MOUNTAIN REGIONAL LIBRARY YOUNG HARRIS, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS Russell W. Hinton State Auditor MOUNTAIN REGIONAL LIBRARY - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION EXHIBITS BASIC FINANCIAL STATEMENTS DISTRICT-WIDE FINANCIAL STATEMENTS A STATEMENTOFNETASSETS 1 B STATEMENT OF ACTIVITIES 2 FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUND 3 D RECONCILIATION OF THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET ASSETS 4 E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE GOVERNMENTAL FUND 5 F RECONCILIATION OF THE GOVERNMENTAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES 7 G NOTES TO THE BASIC FINANCIAL STATEMENTS 8 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND 17 SUPPLEMENTARY INFORMATION SCHEDULES OF REVENUE 2 STATE 18 3 FEDERAL 19 4 LOCAL 20 5 SCHEDULE OF SALARIES AND TRAVEL 21 MOUNTAIN REGIONAL LIBRARY - TABLE OF CONTENTS - SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION III FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION IV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 October 22, 2007 Honorable Sonny Perdue, Governor Members of the General Assembly Members ofthe Board ofRegents ofthe University System of Georgia and Director and Members ofthe Mountain Regional Library Board INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Ladies and Gentlemen: We have audited the accompanying financial statements ofthe governmental activities and the major fund (Exhibits A through G) ofthe Mountain Regional Library as ofand for the year ended June 30, 2006, which collectively comprise the Library's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Mountain Regional Library'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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and the major fund of the Mountain Regional Library, as of June 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 2006ARL-41 The Mountain Regional Library has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not to be part of, the basic financial statements. The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on page 17 is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods ofmeasurement and presentation ofthe required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Mountain Regional Library's basic financial statements. The accompanying supplementary information which consist ofSchedules 2 through 5, 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 ofthe basic financial statements, and in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, ~-4~ Rus 11 W. Hinton, CPA, CGFM State Auditor RWH:as 2006ARL-41 MOUNTAIN REGIONAL LIBRARY MOUNTAIN REGIONAL LIBRARY STATEMENT OF NET ASSETS JUNE 30, 2006 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Federal Government Capital Assets Equipment Library Collections Less: Accumulated Depreciation Total Assets LIABILITIES Long-Term Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Unrestricted Total Net Assets Total Liabilities and Net Assets EXHIBIT "A" GOVERNMENTAL ACTIVITIES $ 207,358 75,287 3,600 146,373 883,357 -750 905 $ ====5=6=5=0=70= $ 26,111 7 927 $ 34 038 $ 265,302 265 730 $ 531 032 $ ======5=65=0=70= The notes to the basic financial statements are an integral part of this statement. - 1- MOUNTAIN REGIONAL LIBRARY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 EXHIBIT "B" EXPENSES PROGRAM REVENUES OPERATING CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET ASSETS GOVERNMENTAL ACTIVITIES Current Services Public Services Technical Services Support Services Maintenance and Operations Information Technology $ 318,131 $ 48,510 362,895 83,807 10,383 2,364 $ 294,217 $ 36,711 -21,550 -48,510 -362,895 -47,096 -10 383 Total Governmental Activities 823,726 $ 2 364 $ 330 928 $ _ _ _ _-4_9_0,~434_ General Revenues Allotments from Participating Governments Investment Earnings Miscellaneous $ 377,928 1,215 134 575 Total General Revenues $ _ _ _~5~1~3~7~18~ Change in Net Assets $ 23,284 Net Assets - Beginning of Year 507 748 Net Assets - End of Year $ ====5=3='1..,03=2= The notes to the basic financial statements are an integral part of this statement. -2- MOUNTAIN REGIONAL LIBRARY BALANCE SHEET GOVERNMENTAL FUND JUNE 30, 2006 ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Federal Government Total Assets FUND BALANCE Unreserved Undesignated Reported in: General Fund EXHIBIT "C" GENERAL FUND $ 207,358 75,287 3600 $ ==2=8==6=,24=5= $ ==2=8=6=,2=45= The notes to the basic financial statements are an integral part of this statement. -3- MOUNTAIN REGIONAL LIBRARY RECONCILIATION OF THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006 EXHIBIT"D" Total Fund Balance - Governmental Fund (Exhibit "C") Amounts reported for Governmental Activities in the Statement of Net Assets are different because: Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of: Equipment Library Collections Accumulated Depreciation Total Capital Assets Long-Term Liabilities are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of: Compensated Absences Note Payable Total Long-Term Liabilities Net Assets of Governmental Activities (Exhibit "A") $ 286,245 $ 146,373 883,357 -750,905 278,825 $ -20,515 -13,523 -34,038 $ ===5=31=,0=3=2 The notes to the basic financial statements are an integral part of this statement. -4- MOUNTAIN REGIONAL LIBRARY EXHIBIT "E" STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE GOVERNMENTAL FUND YEAR ENDED JUNE 30, 2006 REVENUES Local Funds State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Public Services Technical Services Support Services Maintenance and Operations Information Technology Debt Services Principal Total Expenditures Net Change in Fund Balance Fund Balance - Beginning Fund Balance - Ending GENERAL FUND $ 377,928 312,848 18,080 2,364 1,215 134,575 $ 847,010 $ 257,856 48,510 362,895 83,807 10,383 5,596 $ 769,047 $ 77,963 208,282 $ ==2..s...s....2..4=5= The notes to the basic financial statements are an integral part of this statement. -5- (This page left intentionally blank) MOUNTAIN REGIONAL LIBRARY RECONCILIATION OF THE GOVERNMENTAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES JUNE 30, 2006 EXHIBIT"F" Total Net Change in Fund Balance - Governmental Fund (Exhibit "E") Amounts reported for Governmental Activities in the Statement of Activities are different because: Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are: Capital Outlay Depreciation Expense Excess of Depreciation Expense over Capital Outlay Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Note Payments Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of: Increase In Compensated Absences $ $ 40,145 -90,655 77,963 -50,510 5,596 -9 765 Change in Net Assets of Governmental Activities (Exhibit "B") $ ===2=3=,2=8=4 The notes to the basic financial statements are an integral part of this statement. -7- MOUNTAIN REGIONAL LIBRARY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"G" Note 1: DESCRIPTION OF LIBRARY AND REPORTING ENTITY REPORTING ENTITY The Mountain Regional Library (Library) operates pursuant to Official Code ofGeorgia Annotated Sections 20-5-40 through 20-5-59 to provide public library services with costs shared by participating local governmental agencies and grants from the State of Georgia. The Library Board is comprised of 14 members which are also trustees ofthe member library which appointed them. The Library Board membership consists of6 members appointed from the Fannin County Library Board, 4 members appointed from the Towns County Library Board and 4 members appointed from the Union County Library Board. The Library Board is without authority to determine the amount ofits funding, except by submission ofbudget requests to local governmental units from which the Library receives support and to the State ofGeorgia for State and Federal flow through funding. Membership in the Library and participation in library services is at the discretion of each participating governmental agency. The Library Board has the power to designate management, the power to retain unreserved fund balances of local and other funds for continued operations and is the lowest level of oversight responsibility for the Library's operations. The Mountain Regional Library is therefore determined to be a joint venture. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Library's basic financial statements are collectively comprised of the Library-wide financial statements, fund financial statements and notes to the basic financial statements of the Mountain Regional Library. Library-wide Statements: The Statement ofNet Assets and the Statement ofActivities display information about the financial activities ofthe overall Library. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through intergovernmental revenues and other nonexchange transactions. The Statement ofActivities presents a comparison between direct expenses and program revenues for each function of the Library'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 Library related to the administration and support ofthe Library'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 are presented as general revenues. -8- MOUNTAIN REGIONAL LIBRARY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "G" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fund Financial Statements: The fund financial statements provide information about the Library's funds. Eliminations have been made to minimize the double counting of internal activities. The emphasis of fund financial statements is on major governmental funds. The Library reports the following major governmental fund: General Fund is the Library's primary operating fund. It accounts for all financial resources of the Library, except those resources required to be accounted for in another fund. BASIS OF ACCOUNTING The basis ofaccounting determines when transactions are reported on the financial statements. The Library-wide governmental financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless ofwhen the related cash flows take place. Nonexchange transactions, in which the Library gives (or receives) value without directly receiving (or giving) equal value in exchange, include grants and donations. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The Library 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 Library considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Interest is considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal on general Long-Term Debt and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general Long-Term Liabilities are reported as other financing sources. The Library funds certain programs by a combination of specific 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 Library's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues. -9 - MOUNTAIN REGIONAL LIBRARY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"G" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 Library 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 Library 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 of one 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 Library to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate ofreturn shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following: (1) Obligations issued by the State of Georgia or by other states, (2) Obligations issued by the United States government, (3) Obligations fully insured or guaranteed by the United States government or a United States government agency, (4) Obligations of any corporation of the United States government, (5) Prime banker's acceptances, (6) The Local Government Investment Pool administered by the State ofGeorgia, Office of Treasury and Fiscal Services, (7) Repurchase agreements, and (8) Obligations of other political subdivisions of the State of Georgia. RECEIVABLES Receivables consist ofamounts due from grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information - 10 - MOUNTAIN REGIONAL LIBRARY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "G" Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. CAPITAL ASSETS Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time ofpurchase. On the Library-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. Depreciation is computed using the straight-line method. Capitalization thresholds and estimated useful lives of capital assets reported in the Library-wide statements are as follows: Capitalization Policy Estimated Useful Life Equipment Library Collections $ 5,000 10 to 20 years All 10 years Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives. Note 3: DEPOSITS COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee ofinsurance, or by collateral. The aggregate ofthe face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent ofthe public funds being secured after the deduction ofthe amount ofdeposit insurance. 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. 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, - 11 - MOUNTAIN REGIONAL LIBRARY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "G" Note 3: DEPOSITS (2) Insurance on accounts provided by the Federal Deposit Insurance Corporation, (3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia, (4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia, (5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose, (6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and (7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. CATEGORIZATION OF DEPOSITS At June 30, 2006, the bank balances were $309,909. The amounts of the total bank balances are classified into four categories of custodial credit risk: Category 1 - Cash that is insured (e.g., Federal Deposit Insurance) or collateralized with securities held by the Library or by the Library's agent in the Library's name. Category 2 - Cash collateralized with securities held by the pledging financial institution's trust department or agent in the Library's name. Category 3 - Cash collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the Library's name. Category 4 - Uncollateralized. The Library's deposits are classified by custodial credit risk category at June 30, 2006, as follows: Custodial Credit Risk Category Bank Balance 1 $ 115,858 2 0 3 194,051 4 0 Total $=====3=='09-,9===0==9 - 12 - MOUNTAIN REGIONAL LIBRARY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"G" Note 4: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year: Governmental Activities Capital Assets Being Depreciated Equipment Library Collections Less Accumulated Depreciation for: Equipment Library Collections Governmental Activity Capital Assets - Net Balances July 1, 2005 Increases Balances Decreases June 30, 2006 $ 146,373 888,619 $ 40,145 $ $ 45,407 146,373 883,357 31,652 674,005 $ 329.335 $ 39,900 50,755 -50.510 $ 45 407 Q $ 71,552 679,353 218.825 Current year depreciation expense by function is as follows: Public Services Note 5: RISK MANAGEMENT $=="=90-,6=5==5 The Library is exposed to various risks ofloss 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 Library has obtained commercial insurance for risk ofloss associated with torts, assets, errors or omissions and job related illness or injuries to employees. The Library has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the Library's insurance coverage in any of the past three years. The Library has elected to self-insure for all losses related to acts of God. The Library has not experienced any losses related to these risks in the past three years. The Library is self-insured with regard to unemployment compensation claims. The Library 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 ofthat loss can be reasonably estimated. The Library has not experienced any unemployment compensation claims during the last two years. The Library has purchased a surety bond to provide additional insurance coverage as follows: Position Covered Amount All Employees $ 10,000 - 13 - MOUNTAIN REGIONAL LIBRARY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"G" Note 6: LONG-TERM DEBT NOTE PAYABLE The Mountain Regional Library has entered into a financing agreement for the purchase ofa vehicle. This general Long-Term Debt has been recorded at the present value of the future minimum debt payments as of the date of its inception. COMPENSATED ABSENCES Compensated absences represent obligations ofthe Library relating to employees' rights to receive compensation for future absences based upon service already rendered. This obligation relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. The Library uses the vesting method to compute compensated absences. The changes in Long-Term Debt during the fiscal year ended June 30, 2006, were as follows: Governmental Funds Note Compensated Payable Absences Total Balance July 1, 2005 $ 19,119 $ 10,750 $ 29,869 Additions Annual Leave Earned 26,327 26,327 Deductions Annual Leave Utilized Debt Retired 5,596 16,562 16,562 5,596 Balance June 30, 2006 $ 13,523 $ 20,515 $==-34-,0...,3-8 Portion of Long-Term Debt Due within One Year $ 5,596 $ 20.515 $_---CC2~6,~11~1 At June 30, 2006, payments due by fiscal year which includes principal payments for the Note are as follows: Fiscal Year Ended June 30 2007 2008 2009 Total Principal Note Payable Principal $ 5,596 5,596 2,331 $ 13,523 - 14 - MOUNTAIN REGIONAL LIBRARY NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"G" Note 7: SIGNIFICANT CONTINGENT LIABILITIES The Library is a defendant in various legal proceedings pertaining to matters incidental to the performance of routine Library operations. The ultimate disposition of these proceedings is not presently determinable, but is not believed to be material to the basic financial statements. Note 8: SUBSEQUENT EVENTS The Library was involved in a legal proceeding pertaining to the purchase of a Bookmobile that proved defective. Mountain Regional Library obtained a judgment against two ofthe manufacturers on December 15, 2004, in the amount of$135,146. Those defendants appealed the decision and the Georgia Court ofAppeals affirmed the decision ofthe trial court. The defendants did not appeal the judgment any further. In the period subsequent to June 30, 2006, the defendants then paid the judgment, plus interest, in the amount of$150,000 to Mountain Regional Library. Note 9: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS) TRS PLAN DESCRIPTION Substantially all librarians and clerical personnel employed by regional and county libraries 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 Library who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The Library makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. The required employer contribution rate is 9.24% and employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2006 2005 2004 100% 100% 100% $ 37,673 $ 37,964 $ 39,250 - 15 - (This page left intentionally blank) MOUNTAIN REGIONAL LIBRARY GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2006 SCHEDULE "1" REVENUES Local Funds State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current Public Services Technical Services Support Services Maintenance and Operations Information Technology Debt Service Total Expenditures Net Change in Fund Balance Fund Balance - Beginning NONAPPROPRIATED BUDGETS ORIGINAL FINAL ACTUAL AMOUNTS $ 433,787 $ 377,928 $ 377,928 322,771 312,848 312,848 1,200 18,080 18,080 29,332 2,364 1,348 1,348 1,215 1 746 3,282 134 575 $ 760,852 $ 742 818 $ 847 010 $ 302,158 $ 268,060 $ 257,856 50,367 52,543 48,510 359,683 350,061 362,895 42,644 62,690 83,807 6,000 9,464 10,383 5 596 $ 760,852 $ 742 818 $ 769 047 $ 0 $ 0 $ 77,963 10 545 10 545 208,282 Fund Balance - Ending $ 10 545 $ 10 545 $ ======2=8=6=,2=4.5.. Notes to the Schedule of Revenues. Expenditures and Changes in Fund Balances Budget and Actual The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements. See notes to the basic financial statements. - 17 - MOUNTAIN REGIONAL LIBRARY SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2006 AGENCY/FUNDING GRANTS Board of Regents of the University System of Georgia Office of Public Library Services Salaries Library Materials Maintenance and Operations SCHEDULE "2" GOVERNMENTAL FUND TYPE GENERAL FUND $ 253,025 23,112 36 711 $ ====3=1=2'=,8=48= See notes to the basic financial statements. - 18 - MOUNTAIN REGIONAL LIBRARY SCHEDULE OF FEDERAL REVENUE YEAR ENDED JUNE 30, 2006 AGENCY/FUNDING GRANT Museum and Library Services, Institute of Through Board of Regents of the University System of Georgia Library Services and Technology Act State Library Program SCHEDULE "3" GOVERNMENTAL FUND TYPE GENERAL FUND $ =======18=0=80= See notes to the basic financial statements. - 19 - MOUNTAIN REGIONAL LIBRARY SCHEDULE OF LOCAL REVENUE YEAR ENDED JUNE 30, 2006 LOCAL SOURCES County Governments Boards of Commissioners Fannin County Towns County Union County Boards of Education Fannin County Towns County Union County City Governments Blairsville Blue Ridge Hiawassee McCaysville Morganton Young Harris SCHEDULE "4" GOVERNMENTAL FUND TYPE GENERAL FUND $ 66,933 67,744 90,000 56,007 48,422 38,122 3,000 3,000 1,000 500 200 3 000 $ ====3=7=7,=9=28= See notes to the basic financial statements. -20- MOUNTAIN REGIONAL LIBRARY SCHEDULE OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2006 SCHEDULE "5" NAME Adams, Jenny Ash, WilmaB. Berdux, Janice Brendle, Mary Sue Carney, Michele L. Carver-Gay, Donna Clark, Teddy P. Delcuze, Elaine K. Everett, Barbara Foster, Linda M. Haymore, Teresa P. Howell, Donna W. Johnson, Peter Keys, Peggy A. Massey, Bettie G. Nelson, Jennifer Nichols, Betty Jean Oates, Lelane Peters, Ruth K. Phillips, Deborah C. Pittman, Vanessa Steigerwalt, Elizabeth J. Tallent, Barbara Jolene Weaver, Nannette M. Willis, Carmen Wood, Sandra Totals per Report TITLE CATEGORY Library Assistant Accounting Assistant Library Assistant Librarian Library Assistant Library Assistant Technical Processing Coordinator Regional Reference Assistant Library Assistant Children's Service Coordinator Librarian Director Technology Librarian Bookmobile Coordinator Library Assistant Library Assistant Bookmobile Assistant Library Assistant Library Assistant Branch Manager/Bookkeeper Library Assistant Library Assistant Library Assistant Library Assistant Library Assistant Library Assistant SALARIES TRAVEL $ 9,121 $ 687 12,345 45,836 14,235 12,206 20,880 20,567 910 15,919 62,878 72,225 28,269 18,374 7,410 747 9,174 5,380 5,319 26,100 13,908 3,041 4,220 7,229 14,505 8 030 8 193 38 8 9 110 22 2,321 314 2,821 311 45 8 32 44 8 297 9 8 45 24 $ 439,515 $======6=6=7=5 See notes to the basic financial statements. - 21 - SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS MOUNTAIN REGIONAL LIBRARY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-7392-04-01 FS-7392-05-01 Further Action Not Warranted Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/DISBURSEMENTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION Inadequate Separation of Duties Finding Control Number: FS-7392-05-01 We concur with this finding. In an effort to provide the necessary separation ofduties for these accounting functions, the Mountain Regional Library System Board ofTrustees has approved the new position of accounting assistant. The duties of this position were assumed as of July 1, 2006. The accounting assistant will perform manual check reconciliation with bank statements, review deposit items and deposit slips prior to deposits being made, and review new-hire documentation and assign new employee numbers prior to these items being entered into the accounting program. The accounting assistant will also review prepared vendor and payroll checks with appropriate invoices and/or timesheets and accounting program reports prior to checks being signed. The accounting assistant has no signature authority for library accounts, has no access to the CompuTrain Library Accounting Program, and does not write checks or receive cash. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION III FINDINGS AND QUESTIONED COSTS MOUNTAIN REGIONAL LIBRARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION Inadequate Separation of Duties Reportable Condition Finding Control Number: FS-7392-06-01 Condition: This is a repeat finding (FS-7392-05-01) from the year ended June 30, 2005. The accounting procedures of the Library were insufficient to provide for adequate separation of duties over the Library accounts. Criteria: The Library's management is responsible for designing and maintaining internal controls that provide proper separation of duties. Such internal controls would limit any one individual's access to both physical assets and the related accounting records. Questioned Cost: NIA Information: Our examination of the accounting records revealed the following deficiencies: Cash and Cash Equivalents The reconciliations of the bank accounts were not performed by someone independent of the general ledger function. Revenues/Receivables/Receipts The deposit preparation function was not separated from the cash receipting and record keeping function. Expenditures/Liabilities/Disbursements The check writing function was not separated from record keeping or processing of signed checks. Employee Compensation The personnel function of setting up new employees in the accounting system was not separated from the payroll processing and check writing functions. - 1- MOUNTAIN REGIONAL LIBRARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS EMPLOYEE COMPENSATION Inadequate Separation ofDuties Reportable Condition Finding Control Number: FS-7392-06-01 Cause: These deficiencies were a result of Library management's failure to assign responsibilities to achieve appropriate separation of duties and to utilize management oversight of the incompatible activities to properly safeguard assets. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: Management should implement procedures to ensure that the key accounting functions ofcustody, record keeping and authorization are separated and/or utilize management oversight of these incompatible activities. CASH AND CASH EQUIVALENTS INVESTMENTS GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-7392-06-02 Condition: The accounting procedures of the Library were insufficient to provide for adequate internal controls over cash and investment accounts. Criteria: The Library's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are processed according to established procedures. Questioned Cost: NIA Information: Cash and Cash Equivalents Four branch checking accounts totaling $35,293 were found that were not recorded on the Library's General Ledger. Investments Five branch certificates of deposit totaling $45,287 were found that were not recorded on the Library's General Ledger. -2- MOUNTAIN REGIONAL LIBRARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS INVESTMENTS GENERAL LEDGER Inadequate Accounting Procedures Reportable Condition Finding Control Number: FS-7392-06-02 Cause: These deficiencies were a result of management's failure to ensure that internal controls were established, implemented and functioning at the branch level. Effect: Errors and/or irregularities may not be detected in a timely manner. Recommendation: Management should revise and monitor controls to provide reasonable assurance that transactions are processed according to established procedures. -3- SECTION IV MANAGEMENT'S RESPONSES MOUNTAIN REGIONAL LIBRARY SCHEDULE OF MANAGEMENT'S RESPONSES YEAR ENDED JUNE 30, 2006 Finding Control Number: FS-7392-06-01 We concur with this finding. In an effort to provide the necessary separation of duties for these accounting functions, the Mountain Regional Library System Board of Trustees approved the new position of accounting assistant. The accounting assistant will perform manual check reconciliation with bank statements, review deposit items and deposit slips prior to deposits being made, and review new-hire documentation and assign new employee numbers prior to these items being entered into the accounting program. The accounting assistant will also review prepared vendor and payroll checks with appropriate invoices and/or timesheets and accounting program reports prior to checks being signed. The accounting assistant has no signature authority for Library accounts, has no access to the CompuTrain Library Accounting Program or Blackbaud Accounting Program, and does not write checks or receive cash. The duties of this position were assumed as of July 1, 2006. Finding Control Number: FS-7392-06-02 We concur with this finding. All branch bank accounts and certificates of deposits or other investments will be added to the Library system's accounting program and be subject to the same oversight and reporting as the regional library accounts. All documentation will be maintained in the branch libraries and will be auditable. Accounts will be added to the accounting program for fiscal year 2007. Contact Person: Donna W. Howell, Director, Mountain Regional Library System Phone: (706) 379-3732 Fax Number: (706) 379-2047 E-mail Address: howelld@mountainregionallibrary.org