November 25, The Board of Trustees The School District of Newberry County Newberry, South Carolina

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1 November 25, 2013 The Board of Trustees The School District of Newberry County Newberry, South Carolina We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of The School District of Newberry County (the School District ) for the year ended June 30, Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, Government Auditing Standards and OMB Circular A-133, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated May 13, Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the School District are described in Note I to the financial statements. As described in Note IV.G in the notes to the financial statements, the School District converted its food service activities from an enterprise fund to a special revenue fund, effective July 1, This change in accounting principle resulted in an adjustment to beginning fund balance of $307,300 for this fund, representing the net book value of capital assets for food service equipment, as capital assets are not reported in governmental funds. On its government-wide financial statements, the School District recognized a corresponding increase to beginning net position for governmental activities, as it no longer reports any business-type activities. There was no change in total net position for the School District as a result of this change. As described in Note I.B in the notes to the financial statements, the School District implemented Governmental Accounting Standards Board ( GASB ) Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position ( GASB 63 or Statement ) in This Statement establishes financial reporting requirements and related disclosures for certain elements of a statement of financial position that were discussed in the GASB s 2007 Concepts Statement No. 4, Elements of Financial Statements. In Concepts Statement No. 4, the GASB defines a deferred outflow of resources as a consumption of net assets by a government that is applicable to a future reporting period; a deferred inflow of resources as an acquisition of net assets by a government that is applicable to a future reporting period; and net position as the residual of all other elements presented in a statement of financial position (the difference between (a) assets and deferred outflows of resources and (b) liabilities and deferred inflows of resources). Under GASB #63, amounts for items that the GASB has designated to be deferred outflows of resources are to be presented in a statement of financial position in a separate section following assets, while amounts for items that the GASB has designated to be deferred inflows of resources are to be presented in a separate section following liabilities. The residual of assets and deferred outflows of resources over liabilities and deferred inflows of resources is to be reported as net position rather than as net assets in a statement of financial position. Since the School District had no deferred outflows or inflows of resources at June 30, 2013, the School District s implementation of GASB 63 had no material effect on the presentation of its 2013 financial statements. Except for the above, no new significant accounting policies were adopted and the application of existing policies was not significantly changed during We noted no transactions entered into by the School District during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. 211 East Butler Road, Suite C Riviera Drive, Suite Mauldin, SC Mount Pleasant, SC

2 Accounting estimates are an integral part of the financial statements prepared by management and are based on management s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most significant sensitive estimates affecting the School District s financial statements were related to (a) the useful lives of capital assets and the resulting depreciation expense, and (b) the amount of property taxes outstanding at June 30, 2013, including collectability and the estimate for subsequent collections. Management s estimates of the useful lives of capital assets are based on historical data and industry standards. Management s estimate of the property taxes receivable and allowance for uncollectible property taxes is based on information provided by the County and historical collection rates. We evaluated the key factors and assumptions used to develop these estimates in determining that they are reasonable in relation to the financial statements taken as a whole. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. For purposes of this communication, professional standards define a significant audit adjustment as a proposed correction of the financial statements that, in our judgment, may not have been detected except through our auditing procedures. An audit adjustment may or may not indicate matters that could have a significant effect on the School District s financial reporting process (that may or may not cause future financial statements to be materially misstated). Since it is inherently judgmental to determine what adjustments would or would not have been detected except through our auditing procedures, a schedule of all adjusting and reporting journal entries is attached, including those prepared by the School District as part of their closing process after we obtained the initial trial balance. In our judgment, there were no material known unrecorded and uncorrected misstatements, either individually or in the aggregate, to each opinion unit s financial statements taken as a whole. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated November 25, Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a second opinion on certain situations. If a consultation involves application of an accounting principle to the governmental unit s financial statements or a determination of the type of auditor s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the School District s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention.

3 Matter for the Board of Trustees Consideration During the course of our audit, we became aware of a matter that is an opportunity for strengthening internal controls and improving operating efficiency. The memorandum (Attachment A) that accompanies this letter summarizes our comments and suggestions regarding this matter. This letter does not affect our independent auditor s report dated November 25, 2013 on the financial statements for the School District. We have already discussed our comments and suggestions with management, and we will be pleased to discuss them in further detail at your convenience, to perform any additional study of this matter, or to assist you in implementing the recommendations. Other Matters Supplementary Information and Schedule of Expenditures of Federal Awards With respect to the supplementary information and the Schedule of Expenditures of Federal Awards accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information and the Schedule of Expenditures of Federal Awards to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Other Information In connection with the other information included with the audited financial statements, and the auditor s report thereon, the auditor has read the other information in order to identify material inconsistencies. Based on the procedures performed, we are not aware of any material inconsistencies in the other information as it relates to the audited financial statements. This information is intended solely for the use of the Board of Trustees and management of the School District and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, Greene, Finney & Horton, LLP Certified Public Accountants

4 ATTACHMENT A THE SCHOOL DISTRICT OF NEWBERRY COUNTY MATTER FOR CONSIDERATION YEAR ENDED JUNE 30, A: PUPIL ACTIVITIES Observation: There is an inherent lack of segregation of duties at all schools related to pupil activity cash receipts and disbursements. This is primarily due to having one employee (the bookkeeper) perform most of the accounting functions at the schools due to cost issues. These duties include receipting the funds, making deposits, preparing checks, frequently signing checks, and preparing the monthly bank reconciliations. In order to compensate for this, the School District has implemented monitoring and review procedures at both the schools and the main office. These procedures include requiring two signatures on checks, having the principal sign all checks and review all bank reconciliations and requiring that quarterly reports from each school be submitted to the main office for review. The School District provides training to the bookkeepers and others at the schools so that the School District s policies regarding cash receipts and disbursements for pupil activities will be followed. In addition, the School District s Accounting Coordinator visits the schools and audits the pupil activity accounts on a regular basis. As part of our audit, we visited three schools and noted that funds are occasionally being held overnight by teachers and are not being turned in to the bookkeepers. We noted that the bookkeepers are occasionally holding funds overnight and not depositing them on a daily basis. We noted at one location that the principal was not initialing /signing the invoices when the checks were being signed. We noted at one location that for athletic events, teachers and employees, who are able to get into games at a reduced price, are able to enter through a different gate and sign a sheet; however, no one was reconciling the cash received to the sign-in sheet. Recommendation: Response: We want the Board of Trustees to continue to be aware of the risks associated with a lack of segregation of duties related to pupil activities. We recommend that the School District continue its monitoring and reviewing of these activities so that the lack of segregation of duties will be mitigated to an acceptable level. Lastly, we encourage the School District s executive management to continue setting the tone at the top in communicating the importance of adhering to the School District s policies. Executive management will continue to show the importance of adhering to the School District s policies

5 THE SCHOOL DISTRICT OF NEWBERRY COUNTY Page: 1 Journal Entries Report : Adjusting Entries Prepared by: JMD 10/10/2013 4:38PM June 30, 2013 Reviewed by: Entry # Status Account/Code Description Debit Credit AJE 2 Posted SUPPLIES 7, FUND BALANCE 7, To get fund balance to tie to the 2012 financial statements. AJE 3 Posted TRANS FROM CHILD NUTR. 231, DUE TO/FROM FOOD SERVICE 231, Transfer Indirect Cost to Gene 152, TRANSFER FROM OTHER FUNDS IND. 152, DUE TO/FROM GENERAL FUND 152, DUE TO/FROM FOOD SERVICE 152, Client entry to record the indirect costs for food service. AJE 4 Posted USDA COMMODITIES 30, USDA COMMODITIES 30, To adjust commodities to the year end amounts. AJE 5 Posted TAXES RECEIVABLE 1, REVENUES COLLECTED IN ADVANCE 35, DELINQUENT TAXES 34, TAXES RECEIVABLE 31, REVENUES COLLECTED IN ADVANCE 122, DELINQUENT TAXES 91, LEVIES FOR DEBT SERVICE 31, DELINQUENT TAXES 31, LEVIES FOR DEBT SERVICE DELINQUENT TAXES CURR OPER REAL EST 59, DELINQUENT TAXES 59, Client entry to adjust property tax accrual. AJE 6 Posted FARM TO SCHOOL 2, DUE FROM FEDERAL GOVERNMENT 2, FARM TO SCHOOL 2, DUE FROM FEDERAL GOVERNMENT 2, FRESH FRUITS & VEGS REVENUE 4, DUE FROM FEDERAL GOVERNMENT 4, FRESH FRUITS & VEGS REVENUE 4, DUE FROM FEDERAL GOVERNMENT 4, Client entry for food service.

6 THE SCHOOL DISTRICT OF NEWBERRY COUNTY Page: 2 Journal Entries Report : Adjusting Entries Prepared by: JMD 10/10/2013 4:38PM June 30, 2013 Reviewed by: Entry # Status Account/Code Description Debit Credit AJE 7 Posted MEDICAID REIMBURSEMENT 10, DUE FROM OTHER STATE AGENCY 10, MEDICAID REIMBURSEMENT 15, DUE FROM COUNTY TREASURER 15, DUE TO/FROM GENERAL FUND 15, DUE TO/FROM MEDICAID 15, REVENUE REC'D IN ADVANCE MISCELLANEOUS REVENUE REVENUE REC'D IN ADVANCE 2, DONATION 2, REVENUE REC'D IN ADVANCE 2, DONATION 2, REVENUE REC'D IN ADVANCE 73, SPECIAL NEEDS TRANSPORTATION 73, REVENUE REC'D IN ADVANCE MISCELLANEOUS REVENUE REC'D IN ADVANCE 2, MISCELLANEOUS -STAFF DEV. 2, REVENUE REC'D IN ADVANCE 100, REVENUE FROM OTHER LOCAL SOURC 100, REVENUE REC'D IN ADVANCE 85, ERATE REVENUE 85, REVENUE REC'D IN ADVANCE DONATIONS REVENUE REC'D IN ADVANCE 31, MISCELLANEOUS 31, REVENUE REC'D IN ADVANCE LOCAL REVENUE-SCHOOL TO PAY REVENUE REC'D IN ADVANCE 1, DONATIONS 1, REVENUE REC'D IN ADVANCE DONATIONS REVENUE REC'D IN ADVANCE 60, USE OF ACTIVITY BUSES 60, Client entry AJE 8 Posted TRANSFER FROM EIA FUNDS 78, DUE TO/FROM TEACHER SAL INCREA 22, DUE TO/FROM SCHOOL EMPLYR CONT 56, DUE FROM STATE DEPT OF ED 22, DUE FROM STATE GOVERNMENT 56, DUE TO/FROM GENERAL FUND 22, DUE TO/FROM GENERAL FUND 56, TRANSFER FROM EIA FUNDS 32, DUE TO/FROM ADULT EDUCAITON 32, DUE FROM STATE DEPT OF ED 32, DUE TO/FROM GENERAL FUND 32, Client entry to correct JE AJE 9 Posted DUE TO/FROM NICE DEBT SERVICE 8,856, DUE TO/FROM 2011 GO BOND 48, DUE TO/FROM DEBT SERVICE 5,585, DUE TO/FROM 2012 GO BOND SALE 41, DUE TO/FROM NICE 3,170, INTERNAL SERVICES 10, FOOD SERVICE SUPPLIES 7, DUE TO/FROM GENERAL FUND 7, Client entry to to ajdust due to-from account balances - total P&L impact of $18k. TOTALS 10,328, ,328,297.00

7 THE SCHOOL DISTRICT OF NEWBERRY COUNTY Page: 1 Journal Entries Report : Reclassifying Entries Prepared by: JMD 10/10/2013 4:38PM June 30, 2013 Reviewed by: Entry # Status Account/Code Description Debit Credit RJE 2 Posted RE REPORTING - BOND ISSUANCE COST 939, REPORTING - INVESTED IN CAPITA 939, REPORTING - INTEREST AND FISCA REPORTING - BOND ISSUANCE COST REPORTING - BOND ISSUANCE COST 100, REPORTING - INTEREST AND FISCA 100, To record the beginning balance and the current year activity of bond issuance cost. RJE 3 Posted RE REPORTING - CAPITAL ASSETS GRO 115,459, REPORTING - INVESTED IN CAPITA 115,459, To record the beginning capital assets balance. RJE 4 Posted RE REPORTING - CAPITAL ASSETS GRO 3,955, REPORTING - SUPPORTING - CAPIT 3,955, To record the additions to capital assets. RJE 5 Posted RE REPORTING - INSTRUCTION - DEPR 2,102, REPORTING - SUPPORTING - DEPRE 1,438, REPORTING - CAPITAL ASSETS GRO 3,540, To record the current year depreciation. RJE 6 Posted RE REPORTING - G/L ON DISPOSAL OF REPORTING - CAPITAL ASSETS GRO To record capital asset disposals. RJE 7 Posted RE REPORTING - INVESTED IN CAPITA 81,816, REPORTING - UNRESTRICTED NET A 486, REPORTING - ACCRUED COMPENSATE 486, REPORTING - DUE IN MORE THAN O 81,816, REPORTING - INTEREST AND FISCA REPORTING - DUE IN MORE THAN O REPORTING - INSTRUCTION - COMP 11, REPORTING - ACCRUED COMPENSATE 11, To record the beginning balance of long term debt and to record current year long-term debt issuances and changes in compensated absences. RJE 8 Posted RE REPORTING - DUE IN MORE THAN O 3,101, REPORTING - INTEREST AND FISCA 3,101, To record principal payments on long term debt. RJE 9 Posted RE REPORTING - INTEREST AND FISCA 141, REPORTING - DUE IN MORE THAN O 141, REPORTING - INTEREST AND FISCA REPORTING - DUE IN MORE THAN O To record the amortization on bond premium and current year premiums received. RJE 10 Posted RE REPORTING - DUE IN MORE THAN O 2,040, REPORTING - DUE WITHIN ONE YEA 2,040, To setup the current portion of long term obligations.

8 THE SCHOOL DISTRICT OF NEWBERRY COUNTY Page: 2 Journal Entries Report : Reclassifying Entries Prepared by: JMD 10/10/2013 4:38PM June 30, 2013 Reviewed by: Entry # Status Account/Code Description Debit Credit RJE 11 Posted RE REPORTING - RESTRICTED FOR DEB 347, REPORTING - ACCRUED INTEREST P 347, REPORTING - INTEREST AND FISCA 18, REPORTING - ACCRUED INTEREST P 18, To record accrued interest and current year changes in the accrual RJE 12 Posted RE REPORTING - INVESTED IN CAPITA REPORTING - RESTRICTED FOR DEB REPORTING - RESTRICTED FOR CAP To record adjustments to net assets that have not already been made. TOTALS 211,960, ,960,777.00