CITY OF VALDOSTA BOARD OF EDUCATION LOWNDES COUNTY, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor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ashington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 April 28, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the City of Valdosta 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) ofthe City of Valdosta Board of Education, as of and for the year ended June 30, 2003, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility ofthe City ofValdosta Board ofEducation's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm1ons. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective position ofthe governmental activities, each major fund, and the aggregate remaining fund information of the City of Valdosta Board of Education, as of June 30, 2003, and the respective changes in financial position thereoffor the year then ended in conformity with accounting principles generally accepted in the United States of America. 2003-34ARL-11 As discussed in Note 2 to the basic financial statements, during fiscal year 2003, the Board completed a comprehensive inventory of its capital assets for inclusion in the basic financial statements, consolidated its individual school activity accounts for inclusion in the basic financial statements and changed its method of accounting for the salaries of certain ten-month employees from a cash basis to a basis that is generally accepted. These changes are in accordance with generally accepted accounting principles. As described in Note 2, the City of Valdosta Board of Education has implemented a new financial reporting model as required by provisions ofGovernmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003. In accordance with Government Auditing Standards, we have also issued our report dated April 28, 2004, on our consideration of the City of Valdosta Board of Education's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Management's Discussion and Analysis and the Schedule ofRevenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through vi and page 25 respectively, are not a required part ofthe basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Valdosta 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. 2003-34ARL-11 A copy ofthis report has been filed as a permanent record in the office ofthe State Auditor and made available to the press ofthe State, as provided for by Official Code ofGeorgia Annotated section 506-24. Respectfully submitted, RWH:as 2003-34ARL-11 State Auditor CITY OF VALDOSTA BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 The discussion and analysis of City ofValdosta Board ofEducation's financial performance provides an overall review of the Board's financial activities for the fiscal year ended June 30, 2003. The intent of this discussion and analysis is to look at the Board's financial performance as a whole; readers should also review the financial statements and the notes to the basic financial statements to enhance their understanding ofthe Board's financial performance. Financial Highlights Key financial highlights for fiscal year 2003 are as follows: General revenues accounted for $22.5 million in revenue or 39.1 percent of all revenues. Program specific revenues in the form ofcharges for services and sales, grants and contributions accounted for $35.1 million or 60.9 percent of total revenues of $57.6 million. The Board had $53.1 million in expenses related to governmental activities; only $35.1 million ofthese expenses were offset by program specific charges for services, grants or contributions. General revenues (primarily taxes) of $22.5 million were adequate to provide for these programs. Among major funds, the general fund has $49.8 million in revenues and $51.2 million in expenditures. The general fund's balance decreased to $1.2 million from $2.5 million. Using the Basic Financial Statements This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the City ofValdosta Board of Education as a financial whole, or as an entire operating entity. The Statement ofNet Assets and Statement ofActivities provide information about the activities of the whole Board, presenting both an aggregate view ofthe Board's finances and a longer-term view of those finances. Fund.financial statements provide the next level of detail. For governmental funds, these statementstell how services were financed in the short-term as well as what remains for future spending. In the case of the City of Valdosta Board of Education, the general fund is by far the most significant fund. Reporting the Board as a Whole Statement ofNet Assets and the Statement ofActivities While this document contains the large number offunds used by the Board to provide programs and activities, the view ofthe Board as a whole looks at all financial transactions and asks the question, "How did we do financially during fiscal year 2003?" The Statement ofNet Assets and the Statement ofActivities answer this question. These statements include all assets and liabilities using the CITY OF VALDOSTA BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 accrual basis ofaccounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all ofthe current year's revenues and expenses regardless of when cash is received or paid. These two statements report the Board's net assets and changes in those assets. This change in net assets is important because it tells the reader whether, for the Board as a whole, thefinancial position of the Board has improved or diminished. The causes of this change may be the result of many factors, some financial, some not. Nonfinancial factors include the Board's property tax base, facility conditions, required educational programs and other factors. In the Statement of Net Assets and the Statement of Activities, the Board has one distinct type of activity: Governmental Activities - All ofthe Board's programs and services are reported here including instruction, support services, operation and maintenance of plant, pupil transportation, food service, after school program, principal's accounts and various others. Reporting the Board's Most Significant Funds Fund Financial Statements Fund financial reports provide detailed information about the Board's major funds. The Board uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the Board's most significant funds. The Board's major governmental funds are the general fund and the capital projects fund. Governmental Funds Most of the Board's activities are reported in governmental funds, which focus on how money flows into and out ofthose funds and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all otherfinancial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view ofthe Board's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement ofNet Assets and the Statement ofActivities) and governmentalfunds is reconciled in the financial statements. Fiduciary Funds The district is the trustee, orfiduciary, for assets that belong to others, such as the school clubs and organizations within the principals' accounts. The district is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The district excludes these activities from the district-wide financial statements because it cannot use these assets to finance its operations. 11 CITY OF VALDOSTA BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 The Board as a Whole The perspective of the statement of net assets is of the Board as a whole. Table 1 provides a summary of the Board's net assets for fiscal year 2003. The Capital Assets balances were recorded in fiscal year 2003 according to the accounting changes disclosed in Note 2 of the Notes to the Basic Financial Statements. Table 1 Net Assets (in Thousands) Governmental Activities Fiscal Year 2003 Assets Current and Other Assets Capital Assets, Net $ 22,676 42,053 Total Assets $_ _6~4,~72~9 Liabilities Current and Other Liabilities $_~11=,6=2=1 Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 42,053 8,257 2,798 Total Net Assets $==53,,..,,"='10'="=8 Total net assets increased $4.5 million in fiscal year 2003. Table 2 shows the changes in net assets for fiscal year 2003. 111 CITY OF VALDOSTA BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Table 2 Change in Net Assets (in Thousands) Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Total Program Revenues General Revenues: Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Intangible Recording Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Total Revenues Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations ofNon-Instructional Services Enterprise Operations Community Services Food Services Total Expenses Increase in Net Assets Governmental Activities Fiscal Year 2003 $ 816 34,259 $ 35,075 $ 11,905 7,681 353 1,149 359 1,081 $ 22,528 $ 57,603 $ 36,090 1,886 1,418 987 710 2,700 721 3,075 1,600 48 458 360 94 2,958 $ 53,105 $ 4A98 lV CITY OF VALDOSTA BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Governmental Activities Instruction comprises 68 percent of governmental program expenses. Although program revenues make up a majority ofthe revenues, the Board is still dependent upon tax revenues for governmental activities. The Board's Funds The Board's governmental funds are accounted for using the modified accrual basis of accounting. Total governmental funds had revenues of$57.7 million and expenditures of$61.2 million. There was a decrease of $2.15 million in the capital projects fund due to the construction of Valdosta Middle School. The general fund had a decrease of $1.37 million, which was due to the proper accrual of QBE salaries for July and August 2002 and July and August 2003. General Fund Budgeting Highlights The Board's budget is prepared according to Georgia law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2003, the Board amended its general fund budget as needed. The Board uses site-based budgeting. The budgeting systems are designed to tightly control total site budgets but provide flexibility for site management. For the general fund, the final budgeted revenues of$48.4 million exceeded the original budgeted amount of$48.2 million by $154 (in thousands). The actual revenues of$49.8 million exceeded the budgeted amount by $1.4 million. The final budgeted expenditures of$49.3 million exceeded the original budgeted amount of$48.8 million by $528 (in thousands). This difference was mostly due to an increase in instruction and an increase in pupil services. The actual expenditures and other financing uses of $51.2 million was $1.8 million more than budgeted. With the increase of miscellaneous revenues throughout the budget year, the Board increases its budget with regard to instruction. General Fund expenditures exceeded the revenues by $1.37 million. This is mostly due to the budget cuts imposed on the Board during fiscal year 2003. Capital Assets and Debt Administration Capital Assets At the end of fiscal year 2003 the Board had $42 million invested in capital assets, all in governmental activities. Table 3 shows fiscal year 2003 balances. V CITY OF VALDOSTA BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Table3 Capital Assets at June 30 (Net of Depreciation, in Thousands) Governmental Activities Fiscal Year 2003 Land Construction in Progress Buildings and Building Improvements Equipment Land Improvements $ 776 3,818 33,816 1,950 1,693 Total $ 42.053 The primary increases occurred in Buildings and Building Improvements due to the completion of construction. Contacting the Board's Financial Management This financial report is designed to provide our citizen's, taxpayers, investors and creditors with a general overview of the Board's finances and to show the Board's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Jack Kent, CPA, at the City of Valdosta Board of Education, P.O. Box 5407, Valdosta, Georgia 31603. You may also email your questions to jkent@gocats.org. Vl CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY STATEMENT OF NET ASSETS JUNE 30, 2003 EXHIBIT"A" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Capital Assets Land Construction in Progress Land Improvements Buildings Equipment Less: Accumulated Depreciation Total Assets LIABILITIES Accounts Payable Salaries Payable Short-Term Debt Contracts Payable Retainages Payable Deposits and Deferred Revenues Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Continuation of Federal Programs Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets GOVERNMENTAL ACTIVITIES $ 7,770,702 7,573,993 1,854,016 3,664,614 1,498,070 3,139 311,921 775,542 3,817,981 2,228,843 41,340,197 3,251,428 -9,360,956 $ ==~6==4=72;;,;9;i,4;,;;9=0 $ 1,275,636 4,521,380 4,980,000 398,483 433,313 11 920 $ 11,620,732 $ 42,053,035 803,412 7,453,632 2,798,679 $ 53,108,758 $ ======6=='4,=72=9=,4=9=0 The notes to the basic financial statements are an integral part of this statement. -3- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2003 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 Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Total Governmental Activities $ 36,089,987 $ 1,886,393 1,417,498 986,919 709,924 2,700,403 721,313 3,074,534 1,600,427 47,581 457,720 360,240 94,002 2,957,940 $ 53,104,881 $ 445,052 $ 370 531 815 583 $ 25,143,566 $ 434,776 606,477 591,878 942,555 1,351,696 1,775,582 737,332 2,618 238,098 2 434 197 34 258 775 $ -10,501,369 -1,451,617 -811,021 -395,041 232,631 -1,348,707 -721,313 -1,298,952 -863,095 -44,963 -219,622 -360,240 -94,002 -153 212 -18,030,523 General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Intangible Recording Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous $ 11,904,718 7,681,138 352,722 1,149,820 359,125 1080890 Total General Revenues $ 22,528,413 Change in Net Assets $ 4,497,890 Net Assets - Beginning of Year 48610868 Net Assets - End of Year $ 53,108,758 The notes to the basic financial statements are an integral part of this statement. -4- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2003 EXHIBIT"C" ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Taxes State Government Federal Government Other Inventories Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable Salaries Payable Short-Term Debt Contracts Payable Retainages Payable Deposits and Deferred Revenue Total Liabilities FUND BALANCES Reserved for: Continuation of Federal Programs Inventories Capital Projects Unreserved Designated for Self-Insurance Undesignated Reported in: General Fund Capital Projects Total Fund Balances Total Liabilities and Fund Balances GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND TOTAL $ 2,478,793 $ 5,291,909 $ 3,804,704 3,769,289 192,144 3,664,614 1,498,070 3,139 311 921 1,299,228 7,770,702 7,573,993 1,491,372 3,664,614 1,498,070 3,139 311 921 $ 11,953,385 $ 10,360,426 $ ====22=''=31=3a!=,8=1=1 $ 1,275,582 $ 4,521,380 4,980,000 11 920 $ 10,788,882 $ 54 $ 398,483 433,313 831,850 $ 1,275,636 4,521,380 4,980,000 398,483 433,313 11 920 11,620,732 $ 619,325 $ 311,921 $ 7,453,632 100,000 133,257 2 074 944 $ 1,164,503 $ 9,528,576 $ 619,325 311,921 7,453,632 100,000 133,257 2 074 944 10,693,079 $ 11,953,385 $ 10,360,426 $ ======2='2,6=31=3;.;,8=1=1 The notes to the basic financial statements are an integral part of this statement. -5 - CITY OF VALDOSTA BOARD OF EDUCATION- LOWNDES COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2003 EXHIBIT"D" Total Fund Balances - Governmental Funds (Exhibit "C") $ 10,693,079 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 $ 775,542 3,817,981 2,228,843 41,340,197 3,251,428 -9,360,956 42,053,035 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. 362,644 Net Assets of Governmental Activities (Exhibit "A") $ 53,108,758 The notes to the basic financial statements are an integral part of this statement. -6- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2003 EXHIBIT"E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Capital Outlay Total Expenditures Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND DISTRICTWIDE CAPITAL PROJECTS FUND TOTAL $ 11,918,407 $ 11,918,407 352,722 $ 7,681,138 8,033,860 27,951,824 27,951,824 7,544,527 7,544,527 504,558 504,558 170,053 189,072 359,125 1,391,671 245 1,391,916 $ 49,833,762 $ 7,870,455 $ 57,704,217 $ 34,677,526 $ 34,677,526 1,886,393 1,417,498 986,919 709,924 2,700,403 721,313 3,047,535 1,235,329 47,581 457,720 360,240 94,002 2,861,410 $ 10,020,228 1,886,393 1,417,498 986,919 709,924 2,700,403 721,313 3,047,535 1,235,329 47,581 457,720 360,240 94,002 2,861,410 10,020,228 $ 51,203,793 $ 10,020,228 $ 61,224,021 $ -1,370,031 $ -2,149,773 $ -3,519,804 2,534,534 11,678,349 14,212,883 $ 1,164,503 $ 9,528,576 $ 10,693,079 The notes to the basic financial statements are an integral part of this statement. -7 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2003 EXHIBIT"F" Total Net Change in Fund Balances - Governmental Funds (Exhibit "E") $ -3,519,804 Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Capital Outlay over Depreciation Expense $ 9,147,690 -1,028,550 8,119,140 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. -101,446 Change in Net Assets of Governmental Activities (Exhibit "B") $ 4,497,890 The notes to the basic financial statements are an integral part of this statement. -8- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2003 EXHIBIT "G" ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others AGENCY FUNDS $ ===7=3=1,.9..9... $ ===7=3=1'=99= The notes to the basic financial statements are an integral part of this statement. -9- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The City of Valdosta 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 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 Valdosta Board of Education. District-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement ofActivities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support ofthe School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs. Program revenues include (a) charges paid by the recipients ofgoods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting ofinternal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The School District reports the following major governmental funds: - 11 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 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 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, governments or individuals. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless 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 and grants. 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, Capital asset acquisitions are reported as expenditures in governmental funds. 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. - 12 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES For fiscal year 2003, the School District changed its method of accounting for the final two payments on one hundred and ninety day contracts and for the related revenue due from the State to fund these contracts. Adjustments have been made in the fiscal year 2003 financial statements to record costs for salaries and fringe benefits earned by employees through June 30, 2003, (even though paid in July and August 2003) and the related revenue due from the State to fund these contracts. Adjustments were also made for the similar salaries, benefits and related State revenues earned in fiscal year 2002 and recorded in fiscal year 2003. The net effect ofthe above accounting treatment results in the accompanying financial statements reflecting costs for those salaries and benefits earned by employees during fiscal year 2003 and the related State revenue to fund these contracts. In addition, both the net assets and fund balance at July 1, 2002, have been restated for salaries and benefits earned by employees in fiscal year 2002 but not paid until July and August 2002 and for the related State revenue for these contracts. This change is in accordance with generally accepted accounting principles. See Restatement of Prior Year Fund Balance. RESTATEMENT OF PRIOR YEAR FUND BALANCE - GENERAL FUND In prior years, the financial activities of the School District's School Food Services Fund, Lottery Programs, Federal Programs and Athletic Fund were reported as Special Revenue Funds. These funds had a combined fund balance of$880,499 at July 1, 2002. For fiscal year 2003, these funds have been reported as part of the General Fund. In addition, governmental fund activity from the various school activity accounts, which were not reported in the prior year's financial statements, have been reported within the General Fund for fiscal year ended June 30, 2003. The governmental fund activity ofthe various school activity accounts had a fund balance of$114,266 at July 1, 2002. This change is in accordance with generally accepted accounting principles. General Fund Balance July 1, 2002 $ 2,516,826 Add Funds Consolidated with General Fund: School Food Services Fund Federal Programs Athletic Fund Other Programs School Activity Account - Governmental Activity 822,967 735 43,498 13,299 114,266 Add: State Revenue Related to July and August 2002 Salary Payments Earned by Employees in Fiscal Year 2002 3,531,996 Deduct: July and August 2002 Salary Payments Earned by Employees in Fiscal Year 2002 4,509,053 General Fund Balance July 1, 2002 (Restated) - 13 - $ 2,534.534 CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CHANGES IN ACCOUNTING PRINCIPLES The City of Valdosta Board of Education has implemented a new financial reporting model as required by provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, as of June 30, 2003. The provisions of GASB Statement No. 34 require the inclusion of a Statement ofNet Assets. The elements comprising Net Assets - Beginning include the following: General Fund (Restated) July 1, 2002 Capital Projects Fund $ 2,534,534 11,678,349 Governmental Funds (Restated) July 1, 2002 Capital Assets Accumulated Depreciation Property Tax Revenue Timing Differences $ 14,212,883 42,266,301 -8,332,406 464,090 Net Assets Beginning (See Exhibit "B") $ 48,610,868 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 Board 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, - 14 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 ofGeorgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions ofthe State of Georgia. RECEIVABLES Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables. PROPERTY TAXES The Lowndes County Board of Commissioners fixed the property tax levy for the 2002 tax digest year (calendar year) on October 20, 2002 (levy date). Taxes were due on December 20, 2002 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2002 tax digest are reported as revenue in the governmental funds for fiscal year 2003. The Lowndes County Tax Commissioner bills and collects the property taxes for the School District and remits the taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2003, for maintenance and operations amounted to $11,918,407. The tax millage rate levied for the 2002 tax year (calendar year) for the City of Valdosta Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 12.29 mills - 15 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SALES TAXES Special Purpose Local Option Sales Tax revenue during the year amounted to $7,681,138 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. INVENTORIES FOOD INVENTORIES On the basic financial statements, inventories ofdonated food commodities used in the preparation ofmeals are reported at their Federally assigned value and purchased foods inventories are reported at cost (first-in, first-out). The School District uses the consumption method to account for 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 ofpurchase. 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 fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost ofnormal 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. 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 $ 5,000 NIA $ 5,000 20 to 80 years $ 5,000 up to 80 years $ 5,000 3 to 20 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. - 16 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum ofmoney which has not been secured by surety bond, by guarantee 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. 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. OCGA Section 45-8-11 (b) provides an officer holding public funds may, in his discretion, waive the requirement for security in the case ofoperating funds placed in demand deposit checking accounts. Acceptable security for deposits consists of any one of or any combination of the following: (1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia, (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities ofthe State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws ofthe 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, 2003, the bank balances were $15,338,997. The amounts ofthe total bank balances are classified into three categories of credit risk: - 17 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 3: DEPOSITS AND INVESTMENTS Category 1 - Cash that is insured (e.g., Federal depository insurance) or collateralized with securities held by the School District or by the School District's agent in the School District's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the School District's name. Category 3 - Uncollateralized deposits. (This includes any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the School District's name.) The School District's deposits are classified by risk category at June 30, 2003, as follows: Risk Category Bank Balance 1 $ 797,593 2 3,844,687 3 10,696,717 Total $ 15,338.997 CATEGORIZATION OF INVESTMENTS At June 30, 2003, the carrying value ofthe School District's total investments was $3,769,651 which is materially the same as fair value. This investment consisted entirely offunds 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, and Fund 6. Georgia Fund 1 is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds. The pool is not registered with the 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 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. - 18 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 3: DEPOSITS AND INVESTMENTS Investments in Georgia Fund 1 and Fund 6 are directed toward short-term instruments such as U.S. Treasury obligations, securities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, banker's acceptances and repurchase agreements. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2003, was 30 days. The average investment duration for Fund 6 on June 30, 2003, was 0.39 years. Note 4: NON-MONETARY TRANSACTIONS The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 - Inventories Note 5: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Balances July 1, 2002 Increases Balances Decreases June 30, 2003 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 483,116 $ 292,426 $ 775,542 7,752,092 8,382,229 $ 12,316,340 3,817,981 Total Capital Assets Not Being Depreciated $ 8,235,208 $ 8,674,655 $ 12,316,340 $ 4,593,523 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements $ 28,964,672 $ 12,375,525 $ 2,937,468 313,960 2,128,953 99,890 0 $ 41,340,197 3,251,428 2,228,843 Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements 6,914,663 991,676 426,067 609,675 309,808 109,067 7,524,338 1,301,484 535,134 Total Capital Assets, Being Depreciated, Net $ 25,698,687 $ 11,760,825 $ 0 $ 37,459,512 Governmental Activity Capital Assets - Net $ 33,933,895 $ 20,435,480 $ 12,316,340 $ 42,Q53,Q35 - 19 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 5: CAPITAL ASSETS Current year depreciation expense by function is as follows: Instruction Support Services Maintenance and Operation of Plant Student Transportation Services Community Services Food Services $ 728,220 $ 33,804 169,532 96,994 300,330 $ 1,028,550 Note 6: RESTRICTED ASSETS Special Purpose Local Option Sales Tax (SPLOST) is reported as restricted assets in the Statement ofNet Assets because its use is limited by statutory provisions. Restricted assets at June 30, 2003, were as follows: District-wide Capital Projects SPLOST Restricted Cash and Cash Equivalents: Capital Acquisitions Restricted Investments: Capital Acquisitions $ 3,216,940 $ 3,769,289 Note 7: RISK MANAGEMENT The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation. The School District has obtained commercial insurance for risk of loss associated with torts, assets and errors or omissions. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the Board's insurance coverage in any ofthe past three years. The School District has elected to self-insure for all losses related to acts of God. The School District has not experienced any losses related to this risk in the past three years. -20- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 7: RISK MANAGEMENT The School District is self-insured with regard to unemployment compensation claims. In connection with this program, a self-insurance reserve has been established within the General Fund by the School District. 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: 2002 2003 Beginning of Year Liability Claims and Changes in Estimates Claims Paid End ofYear Liability $ 0 $ 0 $ 0 $ 0 $ 0 $ 2,022 $ 2,022 $ 0 The School District participates in the Georgia School Boards Association Workers' Compensation Fund, a public entity risk pool organized on July 1, 1992, to develop, implement, and administer a program ofworkers' compensation self-insurance for its member organizations. The School District pays an annual premium to the Fund for its general insurance coverage. Additional insurance coverage is provided through an agreement by the Fund with the United States Fidelity and Guaranty Company to provide coverage for potential losses sustained by the Fund in excess of $350,000 loss per occurrence, up to $1,000,000. The School District has purchased surety bonds to provide additional insurance coverage as follows: Position Covered Amount Superintendent Director of Operations Finance Director Business Services Director Payroll Clerk Purchasing Agent All Other Employees $ 20,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 5,000 Note 8: SHORT-TERM DEBT The School District issues tax anticipation notes in advance of property 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 debt to 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. - 21 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "H" Note 8: SHORT-TERM DEBT Short-term debt activity for the fiscal year is as follows: Beginning Balance Issued Redeemed Ending Balance Tax Anticipation Notes $ 4,620.000 $ 4,980.000 $ 4,620,000 $ 4,980,000 Note 9: ON-BEHALF PAYMENTS The Board has recognized revenues and costs in the amount of $409,202 for health insurance and retirement contributions paid on the Board's behalf by the following State Agencies. Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance ofNon-Certified Personnel In the amount of $321,558 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 $87,644 Note 10: SIGNIFICANT COMMITMENTS The following is an analysis ofsignificant outstanding construction or renovation contracts executed by the School District as of June 30, 2003: Project Unearned Executed Contracts Lomax-Pinevale Elementary School Bazemore-Hyder Stadium Transportation Facility Valdosta Middle School Valdosta High School $ 392,186 228,521 41,600 500,836 1,103,969 $ 2,267.112 The amounts described in this note are not reflected in the basic financial statements. - 22 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT"H" Note 11: SIGNIFICANT CONTINGENT LIABILITIES Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position. The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance ofroutine School District operations. The ultimate disposition ofthese proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 12: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all teachers, administrative and clerical personnel employed by local school systems are covered by the Teachers Retirement System of Georgia (TRS), which is a cost-sharing multiple employer defined benefit pension plan. TRS provides service retirement, disability retirement and survivors benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts. TRS CONTRIBUTIONS REQUIRED AND MADE Employees ofthe School District who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The School District makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2003 2002 2001 100% 100% 100% $ 2,640,903 $ 2,523,188 $ 2,940,808 - 23 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2003 SCHEDULE "1" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Adjustments NONAPPROPRIATED BUDGETS ORIGINAL (1) FINAL (1) ACTUAL AMOUNTS $ 11,733,468 $ 11,783,468 $ 11,918,407 121,755 121,755 352,722 27,629,611 27,733,126 27,951,824 7,414,497 7,414,497 7,544,527 590,937 590,937 504,558 241,750 241,750 170,053 529,206 529,206 1,391,671 $ 48,261,224 $ 48 414 739 $ 49,833,762 $ 32,673,452 $ 33,128,802 $ 34,677,526 1,503,681 1,356,603 976,106 574,054 2,710,715 733,541 3,577,171 1,203,047 69,650 158,077 316,106 2,961,505 10,412 1,613,927 1,358,303 976,106 619,054 2,658,715 788,912 3,489,171 1,203,047 69,650 158,077 316,106 2,961,505 10,412 1,886,393 1,417,498 986,919 709,924 2,700,403 721,313 3,047,535 1,235,329 47,581 457,720 360,240 94,002 2,861,410 $ 48,824,120 $ 49,351,787 $ 51,203,793 $ -562,896 $ -937,048 $ -1,370,031 $ 32,696 $ 32,696 -36,120 -36,120 $ -3,424 $ -3,424 $ -566,320 $ -940,472 $ -1,370,031 3,258,230 3,258,230 2,534,534 -19,909 -19,909 Fund Balances - Ending $ 2,672,001 $ 2,297,849 $==,,;,11,,;,,1~64;,:;,5;;,;;0;,;;;,3 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. See notes to the basic financial statements. - 25- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2003 SCHEDULE 211 11 FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food and Nutrition Program Food Services School Breakfast Program National School Lunch Program National School Snack Program Total Child Nutrition Cluster Other Programs Pass-Through From Georgia Department of Education Food and Nutrition Program Food Distribution Program (1) Total U.S. Department of Agriculture Corporation for National and Community Service Pass-Through From Georgia Department of Education Learn and Serve America School and Community Based Programs Education, U.S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Individuals with Disabilities Education Act Part B - Special Education Flow Through Preschool Capacity Building Improvement Grant Severely Emotionally Disturbed Total Special Education Cluster Other Programs Direct Elementary and Secondary Education Act Fund for the Improvement of Education Impact Aid Pass-Through From Georgia Department of Education Elementary and Secondary Education Act Title I Accountability Grants Grants to Local Educational Agencies School Improvement Grant Title II Eisenhower Professional Development Enhancing Education Through Technology Improving Teacher Quality Title VI Innovative Education Program Strategies Safe and Drug-Free Schools and Communities Reading Excellence - Local Reading Improvement CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD * 10.553 * 10.555 * 10.555 NIA N/A $ N/A $ (2) 2,548,787 (2} 2,548,787 10.550 N/A $ 123,103 2,671,890 94.004 N/A $ 36472 84.027 84.173 84.027 84.027 N/A $ N/A NIA N/A $ 887,460 77,028 53,375 99,622 1,117,485 84.215 84.041 84.348 N/A * 84.010 N/A * 84.010 NIA 84.281 N/A 84.318 N/A * 84.367 N/A 84.298 N/A 84.186 N/A * 84.338 N/A 173,750 (3) 56,031 2,609,031 34,636 12,426 73,031 446,476 50,407 74,654 367,434 - 26- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2003 SCHEDULE "2" FUNDING AGENCY PROGRAM/GRANT Education, U. S. Department of Other Programs Pass-Through From Georgia Department of Education Vocational Education - Basic Grants to States High School Program Basic Grant Tech Prep Education Pass-Through From Coastal Plains Regional Educational Service Agency d/b/a Southern Pines Migrant Education Agency Elementary and Secondary Education Act Title I Migrant Education Total U. S. Department of Education Health and Human Services, U. S. Department of Pass-Through From Office of Planning and Budget Abstinence Education Block Grant Labor, U.S. Department of Pass-Through From South Georgia Regional Education Development Center Workplace Investment Act Youth Program Defense, U.S. Department of Direct Department of the Navy R.O.T.C. Program CFDA NUMBER PASSTHROUGH ENTITY ID NUMBER EXPENDITURES IN PERIOD 84.048 84.243 N/A $ N/A 98,150 2,589 84.011 N/A $ 4 141 5,120,241 93.235 N/A $ 19320 17.259 N/A $ 158 $ 50 067 Total Federal Financial Assistance N/A = Not Available $ =====7,=89=8==,1=4=8 Notes to the Schedule of Expenditures of Federal Awards (1) The amounts shown for the Food Distribution 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 ($561,531) and the National School Snack Program ($14,092) were not maintained separately and are included in the 2003 National School Lunch Program. (3) Funds earned on the Impact Aid program, in the amount of $87,756, 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 Valdosta 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 basic financial statements. See notes to the basic financial statements. - 27 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2003 SCHEDULE 311 11 AGENCY/FUNDING GRANTS Children and Youth Coordinating Council Abstinence Education Block Grant Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Bus Replacement Sparsity Nursing Services Principal Supplements Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Construction Related Equipment Vocational Education Austerity Reduction - 28 - GOVERNMENTAL FUND TYPE GENERAL FUND $ 7,150 1,828,360 265,914 3,914,278 953,232 2,102,352 478,253 3,996,637 3,200,926 784,249 42,696 471,536 1,728,199 551,633 55,704 383,610 56,064 293,869 15,863 596,673 203,297 120,195 705,304 1,171,502 1,771,721 526,779 107,911 34,095 147,774 27,473 30,436 778,986 203,684 125,000 37,562 -759,693 CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2003 SCHEDULE "3" AGENCY/FUNDING GRANTS Education, Georgia Department of Other State Programs Apprenticeship Program 4-8 Statewide After School Program Health Insurance K-3 Statewide Reading Program Mentoring Program National Teacher Certification Preschool Handicapped Program Special Education Support Cost Lottery Programs Assistive Technology Computers in the Classroom Post Secondary Options Georgia Institute of Technology Student Information System Office of Planning and Budget Georgia Council for the Arts Arts Education Challenge Program Office of Treasury and Fiscal Services Public School Employees Retirement GOVERNMENTAL FUND TYPE GENERAL FUND $ 33,250 67,461 321,558 95,888 664 20,306 112,348 22,000 12,688 147,105 2,949 43,739 25,000 87644 See notes to the basic financial statements. - 29- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30. 2003 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 For the raising of not more than $41,930,941 for the purpose of additions and renovations to Valdosta High School, construction of a new elementary school, construction of a new Valdosta Middle School, additions and renovations to Southeast Elementary School, Lomax-Pinevale Elementary School, W.G. Nunn Elementary School, West Gordon Elementary School, S.L. Mason Elementary School, Newbern Middle School, making system-wide technology improvements and acquiring new school sites for the construction of new school and expansion of existing schools, student transportation services, improvements to school driveways and parking lots, equipping system-wide new construction, additions, and renovations $ 41,930,941 $ 41,930,941 $ 9,851,380 $ 24,615,752 Ongoing (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 project. Includes all cost from project inception to completion. (3) The voters of Lowndes County approved the imposition of a 1% sales tax to fund the above project. Amounts expended for the project may include sales tax proceeds, state, local property taxes and/or other funds over the life of the project. See notes to the basic financial statements. - 30- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY GENERAL FUND- QUALITY BASIC EDUCATION PROGRAM (QBE} ALLOTMENTS AND EXPENDITURES - BY PROGRAM YEAR ENDED JUNE 30. 2003 SCHEDULE "5" DESCRIPTION ALLOTMENTS FROM GEORGIA DEPARTMENT OF EDUCATION (1) (2) ELIGIBLE QBE PROGRAM COSTS SALARIES OPERATIONS TOTAL Direct Instructional Programs Kindergarten Program $ Kindergarten Program-Early Intervention Program Primary Grades (1-3) Program Primary Grades-Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades-Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I Category II Category Ill Category IV CategoryV Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) 1,790,018 $ 277,309 3,900,679 944,072 2,094,703 1,963,256 $ 258,841 5,272,933 818,139 2,933,393 459,957 3,953,165 3,168,365 772,615 2,810,722 329,919 5,039,689 4,663,612 782,152 384,715 56,504 290,518 18 862 395,613 1,903,145 491,545 57,483 493,891 61,712 432,967 53,280 155,409 $ 1,892 215,319 5,249 96,262 1,211 293,083 370,112 47,963 117 4,430 27,511 10,577 1,430 5,371 299 6,472 598 2,118,665 260,733 5,488,252 823,388 3,029,655 331,130 5,332,772 5,033,724 830,115 117 400,043 1,930,656 502,122 58,913 499,262 62,011 439,439 53 878 TOTAL DIRECT INSTRUCTIONAL PROGRAMS $ 20,922,204 $ 25,951,570 $ 1,243,305 $ 27,194,875 Media Center Program Staff and Professional Development 591,878 120 195 900,387 35,822 62,459 103 431 962,846 139,253 TOTAL QBE FORMULA FUNDS $ 21,634,277 $ 26,887,779 $ 1,409,195 $ ====2=8,529=6=,9=7=4 (1) Comprised of State Funds plus Local Five Mill Share. (2) Allotments do not include the impact of the State budget austerity reduction. See notes to the basic financial statements. - 31 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS RUSSELL W. HINTON STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 April 28, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly Members of the State Board of Education and Superintendent and Members of the City of Valdosta Board of Education REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 ofValdosta Board ofEducation as ofand for the year ended June 30, 2003, which collectively comprise City of Valdosta Board of Education's basic financial statements and have issued our report thereon dated April 28, 2004. 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. Compliance As part of obtaining reasonable assurance about whether City of Valdosta Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions oflaws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination offinancial statement amounts. However, providing an opinion on compliance with those provisions was not an objective ofour audit, and accordingly, we do not express such an opinion. The results ofour tests disclosed no instances ofnoncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered City ofValdosta Board ofEducation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal 2003-34YB-30 control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting 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 financial reporting that, in ourjudgment, could adversely affect City ofValdosta Board ofEducation's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule ofFindings and Questioned Costs as item FS-7921-03-01. A material weakness is a condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements 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 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 Valdosta 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, i,j-~ RWH:as 2003-34YB-30 State Auditor RUSSELL W. HINTON STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 April 28, 2004 Honorable Sonny Perdue, Governor Members ofthe General Assembly Members of the State Board of Education and Superintendent and Members of the City of Valdosta 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 Valdosta 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, 2003. City of Valdosta Board of Education's major Federal programs are identified in the Summary of Auditor's Results Section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major Federal programs is the responsibility of City of Valdosta Board of Education's management. Our responsibility is to express an opinion on City ofValdosta Board of Education's compliance based on our audit. We conducted our audit ofcompliance in accordance with auditing standards generally accepted in the United States ofAmerica; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States; and 0MB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the City of Valdosta 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 ofValdosta Board ofEducation's compliance with those requirements. 2003SA-30 In our opinion, the City of Valdosta Board ofEducation 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, 2003. Internal Control Over Compliance The management of City of Valdosta 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 ofValdosta Board ofEducation's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose ofexpressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133. 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 Valdosta 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-7921-03-01. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level of risk that noncompliance with the applicable requirements oflaws, regulations, contracts and grants 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 of the 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 Valdosta 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, w~ RWH:as 2003SA-30 State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7921-01-01 FS-7921-02-01 FS-7921-02-02 Further Action Not Warranted Previously Reported Corrective Action Plan Implemented Previously Reported Corrective Action Plan Implemented SECTION IV FINDINGS AND QUESTIONED COSTS CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 I SUMMARY OF AUDITOR'S RESULTS 1. Type of Report Issued on the Financial Statements The auditor's opinion on the City ofValdosta Board ofEducation's financial statements was unqualified. 2. Reportable Conditions in Internal Control Disclosed by the Audit of the Financial Statements The audit report for the City ofValdosta Board ofEducation disclosed a financial statement reportable condition related to the following control categories. Cash and Cash Equivalents Revenues/Receivables/Receipts Expenditures/Liabilities/Disbursements The reportable condition described above is not considered to be a material weakness. 3. Noncompliance Material to the Financial Statements The audit of the City of Valdosta Board of Education disclosed no instances of noncompliance that were deemed to be material to the financial statements. 4. Reportable Conditions in Internal Control Over Major Programs The audit report for the City ofValdosta 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 Valdosta 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 Valdosta Board of Education's audit disclosed an audit finding required to be reported by section .51 0(a) ofOMB Circular A-133. This audit finding is included in section IV of this report. - 1- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2003 I SUMMARY OF AUDITOR'S RESULTS 7. Major Programs Federal awards audited as major programs are as follows: 10.553 Food and Nutrition Program - Food Services - School Breakfast Program 10.555 Food and Nutrition Program - Food Services - National School Lunch Program 10.555 Food and Nutrition Program - Food Services - National School Snack Program 84.010 Elementary and Secondary Education Act - Title I - Grants to Local Educational Agencies 84.010 Elementary and Secondary Education Act - Title I - School Improvement Grant 84.338 Reading Excellence - Local Reading Improvement 84.367 Elementary and Secondary Education Act - Title II - Improving Teacher Quality 8. Type "A" Program Dollar Threshold The dollar threshold for type "A" programs was $300,000. 9. Low Risk Auditee The City of Valdosta Board of Education qualified as a low risk auditee as defined by Section .530 of 0MB Circular A-133. II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUE/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-7921-03-01 Our examination of the various principal's accounts disclosed weaknesses in internal control as discussed below: Cash and Cash Equivalents - The bank reconciliation function was not separated from the record keeping and voucher payment functions. - The bank reconciliation function was not performed in a timely manner. Revenues/Receivables/Receipts - Deposit preparation was not separated from the record keeping and cash custody functions. - Based on a sample of 50 items, 37 receipts were not deposited in a timely manner and 2 receipts were missing documentation and could not be located. -2- CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUE/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Control Procedures Reportable Condition Finding Control Number: FS-7921-03-01 Expenditures/Liabilities/Disbursements - The check writing function was not separated from the record keeping or processing of signed checks. - Based on a sample of 50 items, 11 checks did not have supporting documentation, two copies of checks could not be located, and three checks were either noted with an incorrect year or no date. These deficiencies were a result ofmanagement's decision to limit the number ofadministrative staff made responsible, at the various principal account sites, for the accounting functions and their failure to ensure established controls were functioning as designed. Management should implement additional procedures to ensure that the key accounting functions of custody, record keeping and authorization are segregated. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-7921-03-01 During the year in review, the School District identified eight schools that participated in a schoolwide program. Federal provisions prescribe that multiple funding sources (Federal, State or Local) are required to support a school-wide program. The Title I program (CFDA No. 84.010) and the Improving Teacher Quality program (CFDA No. 84.367) supported the school-wide program at eight of the District's schools. Although required by U.S. Department of Education and 0MB A-133 Compliance Supplement provisions, we found that the School District had not consolidated the different Federal funds for each of those schools that participated in a school-wide program. Furthermore, we noted that the School District arbitrarily charged each Federal fund with individual school-wide expenditures rather than using a prescribed cost allocation plan to distribute school-wide program expenditures to each funding source. -3 - CITY OF VALDOSTA BOARD OF EDUCATION - LOWNDES COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Fiscal Requirements of School-wide Program Not Fully Implemented Reportable Condition U.S. Department of Education Through Georgia Department of Education Finding Control Number: FA-7921-03-01 In accordance with provisions ofU. S. Department ofEducation Instructions and 0MB Circular A133, Compliance Supplement provisions, eligible schools are able to use their Title I, Part A funds, in combination with other Federal, State and local funds, in order to upgrade the entire educational program ofthe school and to raise academic achievements for all students. By combining funds from Title I and other eligible U. S. Department ofEducation funded programs in support ofa school-wide program, U. S. Department of Education Instructions provide that specific school-wide program costs lose their identity but only in those circumstances when funds are combined in a schoolwide program. In line with 0MB Circular A-87 requirements, school-wide expenditures should be charged to those Federal funding sources supporting the school wide program in a reasonable manner. When more than one Federal program supports a school-wide program, then school-wide program expenditures may be allocated to specific Federal funds in proportion to the different Federal funds provided in support ofthe school-wide program. To distribute such costs, provisions of 0MB Circular A-87, Attachment E, F.3 state that a cost allocation plan should be developed, documented, maintained for audit. The School District personnel were unaware of these requirements and it was the School District's understanding that school-wide program expenditures lose their identity and therefore any school-wide program cost can be charged to Title I and other Federal funding programs. The School District should implement procedures to (1) combine such funds as prescribed by U. S. Department of Education and (2) in line with 0MB Circular A-87 provisions allocate such schoolwide program costs to the respective Federal fund in a reasonable manner. The School District should seek Georgia Department of Education guidance in implementing fiscal procedures for combining and allocating school-wide program expenditures to Federal programs. -4-