Audit report, state of Georgia, Department of Insurance, year ended June 30, 1996

GA
A~oo
.R\
I.4~
l'Is - CJb
STATE OF GEORGIA DEPARTMENT OF AUDITS
254 WASHINGTON STREET ATLANTA. GEORGIA 30334

AUDIT REPORT STATE OF GEORGIA DEPARTMENT OF INSURANCE YEAR ENDED JUNE 30, 1996

DEPARTMENT OF INSURANCE - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

EXHIBITS

FINANCIAL STATEMENTS

A COMBINED BALANCE SHEET (STATUTORY BASIS)

ALL FUND TYPES AND ACCOUNT GROUPS

2

B COMBINED STATEMENT OF CHANGES IN FUND BALANCES

(STATUTORY BASIS)

GOVERNMENTAL FUND TYPES

5

C STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES

BUDGET FUND

6

D STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES

COMPARED TO BUDGET

BUDGET FUND

8

E STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS

STATE REVENUE COLLECTIONS FUND

9

F NOTES TO THE FINANCIAL STATEMENTS

10

SUPPLEMENTARY INFORMATION

G COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES

FIDUCIARY FUND TYPE - AGENCY FUNDS

24

SCHEDULES

1 SCHEDULE OF APPROVED BUDGET

25

2 CASH AND CASH EQUIVALENTS

26

3 INVESTMENTS

.27

4 SCHEDULE OF FEDERAL REVENUES

28

5 SCHEDULE OF OTHER OPERATING EXPENSES

29

SECTION IT FINDINGS AND IMPROPER OR QUESTIONED COSTS SCHEDULE OF FINDINGS AND IMPROPER OR QUESTIONED COSTS

SECTION I FINANCIAL

CLAUDE L. VICKERS
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS
254 Washington Street, S.w., Suite 214 Atlanta, Georgia 30334-8400
November 22, 1996

Honorable Zell Miller, Governor Members ofthe General Assembly of Georgia
and Honorable John W. Oxendine, Commissioner Department of Insurance
INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying financial statements (Exhibits A through F) ofthe Department ofInsurance as of and for the year ended June 30, 1996. These financial statements are the responsibility of the Department's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. 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 _cial 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 opinion.
As described in Note 1, these financial statements were prepared on a prescribed basis of accounting that demonstrates compliance with the budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position (statutory basis) ofthe Department ofInsurance as ofJune 30, 1996, and the results of its operations (statutory basis) for the year then ended, on the basis of accounting described in Note 1.
Our audit was made for the purpose offorming an opinion on the financial statements taken as a whole. The accompanying supplementary information (Exhibit G and Schedules 1 through 5) is presented for purposes of additional analysis and is not a required part of the financial statements of the Department of Insurance.

96ARL-1

Such infonnation has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole.
Respectfully submitted,
~~
Claude L. Vickers State Auditor
CLV:cm 96ARL-I

FINANCIAL STATEMENTS - 1-

DEPARTMENT OF INSURANCE COMBINED BALANCE SHEET (STATUTORY BASIS)
ALL FUND TYPES AND ACCOUNT GROUPS JUNE 30,1996

ASSETS
Cash and Cash Equivalents (See Schedule)
Investments (See Schedule)
Accounts Receivable State Appropriation Federal Financial Assistance

GOVERNMENTAL FUND TYPES

STATE

REVENUE

BUDGET

COLLECTIONS

FIDUCIARY FUND TYPE
AGENCY

Prepaid Items
Fixed Assets Equipment
Amount to be Provided for Payment of
Accrued Compensated Absences

Total Assets

$ 1,708,428.57 $

3,435,269.66 $ 195,096,937.30

LIABILITIES AND FUND EQUITY
Liabilities Cash Overdraft Accounts Payable Payroll Withholdings Funds Held for Others Compensated Absences
Total Liabilities
Fund EquitY Investment in General Fixed Assets Fund Balances Reserved State Revenue Collections Fund Unreserved Designated Surplus Deficit
Total Fund EquitY

$

$

155,968.70

1,232.92

$

157,201.62 $

0.00 $ 195,096,937.30
0.00 $ 195,096,937.30

$

3,435,269.66

$ 1,551,226.95 $ 1,551,226.95 $

0.00 3,435,269.66

Total Liabilities and Fund EquitY

$ 1,708,428.57 $

The notes to the financial statements are an integral part of this statement. - '2 -

3,435,269.66 $ 195,096,937.30

EXHIBITMAM

ACCOUNT GROUPS

GENERAL

GENERAL

FIXED

LONG-TERM

ASSETS

DEBT

TOTALS

(Memorandum Only)

JUNE 30,1996

JUNE 30,1995

$

6,293,9n.11 $

2,591,807.26

$ 193,389,219.06 $ 191,012,918.23

$

433,254.03 $

876,520.54

92,759.50

169,571.19

$

526,013.53 $

1,046,091.73

$

31,425.83 $

0.00

$ 1,606,085.99

$

1,606,085.99 $

1,267,853.61

$ 872,027.27 $

872,027.27 $

830,225.47

$ 1,606,085.99 $ 872,027.27 $ 202,718,748.79 $ 196,748,896.30

$

0.00 $

173.64

155,968.70

478,355.54

1,232.92

1,278.34

195,096,937.30

193,511,033.14

$ 872,027.27

872,027.27

830,225.47

$ 872,027.27 $ 196,126,166.19 $ 194,821,066.13

$ 1,606,085.99

$

1,606,085.99 $

1,267,853.61

3,435,269.66

0.00

$ 1,606,085.99

1,551,226.95 0.00

660,150.20 -173.64

$

6,592,582.60 $

1,927,830.17

$ 1,606,085.99 $ 872,027.27 $ 202,718,748.79 $ 196,748,896.30 -3-

iSt~l
fj i-

I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I

DEPARTMENT OF INSURANCE COMBINED STATEMENT OF CHANGES IN FUND BALANCES (STATUTORY BASIS)
GOYERNMENTALFUNDIYPES YEAR ENDED JUNE 30 1996

EXHIBIT-B-

The notes to the financial statements are an integral part of this statement. -5-

DEPARTMENT OF INSURANCE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
BUDGET FUND YEAR ENDED JUNE 30, 1996

EXHIBIT-C

FUNDS AVAILABLE
REVENUES
STATE APPROPRIATION General AppropI i8tion Amended Appropriation
Less: Lapsed Funds
Total State Appropriation
FEDERAL REVENUES (See Schedule)
OTHER REVENUES RETAINED Contract Georgia Department of Human Resources Fire Safety Inspections of Health Care Facilities Reimbursements For Per Diem Expenditures Various Receiverships For Salaries Sales Photocopies Rulemaking Mailing List
Total Other Revenues Retained

TOTALS

YEAR ENDED

JUNE 30,1996

JUNE 30,1995

$

15,756,518,00 $

32,000,00

$

15,788,518.00 $

3.00

$

15,788,515.00 $

$

1,737,989.03 $

14,648,410.00 455,500.00
15,103,910.00 0.00
15,103,910.00
1,510,855.59

$

41,831.96 $

463,237.88 0.00

19,390.23 32,200.00

$

556,660.07 $

38,880,06
544,103.85 13,979.10 22,841.22 36,300.00
656,104.23

Total Funds Available

$

18,083,164.10 $

17.,.2.7..0..,.8.6.9.;,,;;;,,;,;;;..82.

EXPENDITURES
PERSONAL SERVICES
Salaries and Wages Employer's Conbibutions for:
F.I.CA Retirement Health Insurance Personal Liability Insurance Unemployment Compensation Insurance Workers' Compensation Insurance Assessments by Merit System Drug Testing
The notes to the financial statements are an integral part of this statement, -6-

$

9,400,478.63 $

9,390,113,61

671,342,75 1,448,076,09 1,153,759.53
45,540.00 20,308,00 130,268.00 28,882.56
1,066.50

673,067.08 1,430,831.09 1,152,074.80
28,512.00 12,898,00 131,503,00 27,575,64
276,50

$

12,899,722,06 $ _ _..:.:12:::.:,846~,.:;85:..;.1:.:..7=-2

DEPARTMENT OF INSURANCE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
BUDGET FUND YEAR ENDED JUNE 30.1996

EXHIBITC

EXPENDITURES
REGULAR OPERATING EXPENSES
Motor Vehicle Expenses
Supplies and Materials Repairs and Maintenance Rents (Other than Real Estate) Insurance and Bonding
Other Operating Expenses (See Schedule) Duplicating and Rapid Copy
Publications and Printing
TRAVEL
MOTOR VEHICLE PURCHASES
EQUIPMENT
Equipment Purchases
COMPUTER CHARGES
Software Equipment
Equipment Purchases
Per Diem, Fees and Contracts
Per Diem and Fees Computer Billings, DOAS
REAL ESTATE RENTALS
TELECOMMUNICATIONS
PER DIEM. FEES AND CONTRACTS
Per Diem and Fees
Total Expenditures
Excess of Funds Available over Expenditures

TOTALS

YEAR ENDED

JUNE 30,1996

JUNE 30, 1995

$

102,855.14 $

497,078.36

66,189.03

11,443.00

31,737.69

46,074.76

29,505.54

107,443.39

$

892,326.91 $

$

454,209.44 $

$

145,547.37 $

94,679.20 375,083.41
79,384.56 5,915.50
36,755.12 107,689.44
22,904.27 101,525.02
823,936.52
361,117.51
124,599.00

$

63,045.20 $

n,284.92

$

11,922.10 $

152,534.90

1,325.00 m,755.43

$

443,537.43 $

$

802,158.00 $

$

308,3011.05 $

32,368.29 365,894.01
5,185.00 298,3n.16 701,824.46 799,748.00 2n,911.49

$

528,563.07 $

$

16,537,420.53 $

1,545,743.57

671,552.31 16,684,825.93
586,043.89

$

18,083,164.10 $ _ _~17:.l.:,27~O,~869~.8:;.2

The notes to the financial statements are an integral part of this statement. -7-

PEPARTMENT OF INSURANCE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
YEAR ENDED JUNE 30, 1996

EXHIBIT"D"

FUNDS AVAILABLE
REVENUES
State Appropriation Federal Revenues other Revenues Retained

BUDGET

ACTUAL

VARIANCEFAVORABLE (UNFAVORABLE)

$ 15,788,518.00 $ 1,627,622.00 450,360.00

15,788,515.00 $ 1,737,989.03
556,660.07

-3.00 110,367.03 106,300.07

$ 17,866,500.00 $

18,083,164.10 $

2...;16;.:.,664_._1~0

EXPENDITURES
Personal Services RegUlar Operating Expenses Travel Motor Vehicle Purchases Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem, Fees and Contracts

$ 14,171,864.00 $ 851,699.00 451,560.00 145,850,00 66,880,00 490,153.00 807,054.00 317,300.00 564,140.00

12,899,722.06 $ 892,326,91 454,209,44 145,547.37 63,045.20 443,537.43 802,158.00 308,311.05 528,563.07

1,272,141.94 -40,627.91 -2,649.44 302.63 3,834.80 46,615.57 4,896.00 8,988.95 35,576.93

$ 17,866,500.00 $

16,537,420,53 $ 1,329,079.47

Excess of Funds Available over Expenditures

$

1,545,743,57 $ 1,545,743,57

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

DEPARTMENT OF INSURANCE STATEMENT OF CASH RECEiPTS AND DISBURSEMENTS
STATE REVENUE COLLECTIONS FUND YEAR ENDeD JUNE 3Q 1996

EXHIBIT-E-

STATE REVENUE COLLECTIONS

Business Licenses and Regulatory Fees Insurance Agents' Licenses and examination Fees

Insurance Regulatory licenses and Fees Insurance Company Filing Fees Insurance Company Licenses Pre-Need Funeral Licences and Service Fees Miscellaneous Business LIcenses and Regulatory Fees

Industrial Loan Company Licenses and Regulatory Fees
Licenses Investigation Fees

Safety Fire Prevention LIcenses and Fees camival and Show Fees CertIficate of Competency Fees CertIficate of Occupancy Fees Construction P.-mit Fees Explosive Storage Fees liquid Petroleum and Gas Fees Mobile Home Dealers' licenses

Taxes and Other Industrial LOlIn Company Taxes Industrial Loan Company Tax Penalties

Insurance Premium Taxes

$

Less: Distribution to Counties

and Cities

Insurance Premium Tax Interest Insurance Premium Tax Penalties

Sales and Miscellaneous Administrative Fines Sales of Manuals and Miscellaneous Service Charges for Disc Copies

Total cash Receipts

CASH AND CASH EQUIVALENTS - JULY " 1995

CASH RECEiPTS

$

$

1,398,046.00

1,003,135.00

30,485.00

448,355.00

$

531,500.00

22,250.00

$

3,300.00

59,115.24

36,100.00

235,293.00

26,650.00

33,500.00

150,100.00

$ 2,104,570.749,438.65 $
402,343,306.05
205,834,655.74 $ 196,508,650.31
34,870.96 118,047.97

2,114,009.39 196,661,569.24

$

236,850.00

9,725.47

1,505.25

$

8,781,n9.95
2,880,021.00 553,750.00
544,058.24
198,n5,578.63 248,080.72
211,783,268.54 -173.64

$ _....2.."...,7;.;8300.1,100.;0.94..9..0.

TRANSFERS To OffICe ofTreasury and Fiscal services
CASH AND CASH EQUIVALENTS - JUNE 3Q, 1996

DISBURSEMENTS

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

$

208,347,825.24

3,435,269.66

$ _....2.."..,7;.;8300.1,.0.9.4..9..0.

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1996

EXHIBIT "F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY The Department ofInsurance, an organizational unit ofthe State of Georgia, is part ofthe executive branch of the government of the State of Georgia. The Department has primary oversight responsibilities for the insurance industry in the State ofGeorgia. The Department also provides fire safety regulation and instruction and supervises industrial loan companies operating within the State ofGeorgia. The Department ofInsurance is under the control and management ofthe Commissioner ofInsurance, who is elected by the qualified voters.
The Department ofInsurance does not have authority to determine the amount offunding it will receive from the State ofGeorgia for any given fiscal year. Such authority is vested in the General Assembly of Georgia. The Department also does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, the Department ofInsurance is included within the State ofGeorgia reporting entity for financial reporting purposes because ofthe significance ofits legal, operational and financial relationships with the State ofGeorgia. These reporting entity relationships are defined in Section 2100 ofthe Governmental Accounting Standards Board Codification ofGovernmental Accounting and Financial Reporting Standards.
FUND ACCOUN'ffflG The Department ofInsurance uses funds and account groups to report on its financial position and the results ofits operations determined in conformity with accounting practices prescribed or permitted by statutes and regulations ofthe State ofGeorgia. A fund is an independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device used to account for certain assets and liabilities of the governmental funds not recorded directly in those funds. Funds and account groups presented in the accompanying financial statements are as follows:
GOVERNMENTAL FUND TYPES
BUDGET FUND - The fund used to account for activities and functions as set forth in the Amended Appropriations Act of 1995-1996. The Budget Fund is similar in nature to a General Fund as defined in generally accepted accounting principles in that the Budget Fund is used to account for all activities except those required to be accounted for in some other fund.
STATE REVENUE COLLECTIONS FUND - The fund used to account for the collection of specific revenues ofthe State ofGeorgia as provided by statute or administrative action andthe subsequent transfer of such funds to the Office of Treasury and Fiscal Services. This presentation differs from generally accepted accounting principles in that such activity should be included in the General Fund of the governmental organization.

- 10-

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 3D. 1996

EXHIBIT "F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FUND ACCOUNTING
FIDUCIARY FUND TYPE
AGENCY FUNDS - The funds used to account for assets held for use by other funds, governments, or individuals.
ACCOUNT GROUPS
GENERAL FIXED ASSETS - The account group used to account for fixed assets used in governmental fund type operations. Fixed assets purchased are recorded at cost or at estimated historical cost ifhistorical cost is not practically determinable. Donated fixed assets are recorded at fair market value on the date donated. Disposals are deleted at recorded values. No depreciation has been provided on general fixed assets.
The cost ofnormal maintenance and repairs that do not add to the value ofthe asset or materially extend assets' lives are not included in the General Fixed Assets Account Group. Material improvements adding . to the value or useful life ofthe assets are included in the General Fixed Assets Account Group.
GENERAL LONG-TERM DEBT - The account group used to report the noncurrent portions of certain governmental long-term liabilities, such as claims, judgments and compensated absences, which will be paid from future resources.
BASIS OF ACCOUNTING MEASUREMENT FOCUS
The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Governmental funds should be accounted for using the flow of current financial resources measurement focus. With this measurement focus, operating statements present increases and decreases in net current assets and unreserved fund balance is a measure ofavailable spendable resources. In accordance with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, the Budget Fund remits its unreserved fund balance (surplus) to the Office ofTreasury and Fiscal Services in the subsequent fiscal year.
GOVERNMENTAL FUND TYPES BUDGETFUND
Except as disclosed in the following paragraphs, units of government of the State of Georgia record their Budget Fund revenues and expenditures in accordance with the modified accrual basis of accounting. Under the modified accrual basis ofaccounting, revenues are recognized when susceptible to accrual (i.e., when they are "measurable and available"). "Measurable" means the amount ofthe transaction can b.e determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities ofthe current period. Revenues that are accrued include primarily State appropriations, Federal grants and entitlements, and certain amounts earned under operating agreements with other parties. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized
- 11 -

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1996

EXHIBIT "F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF ACCOUNTING GOVERNMENTAL FUND TYPES BUDGET FUND
when due, and certain compensated absences, claims and judgements which are recognized when the obligations are expected to be liquidated with expendable available financial resources.

Contractual obligations for goods and services which have not been received at the end ofthe fiscal year are recognized as ~enditures and liabilities in the accompanying financial statements. This accounting practice causes ex.penditure-driven grant revenues to be accrued based, in part, on the unexecuted portion ofcontracts for goods and services. The recognition ofencumbrances as expenditures and liabilities is in conformity with accounting practices prescribed or permitted by statutes and regulations ofthe State of Georgia, but is not consistent with generally accepted accounting principles, which provide for the recording ofencumbrances as a reservation offund balance. Further, revenue recognition for expenditure-driven grants should be based upon expenditures determined in accordance with generally accepted accounting principles.

Prior period adjustments and certain other items are reported as additions to and deductions from fund balances ofthe Budget Fund in the accompanying financial statements. This presentation is in accordance with accounting practices prescribed or permitted by statutes and regulations ofthe State ofGeorgia, but differs from generally accepted accounting principles in that immaterial adjustments should be reported as current period revenues and expenditures.

STATE REVENUE COLLECTIONS FUND

The State Revenue Collections Fund is maintained on the Cash Receipts and Disbursements basis of

accounting as prescribed or permitted by statutes and regulations of the State of Georgia. This basis of

accounting is defined as that method of accounting in which certain revenue and the related assets are

recognized when received rather than when earned, and certain expenses are recognized when paid rather than

when the obligation is incurred. The State Revenue Collections Fund, which should be included in the General

Fund in accordance with generally accepted accounting principles, should be maintained on the modified

accrual basis of accounting.

.

FIDUCIARY FUND TYPE AGENCY FUNDS
Agency Funds are custodial in nature and do not measure results ofoperations or have a measurement focus. The modified accrual basis ofaccounting is utilized for recognizing assets and liabilities.

BUDGET Appropriation allotments to the Department of Insurance are on the basis of a budget submitted by the Department and approved by the Legislature and the Governor. The budget is adopted on a basis consistent with accounting .practices prescribed or permitted by statutes and regulations ofthe State of Georgia and is compiled in the same manner as all State departments. Expenditures are classified by budget unit object classes

- 12-

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1996

EXIllBIT "F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUDGET as provided in Act No. 476 ofGeorgia Laws 1995 (as approved April 21, 1995) and amended by Act No. 513 of Georgia Laws 1996 (as approved February 16, 1996). This budget is considered to be an appropriated budget and is referred to in these notes as the Amended Appropriations Act of 1995-1996.
Overexpenditure of a budget unit object class, except for the "common object classes", included in the Department's final amended budget is in violation of Section 54 ofthe 1995-1996 Amended Appropriations Act. Expenditures ofno more than 102% ofthe stated amount for each common object class are authorized by Section 54. However, the total expenditure for the group ofcommon object classes may not exceed the sum of the stated amounts for the separate object classes ofthe group. The common object classes include Personal Services, Regular Operating Expenses, Travel, Motor Vehicle Purchases, Equip~ent, Computer Charges, Real Estate Rentals, Telecommunications and Postage.
A comparison ofanticipated funds available and budgeted expenditures by budget unit object class indicates that the expenditures for the "common object class", Regular Operating Expenses, exceeded the authorized expenditure level of 102% ofthe budgeted amount for that common object class by $23,593.93.
CASH AND CASH EQUIVALENTS Cash and Cash Equivalents include demand deposits with banks and other financial institutions and short-term, highly liquid investments with maturities ofthree months or less from the date ofacquisition.
INVESTMENTS Investments are defined as those financial instruments with terms in excess ofthree months from the date of purchase and certain other securities held for the production of revenue. Investments are stated at cost.
INVENTORIES No inventories of supplies are reported in these financial statements. Expendable supplies are recorded as expenditures at the timeofpurchase.
RESERVED FUND BALANCE Reserves represent those portions of fund equity not appropriable for expenditure or legally segregated for a specific future use. The following is a briefdescription ofthe reserve reflected in the accompanying financial statements:
STATE REVENUE COLLECTIONS FUND The balance ofrevenues collected but not transmitted to the Office of Treasury and Fiscal Services at fiscal year end. These funds are required by the Official Code of Georgia to be transferred to the Office of Treasury and Fiscal Services and are not available for use by the Department.

- 13 -

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1996

EXlDBIT"F"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNRESERVED FUND BALANCE In accordance with accounting practices prescribed or permitted by statutes and regulations of the State of Geo~ the Budget Fund's unreserved fund balance is remitted to the Office ofTreasury and Fiscal Services in the subsequent fiscal year as surplus. This amount ofunexpended general appropriations is designated for reappropriation by the State in subsequent years.
COMPENSATED ABSENCES Compensated absences represent obligations of the Department relating to employee's rights to receive compensation for future absences based upon services already rendered. This obligation relates only to vesting accumulating annual leave in which payment is probable and can be reasonably estimated. No liability has been recorded in the individual funds for the current portion ofthis obligation as this amount will not be liquidated with expendable available financial resources. Funds are provided in the appropriation offunds each year to the Department to cover the cost ofannual leave paid to terminated employees.
The liability for compensated absences at year end is reported in the General Long-Term Debt Account Group .for governmental funds.
MEMORANDUM ONLY - TOTAL COLUMNS Total columns on the Combined Statements (Statutory Basis) are captioned "Memorandum Only" because they do not represent consolidated financial information and are presented only to facilitate financial analysis. The columns do not present information that reflects financial position, results ofoperations or changes in financial position in conformity with generally accepted accounting principles. Neither are such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation ofthis data.
COMPARATIVE DATA Comparative total data for the prior year have been presented in selected sections of the accompanying financial statements in order to provide an understanding ofthe changes in the Departmentfs financial position and operations. Comparative totals have not been included on statements where their inclusion would not provide enhanced understanding of the Department's financial position and operations or would cause the statements to be unduly complex and difficult to understand. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year's presentation.
NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds ofthe State ofGeorgia cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral anyone or more ofthe following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
(1) Bonds, bills, certificates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia.
- 14-

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1996

EXHIBIT "F"

NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES (2) Bonds, bills, certificates ofindebtedness, notes, or other obligations ofthe counties or municipalities of the State ofGeorgia.

(3) Bonds ofany 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.

(4) Industrial revenue bonds and bonds of development authorities created by the laws ofthe State of Georgia.

(5) Bonds, bills, certificates ofindebtedness, notes, 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.

(6) Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.

As authorized in the Official Code ofGeorgia Annotated Section 50-17-53, the State Depository Board has adopted policies which allow agencies ofthe State ofGeorgia the option ofexempting demand deposits from the collateral requirements.

CATEGORIZATION OF DEPOSITS For purposes of analysis of custodial credit risk, cash deposits consist of all bank balances which include demand deposits and/or interest bearing accounts. The bank balances as ofJune 30, 1996, are categorized below in order to provide information about the extent to which such deposits are exposed to custodial credit risk.

Category 1 - Amounts covered by depository insurance or collateralized with securities (at market value) held by the Department or by its agent in the Department's name.

Category 2 - Amounts collateralized with securities (at market value) held by the pledging financial institution's trust department or agent in the Department's name.

Category 3 - Amounts collateralized with securities (at market value) held by the pledging financial institution or by its trust department or agent, but not in the Department's name, and amounts uncollateralized.

Cash Deposits

Carrying Amount

Bank Balances

Risk Categories

2

3

$ 6 293 977 11 $27225 761 05 $ 400,000 00 $25330 154 67 $ 1 495 606 38

- 15 -

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1996

EXHIBIT "F"

NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

CATEGORIZATION OF INVESTMENTS For purposes of analysis of custodial credit risk, investments consist of Securities on Deposit. Investments are stated at cost, and are summarized and classified as to custodial credit risk within the categories described below:

Category 1 - Insured or registered, or securities held by the Department or its agent in the Department's name.

Category 2 - Uninsured and unregistered, with securities held by the counterparty's trust department or agent in the Department's name.

Category 3 - Uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent but not in the Department's name.

The carrying amounts ofinvestment balances as ofJune 30, 1996, are categorized below.

Type ofInvestment

Risk Categories

2

3

Carrying Amount

Market Value

Securities on Deposit

$==dO~O~O $193389219 06 $,===O~O!!*O $19338921906 $20801551533

Securities on Deposit, as reflected on Schedule "3", represent securities held pursuant to statutes which require licensed insurance companies to establish deposits with the Department of Insurance prior to issuance of a certificate of authority to transact insurance business in the State of Georgia by the Commissioner of Insurance. The purchase and redemption of the securities are the responsibility of the licensed insurance companies. The purchase and redemption of such securities are allowed as long as the required levels of deposits are maintained. The securities are held by an agent in the Department's name.

NOTE 3: CHANGES IN GENERAL FIXED ASSETS

In accordance with the statutory definition of moveable personal property as defined in Official Code of Georgia Annotated Section 50-16-161, only those items with an acquisition cost of$I,OOO.OO or greater are reflected in the General Fixed Assets Account Group.

The following is a summary of changes of equipment in the General Fixed Assets Account Group during the fiscal year:

Balance July 1, 1995 Additions Deductions Balance June 30, 1996

$ 1,267,853.61 504,397.68 166,165.30
$ 1.606.085.99

- 16 -

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1996

EXInBIT "F"

NOTE 4: GENERAL LONG-TERM DEBT

CHANGES IN GENERAL LONG-TERM DEBT During the year ended June 30, 1996, the following changes occurred in the compensated absences liability reported in the General Long-Term Debt Account Group:

Balance July I, 1995

$ 830,225.47

Additions Annual Leave Earned and Utilized (Net) Salaries Salary Related Fringe Benefits

38,831.22 2,970.58

Balance June 30, 1996

$ 872.027.27

NOTE 5: RISK MANAGEMENT

Public Entity Risk Pool

The State Personnel Board, Merit System ofPersonnel Administration administers for the State of Georgia a program ofhealth benefits for the employees ofunits ofgovernment ofthe State ofGeorgia, units ofcounty government and local education agencies located within the State of Georgia. This plan is funded by participants covered in the plan, by employers' contributions paid by the various units of government participating in the plan, and appropriations made by the General Assembly of Georgia. The State Personnel Board, Merit System ofPersonnel Administration has contracted with Blue Cross Blue Shield of Georgia to process claims in accordance with the State Employees' Health Benefit Plan as established by the State Personnel Board.

Other Risk Management

The Department ofAdministrative Services (DOAS) has the responsibility for the State ofGeorgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. The Department ofInsurance is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.

- 17-

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1996

EXHIBIT "F"

NOTE 6: DEFERRED COMPENSATION PLAN
The State ofGeorgia offers its employees a deferred compensation plan in accordance with Internal Revenue Code Section 457. The plan, available to employees ofthe State of Ge.orgia and county health departments, pennits such employees to defer a portion oftheir salary until future years. Participation in the plan is optional. Participants choose the option or options in which they wish to participate. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are (until paid or made available to the employee or other beneficiary) solely the property or rights of the State of Georgia subject only to the claims of the State's general creditors. Participant's rights under the plan are equal to those of a general creditor ofthe State of Georgia in an amount equal to the fair market value ofthe deferred account of each participant. Financial information relative to the plan will be presented in the State of Georgia Comprehensive Annual Financial Report for the year ended June 30, 1996.
NOTE 7: RETIREMENT PLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
Plan Description The Department ofInsurance participates in the Employees' Retirement System of Georgia ("ERS"), a singleemployer, defined benefit plan established by the General Assembly ofGeorgia for the purpose of providing retirement allowances for employees ofthe State of Georgia. The Department's payroll for the year ended June 30, 1996, for employees covered by ERS was $9,146,961.08. The Department's total payroll for all employees was $9,400,478.63.
Benefits The benefit structure of ERS was significantly modified on July 1, 1982. Unless elected otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. All other members are "new plan" members subject to the modified plan provisions.
Under both the old plan and new plan, members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment ofage 65. If 10 years of service is completed and age 60 is reached, the member may retire with a reduced benefit. Additionally, there are certain provisions allowing for retirement after 30 years of service regardless of age.
Retirement benefits paid to members are based upon a formula which considers the monthly average ofthe member's highest eight consecutive calendar quarters of salary, the number ofyears of creditable service, and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension at reduced rates to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS.
- 18 -

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1996

EXHIBIT "F"

NOTE 7: RETIREMENT PLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
Funding Status and Progress Funding status and progress information is presented in the ERS June 30, 1996, financial report which may be obtained through ERS.
Contributions Required and Contributions Made As established by State statute, all full-time employees ofthe State ofGeorgia and its political subdivisions, who are not members ofother state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute.
Under the old plan, member contributions consist of employee contributions paid by the employee of 1.25% ofcompensation and 4.75% of compensation paid by the Department on behalfofthe employee. Under the new plan, member contnbutions consist solely of 1.25% of compensation paid by employee. The Department also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation. For the year ended June 30, 1996, the ERS employer contribution rate for the Department amounted to 15.04% ofcovered payroll and included the 4.75% contributed on behalfofthe employee under the old plan referred to above. The employer contributions are projected to liquidate the unfunded actuarial liability within 20 years based upon the actuarial valuation ofJune 30, 1995. Employer contributions are also made on amounts paid for accumulated leave to retiring employees.
Actuarial assumptions used by the ERS to compute actuarially determined contribution requirements are the same as those used to compute the pension benefit obligation.
Total contributions to the plan made during fiscal year 1996 amounted to $1,490,470.05, of which $1,376,129.79 was made by the employer and $114,340.26 was made by employees. These contributions met the requirements of the plan.
Trend Information Historical trend information is presented in the ERS June 30, 1996, financial report which may be obtained through ERS. This information gives an indication ofthe progress made in accumulating sufficient assets to pay benefits when due.
GEORGIA DEFINED CONTRIBUTION PLAN
Plan Description The Department of Insurance participates in the Georgia Defined Contribution Plan ("GDCP") which is a single-employer defined contribution plan established by the Georgia General Assembly for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Employees' Retirement System Board ofTrustees. The Department's payroll for the year ended June 30, 1996, for employees covered by GDCP was $178,560.78. The Department's total payroll for all employees was $9,400,478.63.
- 19-

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 3D. 1996

EXIDBIT "F"

NOTE 7: RETIREMENTPLANS

GEORGIA DEFINED CONTRIBUTION PLAN

Benefits A member may retire and elect to receive periodic payments after attainment ofage 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board. Ifa member has less than $ 3,500 credit to hislher account, the Board has the option ofrequiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to hislher account will be paid to the member's designated beneficiary.

Contributions and Vesting Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contnbutions. Earnings are credited to each member's account in a manner established by the Board. Upon tennination of employment, the amount ofthe member's account is refundable upon request by the member.

Total contributions made by employees during fiscal year 1996 amounted to $13,392.23 which represents 7.5%'ofcovered payroll. These contributions met the requirements ofthe plan.

NOTE 8: LEAVEPOUCffiS

Employees earn ten hours of sick leave each month with a maximum accumulation of ninety days. Unused accumulated sick leave does not vest with the employee and is forfeited upon retirement or termination of employment.

Employees earn annual.leave ranging from ten to fourteen hours each month depending upon the employees'

length ofcontinuous State service wiill a maximum accumulation offorty five days. Employees are paid for

unused accumulated annual leave upon retirement or termination ofemployment. See Note 1 - Compensated

Absences.

.

Certain employees who retire with one hundred and twenty days or more offorfeited annual and sick leave are entitled to additional service credit in the Employees' Retirement System of Georgia.

NOTE 9: CONTINGENCffiS

Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. . This could result in refunds to the grantor agency for any expenditures which are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although the Department expects such amounts, ifany, to be immaterial to its overall financial position.

Litigation, claims and assessments filed against the Department ofInsurance, if any, are generally considered

to be actions against the State ofGeorgia. Accordingly, significant litigation, claims and assessments pending

against the State ofGeorgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for

the fiscal year ended June 30, 1996.

.

- 20-

DEPARTMENT OF INSURANCE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1996

EXHIBIT"F"

NOTE 10: BONDING INFORMATION
The Commissioner and all employees ofthe Department ofInsurance are bonded under a Public Employees Blanket Bond written by Employers Insurance of Wausau, their Bond No. 1450-02-110723, on which the premium was paid to October 1, 1996. Under this agreement the Public Employee Dishonesty Coverage insures the Department to a maximum of$I,OOO,OOO.OO against loss sustained through fraudulent or dishonest acts by its employees. The Faithful Performance ofDuty Coverage insures the Department to a maximum of $1,000,000.00 against loss sustained from failure of its employees to perform faithfully their duties or to account properly for all monies and property received by virtue oftheir position or employment.
All employees ofthe Department ofInsurance are also bonded under Commercial Crime Policies written by the United States Fire Insurance Company, their Policy Nos. 6260122926 and 626 012294 4, on which premiums were paid to October 1, 1996. Under these additional public employee dishonesty coverages, the policies insure the Department to a maximum of $9,000,000.00 against loss sustained through fraudulent or dishonest acts by its employees and from failure ofits employees to perform faithfully.

- 21 -

SUPPLEMENTARY INFORMATION - 23-

DEPARTMENT OF INSURANCE COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES
FIDUCIARY FUND TYPE - AGENCY FUNDS YEAR ENDED JUNE 30. 1996

EXHIBIT"G"

FUND McFrugal Property Damage Claims Receiverships Revenue Collections Escrow Account Securities on Deposit (1 )

ASSETSI LIABILITIES JULY 1, 1995

ADDITIONS

DELETIONS

ASSETSI LIABILITIES JUNE 30, 1996

$

0.00 $

2,632,588.76

35,050.00

199,459.16 $ 378,650.63 33,750.00

168,515.14 $ 1,371,015.17
32,250.00

30,944.02 1,640,224.22
36,550.00

190,843,394.38

18,218,129.90

15,672,305.22

193,389,219.06

$ 193,511,033.14 $

18,829,989.69 $

17,244,085.53 $

(1) These amounts represent securities held pursuant to statutes which require licensed insurance companies to establish deposits with the Department of Insurance prior to the issuance of a certificate of authority to transact insurance business in the State of Georgia by the Commissioner of Insurance. The purchase and redemption of the securities are the responsibility of the licensed insurance companies. The purchase and redemption of such securities are allowed as long as the required levels of deposits are maintained. The securities are held by an agent in the Departmenfs name.

See notes to the financial statements.

-24-

DEPARTMENT OF INSURANCE SCHEDULE OF APPROVED BUDGET
YEAR ENDED JUNE 30, 1996

SCHEDULE "1"

FUNDS AVAILABLE
REVENUES
State Appropriation Federal Revenues Other Revenues Retained

ORIGINAL

AMENDED

BUDGET

APPROPRIATION APPROPRIATION ADJUSTMENTS

TOTAL

$ 15,756,518,00 $ 1,256,440.00 50,360,00

32,000,00 $

$ 371,182,00 400,000,00

15,788,518.00 1,627,622,00 450,360.00

$ 17,063,318,00 $

32,000.00 $

771,182.00 $ 17,866,500.00

EXPENDITURES
Personal Services RegUlar Operating Expenses Travel Motor Vehicle Purchases EqUipment Computer Charges Real Estate Rentals Telecommunications Per Diem, Fees and Contracts

$ 13,982,959.00 722,723.00 401,560.00 113,850,00 $ 66,880.00 442,990,00 806,814,00 317,300.00 208,242,00

$ 32,000.00

188,905.00 $ 128,976.00
50,000.00
47,163,00 240.00
355,898.00

14,171,864.00 851,699,00 451,560.00 145,850.00 66,880.00 490,153.00 807,054,00 317,300.00 564,140,00

$ 17,063,318.00 $

32,000,00 $

771,182.00 $ 17,866,500.00

See notes to the financial statements.

- 25-

DEPARTMENT OF INSURANCE CASH AND CASH EQUIVALENTS
JUNE 30.1996

SCHEDULE "Z'

NONINTEREST BEARING ACCOUNTS
Trust Company Bank,
AtIanta,Georgia
Wachovia Bank of Georgia,
Atlanta, Georgia

$

294,142.24

3,471,819.66 $ 3,765,961.90

INTEREST BEARING ACCOUNTS
NationsBank of Georgia, N. A.,
Atlanta, Georgia
Wachovia Bank of Georgia, Atlanta, Georgia
Wachovia Bank of Georgia,
Atlanta, Georgia Certificates of Deposit No. 6033614 Purchase Date: No. 6033680 Purchase Date: No. 6033619 Purchase Date: No. 6184594 Purchase Date: No. 6033692 Purchase Date:

$

887,790.99

952,874.93

June 30, 1996 June 10, 1996 June 3,1996 May20,1996 June 10, 1995

Maturity Date: Maturity Date: Maturity Date: Maturity Date: Maturity Date:

August 19, 1996 August 10, 1996 July 5,1996 August 19,1996 July 12, 1996

35,054.30 47,494.76 298,776.21 160,781.73 145,242.29

2,528,015.21

$ 6,293,977.11

See notes to the financial statements.

- 26-

DEPARTMENT OF INSURANCE INVESTMENTS JUNE 3D, 1996
INVESTMENT TYPE
Securities on Deposit (List on File) (1)

SCHEDULE "3"
AMOUNT $ 193,389,219.06

(1) These investments represent securities held pursuant to statutes which require licensed insurance companies to establish deposits with the Department of Insurance prior to issuance of a certificate of authority to transact insurance business in the State of Georgia by the Commissioner of Insurance. The purchase and redemption of the securities are the responsibility of the licensed insurance companies. The purchase and redemption of such securities are allowed as long as the reqUired levels of deposit are maintained. The securities are held by an agent in the Department's name.

See notes to the financial statements.

- 27-

DEPARTMENT OF INSURANCE SCHEDULE OF FEDERAL REVENUES
YEAR ENDED JUNE 30, 1996

PROGRAM
Federal Emergency Management Agency National Fire Academy Educational Program Direct
Health and Human Services, U, S. Department of Medicare - Hospital Insurance Through Georgia Department of Human Resources Medical Assistance Program Through Georgia Department of Human Resources
Housing and Urban Development, U, S. Department of Manufactured Home Construction and Safety Standards Direct Through National Conference of States on Building Codes and Standards, Incorporated Through Various Mobile Home Manufacturers

CFDA NUMBER
83.010
93.773 93.778
14.171 14.171 14.171

SCHEDULE "4"

AMOUNT

$

2,992.58

78,207.35 125,994.48

513,713,00
10,257.38 1,006,824,24

$ 1,737,989,03

See notes to the financial statements,

- 28-

DEPARTMENT OF INSURANCE SCHEDULE OF OTHER OPERATING EXPENSES
YEAR ENDED JUNE 30, 1996
REGULAR OPERATING EXPENSES
Clipping Service Courier Service Financial Character Reference Freight, Express and Storage Legal Fees Membership Fees Seminar and Registration Fees Tolls Training Transcripts Veterinary Fees Witness Expense

SCHEDULE "5"

$

1,247.75

2,590.91

473.00

5,084.74

673.48

19,207.07

9,824.75

2,136.00

903.00

3,498.75

180.31

255.00

$ 46,074.76

See notes to the financial statements.

- 29-

SECTION II FINDINGS AND IMPROPER OR QUESTIONED COSTS

DEPARTMENT OF INSURANCE SCHEDULE OF FINDINGS AND IMPROPER OR QUESTIONED COSTS
YEAR ENDED JUNE 30. 1996

STATUS OF PRIOR YEAR FINDINGS AND IMPROPER OR QUESTIONED COSTS

The status ofthe findings disclosed in the report for the year ended June 30, 1995, is summarized below:

Audit Control Number

Status ofFindings

408-95-01 408-95-02

Corrective Action Implemented Corrective Action Implemented

CURRENT YEAR

BUDGET PREPARATIONIEXECUTION Overexpenditure ofBudget Unit Object Class Financial Statements Audit Control Number 408-96-01

The total approved budget for the Department of Insurance provided for cumulative expenditures of $17,866,500.00. A comparison of anticipated funds available and budgeted expenditures to actual funds available and expenditures by object class indicates that the expenditures for the "common object class", Regular Operating Expenses, exceeded the authorized expenditure level of 102% ofthe budgeted amount for that common object class by $23,593.93. The overexpenditure, which is in violation of Section 54 of the Amended Appropriations Act of 1995-1996, occurred because the Department's budget for 1995-1996 did
not duly consider revisions to the state chart ofaccounts which moved certain expenditures from the Computer
Charges object class to the Regular Operating Expenses object class effective for fiscal year 1996. An audit adjustment was made to correct the Department's accounting records to be consistent with the revised state chart ofaccounts.

The Department should review its internal control procedures over budget operations which allowed this condition to occur and implement procedures to strengthen those controls.