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Report No. 11452, School Board REPORT NO . 11452 l I t i if STATE OF FLORIDA Office of the Auditor General ....-4.r'T-.„%... irf: .--''' -.1...*... tr. - ' ),..: , ..., . WrWI REPORT ON AUDIT OF THE MONROE COUNTY DISTRICT SCHOOL BOARD FOR THE FISCAL YEAR ENDED JUNE 30, 1989 11452 STATE OF FLORIDA OFFICE OF THE AUDITOR GENERAL REPORT ON AUDIT OF THE MONROE COUNTY DISTRICT SCHOOL BOARD FOR THE FISCAL YEAR ENDED JUNE 30, 1989 DATED: JUNE 19, 1990 MONROE COUNTY DISTRICT SCHOOL BOARD Table of Contents Page No . LETTER OF TRANSMITTAL v I AUDIT REPORT SUMMARY 1 A. Scope 1 B. Objectives 2 C. Methodology 2 D. Findings 3 II INDEPENDENT AUDITOR GENERAL ' S REPORT ON GENERAL PURPOSE FINANCIAL STATEMENTS 9 III INDEPENDENT AUDITOR GENERAL 'S REPORT ON INTERNAL CONTROL 11 A. Personnel and Payroll Administration 14 IV INDEPENDENT AUDITOR GENERAL 'S REPORT ON FINANCIAL MANAGEMENT AND COMPLIANCE 15 A. State and Locally Financed Activities 16 1 . Budget Administration 16 2. Operating Expenditures 17 3 . Employee Benefit Plan 18 B. Federally Financed Programs 19 V PRIOR AUDIT FINDINGS 23 VI STATEMENT FROM AUDITED ❑FFICIAL 23 VII EXHIBITS AND SCHEDULES 24 -iii- STATE OF FLORIDA Q OFFICE OF THE AUDITOR GENERAL 'cor" TALLAHASSEE CHARLESL LESTER CPA June 14, 1990 AUDITOR GENERAL The President of the Senate, the Speaker of the House of Representatives, and the Legislative Auditing Committee Pursuant to the provisions of Section 11.45, Florida Statutes, I have directed that an audit be made of the MONROE COUNTY DISTRICT SCHOOL BOARD For the Fiscal Year Ended June 30, 1989. The School District is part of the State system of public education under the general direction and control of the State Board of Education. The geographic boundaries of the District are those of Monroe County. The governing body of the School District is the District School Board composed of five elected members. The executive officer of the Board is the elected Superintendent of Schools. Board members and the Superintendent of Schools who served during the audit period are shown in the following tabulation: -v- District No. Robert R. Padron 1 Sydney E. Mathews to 11-21-88 2 Frank Courtney from 11-22-88 2 Lee George Ganim 3 Dr. Geraldine T. Caron, Vice-Chairwoman 4 Ruth Alice Campbell, Chairwoman 5 Dr. Armando J. Henriquez, Superintendent The primary sources of funding for the District are State of Florida Education Finance Program funds, local ad valorem taxes, and Federal grants and donations. During the audit period, the District operated 13 schools and reported 8,269.76 unweighted full-time equivalent students. In addition to its primary responsibility of providing educational services to students in grades kindergarten through 12, the District provides adult vocational-technical training. -vi- My reports on the District's general purpose financial statements, systems of internal control, and compliance with laws, rules and regulations, and grantor restrictions are presented herewith. Respectfully submitted, Lit-_ '"- Charles L. Lester, C.P.A. Auditor General Audit supervised by: Gerald J. Schilling Audit made by: James A. Bell -vii- FINANCIAL AND COMPLIANCE AUDIT OF THE MONROE COUNTY DISTRICT SCHOOL BOARD FOR THE FISCAL YEAR ENDED JUNE 30, 1989 AUDIT REPORT SUMMARY This audit report summary highlights the scope, objectives, methodology, and findings of audit report No. 11452, dated June 14, 1990. It is intended to present the general findings of our report in a condensed fashion. The entire audit report should be read for a comprehensive understanding of our audit findings. SCOPE The Auditor General is responsible, as required by the State Constitution and implementing law, for independent financial and compliance audits of the District. Audit responsibilities assigned to the Auditor General include the presentation of a report on the District's general purpose financial statements, assessment of the adequacy of the District's control environment, and determination of the District's compliance with legal requirements. The scope of this audit included an examination of the District's general purpose financial statements as of and for the fiscal year ended June 30, 1989. The audit also included examinations of various transactions to determine whether they were executed, both in manner and substance, in accordance with governing provisions of law, administrative rules, and restrictions imposed by grantors of resources to the State. The proper administration of public resources requires adoption and use of procedures by district school boards that will assure the effective and efficient conduct of their duties and responsibilities. Consequently, a study and evaluation of the adequacy of selected administrative -1- procedures and controls was also included in the scope of the audit. OBJECTIVES Our audit objectives were to determine whether the Monroe County District School Board and its responsible officers with administrative and stewardship responsibilities for District operations, as assigned by law, had: • Presented the District's general purpose financial statements in accordance with generally accepted accounting principles; • Established and implemented adequate systems of internal accounting control to provide for the proper authorization of financial transactions, to provide for the proper recording and reporting of the District's financial operations, and to adequately a safeguard the District's assets; • Complied with the various provisions of law, rules and regulations, and grantor restrictions governing the conduct of its public affairs; and • Corrected, or is in the process of correcting, all deficiencies disclosed in the prior audit (report No. 11267, dated July 10, 1989) . Additionally, this audit report provides information the Legislature may use to improve District operations and allocate public resources. METHODOLOGY The methodology used to develop the findings in this report included examination of pertinent public records of the District and the application of those other procedures required by generally accepted auditing -2- standards and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States. FINDINGS Financial Statements We found that the District's general purpose financial statements fairly presented its financial position and the results of operations and the changes in financial position for the fiscal year ended June 30, 1989, except for the financial position and results of operations of its Fiduciary Fund Types. Our audit did not, as contemplated by State Board of Education Rule 6A-1.087, Florida Administrative Code, extend to an examination of the District's school internal funds, reported as Expendable Trust Funds in the Fiduciary Funds. Accordingly, we do not express an opinion on financial position or results of operations of those funds. Internal Accounting Control The District has established and implemented procedures which generally provide for adequate internal accounting control of District operations; however, our examination of the District's systems of internal accounting control disclosed a deficiency in the District's systems which we considered to be a "Reportable Condition" as defined by generally accepted auditing standards. Although the reportable condition was not considered to be a material weakness in the District's internal accounting control systems, it should be promptly addressed by District management. The specific deficiency noted was as follows: -3- • Controls over payroll expenditures could be improved. Our review disclosed that the same payroll department employee added new employees to the payroll system, changed employees' rates of pay, recorded payroll exceptions and other changes, and removed terminated employees from the system. In addition, all payroll department employees had access to the related electronic data processing payroll files. Data entered into the electronic data processing payroll files were not of record compared with source documents by an employee independent of the payroll processing function. In these circumstances, errors or irregularities could occur and not be detected in a timely manner. (See paragraphs 17 and 18.) Financial Management and Compliance The District has established and implemented procedures which generally promote compliance with governing laws, rules and regulations, and grantor restrictions, except as follows: I • Section 237.02, Florida Statutes, and State Board of Education Rule 6A-1.006, Florida Administrative Code, provide that no expenditure shall be authorized or obligation incurred which is in excess of a budgetary appropriation. Final budget amendments were approved by the Board on August 28, 1989, which was within the established deadline for amending the 1988-89 budget; however, at June 30, 1989, prior to Board approval of the final amendments, several functional expenditure categories had been overexpended. In addition, after corrections were made for liabilities which had -4- 1989, expenditures exceeded final budgeted amounts in two functional expenditure categories. (See paragraphs 24 through 28. ) • Prior approval was not obtained from the Florida Department of Education for a lease in the amount of $72,000 for data processing equipment, contrary to the requirements of Section 236.135, Florida Statutes, and State Board of Education Rule 6A-1.012(9), Florida Administrative Code. (See paragraphs 29 and 30.) • The District remitted amounts which represented the Board's portion of the cost of fringe benefits provided to employees and amounts withheld from employees as their share of the cost of the fringe benefit plan to an account administered by an agent contracted to provide ministerial services and assistance in administering the plan. Employees of the agent were authorized signatories for the account and drew checks for reimbursement to the participating employees. In response to a similar situation at another school board, the Assistant General Counsel of the Florida Board of Education in a letter dated August 24, 1988, concluded that such method of making disbursements was not specifically authorized since Section 237.211, Florida Statutes, requires that all checks and warrants contain the signature of the board chairman and superintendent, except for withdrawals made from an established self-insurance account. (See paragraphs 31 through 33.) -5- • School food service reimbursement claims filed with the Florida Department of Education were generally supported by District records. However, our tests disclosed one instance in which a student was reported as receiving a free lunch on a day when an attendance roster indicated that the student was absent. (See schedule 2, paragraph 1.) • Our tests of student eligibility for participation in the Chapter 1 Basic program disclosed one instance in which an eligible student was not, of record, offered the mathematics remedial courses. (See schedule 2, paragraphs 2 and 3.) • As required by Section 558(c)(2) of Title V, Subtitle D, of Public Law 97-35, as amended, cited as the Education Consolidation and Improvement Act of 1981 (ECIA), the District had a policy to ensure equivalence among schools in the allocation of funds for curriculum materials and instructional supplies. Our review of the amounts allocated for fiscal year 1988-89 indicates that the required equivalency had not been demonstrated. The failure to demonstrate such equivalence could result in disallowed costs. (See schedule 2, paragraphs 4 through 7.) -6- • Our review of the District's indirect cost allocation plan for fiscal year 1988-89 resulted in questioned amounts totaling $662,795.03 included in the total indirect cost base of $1,655,917. The questioned items could result in the overrecovery of indirect costs from Federally funded programs requiring a refund of a portion of the $53,767.05 in indirect costs charged to the Federally funded programs during the fiscal year 1988-89. (See schedule 2, paragraphs 8 through 12.) The Superintendent's written response to the audit findings included in audit report No. 11452 is presented as exhibit G. -7- THIS PAGE INTENTIONALLY LEFT BLANK. -8- FINANCIAL AND COMPLIANCE AUDIT OF THE MONROE COUNTY DISTRICT SCHOOL BOARD FOR THE FISCAL YEAR ENDED JUNE 30, 1989 Par. No. INDEPENDENT AUDITOR GENERAL'S REPORT ON GENERAL PURPOSE FINANCIAL STATEMENTS (1) We have audited the general purpose financial statements of the Monroe County District School Board as of and for the fiscal year ended June 30, 1989, listed on page 24 of this report. These general purpose financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. (2) Except as discussed in the following paragraph, we conducted our audit in accordance with generally accepted auditing standards and 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 general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall general purpose financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. (3) The Board is required by State Board of Education Rule 6A-1.087, Florida Administrative Code, to provide for audits of the school and activity funds, commonly called the school internal funds. Accordingly, our audit did not extend to the school internal funds reported as Expendable Trust Funds on the accompanying general purpose financial statements. These _9_ Par. No. financial activities represent 100 percent of the transactions and account balances of the Fiduciary Fund Type. (4) In our opinion, except for the Expendable Trust Funds, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the Monroe County District School Board as of June 30, 1989, and the results of its operations and the changes in the financial position of the proprietary fund types for the fiscal year then ended in conformity with generally accepted accounting principles. Because we did not audit the school internal funds, we do not express an opinion as to the Expendable Trust Funds presented on the general purpose financial statements. (5) Our audit was made for the purpose of forming an opinion on the general purpose financial statements of the Monroe County District School Board taken as a whole. The accompanying schedule of Federal financial assistance is presented for the purpose of additional analysis and is not a required part of the general purpose financial statements. The information included in that schedule has been subjected to the auditing procedures applied in the audit of the general purpose financial statements mentioned above and, in our opinion, is fairly presented In all material respects in relation to the general purpose financial statements taken as a whole. -10- FINANCIAL AND COMPLIANCE AUDIT OF THE MONROE COUNTY DISTRICT SCHOOL BOARD FOR THE FISCAL YEAR ENDED JUNE 30, 1989 Par. No. INDEPENDENT AUDITOR GENERAL'S REPORT ON INTERNAL CONTROL (6) We have audited the general purpose financial statements of the Monroe County District School Board as of and for the fiscal year ended June 30, 1989, and have issued our report included under the heading INDEPENDENT AUDITOR GENERAL'S REPORT ON GENERAL PURPOSE FINANCIAL STATEMENTS. (7) We conducted our audit in accordance with generally accepted auditing standards and 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 general purpose financial statements are free of material misstatement. (8) In planning and performing our audit of the general purpose financial statements of the Monroe County District School Board for the fiscal year ended June 30, 1989, we considered the District's internal accounting controls in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on the internal accounting controls. (9) We also made a study and evaluation of the internal controls (accounting and administrative) established for Federal financial assistance programs to the extent required by the Single Audit Act of 1984 (31 U.S.C. s. 7501-7507) and Circular A-128 issued by the United States Office of Management and Budget. The accounting controls applicable to the various Federal financial assistance programs are discussed in succeeding paragraphs, and the administrative controls applicable to the various Federal -11- Par. No. programs are described in paragraph 37 of the INDEPENDENT AUDITOR GENERAL'S REPORT ON FINANCIAL MANAGEMENT AND COMPLIANCE. (10) The Board, as provided in Section 230.03(2), Florida Statutes, shall operate, control, and supervise all free public schools in the District. Laws, rules and regulations, and grantor restrictions applicable to the District's activities define, among other matters, the purposes for which resources may be used and the manner in which authorized uses shall be accomplished and documented. These requirements address such diverse matters as personnel qualifications and compensation, the purchase of goods and services, the control of acquired assets, and the reporting of financial activity to various State and Federal agencies. (11) Section 230.03(3), Florida Statutes, provides that the responsibility for the administration of the schools and for the supervision of instruction In the District is vested in the Superintendent as the secretary and executive officer of the Board, as provided by law. To assure the efficient and effective operation of the District School System in accordance with applicable legal and contractual requirements, adequate systems of internal accounting control must be established and maintained. (12) The Superintendent is responsible for establishing and maintaining adequate systems of internal accounting control. In fulfilling this responsibility, estimates and judgments by the Superintendent are required to assess the expected benefits and related costs of internal accounting control policies and procedures. The objectives of the internal accounting control systems are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with the Board's authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any internal accounting control system, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the controls to future periods is subject to the risk that procedures may -12- Par. No. become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. (13) For the purposes of this report, we have classified the significant internal accounting controls into the categories of assets, liabilities, revenues, expenditures, equity balances, and financial reporting. Our consideration of the District's systems of internal control included all of the control categories listed above. The purpose of our consideration of the District's systems of internal control was to determine the nature, timing, and extent of the auditing procedures necessary for expressing an opinion on the general purpose financial statements. (14) We noted one matter involving the internal accounting controls that we consider to be a reportable condition under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the systems of internal accounting control that, in our judgment, could adversely affect the entity's ability to record, process, summarize, and report financial data consistent with the assertions of management in the general purpose financial statements. (15) A material weakness is a reportable condition in which the design or operation of one or more of the elements of the systems of internal accounting control does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the general purpose 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. (16) Our consideration of the systems of internal accounting control would not necessarily disclose all matters in the systems of internal accounting control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions. However, the reportable condition disclosed by our audit and reported in the following comment was not considered to be a material weakness in the systems of internal accounting control. -13- Par. No. Personnel and Payroll Administration (17) Beginning July 1, 1988, the District implemented a new computer software system for processing payrolls. Our review of internal controls over the new system disclosed that District procedures did not provide for an adequate separation of duties In the processing of payrolls in that the same employee in the payroll department added new employees to the payroll system, changed employees' rates of pay, recorded payroll exceptions and other changes, and removed terminated employees from the system. Although only one employee of the payroll department was assigned these duties, all payroll department employees had access to the related electronic data processing payroll files from terminals located at their desks. In addition, data entered into the electronic data processing payroll files were not of record compared with source documents by an employee independent of the payroll processing function. (18) The lack of separation of incompatible duties and lack of independent review increases the risk that unauthorized entries could be made to the payroll records which would not be detected on a timely basis. Although our tests of payroll disbursements indicated that salary payments were made in accordance with approved salary schedules and were adequately supported, Internal control could be improved by segregating among employees the payroll responsibilities noted in the preceding paragraph. Additionally, entries to the electronic data processing payroll files should be independently reviewed to ensure validity of information contained in the files. File access should be restricted to only those employees needing files for their assigned duties. -14- FINANCIAL AND COMPLIANCE AUDIT OF THE MONROE COUNTY DISTRICT SCHOOL BOARD FOR THE FISCAL YEAR ENDED JUNE 30, 1989 Par. No. INDEPENDENT AUDITOR GENERAL'S REPORT ON FINANCIAL MANAGEMENT AND COMPLIANCE (19) We have audited the general purpose financial statements of the Monroe County District School Board as of and for the fiscal year ended June 30, 1989, and have issued our report included under the heading INDEPENDENT AUDITOR GENERAL'S REPORT ON GENERAL PURPOSE FINANCIAL STATEMENTS. (20) We conducted our audit in accordance with generally accepted auditing standards and 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 general purpose financial statements are free of material misstatement. (21) Compliance with laws, rules and regulations, grantor restrictions, and contractual agreements applicable to the Monroe County District School Board is the responsibility of the Board and the Superintendent. As part of obtaining reasonable assurance about whether the general purpose financial statements are free of material misstatement, we performed tests of the District's compliance with certain provisions of law, rules and regulations, grantor restrictions, and contractual agreements. Our findings related to compliance are discussed in paragraphs 24 through 33, paragraphs 42 and 43, and in schedule 2. -15- Par. No. State and Locally Financed Activities (22) We considered the exceptions described in the following paragraphs in forming our opinion on whether the Monroe County District School Board's general purpose financial statements are presented fairly, in all material respects, in conformity with generally accepted accounting principles, and this report does not affect our findings included under the heading INDEPENDENT AUDITOR GENERAL'S REPORT ON GENERAL PURPOSE FINANCIAL STATEMENTS. (23) Except as described below, the results of our tests of compliance indicated that, with respect to the items tested, the Monroe County District School Board complied, in all material respects, with the provisions referred to in paragraph 21 of this report, and with respect to items not tested, nothing came to our attention that caused us to believe that the Monroe County District School Board had not complied, in all material respects, with those provisions. (24) Budget Administration. Original budgets were prepared and approved in accordance with applicable laws and regulations; however, certain deficiencies were noted In the Board's administration of its budgets as discussed below. (25) Section 237.02, Florida Statutes, and State Board of Education Rule 6A-1.006, Florida Administrative Code, provide that no expenditure shall be authorized or obligation incurred which is in excess of a budgetary appropriation and that the Board adopt procedures whereby adjustments to the original budget are made as needed in order to comply with this rule. State Board of Education Rule 6A-1.006, Florida Administrative Code, requires that the Board approve amendments to its budget whenever function and object amounts are changed from those in the original budget. (26) Final budget amendments for the General Fund, Special Revenue Funds, and Capital Projects Funds were approved by the Board on August 28, 1989, which was within the deadline set by the Florida Department of Education for amending the 1988-89 budget. However, as similarly noted for -16- Par. No. fiscal year 1987-88 budgets in audit report No. 11267, paragraphs 17 through 20, ten functional expenditure categories in the General Fund, two in the Special Revenue Funds, and one in the Capital Projects Funds were overspent by total amounts of $2,604,853.88, $56,292.88, and $160,858.87, respectively, at June 30, 1989, prior to Board approval of the final budget amendments. (27) Additionally, liabilities of the General Fund totaling $1,006,004.97 had not been recorded or reported in the District's general purpose financial statements at June 30, 1989. Approved adjustments were made to include these payables in the District's financial statements; however, because the effect of the related expenditures on budgetary compliance was not considered when making the final budget amendment, expenditures exceeded appropriations in the final approved General Fund budget in the functional categories General Administration and Facilities Acquisition and Construction by $64,215.87 and $492,600.82, respectively, as shown on exhibit C. (28) The proper reporting and recording of transactions as they occur is an essential element in the preparation of financial reports for use by management. In the absence of accurate records and reports of amounts committed to expenditures and the timely amendment of adopted budgets and strict adherence thereto, the effectiveness of the budgets as a means of controlling expenditures within available resources is limited. The District should implement procedures to ensure that expenditures are properly recorded in the fiscal year incurred and that all necessary budget amendments are timely adopted by the Board to preclude incurring expenditures which exceed budget authority. (29) Operating Expenditures. State Board of Education Rule 6A-1.012(9), Florida Administrative Code, provides that the purchase or lease of information technology resources (as defined In Section 282.303(10), Florida Statutes), may be made through direct negotiation with a vendor without utilizing the bid process, providing prior approval has been obtained from the Florida Department of Education. Also, Section 236.135, Florida Statutes, requires each district school board to secure prior approval from the Commissioner of Education before purchasing or leasing any electronic -17- Par. No. data processing equipment or software costing in excess of $25,000 in any 12-month period. (30) On July 25, 1988, the Board authorized the lease of two computer learning centers. A purchase order dated February 15, 1989, provided for 12 monthly lease payments totaling $72,000. Our review of documentation supporting the lease payments disclosed that at the time of the original lease competitive bids of record had not been obtained nor had the District requested or received the required approval from the Florida Department of Education. In August 1989, subsequent to the original lease of the equipment, the District requested permission from the Florida Department of Education to acquire the equipment. This request was approved by the Florida Department of Education in October 1989. We recommend that District personnel take action to ensure that approval by the Florida Department of Education is obtained prior to acquiring such electronic data processing equipment as required by Section 236.135, Florida Statutes. (31) Employee Benefit Plan. The Board established an employees' fringe benefit plan (cafeteria plan) under the provisions of the Internal Revenue Code, Section 125, and contracted with an insurance agency to function as plan manager. Benefits provided under this plan included day-care and medical expense reimbursements. Under the provisions of the plan, the Board established an interest-earning checking account to which deposits were made which represented the Board's portion of the cost of fringe benefits provided to employees and the amount withheld from employees for their share of the cost of fringe benefits. Records provided for audit indicated that employees of the plan manager were authorized signatories for the account. Checks signed by employees of the plan manager were drawn on the account for deposit into the plan manager's Universal Disbursement Account. Checks for payment to various insurance carriers, vendors providing benefits to Board employees, and Board employees for day-care and medical expense reimbursements were made by the plan manager from the Universal Disbursement Account. (32) Section 237.211(4), Florida Statutes, provides that all money drawn from any district school depository shall be upon a check or warrant drawn -18- 0 Par. No. on authority of the school board and such check or warrant shall be signed by the board chairman or the vice-chairman and the superintendent. While we are aware that Section 237.211(6), Florida Statutes, authorizes a school board to advance money to an approved self-insurance service agent for deposit to a special checking account for paying claims against the school board under its self-Insurance program, we are unaware of any authority for establishing such an account for an employees' fringe benefit plan. (33) In response to a similar situation at another school board, the Assistant General Counsel of the Florida Board of Education in a letter dated August 24, 1988, stated that the fringe benefit plan established by the District is not a self-insurance program and, consequently, does not come within the purview of Section 237.211(6), Florida Statutes. In view of the opinion of the Assistant General Counsel, we recommend that the District request clarification from the General Counsel of the Florida Board of Education as to the authority of the Monroe County District School Board to disburse funds in the above-mentioned manner. Federally Financed Programs (34) Our audit of Federal financial assistance programs was made in accordance with generally accepted auditing standards; GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States; the Single Audit Act of 1984 (31 U.S.C. s. 7501-7507); and United States Office of Management and Budget Circular A-128. (35) Federal financial assistance programs are classified under the Single Audit Act of 1984 into major and nonmajor programs. Under the criteria established by the Single Audit Act of 1984, a major program for the District is any program for which Federal expenditures during the applicable year exceed the larger of $300,000 or 3 percent of such total Federal financial assistance expenditures. Federal financial assistance expenditures during the audit period are shown on schedule 1. (36) Our audit Included a review of the District's systems of internal accounting and administrative control established to administer and account -19- Par. No. for Federal financial assistance in accordance with applicable grantor guidelines. (37) In addition to the internal accounting controls discussed in paragraph 13 under the heading INDEPENDENT AUDITOR GENERAL'S REPORT ON INTERNAL CONTROL, internal administrative controls have been established pertaining to allowability of expenditures; eligibility of program participants; matching requirements and levels of effort; financial and other reporting; special program requirements; and the general compliance requirements applicable to Federal financial assistance programs. The objectives of these administrative controls, along with the internal accounting controls, are to provide management with reasonable, but not absolute, assurance that, with respect to Federal financial assistance programs, resource use is consistent with laws, rules and regulations, and policies; that resources are safeguarded against waste, loss, and misuse; and that reliable data are obtained, maintained, and fairly disclosed in reports. (38) Our study included all of the applicable control categories discussed in paragraph 37 above. During the fiscal year ended June 30, 1989, the District expended approximately 63 percent of its total Federal financial assistance under major Federal financial assistance programs. With respect to internal control systems used in administering major Federal financial assistance programs, our study and evaluation included considering the types of errors or irregularities that could occur, determining whether the internal control procedures implemented by the District were adequate to meet specified Federal requirements, determining whether such procedures that should prevent or detect errors or irregularities were being followed satisfactorily, and evaluating any weaknesses disclosed by our review. (39) With respect to the internal administrative control systems used in administering the nonmajor Federal financial assistance programs of the District, our study and evaluation was limited to a preliminary review of the systems to obtain an understanding of the control environment and the flow of transactions through the accounting system. Our study and evaluation of the internal administrative control systems used in administering the -20- Par. No. nonmajor Federal financial assistance programs of the District did not extend beyond this preliminary review phase. (40) Our study and evaluation was more limited than would be necessary to express an opinion on the internal administrative control systems used in administering the Federal financial assistance programs of the District. Accordingly, we do not express an opinion on these internal administrative control systems. Also, our audit, made in accordance with the standards mentioned above, would not necessarily disclose all weaknesses in the internal administrative control systems for which our study and evaluation was limited to a preliminary review of the systems, as discussed in the prior paragraph. However, our study and evaluation and our audit disclosed no condition that we believe to be a material weakness in relation to a Federal financial assistance program of the District. We did note other matters involving the internal control systems (accounting and administrative) and their operation. These matters are discussed in paragraphs 17 and 18, in the INDEPENDENT AUDITOR GENERAL'S REPORT ON INTERNAL CONTROL, and in schedule 2. (41) In connection with our audit, we selected and tested transactions and records from each major Federal financial assistance program and certain nonmajor Federal financial assistance programs. The purpose of our testing of transactions and records from those Federal financial assistance programs was to obtain reasonable assurance that the District had, in all material respects, administered major programs and executed the tested nonmajor program transactions, in compliance with applicable laws and regulations, including those pertaining to financial reports and claims for advances and reimbursements, noncompliance with which we believe could have a material effect on the District's general purpose financial statements or the allowability of program expenditures. (42) In our opinion, the District, for the fiscal year ended June 30, 1989, administered each of its major Federal financial assistance programs in compliance, in all material respects, with applicable laws and regulations noncompliance with which we believe could have a material effect on the District's general purpose financial statements or on the allowability of -21- Par. No. program expenditures. However, as discussed in schedule 2, our testing of transactions and records selected from major Federal financial assistance programs did disclose some instances of noncompliance with applicable laws and regulations. (43) The results of our testing of transactions and records selected from nonmajor Federal financial assistance programs indicate that, for the transactions and records tested, the District complied with applicable laws and regulations, except as discussed in schedule 2. Our testing was more limited than would be necessary to express an opinion on whether the District administered those programs in compliance in all respects with those laws and regulations noncompliance with which we believe could have a material effect on the allowability of expenditures for a particular nonmajor program; however, with respect to the transactions and records that were not tested by us, nothing came to our attention to Indicate that the District had not complied with applicable laws and regulations, except as discussed in schedule 2. -22- FINANCIAL AND COMPLIANCE AUDIT OF THE MONROE COUNTY DISTRICT SCHOOL BOARD FOR THE FISCAL YEAR ENDED JUNE 30, 1989 Par. No. PRIOR AUDIT FINDINGS (44) Except as noted in the preceding paragraphs of the INDEPENDENT AUDITOR GENERAL'S REPORT ON FINANCIAL MANAGEMENT AND COMPLIANCE, and in schedule 2, the District corrected the deficiencies cited in audit report No. 11267. STATEMENT FROM AUDITED OFFICIAL (45) In accordance with the provisions of Section 11.45(7)(d), Florida Statutes, a list of audit findings was submitted to the Monroe County District School Board and the Superintendent. The Superintendent's response to the audit findings included in this report is shown on exhibit G. -23- EXHIBITS AND SCHEDULES The following exhibits and schedules are attached to and form an integral part of audit report No. 11452: GENERAL PURPOSE FINANCIAL STATEMENTS EXHIBIT - A Combined Balance Sheet - Ali Fund Types and Account Groups. EXHIBIT - B Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - All Governmental Fund Types and Expendable Trust Funds. EXHIBIT - C Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Governmental Fund Types. EXHIBIT - D Combined Statement of Revenues, Expenses, and Changes in Retained Earnings - All Proprietary Fund Types. EXHIBIT - E Combined Statement of Changes in Financial Position - All Proprietary Fund Types. EXHIBIT - F Notes to Financial Statements. SUPPLEMENTARY INFORMATION SCHEDULE - I Schedule of Federal Financial Assistance. SCHEDULE - 2 Schedule of Findings and Questioned Costs - Federally Financed Programs. OFFICIAL'S RESPONSE TO AUDIT FINDINGS EXHIBIT - G Statement from Audited Official. -24- THIS PAGE INTENTIONALLY LEFT BLANK. -25- EXHIBIT - A MONROE COUNTY DISTRICT SCHOOL BOARD COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS June 30, 1989 Governmental Fund Types General Special Debt Capital Revenue Service Projects ASSETS Alm OTHER DEBITS Cash $7,623,991.39 $151,462.60 0 7,151.80 $90,525.96 Cash With Fiscal Agent 71,468.08 Accounts Receivable 8,425.71 Due from Reinsures Due from Other Funds 68,914.78 89,101.55 2,726.30 Investments 342,100.65 Inventory 339,032.91 118,938.64 Due from Other Agencies 365,552.46 General Fixed Assets: Land Improvements Other Than Buildings Buildings and Fixed Equipment Furniture, Fixtures, and Equipment Motor Vehicles Construction in Progress Amount Available for Debt Service Amount to be Provided for Retirement of General Long-Tern Debt Amount to be Provided for Compensated Absences TOTAL ASSETS AND OTHER DEBITS 08,427,385.33 $359,502.79 $349,252.45 $93,252.26 LIABILITIES AND FUND EQUITY Liabilities: Salaries and Wages Payable $ 130,080.98 $ $ 0 Payroll Deductions and Withholdings 185,775.50 Accounts Payable 614,357.96 25,423.69 Financed Insurance Premiums Payable 113,869.08 Construction Contracts Payable 298,674.29 Construction Contracts Payable - Retainage Percentage 141,497.58 Due to Other Funds 92,161.06 62,319.41 26.40 10.94 Due to Other Agencies 1,548.75 45,276.67 Deferred Revenue 80,530.00 Estimated Insurance Claims Payable Compensated Absences Payable Notes Payable 5,000,000.00 Bonds Payable Total Liabilities 6,658,495.20 133,019.77 26.40 10.94 Fund Equity: Investment in Fixed Assets Retained Earnings Fund Balances: Reserved for State Categorical Programs 199,781.00 Reserved for Encumbrances 425,199.13 133,959.11 Reserved for Debt Service 342,100.65 Unreserved: Designated for School Operations 743,773.50 Designated for Employee Health Benefits 250,000.00 Designated for Special Programs 57,978.11 Undesignated 142,158.39 92,523.91 7,125.40 93,241.32 Total Fund Equity 1,818,890.13 226,483.02 349,226.05 93,241.32 TOTAL LIABILITIES AND FUND EWUITY 08,411,385.33 $359,502.79 $349,252.45 $93,252.26 The accompanying notes to the financial statements are an integral part of this statement. -26- EXHIBIT - A Proprietary Fiduciary Account Groups Total Fund Types Fund Types General General (Memorandum Internal Expendable Fixed Long-Term Only) Service Trust Assets Debt (Unaudited) $711,059.08 $545,800.80 S S 9 9,129,991.63 71,468.08 8,425.71 28,476.19 28,476.19 87,011.08 247,753.71 342,100.65 457,971.55 365,552.46 2,452,653.66 2,452,653.66 1,215,574.05 1,215,574.05 36,144,728.97 36,144,728.97 5,358,833.31 5,358,833.31 2,321,561.57 2,321,561.57 2,174,327.39 2,174,327.39 342,100.65 342,100.65 1,027,899.35 1,027,899.35 675,614.89 675,614.89 0826,546.35 0545,800.80 S49,667,678.95 $2,045,614.89 $62,365,033.82 8 8 9 4 6 130,080.98 185,775.50 96,817.31 736,598.96 113,869.08 298,674.29 141,497.58 86,677.87 241,195.68 46,825.42 80,530.00 618,829.00 618,829.00 675,614.89 675,614.89 5,000,000.00 1,370,000.00 1,370,000.00 802,324.18 2,045,614.89 9,639,491.38 49,667,678.95 49,667,678.95 24,222.17 24,222.17 199,781.00 559,158.24 342,100.65 743,773.50 250,000.00 57,978.11 545,800.80 880,849.82 24,222.1] 545,800.80 49,667,678.95 52,725,542.44 0826,546.35 $545,800.80 049,667,678.95 $2,045,614.89 $62,365,033.82 -27- § i§§§ > !__ N _; # 0 !_!0! 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I jN} p it|I | j ! | � ; mil ;/; .| ; • ! - _P: I iik An A} f I | 1 -I EXHIBIT - C MONROE COUNTY DISTRICT SCHOOL BOARD COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GOVERNMENTAL FUND TYPES For the Fiscal Year Ended June 30, 1989 Governmental Fund Types General Budget Actual Variance - Favorable (Unfavorable) Revenues Intergovernmental: Federal Direct $ 820,814.00 5 820,814.00 $ Federal Through State State Sources 7,162,137.63 7,193,674.89 31,537.26 Local Sources 27,982,695.65 28,252,791.96 270,096.31 Total Revenues 35,965,647.28 36,267,280.85 301,633.57 Expenditures Current - Education: Instruction 19,593,215.34 19,459,416.65 133,798.69 Pupil Personnel Services 1,596,763.18 1,477,662.12 119,101.06 Instructional Media Services 676,113.04 666,358.14 9,754.90 Instruction end Curriculum Development Services 451,726.44 433,717.05 18,009.39 Instructional Staff Training 348,212.24 292,179.23 56,033.01 Board of Education 233,751.56 232,929.00 822.56 General Administration 1,156,858.89 1,221,074.76 (64,215.87) School Administration 2,500,905.74 2,379,945.27 120,960.47 Fiscal Services 454,622.95 452,878.15 1,744.80 Food Services Central Services 1,154,137.77 928,030.48 226,107.29 Pupil Transportation Services 1,969,167.38 1,943,991.05 25,176.33 Operation of Plant 3,323,286.94 3,085,168.24 238,118.70 Maintenance of Plant 3,260,802.08 3,243,668.54 17,133.54 Community Services 145,907.79 145,551.06 356.73 Fixed Capital Outlay: Facilities Acquisition and Construction 891,449.00 1,384,049.82 (492,600.82) Other Capital Outlay Debt Service: Principal Interest and Fiscal Charges 387,188.00 371,000.00 16,188.00 Total Expenditures 38,144,108.34 37,717,619.56 426,488.78 Excess (Deficiency) of Revenues Over Expenditures (2,178,461.06) (1,450,338.71) 728,122.35 Other Financing Sources (Uses) Operating Transfers In .20 (.20) Insurance Loss Recoveries 674.15 674.15 Operating Transfers Out (376,653.47) (376,653.47) Total Other Financing Sources (Uses) (376,653.27) (375,979.32) 673.95 Excess IDeficienwyl of Revenues and Other Sources Over Expenditures and Other Uses (2,555,114.33) (1,826,318.03) 728,796.30 Fund Balances, July 1, 1988 3,648,239.14 3,645,208.16 (3,030.98) Residual Equity Transfer Fad Balances, June 30, 1989 $ 1,093,124.81 0 1,818,890.13 5 725,765.32 -30- EXHIBIT - C Governmental Fund Types Special Revenue Debt Service Budget Actual Variance - Budget Actual Variance - Favorable Favorable (Unfavorable) (Unfavorable) 0 9 $ 0 $ 9 2,355,258.15 2,178,853.68 (176,404.47) 34,000.00 30,608.00 (3,392.00) 235,179.49 268,058.73 32,879.24 1,251,700.00 1,200,474.20 (51,225.60) 287.85 287.85 3,640,956.15 3,409,935.88 (231,022.27) 235,179.49 266,346.58 33,167.09 1,379,463.00 1,296,483.56 82,979.44 332,257.95 313,933.03 16,324.92 1,352.42 1,352.42 44,023.72 35,238.69 6,785.03 162,001.14 155,076.39 6,924.75 2,295,525.57 2,142,048.13 153,477.44 68,144.46 77,683.63 10,260.83 1,552.40 1,552.40 52,128.00 11,000.00 41,126.00 629,614.00 190,000.00 439,614.00 218,377.5S 76,285.91 140,091.62 4,356,448.66 4,034,568.25 321,660.41 647,991.53 268,285.91 579,705.62 (715,490.51) (624,632.37) 90,858.14 (612,812.04) 60.67 612,672.71 376,653.47 376,653.47 527,810.17 (527,810.17) 376,653.47 376,653.47 527,810.17 (527,810.17) (338,837.04) (247,976.90) 90,858.14 (85,001.67) 60.67 85,062.54 474,461.92 474,461.92 636,915.36 349,165.38 (267,750.00) 0 135,624.88 $ 226,483.02 9 90,656.14 0 551,913.51 $349,226.05 $(202,687.46) -31- EXHIBIT - C MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GOVERNMENTAL FUND TYPES For the Fiscal Year Ended June 30, 1989 Governmental Fund Types Capital Projects Budget Actual Variance - Favorable (Unfavorable) Revenues Intergovernmental: Federal Direct 0 $ $ Federal Through State State Sources 907,185.88 915,512.89 8,327.01 Local Sources 848,631.00 902,053.10 53,422.10 Total Revenues 1,755,816.88 1,817,565.99 61,749.11 Expenditures Current - Education: Instruction Pupil Personnel Services Instructional Media Services Instruction end Curriculum Development Services Instructional Staff Training Board of Education General Administration School Administration Fiscal Services Food Services Central Services Pupil Transportation Services Operation of Plant Maintenance of Plant Community Services Fixed Capital Outlay: Facilities Acquisition and Construction 2,884,605.75 2,517,654.45 366,951.30 Other Capital Outlay 126,697.50 126,697.50 Debt Service: Principal Interest and Fiscal Charges Total Expenditures 3,011,303.25 2,644,351.95 366,951.30 Excess (Deficiency) of Revenues Over Expenditures (1,255,486.3T) (826,785.96) 428,700.41 Other Financing Sources (Uses) Operating Transfers In Insurance Loss Recoveries Operating Transfers Out Total Other Financing Sources (Uses) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses (1,255,486.37) (826,785.96) 428,700.41 Fund Balances, July 1, 1988 1,255,486.37 94,474.72 (1,161,011.65) Residual Equity Transfer 825,552.56 825,552.56 Fund balances, ,Ace 30, 1969 0 $ 93,241.32 $ 93,241.32 The accompanying notes to the financial statements are an integral part of this statement. -32- EXHIBIT - C (Continued) Total (Memorandum Only) Budget Actual Variance - Favorable (Unfavorable) $ 820,814.00 0 820,814.00 0 2,355,258.15 2,178,853.68 (176,404.47) 8,338,503.00 8,407,854.51 69,351.51 30,083,026.65 30,355,607.11 272,580.46 41,597,601.80 41,763,129.30 165,527.50 20,972,678.34 20,755,900.21 216,778.13 1,929,021.13 1,791,595.15 137,425.98 677,465.46 667,710.56 9,754.90 451,726.44 453,717.05 18,009.39 392,235.96 327,417.92 64,818.04 233,751.56 232,929.00 822.56 1,318,860.03 1,376,151.15 (57,291.12) 2,500,905.74 2,379,945.27 120,960.47 454,622.95 452,878.15 1,744.80 2,295,525.57 2,142,048.13 153,477.44 1,242,282.23 1,005,914.11 236,368.12 1,969,167.38 1,943,991.05 25,176.33 3,324,839.34 3,086,720.64 238,118.70 3,260,802.08 3,243,668.54 17,133.54 145,907.79 145,551.06 356.73 3,828,182.75 3,912,704.27 (84,521.521 126,697.50 126,697.50 529,614.00 190,000.00 439,614.00 605,565.53 449,285.91 156,279.62 46,359,851.78 44,664,825.67 1,695,026.11 (4,762,249.981 (2,901,696.37) 1,860,553.61 904,463.84 376,653.47 (527,810.37) 674.15 674.15 (376,653.471 (376,653.47) 527,810.37 674.15 (527,136.221 (4,234,439.61) (2,901,022.221 1,333,417.39 6,015,102.81 4,563,310.18 (1,451,792.63) 825,552.56 825,552.56 $ 1,780,663.20 0 2,487,840.52 0 707,177.52 -33- EXHIBIT - D MONROE COUNTY DISTRICT SCHOOL BOARD COMBINED STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN RETAINED EARNINGS - ALL PROPRIETARY FUND TYPES For the Fiscal Year Ended June 30, 1989 Internal Service Fund Operating Revenues : Insurance Premiums $1 ,662,774. 82 Miscellaneous Revenues 24,678. 75 Total Operating Revenues 1,687,453 .57 Operating Expenses : Insurance Claims 1 , 320,036 . 68 Insurance Premiums 143, 387. 53 Fees and Other Expenses 70,258. 72 Total Operating Expenses 1,533,682.93 Operating Income 153,770.64 Nonoperating Revenues : Interest Income 14,860. 29 Insurance Recoveries 249,239. 21 Total Nonoperating Revenues 264,099 . 50 Net Income 417,870. 14 Retained Earnings, July 1 , 1988 49, 186. 30 Retained Earnings, June 30, 1989, Prior to Residual Equity Transfers 467,056 .44 Residual Equity Transfers to the Capital Projects Funds (442,834. 27) Retained Earnings, June 30, 1989 $ 24,222 . 17 The accompanying notes to the financial statements are an integral part of this statement. -34- MONROE COUNTY EXHIBIT - E DISTRICT SCHOOL BOARD COMBINED STATEMENT OF CHANGES IN FINANCIAL POSITION - ALL PROPRIETARY FUND TYPES For the Fiscal Year Ended June 30, 1989 Internal Service Fund Sources of Working Capital: Operations: Net Income $ 417,870. 14 Uses of Working Capital: Residual Equity Transfers to the Capital Projects Funds: From Contributed Capital 382,718.29 From Retained Earnings 442,834.27 Total Uses of Working Capital 825,552. 56 Net Increase (Decrease) in Working Capital $(407,682.42) Elements of Changes in Working Capital : Cash $ 186,895.19 Due from Reinsurer (5,664.14) Due from Other Funds (830,051 .97) Accounts Payable 52,275. 37 Due to Other Funds (36,677.87) Estimated Insurance Claims Payable 225,541 .00 Net Increase (Decrease) in Working Capital $(407,682.42) The accompanying notes to the financial statements are an integral part of this statement. -35- EXHIBIT - F MONROE COUNTY DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The governing body of the school district is the District School Board composed of five elected members. The elected Superintendent of Schools is the executive officer of the Board. The District School Board is part of the State system of public education under the general direction and control of the State Board of Education and is financially dependent on State support. Geographic boundaries of the District correspond with those of Monroe County. The general operating authority of the District School Board and Superintendent is contained In Chapters 228 through 238, Florida Statutes. Pursuant to Section 237.01, Florida Statutes, the Superintendent of Schools is responsible for keeping records and accounts of all financial transactions in the manner prescribed by the State Board of Education. B. Basis of Presentation Accounting policies conform with generally accepted accounting principles applicable to State and local governmental units. Accordingly, the District's accounting system is organized on the basis of funds and account groups. A fund is an accounting entity having a self-balancing set of accounts for recording assets, liabilities, fund equity, revenues, either expenditures or expenses depending on fund type, and other financing sources and uses. Resources are allocated to and accounted for in individual funds based on the purposes for which they are to he spent and the means by which spending activities are controlled. The several individual generic funds are grouped, in the financial statements of this report, -36- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 into Governmental Fund Types; Proprietary Fund Types; and Fiduciary Fund Types as follows: GOVERNMENTAL FUND TYPES General Fund - to account for all financial resources not required to be accounted for in another fund and for certain revenues from the State that are legally restricted to be expended for specific current operating purposes. Special Revenue Funds - to account for the financial resources of the school food services program and certain Federal grant program resources. Debt Service Funds - to account for the accumulation of resources for, and the payment of, general long-term bonded debt principal, interest, and related costs. Capital Projects Funds - to account for financial resources to be used for educational capital outlay needs including new construction, renovation, and remodeling projects. PROPRIETARY FUND TYPES Internal Service Funds - to account for the Board's individual self-insurance programs for property and casualty, including workers' compensation insurance coverage, and employee group health insurance. -37- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30 , 1989 FIDUCIARY FUND TYPES Expendable Trust Funds - to account for resources of the school internal funds which are used to administer money collected at the schools in connection with school, student athletic, class, and club activities. ACCOUNT GROUPS Account groups are not funds. They consist of self-balancing sets of accounts and are used only to establish accounting control over general fixed assets and general long-term obligations. Account groups are not used to account for available resources or the actual acquisition of fixed assets or payment of liabilities. General Fixed Assets Account Group - to establish accounting control for general fixed assets. General fixed assets are usually acquired with resources of governmental fund types and expendable trust funds and used in association with activities of these funds. General Long-term Debt Account Group - to establish accounting control for long-term debt and other long-term obligations of governmental fund types. Long-term obligations of funds using propriety fund accounting are reported as liabilities in those funds rather than in the General Long-Term Debt Account Group. C. Basis of Accounting Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. -38- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. All governmental fund types are accounted for using the modified accrual basis of accounting. Their revenues, except for certain grant revenues, are recognized when they become measurable and available. When grant terms provide that the expenditure of resources is the prime factor for determining eligibility for Federal, State, and other grant resources, revenue is recognized at the time the expenditure is made. Under the modified accrual basis of accounting, expenditures are generally recognized when the related fund liability is incurred. The principal exceptions to this general rule are: (1) prepaid expenses are generally not accrued; (2) interest on general long-term debt is recognized as an expenditure when due; and (3) expenditures related to liabilities reported as general long-term debt are recognized when due. Expendable Trust Funds are reported on the cash basis of accounting, whereby revenues and expenditures are recognized when cash is received or disbursed. The Internal Service Funds are accounted for using the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. D. Budgetary Basis Accounting The Board follows these procedures, established by State statutes and State Board of Education rules, in establishing final budget balances reported on the financial statements: -39- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 1. Budgets are prepared, public hearings are held, and original budgets are adopted annually for all governmental fund types in accordance with procedures and time intervals prescribed by law and State Board of Education rules. Original budgets are submitted to the State Commissioner of Education for approval. 2. Appropriations are controlled at the object (e.g. , salaries, purchased services, and capital outlay) level within each activity (e.g. , instruction, pupil personnel services, and school administration) and may be amended by resolution of the Board at any Board meeting prior to the due date for the annual financial report. 3. Budgets are prepared using the same modified accrual basis as is used to account for actual transactions. 4. Budgetary information is integrated into the accounting system and, to facilitate budget control, budget balances are encumbered when purchase orders are issued. Appropriations lapse at year-end and encumbrances outstanding are honored from the subsequent year's appropriations as described in a subsequent note on the Reserve for Encumbrances. E. Cash Cash deposits are held by banks qualified as public depositories under Florida law. All deposits are fully insured by Federal depository insurance and a multiple financial institution collateral pool required by Sections 280.07 and 280.08, Florida Statutes. Included in cash reported in the General Fund are certificates of deposit in the amount of $5,016,361.11. -40- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 F. Investments Investments consist of those made by the State Board of Administration from the District's bond proceeds held and administered by the State Board of Education. Information as to the market value of investments made by the State Board of Administration is not reported to the District. Types and amounts of investments held at year-end are described in a subsequent note on investments. G. Inventory Inventories consist of expendable supplies held for consumption in the course of District operations. Inventories are stated at cost, except that United States Department of Agriculture surplus commodities are stated at their fair value as determined at the time of donation to the District's food service program by the Florida Department of Health and Rehabilitative Services, Food Distribution Center. The weighted average method is used in pricing the various General Fund inventories and the Special Revenue Funds inventories of small equipment and nonfood items. The first-in, first-out method is used in pricing the Special Revenue Funds food inventory. H. Fixed Assets and Depreciation Expenditures for fixed assets acquired or constructed for general District purposes are reported in the governmental fund type or Expendable Trust Fund that financed the acquisition or construction; whereas, the fixed assets so acquired are capitalized (recorded) at cost in the General Fixed Assets Account Group. Donated fixed assets are -41- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 recorded at fair market value at the date of donation. The depreciation of general fixed assets is not recorded in the District's accounts. Interest costs incurred during construction are not capitalized as part of the cost of construction, Current year information relative to changes in general fixed assets is described in a subsequent note. I. Long-Term Debt and Compensated Absences Long-term obligations that will be financed from resources to be received in the future by governmental fund types are reported in the General Long-Term Debt Account Group, not in individual funds. Compensated absences, I.e. , paid absences for employee vacation leave and sick leave, are recorded in governmental fund types as an expenditure when used or when accrued as payable to employees entitled to cash payment in lieu of taking leave. Compensated absences that exceed this amount at year-end are reported in the General Long-Term Debt Account Group and are not recorded as expenditures. Changes in long-term debt for the current year are reported in a subsequent note. J. State Revenue Sources Revenues from State sources for current operations are primarily from the Florida Education Finance Program administered by the Florida Department of Education under the provisions of Section 236.081, Florida Statutes. In accordance with this law, the District files reports of full-time equivalent student membership with the Department. The -42- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 Department accumulates information from these reports and calculates the allocation of funds to the District. After review and verification of reports and supporting documentation, the Department may adjust subsequent fiscal period allocations of money for prior year errors disclosed by the review. In a report dated May 25, 1988, the Department reported that such an examination had resulted in a decrease of 237.68 full-time equivalent student memberships reported for the fiscal years 1982-83 and 1983-89. Subsequent to June 30, 1989, the Department determined that funding adjustments resulting from their findings totaled $240,572. Normally, such adjustments are treated as reductions of revenue of the year when the adjustment is made. The Board receives revenue from the State to administer certain categorical educational programs. State Board of Education rules require that revenue earmarked for these programs be expended only for the program for which the money is provided and require that the money not expended as of the close of the fiscal year be carried forward into the following year to be expended for the same categorical educational programs. The Department requires that categorical educational program revenues be accounted for in the General Fund. A portion of the fund balance of the General Fund is reserved for the unencumbered balance of categorical educational program resources. The State allocates gross receipts taxes, generally known as Public Education Capital Outlay money, to the District School Board on an annual basis. The Board is authorized to expend these funds only upon applying for and receiving an encumbrance authorization from the Florida Department of Education. During the fiscal year 1988-89 the District received a Public Education Capital Outlay allocation which was subsequently remitted by the District to the Institute Patriotico y Docente San Carlos, Inc. (San -43- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 Carlos Patriotic and Educational Institute, Inc.) . These moneys were provided for in the fiscal year 1988-89 General Appropriations Act (Chapter 88-555, Laws of Florida) in item No. 1921A and were shown as appropriated to San Carlos Institute, Monroe School Board. These moneys were not treated by the District as budgeted revenues and expenditures since the District's sole responsibility was to act as fiscal agent in remitting the moneys to the Instituto Patriotico y Docente San Carlos, Inc. A schedule of revenue from State sources for the current year is presented in a subsequent note. K. Property Taxes - Revenue Recognition The Board is authorized by State law to levy property taxes for district school operations, capital improvements, and debt service. Property taxes consist of ad valorem taxes on real and personal property within the District. Property taxes are assessed by the Monroe County Property Appraiser and are collected by the Monroe County Tax Collector. Taxes become an enforceable lien on property as of January 1; tax bills are mailed in October; and taxes are payable between November 1 of the year assessed and March 31 of the following year at discounts of up to 4 percent for early payment. Taxes become delinquent on April 1 of the year following the year of assessment and State law provides for enforcement of collection of personal property taxes by seizure of the property to satisfy unpaid taxes and for enforcement of collection of real property taxes by the sale of interest-bearing tax certificates to satisfy unpaid taxes. The -44- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 procedures result in the collection of essentially all taxes prior to June 30 of the year following the year of assessment. Property tax revenue is recognized when taxes are received by the Board except that at year-end revenue is accrued for taxes collected by the Monroe County Tax Collector but not yet remitted to the Board. Because any delinquent taxes collected after June 30 would not be material, delinquent taxes receivable are not accrued and no delinquent tax revenue deferral is recorded. Millages and taxes levied for the current year are presented in a subsequent note. L. Total Columns on the Combined Statements Total columns on the accompanying combined financial statements are captioned "Memorandum Only" because they are presented only to facilitate financial analyses. Inasmuch as the total columns include fund types and account groups that use different bases of accounting, include both restricted and unrestricted amounts, and include interfund transactions that have not been eliminated, data in the total columns are not intended to present the financial position, results of operations, or changes in financial position in conformity with generally accepted accounting principles. Neither are such data comparable to a consolidation. 2. INVESTMENTS AND INTEREST EARNED Generally accepted accounting principles require that the credit risk of investments be classified into the following three categories: -45- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 1. Insured or registered, or securities held by the District or its agent in the District's name. 2. Uninsured and unregistered, with securities held by the counterparty's trust department or agent in the District's name. 3. Uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent but not in the District's name. Certain investments cannot be categorized because the District's investments are not evidenced by specific identifiable investment securities, such as investments managed by other governments. Section 218.407, Florida Statutes, authorizes the Board to participate in the State Board of Administration investment pool. All Investments at June 30 were in the State Board of Administration investment pool with a carrying amount of $342,100.65. Interest earned during the fiscal year is as follows: Total Sources of Interest Earned Fund State Board of Interest-Earning Undistributed Administration Cash Deposits Tax Receipts General $1,095,226.43 $ $1,038,843.98 $56,382.45 Special Revenue - Food Service 18,430.99 18,430.99 Debt Service 33,167.09 32.879.24 287.85 Capital Projects 33,174.00 8,327.01 18,577.57 6,269.42 Internal Service 14,880.29 14,860.29 Total $1,194,858.80 $41,206.25 $1,091,000.68 $62,651.87 -46- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 3. DUE FROM OTHER AGENCIES The nature of amounts due from other agencies is as follows: General Fund: Florida Department of Education: District Quality Instruction Incentive Program $ 80,530.00 Summer In-Service Program 11 ,958.16 Florida Keys Community College: Dual Enrollment Program 4,053. 00 Monroe County Tax Collector: Ad Valorem Tax Collections 168,814.78 Monroe Board of County Commissioners: Summer Recreation Program 97,750.00 Other 2,446.52 Total Due from Other Agencies $365,552.46 4. CHANGES IN GENERAL FIXED ASSETS Changes in general fixed assets are shown below: Balance Additions Deletions Balance 7-1-88 6-30-89 Land $ 2,452,653.66 $ $ 9 2,452,653.66 Buildings and Fixed Equipment 30,493,873.67 5,650,855.30 36,144,728.97 Improvements Other Than Buildings 1,175,430.55 40,143.50 1,215,574.05 Furniture, Fixtures, and Equipment 4,538,964.60 875,397.39 55,528.68 5,358,833.31 Motor Vehicles 2,125,261.64 264,575.10 68,275.17 2,321,561.57 Construction in Progress 3,713,793.35 3,452,858.83 4,992,324.79 2,174,327.39 Total 944,499,977.47 010,283,830.12 95,116,128.64 049,667,678.95 -47- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 5. TAX ANTICIPATION NOTES PAYABLE Pertinent details of the tax anticipation notes issued during the 1988-89 fiscal year are as follows: Series 1989 Amount Authorized $5,000,000.00 Amount Issued $5,000,000.00 Date of Issue June 1 , 1989 Interest Rate, % 6.2 Maturity Date May 31, 1990 Date of Sale June 20, 1989 Denomination $5,000 and $100,000 Interest $310,000 Underwriters SunTrust Securities, Inc. Proceeds: Par Value of Notes $5,000,000 .00 Add, Accrued Interest 16, 361 . 11 Total 5,016, 361 . 11 Less, Fees and Expenses 21,250. 00 Total $4,995, 111 . 11 8. AMOUNT AVAILABLE FOR DEBT SERVICE The amount available for debt service consists of resources of the Debt Service Funds legally required to be used for debt service until the related debt is extinguished: -48- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 Balance in Debt Service Funds Reserved for Payment of State School Bonds $342, 100 .65 Unreserved Balance Available to be Expended for Any Lawful District Purpose 7, 125.40 Total Available in Debt Service Funds 349,226.05 Less, Unreserved Balance 7,125.40 Amount Available for Debt Service Only $342,100.65 7. DEFEASED BONDS On March 14, 1988, the District transferred $380,728.47 to an escrow agent to purchase United States Government securities to provide for the future debt service payments of the 1966 revenue bond issue. Since moneys necessary to service this debt have been placed in an irrevocable trust in the escrow account, the Certificates of Indebtedness, dated June 1, 1966, are considered to be, in substance, defeased. Accordingly, the escrow account's assets and the liability for the defeased bonds are not included in the District's financial statements. On June 30, 1989, $220,000 of bonds outstanding are considered defeased. 8. BONDS PAYABLE The following is a description of bonded debt issues: State School Bonds These bonds are issued by the State Board of Education on behalf of the District. The bonds mature serially and are secured by a pledge of the District's portion of the State-assessed motor vehicle license tax. The State's full faith and credit is also pledged as security for the -49- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 bonds. Principal and interest payments, investment of Debt Service Fund resources, and compliance with reserve requirements are administered by the State Board of Education and State Board of Administration. The following is a summary of bonds payable: Balance at 6-30-89 State School Bonds Series 1974-A, $2,990,000, Issued 1-1-74, Matures Serially to 1-1-95, With Interest Rates Ranging from 4.0 to 5 . 5 Percent. The Remaining .Balance is Payable in Future Annual Installments Ranging from $200,000 to $250,000, Semiannual Interest Payments Range from $34, 120 to $5,000 $1,370,000 Annual requirements to amortize all bonded debt outstanding as of June 30, 1989, including interest of $240,960, are as follows: Fiscal Year State Ending June 30 School Bonds 1990 $ 268,240 1991 267,840 1992 271,920 1993 275,220 1994 267, 740 1995 260,000 Total $1,610,960 9. CHANGES IN GENERAL LONG-TERM DEBT The following is a summary of changes in general long-term debt: -50- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 Description Balance Additions Deductions Balance 7-1-88 6-30-89 Compensated Absences Payable $ 517,177.84 $158,437.05 $ $ 675,614.89 Bonds Payable 1,560,000.00 190,000.00 1,370,000.00 Total $2,077,177.84 $158,437.05 $190,000.00 $2,045,614.89 Records kept for compensated absences relate only to hours earned, used, and available. Accordingly, only the net change in compensated absences payable is shown. 10. RESERVE FOR ENCUMBRANCES Appropriations in governmental fund types are encumbered upon issuance of purchase orders for goods and/or services. Even though appropriations lapse at the end of the fiscal year, unfilled purchase orders of the current year are carried forward and the next year's appropriations are likewise encumbered. The Florida Department of Education requires that fund balances be reserved at year-end to report an amount likely to be expended from the 1989-90 fiscal year budget as a result of purchase orders outstanding at June 30, 1989. Because revenues of grants accounted for in Special Revenue Funds are not recognized until expenditures are incurred, these grant funds generally do not accumulate fund balances. Accordingly, no reserve for encumbrances is reported for grant funds. However, purchase orders outstanding for grants accounted for in the Special Revenue Funds at June 30, 1989, totaled $63,928.28. -51- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 11. INTERFUND RECEIVABLES AND PAYABLES The following is a summary of interfund receivables and payables: Fund Interfund Receivables Payables General $ 68,914. 78 $ 92, 161 . 06 Special Revenue: Combined Grants 87, 775 . 39 60,734.95 Food Service 1, 326. 16 1 ,584. 46 Debt Service: Special Act Bonds 26.40 Capital Projects: Public Education Capital Outlay 10.94 Local Capital Improvement 2,726. 30 Internal Service: Workers ' Compensation 86,677.87 Vista 333. 21 Health 86,677.87 Expendable Trust 6,558.03 Total $247,753. 71 $247,753. 71 The amount of $6,558.03, shown above as an interfund payable of the Expendable Trust Funds, does not appear on exhibit A as a due to other funds in the Expendable Trust Funds because these funds are reported on the cash basis of accounting and, accordingly, accruals are not reported. 12. SCHEDULE OF STATE REVENUE SOURCES The State provided approximately 19.3 percent of total revenues in fiscal year 1988-89. The following is a schedule of State revenue sources and amounts: -52- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 Sources Amount Florida Education Finance Program $4,011,868.00 Categorical Educational Programs 2,752,728.00 Gross Receipts Tax (Public Education Capital Outlay) 834,610.00 Motor Vehicle License Tax (Capital Outlay and Debt Service) 312,442.00 Pari-Mutuel Tax 223,250. 00 Mobile Home License Tax 43,918.72 Interest on Investment of Bond Reserves 32,879.24 Food Service Supplement 30,608.00 Interest on Undistributed Motor Vehicle License Tax (Capital Outlay and Debt Service) 8,327.01 Miscellaneous 157, 223.54 Total $8,407,854. 51 Accounting policies relating to certain State revenue sources are described in note 1.J. 13. PROPERTY TAXES The following is a summary of millages and taxes levied on the 1988 tax roll for the fiscal year 1988-89: -53- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 Millage Taxes Levied Levied GENERAL FUND Nonvoted School Tax: Required Local Effort 5.457 $24,405,225.89 Discretionary Local Effort .616 2,754,923.79 CAPITAL PROJECTS FUNDS Nonvoted Tax: Discretionary Capital Outlay . 199 899,983.50 Total Taxes 6.272 $28,060,133.18 14. RESIDUAL EQUITY TRANSFERS During the fiscal year 1988-89, the District transferred $825,552.56 from the Internal Service Fund to the Capital Projects Funds for the Key Largo Elementary School construction project. These funds were determined by the District to be in excess of the self-insurance needs. 15. STATE PUBLIC EMPLOYEE RETIREMENT SYSTEM All regular employees of the District are covered by State-administered cost-sharing multiple-employer public employee defined benefit retirement systems plans. Participating employers include all State departments, counties, district school boards, and community colleges. Many municipalities and special districts have elected to be participating employers. Employees who earn benefit credits while employed by one participating employer may transfer the credits to any other participating employer. Essentially all regular employees of participating employers are eligible and must enroll as members of the Florida Retirement System. A -54- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 member's retirement pension benefit vests after 10 years of service. Members are eligible for normal retirement benefits at age 62 with 10 years of service or at any age after 30 years of service which may include up to 4 years of credit for military service. For normal retirement, benefit payments are based on the member's best 5-year average annual salary (average final compensation) times the number of years service, multiplied by a percentage ranging from 1.60 percent at either age 62 or with 30 years of service to 1.68 percent at age 65 or with 33 or more years of service. Members may individually elect to receive decreased monthly benefits during their lifetime in order to provide survivor benefits to a spouse or dependent. Members are eligible for early retirement after 10 years of service but before age 62; however, normal benefits are reduced by 5 percent for each year a member retires before age 62. The Florida Retirement System provides benefits in addition to the retirement pension described above. Benefits include post-retirement payments for health-care insurance, cost-of-living supplements and, for certain retirees, a supplement to cover social security benefits lost by virtue of retirement system membership. Members are eligible for in-line-of-duty disability benefits from their first day of employment and for regular (not in-line-of-duty) disability benefits after ten years of service. Disability benefit payments are calculated in the same manner as retirement benefits, except that disability benefits are not less than 42 percent of the member's average final compensation for disability incurred in the line of duty and not less than 25 percent of average final compensation for regular disability. Survivors of members who die in the line of duty are entitled to a monthly benefit equal to one-half the member's monthly salary at death. Survivors of members whose death is other than in the line of duty may elect to either receive benefits as if the member had retired on the date of death and had opted to provide survivor benefits or defer benefits to a later date and receive payments as if the member had retired at that later date. -55- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 Benefits described above are in summary form and, accordingly, not all conditions, limitations, and restrictions are mentioned. Benefit provisions are established by Chapters 121 and 122, Florida Statutes; Chapter 112, Part IV, Florida Statutes; Chapter 238, Florida Statutes; and Florida Retirement System Rules, Chapter 22B, Florida Administrative Code, wherein benefits are defined and described in detail. During fiscal year 1988-89 contribution rates were as follows: Class of Plan Percent of Gross Salary Employee Employer (B) (A)(B) Florida Retirement System, Regular 0.00 14.38 Florida Retirement System, County Elected Officials 0.00 18.92 Teachers' Retirement System, Plan E 6.25 6.73 Florida Retirement System, Reemployed Retiree 0.00 3.85 Notes: (A) Employer rates include an increase of 0.24 percent on January 1, 1989, for the post-retirement health insurance supplement which became effective January 1, 1988. Employer rates for Florida Retirement System, Regular and County Elected Officials include increases in the base rates on January 1, 1989, of 0.76 and 1.25 percent, respectively. The employer rate for Florida Retirement System, Reemployed Retiree includes a decrease in the base rate on January 1, 1989, of 2.54 percent. (B) Employee and employer contribution rates are established by Chapters 121, 122, 238, and Chapter 112, Part IV, Florida Statutes; and Florida Retirement System Rules, Chapter 22B, Florida Administrative Code. The District's 1988-89 fiscal year payroll for all employees totaled $25,271,932.05, including $24,623,704.54 paid to employees who were members of the Florida Retirement System. Required contributions made to the Florida Retirement System in the 1988-89 fiscal year totaled $3,430,266.31, -56- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 including $30,340.43 from employee contributions, which represents 13.93 and 0.12 percent, respectively, of covered payroll. The Governmental Accounting Standards Board has established the actuarial present value of credited projected benefits as the standardized measure that a public employee retirement system such as the Florida Retirement System must use to determine the amount of its total pension benefit obligations. Use of a standardized method by public employee retirement systems enables financial statement readers to: (1) assess the funding status on a going-concern basis; (2) assess progress made in accumulating assets to pay benefits when due; and (3) make comparisons with other systems and other employers. The actuarial-present-value-of-credited-projected-benefits valuation method reflects the present value of estimated pension benefits that will be paid in future years as a result of employee member services performed to date and is adjusted for the effects of projected salary increases. The total unfunded pension benefit obligation of the Florida Retirement System as of July 1, 1989, was as follows: ( In Millions) Total Pension Benefit Obligation $ 27,370 Net Assets Available For Benefits at Cost (Market $17,668) (16,151) Unfunded Pension Benefit Obligations $ 11,219 The unfunded pension benefit obligation is being amortized by a portion of the required contributions from participating members. Measurement of total pension benefit obligations is based on an actuarial valuation as of July 1, 1989, using an assumed return on -57- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 investments of 8 percent. Net assets available to pay pension benefits are valued as June 30, 1989. The District's 1988-89 fiscal year required contribution to the Florida Retirement System represents 0.21 percent of the total current-year actuarially determined contribution requirements for all participating employers. Ten-year historical trend information is presented in the 1988-89 fiscal year annual financial report of the Florida Retirement System. The information is useful in assessing the accumulation of assets to pay pension benefits as they become due. During the fiscal year 1988-89 and as of June 30, 1989, the Florida Retirement System held no securities issued by the District. 16. CONSTRUCTION CONTRACT COMMITMENTS The following is a summary of major construction contract commitments remaining at year-end: Project Contract Completed Balance Amount to Date Committed Plantation Key Elementary Middle School Addition: Construction Manager and Various Contractors $2,871,227.29 $1,994,299.73 $876,927.56 Architect 187,200.00 174,471.00 12,729.00 Total $3,058,427.29 $2,168,770.73 $889,656.56 -58- MONROE COUNTY EXHIBIT - F DISTRICT SCHOOL BOARD (Continued) NOTES TO FINANCIAL STATEMENTS June 30, 1989 17. SELF-INSURANCE PROGRAMS The Board has established limited self-insurance programs for property and casualty, including workers' compensation coverage and group medical insurance for its employees, retirees, and their dependents. The self-insurance programs are administered by an insurance agent and are accounted for in an Internal Service Fund. Under the plan for property and casualty, including workers' compensation, the Board's liability is limited to various per occurrence amounts between $25,000 and $300,000, depending on the peril, and an aggregate liability of $600,000 per year. The plan for group medical insurance provides that the Board contributes employee premiums as a fringe benefit to employees. The Board also contributes for dependent coverage for several administrative employees. Dependent coverage for other employees and coverage for retirees and their dependents is by prepaid premium. Liability under the group medical plan is limited to $60,000 annually for each person. Maximum reimbursements for aggregate individual losses exceeding $60,000 were limited to $1,000,000 per year. Liability in excess of the limitations of the property and casualty, including workers' compensation and group medical programs, is covered under various insurance policies purchased by the Board. 18. SUBSEQUENT EVENTS On April 10, 1989, the Board accepted an offer from the Monroe County Board of County Commissioners for the purchase of the District's Truman Elementary School. At this same meeting the Board approved an agreement with the City of Key West for the sale of the Frederick Douglas Elementary School. The Board, by resolution, had previously declared both schools to be unnecessary for educational purposes as recommended in an educational plant survey. The sales of these schools were completed -59- EXHIBIT - F MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD NOTES TO FINANCIAL STATEMENTS June 30, 1989 subsequent to June 30, 1989, with deeds transferring ownership being recorded in the County's Official Records in September 1989. Consideration received by the District for the Truman and Frederick Douglas schools totaled $930,000 and $650,000, respectively. -60- MONROE COUNTY SCHEDULE - 1 DISTRICT SCHOOL BOARD SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE For the Fiscal Year Ended June 30, 1989 Federal Grantor/Pass-Through Grantor/Program Title Catalog of Pass-Through Amount of Federal Grantor Expenditures Domestic Number Assistance Number United States Department of Agriculture: Indirect: Florida Department of Health and Rehabilitative Services: Food Distribution 10.550 None • 200,305.50 Florida Department of Education: School Breakfast Program 10.553 321 47,484.00 National School Lunch Program 10.555 300 391,009.00 Total United States Department of Agriculture 638,798.50 United States Department of Education: Direct: Impact Aid - Maintenance and Operation 84.041 N/A 763,914.00 Indirect: Florida Department of Education: Adult Education - State-Administered Basic Grant Program 84.002 191 5,050.72 Educationally Deprived Children - Local Educational Agencies 84.010 212 723,928.30 Migrant Education - Basic State Formula Grant Program 84.011 217 94,819.00 Handicapped - State Grants 84.027 263 229,810.00 Vocational Education - Basic Grants to States 84.048 151,159 110,587.82 Vocational Education - Consumer and Homemaking Education 84.049 155 3,700.00 Federal, State, and Local Partnerships for Educational Improvement 84.151 112,113 199,120.89 Removal of Architectural Barriers to the Handicapped 84.155 236 11,000.00 State Grants for Strengthening the Skills of Teachers and Instruction in Mathematics and Science 84.164 224 68,622.97 Handicapped - Preschool Grants 84.173 267 74,285.97 Drug-Free Schools and Communities - State Grants 84.186 103 19,129.51 Total United States Department of Education 2,303,969.18 United States Department of the Interior: Indirect: Monroe County Board of County Commissioners: Refuge Revenue Sharing None 56,900.00 Total Federal Assistance $2,999,667.68 -61- SCHEDULE - 2 MONROE COUNTY DISTRICT SCHOOL BOARD SCHEDULE OF FINDINGS AND QUESTIONED COSTS - FEDERALLY FINANCED PROGRAMS For the Fiscal Year Ended June 30, 1989 ELIGIBILITY DETERMINATION (1) National School Lunch Program (Catalog of Federal Domestic Assistance No. 10.555) . The District received monthly Federal reimbursements for the National School Lunch Program through the Florida Department of Education based on the number of student meals reported as served in the free, reduced-price, and full-price categories. Our audit procedures included a verification, on a test basis, that meals reported as served for reimbursement purposes were properly supported by source documentation, such as serving line cash register tapes and meal rosters of free, reduced-price, and full-price meals served. Our tests indicated that school food service reimbursement claims filed with the Florida Department of Education were generally supported. However, our test of meal rosters disclosed one instance, of 81 students reviewed, where a student was reported as receiving a free lunch on a day when the attendance roster indicated that the student was absent. District personnel should ensure that meals are properly recorded and reported for reimbursement. (2) Educationally Deprived Children - Local Educational Agencies (Catalog of Federal Domestic Assistance No. 84.010) . Title 34, Part 200.51, Code of Federal Regulations, requires that school districts base their Chapter 1 Basic programs on an annual assessment of educational needs that identifies educationally deprived children in all eligible attendance areas and requires the inclusion of those educationally deprived children in the greatest need of special assistance. The District prepared Needs Assessment Lists identifying students eligible for participation in its Chapter 1 Basic program based on test results from either the Standard Achievement Test or the California Test of Basic Skills. (3) Our test of student eligibility for participation in the Chapter 1 Basic program disclosed 1 instance, of 18 student files sampled, where a student was not included on the Needs Assessment List for mathematics, -62- MONROE COUNTY SCHEDULE - 2 DISTRICT SCHOOL BOARD (Continued) SCHEDULE OF FINDINGS AND QUESTIONED COSTS - FEDERALLY FINANCED PROGRAMS For the Fiscal Year Ended June 30, 1989 even though the student met the eligibility criteria for inclusion in the Chapter 1 mathematics remedial courses based on the District's approved selection criteria. We were provided nothing of record to evidence that participation had been offered to this student. We recommend that the Board take steps necessary to ensure that all eligible students are properly identified and given the opportunity to participate in the District's Chapter 1 Basic program. COMPARABILITY OF SERVICES (4) Educationally Deprived Children - Local Educational Agencies (Catalog of Federal Domestic Assistance No. 84.010) . Pursuant to the provisions of Section 558(c)(2) of Title V, Subtitle D, of Public Law 97-35, as amended, cited as the Education Consolidation and Improvement Act of 1981 (ECIA), the Board filed written assurances with the Florida Department of Education in its project application that it had a Districtwide salary schedule; a policy to ensure equivalence among schools in teachers, administrators, and auxiliary personnel; and a policy to ensure equivalence in the allocation of funds for curriculum materials and instructional supplies. (5) Our review disclosed, as it did in audit reports Nos. 11063, schedule 2, paragraphs 8 through 10 and 11267, schedule 2, paragraphs 2 through 4, that although funds for general school operations were allocated to the schools equitably on a per student basis, these funds were subsequently reallocated at each school by the schools' principals to provide for salaries, custodial supplies, library books, classroom supplies, travel, capital outlay, and other expenditures for school operations. Procedures for the reallocation of these appropriations did not include an assurance that funds would be allocated equitably per full-time equivalent student within the curriculum materials and Instructional supplies category at each school. -63- SCHEDULE - 2 MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD SCHEDULE OF FINDINGS AND QUESTIONED COSTS - FEDERALLY FINANCED PROGRAMS For the Fiscal Year Ended June 30, 1989 (6) Our review of the amounts allocated for curriculum materials and instructional supplies at nine of the District's schools disclosed that the allocations made by the school principals ranged from $16.41 to $75.08 per full-time equivalent student. This range indicates that the required equivalency in the provision of curriculum materials and instructional supplies had not been demonstrated due to the substantial difference in the amounts allocated between the schools. The failure to demonstrate such equivalence could result in disallowed costs. (7) Beginning in fiscal year 1989-90, the District revised procedures to require that an equal amount per full-time equivalent student is budgeted for the purchase of curriculum materials and instructional supplies at each school. We will review the effectiveness of this procedure in connection with future audits of the District. INDIRECT COST RATE (8) In order to provide the basis for a uniform approach to the determination of allowable costs of Federally funded programs, the Federal Office of Management and Budget has issued Circular A-87. Regulations issued by the United States Department of Education in Part 74, Code of Federal Regulations, Implementing the provisions of this circular provide principles for determining allowable costs, both direct and indirect, in order that Federally assisted programs bear their fair share of costs recognized under those principles. In addition, the Florida Department of Education has provided guidance for use in developing the indirect cost plan in a publication entitled SUGGESTED DISTRICT LEVEL INDIRECT COST. Indirect costs are costs which are incurred for a common or joint purpose, benefiting more than one cost objective, and which are not readily assignable to the cost objectives specifically benefited without effort disproportionate to the result achieved. The charging of indirect costs to Federal grants -64- MONROE COUNTY SCHEDULE - 2 DISTRICT SCHOOL BOARD (Continued) SCHEDULE OF FINDINGS AND QUESTIONED COSTS - FEDERALLY FINANCED PROGRAMS For the Fiscal Year Ended June 30, 1989 requires the prior preparation of cost allocation plans and an indirect cost proposal from which an indirect cost rate is developed. (9) An indirect cost rate to be used in assessing the District's Federally assisted programs with their fair share of indirect costs was approved by the Florida Department of Education. Reported indirect costs recovered totaled $53,767.05 for fiscal year 1988-89. Our review of the development of the indirect cost rate for the 1988-89 fiscal year disclosed the following: 1. Expenditures totaling $54,040.64 for legal services furnished by a law firm providing service for labor relations and related negotiations and litigations were included as indirect type costs in the General Administration function (7200) . Circular A-87 states that the cost of legal expenses required in the administration of grant programs is allowable; however, the cost of other legal services is unallowable. The Florida Department of Education's guidance for use in developing the indirect cost plan notes that . . . if legal services do not relate to Federal programs these type costs are general governance costs and should not be treated as indirect type costs." i 2. Expenditures totaling $133,703 for insurance coverage charged to the General Administration function (7200), including blanket policy insurance, employee position bonds insurance, workers' compensation, and high risk insurance, were treated as expenditures of an indirect nature. The District included the contributions for these insurance coverages as indirect instead of allocating these costs between direct and indirect. Our review of guidance provided by the Florida Department of Education indicates that these costs should be allocated between direct and indirect -65- SCHEDULE - 2 MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD SCHEDULE OF FINDINGS AND QUESTIONED COSTS - FEDERALLY FINANCED PROGRAMS For the Fiscal Year Ended June 30, 1989 using an appropriate allocation method. Therefore, we question whether these costs may be treated entirely as indirect. 3. Expenditures totaling $10,131.30 for incentive awards to employees working In the schools were included as indirect type costs in the General Administration function (7200). Our review of Circular A-87 and of guidance provided by the Florida Department of Education indicates that these costs should be treated as school level direct costs and charged to the same functions as the employees' regular salaries. 4. Expenditures totaling $82,387.39 for 50 percent of the salary of the Principal/Director of the District's May Sands school and travel, performance pay, and merit pay of school principals were included as allowed direct costs in the School Administration function (7300) . Instructions for the preparation of the indirect cost plan provide that expenses of principals should be treated as unallowable. 5. The Central Services function (7700) includes the cost of operations of the data processing, personnel, warehouse, purchasing, mailroom, switchboard, and microfilm departments. The Florida Department of Education guidelines provide that certain types of supervisory and clerical positions with Districtwide responsibility might be treated as indirect cost, but if a cost relates back to a direct cost center, then It must be direct. The guidance from the Department indicates that costs charged to the Central Services function (which includes areas such as personnel, purchasing, and data processing) should be allocated between direct and indirect based upon a reasonable allocation method. Our review of the District's indirect cost allocation plan and the associated indirect cost rate computations disclosed that the -66- MONROE COUNTY SCHEDULE - 2 DISTRICT SCHOOL BOARD (Continued) SCHEDULE OF FINDINGS AND QUESTIONED COSTS - FEDERALLY FINANCED PROGRAMS For the Fiscal Year Ended June 30, 1989 District treated all noncapital expenditures totaling $382,532.70, charged to the 7700 function (Central Services) as indirect in nature, but did not of record demonstrate that such treatment was equitable. (10) The matters discussed above resulted in questioned amounts totaling $662,795.03 included in the total indirect cost base of $1,655,917. (11) We were advised by District personnel that they concurred with our findings concerning legal services, insurance, incentive awards, and expenditures related to school principals and that, pursuant to telephone instructions received from the Florida Department of Education, the fiscal year 1989-90 indirect cost plan would be adjusted for these and also for the questioned amounts discussed in audit report No. 11267, schedule 2, paragraphs 7 through 9. Consequently, on February 12, 1990, the Board approved a revised fiscal year 1989-90 indirect cost plan which was submitted to the Florida Department of Education. (12) The fiscal year 1989-90 indirect cost plan was not adjusted for the questioned amounts included from the Central Services function. District personnel should seek guidance from the Florida Department of Education to determine if these questioned amounts may result in the overrecovery of indirect costs from Federally funded programs. -67- EXHIBIT - G MONROE COUNTY DISTRICT SCHOOL BOARD STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1989 The School Board of Monroe County, Florida A J HENRIQUE2. Ph.D. N . SUPER INTER DEM N. Julie 6 , 1990 Mr. Charles L. Lester Auditor General State of Florida P. 0. Box 1735 Tallahassee, FL 32302 Re: Preliminary and Tentative Findings July 1, 1988 to June 30 , 1989 Dear Mr. Lester: Thank you for the opportunity to comment on the list of preliminary and tentative adverse findings which apply to the period July 1 , 1988 to June 30, 1989 . Attached is a statement of explanation concerning all of the findings and what we propose to do to correct same. Sincerely, A. J. H nr quez /aht Encl. xc : School Board Members School Board Attorney 242 WHITE STREET C C0J30X 7MMp KEl'WEST'FI_ORI I I A331111-I 7M$C13 it Ri-rii23 S l'N( OM 42E-I I IIIO FAX:4Lt/2HTi-313S -68- A MONROE COUNTY EXHIBIT - G DISTRICT SCHOOL BOARD (Continued) STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, /989 MONROE COUNTY DISTRICT SCHOOL BOARD PROPOSED CORRECTIVE ACTION COVERING PRELIMINARY & TENTATIVE AUDIT FINDINGS July 1 , 1988 to June 30 , 1989 Audit Report Par. No. (17-18) Personnel and Payroll Administration: The payroll responsibilities have been separated. One Payroll Department employee will add new employees and make changes to the Master File. A second Payroll Department employee will record payroll exceptions and remove terminated employees . A Payroll Department employee , independent of the payroll processing function, has been assigned the responsibility of verifying the data entered with the source document. We are in the process of determining who will need access to what files , based on new job responsibilities . We will then work with Data Processing to secure the files appropriately. (24-28) Budget Administration: Budget Amendments affecting all funds in fiscal year 89-90 thus far have been prepared and adopted by the Board in a timely manner in order that expenditures are properly recorded in the fiscal year incurred; therefore, eliminating the possibility of incurring expenditures which exceed budget authority. (29-30) Operating Expenditures : The equipment in question consists of the two WICAT labs located at MRS and HOB. We entered into a lease/purchase agreement for purposes of evaluating the effectiveness of these systems with the option to return all equipment and software if we felt that student learning was not enhanced by their use. We considered this a loan of the equipment with a usage fee that did not require DOE approval. -69- EXHIBIT - G MONROE COUNTY (Continued) DISTRICT SCHOOL BOARD STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1989 Audit Report Par. No. When we were informed that DOE approval was required for this equipment we obtained all necessary approvals from the DOE. There is nothing to indicate that the DOE would not have granted this approval at the earlier date since this equipment and software is only available (29-30) from this one vendor. This department has now implemented a procedure to request DOE approval in advance for all anticipated purchases of computer equipment or software at the beginning of each school year . (31-33) Employee Benefit Plan: We were unaware of the changes to the bank account for our employee ' s fringe benefit plan until the auditor brought it to our attention. In contacting VISTA Management to find out when the change occurred and for what reasons, we were told that the change took place by an employee that is no longer with the company as a result of an audit from another school district. Therefore, VISTA changed all of the accounts to be signed by only their employees with the School Districts being the owner of the accounts. We asked VISTA to put this in writing and they stated that they were not able to do this . Sch. 2, Eligibility Determination - National School (1) Lunch: The auditor reported that, of 81 meals reviewed, one student was reported as receiving a meal in a day when the attendance roster indicated that the student was absent. The procedure in place at the schools is that procedure recommended by the USDA and is reviewed at least annually by the Food Service Director. Meals are reported only "at the point of service" . In addition to this procedure, managers have been instructed to review the daily absentee reports to assure that meals are not reported for students who were reported as being absent. -70- MONROE COUNTY EXHIBIT - G DISTRICT SCHOOL BOARD (Continued) STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1989 Audit Report Par. No. Sch. 2, Eligibility Determination - Educationally (2-3) Deprived Children: Chapter I now has in place a process to ensure that all eligible students are properly identified and given the opportunity to participate in the Chapter I program. The Needs Assessment List that identifies all eligible students is checked against the eligible students on the Stanford Achievement Test Report to verify that all qualifying students are properly identified and given the opportunity to participate in the District' s Chapter I program. Sch. 2, Comparability of Services : (4-7) Beginning in fiscal year 89-90 the District revised procedures requiring that an equal amount per full-time equivalent student be budgeted for the purchase of curriculum materials and --- - -- instructional supplies at each school center. Sch. 2, Indirect Cost Rate: (8-12) As noted by the Auditor, the questions affecting the Indirect Cost Rate were discussed at length with the personnel in Finance. Numerous calls were made to the Department of Education seeking advice. Consequently, on February 12 , 1990 the Board approved a revised final year 89-90 Indirect Cost Plan which was submitted to the Florida Department of Education and was approved on February 28 , 1990. The District Personnel have agreed to contact Department of Education in order to clarify questioned amounts in the Central Services Function. -71- t;g, OF no c;‘ ,� 17/e 44° , A 414 -*(1<l• MEM Ot ' DEpfND4C O� 1� E Aug