CITY OF TRION BOARD OF EDUCATION CHATTOOGA 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 TRION BOARD OF EDUCATION - CHATTOOGA 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 3 D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 4 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 5 F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 6 G STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS 7 H NOTES TO THE BASIC FINANCIAL STATEMENTS 8 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND 21 SUPPLEMENTARY INFORMATION 2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 22 3 SCHEDULE OF STATE REVENUE 23 CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS 24 5 ALLOTMENTS AND EXPENDITURES GENERAL FUND - QUALITY BASIC EDUCATION PROGRAMS (QBE) BY PROGRAM 25 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 CIRCULARA-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 TRION BOARD OF EDUCATION - CHATTOOGA 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 4, 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 Trion 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 Trion Board of Education, as of and for the year ended June 30, 2006, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Trion 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 of the City of Trion Board of Education, as of June 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-11 The City ofTrion Board ofEducation has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements. In accordance with Government Auditing Standards, we have also issued our report dated April 4, 2007, on our consideration ofthe City of Trion 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 ofour testing of internal control over financial reporting and compliance and the results ofthat 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 21, 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 Trion Board of Education's basic financial statements. The accompanying supplementary information which consist of Schedules 2 through 5, which includes the Schedule of Expenditures of Federal Awards as required by U. S. Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, ~~__....W.~~ sell W. Hinton, CPA, CGFM State Auditor RWH:gp 2006ARL-11 CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT"A" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Inventories Capital Assets Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Long-Term Liabilities 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 (Deficit) Total Net Assets Total Liabilities and Net Assets GOVERNMENTAL ACTIVITIES $ 4,350,254 143,098 192,581 858,913 145,210 24,052 22,164 -6 648 $ =====5=,7..2..9..,=6=24... $ 346,158 824,690 3,100,000 $ 4,270,848 $ 15,516 275,143 37,781 3,532,626 -2,402,290 $ 1,458,776 $ =====5=,7=2=9=,6=24= The notes to the basic financial statements are an integral part of this statement. - 1- CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 EXHIBIT"B" EXPENSES PROGRAM REVENUES OPERATING CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS GOVERNMENTAL ACTIVITIES Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services $ 6,608,849 $ 548,711 127,310 262,049 141,791 661,780 188,320 836,013 6,388 18,339 12,772 3,941 466168 305,549 $ 193,640 349 354 5,662,468 $ 41,060 83,989 110,669 333,399 339,023 349,405 7,688 178 081 -640,832 -314,011 -43,321 -151,380 191,608 -322,757 -188,320 -486,608 -6,388 -10,651 -12,772 -3,941 61 267 Total Governmental Activities $ 9,882,431 $ 848 543 $ 7105 782 $ _ _ _-1~,9_2_8~,1_06_ General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Local Option Sales Tax Special Purpose Local Option Sales Tax For Capital Projects Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Special Items Capital Transfer to City of Trion $ 321,493 802,495 792,920 1,055,920 84,714 93,238 -231 645 Total General Revenues and Special Items $ _ _ _2~9_1~9_13_5_ Change in Net Assets $ 991,029 Net Assets - Beginning of Year 467 747 Net Assets - End of Year $ ====1='=4=5='8=77=6= The notes to the basic financial statements are an integral part of this statement. -2 - CITY OF TRION BOARD OF EDUCATION- CHATTOOGA COUNTY BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2006 EXHIBIT "C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Debt Service Inventories Capital Projects Unreserved Undesignated Reported in: General Fund Total Fund Balances Total Liabilities and Fund Balances GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND TOTAL $ 1,019,630 $ 3,330,624 $ 4,350,254 12,500 130,598 143,098 180,624 858,913 145,210 24 052 137,013 317,637 858,913 145,210 24 052 $ $ 318,330 $ 824 690 $ 1 143,020 $ 27,828 $ 27 828 $ 346,158 824 690 1 170 848 $ 251,091 $ 251,091 $ 37,781 37,781 24,052 24,052 3,532,626 3,532,626 822,766 822 766 $ 1,097,909 $ 3 570,407 $ 4 668 316 $ 2,240,929 $ 3,598,235 $ ==5=,8=39='=16=4= The notes to the basic financial statements are an integral part of this statement. -3- CITY OF TRION BOARD OF EDUCATION - CHATTOOGA 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") $ 4,668,316 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: Equipment Accumulated Depreciation Total Capital Assets $ 22,164 -6 648 15,516 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. -125,056 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 -3,100,000 Net Assets of Governmental Activities (Exhibit "A") $ =====1=45=8=7=7=6 The notes to the basic financial statements are an integral part of this statement. -4- CITY OF TRION BOARD OF EDUCATION - CHATTOOGA 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 Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Enterprise Operations Community Services Food Services Operation Capital Outlay Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES Proceeds of Long-Term Capital Related Debt Net Change in Fund Balances Fund Balances - Beginning GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND TOTAL $ 281,877 802,495 $ 7,697,153 464,549 848,543 43,067 93,238 $ 10,230,922 $ $ 792,920 41,647 834,567 $ 281,877 1,595,415 7,697,153 464,549 848,543 84,714 93,238 11,065,489 $ 6,534,385 $ 548,711 127,310 262,049 141,791 661,780 130,269 833,797 6,388 18,339 12,772 3,941 466,168 $ 9,747,700 $ $ 483,222 $ 74,464 $ 58,051 231,645 364,160 $ 470,407 $ 6,608,849 548,711 127,310 262,049 141,791 661,780 188,320 833,797 6,388 18,339 12,772 3,941 466,168 231,645 10,111,860 953,629 3,100,000 3,100,000 $ 483,222 $ 3,570,407 $ 4,053,629 614,687 0 614,687 Fund Balances - Ending $ 1,097,909 $ 3,570,407 $ ==4=,6=68..,,=31=6= The notes to the basic financial statements are an integral part of this statement. -5- CITY OF TRION BOARD OF EDUCATION - CHATTOOGA 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: 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. Bond proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from General Obligation Bonds Issued. Change in Net Assets of Governmental Activities (Exhibit "B") $ 4,053,629 -2,216 39,616 -3,100,000 $ ====9=9==1...,,0...,29.,. The notes to the basic financial statements are an integral part of this statement. -6- CITY OF TRION BOARD OF EDUCATION-CHATTOOGA COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2006 EXHIBIT"G" ASSETS Cash and Cash Equivalents Investments Total Assets LIABILITIES Funds Held for Others AGENCY FUNDS $ 68,912 38,049 $ ==10=6=,9=61= $ ==1=06='=96=1= The notes to the basic financial statements are an integral part of this statement. -7- CITY OF TRION BOARD OF EDUCATION - CHATTOOGA 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 of Trion Board of Education (School District) was established under the laws of the 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. 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 Trion 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. -8- CITY OF TRION BOARD OF EDUCATION - CHATTOOGA 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. 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 or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis ofaccounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds ofgeneral long-term liabilities are reported as other financing sources. -9- CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 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. 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, (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. - 10 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 Trion fixed the property tax levy for the 2005 tax digest year (calendar year) on October 15, 2005 (levy date). Taxes were due on December 30, 2005 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2005 tax digest are reported as revenue in the governmental funds for fiscal year 2006. The City of Trion City Clerk bills and collects the property taxes for the School District and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2006, for maintenance and operations amounted to $281,877. The tax millage rate levied for the 2005 tax year (calendar year) for the City of Trion Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 5.749 mills SALES TAXES Local Option Sales Tax revenue, at the fund reporting level, during the fiscal year amounted to $802,495 and was recorded in the General Fund. Local Option Sales Tax is to be used for the maintenance and operation of the School District. Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $792,920 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when - 11 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. The land and buildings are owned by the City of Trion. Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows: Capitalization Policy Estimated Useful Life Equipment $ 5,000 10 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 ofNet Assets. 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 ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. - 12 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Ifa depository elects the pooled method (OCGA 45-8-13.1) the aggregate ofthe market value ofthe securities pledged to secure a pool ofpublic funds shall be not less than 110 percent ofthe daily pool balance. At June 30, $266,663 of deposits were not secured by surety bond, insurance or collateral as specified above. The School District is working with the affected financial institutions to ensure appropriate levels of collateral are maintained for all of the School District's deposits. 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 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 $4,744,907. 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. - 13 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS 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 $ 148,094 2 4,330,150 3 0 4 266,663 Total $ 4,744.907 CATEGORIZATION OF INVESTMENTS At June 30, 2006, the carrying value ofthe School District's total investments was $130,598 which is materially the same as fair value. This investment consisted entirely of funds 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 ofthe State ofGeorgia, 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 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the 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. - 14 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" 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. See Note 2 - Inventories 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 Being Depreciated Equipment $ 22,164 $ 0 $ 0 $ 22,164 Less Accumulated Depreciation for: Equipment 4432 2.216 6,648 Governmental Activity Capital Assets - Net $ 17.732 $ -2.216 $=====0 $===15..,.5""'1""'6 Current year depreciation expense by function is as follows: Support Services Maintenance and Operation of Plant Note 6: RESTRICTED ASSETS $====2-,2=-1-6 Special Purpose Local Option Sales Tax (SPLOST) and general obligation bond proceeds are reported as restricted assets in the Statement ofNet Assets because their use is limited by statutory provisions. Restricted assets at June 30, 2006, were as follows: District-wide Capital Projects Bond SPLOST Proceeds Restricted Cash and Cash Equivalents: Debt Services Capital Acquisitions Restricted Investments: Capital Acquisitions $ 37,781 $ 208,793 $ 3,084,050 $ 130,598 - 15 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 7: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District participates in the Georgia School Boards Association Risk and Insurance Management System, a public entity risk pool organized on July 1, 1994, to develop and administer a plan to reduce risk of loss on account of general liability, motor vehicle liability, or property damage, including safety engineering and other loss prevention and control techniques, and to administer one or more groups of self-insurance funds, including the processing and defense of claims brought against members ofthe system. The School District pays an annual premium to the system for its general insurance coverage. Additional coverage is provided through agreements by the system with other companies according to their specialty for property, boiler and machinery (including coverage for flood and earthquake), general liability (including coverage for sexual harassment, molestation and abuse), 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 $ 0 $ 4 593 $ $ 0 $ 3 084 $ Claims Paid End ofYear Liability 4 593 $ 0 3 084 $ 0 The School District participates in the Georgia Education Workers' Compensation Trust, a public entity risk pool organized on December I, 1991, to develop, implement and administer a program of workers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Trust for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Trust with the Midwest Employers Casualty Company to provide coverage for potential losses sustained by the Trust in excess of $500,000 loss per occurrence, up to $2,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Superintendent All Employees Amount $ 50,000 $ 100,000 - 16 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 8: SHORT-TERM DEBT The School District issues tax anticipation notes in advance ofproperty tax collections, depositing the proceeds in its General Fund. This short-term debt is to provide cash for operations until property tax collections are received by the School District. Article IX, Section V, Paragraph V of the Constitution ofthe State ofGeorgia limits the aggregate amount ofshort-term debtto 75 percent ofthe total gross income from taxes collected in the preceding year and requires all short-term debt to be repaid no later than December 31 of the calendar year in which the debt was incurred. Short-term debt activity for the fiscal year is as follows: Beginning Balance Issued Redeemed Ending Balance Tax Anticipation Notes $ 333,091 $====0 $ 333,091 $===0 Note 9: LONG-TERM DEBT GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows: Purpose Interest Rates Amount General Government - Series 2006 3.50% - 3.75% $ 3,100,000 The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: Governmental Funds General Obligation Bonds Balance July 1, 2005 $ 0 Additions G.O. Bonds 3,100,000 Balance June 30, 2006 $ 3,100.000 Portion of Long-Term Debt Due within One Year $ 0 - 17 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 9: LONG-TERM DEBT 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 2009 2010 2011 2012 - 2013 $ $ 545,000 605,000 630,000 1,320,000 93,985 112,408 102,870 82,594 60,515 49,712 Total Principal and Interest $ 3,100,000 $ 502,084 Note 10: SPECIAL ITEMS The School District used Special Purpose Local Option Sales Tax (SPLOST) to renovate schools per the SPLOST II referendum. In the current year, the School District expended $231,645 for an addition to Trion High School. The capital transfer to City of Trion is reported as special items on the Statement of Activities. 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. 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 ofGeorgia (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. - 18 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"H" Note 12: RETIREMENT PLANS 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 ofTrustees 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% $ 532,304 $ 519,716 $ 502,235 - 19 - (This page left intentionally blank) CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2006 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Enterprise Operations Community Services Food Services Operation Total Expenditures Net Change in Fund Balances Fund Balances - Beginning NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 1,084,582 $ 1,084,582 $ 281,877 802,495 6,930,908 6,930,908 7,697,153 424,053 164,910 464,549 489,800 489,800 848,543 15,500 15,500 43,067 93 238 $ 8 944 843 $ 8 685 700 $ 10,230,922 $ 6,340,858 $ 176,293 98,699 269,165 138,800 738,394 125,931 749,727 4,000 17,770 524 369 $ 9 184 006 $ $ -239,163 $ 1258443 6,100,415 $ 176,293 95,499 269,165 138,800 722,894 125,931 749,727 4,000 17,770 524 369 8 924 863 $ -239, 163 $ 1 385 148 6,534,385 548,711 127,310 262,049 141,791 661,780 130,269 833,797 6,388 18,339 12,772 3,941 466,168 9 747 700 483,222 614 687 Fund Balances - Ending $ 1 019280 $ 1, 145 985 $ ===a:1'"=0=9=7=90=9= 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. - 21 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA 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 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 Advanced Placement Program Enhancing Education Through Technology Program Hurricane Education Recovery Improving Teacher Quality 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 CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 10.553 10.555 N/A (2) N/A $ _ _ _ _43'-'4~8~3~3 $ 434,833 10.550 N/A (1) $ _ _ _..;.43.;:;.4'-/.8:c.;3c.c;.3 84.027 84.173 NIA $ N/A $ 212,368 8 468 220,836 84.330 84.318 84.938 84.367 84.298 84.010 84.048 NIA N/A N/A N/A NIA NIA N/A $ 246 1,667 (3) 40,417 2,141 36,472 11 431 313210 Total Federal Financial Assistance N/A = Not Available $====74=8=0=43= Notes to the Schedule of Expenditures of Federal Awards (1) Commodities valued in the amount of $26,418 were received during the current fiscal year and were not recorded in the School District's financial statements. (2) Expenditures for the funds earned on the School Breakfast Program ($17,666) 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 $4,478, 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 Trion 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. - 22 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA 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 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 Sparsity Nursing Services Principal Supplements Education Equalization Funding Grant Food Services Vocational Education Austerity Reduction Other State Programs At-Risk Summer School Program Limited School Choice Program National Teacher Certification Preschool Handicapped Program Virtual Schools Grant OTHER Community Affairs, Georgia Department of Local Assistance Grant GOVERNMENTAL FUND TYPE GENERAL FUND $ 372,097 291,190 80,873 863,310 89,136 469,603 6,142 746,792 541,108 278,771 1,027,316 1,463 22,743 10,029 28,030 346,563 55,179 92,280 127,755 38,037 26,558 354,427 343,879 349,403 27,802 41,055 4,478 1,054,698 31,220 20,125 -303,828 12,000 13,000 3,400 16,160 350 214 009 See notes to the basic financial statements. - 23 - $ ===7=,6=97,..,=15=3= CITY OF TRION BOARD OF EDUCATION - CHATTOOGA 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 The cost of rehabilitating, repairing, renovating, extending and improving Trion High School, Trion Middle School and Trion Elementary School and related facilities useful or desirable in connection therewith, including without limitation acquisition and construction of classroom additions, roof replacements and repairs, mechanical system repairs and replacements, additional parking and paving, improvements to athletic and physical education facilities and upgraded and improved security systems; system-wide technology additions and improvements; and purchasing school furnishings, equipment and fixtures. $ 3,550,000 $ 3,800,649 $ 237,930 $ 3,562,719 Complete Acquiring, constructing and equipping one new elementary school, one new middle school, adding and equipping new classrooms at existing high schools, acquiring land for future schools, adding to, renovating, repairing, improving and equipping existing school buildings and other buildings and facilities useful or desirable in connection therewith and acquiring any necessary property therefore, both real and personal and acquiring instructional and administrative technology improvements for existing schools and acquiring school buses. 3,550,000 3,550,000 74464 Ongoing $ 7,100,000 $ 7,350,649 $ 312,394 $ 3,562,719 (1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax. (2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion. (3) The voters of City of Trion 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. 24 CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY GENERAL FUND QUALITY BASIC EDUCATION PROGRAM (QBE) ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30, 2006 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 II Category Ill CategoryV Gifted Student Category VI Alternative Education Program English Speakers of Other Languages (ESOL) TOTAL DIRECT INSTRUCTIONAL PROGRAMS Media Center Program Staff and Professional Development ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL $ 324,099 $ 469,930 $ 15,612 $ 485,542 73,878 931,327 1,174,067 35,295 1,209,362 90,016 72,428 76 72,504 497,139 541,132 4,560 545,692 5,609 795,138 565,653 303,760 1,100,741 358,916 58,519 91 157 1,036,214 975,018 254,179 41,069 484,482 51,710 160,819 63,542 77 048 18,108 30,220 35,061 1,736 16,601 400 1,017 365 1,054,322 1,005,238 289,240 42,805 501,083 52,110 161,836 63,542 77413 $ 5,195,952 $ 5,401,638 $ 159,051 $ 5,560,689 135,401 28 336 160,821 7 489 99,089 26 723 259,910 34 212 TOTAL QBE FORMULA FUNDS $ 5,359,689 $ 5,569,948 $ 284,863 $ ===5,=8=54=,8=1==1 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. 25 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 April 4, 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 Trion 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 Trion Board of Education as of and for the year ended June 30, 2006, which collectively comprise City ofTrion Board ofEducation's basic financial statements and have issued our report thereon dated April 4, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered City of Trion Board of Education's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect City ofTrion Board of Education's ability to record, process, summarize and report financial data consistent with assertions ofmanagement in the financial statements. Reportable conditions are described in the accompanying Schedule ofFindings and Questioned Costs as items FS-7911-06-01 and FS-7911-06-02. 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 of obtaining reasonable assurance about whether City of Trion Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management and members of the City of Trion Board of Education and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~e~w~~L~.~~ State Auditor RWH:gp 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 4, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe State Board of Education and Superintendent and Members of the City of Trion Board of Education REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133 Ladies and Gentlemen: Compliance We have audited the compliance ofCity ofTrion Board ofEducation with the types ofcompliance requirements described in the U.S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each ofits major Federal programs for the year ended June 30, 2006. City of Trion Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section ofthe accompanying Schedule ofFindings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of City of Trion Board of Education's management. Our responsibility is to express an opinion on City of Trion 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 ofTrion Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on City ofTrion Board ofEducation's compliance with those requirements. 2006SA-30 In our opinion, the City of Trion Board of Education complied, in all material respects, with the requirements referred to above that are applicable to each ofits major Federal programs for the year ended June 30, 2006. Internal Control Over Compliance The management ofCity ofTrion Board ofEducation 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 Trion Board of Education's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. We noted a certain matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofthe internal control over compliance that, in our judgment, could adversely affect the City of Trion Board of Education's ability to administer a major Federal program in accordance with applicable requirements oflaws, regulations, contracts and grants. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FA-7911-06-01. 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 ofrisk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration ofthe internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. This report is intended solely for the information and use ofthe management, members ofthe City of Trion Board ofEducation, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~W~~ R ssell W. Hinton, CPA, CGFM State Auditor RWH:gp 2006SA-30 SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS CITY OF TRION BOARD OF EDUCATION - CHATTOOGA 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-7911-04-01 FS-7911-05-01 FS-7911-05-02 Further Action Not Warranted Partially Resolved - 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 Reportable Condition Finding Control Number: FS-7911-05-01 We are still working with a limited staff to handle all these functions. The principal and vice principal have begun checking various functions to provide another level of control. This is documented by a quarterly checklist and approval form. We will continue to work with our activity funds auditor to improve in this area. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION IV FINDINGS AND QUESTIONED COSTS CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the City of Trion Board of Education's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the City of Trion Board of Education disclosed financial statement reportable conditions related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts Expenditures/Liabilities/Disbursements General Ledger None ofthe reportable conditions described above are considered to be material weaknesses. 3. Noncompliance Material to the Financial Statements The audit ofthe City ofTrion Board ofEducation disclosed no instances ofnoncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the City ofTrion Board ofEducation disclosed a reportable condition in internal control over major programs for the following compliance requirement. Special Tests and Provisions The reportable condition described above is not considered to be a material weakness. 5. Type of Report Issued on Compliance for Major Programs The auditor's opinion on the City of Trion 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) ofOMB Circular A-133 The City of Trion Board of Education's audit disclosed an audit finding required to be reported by section .510(a) of 0MB Circular A-133. This audit finding is included in section IV of this report. 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food Services - School Breakfast Program 10.555 Food Services - National School Lunch Program 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. - 1- CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 I SUMMARY OF AUDITOR'S RESULTS 9. Low Risk Auditee The City ofTrion Board ofEducation qualified as a low risk auditee as defined by Section .530 ofOMB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECENABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over School Activity Accounts Reportable Condition Finding Control Number: FS-7911-06-01 Condition: This is a repeat finding (FS-7911-05-01 and FS-7911-04-01) from the years ended June 30, 2005, and 2004, respectively. The accounting procedures of the School District were insufficient to provide for adequate internal controls 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. Questioned Cost: NIA Information: Cash and Cash Equivalents The bank reconciliation function was not separated from the record keeping and voucher payment functions. Revenues/Receivables/Receipts Deposit preparation was not separated from the record keeping and cash custody functions. Based on a review of twenty-five items, the following deficiencies were noted: 1) Ten receipts were not deposited in a timely manner, and 2) Eleven receipts were not supported by adequate documentation. Expenditures/Liabilities/Disbursements The check writing function was not separated from the record keeping or processing of signed checks. Based upon a review of twenty-five vouchers, the following deficiencies were noted: -2 - CITY OF TRION BOARD OF EDUCATION - CHATTOOGA 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-7911-06-01 1) Three vouchers did not include an original invoice, 2) Five vouchers did not include an approved purchase order, 3) Eight vouchers did not have evidence of approval prior to purchase, and 4) Four vouchers did not have evidence ofreceipt. Cause: These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the school level. 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. In addition, the School District should implement procedures to ensure that the key accounting functions of custody, record keeping and authorization are separated and/or utilize management oversight of these incompatible activities. GENERAL LEDGER Failure to Report the Financial Statements in a Timely Manner Reportable Condition Finding Control Number: FS-7911-06-02 Condition: The School District failed to submit the DE046 financial report to the Georgia Department of Education in a timely manner. Criteria: Chapter 1 Introduction to LUA Accounting ofthe Financial Management for Local Units of Administration indicates that "accounting records must provide meaningful, reliable, accurate and timely information to the many persons and groups with legitimate interests in the financial affairs of the LUA". Questioned Cost: NIA -3- CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Failure to Report the Financial Statements in a Timely Manner Reportable Condition Finding Control Number: FS-7911-06-02 Information: The School District's DE046 financial report was submitted to the Georgia Department of Education on October 5, 2006. Cause: Management failed to comply with the due date of September 30, 2006, as established by the Georgia Department of Education. Effect: The failure ofthe School District to prepare and submit the financial reports in a timely manner prohibits legitimate users ofthe reports from being able to rely on the information provided. Recommendation: The School District should implement controls to ensure that Georgia Department of Education policies and procedures are followed and implement procedures to ensure that the DE046 financial report is submitted in a timely manner. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Failure to Transfer Funds Timely Reportable Condition U. S. Department of Agriculture Through Georgia Department of Education Food Services - School Breakfast Program (CFDA 10.553) Food Services - National School Lunch Program (CFDA 10.555) Finding Control Number: FA-7911-06-01 Condition: A review ofthe School District's records noted the School District failed to transfer the Food Services - School Breakfast Program (CFDA 10.553) and the Food Services - National School Lunch Program (CFDA 10.555) funds in a timely manner. Criteria: USDA Policy 210.14-06 states that USDA funds should be entered into the school food service account within two days on receipt. If program reimbursement funds are held in a different account before placing it into school food service account, any interest on this USDA revenue must also be credited to the school food service account. -4- CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Failure to Transfer Funds Timely Reportable Condition U. S. Department of Agriculture Through Georgia Department of Education Food Services - School Breakfast Program (CFDA 10.553) Food Services - National School Lunch Program (CFDA 10.555) Finding Control Number: FA-7911-06-01 Questioned Cost: $3,911 Information: Review of the process for the transfer of Federal reimbursement payments revealed that the Federal reimbursements were not transferred until the end of the fiscal year. Cause: These deficiencies are a result of management's failure to implement appropriate procedures to transfer program funds within the appropriate time frame. Effect: The interest earned on funds not transferred timely should be used in furtherance of the School Nutrition Program. Recommendation: The School District should review the procedures in place, design procedures which would enhance monitoring compliance with Federal guidelines. In addition, the School District should transfer the questioned funds from their general operating bank account into their school food service bank account. -5- SECTIONV MANAGEMENT'S RESPONSES CITY OF TRION BOARD OF EDUCATION - CHATTOOGA COUNTY SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-7911-06-01 We concur with this finding; however, due to current budgetary constraints, the Board is unable to hire the additional staffrequired to clear this finding. The Board feels it has provided for the most appropriate assignment ofduties with the number ofpersonnel available to perform the accounting functions. With stafflimitations, this finding cannot be totally resolved; however, we will continue to work with our independent auditor towards finding ways to separate duties using our present staff. Finding Control Number: FS-7911-06-02 We concur with this finding; however, due to current budgetary constraints, the Board is unable to hire additional staffrequired to ensure this finding does not reoccur. Within our staffing limitations, we will work toward this finding not occurring in the future. Finding Control Number: FA-7911-06-01 We concur with this finding; however, due to current budgetary constraints, the Board is unable to hire additional staffrequired to clear this finding. Within our stafflimitations, we will work toward this finding not occurring in the future. Contact Person: Marcia Giles Phone: (706) 734-2363 Fax Number: (706) 734-3397 E-mail Address: mlgiles@trionschools.org