BATH COUNTY SCHOOL DISTRICT

BATH COUNTY SCHOOL DISTRICT

FINANCIAL STATEMENTS

AND REPORT OF AUDIT

Year Ended June 30, 2004


TABLE OF CONTENTS


Independent Auditor’s Report ...........................................................................

Management’s Discussion and Analysis ...........................................................

Basic Financial Statements:

Government-wide Financial Statements

Statement of Net Assets .......................................................................

Statement of Activities ..........................................................................

Fund Financial Statements

Balance Sheet – Governmental Funds .................................................

Reconciliation of the Balance Sheet – Governmental

Funds to the Statement of Net Assets .................................................

Statement of Revenues, Expenditures and

Changes in Fund Balances - Governmental Funds .............................

Reconciliation of the Statement of Revenues,

Expenditures and Changes in Fund Balances of

Governmental Funds to the Statement of Activities ............................


Changes in Fund Balance – Budget and

Actual – General Fund ......................................................................


Changes in Fund Balance – Budget and

Actual – Special Revenue Fund ..................................................

Statement of Net Assets – Proprietary Funds .......................................

Statement of Revenues, Expenses and

Changes in Net Assets – Proprietary Funds .......................................

Statement of Cash Flows – Proprietary Funds ......................................

Statement of Fiduciary Net Assets – Activity Funds ..............................

Pages

1 – 2

3 - 7

8

9 - 10

11

12

13

14

15

16

17

18

19

20


TABLE OF CONTENTS


Pages

Notes to the Basic Financial Statements .......................................................... 21 - 39

Supplementary Information:

Combining Statements – Nonmajor Funds:

Combining Balance Sheet – Nonmajor

Governmental Funds .......................................................................... 40

Combining Statement of Revenues,

Expenditures and Changes in Fund Balances –

Nonmajor Governmental Funds ........................................................


Changes in Fund Balance – Bath County High

41

School Activity Fund ...............................................................................

Combining Statement of Revenues, Expenditures and

Changes in Fund Balance – Middle and Elementary

42

School Activity Funds ............................................................................. 43

Schedule of Individual Debt Service Requirements .................................... 44 - 47

Schedule of Expenditures of Federal Awards ................................................... 48 - 49

Report on Internal Control Over Financial Reporting and

on Compliance and Other Matters Based on an Audit

of Financial Statements Performed in Accordance

with Government Auditing Standards .......................................................... 50 - 51

Report on Compliance with Requirements Applicable

to Each Major Program and Internal Control Over

Compliance in Accordance with OMB Circular A-133 .................................... 52 - 53

Summary Schedule of Prior Audit Findings ...................................................... 54

Schedule of Findings and Questioned Costs .................................................... 55

Management Letter .......................................................................................... 56 - 59

INDEPENDENT AUDITOR’S REPORT

State Committee For School District Audits

Members of Bath County Board of Education

Owingsville, Kentucky

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Bath County School District, as of and for the year ended June 30, 2004, which collectively comprise the District’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of Bath County School

District’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 of America and the standards applicable to financial audits contained in

Government Auditing Standards , issued by the Comptroller General of the United

States. 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, the businesstype activities, each major fund, and the aggregate remaining fund information of the

Bath County School District as of June 30, 2004, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards , we have also issued our report dated August 26, 2004, on our consideration of Bath County School District’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

The management’s discussion and analysis and budgetary comparison information on pages 3 through 7, are not a required part of the basic financial statements but are

2. supplementary information required by 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 of measurement and presentation of the 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 Bath County School District’s basic financial statements.

The combining and individual nonmajor fund financial statements and other supplemental information are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits of States,

Local Governments, and Non-Profit Organizations , and is not a required part of the basic financial statements of Bath County School District. The combining and individual nonmajor fund financial statements, other supplemental information and the schedule of expenditures of federal awards have been subjected to the auditing procedures applied to the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Chris Gooch

Certified Public Accountant

Hazard, Kentucky

August 26, 2004

3.


OWINGSVILLE, KENTUCKY

MANAGEMENT’S DISCUSSION AND ANALYSIS


As management of the Bath County School District, we offer readers of the District’s financial statements this narrative overview and analysis of the financial activities of the

District for the fiscal year ended June 30, 2004. This information should be considered in conjunction with the accompanying financial statements and disclosure following this section.

FINANICAL HIGHLIGHTS

The beginning cash balance, including activity funds, for the District was

$2,038,384. The ending cash balance, including activity funds, for the District was

$2,386,465.

The Board of Education approved BG-4 applications for addition/renovation projects at Owingsville Elementary School, Bath County Middle School and Bath

High School. Costs of the respective projects are $850,000, $1,745,174 and

$1,270,000. Funds will be derived from SFCC and local bond revenue sales and from SFCC and General Fund cash reserves.

The District acquired two new school busses through a KISTA bond issue totaling

$123,615.

The District issued $850,000 in school building revenue bonds to facilitate construction/renovation at Owingsville Elementary School. The Kentucky School

Facilities Commission participated in 100% of the debt service.

Interest revenue totaled $25,656 for the year ended and for the prior year the total interest revenue was $41,137.

The District reported $162,272.39 in current year proceeds from the CC Chenault

Memorial Trust Fund. The funds were used for instructional and building operations and maintenance purposes.

-

The District’s total long-term debt increased by $601,134.

Total general fund revenue was $10,284,213 consisting primarily of state program

(SEEK), property, utilities and motor vehicle taxes. Excluding general fund transfers, there were $9,519,532 in general fund expenditures. These totals reflect on-behalf state payments in the amount of $1,701,017

OVERVIEW OF FINANCIAL STATEMENTS

The discussion and analysis is intended to serve as an introduction to the District’s basic financial statements. The District’s basic financial statements comprise three

4.



MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

Year Ended June 30, 2004 components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements.

Government-wide financial statements

The government-wide financial statements are designed to provide readers with a broad overview of the District’s finances, in a manner similar to a private-sector business.

The statement of net assets presents information on all of the District’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the district is improving or deteriorating.

The statement of activities presents infor mation showing how the District’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods.

The government-wide financial statements outline functions of the District that are principally supported by property taxes and intergovernmental revenues

(governmental activities). The governmental activities of the District include instruction, support services, operation and maintenance of plant, student transportation and operation of non-instructional services. Fixed assets and related debt is also supported by taxes and intergovernmental revenues.

Fund financial statements

A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. This is a state mandated uniform system and chart of accounts for all Kentucky public school districts utilizing the MUNIS administrative software. The District uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the District can be divided into three categories: governmental, proprietary and fiduciary funds. Fiduciary funds include activity funds.

Proprietary funds include the school food service, daycare and preschool funds. All other activities are reported under governmental funds.

Notes to the Financial Statements

The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements.

5.





GOVERNMENT-WIDE FINANCIAL ANALYSIS

Net assets may serve over time as a useful indicator of a government’s financial position. As of June 30, 2004, assets exceeded liabilities by 3,821,218.

The greatest portion of the District’s net assets reflects its investment in capital assets (e.g., land and improvements, buildings and improvements, vehicles, furniture and equipment and ongoing construction projects, where applicable), less any related debt used to acquire those assets that is still outstanding. The District uses these capital assets to provide services to its students; consequently, these assets are not available for future spen ding. Although the District’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.

The District’s financial position is the product of several financial transactions including the net results of activities, the acquisition and payment of debt, the acquisition and disposal of capital assets, and the depreciation of capital assets.

Net assets for the years ended June 30, 2004 and 2003

Following are comparisons of net assets:

2004

At June 30,

2003

Current Assets

Noncurrent Assets

2,726,924

7,676,899

2,556,496

6,711,676

Total Assets

Current Liabilities

Noncurrent Liabilities

Total Liabilities

10,403,823

1,412,226

5,170,379

6,582,605

9,268,172

1,597,269

5,806,324

7,403,593

- Net Assets -

Investment in Capital Assets (net of debt)

Restricted

Unreserved Fund Balance

Total Net Assets

2,479,520

660,943

680,755

3,821,218

86,963

812,108

965,508

1,864,579

6.





Comments on budget comparisons

- The District’s total general fund revenues for the fiscal year ended June 30,

2004, net of interfund transfers, were $8,583,197 exclusive of state on-behalf payments. This exceeded budget projections by $232,082.

- Total general fund expenditures, $7,886,889, net of interfund transfers and state on-behalf payments were less than the projected budget appropriation reflecting a -0- fund balance and net of state on-behalf payments of $1,701,017 and a contingency line-item in the amount of $363,596.

General fund budget expenditures to actual varied significantly in the following:

Addition of on behalf state payments for Teacher’s retirement, life insurance, administration fees, health insurance and vocational education in the government wide statement of activities and fund financial statements.

The following table presents a comparison of governmental funds revenue and expense for the fiscal years ended June 30, 2004 and 2003:

Revenues:

Local revenue sources

State revenue sources

Federal revenue

Other sources

For Year Ended June 30,

2004 2003

1,982,728

10,491,807

1,418,047

616

1,716,435

10,223,015

1,401,116

582

13,893,198 13,341,148 Total revenues

Expenses:

Instruction

Student support services

Instructional support

District administration

School administration

Business support services

Plant operations and management

Student transportation

Food services operation

Enterprises operation

Central office support

Adult education operations

Facilities acquistion and construction

Community support

Interest on long-term debt

Total expenses

8,093,053

555,371

401,485

541,902

550,239

40,207

1,180,844

823,892

81,688

16,338

-

-

285,147

212,370

12,782,536

1,110,662 Excess (Deficiency) of Revenue over Expenses

8,071,197

735,798

371,103

594,051

463,828

-

1,111,710

972,983

-

-

114,799

-

196,677

264,947

255,023

13,152,116

189,032

7.





BUDGETARY IMPLICATIONS

In Kentucky the public school fiscal year is July 1 - June 30; other programs, i.e. some federal operate on a different fiscal calendar, but are reflected in the district overall budget. By law the budget must have a minimum 2% contingency. The district adopted a budget with $363,596 in contingency (3.96%).

Questions regarding this report should be directed to the Superintendent or the

Finance Officer at (606) 674-6314.

8.

Assets:

- Current Assets -

Cash and cash equivalents

Accounts receivable:

Taxes - current

Taxes - delinquent

Other

Intergovernmental - State

Intergovernmental - indirect Federal

Inventories


STATEMENT OF NET ASSETS

At June 30, 2004

Governmental Business-type

Activities Activities

2,295,263

38,364

6,403

38,105

17,379

331,410

-

1,196

-

-

-

8,224

60,263

5,048

Total

2,296,459

38,364

6,403

38,105

25,603

391,673

5,048

Total current assets

- Noncurrent Assets -

Capital assets

Less: accumulated depreciation

Total noncurrent assets

2,726,924

14,174,261

(6,497,362)

74,731

250,318

(164,357)

2,801,655

14,424,579

(6,661,719)

Total assets

Liabilities:

- Current liabilities -

Cash deficit balance

Accounts payable

Current portion of accumulated sick leave

Deferred revenues

Current portion of bond/lease obligations

Interest payable

7,676,899

10,403,823

85,961

160,692

Total current liabilities

- Noncurrent liabilities -

Noncurrent portion of bond/lease obligations

Total noncurrent liabilities

Total liabilities

5,170,379 -

5,170,379

6,582,605

-

53,438

7,762,860

10,564,515

-

67,408

39,463

379,028

713,957

212,370

43,801

9,637

-

-

-

-

43,801

77,045

39,463

379,028

713,957

212,370

1,412,226 53,438 1,465,664

5,170,379

5,170,379

6,636,043

Net assets:

Invested in capital assets, net of related debt

Restricted for:

Capital projects

Sick leave

Unrestricted

Total net assets

Total liabilities and net assets

2,479,520 85,961 2,565,481

630,943

30,000

680,755

-

-

21,293

630,943

30,000

702,048

3,821,218 107,254 3,928,472

10,403,823 160,692 10,564,515

See notes to financial statements.

9.

FUNCTIONS/PROGRAMS:

- Governmental Activities -

Instruction

Support services:

Student

Instructional staff



Business support

Plant operation & maintenance


Food service operations

Enterprise operations

Community services activities


Interest on long-term debt


STATEMENT OF ACTIVITIES


Program Revenues

Charges for

Operating

Grants &

Capital

Grants &

Expenses Services Contributions Contributions

8,093,053

555,371

401,485

541,902

550,239

40,207

1,180,844

823,892

81,688

16,338

285,147

13,070

212,370

2,762

-

-

-

-

-

-

-

-

-

-

-

-

3,197,267

137,550

196,814

34,799

81,662

16,227

62,866

122,031

81,688

16,338

283,564

13,070

-

-

-

-

-

-

-

-

-

-

-

-

-

-

12,795,606 2,762 4,243,876 Total governmental activities

- Business-type Activities -

Food service

Child care

Total business-type activities

Total primary government

886,331

130,939

362,686

101,489

470,430

27,549

-

-

1,017,270 464,175 497,979 -

13,812,876 466,937 4,741,855 -


10.


STATEMENT OF ACTIVITIES (continued)


Net (Expense) Revenue and Changes in Net Assets

Governmental

Activities

Business-

Type

Activities Total

(4,893,024)

(417,821)

(204,671)

(507,103)

(468,577)

(23,980)

(1,117,978)

(701,861)

-

-

(1,583)

-

(212,370)

(8,548,968)

-

-

-

-

-

-

-

-

-

-

-

-

-

-

(4,893,024)

(417,821)

(204,671)

(507,103)

(468,577)

(23,980)

(1,117,978)

(701,861)

-

-

(1,583)

-

(212,370)

(8,548,968)

-

-

-

(8,548,968)

General revenues:

Taxes

Investment earnings

State and formula grants

Miscellaneous

Total general revenues

Change in net assets

Net assets - beginning, restated

1,601,352

337,440

7,665,978

39,889

9,644,659

1,095,691

2,725,527

Net assets - ending


3,821,218

(53,215)

(1,901)

(55,116)

(55,116)

-

699

-

2,685

3,384

(51,732)

158,986

107,254

(53,215)

(1,901)

(55,116)

(8,604,084)

1,601,352

338,139

7,665,978

42,574

9,648,043

1,043,959

2,884,513

3,928,472

11.


BALANCE SHEET – GOVERNMENTAL FUNDS

At June 30, 2004

Assets and resources:



Taxes - current

Taxes - delinquent

Other


Intergovernmental - Indirect Federal

Total assets and resources

Liabilities and fund balances:

Accounts payable

Current portion of accumulated sick leave

Deferred revenue

Total liabilities

Fund balance

Reserved for sick leave

Reserved for KFSCC escrow

Reserved for construction

Undesignated fund balance

Total fund balances

Total liabilities and fund balances


General

Fund

1,529,763

38,364

6,403

22,686

-

-

1,597,216

Special

Revenue

23,593

-

-

15,419

17,379

331,410

387,801

Other

Gov't

Funds

741,907

-

-

-

-

-

741,907

Total

Gov't

Funds

2,295,263

38,364

6,403

38,105

17,379

331,410

2,726,924

40,718

39,463

-

80,181

8,773

-

379,028

387,801

17,917

-

-

17,917

67,408

39,463

379,028

485,899

30,000

-

-

1,487,035

1,517,035

1,597,216

-

-

-

-

-

387,801

-

630,943

-

93,047

723,990

741,907

30,000

630,943

-

1,580,082

2,241,025

2,726,924

12 .


RECONCILIATION OF THE BALANCE SHEET –

GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS

At June 30, 2004

Total fund balance per fund financial statements 2,241,025

Amounts reported for governmental activities in the statement of net assets are different because:

Capital assets are not reported in this fund financial statement because they are not current financial resources, but are reported in the statement of net assets

Certain liabilities (such as bonds payable, the long-term portion of accrued sick leave and accrued interest) are not reported in this fund financial statement because they are not due and payable, but are presented in the statement of net assets.

7,676,899

(6,096,706)

Net assets for governmental activities


3,821,218

Total revenues

13.


STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCE – GOVERNMENTAL FUNDS


General

Fund

Special Other Total

Revenue Govt Funds Govt Funds

Revenues:

From local sources:

Taxes

Earnings on investments

Other local revenue

Intergovernmental - state

Intergovernmental - indirect federal

Other revenue

1,432,444

34,856

2,762

8,792,997

20,538

616

10,284,213

302,584

41,174

852,498

1,397,509

-

-

2,593,765

168,908

-

-

846,312

-

-

1,015,220

1,601,352

337,440

43,936

10,491,807

1,418,047

616

13,893,198

Expenditures:

Instructional


Staff support services








Community service activities


Facilities acquisition and construction

Debt service:

Principal

Interest

Total expenditures

Excess (deficit) of revenues over expenditures

6,020,176

424,919

206,137

520,020

539,204

30,515

953,024

711,173

81,688

16,338

3,268

13,070

-

1,870,024

129,275

188,539

1,698

4,343

9,692

49,796

9,196

-

-

280,296

-

-

-

-

-

-

9,519,532 2,542,859

-

-

-

-

-

-

151,111

-

-

-

-

-

342,011

644,866

199,620

1,337,608

7,890,200

554,194

394,676

521,718

543,547

40,207

1,153,931

720,369

81,688

16,338

283,564

13,070

342,011

-

644,866

199,620

13,399,999

764,681 50,906 (322,388) 493,199

Other financing sources (uses):

Operating transfers in

Operating transfers out

Total other financing sources (uses)

16,509

(55,623)

17,185

(68,091)

816,668

(728,549)

(39,114) (50,906) 88,119

850,362

(852,263)

(1,901)

Excess (deficit) of revenue and other financing sources over expenditures/other financing uses 725,567 (234,269) 491,298

Fund balance - July 1, 2003, restated 791,468 958,259 1,749,727

Fund balance - June 30, 2004 1,517,035 723,990 2,241,025


14.


RECONCILIATION OF THE STATEMENT OF REVENUES,

EXPENDITURES AND CHANGES IN FUND BALANCES OF

GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITES


Net change in total fund balances per fund financial statements 491,298

Amounts reported for governmental activities in the statement of activities differences:

Capital outlays are reported as expenditures in the fund financial statements because they use current financial resources, but are presented as assets in the statement of activities and depreciated over their estimated useful economic lives. The difference is the amount by which depreciation exceeds capital outlay for the year.

Bond principal payments are recognized as expenditures of current financial resources in the fund financial statements but are reductions of liabilities in the statement of net assets, interest paid on debt services is reflected when paid on the fund financial statements

(27,723)

632,116

Change in net assets of governmental activities


1,095,691

15.


STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES

IN FUND BALANCE – BUDGET AND ACTUAL – GENERAL FUND


Revenues:

From local sources:

Taxes


Other local revenue



Other revenue

Total revenues

Expenditures:

Instructional








Central office






Excess (deficit) of revenues over expenditures

Budgeted Amounts

Original Final

1,190,000

96,300

3,500

7,061,694

12,000

4,000

1,190,000

46,300

3,500

7,090,815

20,000

500

8,367,494 8,351,115

Actual

1,432,444

34,856

2,762

8,792,997

20,538

616

10,284,213

Variance

Favorable

(Unfavorable)

242,444

(11,444)

(738)

1,702,182

538

116

1,933,098

5,260,355

371,666

247,821

990,853

456,274

-

1,120,059

757,097

26,795

-

-

-

-

4,954,376

396,482

196,549

1,109,479

477,617

25,339

1,253,666

728,587

-

-

-

-

-

9,230,920 9,142,095

6,020,176

424,919

206,137

520,020

539,204

30,515

953,024

711,173

-

81,688

16,338

3,268

13,070

9,519,532

(1,065,800)

(28,437)

(9,588)

589,459

(61,587)

(5,176)

300,642

17,414

-

(81,688)

(16,338)

(3,268)

(13,070)

-

(377,437)

(863,426) (790,980) 764,681 (1,555,661)





-

(60,721)

-

(50,000)

16,509

(55,623)

(60,721) (50,000) (39,114)

16,509

(5,623)

10,886

Excess (deficit) of revenue and other financing sources over expenditures/other financing uses

Fund balance - July 1, 2003, restated

(924,147) (840,980) 725,567 1,566,547

924,147 840,980 791,468 (49,512)

Fund balance - June 30, 2004

See notes to finanical statements.

1,517,035 1,517,035


STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES

IN FUND BALANCE – BUDGET AND ACTUAL – SPECIAL REVENUE FUND


16.

Revenues:

From local sources:


Other local revenue



Total revenues

Expenditures:

Instructional








Central office



Budgeted Amounts

Original Final

200,000

-

774,023

1,218,267

208,000

32,950

800,944

1,725,521

302,584

41,174

852,498

1,397,509

2,192,290 2,767,415

Actual

2,593,765

Variance

Favorable

(Unfavorable)

94,584

8,224

51,554

(328,012)

(173,650)

1,816,407

47,157

134,730

-

8,842

-

44,638

23,000

13,393

263,730

2,164,078

175,165

209,695

-

-

11,742

47,128

14,000

-

272,212

2,351,897 2,894,020

1,870,024

129,275

188,539

1,698

4,343

9,692

49,796

9,196

-

280,296

2,542,859

294,054

45,890

21,156

(1,698)

(4,343)

2,050

(2,668)

4,804

-

(8,084)

-

351,161

(159,607) (126,605) 50,906 (177,511) Excess (deficit) of revenues over expenditures





223,175

(63,568)

188,046

(61,441)

159,607 126,605

17,185

(68,091)

(50,906)

(170,861)

(129,532)

(300,393)

Excess (deficit) of revenue and other financing sources over expenditures/other financing uses

Fund balance - July 1, 2003

-

-

Fund balance - June 30, 2004


-

17.


STATEMENT OF NET ASSETS – PROPRIETARY FUNDS

At June 30, 2004

Assets:

- Current Assets -




Intergovernmental - indirect Federal

Inventories

Total current assets

- Noncurrent Assets -

Capital assets


Total noncurrent assets

Total assets

Liabilities:

- Current Liabilities -

Cash deficit

Accounts payable

Total current liabilities

Net assets:

Investments in capital assets

Unreserved

Total net assets



Other

Food Service Proprietary

Fund Fund Total

1,196 1,196

-

60,263

5,048

8,224

-

-

8,224

60,263

5,048

65,311 9,420 74,731

250,318

(164,357)

250,318

(164,357)

85,961 85,961

151,272 9,420 160,692

35,742

9,472

45,214

85,961

20,097

106,058

151,272

8,059

165

8,224

-

1,196

1,196

9,420

43,801

9,637

53,438

85,961

21,293

107,254

160,692

18.


STATEMENT OF REVENUES, EXPENSES AND

CHANGES IN NET ASSETS – PROPRIETARY FUNDS


Other

Food service Proprietary

Fund Fund

Operating revenues:

Lunchroom sales

Tuition from individuals

Revenues from state sources

Other revenue

362,686

-

-

58

-

101,489

27,549

19

Total

362,686

101,489

27,549

77

362,744 129,057 491,801 Total operating revenues

Operating expense:

Salaries and wages

Contract services

Materials and supplies

Depreciation

Other operating expenses

416,963

14,735

439,419

13,846

1,368

119,950

44

10,945

-

-

536,913

14,779

450,364

13,846

1,368

Total operating expenses

Operating income (loss)

886,331 130,939 1,017,270

(523,587) (1,882) (525,469)

Nonoperating Revenue/(Expense):

Federal grants

State grants

Interest income

Gain on disposal of equipment


455,777

14,653

699

706

-

-

-

-

-

1,901

455,777

14,653

699

706

1,901

Total nonoperating revenue/(expense) 471,835 1,901 473,736

Net income (loss)

Net assets, July 1, 2003

Net assets, June 30, 2004

(51,752) 19 (51,733)

157,810 1,176 158,986

106,058 1,195 107,253



STATEMENT OF CASH FLOWS – PROPRIETARY FUNDS


Other

Food service Proprietary

Fund Fund Total

Cash flows from operating activities:

Cash received from:

Lunchroom sales

Tuition from individuals

Other activities

Cash paid to/for:

Employees

Supplies/Contractual

Other activities

Net cash provided by operating activities

Cash flows from capital and related financing activities:

Purchases/disposal of equipment

Cash flows from investing activities:

Interest income

Cash flows from financing activities:

Federal grants

State grants

Transfers from other funds

Net cash provided by financing activities

Net increase (decrease) in cash

Cash, beginning of year

Cash, end of year

362,686

-

58

362,686

125,322 125,322

19 77

(416,963)

(456,255)

(1,368)

(511,842)

(119,950)

(11,927)

-

(536,913)

(468,182)

(1,368)

-

(6,536)

-

(518,378)

-

699 699

514,227

14,653

-

514,227

14,653

1,901 1,901

528,880 1,901 530,781

17,737

(53,479)

(35,742)

(4,635)

(2,226)

(6,861)

13,102

(55,705)

(42,603)

Reconciliation of operating income (loss) to net cash provided (used) by operations:

Operating income (loss)

Adjustments to reconcile operating income to cash provided (used) by operating activities:

Depreciation

Changes in current assets/liabilities

Receivables

Inventories

Accounts payable

Net cash provided by operating activities


(523,587)

13,846

(1,882) (525,469)

13,846

-

(1,857)

(244)

(511,842)

(3,716)

-

(938)

(6,536)

(3,716)

(1,857)

(1,182)

(518,378)

19.


STATEMENT OF FIDUCIARY NET ASSETS – ACTIVITY FUNDS

At June 30, 2004

Assets:


Accounts receivable

Total assets

Liabilities:

Accounts payable

Due to individual student activity account funds

Total liabilities

Net assets:

Unreserved



133,807

133,807

-

-

133,807

133,807

-

133,807

20.

21.


NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2004

NOTE A – REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES

The Bath County Board of Education (Board), a five member group, is the level of government which has oversight responsibilities over all activities related to public elementary and secondary school education within the jurisdiction of Bath County

School District (District). The Board receives funding from local, state and federal government sources and must comply with the commitment requirements of these funding sources entities. However, the Board is not included in any other governmental

“reporting entity” as defined in Section 2100, Codification of Governmental Accounting and Financial Reporting Standards as Board members are elected by the public and have decision making authority, the power to designate management, the responsibility to develop policies which may influence, operations and primary accountability for fiscal matters.

The Board, for financial purposes, includes all of the funds and account groups relevant to the operation of the Bath County Board of Education. The financial statements presented herein do not include funds of groups and organizations, which although associated with the school system, have not originated within the Board itself such as

Band Boosters, Parent-Teacher Associations, etc.

The financial statements of the Board include those of separately administered organizations that are controlled by or dependent on the Board. Control or dependence is determined on the basis of budget adoption, funding and appointment or the respective governing board.

Based on the foregoing criteria, the financial statements of the following organization are included in the accompanying financial statements:

Bath County School District Finance Corporation – On November 29, 1988, the Bath

County, Kentucky, Board of Education resolved to authorize the establishment of the

Bath County School District Finance Corporation (a non-profit, non-stock, public and charitable corporation organized under the School Bond Act and KRS 273 and KRS

Section 58.180) as an agency of the Board for financing the costs of school building facilities. The Board Members of the Bath County Board of Education also comprise the

Corporations’ Board of Directors.

The financial statements of the following entity are not included in the accompanying financial statements:

C. C. Chenault Memorial Trust

The Trust was created to establish agricultural programs for the District. The District receives a quarterly payment from the trust for its agricultural programs. The Trust maintains separate accounting records and is not governed nor managed by the District.

22.


NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED)

June 30, 2004


POLICIES (continued)

Basis of Presentation

Government-wide Financial Statements – The statement of net assets and the statement of activities display information about the District as a whole. These statements include the financial activities of the primary government, except for fiduciary funds. The statements distinguish between those activities of the District that are governmental and those that are considered business-type activities.

The government-wide statements are prepared using the economic resources measurement focus. This is the same approach used in the preparation of the proprietary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Governmental fund financial statements therefore include reconciliation with brief explanations to better identify the relationship between the government-wide statements and the statements for governmental funds.

The government-wide statement of activities presents a comparison between direct expenses and program revenues for each segment of the business-type activities of the

District and for each function or program of the District’s governmental activities. Direct expenses are those that are specifically associated with a service, program or department and are therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program and 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 of the District, with certain limited exceptions. The comparison of direct expenses with program revenues identifies the extent to which each business segment or governmental function is self-financing or draws from the general revenues of the District.

Fund Financial Statements – Fund financial statements report detailed information about the District. The focus of governmental and enterprise fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Nonmajor funds are aggregated and presented in a single column.

Fiduciary funds are reported by fund type.

The accounting and reporting treatment applied to a fund is determined by its measurement focus. All governmental fund types are accounted for using a flow of current financial resources measurement focus. The financial statements for governmental funds are a balance sheet, which generally includes only current assets and current liabilities, and a statement of revenues, expenditures and changes in fund balances, which reports on the changes in net total assets. Proprietary funds and fiduciary funds are reported using the economic resources measurement focus. The statement of cash flows provides information about how the District finances and meets the cash flow needs of its proprietary activities.

23.



June 30, 2004



The District has the following funds:

I. Governmental Fund Types

(A) The General Fund is the primary operating fund of the District. It accounts for financial resources used for general types of operations. This is a budgeted fund, and any fund balances are considered as resources available for use. This is a major fund of the District.

(B) The Special Revenue Grant Funds account for proceeds of specific revenue sources (other than expendable trusts or major capital projects) that are legally restricted to disbursements for specified purposes. It includes federal financial programs where unused balances are returned to the grantor at the close of specified project periods as well as the state grant programs. Project accounting is employed to maintain integrity for the various sources of funds. The separate projects of federally-funded grant programs are identified in the Schedule of Expenditures of Federal Awards included in this report. This is a major fund of the District.

(C) Capital Project Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities and equipment (other than those financed by Proprietary Funds).

1. The Support Education Excellence in Kentucky (SEEK) Capital

Outlay Fund receives those funds designated by the state as

Capital Outlay Funds and is restricted for use in financing projects identified in the District’s facility plan.

2. The Facility Support Program of Kentucky Fund accounts for funds generated by the building tax levy required to participate in the School Facilities Construc tion Commission’s construction funding and state matching funds, where applicable. Funds may be used for projects identified in the District’s facility plan.

3. The Construction Fund accounts for proceeds from sales of bonds and other revenues to be used for authorized construction.

(D) The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest and related cost; and, for the payment of interest on general obligation notes payable, as required by Kentucky Law.

24.



June 30, 2004


II.


Proprietary Funds (Enterprise Funds)

The School Food Service Fund is used to account for school food service activities, including the National School Lunch Program, which is conducted in cooperation with the U.S. Department of Agriculture (USDA). No amounts have been recorded for in-kind contribution of commodities from the USDA.

The School Food Service Fund is a major fund.

The Childcare fund and Preschool fund accounts for revenues and expenditures related to daycare services and preschool activities.

III. Fiduciary Fund Types (includes agency and trust funds)

The Activity Fund accounts for activities of student groups and other types of activities requiring clearing accounts. These funds are accounted for in accordance with Uniform Program of Accounting for School Activity Funds.

Basis of Accounting

Basis of accounting determines when transactions are recorded in the financial records and reported on the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Proprietary and fiduciary funds also use the accrual basis of accounting.

Revenues

– Exchange and Non-exchange Transactions – Revenues resulting from exchange transactions, in which each party receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenues are recorded in the fiscal year in which the resources are measurable and available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the District, available means expected to be received within sixty days of the fiscal year-end.

Nonexchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, grants, entitlements and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resource are required to be used or the fiscal year when use is first permitted, matching requirements,

25.



June 30, 2004



Basis of Accounting (continued) in which the District must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the District on a reimbursement basis. On a modified accrual basis, revenues from nonexchange transactions must also be available before it can be recognized.

Deferred Revenue – Deferred revenue arises when assets are recognized before revenue recognition criteria have been satisfied.

Grants and entitlements received before the eligibility requirements are met are recorded as deferred revenue.

Expenses/Expenditures – On the accrual basis of accounting, expenses are recognized at the time they are incurred. The fair value of donated commodities used during the year is reported in the statement of revenues, expenses, and change is net assets as an expense with a like amount reported as donated commodities revenue. Unused donated commodities are reported as deferred revenues.

The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable. Allocations of cost, such as depreciation, are not recognized in governmental funds.

Property Taxes

Property Tax Revenues – Property taxes are levied each September on the assessed value listed as of the prior January 1, for all real and personal property in the county.

The billings are considered due upon receipt by the taxpayer; however, the actual date is based on a period ending 30 days after the tax bill mailing. Property taxes collected are recorded as revenues in the fiscal year for which they were levied. All taxes collected are initially deposited into the General Fund and then transferred to the appropriate fund.

The property tax rates assessed for the year ended June 30, 2004, to finance the

General Fund operations were $.332 per $100 valuation for real property, $.358 per

$100 valuation for business personal property and $.380 per $100 valuation for motor vehicles.

The District levies a utility gross receipts license tax in the amount of 3% of the gross receipts derived from the furnishings, within the county, of telephonic and telegraphic communications services, cablevision services, electric power, water, and natural, artificial and mixed gas.

26.



June 30, 2004



Capital Assets

General capital assets are those assets not specifically related to activities reported in the proprietary funds. These assets generally result from expenditures in the governmental funds. These assets are reported in the governmental activities column of the government-wide statement of net assets but are not reported in the fund financial statements. Capital assets utilized by the proprietary funds are reported both in the business-type activities column of the government-wide statement of net assets and in the respective funds.

All capital assets are capitalized at cost (or estimated historical cost) and updated for additions and retirements during the year. Donated fixed assets are recorded at their fair market values as of the date received. The District maintains a capitalization threshold of one thousand dollars with the exception of computers, digital cameras and real property for which there is no threshold. The District does not possess any infrastructure. Improvements are capitalized; the cost of normal maintenance and repairs that do not add to the value of the asset or materially extend an assets life are not.

All reported capital assets are depreciated. Improvements are depreciated over the remaining useful lives of the related capital assets. Depreciation is computed using the straight-line method over the following useful lives for both general capital assets and proprietary fund assets:

Description

Governmental Activities

Estimated Lives

Buildings and improvements

Land improvements

Technology equipment

Vehicles

25-50 years

20 years

5 years

5-10 years

Audio-visual equipment

Food service equipment

15 years

10-12 years

Furniture and fixtures 7 years

Interfund Balances

On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as “interfund receivables/payables”. These amounts are eliminated in the governmental and business-type activities columns of the statements of net assets, except for the net residual amounts due between governmental and business-type activities, which are presented as internal balances.

27.



June 30, 2004



Accumulated Unpaid Sick Leave Benefits

Upon retirement from the school system, an employee will receive from the District an amount equal to 30% of the value of accumulated sick leave.

Sick leave benefits are accrued as a liability using the termination payment method. An accrual for earned sick leave is made to the extent that it is probable that the benefits will result in termination payments. The liability is based on the School District’s past experience of making termination payments.

Compensated absence liabilities are recorded based on balances for classified and certified employees with twenty-seven or more years of experience at June 30, 2004.

For governmental fund financial statements the current portion of unpaid accrued sick leave is the amount expected to be paid using expendable available resources. These amounts are recorded in the account ”accumulated sick leave payable” in the general fund. The noncurrent portion of the liability is not reported. The District has set aside a board approved reserve in the amount of $35,898 for accumulated sick leave.

Budgetary Process

Budgetary Basis of Accounting: The District’s budgetary process accounts for certain transactions on a basis other than Generally Accepted Accounting Principles (GAAP).

The major differences between the budgetary basis and the GAAP basis are:

Revenues are recorded when received in cash (budgetary) as opposed to when susceptible to accrual (GAAP).

Expenditures are recorded when paid in cash (budgetary) as opposed to when susceptible to accrual (GAAP).

Cash and Cash Equivalents

The District considers demand deposits, money market funds, and other investments with and original maturity of 90 days or less, to be cash equivalents.

Inventories

Supplies and materials are charged to expenditures when purchased.

28.



June 30, 2004



Accrued Liabilities and Long-Term Obligations

All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements, and all payables, accrued liabilities and long-term obligations payable form proprietary funds are reported on the proprietary fund financial statements.

In general, payables and accrued liabilities that will be paid form governmental funds are reported on the governmental fund financial statements regardless of whether they will be liquidated with current resources. However, claims and judgments, the noncurrent portion of capital leases, accumulated sick leave, contractually required pension contributions and special termination benefits that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they will be paid with current, expendable, available financial resources. In general, payments made within sixty days after year-end are considered to have been made with current available financial resources. Bonds and other long-term obligations that will be paid from governmental funds are not recognized as a liability in the fund financial statements until due.

Fund Balance Reserves

The District reserves those portions of fund equity which are legally segregated for a specific future use or which do not represent available expendable resources and therefore are not available for appropriation or expenditure. Unreserved fund balance indicates that portion of fund equity which is available for appropriation in future periods.

Fund equity reserves have been established for inventories and fixed assets.

Net Assets

Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the School District or through external restrictions imposed by creditors, grantors or laws or regulations of other governments.

Operating Revenues and Expenses

Operating revenues are those revenues that are generated directly form the primary activity of the proprietary funds. For the School District, those revenues are primarily charges for meals provided by the various schools.

29.



June 30, 2004



Interfund Activity

Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers.

Interfund transfers are reported as other financing sources/uses in governmental funds and after nonoperating revenues/expenses in proprietary funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented on the financial statements.

NOTE B – CHANGES IN ACCOUNTING PRINCIPLES

For the fiscal year ended June 30, 2003, the District implemented GASB Statement No.

34, “Basic Financial Statements – and Management’s Discussion and Analysis – for

St ate and Local Governments”.

GASB 34 created new basic financial statements for reporting on the School District’s financial activities. The financial statements now include government-wide financial statements prepared on an accrual basis of accounting and fund financial statements which present information for individual major funds rather than by fund type. Nonmajor funds are presented in total in one column.

NOTE C – ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the District’s management to make estimates and assumptions that affect reported amounts of assets, liabilities, fund balances, and disclosure of contingent assets and liabilities at the date of the basic financial statements, and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates.

NOTE D – CASH AND CASH EQUIVALENTS

At yearend, the bank balance of the District’s cash and cash equivalents was

$3,725,556. Of the total cash balance, $126,472 was covered by Federal depository insurance, the balance was covered by a collateral agreement and collateral held by the pledging banks’ trust departments in the District’s name. Cash equivalents are funds temporarily invested in securities with a maturity of 90 days or less.

30.



June 30, 2004

Cash and cash equivalents at June 30, 2004 consisted of the following:

Bank

Balance

Book

Balance

Owingsville Banking Company

Checking Account

Certificate of Deposit

Salt Lick Deposit Bank

Checking Account

Citizens Bank of Sharpsburg

Checking Account

Total

Composition per financial statements:

Governmental funds

Proprietary funds

Agency funds

3,683,817

15,266

16,850

9,623

3,725,556

2,345,252

15,266

16,834

9,115

2,386,467

2,295,263

(42,603)

133,807

2,386,467

NOTE E – LEASE OBLIGATIONS AND BONDED DEBT

The original amount of each issue, the issue date and interest rates are summarized as follows:

Issue Date Proceeds Rates

1993

1996

1997

1998

2001

2003

2003

2004

2004

231,625

185,000

2,785,000

2,195,000

515,000

238,074

955,000

850,000

123,315

3.40% - 5.20%

5.00% - 5.70%

3.90% - 4.70%

4.00% - 4.25%

2.60% - 4.25%

2.00% - 3.90%

1.10% - 2.00%

2.00% - 5.00%

1.00% - 3.15%

Year

2004 - 05

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10

2010 - 11

2011 - 12

2012 - 13

2013 - 14

2014 - 15

2015 - 16

2016 - 17

2017 - 18

2018 - 19

2019 - 20

2020 - 21

2021 - 22

2022 - 23

2023 - 24

31.



June 30, 2004

NOTE E – LEASE OBLIGATIONS AND BONDED DEBT (continued)

The District, through the General Fund (including utility taxes and the Support Education

Excellence in Kentucky (SEEK) Capital Outlay Fund) is obligated to make payments in amounts sufficient to satisfy debt service requirements on bonds issued by the Bath

County Fiscal Court and the School District Finance Corporation to construct school facilities. The District has an option to purchase the property under lease at any time by retiring the bonds then outstanding.

The proceeds from certain refunding issues have been placed in escrow accounts to be used to service the related debt.

In 1988, the District entered into “participation agreements” with the School Facility

Construction Commission. The Commission was created by the Kentucky General

Assembly for the purpose of assisting local school districts in meeting school construction needs. The table below sets forth the amount to be paid by the District and the Commission for each year until maturity of all bond issues.

The bonds may be called prior to maturity and redemption premiums are specified in each issue. Assuming no bonds are called prior to scheduled maturity, the minimum obligations of the District, including amounts to be paid by the Commission, at June 30,

2004, for debt service (principal and interest) are as follows:

Board

Principal

KSFCC

376,377

363,647

337,580

342,146

376,305

392,544

422,152

439,695

277,015

134,211

352,777

352,372

233,702

157,098

60,966

65,561

75,274

57,912

48,468

47,938

52,784

53,825

62,825

-

-

-

-

-

78,391

73,611

76,532

82,062

67,216

71,175

72,175

50,000

55,000

55,000

60,000

60,000

Interest

Board

115,231

KSFCC

97,139

102,335

89,966

76,585

60,916

91,022

79,533

67,248

55,693

42,859

28,103

19,875

15,669

12,597

10,238

46,996

42,345

39,642

36,765

33,443

30,160

8,220

6,079

3,814

1,335

-

-

-

-

-

26,553

22,687

19,588

16,491

13,720

11,270

8,575

5,880

2,940

Total

926,327

899,150

898,581

888,749

772,463

686,648

408,429

259,289

206,099

177,563

165,398

164,773

148,766

148,402

152,826

63,720

66,270

63,575

65,880

62,940

Totals 3,180,972 2,703,364 593,822 747,690 7,225,848

32.



June 30, 2004

NOTE E – LEASE OBLIGATIONS AND BONDED DEBT (continued)

On June 1, 2004, the District issued $850,000 in school building revenue bonds for renovation work at Owingsville Elementary School. The Kentucky School Facilities

Commission participated in 100% of the debt service.

The District acquired two new school buses through a KISTA Bond Issue, Series of 2004 in the par amount of $123,315. The first payment was due September 2004.

NOTE F – CAPITAL ASSETS

Capital asset activity for the fiscal year ended June 30, 2004 was as follows:

Balance Balance

July 1, 2003 Additions Deductions June 30, 2004


Land

Land improvements



Vehicles

General equipment

Construction commitments

-

1,191,982

8,571,178

912,087

1,766,369

346,760

-

283,317

-

-

28,531

472,783

34,571

850,000

(283,317)

-

-

-

-

-

-

283,317

908,665

8,571,178

940,618

2,239,152

381,331

850,000

12,788,376 1,669,202 (283,317) 14,174,261 Totals at historical cost


Land and improvements


Vehicles


General equipment

489,386

3,424,776

1,294,020

787,527

180,092

-

-

-

-

-

36,733

173,124

119,713

(36,044)

28,035

526,119

3,597,900

1,413,733

751,483

208,127

Total accumulated depreciation 6,175,801 321,561 6,497,362


Capital Assets - Net 6,612,575 1,669,202 (604,878) 7,676,899

33.



June 30, 2004

NOTE F – CAPITAL ASSETS (continued)

Balance Balance

July 1, 2003 Additions Deductions June 30, 2004

Business-Type Activities

Food service and equipment


241,417

10,769

-

-

-

(1,869)

241,417

8,900

Totals at historical cost


Food service and equipment


252,186 (1,869) 250,317

142,316

10,769

-

-

13,740

(2,468)

156,056

8,301

Total accumulated depreciation 153,085 11,272 164,357

Business-Type Activities

Depreciation expense was allocated to governmental functions as follows:

Instructional

Student support service

Instructional staff support



273,412

1,177

6,809

20,184

6,692




26,913

103,523

1,583

Total Depreciation Expense

- Governmental Functions 440,293



June 30, 2004

NOTE G – COMMITMENTS UNDER NONCAPITALIZED LEASES

Commitments under operating lease agreements for equipment provide the minimum future rental payments as of June 30, 2004, as follows:

34.

Year ending June 30:

2005

2006

24,955

19,660

2007

2008

2009

1,903

-

-

Total Minimum Rentals 46,518

The District, as lessor, receives $700 per month from Gateway Community Services,

Inc. for use of space at Owingsville Elementary School.

The District, as lessee, pays $14,000 annual rent to Mitchell Miller for 39 Cedar Creek

Drive property used to house Central school. This lease agreement was discontinued beginning with the 2004

– 05 school year.

NOTE H

– RETIREMENT PLANS

Kentucky Teachers Retirement System:

Plan Description – The Bath County Public Schools contributes to the Teachers’

Retirement System of Kentucky (KTRS), a cost-sharing, multiple employer defined benefit pension plan. KTRS administers retirement and disability annuities, and death and survivor benefits to employees and beneficiaries of employees of the public school systems and other public educational agencies in Kentucky.

KTRS was created by the 1938 General Assembly and is governed by Chapter 161

Section 220 through Chapter 161 Section 990 of the Kentucky Revised Statutes (KRS).

KTRS issues a publicly available financial report that includes financial statements and required supplementary information for the defined benefit pension plan. That report can be obtained by writing to Kentucky Teachers’ System, 479 Versailles Road, Frankfort,

Kentucky 40601.

Funding Policy – Contribution rates are established by KRS. Members are required to contribute 9.855% of their salaries to KTRS. The Commonwealth of Kentucky is required to contribute 13.105% of salaries. The federal program for any salaries paid by that program pays the matching contributions. KTRS requires that members of KTRS occupy a position requiring either a four (4) year college degree or certification by

Kentucky Department of Education (KDE).

35.



June 30, 2004

NOTE H – RETIREMENT PLANS (continued)

The Bath County Public School District’s total payroll for the year was $8,492,289. The payroll for employees covered under KTRS was $6,159,018. For the year ended June

30, 2004, the Commonwealth contributed $751,174 to KTRS for the benefit of our participating employees. The School District’s contributions to KTRS for the year ending

June 30, 2004 were $55,966, which represents those employees covered by federal programs.

Substantially all other employees (classified personnel) are covered under the County

Employee’s Retirement System (CERS), a cost sharing, multiple-employer, public employers retirement system. Funding for the plan is provided through payroll withholdings o f 5.00% and a district contribution of 6.41% of the employee’s total compensation subject to contributions. Total payroll for employee’s covered under

CERS was $2,231,415.

The contribution requirement for CERS for the year ended June 30, 2004 was $275,354 which consisted of $163,782 from the District and $111,572 from the employees. The

District has no contribution requirement to KTRS.

Benefits under both plans will vary based on final compensation, years of service, and other factors as fully described in the plan documents.

The “pension benefit obligation” is a standardized disclosure measure of the present value of pension benefits which is adjusted for the effects of projected salary increases and step-rate benefits that are estimated to be payable in the future as a result of employee service to-date. The measure, which is the actuarial present value of credited projected benefits, is intended to help users assess the pensions’ funding status on a going-concern basis, assess progress made in accumulating sufficient assets to pay benefits when due and make comparisons among the plans and employers.

KTRS and CERS do not make separate measurements of assets and pension benefit obligation for individual employers. The following table presents certain information regarding the plans’ status as a whole, derived from actuarial valuations performed as of the dates indicated:

Actuarial accrued liabilities

Actuarial value of assets

Unfunded (overfunded) actuarial accrued liabilities

KTRS as of June 30, 2003

(in millions of dollars)

16,594.8

13,863.8

2,731.0

CERS as of June 30, 2003

(in millions of dollars)

5,917.2

6,753.6

(836.4)

36.



June 30, 2004

NOTE H – RETIREMENT PLANS (continued)

Historical trend information showing KTRS’s and CERS’s progress in accumulating sufficient assets to pay benefits when due is presented in their June 30, 2003 comprehensive annual financial reports.

As the Board is only one of several employers participating in the plan, it is not practical to determine the Board’s portion of the unfunded past service cost or the vested benefits of the Board’s portion of the plan assets.

NOTE I – COMMITMENTS

The Board of Education approved BG-4 applications for addition/renovation projects at

Owingsville Elementary School, Bath County Middle School and Bath County High

School. Costs of the respective projects are $850,000, $1,745,174 and $1,270,000.

Funds will be derived form SFCC and local bond revenue sales and from SFCC and

General Fund cash reserves.

NOTE J – CONTINGENCIES

The District receives funding from federal, state, and local government agencies and private contributions. These funds are to be used for designated purposes only. For government agen cy grants, if the grantor’s review indicates that the funds have not been used for the intended purpose, the grantors may request a refund of monies advanced or refuse to reimburse the District for its disbursements. The amount of such future refunds and unreimbursed disbursements, if any, is not expected to be significant.

Continuation of the District’s grant programs is predicated upon the grantors’ satisfaction that the funds provided are being spent as intended and the grantors’ intent to continue their programs.

NOTE K – INSURANCE AND RELATED ACTIVITIES

The District is exposed to various forms of loss of assets associated with the risks of fire, personal liability, theft, vehicular accidents, errors and omissions, fiduciary responsibility, etc. Each of these risk areas are covered through the purchase of commercial insurance. The District has purchased certain policies which are retrospectively rated which includes worker’s compensation insurance.

NOTE L – LITIGATION

The District is subject to legal actions in various stages of litigation, the outcome of which is not determinable at this time. Management of the District and its legal counsel do not anticipate a material effect on the combined financial statements as a result of threatened, pending or ongoing litigation.

37.



June 30, 2004

NOTE M – RISK MANAGEMENT

The District is exposed to various risk of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters.

The District pays an annual premium for worker’s compensation to the Neace-Wikens

Company. The District’s errors, omissions, general liability, and property insurance is through Indiana Insurance Company.

The District continues to carry commercial insurance for all other risks of loss. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years.

NOTE N – DEFICIT OPERATING/FUND BALANCES

The following funds had deficit balances at June 30, 2004:

None

The following funds had expenditures in excess of revenues at June 30, 2004:

Construction Fund

School Food Service Fund

Childcare Fund

Bethel Elementary Activity Fund

NOTE O – COBRA

Owingsville Elementary Activity Fund

Bath County Middle School Activity Fund

342,011

51,752

1,901

2,176

3,726

156

Under COBRA, employers are mandated to notify terminated employees of available continuing insurance coverage. Failure to comply with this requirement may put the school District at risk for a substantial loss (contingency).

NOTE P – TRANSFER OF FUNDS

The following transfers were made during the year.

From Fund To Fund Purpose Amount

Special Revenue Debt Service

FSPK

General Fund

General Fund

Debt Service

Debt Service

Child Care

Bond principal and interest



Reclassify cash

Building Fund

General Fund

Capital Outlay

Capital Outlay

General Fund

Special Revenue

Construction

General Fund

Building Fund Construction

Special Revenue General Fund

Reclassify cash

Reclassify cash

Renovation/additions

Plant operations & maint.

Renovation/additions

Indirect costs

61,641

357,393

55,623

1,901

17,148

17,185

151,881

11,997

190,130

6,450

38.



June 30, 2004

NOTE Q – INTERFUND RECEIVABLES AND PAYABLES

Interfund balances at June 30, 2004 were $-0-.

NOTE R – ANNUAL FINANCIAL REPORT DIFFERENCES

The following is a reconciliation of the June 30, 2004, fund balances/retained earnings reported by the Board to the Kentucky Department of Education with that shown in the accompanying fund financial statements:

General

Fund

Special

Revenue

Funds

Capital

Projects

Funds

Enterprise

Funds

Fund Balance/Retained Earnings as reported to the Department of Education

Adjustment to Fund

Balance/Retained Earnings

1,551,177 723,990 25,234

(1) To reclassify cash

(2) To increase accounts receivable

(3) To record additional accounts payable

(4) To record additional accounts receivable

(5) To record current portion of sick leave payable

(6) To record food service inventory

(7) To record net fixed assets food service

(17,148)

-

(17,684)

40,153

(39,463)

-

-

-

260

(260)

-

-

-

-

17,148

-

(17,148)

-

-

-

-

-

-

(8,990)

-

-

5,048

85,961

Fund Balance/Retained Earnings per fund financial statements at June 30, 2004 1,517,035 723,990 107,253

39.



June 30, 2004

NOTE S – ON-BEHALF PAYMENTS

The following payments made by the state on behalf of employees of the District and for the benefit of the District are recognized in the government-wide financial statements as additional revenue and expenditures for the year ended June 30, 2004:

Kentucky Teacher's Retirement System

Life Insurance

751,174

620

Administrative Fees

Health Insurance

Technical Education

1,435

935,718

12,070

Total 1,701,017

NOTE T – RESTATEMENT OF BEGINNING FUND BALANCE/NET ASSETS

Fund balance was restated as follows for fund financial statements:

General

Capital

Project

Fund Balance (fund financial statements) per July 1, 2003 825,619 918,209

Adjustments:

Reserve for sick leave escrow addition

Reclass prior year sick leave escrow to current year accounts payable

Reallocation of accounts payable construction fund #360 to general fund

45,362 -

(39,463) -

(40,050) 40,050

Beginning fund balance, restated 791,468

Beginning net assets for governmental activities were restated as follows:

Beginning net assets, July 1, 2003

958,259

1,705,593

Adjustment to classify principal portion only for long-term debt

Adjustment to reconcile accumulated depreciation to actual per schedule

To adjust current and long-term portion of accumulated leave

Beginning net assets, July 1, 2003 restated

869,206

118,732

31,996

2,725,527

40.


COMBINING BALANCE SHEET – NONMAJOR GOVERNMENTAL FUNDS

At June 30, 2004

SEEK Capital Building Construction

Outlay Fund Fund Fund

Debt

Service Funds

Asset and resources:

Cash and cash equivalents 37,807 686,952 17,148

Total

741,907

Liabilities and fund balances:

- Liabilities -

Accounts payable

- Fund balances -

Restricted for KFSCC escrow

Restricted for construction

Unreserved fund balance

Total fund balances

769

16,299

-

20,739

37,038

-

614,644

-

72,308

686,952

17,148

-

-

-

-

17,917

630,943

-

-

-

-

93,047

723,990

Total liabilities and fund balances 37,807 686,952 17,148 741,907


COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES – NONMAJOR GOVERNMENTAL FUNDS


SEEK

Capital Outlay Building Construction Debt Service

Fund Fund Fund Funds Revenues:

From local sources:

General real property tax


168,908

171,850 304,633

-

-

-

369,829

41.

Total

168,908

846,312

Total revenues 171,850 473,541 369,829 1,015,220

Expenditures:

Plant operations & maintenance

Facilities construction

Debt service


Excess (deficit) of revenues

over expenditures

Other financing sources (uses):



Total other financing sources (uses)

Excess (deficit) of revenues and other financing sources over expenditures and other financing uses

Fund balance, July 1, 2003

Fund balance, June 30, 2004

151,111

151,111

20,739

-

-

-

(163,878)

(143,139)

180,177

37,038

-

-

-

-

473,541

-

(564,671)

(163,878) (564,671)

(91,130)

778,082

686,952

-

342,011

-

342,011

342,011

-

342,011

-

-

-

-

-

844,486

844,486

(342,011) (474,657)

474,657

-

474,657

-

-

-

151,111

342,011

844,486

1,337,608

(322,388)

816,668

(728,549)

88,119

-

-

(234,269)

958,259

723,990

Fund Accounts

General

Faculty

Academic Fund

Beta Club

Career Association

Coed "Y" Club

FBLA

FCCLA

FFA

Future Educators of America

Junior Beta Club

Library Club

Pep Club

TSA Club

Ag. Mechanics

Agr. Science

Art

Band

Biology

Business Dept.

Chemistry

Chorus

English Department

Horticulture

Journalism

Spanish Club

Special Education

Woods

Consumer Sciences

Athletics

Athletics Baseball

Athletics Boys Basketball

Cheerleaders

Football

Athletics Girls Basketball

Girls Softball

Golf Team

Tennis

Girls Soccer

Class of 2002 - 03

Sophomore Class

Class of 2001 - 02

Freshman Class

Youth Services Center

Certificate of Deposit

2,290

628

-

901

-

-

2,293

-

20,623

5,699

320

-

177

202

66,848

3,445

-

1,497

Revenues

26,349

4,703

-

3,177

-

1,568

865

7,917

13,448

909

40

-

-

6,414

600

400

4,061

40

550

500

672

16,572

4,865

5,312

1,015

1,227

266

42.


STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE

BATH COUNTY HIGH SCHOOL ACTIVITY FUND


Expenditures

27,650

4,511

4

2,931

18

1,346

758

6,379

12,861

666

230

125

-

4,540

725

3,094

591

-

1,103

265

24

2,602

234

16,852

797

850

4

-

157

68,771

2,667

477

1,342

1,098

3,907

-

671

524

637

17,637

2,835

4,991

198

935

-

Excess (Deficit) of

Revenues over Expenditures

(1,301)

192

(4)

246

(18)

222

107

1,538

587

243

(190)

(125)

-

1,874

(125)

(804)

37

-

(202)

(265)

(24)

(309)

(234)

3,771

4,902

(530)

(4)

177

45

(1,923)

778

(477)

155

(698)

154

40

(121)

(24)

35

(1,065)

2,030

321

817

292

266

Fund Balance

July 1, 2003

6,565

560

4

505

18

136

173

7

5,936

130

752

394

102

213

2,920

4,457

273

21

862

265

24

666

234

10,555

7,588

850

4

65

-

8,748

-

477

-

699

738

-

192

257

-

1,277

-

248

-

164

-

Fund Balance

June 30, 2004

5,264

752

-

751

-

358

280

1,545

6,523

373

562

269

102

2,087

2,795

3,653

310

21

660

-

-

357

-

14,326

12,490

320

-

242

45

6,825

778

-

155

1

892

40

71

233

35

212

2,030

569

817

456

266

Sub-total 206,393 196,007 10,386

Less: Interfund transfers 4,178 4,178 -

-

10,386 Total 202,215 191,829

This fund maintains accounts separate from MUNIS at June 30, 2004.

57,079

-

57,079

67,465

-

67,465

43.


COMBINING STATEMENT OF REVENUES,

EXPENDITURES, AND CHANGES IN FUND BALANCE

MIDDLE AND ELEMENTARY SCHOOL ACTIVITY FUNDS


REVENUES:

Activity funds

EXPENDITURES:

Activity funds

Excess or (deficiency) of revenues over expenditures

Fund Balance, July 1, 2002

Total

Bath County Bethel Owingsville Salt Lick (Memorandum

Middle School Elementary Elementary Elementary Only)

66,913 18,810 26,596 12,867 125,186

67,069 20,986 30,322 10,040 128,417

(156) (2,176) (3,726) 2,827

21,080 11,290 23,197

(3,231)

14,006 69,573

Fund Balance, June 30, 2003 20,924 9,114 19,471

These funds maintain accounts separate from MUNIS at June 30, 2004.

16,833 66,342


SCHEDULE OF INDIVIDUAL DEBT SERVICE REQUIREMENTS

June 30, 2004

Below are minimum obligations for each individual issue:

School

Year

1994 (KISTA)

Principal Interest

2004 - 05 19,580 1,116

Totals 19,580 1,116

School

Year

2004 - 05

2005 - 06

2006 - 07

2007 - 08

Totals

February 2003 Refunding Issue

KSFCC

Principal Interest

District

Principal Interest

115,232

116,252

117,855

120,402

6,467

5,020

3,351

1,204

74,768

73,748

72,145

79,598

4,135

3,207

2,169

796

469,741 16,042 300,259 10,307

44.

School

Year

2004 - 05

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10

2010 - 11

2011 - 12

2012 - 13

Totals

April 2003 (KISTA)

Principal Interest

26,133

22,132

22,507

23,132

23,757

24,383

25,258

21,632

22,507

6,383

5,861

5,418

4,884

4,259

3,517

2,663

1,716

877

211,441 35,578


SCHEDULE OF INDIVIDUAL DEBT SERVICE REQUIREMENTS (CONTINUED)

June 30, 2004


45.

School

Year

September 1996 Issue

KSFCC

Principal Interest

2004 - 05

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10

2010 - 11

2011 - 12

2012 - 13

2013 - 14

2014 - 15

2015 - 16

10,000

10,000

10,000

10,000

10,000

10,000

10,000

10,000

15,000

15,000

15,000

15,000

7,790

7,290

6,790

6,230

5,670

5,110

4,550

3,990

3,420

2,565

1,710

855

Totals 140,000 55,970

School

Year

2004 - 05

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10

Totals

December 1997 Issue

KSFCC

Principal Interest

District

Principal Interest

161,310

167,480

178,508

184,556

181,445

92,261

40,511

33,153

25,324

17,018

8,555

2,168

965,560 126,729

73,690

77,520

86,492

80,444

173,555

197,739

689,440

30,128

26,744

23,032

19,214

13,329

4,647

117,094



June 30, 2004


46.

School

Year

September 1998 Issue

KSFCC

Principal Interest

District

Principal Interest

2004 - 05

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10

2010 - 11

2011 - 12

2012 - 13

2013 - 14

2014 - 15

2015 - 16

2016 - 17

2017 - 18

2018 - 19

19,837

15,966

20,561

23,391

18,611

16,038

18,414

16,414

7,414

7,257

21,532

22,062

22,216

26,175

22,175

11,138

10,449

8,441

7,725

6,982

6,075

5,208

9,753

9,276

8,983

4,380

3,468

2,527

1,498

471

123,962

126,586

133,586

147,586

157,743

150,163

179,034

39,439

41,609

46,389

48,468

47,938

52,784

53,825

62,825

54,762

49,751

44,547

38,924

32,817

26,659

20,075

15,681

14,009

12,194

10,238

8,220

6,079

3,814

1,335

Totals 278,063 96,374 1,411,937 339,105

School

Year

2004 - 05

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10

2010 - 11

2011 - 12

Totals

KISTA November 2001

Remarketing Issue

District

Principal Interest

45,000

50,000

50,000

50,000

55,000

55,000

60,000

60,000

15,303

13,780

12,080

10,280

8,282

6,110

3,780

1,275

425,000 70,890

2004 - 05

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10

2010 - 11

2011 - 12

2012 - 13

2013 - 14



June 30, 2004


47.

School

Year

January 2004 (KISTA)

Principal Interest

School

Year

June 2004 Issue

KSFCC

Principal Interest

Totals

13,244

13,661

11,575

11,784

12,097

12,410

12,723

13,140

11,158

11,523

123,315

3,403

2,993

2,719

2,488

2,229

1,926

1,585

1,203

783

403

19,732

2004 - 05

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10

2010 - 11

2011 - 12

2012 - 13

2013 - 14

2014 - 15

2015 - 16

2016 - 17

2017 - 18

2018 - 19

2019 - 20

2020 - 21

2021 - 22

2022 - 23

2023 - 24

35,000

30,000

30,000

30,000

35,000

35,000

35,000

35,000

40,000

40,000

40,000

45,000

45,000

45,000

50,000

50,000

55,000

55,000

60,000

60,000

31,232

35,110

34,315

33,520

32,485

31,278

30,070

28,670

27,270

25,670

24,070

22,230

20,160

18,090

16,020

13,720

11,270

8,575

5,880

2,940

850,000 452,575

48.


SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


Federal Grantor/Pass-Through Grantor/Program Title

Federal Pass-Through Program

CFDA

Number

Grantors

Number

Award Program

Amount Expenditures

U. S. Department of Agriculture

Passed through State Department of Education:

School Breakfast Program

School Lunch Program

Cash for Commodities

Child Care Feeding Program

Summer Meal Program

Summer Sponsor

Passed through State Department of Agriculture:

Commodity Program

* 10.553

* 10.555

10.558

10.558

10.559

10.559

10.550

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

225,442

435,348

458

6,362

13,069

1,352

37,493

719,524 Total U.S. Department of Agriculture

U. S. Department of Education


Title 1

Migrant

Title V

IDEA - B Basic

IDEA - B Preschool

Title IV

Vocational Education

Title VI - Rural & Low Income

Teacher Quality

Reading First

Passed through Workforce Cabinet:

Adult Education

Adult Education - Professional Development

Family Literacy Staff Development

* 84.010

* 84.010

84.011

84.011

84.298

* 84.027

* 84.027

* 84.173

* 84.173

84.186

84.048

84.048

84.048

84.048

84.358

84.358

84.367

84.367

84.357A

84.002

84.002

84.002

4064

3483

3484

3482A

3483A

3503

3504

4013

4014

5083R

3103

3104

3113

3114

3344

3373

3374

3433

3434

3734

3734S

3814S

558,386

617,239

90,720

94,524

14,350

286,150

338,730

31,738

32,970

16,616

28,669

29,037

-

656

37,371

51,086

149,422

154,334

175,950

172,341

371,185

34,092

49,825

14,350

49,392

279,539

14,346

18,681

14,263

6,742

28,952

611

656

1,191

31,624

14,293

149,847

111,193

15,219

1,160

580

15,219

891

485

Total Department of Education 1,379,718


SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (continued)


49.

Federal Pass-Through Program

CFDA

Number

Grantors

Number

Award Program

Amount Expenditures Federal Grantor/Pass-Through Grantor/Program Title

U. S. Department of Labor


Federal Ed Tech Basic 17.250

4254 15,567 15,567

Corporation for National & Community Service


Service Learning Project

Service Learning Project

Total Corporation for National & Community Service

94.004

94.004

6751

6752

7,000

3,500

1,317

308

1,625

Total Federal Awards Expended

* - Indicates major programs

Note: The modified accrual basis of accounting was used in the preparation of this schedule.

2,116,434

50.

REPORT ON INTERNAL CONTROL OVER FINANCIAL

REPORTING AND ON COMPLIANCE AND OTHER MATTERS

BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED

IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

State Committee for School District Audits



We have audited the financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of Bath

County School District as of and for the year ended June 30, 2004, which collectively comprise the Bath County School District’s basic financial statements and have issued our report thereon dated August 26, 2004. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards , issued by the

Comptroller General of the United States.

Internal Control Over Financial Reporting

In plannin g and performing our audit, we considered Bath County School District’s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving the internal control over financial reporting that we have reported to management of Bath County School District in a separate letter dated August 26, 2004.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Bath County School District’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statements amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards.

51.

In addition, the results of our tests disclosed no instances of noncompliance of specific state statutes or regulations identified in Appendix II of the Independent Auditor’s

Contract – State Audit Requirements.

This report is intended solely for the information and use of management, Board members, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than those specified parties.

Chris Gooch


Hazard, Kentucky

August 26, 2004

REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE

TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER

COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

State Committee for School District Audits



Compliance

We have audited the compliance of Bath County School District, with the types of compliance requirements described in the U.S. Office of Management and Budget

(OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 2004. Bath County School District’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of Bath County School District’s management. Our responsibility is to express an opinion on Bath County School District’s compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards , issued by the Comptroller General of the

United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-

Profit Organizations . Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Bath County School District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Our audit does not provide a legal determination on Bath County School District’s compliance with those requirements.

In our opinion, Bath County School District complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2004.

52.

53.

Internal Control Over Compliance

The management of Bath County School District is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and perfo rming our audit, we considered Bath County School District’s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133.

Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses.

This report is intended solely for the information of and use of management, board members, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than those specified parties.

Chris Gooch


Hazard, Kentucky

August 26, 2004

NONE


SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS

June 30, 2004

54.

55.


SCHEDULE OF FINDINGS AND QUESTIONED COSTS

June 30, 2004

- SUMMARY OF AUDIT RESULTS –

1. We have issued an unqualified opinion on the financial statements.

2. No reportable conditions in the internal control were disclosed by the audit of the financial statements.

3. No material noncompliance was disclosed in our audit of the financial statements.

4. No reportable conditions were disclosed by the audit in internal control over major programs.

5. We have issued an unqualified opinion on compliance for major programs.

6. The audit did not disclose any audit findings which we are required to report under Section .510(a) of A-133.

7. Bath County School District had the following major programs:

U. S. Department of Education

Passes through State Department of Education

Title I

CFDA number 84.010

IDEA-B Basic & Preschool

CFDA numbers 84.027 & 84.173

U.S. Department of Agriculture

Passes through State Department of Education

School Lunch and Breakfast Program

CFDA numbers 10.553 and 10.555

8. The dollar threshold used to distinguish between Type A and Type B programs was $300,000.

9. The auditee did not qualify as a low-risk auditee.

- FINDINGS RELATED TO THE FINANCIAL STATEMENTS –

None

FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS –

None

56.

Bath County Board of Education

and Management


In planning and performing our audit of the financial statements of Bath County

School District for the year ended June 30, 2004, we considered the District’s internal control structure to determine our auditing procedures for the purpose of expressing an opinion on the financial statements and not to provide assurance on the internal control structure.

However, during our audit we became aware of several matters that are opportunities for strengthening internal controls and operation efficiency. The memorandum that accompanies this letter summarized our comments and suggestions regarding those matters. A separate report dated August 26, 2004, contains our report on reportable conditions and material weaknesses in the District’s internal control structure. This letter does not affect our report dated August 26, 2004, on the financial statements of the Bath County Board School District.

We will review the status of these comments during our next audit engagement.

We have already discussed many of these comments and suggestions with various

District personnel, and we will be pleased to discuss them in further detail at your convenience, to perform any additional study of these matters, or to assist you in implementing the recommendations.

Respectfully,

Chris Gooch


Hazard, Kentucky

August 26, 2004

57.


MANAGEMENT LETTER COMMENTS


Prior Year Comments

1. Condition: A month by month analysis of utility tax receipts by vendor is not employed by the district.

Criteria: An analysis would more readily determine if utility companies were paying currently and payments were not unusually fluctuating.

Cause:

Effect:

A listing by vendor is not employed by the district.

The likelihood that utility tax revenues collections are not maximized is increased without month by month analysis on a vendor basis.

Recommendation: A month by month analysis of utility tax receipts by vendor should be implemented.

Management’s

Response:

Procedures will be implemented to provide a month by month analysis of utility tax receipts.

Current Year

Audit Comment:

Management has assessed and implemented procedures that enable a monthly analysis of utility tax receipts.

2. Monitoring and periodic reconciliation of fixed assets

During the prior year audited, the District was required to inventory fixed assets, assign dollar values, estimate useful lives, accumulate depreciation and then incorporate the information compiled into its current financial reporting system. The following were noted: a. A need to address transfers among departments or sites through written policies and procedures. b. A need to notify the purchasing coordinator for asset transactions occurring, including purchases, transfers, disposals and sales. c. A need to include in fixed assets policies and procedures periodic site visits allowing comparison of physical assets to financial records. d. A need to assess personnel time allocable to fixed asset accounting.

CURRENT YEAR AUDITOR COMMENT

Management developed board approved policies and procedures which addressed the responsibility, definition, purchasing, receiving, monitoring and recording of fixed assets.

58.




Prior Year Comments (continued)

3. Control of purchased goods/inventory items

We noted in our prior audit, fundraising and inventory control reports were not completed for the following activities:



Bath County High School, FCCLA fundraiser – Bumblebee Marketing



Bath County High School – Vo-ag ferns purchased



Bath County Middle School – pencil sales



Bethel Elementary – ice cream sales, raffle tickets



Salt Lick Elementary

– raffle tickets

Prescribed forms should be used for all fundraising and inventory control activities to ensure adequate reconciliation of items purchased to cash collected.

MANAGEMENT RESPONSE

Management will develop procedures at the school level ensuring prescribed forms will be completed before a fundraiser is initiated. The District will monitor these procedures by periodically requesting completed forms.


No prescribed forms were completed for the following:



Bath County High School, Band fundraiser, (cookie dough)

 Bethel Elementary, Santa’s workshop



Bath County Middle School, Concession inventory control sheets

4. Activity Fund Budgets

We noted no activity fund budget prepared for the 2002-03 school year for Bath

County Middle School. The activity budget should be used as a monitoring tool during the year for each individual fund at the school level.


Management will ensure that activity fund budgets are timely prepared by requiring a completed copy to be filed at central office for review.

59.




Prior Year Comments (continued)


No 2003-04 activity fund budget was prepared for the following:



Salt Lick Elementary



Bath County High School

Current Year Comments

1. Authorization and approval for month end journal entries

We noted the District does not have a formal written policy regarding approval and authorization for recurring journal entries and for reclassifications, transfers, and nonrecurring adjusting entries. Review of journal entries reduces the risk of misstatement and fraudulent financial reporting.


Management will develop internal procedures that will enable oversight of recurring and nonrecurring journal entries to the financial accounting system.

BATH COUNTY SCHOOL DISTRICT

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