SOUTH GEORGIA STATE COLLEGE DOUGLAS, 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 SOUTH GEORGIA STATE COLLEGE - 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 4 5 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 January 27, 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 Virginia Carson, President South Georgia State College 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 South Georgia State College. Accordingly, the financial statements and compliance activities of South Georgia State College 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 South Georgia State College 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 South Georgia State College, 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 - SOUTH GEORGIA STATE COLLEGE STATEMENT OF NET POSITION - (GAAP BASIS) JUNE 30, 2014 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Due from Affiliated Organizations Inventories Prepaid Items Total Current Assets Noncurrent Assets Due from USO - Capital Liability Reserve Investments Notes Receivable, Net Capital Assets, Net (Note 4) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts Payable Salaries Payable Contracts 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" $ 3,224,710 2,143,058 435,112 61,202 398,670 57,474 6,320,226 266,644 476,461 49,273 56,921,959 57,714,337 64,034,563 570,496 36,167 197,234 408,829 199,983 223,781 427,620 339,617 2,403,727 36,323,817 168,062 36,491,879 38,895,606 20,170,522 291,490 321,497 4,355,448 $ 25,138,957 SOUTH GEORGIA STATE COLLEGE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION - (GAAP BASIS) YEAR ENDED JUNE 30, 2014 EXHIBIT "B" OPERATING REVENUES Student Tuition and Fees Less: Scholarship Allowances Grants and Contracts Federal Other Sales and Services Rents and Royalties Auxiliary Enterprises Residence Halls Bookstore Food Services Parking/Transportation 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 Other Gifts Investment Income Interest Expense Net Nonoperating Revenues Loss Before Other Revenues, Expenses, Gains, or Losses Capital Grants and Gifts State Other Total Other Revenues, Expenses, Gains, or Losses Decrease in Net Position Net Position - Beginning of Year Net Position - End of Year - 3 - $ 7,818,473 -4,999,352 911 23,728 33,526 649 1,568,197 1,413,279 1,077,103 9,026 489,363 102,432 97,481 7,634,816 3,362,370 5,663,039 3,351,950 241,032 226,453 3,013,316 1,517,522 5,779,586 2,598,469 25,753,737 -18,118,921 11,135,308 7,635,120 69,528 424,064 44,918 -1,756,008 17,552,930 -565,991 455,351 89,396 544,747 -21,244 25,160,201 $ 25,138,957 SOUTH GEORGIA STATE COLLEGE STATEMENT OF CASH FLOWS - (GAAP BASIS) YEAR ENDED JUNE 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parking/Transportation 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 Capital Gifts and Grants Received 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 Net Increase 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: Accounts Receivable, Net Inventories Prepaid Items Accounts Payable Advances 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 Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts - 4 - EXHIBIT "C" $ 3,018,887 -122,179 33,526 -11,151,616 -9,067,649 -3,013,316 1,533,135 1,317,084 1,071,400 9,026 491,617 125,632 101,716 -15,652,737 11,135,308 -215,743 8,128,712 19,048,277 455,351 -1,498,651 -363,690 -1,756,008 -3,162,998 34,859 267,401 2,957,309 $ 3,224,710 $ -18,118,921 2,598,469 -166,433 -111,980 -3,582 97,923 -48,042 143,743 -43,914 $ -15,652,737 $ 10,059 $ 89,396 SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY South Georgia State College (College) 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 South Georgia State College 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. South Georgia State College does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, South Georgia State College 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 College's assets, deferred outflow of resources, liabilities, deferred inflows of resources, net position, revenues, expenses, changes in net position and cash flows, if applicable. BASIS OF ACCOUNTING For financial reporting purposes, the College is considered a special-purpose government engaged only in business-type activities. Accordingly, the College'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-College transactions have been eliminated. NEW ACCOUNTING PRONOUNCEMENTS In fiscal year 2014, the College adopted the Governmental Accounting Standards Board (GASB) Statement No. 65, Items Previously Reported as Assets and Liabilities. The provisions of this Statement clarify the use of deferred inflows of resources and deferred outflows of resources. Certain items, including those items which were previously reported as assets and liabilities, will now be reported as outflows of resources or inflows of resources. As of June 30, 2014, the College did not have any deferred outflows of resources or deferred inflows of resources. In fiscal year 2014, the College 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 - 5 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" 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. The adoption of this statement does not have a significant impact on the College's financial statements. In fiscal year 2014, the College 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. The adoption of this statement does not have a significant impact on the College's financial statements. FUTURE ACCOUNTING PRONOUNCEMENTS In fiscal year 2015, the College 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 College 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 College's liability, the effects of which are believed to be material. NET POSITION The College's net position is classified as follows: Net Investment in Capital Assets: This represents the College's total investment in capital assets, net of outstanding debt obligations, deferred outflows of resources and deferred inflows of resources 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 College 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 College 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 South Georgia State College 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 $30,647.75. 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. - 6 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the College's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the College) 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. 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 $3,326,037 and the bank balance was $3,723,368. Of the College's deposits, $3,573,368 were uninsured. Of these uninsured deposits, $3,573,368 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the College's name. INVESTMENTS At June 30, 2014, the carrying value of the College's investment was $367,457, 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: - 7 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" Investment Type Fair Value Investment Pools Board of Regents Short-Term Fund Legal Fund Diversified Fund $ 40,996 84,986 241,475 Total Investments $ 367,457 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 pool does 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. The Board of Regents Short-Term Fund is reported as Cash and Cash Equivalents on Exhibit "A" of this report. 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, State and Private Funds Due from Affiliated Organizations Other Less Allowance for Doubtful Accounts Net Accounts Receivable $ 156,411 298,691 2,143,058 61,202 191,386 2,850,748 211,376 $ 2,639,372 - 8 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" NOTE 4: CAPITAL ASSETS Following are the changes in the College's capital assets for the year ended June 30, 2014: Capital Assets, Not Being Depreciated: Land Construction Work-In-Progress Total Capital Assets, Not Being Depreciated Capital Assets, Being Depreciated: Building and Building Improvements Infrastructure Facilities and Other Improvements Equipment Capital Leases Library Collections Beginning Balance July 1, 2013 $ 555,936 0$ 555,936 43,877,668 3,873,605 2,563,720 2,460,860 37,035,042 2,403,670 Additions Reductions Ending Balance June 30, 2014 $ 781,382 781,382 0$ 555,936 781,382 0 1,337,318 184,937 399,070 402,488 17,404 29,497 44,062,605 3,873,605 2,962,790 2,863,348 37,035,042 2,391,577 Total Assets Being Depreciated Less: Accumulated Depreciation: Building and Building Improvements Infrastructure Facilities and Other Improvements Equipment Capital Leases Library Collections 92,214,565 22,611,626 1,722,009 1,970,200 1,465,152 4,971,187 2,295,180 1,003,899 1,011,417 112,615 30,869 177,231 1,237,539 28,798 29,497 29,497 93,188,967 23,623,043 1,834,624 2,001,069 1,642,383 6,208,726 2,294,481 Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Capital Assets, Net 35,035,354 57,179,211 $ 57,735,147 $ 2,598,469 -1,594,570 -813,188 $ 29,497 0 0$ 37,604,326 55,584,641 56,921,959 - 9 - SOUTH GEORGIA STATE COLLEGE 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 $ 361,273 47,556 Total Advances NOTE 6: LONG-TERM LIABILITIES $ 408,829 The College'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 $ 37,115,127 $ 363,690 $ 36,751,437 $ 427,620 Other Liabilities Compensated Absences 551,593 $ 376,449 420,363 507,679 339,617 Total Long-Term Obligations $ NOTE 7: NET POSITION 37,666,720 $ 376,449 $ 784,053 $ Changes in Net Position for the year ended June 30, 2014 are as follows: 37,259,116 $ 767,237 Beginning Balance July 1, 2013 Additions Reductions Ending Balance June 30, 2014 Invested in Capital Assets Net of Related Debt $ 20,620,020 $ -449,498 $ 20,170,522 Restricted Net Position 537,816 7,737,669 $ 7,662,498 612,987 Unrestricted Net Position 4,002,365 20,200,330 19,847,247 4,355,448 Total Net Position $ NOTE 8: LEASE OBLIGATIONS 25,160,201 $ 27,488,501 $ 27,509,745 $ 25,138,957 South Georgia State College 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. CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2037 and 2040. Expenses for fiscal year 2014 were $2,119,698 of which $1,756,008 represented interest. Total principal paid on capital leases was - 10 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" $363,690 for the fiscal year ended June 30, 2014. Interest rates range from 4.481 percent to 5.102 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2014: Outstanding Net Assets Held Balances Under Capital per Lease Accumulated Lease at Schedules at Description Gross Amount Depreciation June 30, 2013 June 30, 2014 Buildings (+) (-) (=) $ 37,035,042 $ 6,208,726 $ 30,826,316 $ 36,751,437 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. South Georgia State College had four capital leases with related entities in the current fiscal year. In December 2006, South Georgia College entered into two capital leases with SGC Real Estate Foundation, LLC, a wholly owned entity of South Georgia College Foundation, Inc. The leases commenced in August 2007 for Tiger Village, a residence hall, and Clower Center, a student activities building. In July 2010 the lease on Tiger Village II, a residence hall commenced. In July 2011 the lease on the new dining hall and convenience store commenced. The lease liability and associated capital assets were valued at $13,289,289, $3,021,752, $14,410,000, and $6,314,001, respectively, which are the present values of the minimum lease payments at an interest rate of 4.481% for Tiger Village and Clower Center, 5.102% for Tiger Village II, and 4.612% for the dining hall and convenience store. The lease term on all three leases is approximately thirty years with Tiger Village and Clower Center expiring in 2037, Tiger Village II expiring in 2039, and the dining hall and convenience store expiring in 2040. The outstanding liability at June 30, 2014 on these capital leases was $36,751,437. At the end of these terms, South Georgia State College will own Tiger Village, Clower Center, Tiger Village II, and the dining hall and convenience store. OPERATING LEASES South Georgia State College'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. Noncancellable operating lease rental expenses in 2014 were $30,839 for real property and equipment. 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: - 11 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" Year Ending June 30: 2015 2016 2017 2018 2019 2020 - 2024 2025 - 2029 2030 - 2034 2035 - 2039 2040 Total Minimum Lease Payments Less: Interest Less: Executory Costs (if paid) Principal Outstanding Real Property and Equipment Capital Operating Leases Leases $ 2,331,479 $ 2,385,238 2,433,245 2,484,786 2,537,878 13,444,817 14,854,132 16,027,069 13,140,537 505,688 $ 70,144,869 $ 27,610,011 5,783,421 $ 36,751,437 28,711 21,773 18,201 16,927 85,612 NOTE 9: RETIREMENT PLANS South Georgia State College participates in various retirement plans administered by the State of Georgia under two major retirement systems: Employees' Retirement System of Georgia (ERS System) and Teachers Retirement System of Georgia. These two systems issue separate publicly available financial reports that include the applicable financial statements and required supplementary information. The reports may be obtained from the respective system offices. The significant retirement plans that South Georgia State College 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. Employees' Retirement System of Georgia The ERS System is comprised of individual retirement systems and plans covering substantially all employees of the State of Georgia except for teachers and other employees covered by the Teachers Retirement System of Georgia. One of the ERS System plans, the Employees' Retirement System of Georgia (ERS), is a cost-sharing multiple-employer defined benefit pension plan that was established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees and has the powers and privileges of a corporation. ERS acts pursuant to statutory direction and guidelines, which may be amended prospectively for new hires but for existing members and beneficiaries may be amended in some aspects only subject to potential application of certain constitutional restraints against impairment of contract. - 12 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" On November 20, 1997, the Board created the Supplemental Retirement Benefit Plan (SRBP-ERS) of ERS. SRBP-ERS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of the SRBP-ERS is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC Section 415. Beginning January 1, 1998, all members and retired former members in ERS are eligible to participate in the SRBP-ERS whenever their benefits under ERS exceed the limitation on benefits imposed by IRC Section 415. The benefit structure of ERS is established by the Board of Trustees under statutory guidelines. Unless the employee elects otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. Members hired on or after July 1, 1982 but prior to January 1, 2009 are "new plan" members subject to the modified plan provisions. Effective January 1, 2009, newly hired State employees, as well as rehired State employees who did not maintain eligibility for the "old" or "new" plan, are members of the Georgia State Employees' Pension and Savings Plan (GSEPS). ERS members hired prior to January 1, 2009 also have the option to change their membership to the GSEPS plan. Under the old plan, new plan, and GSEPS, a member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60 or 30 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60. Retirement benefits paid to members are based upon a formula adopted by the Board of Trustees for such purpose. The formula considers the monthly average of the member's highest 24 consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Post-retirement cost-of-living adjustments may be made to members' benefits provided the members were hired prior to July 1, 2009. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension, at reduced rates, to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS. Member contribution rates are set by law. Member contributions under the old plan are 4% of annual compensation up to $4,200 plus 6% of annual compensation in excess of $4,200. Under the old plan, South Georgia State College pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these South Georgia State College contributions are included in the members' accounts for refund purposes and are used in the computation of the members' earnable compensation for the purpose of computing retirement benefits. Member contributions under the new plan and GSEPS are 1.25% of annual compensation. South Georgia State College is required to contribute at a specified percentage of active member payroll established by the Board of Trustees determined annually in accordance with actuarial valuation and minimum funding standards as provided by law. These South Georgia State College contributions are not at any time refundable to the member or his/her beneficiary. Employer contributions required for fiscal year 2014 were based on the June 30, 2011 actuarial valuation as follows: Old Plan* New Plan GSEPS 18.46% 18.46% 15.18% * 13.71% exclusive of contributions paid by the employer on behalf of old plan members - 13 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" Members become vested after 10 years of service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions; the member forfeits all rights to retirement benefits. 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 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. - 14 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" The following table summarizes the South Georgia State College contributions by defined benefit plan for the years ending June 30, 2014, June 30, 2013, and June 30, 2012: Fiscal Year ERS Required Percentage Contribution Contributed TRS Required Percentage Contribution Contributed 2014 $ 2013 $ 2012 $ Regents Retirement Plan 29,870 23,737 13,702 100% $ 100% $ 100% $ 761,587 759,888 706,918 100% 100% 100% 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 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 South Georgia State College 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. South Georgia State College and the covered employees made the required contributions of $170,914 (9.24%) and $110,983 (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 South Georgia State College 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 interes South Georgia College Foundation, Inc., and the Waycross College Foundation, Inc. t 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 - 15 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" 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 $12,590 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. 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 South Georgia State College and participating employs 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. College, 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. - 16 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" 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 College expects such amounts, if any, to be immaterial to its overall financial positions. Litigation, claims and assessments filed against South Georgia State College (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 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 College 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 116 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, South Georgia State College recognized as incurred $525,896 of expenditures, which was net of $245,028 of participant contributions. - 17 - SOUTH GEORGIA STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2014 EXHIBIT "D" NOTE 13: AFFILIATED ORGANIZATIONS The South Georgia College Foundation, Inc., and the Waycross College Foundation, Inc. are legally separate, tax exempt organizations whose activities primarily support South Georgia State College. 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 South Georgia State College. - 18 - SUPPLEMENTARY INFORMATION - 19 - SOUTH GEORGIA STATE COLLEGE 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 Total Liabilities Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Inventories Unreserved Surplus Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "1" $ 2,447,448.20 67,326.24 1,151,867.50 625,454.13 56,850.71 16,404.14 $ 4,365,350.92 $ 34,891.66 2,485,891.02 475,174.39 342,219.29 3,338,176.36 154,956.31 63,292.51 428,131.59 230,043.54 105,550.63 2,806.25 11,745.98 30,647.75 1,027,174.56 $ 4,365,350.92 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 - SOUTH GEORGIA STATE COLLEGE 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 Payables/Expenditures Unreserved Fund Balance (Surplus) Returned to the University System of Georgia Year Ended June 30, 2013 Early Return of Surplus in Fiscal Year 2014 Prior Year Reserved Fund Balance Included in Funds Available FUND BALANCE JUNE 30 BUDGET ACTUAL VARIANCE FAVORABLE (UNFAVORABLE) $ 11,163,133.00 $ 11,163,133.00 $ 0.00 17,128,775.00 15,875,355.88 -1,253,419.12 28,291,908.00 27,038,488.88 -1,253,419.12 0.00 0.00 0.00 0.00 28,291,908.00 845,779.13 27,884,268.01 845,779.13 -407,639.99 28,291,908.00 $ 0.00 26,920,465.03 1,371,442.97 963,802.98 $ 963,802.98 879,402.96 26,924.68 30,647.75 -26,924.68 -900.00 -845,779.13 $ 1,027,174.56 SUMMARY OF FUND BALANCE Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Inventories Total Reserved Unreserved Surplus Total Fund Balance 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 - $ 154,956.31 63,292.51 428,131.59 230,043.54 105,550.63 2,806.25 11,745.98 996,526.81 30,647.75 $ 1,027,174.56 SOUTH GEORGIA STATE COLLEGE 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 $ 10,938,133.00 $ 11,013,133.00 $ 11,163,133.00 $ 11,163,133.00 16,360,733.00 17,052,775.00 17,128,775.00 15,875,355.88 $ 27,298,866.00 $ 28,065,908.00 $ 28,291,908.00 $ 27,038,488.88 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 $ 845,779.13 900.00 $ 11,164,033.00 $ -900.00 16,720,235.01 900.00 $ 11,163,133.00 $ -408,539.99 15,757,332.03 0.00 $ 1,371,442.97 900.00 962,902.98 $ 845,779.13 $ 0.00 $ 27,884,268.01 $ -407,639.99 $ 26,920,465.03 $ 1,371,442.97 $ 963,802.98 - 23 - SOUTH GEORGIA STATE COLLEGE 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 $ 5,020.13 $ 867,683.68 872,703.81 0.00 $ -845,779.13 -845,779.13 -5,020.13 $ -21,904.55 -26,924.68 21,714.41 $ 8,933.34 30,647.75 11,745.98 21,877.85 0.00 0.00 0.00 0.00 0.00 0.00 Budget Unit Totals $ 906,327.64 $ -845,779.13 $ -26,924.68 $ 30,647.75 $ 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 0.00 $ -83,672.78 -83,672.78 -900.00 $ 0.00 -900.00 900.00 $ 962,902.98 963,802.98 21,714.41 $ 0.00 $ 888,163.54 879,230.20 909,877.95 879,230.20 21,714.41 $ 8,933.34 30,647.75 21,714.41 888,163.54 909,877.95 0.00 83,672.78 0.00 0.00 0.00 0.00 11,745.98 105,550.63 11,745.98 105,550.63 0.00 0.00 11,745.98 105,550.63 0.00 $ -900.00 $ 963,802.98 $ 1,027,174.56 $ 996,526.81 $ 30,647.75 $ 1,027,174.56 Summary of Ending Fund Balance Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Inventories Unreserved Surplus Total Ending Fund Balance - June 30 $ 154,956.31 63,292.51 428,131.59 230,043.54 105,550.63 2,806.25 11,745.98 $ $ 996,526.81 $ $ 154,956.31 63,292.51 428,131.59 230,043.54 105,550.63 2,806.25 11,745.98 30,647.75 30,647.75 30,647.75 $ 1,027,174.56 - 25 - SOUTH GEORGIA STATE COLLEGE RECONCILIATION OF BUDGET TO GAAP YEAR ENDED JUNE 30, 2014 Total Fund Balances - Budget Fund - Non-GAAP Basis (Schedule "1") 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. 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. Changes in the Fair Market Value of Investments are recognized on the Statement of Net Position, but are not reported in the Budget Fund. Agency Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Agency Fund Activity Auxiliary Enterprises Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Auxiliary Enterprises Fund Activity Endowment Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Endowment Fund Activity Investment in Plant activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Investment in Plant Activity Loan Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Loan Fund Activity Student Activities Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Student Activity Fund Activity 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. Accounts Receivable items reported in the Budget Fund that are based on encumbrances are eliminated for GAAP reporting Total Net Effect of Encumbrance Activity 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 Net Position of Business-Type Activities (Exhibit "A") 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 - SCHEDULE "5" $ 1,027,175 56,921,959 $ 772,147 -772,147 $ 2,044,592 -314,420 $ 291,627 0 $ 3,578 0 $ 73,392 -20,521 $ 376,156 -46,059 -105,551 43,051 0 1,730,172 291,627 3,578 52,871 330,097 $ 2,485,891 -382,797 2,103,094 $ -36,751,437 -507,679 -37,259,116 $ 25,138,957 SOUTH GEORGIA STATE COLLEGE 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 Albany State College Buehrer, Danielle Hudson, Richard Atlanta Metropolitan State College Cunningham, Mark Georgia Southwestern State University Bragg, Darcy Carson, Paul Champion, Anna Crews, Cori Curtin, Joshua Dinicola, Andrew Laughlin, Eric Leeder, Michael Rogers, Lydia Ward, Christie Valdosta State University Bowen, Anne Halter, Julie Hohnecker, Jill Mainella, Matthew Nelson, David Reiman, Richare Smith, Daniel Stelzer, Jiri Stevens, Terri Thompson, Kiley Ward, Charles SALARIES TRAVEL $ 9,015,581 $ 226,453 36,167 -34,766 471,601 -512,395 -5,652 6,782 705 12,918 -6,190 4,844 -10,152 2,422 -750 6,558 6,397 1,304 7,751 4,199 4,521 1,400 -2,153 8,173 -9,312 10,496 9,043 -2,153 2,099 -4,029 $ 9,025,409 $ 226,453 - 27 - SECTION II FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SOUTH GEORGIA STATE COLLEGE 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-588-14-01 Weaknesses in Logical Access IT General Controls Compliance Requirement: Activities Allowed or Unallowed Eligibility Internal Control Impact: Significant Deficiency Compliance Impact: N/A Federal Awarding Agency: U. S. Department of Education Pass-Through Entity: None CFDA Number and Title: 84.SFA Student Financial Assistance Cluster Description: College policies and procedures were insufficient to provide adequate internal controls over logical access IT general controls. Criteria: Management of the College 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 College 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 College Management in accordance with Official Code of Georgia Annotated 50-6-9. - 1 - SOUTH GEORGIA STATE COLLEGE 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 College, management 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 this finding. The Director of the South Georgia State College (SGSC) Information and Instructional Technology Division (IIT) is responsible for scheduling meetings with the Executive Director for Student Success, data owners, and members of each department to discuss permissions that are necessary for the performance of each job function. The initial discussions are designed to address the classes identified as having separation of duty issues with a goal to have these conflicts resolved by February 28, 2015. Once the separation of duty issues are resolved, new account forms will be signed by supervisors and data owners. The completed account forms will then be scanned by IIT personnel and will be indexed in Xtender, a document imaging component of the Banner student information system. IIT will maintain five iterations of account form changes in Xtender. The hardcopy forms will be delivered to the SGSC Office of Human Resources to be filed in each employee's personnel folder. After the classes with separation of duty issues are rebuilt, the institution will continue its review process of all Banner classes to ensure each job function has the proper permissions. As part of this ongoing review process, IIT will review account permissions three times each year, in February, May, and September. Contact Person: Marcus J. Latham, Vice President for Fiscal Affairs Telephone: (912) 260-4300; Fax: (912) 260-4445; Email: mark.latham@sgsc.edu - 2 - SOUTH GEORGIA STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2014 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FA-588-14-02 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 College is required to determine the amount of Title IV grants that the student earned as of the student's withdrawal date when a recipient of the 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 a 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 than "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." Condition: A sample of eight students that received federal financial assistance and withdrew, officially or unofficially, from the College was 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 that refund calculations were incorrect for all eight students sampled due to the improper number of scheduled break days and/or institutional charges. This resulted in an underpayment of Title IV funds returned by the College to the U.S. Department of Education in the amount of $225.22. These errors also resulted in student overpayments in the net amount of $532.71. A sample of 23 students was selected who received all failing and/or incomplete grades for which no return of Title IV funds was made. This sample was selected to ascertain whether the students sufficiently completed the enrollment period. Our examination revealed one instance where a refund was not calculated for a student with all failing and/or incomplete grades and did not complete 60% of the enrollment period. This resulted in an underpayment of Title IV funds by the College to the U.S. Department of Education in the amount of $1,272.97. Additionally, the student should return $1,021.03 to the U.S. Department of Education. Questioned Cost: Questioned costs of $1,498.19, with likely questioned costs of $12,322.11, were identified for unearned Title IV funds not returned to the U.S. Department of Education by the College. - 3 - SOUTH GEORGIA STATE COLLEGE 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 management, they stated that these issues were the result of a lack of monitoring of the processing of student financial assistance refunds in accordance with federal regulations. Effect or Potential Effect: The College was not in compliance with federal regulations concerning the return of unearned Title IV federal funds to the U.S. Department of Education. Recommendation: The College should review existing procedures and provide training to ensure that Student Financial Aid refunds are properly calculated and returned in accordance with the Higher Education Amendments of 1998, Public Law 105-244. The College should contact the U.S. Department of Education regarding resolution of this finding. Views of Responsible Officials and Corrective Action Plans: We concur with this finding. Management has determined that the refund error calculations for withdrawals, official or unofficial, identified by the auditors were specifically related to one employee who utilized the incorrect number of days in the semester as part of the Title IV refund calculations; this was a direct result of recent personnel changes within the Student Financial Assistance (SFA) office. Training on the refund calculation has since been provided to personnel in the SFA office. SFA personnel are currently recalculating all SFA refunds for fiscal year 2014 and 2015 in order to specifically identify all under-payments and/or over-payments resulting from any such calculation errors. When these recalculations are complete, Management will be in direct contact with the U. S. Department of Education to resolve this issue as quickly as possible. The one instance identified where no return of Title IV funds was made for a student who received all failing and/or incomplete grades was directly related to an isolated employee error. The particular student identified by the auditors was coded incorrectly in Banner which resulted in that student not being listed on the withdrawal report that would initiate the refund calculation. Management is currently evaluating the most effective method to review these withdrawal reports to ensure accuracy. Contact Person: Marcus J. Latham, Vice President for Fiscal Affairs Telephone: (912) 260-4300; Fax: (912) 260-4445; Email: mark.latham@sgsc.edu OTHER ITEMS (NOTED FOR MANAGEMENT'S CONSIDERATION) Inadequate Supporting Documentation for Open Purchase Orders Observation: A review of encumbrance payable at June 30, 2014, revealed $14,063.96 in outstanding purchase orders for goods that have been received or services that have been provided. An adjustment was proposed and accepted to increase current year surplus by $14,063.96. Recommendation: Management should review procedures in place and implement changes necessary to ensure that all outstanding purchase orders are reviewed for validity. - 4 - SOUTH GEORGIA STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2014 OTHER ITEMS (NOTED FOR MANAGEMENT'S CONSIDERATION) Views of Responsible Officials and Corrective Action Plans: We concur that the outstanding purchase orders identified by the auditors were invalid. Beginning in fiscal year 2015, management has initiated a monthly process for review of open purchase orders in order to identify invalid items in a timely manner. Contact Person: Marcus J. Latham, Vice President for Fiscal Affairs Telephone: (912) 260-4300; Fax: (912) 260-4445; Email: mark.latham@sgsc.edu Auxiliary Fund Deficits Observation: The Board of Regents Policy Manual Section 15 states that "Auxiliary Enterprises are operating on a self-supporting basis, where the combination of fees and other revenue is sufficient to meet costs". The College's Residence Halls, Food Services and Intercollegiate Athletics funds reported a loss during the year under review. The Residence Halls fund reported an overall net loss of $1,146,604 and is in a deficit of $4,275,841. The Food Services fund reported a net loss of $47,129 and is in a deficit of $1,583,296. The Intercollegiate Athletics funds reported income of $73,303 and is in a deficit of $233,507. These funds contributed to an overall Auxiliary Fund deficit net position of $3,156,881. Recommendation: The College should ensure that the revenue streams associated with the auxiliary funds are sufficient to pay all costs pertaining to the funds. Views of Responsible Officials and Corrective Action Plans: Although we agree that from the Generally Accepted Accounting Principles (GAAP) basis of accounting, the Residence Halls, Food Services, and Intercollegiate Athletics auxiliary funds reported a deficit net position, we believe that it is imperative for the reader of the financial statements to consider the operating activity of these funds from the perspective of budget basis accounting. On the budget basis of accounting, South Georgia State College (SGSC) Auxiliary Enterprises finished fiscal year 2014 with a budget basis net income of $448K and a budget basis ending fund balance of $1.7 million; from this perspective, the College's Auxiliary Enterprises are operating on a self-supporting basis. Because of the way GAAP basis accounting computes depreciation on a straight line basis but amortizes the lease liability on an effective interest rate method, the College feels that this deficit is more a result of differing accounting methods as opposed to insufficient management oversight of Auxiliary Enterprise activity. The Executive Administration of the South Georgia State College will continue to maintain a close watch over the resources of the College to ensure fiscal responsibility over Auxiliary Enterprise operations as well as other operating activities. Contact Person: Marcus J. Latham, Vice President for Fiscal Affairs Telephone: (912) 260-4300; Fax: (912) 260-4445; Email: mark.latham@sgsc.edu - 5 - SOUTH GEORGIA STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2014 OTHER ITEMS (NOTED FOR MANAGEMENT'S CONSIDERATION) Private Purpose Ventures (PPV) not Self-Liquidating Observation: The College's Residence Halls and Dining Hall PPVs were not self- liquidating during the year under review. The PPVs did not cover all of the costs associated with the corresponding capital lease payments and the maintenance of the project and had a net loss of $348,419.51 on the Residence Halls and $5,503.64 on the Dining Hall for the year. Recommendation: The College should ensure that the revenue streams associated with these PPVs are sufficient to pay all costs pertaining to the funds. Views of Responsible Officials and Corrective Action Plans: Management is aware of the losses sustained associated with Public Private Venture (PPV) projects; the College is currently working internally and with University System of Georgia personnel to develop and implement steps to prevent such occurrences in the future. In fiscal year 2015, Senior Administration has begun implementation of a Strategic Enrollment Management Plan to facilitate recruitment of additional students to the College. Contact Person: Marcus J. Latham, Vice President for Fiscal Affairs Telephone: (912) 260-4300; Fax: (912) 260-4445; Email: mark.latham@sgsc.edu Unreconciled Salaries and Travel to the General Ledger Observation: The College did not reconcile the detailed listing of salaries and travel submitted to the Georgia Department of Audits and Accounts to the amounts reported on the general ledger. The Official Code of Georgia Annotated (O.C.G.A.) 50-6-27 states in part: "Each...university or college in the University System of Georgia is required and directed to submit to the state auditor, in a format prescribed by the state auditor, a listing of all personnel of such...university showing name, title or functional area, salary and travel expense for each individual". Recommendation: The College should ensure that all salaries reported to the Georgia Department of Audits and Accounts are reconciled to the amounts reported on the general ledger. Views of Responsible Officials and Corrective Action Plans: Management concurs that the original amounts submitted for reconciliation of the institution's general ledger salary amounts to totals submitted by the College to Department of Audits and Accounts (DOAA) as required by the Transparency in Government Act did not agree. Upon discovery of this error, College personnel made a revised submission to DOAA; there was no unidentified variance noted for the fiscal year 2014 salaries and travel reconciliation. Contact Person: Marcus J. Latham, Vice President for Fiscal Affairs Telephone: (912) 260-4300; Fax: (912) 260-4445; Email: mark.latham@sgsc.edu - 6 -