SAVANNAH STATE UNIVERSITY SAVANNAH, GEORGIA MANAGEMENT REPORT FOR FISCAL YEAR ENDED JUNE 30, 2014 A Member Institution of the University System of Georgia Georgia Department of Audits and Accounts Greg S. Griffin State Auditor SAVANNAH STATE UNIVERSITY - TABLE OF CONTENTS - SECTION I FINANCIAL LETTER OF TRANSMITTAL SELECTED FINANCIAL INFORMATION EXHIBITS A STATEMENT OF NET POSITION - (GAAP BASIS) B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION (GAAP BASIS) C STATEMENT OF CASH FLOWS - (GAAP BASIS) D SELECTED FINANCIAL NOTES SUPPLEMENTARY INFORMATION SCHEDULES 1 BALANCE SHEET - (STATUTORY BASIS) BUDGET FUND 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (STATUTORY BASIS) BUDGET FUND 3 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND 4 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND 5 RECONCILIATION OF BUDGET TO GAAP 6 RECONCILIATION OF SALARIES AND TRAVEL Page 2 3 5 6 20 21 22 24 26 27 SECTION II FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SECTION I FINANCIAL Greg S. Griffin STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 February 5, 2015 Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the State Board of Regents of the University System of Georgia and Honorable Cheryl Dozier, President Savannah State University Ladies and Gentlemen: As part of our audits of the basic financial statements of the University System of Georgia presented in the Annual Financial Report for the University System of Georgia, the basic financial statements of the State of Georgia presented in the State of Georgia Comprehensive Annual Financial Report and the issuance of a State of Georgia Single Audit Report pursuant to the Single Audit Act Amendments, as of and for the year ended June 30, 2014, we have performed certain audit procedures at Savannah State University. Accordingly, the financial statements and compliance activities of Savannah State University were examined to the extent considered necessary in order to express an opinion as to the fair presentation of the financial statements contained in the foregoing documents and to issue reports on compliance and internal control as required by the Single Audit Act Amendments of 1996. This Management Report contains information pertinent to the financial and compliance activities of Savannah State University as of and for the year ended June 30, 2014. Information contained in this report is a by-product of our audits of the basic financial statements of the University System of Georgia and the basic financial statements of the State of Georgia and is the representation of management. Accordingly, we do not express an opinion or any other form of assurance on it. The particular information provided which includes a section on findings and other items reported in accordance with Commission on Colleges regulation 2.11.1 is enumerated in the Table of Contents. This report is intended solely for the information and use of the management of Savannah State University, members of the Board of Regents of the University System of Georgia and the Southern Association of Colleges and Schools - Commission on Colleges and is not intended to be and should not be used by anyone other than these specified parties. Respectfully, GSG:as Greg S. Griffin State Auditor SELECTED FINANCIAL INFORMATION - 1 - SAVANNAH STATE UNIVERSITY STATEMENT OF NET POSITION - (GAAP BASIS) JUNE 30, 2014 ASSETS Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Inventories Prepaid Items Total Current Assets Noncurrent Assets Noncurrent Cash Short-Term Investments Investments (Externally Restricted) Due from USO - Capital Liability Reserve Fund Notes Receivable, Net Capital Assets, Net (Note 4) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts Payable Salaries Payable Advances (including Tuition and Fees) (Note 5) Other Liabilities Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences Total Current Liabilities Noncurrent Liabilities Lease Purchase Obligations Compensated Absences Total Noncurrent Liabilities Total Liabilities NET POSITION Net Investment in Capital Assets Restricted for: Nonexpendable Expendable Unrestricted Total Net Position - 2 - EXHIBIT "A" $ 9,442,601 408,276 1,546,917 2,568,251 44,785 376,508 14,387,338 40,009 21,863 6,055,395 844,039 900,118 153,148,227 161,009,651 175,396,989 1,548,336 110,353 1,533,787 1,300 1,566,460 1,826,596 767,610 7,354,442 106,047,893 1,047,855 107,095,748 114,450,190 45,273,738 5,902,322 1,202,737 8,568,002 $ 60,946,799 SAVANNAH STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION - (GAAP BASIS) YEAR ENDED JUNE 30, 2014 EXHIBIT "B" OPERATING REVENUES Student Tuition and Fees (Net of Allowance for Doubtful Accounts) Less: Scholarship Allowances Grants and Contracts Federal Federal Stimulus State Other Sales and Services Rents and Royalties Auxiliary Enterprises Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Operating Loss NONOPERATING REVENUES (EXPENSES) State Appropriations Grants and Contracts Federal Gifts Investment Income (Endowments, Auxiliary and Other) Interest Expense (Capital Assets) Other Nonoperating Revenues Net Nonoperating Revenues Decrease in Net Position Net Position - Beginning of Year Net Position - End of Year $ 28,724,374 -16,018,513 8,853,208 113,618 160,245 365,491 630,187 65,330 14,316,102 238,678 10,622,130 824,777 662,794 4,570,746 35,148 148,080 54,312,395 13,346,504 18,959,967 10,224,598 384,266 1,177,327 6,274,498 3,507,414 28,637,727 7,060,300 89,572,601 -35,260,206 18,655,084 17,492,256 1,095,812 808,387 -5,645,714 117,244 32,523,069 -2,737,137 63,683,936 $ 60,946,799 - 3 - (This page left intentionally blank) SAVANNAH STATE UNIVERSITY STATEMENT OF CASH FLOWS - (GAAP BASIS) YEAR ENDED JUNE 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts (Exchange) Sales and Services Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Loans Issued to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Receipts, Net Net Cash Used by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Net Cash Flows Provided by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of Capital Assets Principal Paid on Capital Debt and Leases Interest Paid on Capital Debt and Leases Net Cash Used by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments Purchase of Investments Net Cash Used by Investing Activities Net Decrease in Cash Cash and Cash Equivalents - Beginning of Year Cash and Cash Equivalents - End of Year RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES: Operating Loss Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, Net Inventories Prepaid Items Notes Receivable, Net Accounts Payable Advances (including Tuition and Fees) Other Liabilities Compensated Absences Net Cash Used by Operating Activities NONCASH ACTIVITY Change in Fair Value of Investments Recognized as a Component of Interest Income - 5 - EXHIBIT "C" $ 12,889,165 9,355,656 630,187 -43,918,313 -32,102,350 -6,274,498 -14,614 13,786,421 237,939 10,595,285 846,292 652,605 4,601,210 33,362 360,884 -28,320,769 18,655,084 404,882 18,588,068 37,648,034 -2,436,555 -1,613,321 -5,645,714 -9,695,590 547,263 -547,884 -621 -368,946 9,851,556 $ 9,482,610 $ -35,260,206 7,060,300 -1,642,245 4,268 95,474 -14,358 156,972 550,322 557,301 171,403 $ -28,320,769 $ 261,123 SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY Savannah State University (University) is one of thirty-one (31) State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of Savannah State University as a separate reporting entity. The Board of Regents has constitutional authority to govern, control and manage the University System of Georgia. This authority includes but is not limited to the power to designate management, the ability to significantly influence operations, the authority to control institutions' budgets, the power to determine allotments of State funds to member institutions and the authority to prescribe accounting systems and administrative policies for member institutions. Savannah State University does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Savannah State University is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards. FINANCIAL STATEMENT PREPARATION The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the University's assets, deferred outflow of resources, liabilities, deferred inflows of resources, net position, revenues, expenses, changes in net position and cash flows. BASIS OF ACCOUNTING For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues, are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-university transactions have been eliminated. NEW ACCOUNTING PRONOUNCEMENTS In fiscal year 2014, the University adopted Governmental Accounting Standards Board (GASB) Statement No. 66, Technical Corrections - 2012, an amendment to GASB Statements No. 10 and No. 62. The objective of this Statement is to resolve conflicting guidance by amending GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues and GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in PreNovember 30, 1989 FASB and AICPA Pronouncements. GASB Statement No. 10 was amended by removing the provision that limited fund based reporting of an entity's risk and financing activities to certain funds. GASB Statement No. 62 was amended by modifying guidance on (1) operating lease payments that vary from a straight-line basis, (2) purchases of a loan or a group of loans, and (3) recognition of servicing fees on mortgage loans that are sold when the stated service fee rate differs from a current (normal) servicing fee rate. In fiscal year 2014, the University adopted Governmental Accounting Standards Board (GASB) Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. This Statement establishes accounting and reporting requirements for state and local governments that extend or receive financial guarantees that are nonexchange transactions. - 6 - SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" Future Accounting Pronouncements In fiscal year 2015, the University will adopt Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions. The provisions of this Statement establish accounting and financial reporting standards for pensions that are provided to the employees of state and local governmental employers through pension plans that are administered through trusts. Implementation of this Statement will require the University to record a liability for its proportionate share of the Net Pension Liability of pension plans in which it participates. Actuarial estimates are currently being made to determine the University's liability, the effects of which are believed to be material. NET POSITION The University's net position is classified as follows: Net Investment in Capital Assets: This represents the University's total investment in capital assets, net of outstanding debt obligations, deferred outflows of resources and deferred inflows of resources (if applicable) related to those capital assets. To the extent debt has been incurred or deferred inflows of resources have been received but not yet expended for capital assets, such amounts are not included as a component of the net investment in capital assets. Restricted - nonexpendable: Nonexpendable restricted net position consists of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. The University may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 44-15-7 of Annotated Code of Georgia. Restricted - expendable: Restricted expendable net position includes resources in which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. Unrestricted: Unrestricted net position represents resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) of $9,036.84. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the Office of State Treasurer. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the University's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59: 1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia. - 7 - SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" 2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia. 3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose. 4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia. 5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association. 6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation. The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia. At June 30, 2014, the carrying value of deposits was $9,911,509 and the bank balance was $11,099,878. Of the University's deposits, $10,076,475 were uninsured. Of these uninsured deposits, $158,275 were collateralized with securities held by the financial institution's trust department or agent in the University's name, $9,918,200 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the University's name. INVESTMENTS At June 30, 2014, the carrying value of the University's investments was $6,055,395, which is materially the same as fair value. These investments were comprised entirely of funds invested in the Board of Regents investment pools as follows: Investment Pools Board of Regents Legal Fund Total Return Fund $ 834,853 5,220,542 Total Investment Pools $ 6,055,395 Board of Regents Investment Pools are not registered with the Securities and Exchange Commission as an investment company. The fair value of investments is determined daily. The pools do not issue shares. Each participant is allocated a pro rata share of each investment at fair value along with a pro rata share of the interest that it earns. Participation in Board of Regents Investment Pools is voluntary. - 8 - SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2014. Student Tuition and Fees $ Auxiliary Enterprises and Other Operating Activities Federal Financial Assistance Other 1,737,839 1,003,553 1,546,917 924,505 Less Allowance for Doubtful Accounts 5,212,814 1,097,646 Net Accounts Receivable $ 4,115,168 NOTE 4: CAPITAL ASSETS Following are the changes in the University's capital assets for the year ended June 30, 2014: Capital Assets, Not Being Depreciated: Land Construction Work-In-Progress Beginning Balance July 1, 2013 Additions Reductions Ending Balance June 30, 2014 $ 975,219 $ 975,219 0$ 1,495,395 $ 874,837 620,558 Total Capital Assets, Not Being Depreciated 975,219 1,495,395 874,837 1,595,777 Capital Assets, Being Depreciated: Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections Capitalized Collections 88,197,496 4,216,653 7,773,811 110,333,789 8,073,176 55,285 655,290 219,547 1,143,475 184,348 18,650 132,797 11,648 88,834,136 4,436,200 8,784,489 110,333,789 8,245,876 55,285 Total Assets Being Depreciated 218,650,210 2,202,660 163,095 220,689,775 Less: Accumulated Depreciation: Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections Capitalized Collections 34,782,987 2,024,513 4,316,583 14,048,313 6,781,711 16,851 2,140,078 143,913 764,482 3,777,719 232,726 1,382 18,650 -136,365 11,648 36,904,415 2,168,426 5,217,430 17,826,032 7,002,789 18,233 Total Accumulated Depreciation 61,970,958 7,060,300 -106,067 69,137,325 Total Capital Assets, Being Depreciated, Net Capital Assets, Net $ 156,679,252 157,654,471 $ -4,857,640 -3,362,245 $ 269,162 1,143,999 $ 151,552,450 153,148,227 - 9 - SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" NOTE 5: Advances Advances consisted of the following at June 30, 2014. Prepaid Tuition and Fees Other - Advances $ 326,027 1,207,760 Total Advances $ 1,533,787 NOTE 6: LONG-TERM LIABILITIES The University's Long-Term liability activity for the year ended June 30, 2014 was as follows: Beginning Balance July 1, 2013 Additions Reductions Ending Balance June 30, 2014 Current Portion Leases Lease Obligations $ 109,487,810 $ 1,613,321 $ 107,874,489 $ 1,826,596 Other Liabilities Compensated Absences 1,644,062 $ 1,208,772 1,037,369 1,815,465 767,610 Total Long-Term Obligations $ 111,131,872 $ NOTE 7: NET POSITION 1,208,772 $ 2,650,690 $ 109,689,954 $ Changes in Net Position for the year ended June 30, 2014 are as follows: 2,594,206 Balance July 1, 2013 Additions Reductions Balance June 30, 2014 Net Investments in Capital Assets $ 48,166,663 $ 4,436,539 $ 7,329,464 $ 45,273,738 Restricted Net Position 6,286,663 27,803,679 26,985,283 7,105,059 Unrestricted Net Position Total Net Position 9,230,610 53,386,071 54,048,679 8,568,002 $ 63,683,936 $ 85,626,289 $ 88,363,426 $ 60,946,799 NOTE 8: LEASE OBLIGATIONS Savannah State University is obligated under various operating leases for the use of real property (land, buildings, and office facilities) and equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of real property and equipment. CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2014 and 2041. Expenses for fiscal year 2014 were $7.259 million of which $5.646 million represented interest. Total principal paid on capital leases was $1,613,321 for the fiscal year ended June 30, 2014. Interest rates range from 4.486 percent to 6.262 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2014: - 10 - SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" Description Buildings Gross Amount (+) Accumulated Depreciation (-) Net Assets Held Under Capital Lease at June 30, 2014 (=) Outstanding Balances per Lease Schedules at June 30, 2014 $ 110,333,789 $ 17,826,032 $ 92,507,757 $ 107,874,489 Certain capital leases provide for renewal and/or purchase options. Generally purchase options at bargain prices of one dollar are exercisable at the expiration of the lease terms. Savannah State University has two capital leases with SSU Foundation Real Estate Ventures, LLC, of which Savannah State University Foundation, Inc. is the sole member. In February 2008, Savannah State University entered into a capital lease of $29,229,205 for University Village with the LLC. In August, 2008, Savannah State University entered into a capital lease of $24,586,826, for University Commons with the LLC. The University leases a 660-bed housing facility, University Village, at an interest rate of 4.486 percent for a twenty-five-year period that began February 2008 and expires June 2032, with payments due the 15th of the month each February, May, August, and November. The 13.768 acres of land on which these buildings are located is owned by the Board of Regents, and was leased to the LLC for $10 per year, payable in advance upon commencement of the ground lease. The outstanding liability at June 30, 2014 on this capital lease is $27,243,481. The University leases a 742-bed housing facility, University Commons, at an interest rate of 4.655 percent for a twenty-five-year period that began August 2009 and expires June 2033, with payments due the 15th of the month each February, May, August and November. The 0.275 acre of land on which these buildings are located (previously known as 4750 LaRoche Avenue) is part of the capital lease agreement. The outstanding liability at June 30, 2014 on this capital lease is $24,320,744. Savannah State University, through the Savannah State University Foundation, established SSU Community Development I, LLC, hereafter referred to as LLC-I, a Georgia limited liability company, in fiscal year 2010 for the purposes of borrowing $36.475 million through a Savannah Economic Development Authority Revenue Bond, Series 2010. Proceeds of the Series 2010 Bonds will be used by LLC-I to finance in whole or in part the cost of (i) the purchase of land and its development for a sports and intramural complex to be conveyed for use by the University as athletic fields, (ii) the construction and furnishing of three new buildings and the renovation of an existing building, to be used as student housing facilities containing 683-beds and related amenities, (iii) the demolition of an existing building to create a site for one of the new student housing buildings, and (iv) renovations and improvements to existing buildings (collectively, the "Project") located on the campus of Savannah State. The land on which these buildings are located is owned by the Board of Regents, and was leased to the LLC-I for $10 per year, payable in advance upon commencement of the ground lease. In July 2011, Savannah State University entered three capital leases with LLC-I for Tiger Point, Tiger Place, and Camilla Hubert housing facilities in the amounts of $6,160,184, $8,182,797, and $4,821,572, respectively. The land on which these buildings are located is owned by the Board of Regents, and was leased to the LLC for $10 per year, payable in advance upon commencement of the ground lease. The University leases a 106-bed housing facility, Tiger Point, with LLC-I at an interest rate of 4.763 percent for a thirty-year period that began July 2011 and expires June 2041, with payments due on the 1st of the month each June and December. The outstanding liability at June 30, 2014 on this capital lease is $6,127,404. The University leases a 173-bed housing facility, Tiger Place, with - 11 - SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" LLC-I at an interest rate of 4.763 percent for a thirty-year period that began July 2011 and expires June 2041, with payments due on the 1st of the month each June and December. The outstanding liability at June 30, 2014 on this capital lease is $8,131,909. The University leases a 77-bed building that was restored as a housing facility, Camilla Hubert Hall, with LLC-I at an interest rate of 4.763 percent for a thirty -year period that began July 2011 and expires June 2041, with payments due on the 1st of the month each June and December. The outstanding liability at June 30, 2014 on this capital lease is $4,797,036. During fiscal year 2012 Adams Hall and Morgan Hall, nonresidential buildings, were renovated and the aforementioned Sports Complex was completed at a cost of $6,706,586. The capital lease on these assets, however, did not begin until August, 2012, when the University took possession of a new 325-bed residential facility called Tiger Court. Tiger Court was not completed early fiscal year 2013 and the University took possession at that time. Since the renovated assets and the Sports Complex were received in 2012 they were recognized within the financial statements as a long term note payable rather than as a capital lease. This note payable to the Foundation was replaced by the lease when it was booked in fiscal year 2013. The renovation of Adams Hall and Morgan Hall was included in the University's lease for Tiger Court. Tiger Court is a 327-bed housing facility leased with LLC-I at an interest rate of 5.847 percent for a thirty-year period that began December 2012 and expires June 2041, with payments due on the 1st of the month each June and December. The outstanding liability at June 30, 2014 on this capital lease is $15,495,294. The University leases a Sports and Intramural Complex with LLC-I at an interest rate of 6.262 percent for a thirty-year period that began December 2012 and expires June 2041, with payments due on the 1st of the month each June and December. The outstanding liability at June 30, 2014 on this capital lease is $4,268,967. The Georgia Higher Education Facilities Authority (GHEFA) issued $94,210 million in revenue bonds associate with the USG Real Estate Foundation III, LLC, hereafter referred to as USGREF LLC, project. A portion of the proceeds of the Series 2010 Bonds were used to finance the acquisition, construction, and equipping of facilities in connection with the renovation of the existing University stadium and related improvements located on an approximately 1.373 acre site, including new bleachers with approximately 8,000 seats, restrooms, concessions, ticketing, locker room and elevators. A portion of the proceeds of the Series 2010 Bonds were used to finance the acquisition, construction, and equipping of an approximately 47,239 square foot student center located on approximately 0.746 acre site, including indoor and outdoor lounge spaces, food court, convenience store, meeting spaces, ballroom with stage, and other student and staff support spaces. The land on which these buildings are located is owned by the Board of Regents, and was leased for $10 per year, payable in advance upon commencement of the ground lease. The University leases the 47,239 square foot student center and the 8,000-seat stadium with the USGREF LLC at an interest rate of 5.234 percent for a thirty-year period that began July 2011 and expires June 2041, with payments due on the 15th of the month each June and December. The outstanding liability at June 30, 2014 on this capital lease is $17,489,654. OPERATING LEASES Savannah State University's noncancellable operating leases provide for renewal options for periods from one to three years at their fair rental value at the time of renewal. All agreements are cancelable if the State of Georgia does not provide adequate funding, but that is considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are generally payable on a monthly basis. Examples of property under operating leases are copiers, other small business equipment, and buildings. - 12 - SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" FUTURE COMMITMENTS Future commitments for capital leases (which here and on the Statement of Net Position includes other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2014, were as follows: Capital Leases Year Ending June 30: 2015 2016 2017 2018 2019 2020 - 2024 2024 - 2029 2030 - 2034 2035 - 2039 2040 - 2041 $ 7,140,475 7,272,359 7,408,858 7,527,075 7,639,697 39,965,962 43,273,243 38,336,482 19,989,335 7,424,422 Total Minimum Lease Payments 185,977,908 Less: Interest 78,103,419 Principal Outstanding $ 107,874,489 Savannah State University fiscal year 2014 expense for rental of real property and equipment under operating leases was $215,141. NOTE 9: RETIREMENT PLANS Savannah State University participates in the Teachers Retirement System of Georgia. This system issues a separate publicly available financial report that includes the applicable financial statements and required supplementary information. This report may be obtained from the system office. The significant retirement plans that Savannah State University participates in are described below. More detailed information can be found in the plan agreements and related legislation. Each plan, including benefit and contribution provisions, was established and can be amended by State law. Teachers Retirement System of Georgia The Teachers Retirement System of Georgia (TRS) is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS. On October 25, 1996, the Board created the Supplemental Retirement Benefit Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS - 13 - SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" whose benefits are otherwise limited by IRC Section 415. Beginning July 1, 1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits. TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service. Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 30 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available. TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 10 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2014 were 6.00% of annual salary. Employer contributions required for fiscal year 2014 were 12.28% of annual salary as required by the June 30, 2011 actuarial valuation. The following table summarizes the Savannah State University's contributions by defined benefit plan for the years ending June 30, 2014, June 30, 2013, and June 30, 2012: Fiscal Year TRS Required Percentage Contribution Contributed 2014 2013 2012 $ 2,227,791 $ 2,035,584 $ 1,759,365 100% 100% 100% Regents Retirement Plan Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 47-21-1 et.seq. and administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed - 14 - SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts. Funding Policy Savannah State University makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2014, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 6% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and non-forfeitable at all times. Savannah State University and the covered employees made the required contributions of $809,692 (9.24%) and $525,456 (6%), respectively. AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices. Georgia Defined Contribution Plan Plan Description Savannah State University participates in the Georgia Defined Contribution Plan (GDCP) which is a single-employer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia. Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $3,500 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute. Contributions Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member. Total contributions made by employees during fiscal year 2014 amounted to $50,856 which represents 7.5% of covered payroll. These contributions met the requirements of the plan. The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices. - 15 - SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" NOTE 10: RISK MANAGEMENT The University System of Georgia offers its employees and retirees access to four different selfinsured healthcare plan options. For the University System of Georgia's Plan Year 2014, the following health care options were available: Blue Choice HMO plan (Blue Cross Blue Shield) HSA Open Access POS plan (Blue Cross Blue Shield) Open Access POS plan Kaiser Permanente HMO plan Savannah State University and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these plans are considered to be a self-sustaining risk fund. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WellPoint, to serve as the claims administrator for the self-insured healthcare plan products. In addition to the self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HMO healthcare plan option is also offered to System employees through Kaiser. The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental loses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. University, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment. A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund. NOTE 11: CONTINGENCIES Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditure disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although University expects such amounts, if any, to be immaterial to its overall financial positions. Litigation, claims and assessments filed against Savannah State University (an organizational unit of the Board of Regents of the University System of Georgia), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments - 16 - SAVANNAH STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2014. NOTE 12: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 20-3-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee. The Board of Regents Retiree Health Benefit Plan is a single employer defined benefit plan. Financial statements and required supplementary information for the Plan are included in the publicly available Consolidated Annual Financial Report of the University System of Georgia. The University pays the employer portion of health insurance for its eligible retirees based on rates that are established annually by the Board of Regents for the upcoming plan year. For the 2014 plan year, the employer rate was between 70-75% of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%. As of June 30, 2014, there were 239 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2014, Savannah State University recognized as incurred $909,800 of expenditures, which was net of $448,423 of participant contributions. NOTE 13: AFFILIATED ORGANIZATIONS The Savannah State University Foundation, Savannah State University Real Estate Foundation, Savannah State University Research Foundation, and Peachtree State Athletic Foundation are legally separate, tax exempt organizations whose activities primarily support Savannah State University. These affiliated organizations are considered potential component units of the State of Georgia in accordance with GASB Statement No. 61, The Financial Reporting Entity: Omnibus - an amendment of GASB Statements No. 14 and No. 34, and GASB Statement No. 39, Determining Whether Certain Organizations are Component Units. Therefore, the financial statements of the affiliated organizations are not included in these financial statements. Copies of the financial statements for the affiliated organizations may be obtained from Savannah State University. - 17 - (This page left intentionally blank) SUPPLEMENTARY INFORMATION - 19 - SAVANNAH STATE UNIVERSITY BALANCE SHEET (STATUTORY BASIS) BUDGET FUND JUNE 30, 2014 ASSETS Cash and Cash Equivalents Investments Accounts Receivable Federal Financial Assistance Other Prepaid Expenditures Inventories Total Assets LIABILITIES AND FUND EQUITY Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Advances (including Tuition and Fees) Other Liabilities Total Liabilities Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Uncollectible Accounts Receivable Tuition Carry-Over Inventories Unreserved Surplus Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "1" $ 1,447,785.26 8,275.65 1,546,917.33 2,936,731.85 105,279.06 44,785.14 $ 6,089,774.29 $ 84,271.24 1,905,776.07 192,640.70 1,521,007.04 4,960.72 3,708,655.77 231,170.56 719,368.09 560,245.57 739,523.60 66,204.86 55,569.00 9,036.84 2,381,118.52 $ 6,089,774.29 Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework. - 20 - SAVANNAH STATE UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (STATUTORY BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2014 SCHEDULE "2" REVENUES State Appropriation State General Funds Other Funds Total Revenues ADJUSTMENTS AND PROGRAM TRANSFERS CARRY-OVER FROM PRIOR YEARS Transfers from Reserved Fund Balance Total Funds Available EXPENDITURES Teaching Excess of Funds Available over Expenditures FUND BALANCE JULY 1 Reserved Unreserved ADJUSTMENTS Prior Year Receivables/Revenues Unreserved Fund Balance (Surplus) Returned to Board of Regents - University System Office Year Ended June 30, 2013 Prior Year Reserved Fund Balance Included in Funds Available FUND BALANCE JUNE 30 BUDGET ACTUAL VARIANCE FAVORABLE (UNFAVORABLE) $ 18,671,267.00 $ 18,671,267.00 $ 54,546,323.00 53,809,677.72 73,217,590.00 72,480,944.72 0.00 0.00 0.00 -736,645.28 -736,645.28 0.00 0.00 73,217,590.00 1,907,088.43 74,388,033.15 1,907,088.43 1,170,443.15 73,217,590.00 $ 0.00 72,539,409.34 1,848,623.81 $ 678,180.66 1,848,623.81 2,511,981.74 16,183.35 -72,398.60 -16,183.35 -1,907,088.43 $ 2,381,118.52 SUMMARY OF FUND BALANCE Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Uncollectible Accounts Receivable Tuition Carry-Over Inventories Total Reserved Unreserved Surplus Total Fund Balance $ 231,170.56 719,368.09 560,245.57 739,523.60 66,204.86 55,569.00 2,372,081.68 9,036.84 $ 2,381,118.52 Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework. - 21 - SAVANNAH STATE UNIVERSITY STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2014 Teaching State Appropriation State General Funds Other Funds Total Teaching Original Appropriation Amended Appropriation Final Budget Current Year Revenues $ 18,671,267.00 $ 18,671,267.00 $ 18,671,267.00 $ 18,671,267.00 57,490,111.00 54,080,243.00 54,546,323.00 53,809,677.72 $ 76,161,378.00 $ 72,751,510.00 $ 73,217,590.00 $ 72,480,944.72 Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework. - 22 - SCHEDULE "3" Funds Available Compared to Budget Prior Year Adjustments and Total Carry-Over Program Transfers Funds Available Variance Positive (Negative) Expenditures Compared to Budget Variance Actual Positive (Negative) Excess of Funds Available Over Expenditures $ 0.00 $ 1,907,088.43 20,703.37 $ 18,691,970.37 $ -20,703.37 55,696,062.78 20,703.37 $ 18,671,267.00 $ 1,149,739.78 53,868,142.34 0.00 $ 678,180.66 20,703.37 1,827,920.44 $ 1,907,088.43 $ 0.00 $ 74,388,033.15 $ 1,170,443.15 $ 72,539,409.34 $ 678,180.66 $ 1,848,623.81 - 23 - SAVANNAH STATE UNIVERSITY STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2014 Teaching State Appropriation State General Funds Other Funds Total Teaching Prior Year Reserves Not Available for Expenditure Inventories Uncollectible Accounts Receivable Beginning Fund Balance July 1 Fund Balance Carried Over from Prior Period as Funds Available Return of Fiscal Year 2013 Surplus Prior Period Adjustments $ 1,540.24 $ 0.00 $ 1,921,731.54 -1,907,088.43 1,923,271.78 -1,907,088.43 -1,540.24 $ -14,643.11 -16,183.35 -4,005.75 -68,392.85 -72,398.60 42,181.13 562,712.18 0.00 0.00 0.00 0.00 0.00 0.00 Budget Unit Totals $ 2,528,165.09 $ -1,907,088.43 $ -16,183.35 $ -72,398.60 Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework. - 24 - SCHEDULE "4" Other Adjustments Early Return Fiscal Year 2014 Surplus Excess of Funds Available Over Expenditures Ending Fund Balance June 30 Analysis of Ending Fund Balance Reserved Surplus Total $ -13,387.87 $ -176,811.42 -190,199.29 0.00 $ 0.00 0.00 20,703.37 $ 1,827,920.44 1,848,623.81 3,309.75 $ 1,582,716.17 1,586,025.92 0.00 $ 1,576,989.08 1,576,989.08 3,309.75 $ 5,727.09 9,036.84 3,309.75 1,582,716.17 1,586,025.92 13,387.87 176,811.42 0.00 0.00 0.00 0.00 55,569.00 739,523.60 55,569.00 739,523.60 0.00 0.00 55,569.00 739,523.60 $ 0.00 $ 0.00 $ 1,848,623.81 $ 2,381,118.52 $ 2,372,081.68 $ 9,036.84 $ 2,381,118.52 Summary of Ending Fund Balance Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Uncollectible Accounts Receivable Tuition Carry-Over Inventories Unreserved Surplus Total Ending Fund Balance - June 30 $ 231,170.56 719,368.09 560,245.57 739,523.60 66,204.86 55,569.00 $ $ 2,372,081.68 $ $ 9,036.84 9,036.84 $ 231,170.56 719,368.09 560,245.57 739,523.60 66,204.86 55,569.00 9,036.84 2,381,118.52 - 25 - SAVANNAH STATE UNIVERSITY RECONCILIATION OF BUDGET TO GAAP YEAR ENDED JUNE 30, 2014 SCHEDULE "5" Presented below is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Position of business-type activities, as reported on Exhibit A. Total Fund Balances - Budget Fund - Non-GAAP Basis (Schedule "1") $ 2,381,118.52 Amounts reported for Business-Type Activities in the Statement of Net Position are different because: Capital Assets used in Business-Type Activities are not reported in the Budget Fund. 153,148,227.36 Uncollectible accounts receivable are reported as an asset and reserved fund balance in the Budget Fund and as a contra-asset account on the Statement of Net Position. -739,523.60 Certain obligations are reported as accounts payable on the Statement of Net Position but are not recognized as expenditures in the Budget Fund. -10,000.00 Agency Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Agency Fund Activity $ 2,651,650.33 -2,651,650.33 0.00 Auxiliary Enterprises Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Auxiliary Enterprises Fund Activity $ 7,584,103.38 -203,638.74 7,380,464.64 Endowment Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Endowment Fund Activity $ 6,117,267.34 0.00 6,117,267.34 Loan Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Loan Fund Activity $ 987,792.00 0.00 987,792.00 Student Activities Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Student Activity Fund Activity $ 129,987.11 -92,067.13 37,919.98 The budgetary basis of accounting implemented by the State of Georgia recognizes expenditures when encumbered. The following adjustments were made to eliminate this activity for reporting on the Statement of Net Position. Payables reported in the Budget Fund that are based on encumbrances are eliminated for GAAP reporting. Georgia State Financing and Investment activity reported as revenue in the Budget Fund to cover encumbrances reported as expenditures are eliminated for GAAP reporting. Total Net Effect of Encumbrance Activity $ 1,905,776.07 -572,289.48 1,333,486.59 Certain Liabilities are not due and payable in the current period and therefore are not reported as liabilities in the Budget Fund. Capital Leases Payable Compensated Absences Payable Total Liabilities $ -107,874,488.50 -1,815,465.33 -109,689,953.83 Net Position of Business-Type Activities (Exhibit "A") $ 60,946,799.00 The supplementary information presented on Schedules 1, 2, 3 and 4 was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework. The information was derived from, and relates directly to, the same information used to prepare the financial statements. However, the budgetary statutes and regulations of the State of Georgia require reporting of certain information that is not in accordance with generally accepted accounting principles. Presented on this schedule is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Position of business-type activities, as reported on Exhibit A. - 26 - SAVANNAH STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2014 SCHEDULE "6" Totals per Annual Supplement Accruals June 30, 2014 June 30, 2013 Compensated Absences June 30, 2014 June 30, 2013 Adjustments Shared Services on Jointly Staffed Personnel Armstrong Atlantic State University Jernigan, Cristin Mukhtar, Mohamed Samuel, Linda Strauser, Edward Dalton State College Mesco, Eugene East Georgia State College Vincent, Rebecca Kennesaw State University Hair, Joseph Rutherford, Brian SALARIES $ 32,084,042 $ TRAVEL 1,177,327 110,353 -80,469 1,686,452 -1,527,230 -3,300 -150 -12,500 797 1,615 41,600 3,507 1,754 $ 32,306,471 $ 1,177,327 - 27 - SECTION II FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2014 COMMUNICATION OF INTERNAL CONTROL DEFICIENCIES The auditor is required to communicate to management and those charged with governance control deficiencies identified during the course of the financial statement audit that, in the auditor's judgment, constitute significant deficiencies or material weakness. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below: FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FA-548-14-01 Weaknesses in Logical Access IT General Controls Compliance Requirement: Internal Control Impact: Compliance Impact: Federal Awarding Agency: Pass-Through Entity: CFDA Number and Title: Activities Allowed or Unallowed Eligibility Significant Deficiency N/A U. S. Department of Education None 84.SFA Student Financial Assistance Cluster Description: University policies and procedures were insufficient to provide adequate internal controls over logical access IT general controls. Criteria: Management of the University is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are properly processed and reported. Condition: Our review of the established internal control structure associated with significant financial applications at the University revealed design and operating effectiveness deficiencies in logical access controls intended to protect financial and student financial assistance information from unauthorized access, manipulation and corruption. The details related to these deficiencies have been provided to University Management in accordance with Official Code of Georgia Annotated 50-6-9. - 1 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2014 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Cause: In discussing these deficiencies with the University, they stated that the cause was directly related to ineffective policies and failure to adequately monitor general security settings and user access to the financial application. Effect or Potential Effect: Failure to maintain adequate internal controls related to logical access increases the risk that misappropriation of assets, fraud, errors, irregularities and/or noncompliance with federal regulations could occur. Recommendation: Management should review and enhance their policies and procedures to ensure the integrity and accuracy of the information used within the financial statements and as part of awarding financial assistance to students. Additionally, management should ensure proper separation of duties as it relates to financial and student financial assistance processes. Views of Responsible Officials and Corrective Action Plans: We concur with the finding. System access for the staff in the Admissions, Registrar's, Bursar's and Financial Aid Offices will be reviewed to ensure inappropriate access for job functions are eliminated. In addition, a process to reestablish system access during employee interagency transitions will be established by our Information Technology Department. Contact Person: Telephone: Fax: E-mail: Dr. Mable Moore, Chief Information Officer (912) 358-4400 (912) 358-4907 mooremj@savannahstate.edu FA-548-14-02 Return of Title IV Funds Compliance Requirement: Internal Control Impact: Compliance Impact: Federal Awarding Agency: CFDA Number and Title: Special Tests and Provisions Significant Deficiency Nonmaterial Noncompliance U. S. Department of Education 84.SFA Student Financial Assistance Cluster Description: The Student Financial Assistance Office (SFA) did not properly perform the refund process and ensure unearned Title IV funds were accurately calculated and returned in a timely manner. Criteria: 34 CFR 668 provides general provisions for administering Student Financial Assistance programs. 34 CFR 668.22 provides requirements over the treatment of the Title IV funds when a student withdraws. The University is required to determine the amount of the Title IV grant that the student earned as of the student's withdrawal date when a recipient of a Title IV grant withdraws from an institution during a payment period or period of enrollment in which the recipient began attendance. A refund must be returned to the Title IV programs when the total amount of the Title IV grant that the student earned is less than the amount of Title IV grant that was disbursed to the student as of the withdrawal date. 34 CFR 668.22(j)(1) states that "An institution must return the amount of Title IV funds...as soon as possible but no later than 45 days after the date of the institution's determination that the student withdrew". - 2 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2014 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Condition: The University did not properly perform the refund process for official and unofficial student withdrawals. A sample of 23 students that received federal financial assistance and withdrew, officially or unofficially, from the University were selected to determine if refunds were calculated in conformity with Title IV requirements and returned in a timely manner in accordance with federal regulations. Our examination revealed the following: 1. Fourteen instances were noted where the University did not correctly calculate the amount of unearned funds. This resulted in an overpayment of Title IV funds returned to the U.S. Department of Education by the University in the amount of $4,242.26. 2. The University properly calculated the refund for one student but did not return the unearned Title IV funds in the amount of $499.85. 3. The University improperly calculated the refund for one student but did not return the unearned Title IV funds in the amount of $2,137.29. 4. Ten refunds were not processed within the required timeframe of forty-five (45) days. In addition, auditor reviewed listing of all students who received all failing and/or incomplete grades for which no return of Title IV funds were made to ascertain whether the students sufficiently completed the enrollment period. Refunds were not calculated for seven students with all failing and/or incomplete grades and did not complete 60% of the enrollment period. The University did not return $10,964.24 of unearned Title IV funds. Questioned Cost: Questioned costs of $13,601.38, with likely questioned costs of $25,417.78, were identified of unearned Title IV funds not returned to the U.S. Department of Education. Cause: In discussing these conditions with Savannah State University management, these issues resulted from the lack of monitoring of the processing of student financial assistance refunds in accordance with federal regulations and an oversight in reviewing the report of students with unofficial withdrawals. Effect or Potential Effect: The University was not in compliance with federal regulations concerning the return of unearned Title IV funds to the U.S. Department of Education. Refunds were not calculated correctly and the University did not apply SFA refunds to the Title IV federal programs within the required timeframe. Recommendation: The University should develop and implement procedures to ensure that all student financial aid refunds are properly calculated and unearned funds are correctly returned to the appropriate accounts in a timely manner in accordance with the Higher Education Amendments 1998, Public Law 105-244. The University should also contact the U.S. Department of Education regarding resolution of this finding. - 3 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2014 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Views of Responsible Officials and Corrective Action Plans: We concur with the finding. The Registrar's Office, Financial Aid Office and Bursar's Office have been working to develop the best process to gather withdrawal information from students to determine official and unofficial withdrawals for accurate and timely calculation of return of Title IV aid. The plan is to develop an automated withdrawal application that captures all pertinent dates to ensure an accurate period for computation. The University will utilize the return of Title IV aid calculation determined by student financial aid system for all future calculations. Contact Person: Telephone: Fax: E-mail: Dr. Reynold Verret, Provost and Vice President for Academic Affairs Mr. Edward Jolley, Jr., Vice President for Business and Financial Affairs (912) 358-4190 (912) 358-3000 (912) 358-3168 (912) 358-3320 vpaa@savannahstate.edu jolleye@savannahstate.edu OTHER ITEMS (NOTED FOR MANAGEMENT'S CONSIDERATION) No matters were reported. - 4 -