HART COUNTY, GEORGIA
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) REPORTING ENTITY

• Hart County Library
• Hart County Health Department

(B) GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS

• Hart County Water and Sewer Utility Authority
  

(C) MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION

(D) ASSETS, LIABILITIES AND NET ASSETS OR EQUITY

• Deposits and Investments
• Receivables and Payables
• Inventories and Prepaid Items
• Capital Assets
• Accrued Personal and Sick Leave
• Lease
• Fund Equity
• Management Estimates
• BUDGETARY INFORMATION
• (E) EXCESS OF REVENUES AND EXPENDITURES OVER APPROPRIATIONS (GENERAL FUND)

NOTE 4- DEPOSITS AND INVESTMENTS

NOTE 5 - RECEIVABLES

NOTE 6 - CAPITAL ASSETS

NOTE 7. LONG TERM DEBT

• Capital Leases
• CHANGES IN LONG TERM DEBT

NOTE 8 - INTERFUND TRANSFERS

NOTE 9 - INTERFUND BALANCES: DUE TO/FROM

NOTE 10 - EMPLOYEE BENEFITS AND RETIREMENT PLAN

NOTE 11 PENSION PLANS

NOTE 12 - RISK MANAGEMENT

NOTE 13 - CONTINGENT LIABILITIES

NOTE 14 -JOINT VENTURE

NOTE 15 - RECONCILIATION OF FUNDS EXPENDED TO COMPONENT UNITS

NOTE 16 - PRIOR PERIOD ADJUSTMENTS

NOTE 17 - ADJUSTMENT TO BEGINNING NET ASSETS - MAJOR COMPONENT UNIT - BUSINESS TYPE ACTIVITIES

PAGE 18
HART COUNTY, GEORGIA
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements of Hart County, Georgia have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the government's accounting policies are described below.

(A) REPORTING ENTITY

Hart County, Georgia (the Government) is a entity governed by a five member commission who serve on a part-time basis and are elected to staggered four-year terms. The commission appoints an Administrator who is responsible for the daily operations of the Government. In addition, there are four Constitutional Officers; the Tax Commissioner, Probate Court Judge, Sheriff, and Clerk of Superior Court. The Constitutional Officers are elected county wide. The Board of County Commissioners budgets and approves all funding used by the separate Constitutional Officers.

As required by generally accepted accounting principles, these financial statements present the government and its component units. Component units are legally separate organizations for which the County is financially accountable. The County is financially accountable for an organization if the County appoints a voting majority of the organization's governing board and (1) the County is able to significantly influence the programs or services performed or provided by the organizations; or (2) the County is legally entitled to or can otherwise access the organization's resources; the County is legally obligated or has otherwise assumed the responsibility to finance the deficits of, or provide financial support to, the organization; or the County is obligated for the debt of the organization. Discretely presented component units are reported in a. separate column in the combined financial statements to emphasize they are legally separate from the government. The following entities are component units of Hart County:

Hart County Library

The Hart County Library serves all citizens of Hart County and operates pursuant to Official Code of Georgia Annotated Sections 20-5-40 through 20-5-59 to provide public library services with costs shared by participating local governmental agencies and grants from the State of Georgia. The Library Board consists of 7 members appointed jointly by the Hart County Board of Commissioners, the Hartwell City Council and the Hart County Board of Education. The Library Board is without authority to determine the amount of its funding, except by submission of budget requests to local governmental units from which the Library receives support and to the State of Georgia for State and Federal funding. Membership in the Library and participation in library services is at the discretion of each participating governmental agency. The Library Board has the power to designate management, the power to retain unreserved fund balances of local and other funds for continued operations and is the lowest level of oversight responsibility for the Library's operations. The Hart County Board of Commissioners provides a substantial amount of financial support for the operations of the Library. The Library is presented as a nonmajor governmental fund type..

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Hart County Health Department

Hart County Health Department was constituted and_. operated in accordance with the Georgia Health Code 88-2, Georgia Laws 1964. The District Health Director is the Executive Officer of the Hart County Health Department and is responsible for the overall coordination of the local health activities. Hart County Health Department is funded by the State and County under the Grant-in-Aid provisions, and operates under the supervision of the Iocal Board of Health. The Health Department is presented as a nonmajor governmental fund type.

Hart County Water and Sewer Utility Authority

The Hart County Water and Sewer Utility Authority was created by House Bill No. 2141 of the Georgia Assembly on March 30, 1993. However, the Authority did not become active until fiscal year ended September 30, 2001. The Authority is governed by a five member Board appointed by the County Board of Commissioners for various terms. The Authority is the basic level of government which has oversight responsibility and control over all activities related to water and sewerage systems in Hart County. The Authority receives most of its operating revenues from sales of water service and connection fees. The Authority pays for capital outlay (water lines) with money it receives from Hart County Special Purpose Local Option Sales Tax. The Authority is also included as a component unit within the Hart County governmental "reporting entity as defined by GASB pronouncement 14, because the Hart County Board of Commissioners appoints all members of the Authority's board and can, therefore, impose its will upon the Authority. The Authority is a major fund and reported as a business type fund..

The Joint Development Authority of Franklin, Hart and Stephens Counties

The Authority is a public body corporate and politic, and an instrumentality of the counties of Franklin, Hart and Stephens. It has been authorized by the General Assembly of Georgia and has been created and activated by concurrent resolutions of the Boards of Commissioners of said counties duly filed with the Secretary of State of Georgia as a joint development authority under O.C.G.A. 36-62.5.1.

The purpose of the Authority is to promote the economic development of the geographical areas of its operation, encourage cooperation among economic development organizations within the area of the participating counties and to exercise all the powers granted to a development authority pursuant to the provisions of O.C.G.A. 36-62-1 et seq. The Authority is a major fund and reported as a business type fund to Hart County.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Complete financial statements of the above component units may be obtained from the administrative offices at the following locations:

HART COUNTY LIBRARY 150 Benson Street   Hartwell, Georgia 30643 (June 30, 2004 year end)	HART COUNTY HEALTH DEPARTMENT 64 Reynolds Street Hartwell, Georgia 30643 (June 30, 2004 year end)
HART COUNTY WATER AND SEWER UTILITY AUTHORITY 200 Arthur Street Hartwell, Georgia 30643 (September 30, 2004 year end)
THE JOINT DEVELOPMENT AUTHORITY OF FRANKLIN, HART AND STEPHENS COUNTIES P.O. Box 793 Hartwell, Georgia 30643 (June 30, 2004 year end)

(B) GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS

The government-wide financial statements (i.e., the statement of net assets and the statement of activities) .report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities,. which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable.

The statement of activities reports the expenses of a given function offset by program revenues directly related to the functional program. A function is an assembly of similar activities and may include portions of a fund or summarize more than one fund to capture the expenses and program revenues associated with a distinct functional activity. Program revenues include: (1) charges for services which report fees and other charges to users of the County's services; (2) operating grants and contributions which finance annual operating activities including restricted investment income; and (3) capital grants and contributions which fund the acquisition, construction, or rehabilitation of capital assets. These revenues are subject to externally imposed restrictions to these program uses. For identifying to which function program revenue pertains, the determining factor for charges for services is which function generates. the revenue. For grants and contributions, the determining factor is to which function the revenues are restricted.

Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from. the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(C) MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION

The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual. basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers property taxes as available if they are collected within 60 days of the end of the current fiscal period for which they are levied. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures as well as expenditures related to compensated absences are recorded only when payment is due.

Property taxes, sales tax, franchise taxes, fines, charges for services, and interest associated with the current fiscal period are all considered to be. susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to. be measurable and available only when cash is received by the government.

Like the government-wide statements, all proprietary fund types are accounted for on a flow of economic resources measurement focus on both financial reporting levels. All asSets and all liabilities associated with the operation of these funds are included on the^. statements of net assets. The statements of changes in fund net assets present_. increases (i.e. revenues)_. and decreases (i.e. expenses) in net total assets. The^. statement of cash flows provides information about how the County finances and meets the cash flow needs of its proprietary activities.

GASB Statement 34 sets' forth minimum criteria (percentage of the assets, liabilities, revenues or expenditures/expenses of either fund category and the governmental and enterprise combined) for the determination of major funds. The County has used GASB 34 :minimum criteria for major fund determination. Major individual governmental and enterprise funds are reported in separate columns with composite columns for non-major funds.

The government reports the following major governmental funds:

The General Fund is the government's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.

The SPLOST Capital Projects Fund #2 accounts for funds received from a local 1%_. sales tax reserved for construction of various capital projects.

The government reports the following major proprietary funds:

The Solid Waste Disposal Facility Enterprise Fund accounts for the activities of the County's solid waste disposal and recycling programs.

the government reports the following fund types:

The Agency Funds are custodial in nature and do not represent results of operations or have a measurement focus. Agency funds are accounted for using the modified accrual basis of accounting. These funds are used to account for assets that the government holds for others in an agency capacity.

The County also applies Financial Accounting Standards Board (FASB) statements and interpretations issued on or before November 30, 1989, to its governmental and business-type activities at the government-wide financial reporting level and to its enterprise funds at the fund reporting level, provided they do not conflict with or contradict GASB pronouncements. If they conflict, GASB prevails.

As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements.

Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions.

Taxes and other revenue sources not properly included with program revenues are reported as general revenues of the County. The comparison of direct expenses with program revenues identifies the extent to which each governmental function and each identifiable business activity is self-financing or draws from general revenues of the County.

Proprietary funds distinguish operating revenues and expenses form nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues for the enterprise fund are charges to customers for sales and services. Operating expenses for the enterprise fund include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first, then unrestricted resources as they are needed.

Basis of Accounting

Basis of accounting determines when transactions are recorded in the financial records and reported on the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. At the fund reporting level, governmental funds use the modified accrual basis of accounting and fiduciary funds use the accrual basis' of accounting. Proprietary funds use the accrual basis of accounting at both reporting levels. Differences in the accrual and the modified accrual basis of accounting arise in the recognition of revenue, the recording of deferred revenue, and in. the presentation of expenses versus expenditures.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenues - Exchange Transactions - Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value is recorded on the accrual basis when the exchange takes place. On the modified accrual basis, revenue is recorded when the exchange takes place and in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the County, the phrase "available for exchange transactions" means expected to be received within 60 days of year-end.

Revenues - Non-exchange Transactions - Non-exchange transactions in which the County receives value without directly giving equal value in return, include sales taxes, property taxes, grants, and donations. On an accrual basis, revenue from sales taxes is recognized in the period in which the taxable sale takes place and on the modified accrual basis, it is recognized in the year received (i.e., when considered available). Revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.

Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is first permitted, matching requirements, in which the County must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the County on a reimbursement basis. On a modified accrual basis, revenue from non-exchange transactions also must be available (i.e., collected within 60 days) before it can be recognized.

Under the modified accrual basis, the following revenue sources are considered to be susceptible to accrual: property taxes, sales taxes; interest and federal and state grants.

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

On governmental fund financial statements (i.e., on the modified accrual basis), receivables that will not be collected within the available period have been reported as deferred revenue (i.e., they are measurable but not available) rather than as revenue.

Sales taxes collected by the State of Georgia,. Department of Revenue, for the August and September sales are reported as revenue at year-end. Property taxes receivable not collected within 60 days of year-end have been recorded as deferred revenue. Grants and entitlements received before the eligibility requirements are met (e.g._! cash advances) also are recorded as deferred revenue.

Expenses/Expenditures - On the accrual basis of accounting, expenses are recognized at the time they are incurred. On the modified accrual basis, expenditures generally are recognized in the accounting period in which the related fund liability is incurred and due, if measurable.

(D) ASSETS, LIABILITIES AND NET ASSETS OR EQUITY

1. Deposits and Investments

Georgia law authorizes local governments to invest in the following types of obligations:

1. Obligations of the State of Georgia or of any other states
2. Obligations of the United States Government
3. Obligations fully insured or guaranteed by the government or governmental agency
4. Obligations of any corporation of the government
5. Prime bankers' acceptances
6. The State of Georgia local government investment pool (i.e., Georgia Fund I)
7. Repurchase agreements
8. Obligations of other political subdivisions of the State of Georgia

Any bank deposit in excess of the total FDIC insured amount must be secured by 110% of an equivalent amount of State or U.S. obligations.

All investments are recorded at cost, which approximates market value.

For the purposes of the statement of cash flows, cash and cash equivalents include all short-term highly liquid investments with original maturities of three months or less. Instruments considered to be cash equivalents include: Treasury bills, certificates of deposit, money market funds, and cash management pools.

2. Receivables and Payables

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

All trade and property tax receivables are shown net of an allowance of uncollectibles. Trade accounts receivable has no recorded allowance for doubtful accounts as bad debts are written off directly against receivables.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property taxes attach as an enforceable lien on property as of March 21, 2004. The taxes for the 2003 digest year were billed on October 20, 2003 and had a due date of December 20, 2003. Interest of 1% per month is assessed on taxes not paid by December 21, 2003. A penalty of 10% and interest of 3% is assessed on taxes not paid within 90 days of this date. Property taxes became past due on December 21, 2003.

The County bills and collects its own property taxes and also those for the School Board and the State. Only the County's tax levy is recognized as revenue when levied and uncollected taxes are recorded as deferred revenue in the general fund.

Inventories and Prepaid Items

On the government-wide financial statements and on the fund financial statements, inventories .are presented at cost on a first-in, first-out basis and are expensed when purchased.

Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements.

Capital Assets

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

All capital assets are capitalized at cost (or estimated historical cost) and updated for additions and retirements during the year. Donated capital assets are recorded at their fair market values as of the date received. The County maintains a capitalization threshold of five thousand dollars and an estimated useful life in excess of one year. The County's infrastructure consists of roads, bridges and water and sewer lines. Infrastructure's capitalization threshold is fifty thousand dollars and infrastructure purchased prior to October 1, 2003 have yet to be reported. Compliance date with GASB #34 is September 30, 2007. Improvements (i.e., betterments) to capital assets are capitalized. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are expensed. Interest incurred during the construction of capital assets utilized by the enterprise funds is capitalized.

All reported capital assets are depreciated except for and, and construction in progress. Improvements are depreciated over the remaining useful lives of the related capital assets. Useful lives for infrastructure were estimated based on the County's historical records of necessary improvements and replacement. Depreciation is computed using the straight-line method over the following useful lives:

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accrued Personal and Sick Leave

It is the government's policy to permit employees to accumulate earned but unused personal and sick pay benefits. All vacation pay and sick pay is accrued when incurred in the government-wide statements.

Lease

In the government-wide financial statements, lease debt, long-term debt and other long-term obligations are reported as a liability in the applicable governmental activities or proprietary fund type statement of net assets.      -

Fund Equity

Fund equity at the governmental fund financial reporting level is classified as "fund balance." Fund equity for all other reporting is classified as "net assets."

Fund Balance - Generally, fund balance represents the difference between the current assets and current liabilities. The County reserves those portions of fund balance which are legally segregated for a specific future use or which do not represent available, spendable_. resources and therefore are not available for appropriation or expenditure. Unreserved fund balance indicates that portion of fund balance that is available for appropriation in future periods. Designations, if any, of fund balance represent tentative management plans that are subject to change.

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

The County applies restricted resources first when an expense is incurred for purposes for which both restricted and unrestricted net assets are available.

Management Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (A)

BUDGETARY INFORMATION

Annual appropriated budgets are adopted on a basis consistent with generally accepted accounting principles for the general fund and special revenue funds. Project length budgets are adopted for the Capital Projects Funds and are then budgeted based on fiscal year expenditures,. An annual' operating budget is prepared for the enterprise fund for planning, control, cost allocation and evaluation purposes. Budgetary amounts are formally integrated into the proprietary fund's general ledger.

The County follows these procedures in establishing the budgetary data reflected in the financial statements.

In the beginning of the budget process, all departments and applicable component units of the government submit requests for appropriation to the government's administrator so that a budget may be prepared. The budget is prepared by fund, function and activity and line item, and includes information on the past year, current year estimates and requested appropriations for the next fiscal year.

Then the proposed budget is presented to the government's Board of Commissioners for review. The government's Board of Commissioners hold public hearings and may add to, subtract from or change appropriations, but may not change the form of the. budget. Any changes in the budget must be within the revenues and reserves estimated as available by the government's administrator or the revenue estimates must be changed by an affirmative vote of a majority of the government's Board of Commissioners.

The appropriated budget is prepared by fund, function and department. Increases in appropriations for a department require the approval of the Board of Commissioners. The legal level of budgetary control is at the department level within individual funds.

During the year the Commissioners authorized amendments to include appropriations for some activities that were not originally budgeted and to reclassify certain character and functional expenditures.

NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (CONTINUED)

(B) EXCESS OF REVENUES AND EXPENDITURES OVER APPROPRIATIONS (GENERAL FUND)

Excesses are considered to be material if they are both greater than $10,000 and over 3 percent of the department level budget (the legal level of control). Excesses of expenditures over appropriations of the department level are presented below:

DEPARTMENT	EXPENDITURES	BUDGETED	EXCESS
General Fund: Tax Assessors	$          240,647	$      222,768	$(17,879)
Buildings and Properties	111,178	100,800	(10,378)
Welfare	75,255	64,171	(11,084)
Emergency Medical Service	835,838	808,151	(27,687)

Excess expenditures over revenue will be provided by prior year fund balance of $4,491,100. In future years Hart County Board of Commissioners will make every effort to insure that expenditures of Hart County is within budgetary requirements.

NOTE 3 - FINANCIAL ASSISTANCE TO COMPONENT UNITS

Hart County Primary Government contributed the following funds to component units:

NOTE 4- DEPOSITS AND INVESTMENTS

Deposits - as of September 30, 2004, the carrying amount for the County and discretely presented component units, was $658,586 and $1,009,437 respectively and the bank_, balance was $1,195,478 and $1,046,747 respectively. The amount of the total bank balance is classified into three categories of credit risk: (1) deposits that are insured or collateralized with securities held by the County or by its agent in the County's name, (2) deposits collateralized with securities held by the pledging financial institution's trust department or agent in the County's name and (3) uncollateralized, including any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the County's name.

The County's deposits are displayed as follows: 

	Primary Government		ComponentUnits
Statement of net assets
Cash	$654,027		$1,003,785
Restricted Cash	$4,559		$5,652
Total	$658,586		$1,009,437
The County's deposits are classified as follows at September 30, 2004:
		Category
	1	2	3
Primary Government	$ 644,926	$  550,552
Component Units
Hart Co. Library.	$ 70,266
Hart Co. Health Dept	$100,000	$208,020
Hart Co. Water & Sewer Utility Auth.	$ 107,537	$ 98,050
The Joint Development Auth. Of Franklin,Hart & Stephens Counties	$ 115,551	$347,323
Total Component Units	$ 393,354	$653,393

NOTE 4- DEPOSITS AND INVESTMENTS (CONTINUED)

INVESTMENTS. The County's investments are categorized as either (1) insured or registered, or securities held by the County or its agent in the County's name, (2) uninsured or unregistered, with securities held by the counter party's trust department or agent in the County's name; or (3) uninsured and unregistered, with securities held by the counter party in the County's name, or by its trust department or agent but not in the County's name.

The Local Government Investment Pool, "Georgia Fund 1", created by OCGA 36-83-8, is a stable net asset value investment pool which follows Standard and Poor's criteria for AAAm rated money market funds.

However,' Georgia Fund 1 operates in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940 and . is considered to be a 2a-7-like pool. Georgia Fund 1 is managed by the Office ^.of Treasury and Fiscal Services. The pool is not registered with the SEC as an investment company. The pool's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and determines participant's shares sold and redeemed based on $1.00 per share.

NOTE 5 - RECEIVABLES

Receivables as of year end for the County's individual major funds and nonmajor governmental funds are as follows:

                                                                                                                                                         

NOTE 6 - CAPITAL ASSETS

NOTE 7_.- LONG TERM DEBT

Capital Leases

On July 1, 1999, 'the' County entered into a lease purchase' agreement with HHS Property Corporation to construct a building now known as the DFACS facility. The total cost of the DFACS facility was $1,670,296. Principal payment on this lease started at the time construction was complete. The first payment was made on March 1, 2000 and the final payment will be due January 1, 2015, at which time, the County intends to take possession of the facility. Monthly payments are $13,631.45 at 5.35% per annum. This agreement qualifies as a capital lease under FASB-13. Buildings purchased prior to October 1, 2003 have yet to be depreciated. Compliance date with GASB #34 is September 30, 2007.

The County in turn. has entered into a. sublease rental agreement with the Georgia Department of Human Resources (DHR) whereby DHR will rent the facility for office space of the Hart County Division of Family and Children Services (DFACS). DHR pays to the County $14,149.10 per month. Of this amount, $13,631.45 is considered rent and $517.65 is a monthly maintenance charge. The rental term runs from July 1 to June 30 of each year. The initial term began on August 1, 2000, DHR has the option of renewing this sublease agreement each July 1st for an additional term. The final additional term shall commence on the July 1st prior to the fifteenth anniversary of the initial commencement date, i.e., July 1, 2014 and expire at 11:59p.m. on the day before the fifteenth anniversary of the initial commencement date.

On April 19, 2002, the County entered into a lease purchase agreement with Wachovia to purchase a 2002 Ford F350 Traumahawk Ambulance. The Cost of the Ambulance was $84,306. As of 'September 30, 2004 accumulated depreciation was $5,620 for a^. book value of $78,686. The initial first annual payment on this lease was on April 15, 2003 for'the amount of $24,045.79, of which $19,472.17 was for principal and $4,573.62 for interest. The final payment will be made on April 15, 2006 for the amount of $23,988.48. At the end of the lease, total principal paid will be $84,306.00 and total interest paid @ 5.41% per annum will be $11,819.85.

During FY 2004, the County made total payments of $163,577 toward the DFACS building lease and $24,046 toward the Ambulance lease with Wachovia. Of these total payments, $92,535 and $19,472 were a reduction of principal for the respective lease payments. Combined, this created 'a reduction in total principal owed in the amount of $112,007.

The future minimum lease obligations for all leases as of September 30, 2004 are as follows:

The Compensated Absences will be paid by the Hart County Health Department

Landfill Closure and Post Closure Care Costs

State and Federal laws and regulations require the County to close and place a final cover on a landfill site when it stops accepting waste and to perform certain maintenance and monitoring functions at the site for thirty years after closure. The County recognizes a portion of the closure and postclosure care costs in each operating period even though actual payouts will not occur until the landfill is closed. The amount recognized each year is based on the landfill capacity used as of the balance sheet date. The County received its closure certificate on May 1, 1997. All estimated liability for these costs have been recognized since the landfill is no longer used. The current year amortization of the postclosure monitoring costs is $62,350. As of September 30, 2004, the County has an unamortized balance of $483,650. The estimated postclosure costs are subject to adjustment due to changes in inflation, technology, or applicable laws or regulations.

CHANGES IN LONG TERM DEBT

Long term liability activity for the year ended September 30, 2004 was as follows:

	Beginning Balance	Additions	Reductions	Ending Balance	Due Within One Year
Governmental Activities: Compensated absences	$   259,909	$   27,996	$  -	$ 287,905	$   -
Capital leases	1,431,058	-	(112,007)	1,319,051	110,965
Governmental activities long-term	$ 1,690,967	$   27,996	$ (112,007)	$  1,606,956	$ 110,965
Business-type activities: Compensated absences	$   9,483	$   794	$ -	$  10,277	$  -
Landfill closure/postclosure	546,000	-	(62,350)	483,650
Business-type activities long-term	$   555,483	$   794	$  (62,350)	$ 493,927 $	-

The compensated absences liability will be paid from the fund from which the employee's salaries are paid. Capital leases, which consist of a lease for an ambulance and a building housing the Division of Family & Children Services, will be paid from the General Fund and the Special Revenue (DFACS) Fund respectively. The landfill closure and postclosure cost will be paid by the Solid Waste Fund.

COMPONENT

Health Department

Long term liability activity for the year ended September 30, 2004 was as follows:

	Beginning Balance	Additions	Reductions	Ending Balance	Due Within One Year
Compensated absences	$     33,770	$   -	$ (6,028)	$       27,742

Water and Sewer Authority

Long term liability activity for the year ended September 30, 2004 was as follows:

	Beginning Balance	Additions	Reductions	Ending Balance	Due Within One Year
Notes Payable	$ -	$  116,918	$ -	$ 116,918	$    7,983
Contracts Payable		$  118,000	$ -	$  118,000	$  118,000
Total Water and Sewer Authority	$ -	$ 234,918	$ -	$ 234,918	$ 125,983

In FY 2003 Hart County Water and Sewer Authority began the Waterline Extension/Lavonia Connector Phase 1 project. It was funded by the City of^. Lavonia and the above GEFA Loan. The project was completed in June 2004, at a cost of $196,165. Current Depreciation was $1,962 and the book value at September 30, 2004 is $194,203.

The GEFA Loan carries a balance of $116,917.82 with an annual interest rate of 2% at June 30, 2004. The first payment of $3,232.25 is due on October 1, 2004 and then quarterly thereafter. Below is the future minimum obligated payments:

Year Ending September 30	Payment
2005	9,697
2006	12,929
2007	12,929
2008	12,929
2009	12,929
2010-2014	64,645
2015	3,232
Total	129,290
Less: Interest	(12,372)
Present Value of Minimum Payments	116;918

The Contracts and the GEFA Loan will be paid by Hart County Water and Sewer Authority.

The Joint Development Authority of Franklin, Hart and Stephens Counties

Long term liability activity for the year ended June 30, 2004 was as follows:

	BeginningBalance	Additions	Reductions	EndingBalance	Due Within One Year
Notes Payable	$ 887,500	$          -	$ (54,400)	$ 833,100	$   54,400

The Authority is obligated to pay to the Hart County Electric Membership Corporation $4,166.67 monthly, at no interest until the balance ($337,500) is paid. The loan was for Capital Improvements and the Project is still in progress so no depreciation was taken.

On July 18, 2002, the Authority borrowed on a promissory note from the United States Department of Agriculture

(U.S.D.A.) $500,000 for Capital Improvements. According to the terms of the note, total payments of $28,150

including interest at 4.75% per annum are due beginning July 18, 2003 and every year thereafter. In addition, the

Authority must set aside in a reserve account $239 per month until such balance reaches $28,680. This project is

in progress so no depreciation was taken.

Below is the debt amortization of the U.S.D.A. note and the Hart County Electric Membership Corporation note:

Year Ending June 30	U.S.D.A.	Hart County EMC	Total
2005	28,150	50,000	78,150
2006	28,150	50,000	78,150
2007	28,150	50,000	78,150
2008	28,150	50,000	78,150
2009-2013	140,750	137,500	278,250
2014-2018.	140,750	-	140,750
2019-2023	140,750	-	140,750
2024-2028	140,750	-	140,750
2029-2033	140,750	-	140,750
2034-2038	140,750	-	140,750
2039-2043	140,565	-	140,565
Total	1,097,665	337,500	1,435,165
Less: Interest	(602,065)	-	(602,065)
Present Value of Minimum Lease	$ 495,600	$ 337,500	$ 833,100

The above notes will be paid by The Joint Development Authority of Franklin, Hart and Stephens Counties.

NOTE 8 - INTERFUND TRANSFERS

Interfund transfers for the year ended September 30, 2004 were as follows:

	Transfers to:
	Governmental Activities		Business-Type Activities
Transfers out by the:	Insurance Prem. Tax Fund	Economic Dev. Fund	Solid  Waste
General Fund	$        351,082	$      122,881	6,245
Insurance Premium Tax Fund	-	-	346,155
Total	$        351,082	$      122,881	352,400

Transfers are used to report revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them and unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations; and to return money to the fund from which it was originally provided, once a project is completed.

The County transfers either occur on a regular basis or are consistent with the purpose of the fund making the transfer.

NOTE 9 - INTERFUND BALANCES: DUE TO/FROM

Interfund balances for the year ended September 30, 2004 were as follows

Interfund balances at 09/30/2004, represent charges for services or reimbursable expenses. These remaining^. balances resulted from^. the time lag between the dates that (1) interfund goods or services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting period, and (3) payments between funds are made. The County expects to repay all interfund balances within one year.

NOTE 10 - EMPLOYEE BENEFITS AND RETIREMENT PLAN

The County provides certain group insurance benefits for eligible employees who are employed over 90 days.

NOTE 11 PENSION PLANS

1. Defined Contribution Plan

The County adopted the Hart County Defined Contribution Money Plan, which operates in conjunction with. a Deferred Compensation Plan as discussed below. The plan is administered by Mack Poss. and Associates. The Plan can be amended or removed by a majority vote of the Hart County Board of Commissioners: Contributions required under the plan equaled $ 51,018 by the County and $ 103,772 by employees. Actual contributions made to the plan were $ 51,018 by the County and $ 103,772 by the employees. Percentage of covered payroll contributed by the County was 2.1% and 4.3% by the employees. Total salaries paid for the current year were $ 4,110,759, and total current year covered payroll was $2,410,995.

2. Deferred Compensation Plan

The County offers a deferred compensation plan created in Fiscal Year 1994, in accordance with Internal Revenue Code 457. The plan is available to all full time County employees ( who work more than thirty hours per week) after one^. year of employment. The plan is funded through payroll deductions with the maximum contribution being 25% and a ceiling dollar amount of $ 11,000 per year with certain catch-up provisions for employees who are at least 50 years old.

The contributions from both of the above plans are invested with Lincoln National Life and Northern Life Insurance Companies. The following is a summary of the Hart County employee retirement plan:

(1) _.Only full time employees are eligible.

(2) Employees must complete one year of service to be eligible for participation in the plan. One year of service is defined as 12 consecutive months of full time service. Any employee with a break in full time service will be treated as a new employee.

(3) The plan is structured in the following manner:

3. Upon completion of one to three years of service, the employer will match 50% of the employee's contribution to a maximum of 3% of the employee's annual salary.
4. Upon completion of three to five years of service, the employer will match 75% of the employee's contribution to a maximum of 3%^. of the employee's annual salary.
5. Upon completion of five or more years of service, the employer will match 100% of the employee's contribution to a maximum of 3% of the employee's annual salary.

(4) Employees will be 100% vested after completion of five years of service. Employees will be 100% vested in his/her contribution immediately.

(5) Participation in the plan and increases in the County match percentage will begin at the first of the month following the employee's anniversary date.

(6) Employees may contribute up to a maximum of $11,000 or 25% of their annual salary. There are additional catch-up provisions for employees nearing retirement.

(7) Employees will have a choice regarding how their contributions are invested as detailed below:

1. A fixed account (i.e. annuity) with Northern Life
2. Fixed and variable accounts (i.e. mutual funds) with Lincoln National - the variable accounts are managed by Janis and Fidelity.
3. Employees may participate in any combination of available funds in 10% increments.

(8) Employee and employer contributions are tax deferred. Taxes will be due upon withdrawal. There were no changes or revisions to the plan for the year ended September 30, 2004.

NOTE 12 - RISK MANAGEMENT

The County is exposed to various risks of losses related to torts, thefts of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The County has joined together with other municipalities in the state as part of the ACCG Property and Liability Insurance Fund and the ACCG Group Self-Insurance Workers Compensation Fund, a public entity risk pool currently operating as a common risk management and insurance program for local governments.

As part of these risk pools, the County is obligated to pay all contributions and assessments as prescribed by the pools, to cooperate with the pool's agents and attorneys, to follow loss reduction procedures established by the funds, and to report as promptly as possible, and in accordance with any coverage descriptions issued, all incidents which could result in the funds being required to pay any claim of loss. The County is also to allow the pool's agents and attorneys to represent the County in investigation, settlement discussions and all levels of. litigation arising out of any claim made against the County within the scope of loss protection furnished by the funds.

'The funds are to defend and protect the members of the funds against liability or loss as prescribed in the member government contract and in accordance with the worker's compensation law of Georgia. The funds are to pay all cost taxed against members in any legal proceeding defended by the members, all interest accruing after entry of judgment, and all expenses incurred for investigation, negotiation or defense.

Settled claims in the past three years have not exceeded the coverage.

All coverage's are subject to a per occurrence deductible of $1,000 except auto and crime protection insurance which has a deductible of $500. However, excess losses, if any, are covered by reinsurance and would be paid by the reinsurer.

Medical coverage for employees is with Health Plan Select. The plan has various co pays ranging from $15 to $300 depending on the type of treatment with a maximum annual out-of-pocket of $1,500 individually/$4,500 family. The maximum lifetime benefit is $1,000,000.

NOTE 13 - CONTINGENT LIABILITIES

Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the County expects such amounts, if any, to be immaterial.

Hart County is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of the County Attorney, the resolution of these matters will not have a material adverse effect on the financial condition of the County. There were no known contingent liabilities which would materially effect the financial statements.

NOTE 14 -JOINT VENTURE

Under Georgia Law, the County, in conjunction with other cities and counties in the area, are members of the Georgia Mountains Regional Development Center (RDC) and is required to pay annual dues there to. During its' year ended September 30, 2004, the County paid $17,965 in such dues. Membership in a RDC is required by the Official Code of Georgia Annotated (OCGA) Section 50-8-34 that provides for the organizational structure of the RDC in Georgia. The RDC Board membership includes the chief elected official of each county and municipality in the area. OCGA 50-8-39.1. provides that the governments are liable for any debts or obligations of an RDC. Separate financial statements may_. be obtained from Georgia Mountains Regional Development Center, P.O. Box 1720, Gainesville, Georgia. 30503..

NOTE 14- JOINT VENTURE (CONTINUED)

The Counties of Franklin, Hart and Stephens also entered into a joint venture with the Joint Development Authority of Franklin, Hart and Stephens Counties. The Authority is a public body corporate and politic, and an instrumentality of the counties of Franklin, Hart and Stephens. It has been authorized by the General Assembly of Georgia and has been created and activated by concurrent resolutions of the Boards of Commissioners of said counties duly filed with the Secretary of State of Georgia as a joint development authority under O.C.G.A. 36-62.5.1. The purpose of the Authority is to promote the economic development of the geographical areas of its operation, encourage cooperation among economic development organizations within the area of the participating counties and to exercise all the powers granted to a development authority pursuant to the provisions of O.C.G.A. 36-62-1 et seq. Separate financial statements may be obtained from the Joint Development Authority of Franklin, Hart and Stephens Counties, P.O. Box 793, Hartwell, Georgia 30643.

Hart County funds the Authority through expenditures from the General Fund, SPLOST Accounts and with Grants received for the purpose of local economic and development. Total funds contributed or expended on behalf of the Authority by the County totaled $1,537,926 with the majority coming from SPLOST funds.

After Construction of the Industrial Park is complete, The Joint Development Authority of Franklin, Hart and Stephens Counties will be financially stable and will accumulated significant financial resources by the sale of industrial business lots.

NOTE 15 - RECONCILIATION OF FUNDS EXPENDED TO COMPONENT UNITS

The funds expended between The Joint Development Authority of Franklin, Hart & Stephens County and Hart County require an reconciliation due to the Authority having a year end of June 30, 2004. Reconciliation of monies expended by Hart County and revenues received by the Authority are as follows:

The funds expended between The Hart County Library and Hart County also require a reconciliation due to the. Library having a year end of June 30, 2004. Reconciliation of monies expended by Hart County and revenues received by the Library are as follows:

NOTE 16 - PRIOR PERIOD ADJUSTMENTS

During FY 2003, the General Fund recorded construction in progress of $195,435. This amount was expended on behalf of The Joint Development Authority of Franklin, Hart and Stephens Counties and was recorded as so in their audit. A prior period adjustment in this amount is required in the General Fund to record this transaction.

In previous years the Closure/Postclosure care liability for the Solid Waste Landfill was recorded in the General Fund. For FY 2004, the aforementioned liability was transferred to the Solid Waste proprietary fund creating a need for a prior period adjustment. The following prior period adjustment is applicable for FY 2004:

Governmental Activities FY 2004 Recording of Closure/Postclosure care liability	$   546,000
FY 2003 Construction in Progress.	(195,435)
FY 2004 Accounts Payable not recording in FY 2003	34,070
Total Governmental prior period adjustment	$    384,635
Business-type Activities FY 2004 Recording of Closure/Postclosure care liability	$ (546,000)
FY 2003 Accounts Receivable not recorded in FY 2003	71,483
	$ (474,517)

NOTE 17 - ADJUSTMENT TO BEGINNING NET ASSETS - MAJOR COMPONENT UNIT - BUSINESS TYPE ACTIVITIES

In accordance with GASB 14 Hart County is now including The Joint Development Authority of Franklin, Hart and Stephens Counties as a Major Component Unit - Business Type Activity for the year end September 30,

The following reflects an addition to beginning net assets of Major Component Units - Business Type Activities: