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' .- ~' ..: OFFICE OF TREASURY AND FISCAL- SERVICES -TABLE OF CONTENTS- SECTION J FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION EXHIBITS FINANCIAL STATEMENTS A COMBINED BALANCE SHEET (STATUTORY BASIS) ALL FUND TYPES 2 B COMBINED STATEMENT OF CHANGES IN FUND BALANCES (STATUTORY BASIS) GOVERNMENTAL FUND TYPES 4 STATEMENTS OF FUNDS AVAILABLE AND EXPENDITURES C BUDGET FUND 5 D GENERAL FUND 6 E DEBT SERVICE FUND 7 STATEMENTS OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BUDGET FUND F "A" STATE OF GEORGIA GENERAL OBLIGATION DEBT SINKING FUND (ISSUED) 8 G "B" STATE OF GEORGIA GENERAL OBLIGATION DEBT SINKING FUND (NEW) 9 H STATE OF GEORGIA GUARANTEED REVENUE DEBT COMMON RESERVE FUND 10 NOTES TO THE FINANCIAL STATEMENTS 11 SUPPLEMENTARY INFORMATION COMBINING AND INDIVIDUAL FUND STATEMENTS BUDGET FUND J COMBINING BALANCE SHEET 32 K COMBINING STATEMENT OF CHANGES IN FUND BALANCES 33 L COMBINING STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES 34 M COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FIDUCIARY FUND TYPE - AGENCY FUNDS 35 OFFICE OF TREASURY AND FISCAL SERVICES -TABLE OF CONTENTS- SECTION I FINANCIAL SUPPLEMENTARY INFORMATION SCHEDULES SCHEDULES OF APPROVED BUDGET BUDGET FUND 1 "A" STATE OF GEORGIA GENERAL OBLIGATION DEBT SINKING FUND (ISSUED) . 38 2 "B" STATE OF GEORGIA GENERAL OBLIGATION DEBT SINKING FUND (NEW) 39 3 CASH AND CASH EQUIVALENTS 40 4 INVESTMENTS 41 5 SCHEDULE OF STATE REVENUE COLLECTIONS BY DEPARTMENTS GENERAL FUND 43 6 ANALYSIS OF APPROPRIATION ALLOTMENTS GENERAL FUND 44 7 RECONCILIATION OF SURPLUS LAPSED GENERAL FUND 49 8 SCHEDULE OF BONDS OUTSTANDING DEBT SERVICE FUND 50 9 SCHEDULE OF PRINCIPAL AND INTEREST EXPENDITURES ON GENERAL OBLIGATION BONDS DEBT SERVICE FUND 61 ANALYSIS OF PAYMENTS TO COUNTIES OF EARNINGS ON FEDERAL LANDS FIDUCIARY FUND TYPE - AGENCY FUNDS 10 PAYMENTS TO STATES IN LIEU OF REAL ESTATE TAXES 62 11 SCHOOLS AND ROADS - GRANTS TO STATES 63 OFFICE OF TREASURY AND FISCAL SERVICES -TABLE OF CONTENTS- SECTION II STATISTICAL SECTION TEN YEAR HISTORICAL SUMMARY OF SELECTED FINANCIAL DATA - GENERAL FUND UNRESERVED SURPLUS BALANCES 1 FUNDS AVAILABLE AND EXPENDITURES 2 REVENUE BY CATEGORY 4 APPROPRIATION ALLOTMENTS 8 SECTION III COMPLIANCE AND INTERNAL CONTROL REPORT REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS SECTION I FINANCIAL DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 RUSSELL W. Hll'OT01' STATE AUDITOR (404) 656-2174 Atlanta, Georgia 30334-8400 September 20, 2002 Honorable Roy E. Barnes, Governor Members of the General Assembly of Georgia Members of the State Depository Board and Honorable W. Daniel Ebersole, Director Office of Treasury and Fiscal Services INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMAnON Ladles and Gentlemen: We have audited the accompanying fmancial statements (Exhibits A through I) of the Office of Treasury and Fiscal Services, an organizational unit of the State of Georgia, as of and for the year ended June 30, 2002. These finanCial statements are the responsibility of the Office's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit m accordance with auditing standards generally accepted in the United States of America and the standards applicable to fmancial audits contained in Government Audltmg Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable asst'Tance about whether the fmancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial 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 I, 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 accountmg principles. In our opinion, the fmancial statements referred to above present fairly, m all material respects. the financial position (statutory basis) of the Office of Treasury and Fiscal Services, an organizational unit of the State of Georgia, as of June 30, 2002. and the results of Its operations (statutory basis) for the year then ended, on the basis of accounting described in Note I. The financial statements referred to above, however, were not intended to nor do they present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the Office of Treasury and Fiscal Services, an organizational unn of the State of Georgia, as of June 30, 2002, and the results of its operations for the year then ended. In accordance with Govemment Auditing Standards, we have also Issued a report dated September 20. 2002, on our consideration of the Office of Treasury and Fiscal ServIces' Internal control over financial reporting and on 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 Govemment Auditmg Standards and should be read In conjunction with this report considering the results of our audit. Our audit was made for the purpose of forming an opinIon on the financial statements taken as a whole. The accompanying supplementary Information (Section I - Exhibits J through M and Schedules 1 through 11 and Section II - Statistical Section) IS presented for purposes of additional analysis and IS not a required part of the financial statements of the Office of Treasury and Fiscal Services, an organizational unrt of the State of Georgia Such Information has been SUbjected to the auditing procedures applied in the audit of the financial statements and. in our opinion, IS fairly presented in all matenal respects in relation to the financial statements taken as a whole Respectfully submitted, ~~--k Russell W. Hinton, CPA, CGFM State Auditor RWH:dp FINANCIAL STATEMENTS - 1- OFFICE OF TREASURY AND FISCAL SERVICES COMBINED BALANCE SHEET (STATUTORY BASIS) ALL FUND TYPES JUNE 30, 2002 Cash and Cash EqUivalents (See Schedule) Investments (See Schedule) Accounts Receivable State Appropnabon Total Assets LIABILITIES AND FUND EaUITY Liabilities Undrawn Appropnatlon Allotments Undistributed Sales Tax Undalmed Bonds and Interest Cash Overdraft Deferred Revenue Funds Held for Others Total Llabilibes Fund EqUity Fund Balances Reserved AppropnabOn to Department of Transportabon Midyear Adjustment Reserve Revenue Shortfall Reserve Dlscrebonary Revenue Shortfall Reserve For Debt Service For Lottery for Education Restneted Unrestneted For Old State Debt For Tobacco Settlement Funds For Guaranteed Revenue Debt Common Reserve Fund Unreserved DeSignated For Homeowner Tax Relief Grants For 2003 Appropnatlons Undeslgnated SurplUS Total Fund Equity Total liabilities and Fund EqUity GOVERNMENTAL FUND TYPES BUDGET GENERAL DEBT SERVICE $ 2.051,362.14910 $ 228.453.74971 2,318,540.752 97 S 228,453.74971 26.98000 $ 228.453.74971 S 4.369.929.88207 S 228,453,74971 $ S 181,278,144 71 2.026.191.53389 58.000.00000 547.65750 6.422.108 74 $ 181 278.144 71 S 2,091.161,30013 1 S 9,946.63543 140,054.79208 420,164.37623 280,109.584 16 $ 228.453.74971 203,171.40249 162,319,87010 26,98000 184,129,53871 $ 47.175,60500 $ 47.175.60500 S 1,399,923.17920 $ 228.453.74971 249,000.000 00 455,654.21400 000 174,191.18874 000 $ 47,175.60500 $ 2.278,768,581 94 S 228.453.74971 $ 228.453.74971 S 4,369.929.88207 S 228.453.74971 Tne notes to the finanCIal statements are an Integral part of thiS statement -2- EXHIBIT "A" FIDUCIARY FUND TYPE AGENCY TOTALS (Memorandum Only) JUNE 30, 2002 JUNE 30. 2001 $ 3,463,532,207 59 $ 4,340,691,886 39 5.743,348.10640 $ 6.659,232,639 36 7,903,165.15575 3,720,697,59224 228,480.729 71 135.280.944 20 $ 7,804,224,09398 S 12.631,061,475 47 $ ====11:;.7=5=9=.1=4.3.,.=:6=92:.=19= $ $ 7,804,224.09398 $ 7,804,224.09398 $ 2,026,191,53389 $ 58,000,00000 547,657.50 181,278,144 71 6,422,10874 7.804,224,09398 10.076,663.53882 $ 2.424,735.50819 61,000.00000 497.65750 117,429,03920 20,945.381 15 6.533,063,364 45 9.157,670.95049 $ 9,946,63543 $ 140,054,79208 420.164,37623 280,109.584 16 228,453,74971 203,171,40249 162,319,87010 26,98000 184,129,53871 47,175.60500 $ 1.675.552.533 91 $ 249,000,000 00 455,654,21400 174,191,18874 $ 2,554.397.93665 $ $ 7,804.224.093.98 S 12.631.061.47547 $ 96,848,73086 146,889,878 03 440.669.634 10 293,779,75606 135,253,964 20 178.467,577 56 144.507,35751 26,98000 165.781,567.87 17.824,92500 1,620,050,371 19 166.000.00000 000 815.422,370 51 2.601,472,74170 11.759.143,69219 - 3- OFFICE OF TREASURY AND FISCAL SERVICES EXHIBIT "B" COMBINED STATEMENT OF CHANGES IN FUND BALANCES (STATUTORY BASIS) GOVERNMENTAL FUND TYPES YEAR ENDED JUNE 30, 2002 BUDGET GENERAL DEBT SERVICE TOTALS (Memorandum Only) YEAR ENDED JUNE 30. 2002 JUNE 30. 2001 FUND BALANCES JULY 1 Reserved Unreserved DeSIgnated Undeslgnated Surplus $ 17.824.92500 $ 1.466.971.481 99 $ 135.253.964 20 $ 1,620.050.371 19 $ 1,436.581.59939 166.000.000 00 166.000.000 00 166.000.000 00 815422.37051 815.422.37051 906,138.21441 $ 17.824,92500 $ 2.448.393.85250 $ 135.253.964 20 $ 2.601.472.741 70 $ 2.508.719.81380 ADDITIONS Excess of Funds Available over ExpendItures ExhiM"C" Excess of Funds AvaIlable and Other FinanCIng Sources over expenditures Exhib~"E Excess of Funds Available ol/er Allotments Exhlblt"D" $ 49.202.65705 $ 49.202.65705 $ 18.368.46312 $ 228.453.74971 228.453.74971 135.253.964 20 _____ $ 1.297.346.21143 1.297.346.21143 1.377.405.75878 $ 49.202.65705 $ 1.297.346.211.43 $ 228.453.74971 $ 1.575.002.61819 $ 1.531.028.18610 DEDUCTIONS Unreserved Fund Balance (Surplus) Returned to Office of Treasury and F,scal SeMces (General Fund) Year Ended June 30. 2001 $ Year Ended June 30. 2002 Adjustment for BraIn and Spinal InJury Trust Fund Reserved Fund Balance earned Over from Pnor Year as Funds Available 000 2.027.05205 $ 000 17.824.92500 1.466.971.48199 $ $ 000$ 2.027.05205 000 135.253.964 20 1.620.050.371 19 543.53812 000 1.150.12069 1.436.581.599.39 $ 19.851.977 05 S 1.466.971.481 99 $ 135.253.964 20 S 1.622.077,42324 $ 1.438.275.258 20 FUND BALANCES JUNE 30 (To Exhlblt"Aj $ 47.175.60500 $ 2.278.768.581 94 $ 228.453.74971 $ 2.554.397.93665 $ 2.601472.74170 The notes to the finanCial statements are an mtegral part of thiS statement -4- OFFICE OF TREASURY AND FISCAL SERVICES STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES BUDGET FUND YEAR ENDED JUNE 30, 2002 EXHIBIT"C" FUNDS AVAILABLE REVENUES STATE APPROPRIATION General Appropnatlon Amended Appropnation Total State Appropnation OTHER REVENUES RETAINED Fiscal Year 2002 Appropnatlon Through Georgia Department of Transportation Interest Earned Total Other Revenues Retained Total Revenues CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance For Guaranteed Revenue Debt Common Reserve Fund Total Funds Available TOTALS YEAR ENDED JUNE 30, 2002 JUNE 30, 2001 $ 575,708,563.00 $ 526,706,72900 164.160,60000 103,163.09000 $ 739,869.16300 $ 629,869.819.00 S 30.632.850 00 $ 744.88205 000 543.53812 $ 31,377.73205 $ _.....;::;54~3::.::,5:;::3::::.8.:.:12:... $ 771,246.89505 S 630,413.35712 17.824,92500 17.824,92500 S 789,071.82005 S 648.238,282.12 EXPENDITURES GENERAL OBLIGATION DEBT SINKING FUND Transfer to Debt Service Fund Excess of Funds Available over Expenditures $ 739,869,16300 $ 629,869.81900 49.202,657 05 18.368.463 12 $ 789.071.82005 $ 648.238.28212 The notes to the financial statements are an Integral part of thiS statement - 5- OFFICE OF TREASURY AND FISCAL SERVICES STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES GENERAL FUND YEAR ENDED JUNE 30, 2002 EXHIBIT"D" FUNDS AVAILABLE REVENUES State Revenue Collecbons - Net (See Schedule) Federal Revenue Energy, U S Department of Federal Energy Regulatory Commission Payments In Llf!u of Taxes Power Sales Treasury, U S Department of Reimbursements for Cash Management Improvement Act Other Revenues Retained Department of Communrty Health Indigent Care Trust Fund Georgia Lottery CorporatJon Lottery Proceeds Interest Earned Tobacco Settlement Funds Settlement ReceIved Interest Earned Vitamin Purchaser Settlement Agreement Total Revenues CARRY-OYER FROM PRIOR YEAR Transfer from Reserved Fund Balances Appropnatlon to Department of Transportation Lottery for EducatIon MIdyear Adjustment Reserve Revenue Shortfall Reserve Discretionary Revenue Shortfall Reserve Old State Debt Tobacco Settlement Funds Total Carry-Over from Pnor Year TOTALS YEAR ENDED JUNE 30, 2002 JUNE 30. 2001 S 14,005.479,20778 S 14,688,987,80325 1,36980 69700 39,69149 1,154 00 199,846,89500 194,209,858 00 726,202,000 00 10,821,69345 691,672,000 00 27,865,57391 178,371,653 21 5,757,88458 000 153,875,11883 11,906,449 17 61,24432 S 15,126.481.40082 $ 15.768.618.892 97 S 96.848.73086 S 85,250,19475 322.974.93507 320.742.32897 146.889.878 03 137.819,37492 440.669,634 10 413,458,124 n 293.n9.756 06 137.819,37492 26,98000 26,98000 165.781.56787 205,626,31087 S 1.466.971.481 99 $ 1.300,742,68920 Total Funds Available S 16.593,452,88281 $ 17,069.361.58217 EXPENDITURES ALLOTMENTS LegIslatIve Appropnatlon to Spending Umts For F,scal Year Ended June 30 Less Current Year Funds Lapsed Net Appropnatlon - FIscal Year Ended June 30 Less Unreserved Fund Balance (SurplUS) Lapsed Net Allotments to Spending UMs Excess of Funds Available over Allotments $ 15.876.328.244 00 S 15,786.480.396 00 5.168.349 14 640.84225 S 15.871,159.894 86 $ 15.785,839,55375 575.053,22348 93.883.730 36 S 15,296,106,67138 $ 15,691.955.823 39 1,297.346.211 43 1.377.405.75878 The notes to the finanCial statements are an Integral part of thIS statement -6- S 16.593452.88281 S 17.069,361.58217 OFFICE OF TREASURY AND FISCAL SERVICES STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES DEBT SERVICE FUND YEAR ENDED JUNE 3D, 2002 EXHIBIT "En FUNDS AVAILABLE REVENUES None Recorder. CARRyOVER FROM PRIOR YEAR Transfer from Reserved Fund Balance For Debt Service Total Funds Available EXPENDITURES pEBT SERVICE PrrnClpal Retired on Bonds Discount on Bonds Retired In Advance of Due Date Interest Cost on Bonds Accrued Interest on Bonds Rellred In Advance of Due Date Total ExpendItures Excess of ExpenditureS over Funds AvaIlable TOTALS YEAR ENDED JUNE 30. 2002 JUNE 30. 2001 $ 0.00 $ 000 135.253.964 20 118.013.98519 $ 135.253.964 20 $ _.....:.1~18::..0::..1:.:=3~.9::::8::.5..:.1.::..9 $ 449.200.00000 S -4.428.96670 317.159.377 49 1.002.341 53 $ 762.932.75232 $ S -627.678.788 12 S 395.515.00000 -14.773.28675 308.729.83999 696.47395 690.168.02719 -572.154.04200 OTHER FINANCING SOURCES Operating Transfers In Budget Fund Georgoa State FInanCIng and Investment CommIssIon T.otal Other FInanCIng Sources $ 739.869.163 00 S 116.263.374 83 629.869.81900 77.538.18720 S 856.132.537 83 $_.....:.7.:::0:..7.:.::4.:::08:::,.;.:::00~6::.;2~0~ Excess of Funds Avaolable and Other FInanCing Sources over ExpendItures $ 228.453.749 71 $=~1;;;;35;;,;.~25~3;,;9;;;:6;;4~2~0 The notes to the financIal statements are an Integral part of thiS statement. -7- OFFICE OF TREASURY AND FISCAL SERVICES EXHIBIT "F" STATEMENT~OF FLlNDS~AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BUDGET FUND "A" STATE OF GEORGIA GENERAL OBLIGATION DEBT SINKING FUND (ISSUED) YEAR ENDED JUNE 3D, 2002 FUNDS AVAILABLE REVENUES State Appropnation BUDGET ACTUAL VARIANCE FAVORABLE (UNFAVORABLE) $ 606.127.26300 $ 606.127,263.00 $ -...;;O...;;O~O EXPENDITURES General Obligation Debt Sinking Fund Excess of Funds Available over ExpendItures $ 606.127.26300 $ 606.127.263 00 $ -...;;O...;;O~O $ o00 $===~O~O~O The notes to the financial statements are an mtegral part of this statement - 8- OFFICE OF TREASURY AND FISCAL SERVICES EXHIBIT "G" STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BUDGET FUND "B" STATE OF GEORGIA GENERAL OBLIGATION DEBT SINKING FUND (NEW) YEAR ENDED JUNE 30, 2002 FUNDS AVAILABLE REVENUES State Appropriation BUDGET ACTUAL VARIANCEFAVORABLE (UNFAVORABLE) $ 133.741.90000 $ 133,741,900 00 $ .--,;;;.O....;.O~O EXPENDITURES General Obligation Debt Sinking Fund $ 133,741,90000 $ 133,741,900 00 $ .--,;;;.O..;;.O~O Excess of Funds Available over Expenditures $ o00 $=======0=,0=0 The notes to the finanCial statements are an Integral part of this statement -9- OFFICE OF TREASURY AND FISCAL SERVICES EXHIBIT "H" STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BUDGET FUND STATE OF GEORGIA GUARANTEED REVENUE DEBT COMMON RESERVE FUND YEAR ENDED JUNE 30, 2002 FUNDS AVAILABLE REVENUES Other Revenues Retained CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance BUDGET ACTUAL VARIANCE FAVORABLE (UNFAVORABLE) $ 000 $ 31,377,732.05 $ 31,377.73205 _ _ _....;O;;..;O;;.;:O~ 17,824.92500 17.824.92500 $==c=-==O:.=OO=$ 49,202.65705 $ 49.202,657 05 EXPENDITURES Guaranteed Revenue Debt Common Reserve Fund s Excess of Funds Available over Expenditures 000 S 000 $- - - - -00-0 $ 49.202.657 05 $ 49.202.657 05 The notes to the financial statements are an Integral part of thiS statement - 10- OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY The Office of Treasury and Fiscal Services, an organizational unit of the State of Georgia, was created pursuant to Chapter 50-SA of the Official Code of Georgia Annotated. The Office of Treasury and Fiscal Services is part of the executive branch of government and is attached to the Department ofAdministrative Services for administrative pwposes only (See Note 5). The Office of Treasury and Fiscal Services is under the control and management ofa Director, who is appointed by the State Depository Board in conformity with statutory provisions. The Office of Treasury and Fiscal Services operates the State Treasury, carries out the general policies of the State Depository Board, oversees the investment of State funds, manages the State's cash reserves, and ensures that debt service payments are made for principal and interest due on the State's general obligation debt. The Office of Treasury and Fiscal Services receives appropriations of State funds for the purpose of debt service but has no authority to determine the amount offunding it ~ill receive from the State of Georgia for any given fiscal year. Such authority is vested in the General Assembly of Georgia. The Office also does not have authority to retain unexpended State appropriations (swplus) for any given fiscal year. Accordingly, the Office of Treasury and Fiscal Services is reported as an organizational unit of the primary government of the State of Georgia for financial reporting pwposes. These reporting entity relationships are defined in Section 2100 ofthe Governmental Accounting Standards Board Codification of Governmental Accounting and Financial Reporting Standards. LEGISLATIVE AUTHORITY In November, 1972, the voters ofthe State of Georgia approved a comprehensive amendment to the ' Constitution of 1945 ("Amendment") which permits the State of Georgia to finance its capital needs through the issuance of general obligation debt. Prior to the adoption ofthe Amendment, the capital outlay needs of the State of Georgia were met through the issuance of bonds by ten (10) separate authorities and secured by lease rental agreements between the authorities and various organizational units ofthe State of Georgia. The provisions ofthe Amendment were implemented in 1973 with the enactment ofthe Georgia State Financing and Investment Commission Act. The constitutionality of the new system of financing was favorably adjudicated by the Supreme Court of Georgia in a decision rendered on July 16, 1974, in Sears vs. State of Georgia. In November, 1982, the voters of the State of Georgia ratified a new State Constitution which became effective July 1, 1983. The Constitution of 1983 continues the Amendment in full force and effect. The State of Georgia Guaranteed Revenue Debt Common Reserve Fund was statutorily established to ensure retirement of principal and pa)'ment of interest expense for Revenue Bonds issued by certain Authorities created by the State of Georgia in the event an individual Authority may experience cash flow problems in any given fiscal year. Appropriations for the State of Georgia Guaranteed Revenue Debt Common Reserve Fund are provided by the Official Code of Georgia Annotated, Title 50, Chapter 17, Section 23, which states in part: "All such appropriations for the benefit ofguaranteed revenue debt shall not lapse for any reason and shall continue in effect until the debt for which the appropriation was authorized shall have been incurred; but the General Assembly - 11 - OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES LEGISLATIVE AUTHORITY may repeal any such appropriation at any time prior to the payment of the same into the common reserve fund". FUND ACCOUNTING The Office of Treasury and Fiscal Services uses funds to report on its financial position and the results of its operations determined in conformity with accounting practices prescribed or permitted by statutes and regulations ofthe State of Georgia. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain government functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. Funds 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 of2001-2002. This presentation differs from generally accepted accounting principles in that such activity should be included in the Debt Service Fund of the governmental organization. GENERAL FUND - The fund used to account for taxes, fees, assessments and other revenues collected under constitutional and statutory authority by various organizational units ofthe State of Georgia and remitted to the Office ofTreasury and Fiscal Services. Additionally, this fund is used to account for the appropriation of funds to organizational units of the State of Georgia. DEBT SERVICE FUND - The fund used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest and related costs for general obligation bonds issued by the State of Georgia. FIDUCIARY FUND TYPE AGENCY FUNDS - The funds used to account for assets held for use by other funds, governments, or individuals. - 12- OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING GOVERNMENTAL FUND TYPES The Office of Treasury and Fiscal Services maintains its Governmental Fund Types on a regulatory basis of accounting (statutory basis), which is substantially on the cash receipts and disbursements basis of accounting, with the exception of the accrual of amounts due to the various State organizations for operational costs of the fiscal year, undistributed sales tax collected on behalf of local governments, and unclaimed bonds and interest. This regulatory basis of accounting is a comprehensive basis of accounting other than generally accepted accounting principles. Operating transfers out are reflected as an expenditure in the Budget Fund (Statutory Basis). This differs from generally accepted accounting principles in that operating transfers out should be recorded as an other financing use. Prior period adjustments and certain other items are reported as additions to and deductions from fund balances ofthe governmental fund types in the accompanying financial statements. This differs from generally accepted accounting principles in that immaterial adjustments should be reported as current period revenues and expenditures. . FIDUCIARY FUND TYPE AGENCY FUNDS Agency Funds are custodial in nature and are used to account for assets that the State holds on behalf of others and for assets that the Office of Treasury and Fiscal Services holds on behalf of other state organizations. Georgia Fund 1 and Georgia Extended Asset Pool are external investment pools. Separate reports for the external investment pools are not issued. The presentation ofthese external investment pools as Agency Funds is not in accordance with generally accepted accounting principles which requires that the external portion of the pools be accounted for as investment trust funds using the economic resources measurement focus and the accrual basis of accounting. In addition, generally accepted accounting principles require the disclosure ofcondensed statements ofnet assets and changes in net assets for the external investment pools. In accordance with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, the Georgia Fund I and Georgia Extended Asset Pool are included in the financial statements as agency funds, and therefore the required disclosures have been omitted. - 13 - OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUDGETS BUDGET FUND Appropriation allotments to the Office of Treasury and Fiscal Services are on the basis of budgets submitted by the Office and approved by the Legislature and the Governor. The budgets are adopted on a basis consistent with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia and are compiled in the same manner as all State departments. Expenditures are classified by budget unit object classes as provided in Act No. 215 of Georgia Laws 2001 (as approved April 26, 2001), and amended by Act No. 393 of Georgia Laws 2002 (as approved February 8, 2002) and by Act No. 411 of Georgia Laws 2002 (as approved March 25, 2002). This budget is considered to be an appropriated budget and is referred to in these notes as the Amended Appropriations Act of2001-2002. Overexpenditure of an object class included in the budget of the Office of Treasury and Fiscal Services would constitute a violation of Section 58 ofthe 2001-2002 Amended Appropriations Act. GENERAL FUND A budget for the financial operations ofthe Office ofTreasury and Fiscal Services' General Fund was not prepared by the Office. (See Note 1 - Fund Accounting, Governmental Fund Types, General Fund) CASH, CASH EQUIVALENTS AND INVESTMENTS The State Depository Board is designated by State law as the oversight Board for the State of Georgia's cash management and investment policies. The Office ofTreasury and Fiscal Services acts as the administrative agent of the State Depository Board. The policy of the State of Georgia is to maximize the protection of State funds on deposit while accruing an advantageous yield on those funds in excess of those required for current operating expenditures (Official Code of Georgia Annotated [O.e.G.A.] Section 50-17-51). The State Depository Board may permit any department, board, bureau or other agency to invest funds collected directly by such organization in short-term time deposit agreements, provided that the interest income ofthose funds is remitted to the Director of the Office of Treasury and Fiscal Services as revenues of the State of Georgia. As a matter of general practice, however, State funds of any department, board, bureau or other agency in excess of current operating needs are required to be deposited with the Director of the Office of Treasury and Fiscal Services for the purposes of pooled investment. Such cash is managed in pooled investment funds to maximize interest earnings. In addition, State law applicable to local governments provides for a State administered pool for the investment of local government funds with the State Depository Board and authorizes the State Depository Board to establish and maintain a continuing state-wide policy for the deposit and investment of public funds under its control (O.C.G.A. Section 36-83-2). Pooled assets and other deposits ofthe Office of Treasury and Fiscal Services are categorized on the Combined Balance Sheet (Statutory Basis) as follows: - 14- ~. .. . , ......:. ". -.:.:: -.~ OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30. -:2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH, CASH EQUIVALENTS AND INVESTMENTS 1) Cash and Cash Equivalents include currency on hand, demand deposits with banks and other fmancial institutions, and funds in transit from other spending units. Cash and Cash Equivalents also include short-term, highly liquid investments with maturities ofthree months or less from the date of acquisition. 2) 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. In accordance with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, pooled cash and cash equivalents and investments are reported at cost with the exception of cash and cash equivalents and investments of the Georgia Extended Asset Pool which are recorded at fair value. The presentation of certain cash and cash equivalents and investments at cost differs from generally accepted accounting principles in that certain pooled cash and cash equivalents and investments should be carried at either fair value or amortized cost depending on the type of investment. Authorized pool investments are limited to the following in accordance with State statutes and policies of the State Depository Board: 1) Obligations issued by the State of Georgia or its agencies or other political subdivisions of the State. 2) Obligations issued or guaranteed by the United States government and its subsidiary corporations and instrumentalities or entities sanctioned or authorized by the United States government. 3) Prime bankers' acceptances. 4) Repurchase Agreements. 5) Obligations and commercial paper issued by domestic corporations. 6) Obligations of industrialized foreign governments. 7) Obligations issued, assumed or guaranteed by the International Bank for Reconstruction and Development or the International Financial Corporation. - 15 - OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH, CASH EQUIVALENTS AND INVESTMENTS 8) Certificates of Deposit. Authorized investments are subject to certain restrictions. Pooled cash and cash equivalents and investments ofthe Office ofTreasury and Fiscal Services are grouped into portfolios for investment purposes according to the operating needs of the State of Georgia and other pool contributors. In accordance ".,rith State statutes and investment policy and guidelines adopted for the Office ofTreasury and Fiscal Services by the State Depository Board, the Office invests a portion ofthe assets ofthe extended term portfolios (described below) in mortgagebacked securities. A briefdescription ofeach portfolio and disclosures relative to investments in the mortgage-backed securities follows. PRIMARY LIQUIDITY PORTFOLIO 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 \\'ith the Securities and Exchange Commission (SEC) as an investment company but does operate in a manner consistent with the SEC's Rule 2a7 ofthe Investment Company Act of 1940. The pool's primary objectives are safety ofcapital, investment income, liquidity and diversification while maintaining principal. Net asset value is calculated daily and reported to the rating agency weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and values participants' 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 State agencies, colleges and universities; and current operating funds of the State's General Fund. 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, bankers' 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, 2002 was 0.12 years. The average investment duration for Fund 6 on June 30, 2002 was 0.75 years. The following is a summary ofpooled cash and cash equivalents and investments for Georgia Fund 1 as of June 30, 2002: - 16 - OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH, CASH EQUIVALENTS AND INVESTMENTS PRIMARY LIQUIDITY PORTFOLIO Securitv Type Fair Value U. S Government Securities Bankers' Acceptances Repurchase Agreements $5,014,907,612.17 166,714,418.96 3.014.571.273.20 $8 196 19330433 CarrYing Amount $5,014,907,612.37 166,714,41919 3,014.571.273.20 $8 196 19330476 Interest'Yield Rate Ranges Maturity Date Ranges 1.73%- 1.95% 1.76%- I 92% 1.75% - 1.99% 3 - 89 Days 2 - 103 Days I - 102 Days Weighted Average Maturitv 55 Days 42 Days 22 Days SECONDARY LIQUIDITY PORTFOLIO The Secondary Liquidity Portfolio consist of Fund 11, which is comprised of certificates of deposit with an average investment duration of .17 years. State funds which are not necessary for current . operating needs can be invested in Fund 11. EXTENDED TERM PORTFOLIOS The Extended Term Portfolios consist ofFund 3 "Georgia Extended Asset Pool", Fund 7, Fund 8 and Fund 9. The Georgia Extended Asset Pool is a variable net asset value investment pool which follows Standard and Poor's criteria for AAAf rated funds. The pool is not registered with the SEC as an investment company. The pool's primary objective is the prudent management of public funds on behalf of the State of Georgia and local governments seeking income higher than money market rates. Net Asset Value (NAV) is calculated daily to determine current share price. NAV is calculated by taking the closing fair value of securities owned plus other assets and subtracting liabilities. The remainder is then divided by the total number ofshares outstanding to compute NAV per share (current share price). The pool distributes earnings (net ofmanagement fees) on a monthly basis and determines participant's shares sold and redeemed based on the current share price, which at June 30, 2002, was at $2.02 per share. The Office of Treasury and Fiscal Services has hired a third party bank, Investors Bank and Trust, to perform custody and valuation services to include calculation ofthe NAV. Pooled cash and cash equivalents and investments are reported at fair value. 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 offunds from local governments, operating and tru,st funds of State agencies, and current operating funds of the State's General Fund. Investments in the Georgia Extended Asset Pool consist generally ofsecurities issued or guaranteed as to principal and interest by the U. S. Government or any of its agencies or instrumentalities, bankers' acceptances and repurchase agreements. The weighted average maturity at June 30, 2002 was 1.31 years. - 17 - OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS .JlThTE 30, 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH, CASH EQUIVALENTS AND INVESTMENTS EXTENDED TERM PORTFOLIOS The following is a summary of pooled cash and cash equivalents and investments for the Georgia Extended Asset Pool as of June 30, 2002: Security Type Fair Value InterestIYJeld Carrymg Amount Rate Ranges Maturity Date Ranges Weighted Average Maturitv U. S. Government Secunties $ 1,021,004,704.11 $ 1,021.004,704.11 Bankers' Acceptances 26.285,977. 78 26.285,977. 78 Repurchase Agreements 146.709.84777 146,709.84777 1.95% 6.84% 107 Days 4.13 years 1.95% 1.97% 175 Days - 181 Days 1.99% 3 Days 1.77 years 178 Days 3 Days $1 19400052966 $1 19400052966 Investments in FUnd 7 consist generally of repurchase agreements and certain U. S. Government Securities. The average investment duration for Fund 7 on June 30, 2002 was 1.39 years. \ Investments in Fund 8 consist generally of repurchase agreements and certain U. S. Government Securities, which include mortgage-backed securities such as collateralized mortgage obligations and adjustable rate mortgages. These mortgage-backed securities are reported as U. S. Government Securities in the disclosure of custodial risk. (See Note 2 on Categorization of Investments) Investments in Fund 8 are transacted by an external investment management firm under direction of investment advisory agreements executed between the Office and the investment management firm. The agreement directs the investment firm to utilize the Merrill Lynch 1-3 year Treasury Index in managing the average duration of the overall portfolio, excluding cash, to within plus or minus 6 months ofthe duration of the Index. The average investment duration for Fund 8 on June 30, 2002 was 1.59 years. In addition, the investment advisory agreements place limitations on individual security purchases and holdings as follows: 1) Limits the duration ofany security at the time ofpurchase to a maximum offive (5) years. 2) Requires any mortgage-backed security, at the time of purchase and periodically, thereafter, to pass a "stress test" which provides for a duration profile not to exceed 7 years given an instantaneous and permanent interest yield increase of 300 basis points. 3) With the exception ofU. S. Treasury securities, limits individual security investments to no more than the greater of$5 million or 10% ofthe separate portfolio's total investments. 4) Prohibits investments in interest only strips, principal only strips, inverse floaters, and Z tranche securities. - 18 - OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH, CASH EQUIVALENTS AND INVESTMENTS EXTENDED TERM PORTFOLIOS As ofJune 30, 2002, the Office had $70,273,395.46 of State funds in Fund 8 ofthe Extended Term Portfolios invested in U. S. Agency mortgage-backed securities. Investments in Fund 9 consist of repurchase agreements and certain U. S. Government securities with an average investment duration of 1.69 years at June 30, 2002. HEALTH INSURANCE FUND PORTFOLIO The Health Insurance Fund Portfolio investments consist of shares of Georgia Fund 1. RISK MANAGEMENT FUND PORTFOLIO The Risk Management Fund Portfolio (Fund 4) investments consist of shares of Georgia Fund 1 and shares of the Georgia Extended Asset Pool, certain U. S. Government Securities and corporate obligations. Investments in Fund 4 (other than Georgia Fund 1 and Georgia Extended Asset Pool) are transacted by external investment management firms under direction of investment advisory agreements executed between the Office of Treasury and Fiscal Services and the investment management firms. This portfolio had an average investment duration of 1.97 years at June 30, 2002. GEORGIA STATE FINANCING AND INVESTMENT COMMISSION PORTFOLIO As specified in Title 50 ofthe Official Code ofGeorgia Annotated, the Georgia State Financing and Investment Commission Portfolio investments generally consist of certain U. S. Government Securities, and repurchase agreements. This portfolio had an average investment duration of 1.66 years at June 30, 2002. STATE OWNED STOCK Dating from the mid nineteenth century, the State ofGeorgia has owned stock in a private company (Official Code of Georgia Annotated Section 50-16-2). Ownership of the company has changed numerous times as well as the number of shares held by the State. At June 30, 2002, 16,112 shares of common stock of the Wachovia Corporation with a fair value of$617,089.60 was owned by the State ofGeorgia. The Office ofTreasury and Fiscal Services, acting as the State Treasury, holds the stock for the State ofGeorgia. This stock is not recorded in the financial statements ofthe Office of Treasury and Fiscal Services. INVENTORIES No inventories of supplies are reported in these financial statements. - 19- - - - - - - - - - - - - - - - - - - - ----- ----- -- -- -- OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES UNDISTRIBUTED SALES TAXES The liability for undistributed sales tax represents sales tax collected on behalfof local governments on deposit at the Office of Treasury and Fiscal Services at June 30, 2002, which have not been processed by the sales tax distribution system at the Department of Revenue. DEFERRED REVENUE Deferred revenue represents unrealized gains on investments in the Georgia Extended Asset Pool at June 30, 2002, due to the valuation ofthese investments at fair value. These unrealized gains are not available for appropriation at June 30, 2002. FUND EQUITY 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 brief description of the reserves reflected in the accompanying financial statements: BUDGET FUND GUARANTEED REVENUE DEBT COMMON RESERVE FUND The amount of this reserve must be at all times at least equal to the aggregate highest annual debt service requirements on all outstanding guaranteed revenue bond obligations entitled to the benefit of this fund. The following is an analysis of the calculations for this reserve at June 30, 2002: BO"-"O ISSUE Stale Tollway Authomy Sones 1998 Senes 2001 GeorgIA EnVITOnmenlal FacIlJlte5 Authomy Sones 1997 RESERVE BALAKCE Jl,"LY I. 2001 APPROPRlATED FOR NEW BOl'o"O ISSL'E NTEREST EAAA"EIl BALAKCE AVAILABLE TO SER\lCE DEBT nJ~"E30 2002 HIGHEST A'-N\! -.L DEBT SERlrlCE REQIJ1REME'Io'TS Il.''''E 30 2002 EXCESS B-.LA-'1CE n."'"E 30. 2002 9.078.32500 000 S 30.632.85000 259,4039S S 235.55285 9,33772895 S 30868.40285 907832500 S 29,35068000 259403 Q5 J 51'.72285 8.746.600 00 17.824 925 00 S 3063285000 S 249.9252S 74-188205 S 899652525 49202.65 7 05 S 8746600 00 47.175.60500 S 249.92525 2027.05205 Pursuant to the provisions of the Official Code of Georgia Annotated 50-17-23(b)(3), amounts in excess of the aggregate highest annual debt service requirements on all outstanding guaranteed revenue debt obligations are transferred to the general funds of the State of Georgia. Exhibit "B" of this report reflects the lapsing of the excess balance in the amount of $2,027,052.05 to the General Fund. The total reserved fund balance of the Guaranteed Revenue Debt Common Reserve Fund at June 30, 2002, was $47,175,605.00. - 20- OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FUND EQUITY RESERVED FUND BALANCE GENERAL FUND APPROPRIATION TO DEPARTMENT OF TRANSPORTATION The reserved fund balance of $9,946,635.43 for appropriation to the Department of Transportation in fiscal year 2002 is comprised of the following components: (1) A reserved fund balance of $8,169,508.63 was determined by comparing the net Motor Fuel Tax collections of $698,169,508.63 for the year ended June 30, 2002, to the estimated Motor Fuel Tax collections budgeted of$690,000,000.00 for the fiscal year ending June 30, 2003. This reserved fund balance is mandated by Article III, Section IX, Paragraph VI of the Constitution of the State of Georgia. (2) A reserved fund balance in the amount of $1,777,126.80 for funds derived from Motor Fuel Tax collections deposited in the State of Georgia Guaranteed Revenue Debt Common Reserve Fund in excess of the amount required and subsequently lapsed to the General Fund of the State of Georgia. MIDYEAR ADJUSTMENT RESERVE The Official Code of Georgia Annotated Section 45-12-93(b) provides, in part, that "As of June 30 of each fiscal year, the state auditor shall reserve from the state surplus an amount equal to 1 percent of the net revenue collections of such fiscal year, to the extent that such surplus is available therefor. This amount shall be reserved before the amount shall be reserved for the revenue shortfall reserve ...". The reserved fund balatll:e for Midyear Adjustment Reserve was $140,054,792.08 as of June 30, 2002. REVENUE SHORTFALL RESERVE The Official Code of Georgia Annotated Section 45-12-93(a) provides, in part, that "As of June 30 of each fiscal year, the state auditor shall reserve from the state surplus an amount equal to not less than 3 nor more than 5 percent, as directed by the director of the budget, of the net revenue collections of such fiscal year, to the extent that such surplus is available therefor ... ". The reserved fund balance for Revenue Shortfall Reserve (3%) was $420,164,376.23 as of June 30, 2002. DISCRETIONARY REVENUE SHORTFALL RESERVE As provided for in Code Section 45-12-93(a) above, as of June 30, 2002, a Discretionary Revenue Shortfall Reserve (2%) in the amount of$280,109,584.16 has also been established and reserved. - 21 - OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FUND EQUITY RESERVED FUND BALANCE GENERAL FUND LOTTERY FOR EDUCATION The reserved fund balance of $365,491,272.59 for Lottery for Education mandated by the Official Code of Georgia Annotated Section 50-27-13 was determined in the following manner: Reserved Fund Balance July 1,2001 $ 322,974,935.07 Additions: Lottery Proceeds Interest Earned Prior Year Surplus Lapsed 726,202,000.00 10,821,693.45 8.573,075.07 Deductions: Appropriations - Fiscal Year 2002 $1,068,571,703.59 703,080.431.00 Reserved Fund Balance June 30, 2002 $ 365.491.272.59 The Official Code of Georgia Annotated Section 50-27-13 (b) (3) requires that within the funds transferred to the general fund ofthe state treasury and held for credit to the Lottery for Education Account, a Scholarship Shortfall Reserve subaccount shall be established and calculated as follows: "...An amount equal to 10 percent ofthe total amount oflottery proceeds disbursed during the preceding fiscal year in the form of scholarships and grants for higher education shall be deposited from lottery proceeds each year until such amount equals 50 percent of such sum. Thereafter, only an amount necessary to maintain the scholarship shortfall reserve subaccount in an amount equal to 50 percent of the amount oflottery proceeds disbursed during the preceding fiscal year shall be deposited into the subaccount..." In addition to the Scholarship Shortfall Reserve subaccount, the Official Code of Georgia Annotated Section 50-27-13 (b) (4) requires that within the funds transferred to the general fund ofthe state treasury and held for credit to the Lottery for Education Account, a Shortfall Reserve subaccount shall be maintained and calculated as follows: "...The amount ofthe shortfall reserve subaccount shall be equal to 10 percent of the total amount of lottery proceeds deposited into the Lottery for Education Account for the preceding fiscal year..." - 22- OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FUND EQUITY RESERVED FUND BALANCE GENERAL FUND LOTTERY FOR EDUCATION At June 30, 2002, the Lottery for Education reserved fund balance is summarized as follows: Restricted Reserves Scholarship Shortfall Reserve Subaccount Shortfall Reserve Subaccount Unrestricted Reserves $134,004,202.49 69,167,200.00 $203,171,402.49 162.319.870.10 $365.491.272.59 OLD STATE DEBT All "General State Bonds" of the State of Georgia are past due, but have not been presented for redemption. This obligation includes both principal and interest and will be liquidated if and when the past due outstanding bonds and coupons are presented. TOBACCO SETTLEMENT FUNDS The reserved fund balance of$184,129,538.71 represents the amount received plus interest earned as the State of Georgia's share of the National Association of Attorneys General's Master Tobacco Settlement Agreement. This amount is reserved for appropriation in future years and is summarized below: Reserved Fund Balance July 1,2001 Additions: Tobacco Settlement Funds Received Interest Earned Prior Year Surplus Lapsed Deductions: Appropriations - Fiscal Year 2002 Reserved Fund Balance June 30, 2002 $165,781,567.87 178,371,653.21 5,757,884.58 6,863.494.05 $356,774,599.71 172,645,061.00 $184,129,538.71 DEBT SERVICE FUND DEBT SERVICE The reserve for Debt Service represents the amount available in the Debt Service Fund to provide debt service for the General Long-Term Debt. - 23- OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FUND EQUITY DESIGNATION The designated fund balance represents State funds in the amount of $249,000,000.00 for future property tax relief and $455,654,214.00 for 2003 Appropriations. SURPLUS Surplus as reflected in this report does not include State funds which will be lapsed based on work performed by the State Auditor and other auditors at other organizational units of the State of Georgia for the year ended June 30, 2002. Final surplus and reserve balances for all appropriated funds will be disclosed in the subsequently issued State of Georgia Report of the State Auditor. 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 of operations 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 of this 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 of the changes in the Office's financial position and operations. Comparative totals have not been included on statements where their inclusion would not provide enhanced understanding of the Office's financial position and operations or would cause the statements to be unduly complex and difficult to understand. Certain amounts in the prior period financial statements have been adjusted due to the deletion ofthe General Long-Term Debt Account Group from these financial statements. NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds of the State of Georgia 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 of the 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. (2) Bonds, bills, certificates of indebtedness, notes, or other obligations of the counties or municipalities of the State of Georgia. - 24- OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES (3) 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. (4) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia. (5) Bonds, bills, certificates of indebtedness, 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 or securities guaranteed by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Corporation, or the Federal National Mortgage Association. (6) Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation. As authorized in the Official Code of Georgia Annotated Section 50-17-53, the State Depository Board has adopted policies which allow agencies of the State of Georgia the option of exempting 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 inte.est bearing accounts. The bank balances as ofJune 30, 2002, 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 Office or by its agent in the Office's name. Category 2 - Amounts collateralized with securities (at market value) held by the pledging financial institution's trust department or agent in the Office'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 Office's name, and amounts uncollateralized. Cash Deposits Carrymg Amount Bank Balances Risk Categones 2 3 $24392962426 $24471203569 $192 676 921 65 $'====:l!Q~O~O $ 52 03511404 - 25 - , OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS CATEGORIZATION OF DEPOSITS Governmental Accounting Standards Board Statement No. 31 requires a separate risk categorization ofbank balances of an external investment pool when a separate report is not issued for the external investment pool. Because OTFS does not maintain separate bank accounts for the cash portion of the external and internal portions of Georgia Fund 1 and Georgia Extended Asset Pool, "mixed" external investment pools, a separate risk categorization for these external pools cannot be presented. The carrying amount for these external pools as ofJune 30, 2002 was $44,563,660.86. This amount is included in the categorization of bank balances above. CATEGORIZATION OF INVESTMENTS For purposes of analysis of custodial credit risk, investments consist of U. S. Government securities, bankers' acceptances, corporate obligations and repurchase agreements. 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 Office or its agent in the Office's name. Category 2 - Uninsured and unregistered, with securities held by the counterparty's trust department or agent in the Office's name. Category 3 - Uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent but not in the Office's name. The carrying amounts of investment balances as of June 30, 2002, are categorized below. Type of Investment RIsk Cale!!!JrleS 2 3 CarJ')1ng Amount Fair Value U. S Government Securities $ 7,798.973,13861 $ Bankers' Acceptances $196,917,23690 Corporate Obligations 106,578,16608 Repurchase Agreements 3648147,848 II 000 $ 7.798,973.13861 $ 7,807,406,19798 196,917.23690 196,917.23667 106.578.16605 108,321.77192 3648.147,848 II 3.64814784810 Total $11 447 120986 72 $30349540298 $==:df,00!Q10 $11 7506 J6 389 67 $11 760 793 0~4 67 Governmental Accounting Standards Board Statement No. 31 requires a separate risk categorization of investments of an external investment pool when a separate report is not issued for the external investment pool. The following is a separate risk categorization of only the pooled investments of Georgia Fund 1 and the Georgia Extended Asset Pool, "mixed" external investment pools, as ofJune 30, 2002. These amounts are included in the categorization of investments above, - 26- .,' ~ , ': OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 2002 EXHIBIT "I" NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS CATEGORIZATION OF INVESTMENTS GEORGIA FUND 1 Type ofInvestment Risk Categones 2 3 CaJT}ing Amount Fair Value U S Government Securities $ 5,014.907,61237 $ Bankers' Acceptances $166,714,41919 Repurchase Agreements 3014.57127320 000 S 5.014.907.61237 S 5.014.907,61217 166,714,419.19 166,714.41896 3.014.57127320 3.01457127320 Total $ 8 029478 88~ 9 $16671441919 S==~OO~O S 819619330476 S 819619330433 GEORGIA EXTENDED ASSET POOL TWe of Investment RIsk Categones 2 3 CaJT}lOg Amount Fair Value U S Government Secunlles Bankers' Acceptances Repurchase Agreements $ 1,021,004,704 11 146.709.84777 S $26,285,977 78 000 $ 1.021.004.704 11 $ 1.021,004.704 11 26285.977 78 26.285.977 78 146.709.84777 146.709.84777 Total S I 167 714 ~51 88 $26285 977 78 $==~oO~O $ 1 194 000 ~29 66 $ I 194 000 529 66 NOTE 3: STATE REVENUE COLLECTIONS For the purposes of this report, State revenue collections listed on Schedule "5" of this report are defined as the net transfers of cash items received by the Office of Treasury and Fiscal Services identified as State revenue collections by the various units of State government during the fiscal year ended June 30, 2002. NOTE 4: GENERAL LONG-TERM DEBT The amount of $5,829,841,250.29 needed for the retirement of general long-term debt will be derived from future appropriations in accordance with Anicle VII, Section IV, Paragraph III of the Constitution of the State of Georgia. - 27- OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 4: GENERAL LONG-TERM DEBT CHANGES IN GENERAL LONG-TERM DEBT During the year ended June 30, 2002, the following changes occurred in the General Long-Tenn Debt: Balance July 1, 2001 Add: Bonds Issued Less: Bonds Redeemed $5,311,335,000.00 1,196,160,000.00 449,200.000.00 Balance June 30, 2002 $6.058.295.000.00 General obligation bonds currently outstanding and not considered defeased are as follows: Purpose Interest Rates Amount General Government General Government - Refunding 1.25% - 7.70% 4.25% - 6.30% $5,582,665,000.00 475.630.000.00 $6.058.295.000.00 Annual debt service requirements to maturity for general obligation bonds are as follows: Fiscal Year Ending June 30 2003 2004 2005 2006 2007 Thereafter Principal Interest Total $ 396,820,000.00 433,815,000.00 448,325,000.00 467,680,000.00 468,035,000.00 3.843,620.000.00 $ 334,982,463.75 312,053,355.00 286,729,431.25 260,365,680.00 233,657,603.13 1,135,377.907.50 $ 731,802,463.75 745,868,355.00 735,054,431.25 728,045,680.00 701,692,603.13 4,978.997.907.50 $6.058.295.000.00 $2.563.166.440.63 $8.621.461.440.63 The total general long-tenn debt outstanding at June 30, 2002, excluding interest, was $6,058,295,000.00 and a schedule of this obligation by fiscal year is reflected on Schedule "8" of this report. - 28- OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 4: GENERAL LONG-TERM DEBT BONDS RETIRED IN ADVANCE OF DUE DATE In the year under review, the Georgia State Financing and Investment Commission redeemed $119,690,000.00 principal amount of bonds in advance ofthe dates due. This financial activity has been reflected on Exhibit "E" ofthis report. A list ofthe bonds redeemed in advance ofthe dates due by the Georgia State Financing and Investment Commission is as follows: Bond Series 1991D 1992D 1993C 1993D 1994D 1994 1996C 1999B tOOOC 2000D 2001B 2001D $ 11,000,000.00 1,800,000.00 45,000.00 1,000,000.00 1,600,000.00 5,000,000.00 25,000.00 90,000.00 10,000,000.00 40,000.00 43,800,000.00 45.290.000.00 $ 119,690.000.00 NOTE 5: OTHERINFORMATION The Office of Treasury and Fiscal Services is administratively attached to the Department of Administrative Services as noted in Note 1 - Reporting Entity. As a result of this organizational relationship, all administrative and operating expenditures, which includes the pa)'Toll costs for employees of the Office of Treasury and Fiscal Services, are budgeted within and reported on the financial statements of the Department of Administrative Services. NOTE 6: RISK MANAGEMENT Public Entity Risk Pool The Department of Community Health administers for the State of Georgia a program of health benefits for the employees of units of government of the State of Georgia, units of county government and local education agencies located within the State ofGeorgia. This plan is funded by participants covered in the plan, by employers' contributions paid by the various units ofgovernment participating in the plan, and appropriations made by the General Assembly ofGeorgia. (See Note 5) The Department of Community Health 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 Department. - 29- OFFICE OF TREASURY AND FISCAL SERVICES NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 EXHIBIT "I" NOTE 6: RISK MANAGEMENT Other Risk Management The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia ofmaking and carrying out decisions that will minimize the adverse effects ofaccidental losses that involve State government assets. The State believe~ it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS services 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 Office of Treasury and Fiscal Services 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. (See Note 5) NOTE?: SUBSEOUENTEVENT Subsequent to June 30, 2002 and through the date of this report, the State of Georgia had issued general obligation bonds in the amount of $295,955,000.00, dated August 1, 2002. The proceeds from these bonds will be used to fund the capital outlay needs, in part, of the State of Georgia. NOTE 8: CONTINGENCIES Litigation, claims and assessments filed against the Office ofTreasury and Fiscal Services, ifany, are generally considered to be actions against the State ofGeorgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2002. - 30- SUPPLEMENTARY INFORMATION - 31 - OFFICE OF TREASURY AND FISCAL SERVICES COMBINING BALANCE SHEET BUDGET FUND JUNE 30, 2002 EXHIBIT "J" "A" STATE OF GEORGIA GENERAL OBLIGATION DEBT SINKING FUND (ISSUED) "B" STATE OF GEORGIA GENERAL OBLIGATION DEBT SINKING FUND (NEW) STATE OF GEORGIA GUARANTEED REVENUE DEBT COMMON RESERVE FUND TOTAL Cash and Cash EquIValents Accounts ReceIVable State AppropriatIon $ _ _--=2:::2:::;8.:;;:;45:::3~.7~4:.::9..:.7.:..$1 $ ....::.o.::oo~ 47.175.60500 $ 47.175.60500 228.453,74971 Total Assets $==~22;;;8;;,.4~5~3.;;,,74;;9;,,;7=1 $=====,,;0;,;00;;;,$ 47.175.60500 $ 275.629,354 71 LIABILITIES AND FUNp EQUITY L.abilJlles Cash Overdraft Fund Equity Fund Balances Reserved For Guaranteed Revenue Debt Common Reserve Fund Unreserved Undesignated Surplus Total Fund Equrty $ _ _--=2=2.:;.;8..:.45:::3~.7;.;4:.::9..:.7.:..1 $ $ ......::0:.,:00:::.$ $ ......::0:.,:0:::.0 $ ....::.0.::00:;. $ 228.453.74971 $ ...:0:.,:0:::.0 ...:0:.,:00:::.$ 47,175,60500$ 47.175.60500 ....::.0.::00~ 000 47.175.60500 $ 47.175.60500 Total Ll8bllrtles and Fund Equity $==....:;2;;,28;0,;.;,;;45;;;;3=.7,;;4,;;,9,;,,7,;,1 $....==-_-===0,;00;;,$ 47.175.60500 $ 275.629.354 71 See notes to the financial statements - 32- OFFICE OF TREASURY AND FISCAL SERVICES EXHIBIT uK " COMBINING STATEMENT OF CHANGES IN FUND BALANCES BUDGET FUND YEAR ENDED JUNE 30, 2002 See notes to the financial statements - 33- OFFICE OF TREASURY AND FISCAL SERVICES EXHIBIT "L" COMBINING STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES BUDGET FUND YEAR ENDED JUNE 3D, 2002 "A" STATE OF GEORGIA GENERAL OBLIGATION DEBT SINKING FUND (ISSUED) "B" STATE OF GEORGIA GENERAL OBLIGATION DEBT SINKING FUND (NEW) STATE OF GEORGIA GUARANTEED REVENUE DEBT COMMON RESERVE FUND TOTAL FUNDS AVAILABLE REVENUES STATE APPROPRIATION General Appropnabon Amended Appropnabon $ 575.708.56300 30.418.70000 $ 133.741.90000 $ 575,708,56300 164.160.600.00 Total State AppropnalJon $ 606.127.26300 $ 133.741,90000 $ 739.869.163 00 OTHER REVENUES RETAINED Fiscal Year 2002 AppropnalJon Through Georgia Department of TransportatIon Interest Earned $ 30,632.850 00 $ 30.632.850 00 744.88205 744.88205 Total Other Revenues Retained $ 31,377,73205 $ 31.377.73205 Total Revenues $ CARRYOVER FROM PRIOR YEAR Transfer from Reserved Fund Balance For Guaranteed Revenue Debt Common Reserve Fund 606.127.26300 $ 133,741.90000 $ $ 31.377,73205 $ 771.246.89505 17.824,92500 $ 17.824.92500 Total Funds AvaIlable $ 606.127.263 00 $ 133,741.90000 $ 49.202,657 05 S 789.071,820 05 EXPENDITURES GENERAL OBLIGATION pEBT SINKING FUND Transfer to Debt Service Fund $ Excess of Funds Available over ExpendItures 606.127.263 00 $ 133.741.90000 000 _ _ _ _ _ _=.o=.oo=-$ $=====6=06=',;;12=7=.2=6=3=0.0. $=====1=33=.=74=1,;;.9=0=0=0.0. $ $ 739.869.163 00 ...;.49~..:;,20=.:2:.:..6=.:5;.;7_'0"'"5 49.202.657 05 49.202.657 05 $ 789.071,820 05 See notes to the financial statements ~ 34- OFFICE OF TREASURY AND FISCAL SERVICES EXHIBIT "M" COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FIDUCIARY FUND TYPE - AGENCY FUNDS YEAR ENDED JUNE 3D, 2002 EJ.lliQ ASSETSI LIABILITIES JULY 1, 2001 ADDITIONS DELETIONS ASSETSI LIABILITIES JUNE 30. 2002 GEORGIA FUND 1 AcIministratMl ServICes, Department of Regular Surplus Property Fund $ RISk ManagemenVSelflnsurance Funds Agncuftural Commodity CommisSion for CDlIon Agncuftural Commodity CommISSion for Eggs Agncuftural Commodity CommISSion for Peaches Boll Weevil Eradication Foundation of Georgl8. Incorporated Community Affairs, Department of Community Health. Department of Indigent Care Trust Fund Stale Employees' Health Insurance Fund Corrections. Depanment of Education, Department of Fl1anClng and Investment CommiSSIOn. Georgia State Georgia EducatIOn Authority Revolving Fund Georgia Educallon Authordy (SCtJools) Georgia EducatIOn Authority (UnIVersity) Georgia Aviation Hall of Farne Georgl8 Building Authonty Georgia CorrectlOnallndustnes Administration Georgl8 Development Authonty Georgl8 Environmental FaClldles AuttJorlty Georgl8 Golf Hall of Farne Georgl8 Higher EducatIOn ASSistance Corporation Georgia HOUSing and FlIlance Authority Georgl8 LDlIery Corporation Georgl8 Music Hall of Fame Authonty Georgia Ports Authority Georgl8 Rail Passenger Authority Georgl8 Regional Hosprtal at Savannah Georgia Regional Transortation Authority Georgia 5ee