999.68 23,626,159.00 $ =====2..,3.,.,8.1.2....,,.,.15.,.8.,..6=8 -3- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2008 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Local Other Inventories GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND DEBT SERVICE FUND TOTAL $ 1,045,336.35 $ 1,466,126.14 $ 2,872,742.92 1,334,000.69 135,733.93 1,197,357.27 125,964.10 10,732.42 539.34 12,855.13 208,308.64 33,333.34 0.00 $ 2,511,462.49 4,206,743.61 344,042.57 1,230,690.61 125,964.10 10,732.42 539.34 12,855.13 Total Assets $ 5,401,261.46 $ 3,041,768.81 $ 0.00 $===8=,44=3"",0=3=0=.2=7 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries and Benefits Payable Contracts Payable Total Liabilities FUND BALANCES Reserved for: Bus Replacement Continuation of Federal Programs Debi Service Inventories Capital Projects Unreserved Designated for Student Activities Designated for Capital Projects Undesignated Reported in: General Fund Capital Projects Total Fund Balances $ 228,530.48 $ 1,785,484.65 $ 2,014,015.13 $ 67,176.25 199,331.47 266,507.72 $ 25,100.00 140,625.46 1,290,321.54 $ 12,855.13 78,360.38 $ 1,711,824.09 25,750.47 1,300,000.00 514,233.35 1,063,437.00 $ 3,387,246.33 $ 2,775,261.09 $ $ 295,706.73 1,785,484.65 199 331.47 $ 2,280,522.85 $ 0.00 0.00 $ 25,100.00 140,625.46 1,290,321.54 12,855.13 1,790,184.47 25,750.47 1,300,000.00 514,233.35 1,063,437.00 6,162,507.42 Total Liabilities and Fund Balances $ 5,401,261.46 $ 3,041,768.81 $ 0.00 $ ===8,=44=3=,0=3=0=.2=7 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, 2008 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction in Progress Land Improvements Buildings Equipment Accumulated Depreciation Total Capital Assets Some of the School District's property tax revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures. Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Bonds Payable Installment Sales Agreement Total Long-Term Liabilities $ 6,162,507.42 $ 13,737.00 1,172,935.00 346,333.00 23,868,271.00 1,335,297.00 -7,070,583.00 19,665,990.00 105,821.26 $ -2,000,000.00 -122,160.00 -2,122,160.00 Net Assets of Governmental Activities (Exhibit "A") $ 23,812,158.68 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, 2008 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 Food Services Operation Capital Outlay Debt Services Principal Interest Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) 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 $ 2,455,519.06 $ $ 1,488,606.50 11,102,911.12 1,230,839.55 2,250,114.67 119,967.78 33,084.09 117,862.85 $ 17,277,215.03 $ 1,521,690.59 $ 0.00 $ 2,455,519.06 1,488,606.50 11,102,911.12 1,230,839.55 2,250,114.67 153,051.87 117,862.85 0.00 $ 18,798,905.62 $ 10,236,069.44 $ 10,236,069.44 404,190.36 312,708.69 368,054.63 749,199.60 $ 2,988.00 1,105,142.82 1,293,056.27 61,980.01 523,450.01 173,150.00 302,010.36 811,962.24 2,965.00 62,349.03 2,195,603.92 404,190.36 312,708.69 368,054.63 752,187.60 1,105,142.82 1,355,036.28 696,600.01 302,010.36 814,927.24 2,257,952.95 7,800.00 4 697.96 $ 865,000.00 32,350.86 872,800.00 37,048.82 $ 16,180,691.41 $ 2,436,686.93 $ 897,350.86 $ 19,514,729.20 $ 1,096,523.62 $ -914,996.34 $ -897,350.86 $ -715,823.58 $ 2,740,954.43 $ 2,740,954.43 $ -2,422,941.29 $ -318,013.14 -2.740,954.43 $ -2,422,941.29 $ 2.740,954.43 $ -318,013.14 $ 0.00 $ -1,326,417.67 $ 1,825,958.09 $ -1,215,364.00 $ -715,823.58 4,713,664.00 949,303.00 1,215,364.00 6,878,331.00 $ 3,387,246.33 $ 2,775,261.09 $====0=.0=0 $ 6,162,507.42 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, 2008 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: 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. 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 Installment Sales Agreement Payments Total Long-Term Debt Repayments $ -715,823.58 29,023.26 $ 865,000.00 7,800.00 872,800.00 Change in Net Assets of Governmental Activities (Exhibit "B") $ 185,999.68 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, 2008 EXHIBIT"G" ASSETS Cash and Cash Equivalents Investments Total Assets LIABILITIES Funds Held for Others AGENCY FUNDS $ 138,444.65 2,729.00 $ 141,173.65 $ 141,173.65 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, 2008 EXHIBIT "H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The City of Social Circle Board ofEducation (School District) was established under the laws ofthe State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements ofthe City of Social Circle Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: - 10 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Fund is the School District's primary operating fund. It accounts for all financial resources ofthe School District, except those resources required to be accounted for in another fund. District-wide Capital Projects Fund accounts for financial resources including 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 of general 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 of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities and acquisitions under an installment sales agreement are reported as other financing sources. - 11 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The School District funds certain programs by a combination ofspecific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. During fiscal year 2008, the School District did not record any activity for the school activity accounts to the District-wide, governmental or fiduciary fund statements in accordance with generally accepted accounting principles. This change is not in accordance with generally accepted accounting principles. 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. Official Code of Georgia Annotated Section 45-8-14 authorize the School District to deposit its funds in one or more solvent banks, insured Federal savings and loan associations or insured chartered building 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, 2008 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (6) The Local Government Investment Pool administered by the State of Georgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration of credit risks, interest rate risks or foreign currency risks. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The City of Social Circle fixed the property tax levy for the 2007 tax digest year (calendar year) on August 13, 2007 (levy date). Taxes were due on December 21, 2007 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2007 tax digest are reported as revenue in the governmental funds for fiscal year 2008. 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, 2008, for maintenance and operations amounted to $2,455,519.06. The tax millage rate levied for the 2007 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 15.782 mills SALES TAXES Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $1,488,606.50 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, 2008 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 of assets 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. During the fiscal year under review, no events or changes in circumstances affecting a capital asset that may indicate impairment were known to the School District. 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 $ 10,000.00 20 to 80 years $ 10,000.00 25 to 80 years $ 10,000.00 8 to 50 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. During fiscal year 2008, the School District did not record additions, deletions, or depreciation expense to the capital assets. The School District incurred in excess of$2.2 million in capital outlay expenditures. In addition, in the prior year, the School District recorded depreciation expense in excess of$383 thousand. These omissions are not in accordance with generally accepted accounting principles. - 14 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY EXHIBIT "H" NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL OBLIGATION BONDS The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. In the District-wide and fund financial statements, the School District recognizes bond premiums and discounts, as well as bond issuance costs during the fiscal year bonds are issued. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. To conform to generally accepted accounting principles, bond premiums and discounts, as well as issuance costs, should be deferred and amortized over the life ofthe bonds using the straight-line method. The effect ofthis deviation is deemed to be immaterial to the fair presentation of the basic financial statements. 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. NET ASSETS The School District's net assets in the District-wide Statements are classified as follows: Invested in capital assets, net of related debt - This represents the School District's total investment in capital assets, net ofoutstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restricted net assets - These represent resources for which the School District is legally or contractually obligated to spend resources for bus replacement, continuation of Federal programs, debt service and capital projects in accordance with restrictions imposed by external third parties. Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes. Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than - 15 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS 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 (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 or securities guaranteed 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, 2008, the bank balances were $5,890,504.31. The amounts ofthe total uninsured bank balances are classified into three categories of custodial credit risk: Category 1 - Uncollateralized, Category 2 - Cash collateralized with securities held by the pledging financial institution, or Category 3 - Cash collateralized with securities held by the pledging financial institution's trust department or agent but not in the School District's name. The School District's uninsured deposits are classified by custodial credit risk category at June 30, 2008, as follows: - 16 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Custodial Credit Risk Category Bank Balance 1 $ 0.00 2 0.00 3 5,502,712.02 Total $ 5,502,712.02 CATEGORIZATION OF INVESTMENTS The School District's investments as of June 30, 2008, are presented below. All investments are presented by investment type and debt securities are presented by maturity. Investment Type Fair Value Investment Maturity Less than 1 Year Debt Securities U. S. Agencies Implicitly Guaranteed $ 1,290,321.54 $ 1,290,321.54 Other Investments U. S. Treasury Money Market Funds 78,360.38 Investment Pools Office of Treasury and Fiscal Services Georgia Fund 1 134,000.69 Total Investments $ 1,502,682.61 The Georgia Fund 1, formerly referred to as LGIP, administered by the State of Georgia, Office of Treasury and Fiscal Services is not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy ofthe State ofGeorgia, Office of Treasury and Fiscal Services for the Georgia Fund 1 (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. Additional information on the Georgia Fund 1 is disclosed in the State ofGeorgia Comprehensive Annual Financial Report. This audit can be obtained from the Georgia Department of Audits and Accounts at http://www.audits.state.ga.us/intemet/searchRpts.html. - 17 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS The Primary Liquidity Portfolio consists ofGeorgia Fund 1 which is not registered with the SEC as an investment company but does operate in a manner consistent with the SEC's Rule 2a-7 of the Investment Company Act of 1940. The investment is valued at the pool's share price, $1.00 per share. The pool is an AAAm rated investment pool by Standard and Poor's. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2008, was 40 days. The U. S. Treasury Money Market funds are in a Treasury Portfolio Fund managed by Fidelity Investments. The Treasury Portfolio Fund is rated AAAm by Standard and Poor's and Aaa by Moody's. The weighted average maturity of the fund is approximately 60 days. 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. Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event ofthe failure ofthe counterparty to a transaction, the School District will not be able to recover the value ofthe 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. At June 30, 2008, $1,290,321.54 ofthe School District's applicable investments were (1) uninsured and unregistered, with securities held by the counterparty's trust department or agent in the name of the School District and (2) uninsured or unregistered, with securities held by the counterparty, or by its trust department or agent, but not in the School District's name. 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. The investments subject to credit quality risk are reflected below: Rated Debt Investments Fair Value Quality Ratings Unrated Debt Securities U.S. Agencies Implicitly Guaranteed $ 1,290,321.54 $ 1,290,321.54 - 18 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The School District does not have a formal policy for managing concentration of credit risk. More than 5% of the School District's investments are in Federal National Mortgage Association discount notes. These investments are 85.8% ofthe School District's total investments. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress Total Capital Assets Not Being Depreciated Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements Total Capital Assets, Being Depreciated, Net Governmental Activity Capital Assets - Net Balances July 1, 2007 Increases Decreases Balances June 30, 2008 $ 13,737.00 $ 1,172,935.00 $ 1,186,672.00 $ $23,868,271.00 $ 1,335,297.00 346,333.00 6,178,248.00 799,296.00 93,039.00 $ 18,479,318.00 $ $ 19 665,290 QQ $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ Q.00 $ 0.00 $ 13,737.00 1,172,935.00 0.00 $ 1,186,672.00 0.00 $23,868,271.00 1,335,297.00 346,333.00 6,178,248.00 799,296.00 93 039.00 0.00 $ 18,479,318.00 O.QO $ 12 665,920.00 Capital assets being acquired under an installment sales agreement as of June 30, 2008, are as follows: - I9 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 5: CAPITAL ASSETS Buildings and Improvements Less: Accumulated Depreciation Governmental Funds $ 2,487.00 0.00 Note 6: RESTRICTED ASSETS $=====2=-,4=8==7=o. ==o Special Purpose Local Option Sales Tax (SPLOST), installment sales agreement proceeds and Qualified Zone Academy Bonds (QZAB) escrow account are 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, 2008, were as follows: General Fund Installment Sales OZAB Agreement District-wide Capital Projects SPLOST Restricted Cash and Cash Equivalents: Capital Acquisitions Restricted Investments: Debt Service Capital Acquisitions $ 1,290,321.54 $ $ 701,487.71 78,360.38 $ 834,000.69 Note 7: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2008, consisted of the following: Transfer to Transfers From District-wide General Capital Fund Projects District-wide Capital Projects $ 2,422,941.29 $ 318,013.14 Transfers are used to move property tax revenues collected by the General Fund to the District-wide Capital Projects Fund as supplemental funding source for capital construction projects, and to move sales tax revenue collected by the Debt Service Fund in prior fiscal years for the payment ofbonds, but not expended back to the District-wide Capital Projects Fund. - 20 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 8: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk of loss associated with job related illness or injuries to employees. The School District has neither significantly reduced coverage for 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 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members of the system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse), 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: 2007 2008 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End of Year Liability $ 0.00 $ 2,964.00 $ 2,964.00 $ 0.00 $ 0.00 $ 4 495.00 $ 4 495.00 $ 0.00 The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent All Employees Each Principal $ 25,000.00 $ 100,000.00 $ 5,000.00 - 21 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 9: LONG-TERM DEBT INSTALLMENT SALES AGREEMENT The City of Social Circle Board of Education entered into an agreement dated June 1, 2006, with the Northeast Georgia Regional Educational Service Agency for the construction and subsequent lease of the Rutland Center. Under the terms of the agreement, the School District will make annual payments through July 15, 2020. GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rate Amount General Government - QZAB Series 2003 0.00% $ 2,000,000.00 The changes in Long-Term Debt during the fiscal year ended June 30, 2008, were as follows: Balance Jul:i:: I, 2007 Governmental Funds Additions Deductions Balance June 30, 2008 Due Within One Year G.O. Bonds $ 2,865,000.00 $ Installment Sales Agreement 129,960.00 0.00 $ 865,000.00 $ 2,000,000.00 7 800.00 122,160.00 $ 8 040.00 Balance June 30, 2008 $ 2,224,26Q,QQ $ Q,QQ $ 812,8QQ.QQ $ 2 122,16Q.0Q $ 8,Q40 0Q At June 30, 2008, payments due by fiscal year which includes principal and interest for these items are as follows: Fiscal Year Ended June 30 Installment Sales Agreement Principal Interest 2009 2010 2011 2012 2013 2014 - 2018 2019 - 2020 $ 8,040.00 $ 5,081.86 8,400.00 4,747.39 8,760.00 4,397.95 9,120.00 4,033.54 9,480.00 3,654.14 53,640.00 12,020.74 24,720.00 1,552.51 Total Principal and Interest $ 122,160.00 $ 35,488.13 Fiscal Year Ended June 30 General Obligation Debt Principal Interest 2023 $ 2,000,000.00 $ 0.00 - 22 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 10: ON-BEHALF PAYMENTS The School District has recognized revenues and costs in the amount of $309,690.86 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 of Non-Certified Personnel In the amount of $297,897.29 Paid to the Teachers Retirement System of Georgia For Teachers Retirement System (TRS) Employer's Cost In the amount of $10,160.57 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 $1,633.00 Note 11: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2008: Project Unearned Executed Contracts New Administration Office Building $ 1,436,490.17 The amount described in this note is not reflected in the basic financial statements. Note 12: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. 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. - 23 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 13: RELATED PARTY TRANSACTION The School District employed the services of Circle Electric Company, Incorporated, for various small construction, renovation and/or maintenance projects. This company is co-owned by Mr. Tim Lemmonds, who is currently a member ofthe City of Social Circle Board of Education. These jobs did not reach a monetary level that required them to be bid out. Current year expenditures to Circle Electric Company, Incorporated, total $19,362.59. Note 14: POSTEMPLOYMENT BENEFITS Georgia Retiree Health Benefit Fund Plan Description. The School District contributes to the Georgia Retiree Health Benefit Fund ("GRHBF"), a cost-sharing multiple-employer defined benefit postemployment healthcare plan administered by the Department ofCommunity Health. GRHBF provides health insurance benefits to eligible retirees and their qualified beneficiaries. Pursuant to Title 45, Chapter 18 ofthe Official Code ofGeorgia Annotated, the authority to establish and amend the benefit provisions ofthe plan is assigned to the Board of Community Health. The Department of Community Health issues a publicly available financial report that includes financial statements and required supplementary information for GRHBF. That report may be obtained from the Department ofCommunity Health at 2 Peachtree Street, Atlanta, Georgia 30303. Funding Policy. The contribution requirements of plan members and participating employers are established and may be amended by the Board of Community Health. Contributions of plan members or beneficiaries receiving benefits vary based on plan election, dependent coverage, and Medicare eligibility and election. On average, plan members pay approximately twenty-five percent (25%) of the cost of health insurance coverage. Participating employers are statutorily required to contribute in accordance with the employer contribution rate established by the Board of Community Health. This contribution rate is established to fund both the active and retired employee health insurance plans based on projected pay-as-you-go financing requirements. The employer contribution rates for the combined active and retiree plans for the fiscal year ended June 30, 2008, were as follows: Teachers Non-Certificated Employees 18.534% of state-based salaries $162.72 per month The School District's contribution to the health insurance plans for the fiscal year ended June 30, 2008, was $1,543,121.40, which equaled the required contribution. -24- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "H" Note 15: 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 9.28% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2008 2007 2006 100% 100% 100% $ 805,509.18 $ 724,876.00 $ 646,853.00 - 25 - (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, 2008 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 Central Support Services Other Support Services Food Services Operation Capital Outlay Debt Service Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING {USES) Operating Transfers to Other Funds Net Change in Fund Balances Fund Balances - Beginning Adjustments NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 2,443,433.65 $ 2,443,433.65 $ 2,455,519.06 10,105,148.00 10,296,492.00 11,102,911.12 15,158.00 1,203,209.00 1,230,839.55 740,000.00 945,800.00 2,250,114.67 2,000.00 119,967.78 2 000.00 117,862.85 $ 13,303,739.65 $ 14,892,934.65 $ 17,277,215.03 $ 9,344,034.62 $ 9,763,112.88 $ 10,236,069.44 257,595.12 191,949.00 363,931.29 735,185.46 1,069,837.01 1,265,161.50 530,674.44 252,913.00 21,254.23 342,650.12 294,343.00 363,931.29 808,229.46 1,069,837.01 1,265,161.50 548,174.44 2,350.00 334,816.00 747,480.23 404,190.36 312,708.69 368,054.63 749,199.60 1,105,142.82 1,293,056.27 523,450.01 302,010.36 811,962.24 62,349.03 12 497.96 $ 14,032,535.67 $ 15,540,085.93 $ 16,180,691.41 $ -728,796.02 $ -647,151.28 $ 1,096,523.62 -2,422,941.29 $ -728,796.02 $ -647,151.28 $ -1,326,417.67 4,576,577.10 4,576,577.10 4,713,664.00 6,826.20 -4,035.86 Fund Balances - Ending $ 3,854,607.28 $ 3,925,389.96 $ 3,387,246.33 Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual (1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 27 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2008 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) Pass-Through From Georgia Forestry Commission Cooperative Forestry Assistance 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 Career and Technical Education - Basic Grants to States Enhancing Education Through Technology Program 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 Total U.S. Department of Education CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 N/A (2) N/A $ _ _-'7-=0..a.1,L-'-4.:.:00:;.:;.5a.:2:.. $ 701,400.52 10.550 10.664 N/A 44,368.21 NIA 5 567.00 $ _ _-'7-"5-'"1"'-33.:.:5:;.:;7.-=3:.... 84.027 84.173 N/A $ NIA $ 289,728.23 15951.92 305,680.15 84.048 84.318 84.367 84.358 84.186 84.298 84.010 N/A NIA NIA N/A N/A N/A NIA $ 10,158.00 63,957.01 53,324.57 65,750.24 4,229.22 1,836.00 223,207.07 728,142.26 Total Federal Financial Assistance NIA= Not Available $ 1479477.99 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 ($121,053.34) were not maintained separately and are included in the 2008 National School Lunch Program. Major Programs are identified by an asterisk(*) in front of the CFDA number. The School District did not provide Federal Assistance to any Subrecipient. The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the City of Social Circle Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 28- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2008 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 Vocational Supervisors Mid-term Adjustment Hold-Harmless Education Equalization Funding Grant Food Services Vocational Education Amended Formula Adjustment Other State Programs Graduation Coaches Health Insurance National Defense Cadet Corp National Teacher Certification Preschool Handicapped Program Remedial Summer Middle School Teachers' Retirement Tuition for the Multi-Handicapped Office of Treasury and Fiscal Services Public School Employees Retirement See notes to the basic financial statements. -29- SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ 392,489.99 474,338.00 47,514.00 1,343,816.00 226,520.00 657,937.00 134,407.00 1,192,322.00 885,000.00 415,787.00 110,151.00 152,288.00 571,599.00 180,303.00 72,329.00 193,196.00 14,813.00 92,934.00 25,485.00 192,873.00 60,440.00 35,587.00 387,534.00 494,994.00 462,784.00 134,963.00 25,100.00 20,000.00 47,389.00 8,663.00 36,984.00 1,533,664.00 40,466.00 36,988.70 -156,237.00 76,269.72 297,897.29 57,951.85 22,941.00 31,280.00 1,533.00 10,160.57 57,823.00 1 633.00 $ =====1=11=1o..2.;i.;;,9.,.1=1._1.2. CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2008 SCHEDULE "4" PROJECT ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS(3l PROJECT STATUS Walton County SPLOST Projects: Acquiring, constructing and equipping a new elementary school; acquiring land for future schools; acquiring, constructing and equipping a new central facility; acquiring, constructing and equipping an athletic complex; acquiring buses; acquiring textbooks; technology upgrades; financing a portion of the costs of a regional facility; renovating, repairing, improving, furnishing and equipping existing athletic facilities, educational buildings, properties and facilities of the City of Social Circle School District $ 9,869,600.00 $ 9,869,600.00 $ 12,511.00 Ongoing 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 5,000,000.00 5,849,810.67 459,414.67 $ 5,357,696.00 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 2,000,000.00 2,000,000.00 494,957.00 178,801.00 Ongoing $ 16,869,600.00 $ 17 719 410.67 $ 966,882.67 $ 5,536,497.00 (1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax. (2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion. (3) The voters of 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. - 30- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2008 SCHEDULE "5" DESCRIPTION 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) TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1l (2l ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 535,900.00 $ 544,774.61 $ 18,055.23 $ 562,829.84 54,301.00 48,259.98 2,497.79 50,757.77 1,434,227.00 1,554,068.98 65,198.50 1,619,267.48 241,771.00 246,251.79 4,279.89 250,531.68 709,792.00 824,361.12 46,734.15 871,095.27 148,411.00 1,281,645.00 946,739.00 442,932.00 1,177,461.00 200,359.00 17,269.00 99,212.00 27 413.00 148,573.37 1,337,117.28 1,301,254.91 433,292.24 117,811.40 705,126.48 301,682.46 209,842.13 19,800.67 53,022.41 38,439.31 1,022.33 57,394.34 72,790.53 37,412.24 1,050.32 27,042.82 1,078.13 18,411.25 248.29 149,595.70 1,394,511.62 1,374,045.44 470,704.48 117,811.40 706,176.80 328,725.28 210,920.26 19,800.67 71,433.66 38,687.60 $ 7,317,432.00 $ 7,883,679.14 $ 353,215.81 $ 8,236,894.95 207,895.00 38 727.00 292,853.39 68,686.08 361,539.47 42,293.32 TOTAL QBE FORMULA FUNDS $ 7,564,054.00 $ 8,176,532.53 $ 421,901.89 $ 8,640,727.74 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State amended formula adjustment. See notes to the basic financial statements. - 31 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 November 19, 2009 Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education and Superintendent and Members of the City of Social Circle Board of Education REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ladies and Gentlemen: We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of City of Social Circle Board of Education as of and for the year ended June 30, 2008, which collectively comprise City of Social Circle Board of Education's basic financial statements and have issued our report thereon dated November 19, 2009. We expressed adverse opinions on the governmental activities and the aggregate remaining fund information because ofdepartures from generally accepted accounting principles, as identified in the auditor's combined report on the basic financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered City of Social Circle Board of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose ofexpressing our opinions on the financial statements, but not for the purpose ofexpressing an opinion on the effectiveness of the City of Social Circle Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness ofthe City of Social Circle Board of Education's internal control over financial reporting. 2008YB-40X Our consideration ofinternal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City of Social Circle Board of Education's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City of Social Circle Board of Education's financial statements that is more than inconsequential will not be prevented or detected by the City of Social Circle Board of Education's internal control. We consider items FS-7861-08-01, FS-7861-08-02 and FS-7861-08-03 in the accompanying Schedule ofFindings and Questioned Costs to be significant deficiencies in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement ofthe financial statements will not be prevented or detected by the City of Social Circle Board of Education's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph ofthis section and would not necessarily disclose all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, of the significant deficiencies described above, we consider items FS-7861-08-02 and FS-7861-08-03 to be material weaknesses. ' Compliance and Other Matters As part of obtaining reasonable assurance about whether City of Social Circle Board ofEducation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we have reported to management of City of Social Circle Board of Education in a separate letter dated November 19, 2009. City of Social Circle Board of Education's response to the findings identified in our audit is described in the accompanying Schedule of Management's Responses. We did not audit City of Social Circle Board of Education's response and, accordingly, we express no opinion on it. 2008YB-40X This report is intended solely for the information and use of management, members of the City of Social Circle Board of Education, others within the entity, Federal awarding agencies and passthrough entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, RWH:as 2008YB-40X 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 November 19, 2009 Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education and Superintendent and Members ofthe 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, 2008. City of Social Circle Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section ofthe accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements oflaws, regulations, contracts and grants applicable to each ofits major Federal programs is the responsibility ofCity of Social Circle Board of Education's management. Our responsibility is to express an opinion on City of Social Circle Board of Education's compliance based on our audit. We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits ofStates, 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 2008SA-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, 2008. Internal Control Over Compliance The management of City of Social Circle Board of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered City of Social Circle Board of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness ofthe City ofSocial Circle Board of Education's internal control over compliance. A control deficiency in an entity's internal control over compliance exists when the design or operation ofa control does not allow management or employees, in the normal course ofperforming their assigned functions, to prevent or detect noncompliance with a type ofcompliance requirement of a Federal program on a timely basis. A significant deficiency is a control deficiency, or combination ofcontrol deficiencies, that adversely affects the entity's ability to administer a Federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a Federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a Federal program will not be prevented or detected by the entity's internal control. Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. 2008SA-10 This report is intended solely for the information and use of management, members of the 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, ~ - U2_ w....J~ : sell W. Hinton, CPA, CGFM State Auditor RWH:as 2008SA-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, 2008 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7861-07-01 Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Documentation Finding Control Number: FS-7861-07-01 Social Circle City Schools hired a new Chief Financial Officer in August of 2008. New procedures and controls are being established to adhere to the acceptable accounting principles set forth by Georgia Department of Education Financial Review. Also, the School District has contracted with a retired school system financial director recommended by Northeast Georgia Regional Educational Service Agency. Procedures set in place for the finding of inadequate document require purchase orders complete with superintendent's signature or signature on the actual invoice (monthly expenses). No checks/payments are processed without proper authorization for payment. The new ChiefFinancial Officer is working with the four schools to set written procedures for various duties that involve payment from the principal's account. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. 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, 2008 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the City of Social Circle Board of Education's financial statements was adverse for governmental activities and the aggregate remaining fund information due to material departures from generally accepted accounting principles. The auditor's opinion on each major fund was unqualified. 2. Significant Deficiencies 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 significant deficiencies related to the following control categories. Expenditures/Liabilities/Disbursements Financial Reporting Of the significant deficiencies described above, Financial Reporting is considered to be a material weakness. 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. Significant Deficiencies in Internal Control Over Major Programs The audit report for the City of Social Circle Board of Education did not disclose any significant deficiencies in internal control over major programs. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the City of Social Circle Board of Education's report on compliance with requirements applicable to major programs was unqualified. 6. Audit Findings Required to be Reported by Section .510{a) of 0MB Circular A-133 The City of Social Circle Board of Education'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 $300,000.00. 9. Low Risk Auditee The City of Social Circle Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. - 1- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Documentation Significant Deficiency Finding Control Number: FS-7861-08-01 Condition: This is a repeat finding (FS-7861-07-01) from the fiscal year ended June 30, 2007. A review of expenditures revealed that the School District failed to implement internal controls to ensure that purchase orders were properly utilized and that expenditures were properly authorized. Criteria: The School District's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are properly approved, documented, processed, and reported in accordance with State law, procedures established by the Georgia Department of Education and School District policies and procedures. Questioned Cost: NIA Information: Weaknesses in internal controls relating to expenditures were noted as follows: Procedures were not in place to ensure that purchase orders were completed and approved in accordance with School District policy. Procedures were not in place to ensure evidence of approval prior to disbursement of funds. A review of expenditure vouchers revealed the following: Several vouchers contained no purchase order. Several vouchers contained no indication of administrative and/or Superintendent approval prior to payment. Many vouchers had no evidence of receipt of goods prior to payment. Cause: Management failed to adequately monitor and implement procedures to ensure that all applicable expenditures voucher packages include purchase orders and have documentation of approval prior to payment and recording of expenditures in the financial records. Effect: Errors and/or irregularities may occur and not be detected in a timely manner. Recommendation: Management should review current policies regarding expenditures to ensure that expenditures are properly approved and documented prior to disbursement. -2- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINANCIAL REPORTING Inadequate Controls over Financial Reporting Material Weakness Finding Control Number: FS-7861-08-02 Condition: The School District did not have adequate controls over the financial statement reporting process. Criteria: Chapter 22A Annual Financial Reporting of the Financial Management for Georgia Local Units of Administration provides that the School District must prepare their financial statements in accordance with generally accepted accounting principles. Questioned Cost: NIA Information: During the audit, the following correcting entries were proposed by the auditor and accepted by the client to properly present the entity's financial statements: Adjustments that netted to $745,862.15 were necessary to tie Beginning Net Assets on the District-wide statements. On-behalf revenues and related expenditures totaling $309,690.86 for employee benefits were not recorded on the entity's fund level and District-wide financial statements. SPLOST July and August accruals were not recorded properly. An audit adjustment was necessary to record an additional receivable of $208,308.64. Numerous other audit adjustments were necessary to properly present the entity's fund level and District-wide financial statements. Cause: The School District did not implement an adequate system of internal control over the financial statement reporting process. Effect: The School District did not comply with the requirements of the Georgia Department of Education regarding financial reporting. Numerous adjustments were necessary in order for the School District's governmental funds to be in conformity with generally accepted accounting principles. -3- CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINANCIAL REPORTING Inadequate Controls over Financial Reporting Material Weakness Finding Control Number: FS-7861-08-02 Recommendation: The School District should implement controls over the financial statement reporting process to ensure that all required activity is included in the financial statement information; to verify the financial statements (including note disclosures) properly reflect activity reporting in the general ledger; and to include a monitoring process to evaluate the accuracy of the financials presented for audit. FINANCIAL REPORTING Inadequate Controls over Capital Assets and School Activity Accounts Material Weakness Finding Control Number: FS-7861-08-03 Condition: The School District did not have adequate controls over the financial statement reporting process regarding Capital Assets and School Activity Accounts. Criteria: Management is responsible for having adequate controls over the financial reporting process, which not only includes proper recording of transactions to the general ledger, but extends to accurate preparation and presentation of the financial statements, including note disclosures. Questioned Cost: NIA Information: During the auditor's review of the preliminary financial statement information, it was discovered that the School District had failed to report any current year activity (addition, deletions, depreciation expense, etc.) for its Capital Assets. The Capital Assets reported additions, deletions and depreciation expense in prior fiscal years, but none were reported in the current year. -4 - CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINANCIAL REPORTING Inadequate Controls over Capital Assets and School Activity Accounts Material Weakness Finding Control Number: FS-7861-08-03 In addition, the auditor noted that no current year activity (assets, liabilities, revenues or expenses/expenditures) was reported for the School Activity (Principal) Accounts for either the General Fund or Fiduciary Funds (Agency). The School Activity Accounts for all schools reported both governmental and agency activity in prior fiscal years, but none in the current year. Cause: The School District did not implement an adequate system of internal control over the financial statement reporting process. Effect: The School District did not have adequate controls in place to ensure that the financial statements were properly prepared in accordance with generally accepted accounting principles. The deficiency related to the Board's failure to report School Activity Accounts is considered to be a financial statement irregularity in accordance with the O.C.G.A. 20-2-67. Also, as a result of these deficiencies, the financial statements for governmental activities and the aggregate remaining fund information were not in conformity with generally accepted accounting principles. Recommendation: The School District should implement controls over the financial statement reporting process to ensure that activity is properly recorded in the general ledger; to verify that financial statements (including note disclosures) properly reflect activity reported in the general ledger; and to include a monitoring process to evaluate the accuracy of the financials presented for audit. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -5- SECTIONV MANAGEMENT'S RESPONSES CITY OF SOCIAL CIRCLE BOARD OF EDUCATION - WALTON COUNTY SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2008 Finding Control Number: FS-7861-08-01 We concur with this finding. A new chief financial officer was hired in August 2008 and new procedures and internal controls have been implemented to ensure purchase orders and expenditures are properly authorized. Finding Control Number: FS-7861-08-02 We concur with this finding. The Board will hire a certified public accountant consultant to assist with the preparation of annual financial statements for the annual audit. This hiring will take place for preparation of the fiscal year 2009 annual financial statements. Finding Control Number: FS-7861-08-03 We concur with this finding. The Board has begun the process of hiring a certified public accountant consultant who will assist the current staff in proper recording of capital assets. School activity procedural manual is being developed and implemented at the school level. Quarterly reports are currently being submitted for review by the Board. Controls are in place to ensure that activity is properly recorded in the general ledger to properly reflect activity. Contact Person: Telephone: Fax: Email: Allison Pittard, Chief Financial Officer (770) 464-2731 (770) 464-4920 apittard@scboe.org