GEORGIA REGENTS UNIVERSITY Annual Financial Report Fiscal Year Ended June 30, 2015 Augusta, Georgia GEORGIA REGENTS UNIVERSITY - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S REPORT REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS EXHIBITS A STATEMENT OF NET POSITION B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION C STATEMENT OF CASH FLOWS D STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS E STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS F NOTES TO THE FINANCIAL STATEMENTS Page i 2 3 4 6 7 8 SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY TEACHERS' RETIREMENT SYSTEM OF GEORGIA 40 2 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA 41 3 SCHEDULE OF CONTRIBUTIONS TEACHERS' RETIREMENT SYSTEM OF GEORGIA 42 4 SCHEDULE OF CONTRIBUTIONS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA 43 5 SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS EARLY RETIREMENT PROGRAM 45 6 SCHEDULE OF CONTRIBUTIONS EARLY RETIREMENT PROGRAM 46 7 SCHEDULE OF INVESTMENT RETURNS EARLY RETIREMENT PROGRAM 48 8 NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION 49 GEORGIA REGENTS UNIVERSITY - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 9 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 10 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND 11 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND 12 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND 13 RECONCILIATION OF BUDGET TO GAAP 14 RECONCILIATION OF SALARIES AND TRAVEL Page 52 53 54 56 58 61 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS 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 December 3, 2015 Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia and Dr. Brooks Keel, President INDEPENDENT AUDITOR'S REPORT Ladies and Gentlemen: Report on the Financial Statements We have audited the accompanying basic financial statements (Exhibits A through F) of Georgia Regents University, a unit of the University System of Georgia, which is an organizational unit of the State of Georgia, as of and for the year ended June 30, 2015. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to Georgia Regents University's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Georgia Regents University's internal control. Accordingly, we express 15ARL-62 no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of Georgia Regents University as of June 30, 2015, and the respective changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 1, the financial statements of Georgia Regents University are intended to present the financial position and changes in financial position and cash flows of only that portion of the business-type activities of the State of Georgia that is attributable to the transactions of Georgia Regents University. They do not purport to, and do not, present fairly the financial position of the State of Georgia as of June 30, 2015, the changes in its financial position or its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. As described in Note 1 to the financial statements, in 2015, Georgia Regents University adopted new accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27, GASB Statement No. 69, Government Combinations and Disposals of Government Operations and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - an amendment of GASB Statement No. 68. Georgia Regents University restated beginning Net Position for the cumulative effect of these accounting changes which had a significant impact on Georgia Regents University's financial statements. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages i through viii and the Schedules of Proportionate Share of the Net Pension Liability and Schedules of Contributions, Schedule of Changes in Net Pension Liability and Related Ratios, Schedule of Investment Returns and Notes to Required Supplementary Information on pages 40 through 49 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquires of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 15ARL-62 Other Information Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Georgia Regents University. The accompanying supplementary information (Schedules 9 through 14) is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying supplementary information (Schedules 9 through 14) is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting or other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Other Reporting Required by Governm ent Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated [2], on our consideration of Georgia Regents University's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Georgia Regents University's internal control over financial reporting and compliance. Respectfully, GSG:as 15ARL-62 Greg S. Griffin State Auditor REQUIRED SUPPLEMENTARY INFORMATION GEORGIA REGENTS UNIVERSITY Management's Discussion and Analysis Introduction Georgia Regents University is one of the 30 institutions of higher education of the University System of Georgia. The Health Sciences campus was incorporated in 1828 as the Medical Academy of Georgia and is known for its world-class instructional, clinical, and research programs. The campus offers more than 40 academic programs in allied health sciences, dentistry, graduate studies, medicine, and nursing at the baccalaureate, masters, doctoral, and professional levels. The Summerville campus is the primary public institution of higher learning in Georgia committed to the advancement of knowledge and the enrichment of its community. It is well known for its dedication to expanding educational opportunities for people of all ages and backgrounds. The wide range of educational opportunities attracts a highly qualified faculty and student body. A brief historical comparison of student levels is shown by the comparison numbers that follow. Students (Headcount) Students (FTE) Fiscal Year 2015 Fiscal Year 2014 Fiscal Year 2013 8,530 8,995 9,557 7,901 8,280 8,672 Overview of the Financial Statements and Financial Analysis Georgia Regents University is pleased to present its financial statements for fiscal year 2015. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Position; the Statement of Revenues, Expenses and Changes in Net Position; and the Statement of Cash Flows. This discussion and analysis of the University's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2015 and fiscal year 2014. However, the comparative data for fiscal year 2014 does not reflect the effects of the restatement of July 1, 2014 net position. This restatement is related to the implementation of Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions made Subsequent to the Measurement Date, which were adopted by the University for fiscal year 2015. The provisions of these Statements 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 resulted in a restatement to beginning net position of $353,345,853. This restatement is based on actuarial estimates and information is not available for the fiscal year 2014 comparative balances. See Note 1 in the Notes to the Financial Statements for more information about the restatement of July 1, 2014 net position. i Statement of Net Position The Statement of Net Position is a financial condition snapshot as of June 30, 2015 and includes all assets, deferred outflows of resources, liabilities, and deferred inflows of resources both current and noncurrent. The differences between current and noncurrent assets are discussed in the Notes to the Financial Statements. The Statement of Net Position is prepared under the accrual basis of accounting which requires revenue and asset recognition when the service is provided, and expense and liability recognition when goods or services are received despite when cash is actually exchanged. From the data presented, readers of the Statement of Net Position are able to determine the assets available to continue the operations of the institution and how much the institution owes vendors. The difference between assets, deferred outflows of resources, liabilities, and deferred inflows of resources (net position) is one indicator of the University's financial health. Increase or decreases in net position provide an indicator of the improvement or decline of the University's financial health when considered in conjunction with other nonfinancial conditions, such as facilities and enrollment. Net Position is divided into three major categories. The first category, net investment in capital assets, provides the institution's equity in property, plant and equipment owned by the institution. The next category is restricted, which is divided into two categories, nonexpendable and expendable. The corpus of nonexpendable, restricted resources is available only for investment purposes. Expendable, restricted resources are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. ii The final category is unrestricted. Unrestricted resources are available to the institution for any lawful purpose. Statement of Net Position, Condensed June 30, 2015 June 30, 2014 Assets Current Assets Capital Assets, Net Other Assets $ 92,443,689 534,422,694 82,218,343 $ 138,092,112 470,856,169 71,743,647 Total Assets 709,084,726 680,691,928 Deferred Outflows of Resources 30,262,748 0 Liabilities Current Liabilities Noncurrent Liabilities 99,045,594 353,681,320 104,904,735 69,334,953 Total Liabilities 452,726,914 174,239,688 Deferred Inflows of Resources 76,793,236 0 Net Position Net Investment in Capital Assets Restricted Nonexpendable Expendable Unrestricted 480,176,661 2,146,676 40,599,863 -313,095,876 415,713,919 2,133,850 84,871,707 3,732,764 Total Net Position $ 209,827,324 $ 506,452,240 The June 30, 2014 amounts do not reflect the effects of the restatement of July 1, 2014 net position related to the implementation of GASB 68 and GASB 71. See Note 1 in the Notes to the Financial Statements for more information. Total assets and deferred outflows of resources increased by $58,655,546 which was primarily due to an increase of $63,566,525 in the category of Capital Assets, Net. This increase was primarily due to the addition of the J. Harold Harrison Education Commons Building. Total liabilities and deferred inflows of resources increased for the year by $355,280,462. The combination of the increase in total assets and deferred outflows of resources of $58,655,546 and the increase in total liabilities and deferred inflows of resources of $355,280,462 yields a decrease in net position of $296,624,916. The decrease in net position is primarily in the category of Unrestricted in the amount of $316,828,640 and is due to the adoption of Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions made Subsequent to the Measurement Date. See Note 1 in the Notes to the Financial Statements for more information. iii Statement of Revenues, Expenses and Changes in Net Position Changes in total net position as presented on the Statement of Net Position are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Position. The purpose of the statement is to present the revenues received by the institution, both operating and nonoperating, and the expenses paid by the institution, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the institution. Generally, operating revenues are received for providing goods and services to the various customers and constituencies of the institution. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the institution. Nonoperating revenues are revenues received for which goods and services are not provided. For example state appropriations are nonoperating because they are provided by the Legislature to the institution without the Legislature directly receiving commensurate goods and services for those revenues. Statement of Revenues, Expenses and Changes in Net Position, Condensed June 30, 2015 June 30, 2014 Operating Revenues Operating Expenses $ 563,602,692 763,393,472 $ 558,821,262 758,413,070 Operating Gain/Loss -199,790,780 -199,591,808 Nonoperating Revenues and Expenses 212,306,147 191,435,691 Income (Loss) Before Other Revenues, Expenses, Gains or Losses 12,515,367 -8,156,117 Other Revenues, Expenses, Gains or Losses 44,205,570 1,783,721 Increase (Decrease) in Net Position 56,720,937 -6,372,396 Net Position at Beginning of Year, as Originally Reported 506,452,240 512,824,636 Prior Year Adjustments -353,345,853 Net Position at Beginning of Year, Restated 153,106,387 512,824,636 Net Position at End of Year $ 209,827,324 $ 506,452,240 The June 30, 2014 amounts do not reflect the effects of the restatement of July 1, 2014 net position related to the implementation of GASB 68 and GASB 71. See Note 1 in the Notes to the Financial Statements for more information. The Statement of Revenues, Expenses and Changes in Net Position reflects the decrease in net position, which is due to the adoption of GASB Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions made Subsequent to the Measurement Date, which requires the restatement of the June 30, 2014, net position. The result is a decrease in Net Position at July 1, 2014 of $353,345,853. This change is in accordance with generally accepted accounting principles. See Note 1 in the Notes to the Financial Statements for more information. iv Some highlights of the information presented on this statement are as follows: Revenue by Source For the Years Ended June 30, 2015 and June 30, 2014 June 30, 2015 June 30, 2014 Operating Revenue Tuition and Fees Grants and Contracts Sales and Services Auxiliary Other $ 81,330,970 455,641,730 8,771,719 17,150,840 707,433 $ 77,795,381 454,251,359 9,549,610 16,700,182 524,730 Total Operating Revenue Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other 563,602,692 187,452,806 11,341,159 15,325,649 832,923 164,639 558,821,262 173,404,460 14,899,446 4,061,192 2,068,543 -31,419 Total Nonoperating Revenue Capital Grants and Gifts State Other Capital Gifts and Grants 215,117,176 43,334,970 665,386 194,402,222 1,783,721 Total Capital Grants and Gifts Special Item Capital Asset Transfer 44,000,356 205,214 1,783,721 Total Revenues $ 822,925,438 $ 755,007,205 Expenses (By Functional Classification) For the Years Ended June 30, 2015 and June 30, 2014 June 30, 2015 Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises Patient Care $ 145,984,569 48,898,576 41,590,342 54,458,527 6,581,581 76,347,566 42,308,061 7,641,748 16,521,450 323,061,052 June 30, 2014 $ 157,906,135 47,261,760 44,380,532 58,934,000 6,066,854 69,706,638 37,196,509 7,911,350 17,368,438 311,680,854 Total Operating Expenses Nonoperating Expenses Interest Expense Total Expenses 763,393,472 2,811,029 $ 766,204,501 758,413,070 2,966,531 $ 761,379,601 v The June 30, 2014 amounts do not reflect the effects of the restatement of July 1, 2014 net position related to the implementation of GASB 68 and GASB 71. See Note 1 in the Notes to the Financial Statements for more information. Operating revenues increased by $4,781,430 in fiscal year 2015. Although Tuition and Fees included a 5% increase, there was also an increase in Grants and Contracts. Auxiliary and Other revenue categories also increased to a lesser extent. The Grants and Contracts revenue increase of $1,390,371 is a result of an increase in the number of grants and contracts that were awarded to the institution during the year. Nonoperating revenues increased by $20,714,954 for the year primarily due to an increase in State Appropriations and also Gifts. The compensation and employee benefits category increased by $3,054,683, which primarily affected the Plant Operations and Maintenance and Patient Care categories that increased 6.52% and 6.28%, respectively. However, the total compensation and benefits increase was less than one percent. Utilities increased by $194,402 during the past year. The increase was associated with electricity and water costs that were experienced during fiscal year 2015 and were 10.80% and 14.39%, respectively. However, the total increase in utilities was only 1.68% and primarily affected the Auxiliary Enterprises category. Statement of Cash Flows The final statement presented by the Georgia Regents University is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. Cash flow information can be used to evaluate the financial viability of the University's ability to meet financial obligations as they mature. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Position. vi Cash Flows for the Years Ended June 30, 2015 and June 30, 2014, Condensed June 30, 2015 June 30, 2014 Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities $ -190,726,186 216,016,797 -17,414,081 -9,737,527 $ -160,102,951 196,322,284 -15,031,668 -4,343,247 Net Change in Cash Cash, Beginning of Year Cash, Prior Period Adjustment -1,860,997 36,016,872 16,844,418 21,376,809 -2,204,355 Cash, End of Year $ 34,155,875 $ 36,016,872 Capital Assets Georgia Regents University acquired land, buildings, and equipment from the Georgia Vocational Rehabilitation Agency known as Roosevelt Warm Springs Rehabilitation and Specialty Hospital, Inc., located at 6135 Roosevelt Highway, Warm Springs, Georgia with a gross book value of $2,195,896 and accumulated depreciation of $1,990,682 for a net book value of $205,214. On August 6, 2014, Georgia Regents University acquired equipment from the Georgia Bureau of Investigation with a gross book value of $172,082 and accumulated depreciation of $172,082 for a net book value of $0. The University had capital asset additions in fiscal year 2015 totaling $93,211,380. The most significant of these additions was the J. Harold Harrison Education Commons Building which was substantially completed in fiscal year 2015. A total of $42,000,000 for this project was funded by Georgia State Financing and Investment Commission (GSFIC). Other on-going projects funded by the GSFIC included $6,677,057. Projected funding by GSFIC for fiscal year 2016 will be approximately the same. For additional information concerning Capital Assets, see Notes 1, 7, 12, and 13 in the Notes to the Financial Statements. Long-Term Liabilities Georgia Regents University had Long-Term Liabilities of $376,141,103 of which $22,459,783 was reflected as current liability at June 30, 2015. For additional information concerning Long-Term Liabilities, see Note 9 in the Notes to the Financial Statements. vii Economic Outlook Along with all other institutions of the University System of Georgia, the University continues to respond to pressures to hold costs to lower levels and tuition to very modest increases. For fiscal year 2016, the state appropriations budget has not been reduced and undergraduate tuition was held to a 5.5% increase. The longer-term outlook is somewhat more optimistic as the State and National economies continue to show promise of slow but positive growth and strong budget support for education is shown by Georgia Governor Nathan Deal and the General Assembly. Dr. Brooks A. Keel, PhD., President Georgia Regents University viii BASIC FINANCIAL STATEMENTS GEORGIA REGENTS UNIVERSITY STATEMENT OF NET POSITION JUNE 30, 2015 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Receivables - Federal Financial Assistance Margin Allocation Funds Receivables - Other Inventories (Note 4) Prepaid Items (Note 5) Total Current Assets Noncurrent Assets Investments (Externally Restricted) Due from USO - Capital Liability Reserve Fund Investments Notes Receivable, Net Capital Assets, Net (Note 7) Total Noncurrent Assets Total Assets Deferred Outflows of Resources Related to Defined Benefit Pension Plans LIABILITIES Current Liabilities Accounts Payable Salaries Payable Benefits Payable Contracts Payable Advances (Including Tuition and Fees) (Note 8) Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences Total Current Liabilities Noncurrent Liabilities Lease Purchase Obligations Compensated Absences Net Pension Liability Total Noncurrent Liabilities Total Liabilities Deferred Inflows of Resources Related to Defined Benefit Pension Plans NET POSITION Net Investment in Capital Assets Restricted for: Nonexpendable Expendable Unrestricted (Deficit) Total Net Position The notes to the financial statements are an integral part of this statement. - 2 - EXHIBIT "A" $ 34,155,875 9,792,666 1,073,420 44,541,465 864,732 2,015,531 92,443,689 21,804,165 197,730 57,385,200 2,831,248 534,422,694 616,641,037 709,084,726 30,262,748 12,679,093 1,647,734 6,036,509 617,711 54,060,610 1,544,154 2,207,272 20,252,511 99,045,594 52,038,761 16,427,448 285,215,111 353,681,320 452,726,914 76,793,236 480,176,661 2,146,676 40,599,863 -313,095,876 $ 209,827,324 GEORGIA REGENTS UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2015 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 Other Gifts Investment Income (Endowments, Auxiliary and Other) Interest Expense (Capital Assets) Other Nonoperating Revenues Net Nonoperating Revenues Income Before Other Revenues, Expenses, Gains, or Losses Capital Grants and Gifts State Other Special Item - Capital Asset Transfer Total Other Revenues, Expenses, Gains or Losses Increase in Net Position Net Position - Beginning of Year, Restated Net Position - End of Year The notes to the financial statements are an integral part of this statement. - 3 - EXHIBIT "B" $ 94,981,686 -13,650,716 57,459,138 -15,252 188,237,413 209,960,431 8,771,719 380,869 4,105,509 2,416,859 192,880 2,504,325 2,102,476 2,758,220 3,070,571 326,564 563,602,692 173,068,237 229,596,415 114,060,694 418,700 4,135,368 9,334,717 11,755,608 192,524,838 28,498,895 763,393,472 -199,790,780 187,452,806 10,267,739 1,073,420 15,325,649 832,923 -2,811,029 164,639 212,306,147 12,515,367 43,334,970 665,386 205,214 44,205,570 56,720,937 153,106,387 $ 209,827,324 GEORGIA REGENTS UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2015 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 Collection of Loans to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Receipts 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 Other Nonoperating Receipts Net Cash Flows Provided by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Proceeds from Sale of Capital Assets 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 Proceeds from Sales and Maturities of Investments Interest on Investments Purchase of Investments Net Cash Provided by Investing Activities Net Decrease in Cash Cash and Cash Equivalents - Beginning of Year Cash and Cash Equivalents - End of Year EXHIBIT "C" $ 77,985,631 454,759,958 11,744,937 -343,624,379 -401,950,456 -9,334,717 -914,512 1,010,266 4,085,513 1,921,053 191,900 2,512,441 2,091,687 2,713,686 3,065,680 3,015,126 -190,726,186 187,452,806 -1,591,031 29,990,383 164,639 216,016,797 43,334,970 1,351,174 -58,186,607 -1,102,589 -2,811,029 -17,414,081 8,000 254,723 -10,000,250 -9,737,527 -1,860,997 36,016,872 $ 34,155,875 - 4 - GEORGIA REGENTS UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2015 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (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 Salaries Payable Benefits Payable Advances (Including Tuition and Fees) Other Liabilities Compensated Absences Net Pension Liability Change in Deferred Inflows/Outflows of Resources: Deferred Inflows of Resources Deferred Outflows of Resources Net Cash Used by Operating Activities NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of Investments Recognized as a Component of Interest Income Special Item - Capital Asset Transfer Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts EXHIBIT "C" $ -199,790,780 28,498,895 -954,995 933,352 878,635 95,754 -14,063,795 120,383 6,036,509 1,439,915 -85 593,813 -82,926,927 76,793,236 -8,380,096 $ -190,726,186 $ 206,372 $ 578,200 $ 205,214 $ 665,386 The notes to the financial statements are an integral part of this statement. - 5 - GEORGIA REGENTS UNIVERSITY STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2015 ASSETS Cash and Cash Equivalents Investments Debt Securities - Mutual Bond Fund Bond/Equity Mutual Fund Equity Mutual Funds - Domestic Equity Mutual Funds - International Equity Securities - Domestic Equity Securities - International Real Estate Fund Total Assets NET POSITION Restricted for Pension Plan Participants EXHIBIT "D" PENSION TRUST FUND $ 5,898,987 9,899,425 2,175,116 29,794,090 4,047,806 21,168,585 3,431,469 2,710,259 $ 79,125,737 $ 79,125,737 The notes to the basic financial statements are an integral part of this statement. - 6 - GEORGIA REGENTS UNIVERSITY STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS YEAR ENDED JUNE 30, 2015 ADDITIONS Contributions Employer Investment Earnings Net Increase in Fair Value of Investments Investment Income Total Investment Earnings Less Investment Expense Net Investment Earnings Total Additions DEDUCTIONS Benefit Payments Change in Net Position Net Position - Beginning of Year Net Position - End of Year EXHIBIT "E" PENSION TRUST FUND $ 13,084,672 2,319,097 926,698 3,245,795 -121,518 3,124,277 16,208,949 13,276,822 2,932,127 76,193,610 $ 79,125,737 The notes to the basic financial statements are an integral part of this statement. - 7 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Note 1. Summary of Significant Accounting Policies Nature of Operations Georgia Regents University (the University) serves the local, state, and national communities by providing leadership and excellence in teaching, discovery, clinical care, and service as a studentcentered comprehensive research university and academic health center, with a wide range of programs from learning assistance through postdoctoral studies. Reporting Entity Georgia Regents University is one of thirty (30) 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 Georgia Regents 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. Georgia Regents University does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Georgia Regents 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. Legally separate, tax exempt Affiliated Organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential Component Units of the State. See Note 20 for additional information. Financial Statement Presentation 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 outflows 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. The University administers the Early Retirement Pension Plan which is a single-employer defined benefit pension plan. Activity related to the Early Retirement Pension Plan is reported as a fiduciary fund using the accrual basis of accounting, but is not reflected in the government-wide financial statements because the resources of this fund are not available to support University programs. - 8 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" New Accounting Pronouncements In fiscal year 2015, the University adopted 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 requires a restatement to beginning net position. The adoption of this statement has a significant impact on the University's financial statements. In fiscal year 2015, the University adopted Governmental Accounting Standards Board (GASB) Statement No. 69, Government Combinations and Disposals of Government Operations. This statement provides specific accounting and financial reporting guidance for combinations in the governmental environment. This statement also requires that disclosures be made by governments about combination arrangements in which they engage and for disposals of government operations. The adoption of this statement does not have a significant impact on the University's financial statements. In fiscal year 2015, the University adopted Governmental Accounting Standards Board (GASB) Statement 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - an amendment of GASB No. 68. The objective of this statement is to improve accounting and financial reporting by addressing an issue in Statement No. 68, Accounting and Financial Reporting for Pensions, concerning transition provisions related to certain pension contributions made to defined benefit pension plans prior to implementation of statement. This statement amends paragraph 137 of Statement No. 68 which limited recognition of pension-related deferred outflows of resources and deferred inflows of resources at the transition to circumstances in which it is practical to determine the amounts of all deferred outflows of resources and deferred inflows of resources related to pensions. Adoption of this statement in conjunction with GASB No. 68 had a significant impact on the University's financial statements. Cash and Cash Equivalents Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. Accounts Receivable Accounts receivable consists of tuition and fees charged to students and auxiliary enterprise services provided to students, faculty and staff, the majority of whom reside in the State of Georgia. Accounts receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts. Investments Investments include financial instruments with terms in excess of 13 months, certain other securities for the production of revenue, land, and other real estate held as investments by endowments. The University accounts for its investments at fair value. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Position. The Board of Regents Diversified Fund is included under Investments. - 9 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Inventories Consumable supplies are carried at the lower of cost or market on the first-in, first-out ("FIFO") basis. Resale Inventories for Bookstore and other services are valued at cost using the first-in, first-out ("FIFO") basis. Prepaid Items Payments made to vendors and local government organizations for services that will benefit periods beyond June 30, 2015, are recorded as prepaid items. Noncurrent Investments Investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Position. Capital Assets Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. For equipment, the University's capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000 and/or significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation, which also includes amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, and copyrights, as well as software, is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values generally are 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements. To fully understand plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. These bonds constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged. Capital Liability Reserve Fund In fiscal year 2014, the Capital Liability Reserve Fund (Fund) was established by the Board of Regents to protect the fiscal integrity of the University System of Georgia (USG) to maintain the strongest possible credit ratings associated with Public Private Venture (PPV) projects and to ensure that the Board of Regents can effectively support its long-term capital lease obligations. The Fund is financed by all USG institutions participating in the PPV program. The Fund serves as a pooled reserve that is managed by the Board of Regents. The Fund shall only be used to address significant shortfalls and only insofar as a requesting USG institution is unable to make the required PPV capital lease payment to the designated cooperative organization. The Fund will continue as long as the Board of Regents has rental obligations under the PPV program and at the conclusion of the program, funds will be returned to the University. Georgia Regent University's contribution to the fund as of June 30, 2015 was $197,730. Deposits Held for Other Organizations Deposits held for other organizations account for assets held by the University as an agent for various students, governments, or organizations. - 10 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Advances Advances include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Advances also include amounts received from grant and contract sponsors that have not yet been earned. Deferred Outflows of Resources Deferred outflows of resources consists of the consumption of net assets by the University that are applicable to a future reporting period. Compensated Absences Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as compensated absences in the Statement of Net Position, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Position. Noncurrent Liabilities Noncurrent liabilities include (1) liabilities that will not be paid within the next fiscal year; (2) capital lease obligations with contractual maturities greater than one year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Teachers' Retirement System of Georgia (TRS) and Employees' Retirement System (ERS), additions to/deductions for TRS's and ERS's fiduciary net position have been determined on the same basis as they are reported by TRS and ERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Deferred Inflows of Resources Deferred inflows of resources consists of the acquisition of net assets by the University that are applicable to a future reporting period. 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 related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of the net investment in capital assets. The term "debt obligations" as used in this definition does not include debt of the GSFIC as discussed previously in Note 1 - Capital Assets section. Restricted - nonexpendable includes 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 be either 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. - 11 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Restricted - expendable and expendable Capital Projects are restricted resources available for expenditure, but these restricted resources must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. Unrestricted - Unrestricted net position is the net amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of Investment in Capital Assets. Included in the net deficit reported is the University's Net Pension liability of $285,215,111 which is required for financial reporting and will not impact the economics of the plan or affect budgets or cash flows. When an expense is incurred that can be paid using either restricted or unrestricted resources, the University's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources. Income Taxes Georgia Regents University, as a political subdivision of the State of Georgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended. Classification of Revenues and Expenses The Statement of Revenues, Expenses and Changes in Net Position classify fiscal year activity as operating and nonoperating according to the following criteria: Operating revenue includes activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) certain federal, state, and local grants and contracts, and (3) sales and services. Nonoperating revenue includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenue by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, such as state appropriations and investment income. Operating Expenses: Operating expenses includes activities that have the characteristics of exchange transactions. Nonoperating expense includes activities that have the characteristics of nonexchange transactions, such as capital financing costs and costs related to investment activity. Scholarship Allowances Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net Position. Scholarship allowances are the difference between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or third parties making payments on the students' behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs are recorded as either operating or nonoperating revenues in the University's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded contra revenue for scholarship allowances. - 12 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Special Item Transfer The Georgia Vocational Rehabilitation Agency transferred land, buildings, and equipment with a reported gross book balance value of $2,195,896 and accumulated depreciation of $1,990,682, for a net book value of $205,214 to Georgia Regents University. On August 6, 2014, the Georgia Bureau of Investigation transferred equipment with a gross book balance value of $172,082 and accumulated depreciation of $172,082 for a net book value of $0 to Georgia Regents University. The net effect of the transfer of assets of $205,214 is noted as a Special Item Transfer on the Statement of Revenues, Expenses and Changes in Net Position. Restatement of Prior Year Net Position For fiscal year 2015, the University made prior period adjustments due to the adoption of GASB Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, which requires the restatement of the June 30, 2014, net position. The result is a decrease in Net Position at July 1, 2014 of $353,345,853 of which $368,142,038 is represented in Net Pension Liability, $21,882,652 is represented in deferred outflow and $7,086,467 is related to prepaid assets associated with GASB 27. This change is in accordance with generally accepted accounting principles. 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 5017-59: 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. - 13 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" At June 30, 2015, the carrying value of deposits was $40,799,271, which includes the $802,955 cash portion of Investments, and the bank balance was $53,485,548. Of the University's deposits, $53,235,548 were uninsured. Of these uninsured deposits, $4,188,245 were collateralized with securities held by the financial institution's trust department or agent in the University's name, $49,047,303 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the University's name. Investments Business-type Activities Georgia Regents University maintains an investment policy which fosters sound and prudent judgment in the management of assets to ensure safety of capital consistent with the fiduciary responsibility each institution has to the citizens of Georgia and which conforms to Board of Regents investment policy. All investments are consistent with donor intent, Board of Regents policy, and applicable Federal and state laws. The University's investments as of June 30, 2015 are presented below. All investments are presented by investment type and debt securities are presented by maturity. Investment Type Fair Value Less Than 3 Months Investment Maturity 4 - 12 Months 1 - 5 Years 6 - 10 years More than 10 Years Debt Securities U. S. Treasuries $ U. S. Agencies Explicitly Guaranteed Implicitly Guaranteed $ 1,740,642 8,877,998 57,691,807 $ 68,310,447 $ $ 1,740,642 851,081 $ 1,149,896 3,848,582 $ 4,493,684 $ 535,732 9,178,461 8,089,052 38,423,317 851,081 $ 1,149,896 $ 14,767,685 $ 12,582,736 $ 38,959,049 Investment Pools Board of Regents Diversified Fund 10,075,963 Total Investments $ 78,386,410 The University does not have a formal policy addressing variable-rate securities. The University relies upon the judgment of its Investment Managers and the policies of the investment vehicles related to Georgia Regents University's investment assets. The Board of Regents Investment Pool is 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 the Board of Regents Investment Pool is voluntary. The Board of Regents Investment Pool is not rated. Additional information on the Board of Regents Investment Pool is disclosed in the audited Financial Statements of the Board of Regents of the University System of Georgia - System Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at http://www.audits.ga.gov. - 14 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University's Investment Policy and Guidelines manages interest rate risk by recognizing that short-term loss of principal may be necessary in order to achieve long-term safety and growth of principal; and that in order to maximize income from debt instruments with maturities longer than sixty days, market values may be exposed to short-term volatility. The Effective Duration of the Diversified Fund is 4.79 years. Of the University's total investment of $10,075,963 in the Diversified Fund, $3,397,671 is invested in debt securities. Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the University will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The University does not have a formal policy for managing custodial credit risk for investments. Investment Managers are held accountable for custodial safety. The University's Investment Policy and Guidelines require that managers be registered in good standing as investment advisors; and will be experienced with proven track records. At June 30, 2015, $68,310,447 of the University's applicable investments were uninsured and held by the investment's counterparty's trust department or agent, in the University's name. Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University does not have a formal policy for managing credit quality risk. All investment vehicles are designed to comply with Georgia Code 50-17-63. The investments subject to credit quality risk are reflected below: Fair Value Unrated Restricted Debt Investments U. S. Agency Securities $ 57,691,807 $ 57,691,807 Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The University's Investment Policy and Guidelines for managing concentration of credit risk requires that stocks and debt issues be diversified. The University also relies upon the concentration of credit risk policy of the individual investment vehicles related to Georgia Regents University's investment assets. More than 5% of the University's investments are in the Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC). These investments are 41.6%, and 32.0% respectively of the University's total investments. Fiduciary Fund Type - Pension Trust Fund Georgia Regents University's Pension Trust Fund consists of the Early Retirement Pension Plan (ERP). See Note 14 in the Notes to the Financial Statements for additional information about the Early Retirement Plan. The University's Pension Plan investments as of June 30, 2015, are presented below. All investments are presented by investment type and debt securities are presented by maturity. - 15 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Investment Type Fair Value Investment Maturity More Than 6 - 10 Years 10 Years Debt Securities Mutual Bond Fund $ 9,899,425 $ 7,401,609 $ 2,497,816 Other Investments Bond/Equity Mutual Funds Equity Mutual Funds - Domestic Equity Mutual Funds - International Equity Securities - Domestic Equity Securities - International Real Estate Fund 2,175,116 29,794,090 4,047,806 21,168,585 3,431,469 2,710,259 Total Investments $ 73,226,750 Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University's Investment Policy and Guidelines manages interest rate risk by recognizing that short-term loss of principal may be necessary in order to achieve long-term safety and growth of principal; and that in order to maximize income from debt instruments with maturities longer than sixty days, market values may be exposed to short-term volatility. Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the University will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The University does not have a formal policy for managing custodial credit risk for investments. Investment Managers are held accountable for custodial safety. The University's Investment Policy and Guidelines require that managers be registered in good standing as investment advisors; and will be experienced with proven track records. At June 30, 2015, $9,899,425 of the University's Pension Plan applicable investments were uninsured and held by the investment's counterparty's trust department or agent, in the University's name. Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University does not have a formal policy for managing credit quality risk. All investment vehicles are designed to comply with Georgia Code 50-17-63. The investments subject to credit quality risk are reflected below: Fair Value Unrated Related Debt Investments Mutual Bond Fund $ 9,899,425 $ 9,899,425 - 16 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The University's Investment Policy and Guidelines for managing concentration of credit risk requires that stocks and debt issues be diversified. The University also relies upon the concentration of credit risk policy of the individual investment vehicles related to Georgia Regents University's Pension Plan investment assets. More than 5% of the Pension Plan's investments are in the iShares Core Total U. S. Aggregate Bond Exchange-traded Fund (ETF), Vanguard Institutional Index Fund, iShares Russell 1000 Value ETF, and iShares Russell 1000 Growth ETF. These investments are 10.1%, 40.7%, 6.3%, and 10.1% respectively of the Plan's total investments. Note 3. Accounts Receivable Accounts receivable consisted of the following at June 30, 2015: Student Tuition and Fees $ Auxiliary Enterprises and Other Operating Activities Federal Financial Assistance Georgia State Financing and Investment Commission Margin Allocation Funds Other 8,947,784 1,406,856 9,792,666 562,113 1,073,420 34,064,896 Less Allowance for Doubtful Accounts 55,847,735 440,184 Net Accounts Receivable $ Note 4. Inventories Inventories consisted of the following at June 30, 2015: 55,407,551 Bookstore Other $ 715,067 149,665 Total Inventories $ Note 5. Prepaid Items Prepaid Items consisted of the following at June 30, 2015: 864,732 Georgia State Financing and Investment Commission $ Miscellaneous 943,628 1,071,903 Total $ 2,015,531 Note 6. Notes/Loans Receivable The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2015. The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. As the University determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans - 17 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" are written off and assigned to the U. S. Department of Education. The University has provided an allowance for uncollectible loans, which, in management's opinion, is sufficient to absorb loans that will ultimately be written off. At June 30, 2015, the allowance for uncollectible loans was approximately $377,059. Note 7. Capital Assets Following are the changes in capital assets for the year ended June 30, 2015: Beginning Balance July 1, 2014 Special Item Transfer Additions Reductions Ending Balance June 30, 2015 Capital Assets, Not Being Depreciated: Land Capitalized Collections Construction Work-In-Progress $ 28,306,359 $ 87,006 5,625,446 59,543 $ 10,482,680 $ $ 4,782,576 28,365,902 87,006 11,325,550 Total Capital Assets, Not Being Depreciated 34,018,811 59,543 10,482,680 4,782,576 39,778,458 Capital Assets, Being Depreciated: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections 6,526,145 556,065,157 15,039,913 114,634,854 61,469,486 30,988,228 1,549,000 759,435 73,240,928 809,470 11,642,855 206,372 1,611,651 855,504 3,281,500 62,838 1,256,707 6,526,145 629,999,581 15,849,383 123,755,644 61,613,020 31,343,172 Total Assets Being Depreciated 784,723,783 2,308,435 87,511,276 5,456,549 869,086,945 Less: Accumulated Depreciation: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections 1,653,277 213,115,309 6,181,610 87,860,486 16,201,095 22,874,648 1,420,100 742,664 301,393 16,213,503 543,029 7,974,603 2,049,220 1,417,147 171,000 2,618,888 58,780 1,256,707 1,954,670 230,577,912 6,724,639 93,958,865 18,191,535 23,035,088 Total Accumulated Depreciation 347,886,425 2,162,764 28,498,895 4,105,375 374,442,709 Total Capital Assets, Being Depreciated, Net 436,837,358 145,671 59,012,381 1,351,174 494,644,236 Capital Assets, Net $ 470,856,169 $ 205,214 $ 69,495,061 $ 6,133,750 $ 534,422,694 For projects managed by GSFIC, GSFIC retains construction-in-progress on its books throughout the construction period and transfers the entire project to the University when complete. For projects managed by the University, the University retains construction-in-progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2015, GSFIC transferred capital additions valued at $76,210,526 to Georgia Regents University. In addition, at June 30, 2015, GSFIC had construction in progress of approximately $2,121,504 for incomplete projects for the University. - 18 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Note 8. Advances (Including Tuition and Fees) Advances (Including Tuitions and Fees) consisted of the following at June 30, 2015: Prepaid Tuition and Fees Research Other - Advances $ 14,219,341 29,852,707 9,988,562 Totals $ 54,060,610 Long-term advances totaled $54,060,610 all of which was reflected as current. Note 9. Long-Term Liabilities Long-Term liability activity for the year ended June 30, 2015 was as follows: Beginning Balance July 1, 2014 (Restated) Additions Reductions Ending Balance June 30, 2015 Current Portion Leases Lease Obligations $ 55,142,250 $ 206,372 $ 1,102,589 $ 54,246,033 $ 2,207,272 Other Liabilities Compensated Absences Net Pension Liability 36,086,146 368,142,038 26,098,759 25,504,946 82,926,927 36,679,959 285,215,111 20,252,511 Total 404,228,184 26,098,759 108,431,873 321,895,070 20,252,511 Total Long-Term Obligations $ 459,370,434 $ 26,305,131 $ 109,534,462 $ 376,141,103 $ 22,459,783 - 19 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Note 10. Net Position Net position is reported in the following categories: Net Investment in Capital Assets, Restricted Nonexpendable, Restricted-Expendable, and Unrestricted. The amounts within each category at June 30, 2015 were as follows: Net Investments in Capital Assets $ 480,176,661 Restricted for Nonexpendable Permanent Endowment 2,146,676 Expendable Restricted E&G and Other Organized Activities Federal Loans Institutional Loans Quasi-Endowments Capital Projects 24,907,732 6,044,690 987,620 7,716,193 943,628 Total Expendable 40,599,863 Unrestricted R & R Reserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted USO Reserve Fund 2,886,599 21,990,197 141,400 -338,311,802 197,730 Total Expendable -313,095,876 Total Net Position $ 209,827,324 Note 11. Endowments Donor Restricted Endowments: Investments of the University's endowment funds are pooled, unless required to be separately invested by the donor. For University controlled, donor-restricted endowments, where the donor has not provided specific instructions, the Board of Regents permits Georgia Regents University to develop policies for authorizing and spending realized and unrealized endowment income and appreciation as they determined to be prudent. Realized and unrealized appreciation in excess of the amount budgeted for current spending is retained by the endowments. Current year net appreciation for the endowment accounts was $10,191 and is reflected as restricted net position. For endowment funds where the donor has not provided specific instructions, investment return of the University's endowment funds is predicated on the total return concept. The main goal of Georgia Regents University's endowment fund investment guidelines is that principal be preserved at a level that protects the historic purchasing power of the original endowment amounts, while generating sufficient annual income to perform the original intent of the endowment. The objective being to emphasize long-term capital appreciation and growth of income, and to increase principal value at a - 20 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" rate at least equal to the rate of inflation. In any year, no more than 5% of the three-year average market value, measured on December 31, will be distributed to the school to support its budget or designated beneficiary program. The purpose of this limitation is to help ensure long-term preservation of purchasing power. Note 12. Significant Commitments The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $9,676,044 as of June 30, 2015. This amount is not reflected in the accompanying basic financial statements. Note 13. Lease Obligations Georgia Regents University is obligated under various operating leases for the use of equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of equipment and real property. Capital Leases Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2016 and 2035. Payments for fiscal year 2015 were $4,074,362 of which $2,811,029 represented interest and $160,744 represented executory costs. Total principal paid on capital leases was $1,102,589 for the fiscal year ended June 30, 2015. Interest rates range from 3.48% to 12.99%. Description Lessor CAPITAL LEASE SCHEDULE Lease Original Principal Term Begin Outstanding Principal End Balance at June 30, 2015 Multiple Infividual Copier Leases CRC 20 years CRC 30 years CRC 40 years CRC 10 years CRC 25 years University Housing Student Center Total Leases Pollock $ MCG-PPG, CRC LLC MCG-PPG, CRC LLC MCG-PPG, CRC LLC MCG-PPG, CRC LLC MCG-PPG, CRC LLC Hewlett-Packard $ 1,620,930 2,410,600 12,458,115 8,641,066 710,147 3,484,470 20,246,137 11,782,962 61,354,427 5 years 30 years 30 years 30 years 30 years 30 years 30 years 29 years 9/2010 to 6/2015 1/2006 1/2006 1/2006 1/2006 9/2005 3/2006 1/2006 12/2034 $ 12/2034 12/2034 12/2034 12/2034 12/2034 1/2035 7/2034 $ 750,260 2,147,960 (1)(2) 11,070,295 (1)(2) 7,653,360 (1)(2) 639,402 (1)(2) 3,104,643 (1)(2) 18,978,446 (1) 9,901,667 (1)(3) 54,246,033 (1) These leases are related-party transactions between affiliated organizations. (2) In October 2014, the MCG-PPG Cancer Research Center, LLC refunded the bonds associated with this lease and passed the perceived economic advantages of this refunding to the University by reducing the effective interest rate and lease term. The future minimum lease payments under the revised lease did not change as a result of the refund. (3) In October 2014, the Augusta State University Foundation refunded the bonds associated with this lease and passed the perceived economic advantages of this refunding to the University by reducing the effective interest rate. The future minimum lease payments did not change as a result of the refund. - 21 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Operating Leases Georgia Regents University's noncancellable operating leases have remaining terms less than one year. All agreements are cancellable 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. Facilities and equipment rented through operating leases are not recorded as assets on the balance sheet. Operating lease expenditures totaled $5,234 for the fiscal year ended June 30, 2015. Future Commitments Future commitments for capital leases (shown here and on the Statement of Net Position include other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2015, were as follows: Real Property and Equipment Capital Operating Leases Leases Year Ending June 30: 2016 2017 2018 2019 2020 2021 - 2025 2026 - 2030 2031 - 2035 $ 4,240,272 $ 376 4,093,049 4,027,128 3,991,507 3,973,237 19,764,623 19,760,676 16,091,121 Total Minimum Lease Payments 75,941,613 $ 376 Less: Interest Less: Executory Costs (if paid) 18,491,705 3,203,875 Principal Outstanding $ 54,246,033 The following is a summary of the carrying values of assets held under capital lease at June 30, 2015: Description Gross Amount (+) Accumulated Depreciation (-) Net Capital Assets Held Under Capital Lease at June 30, 2015 (=) Outstanding Balances per Lease Schedules at June 30, 2015 Equipment Buildings - (PPV Only) $ 2,036,603 $ 878,923 $ 1,157,680 $ 750,260 59,576,417 17,312,612 42,263,805 53,495,773 Total Assets Held Under Capital Lease at June 30, 2015 $ 61,613,020 $ 18,191,535 $ 43,421,485 $ 54,246,033 - 22 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" 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. Georgia Regents University had three capital leases with affiliated organizations in the current fiscal year. In November 2004, Georgia Regents University entered into a capital lease of $27,659,678 at 6.85% with the MCG-PPG Cancer Research Center, LLC, whereby the University leases the third, fourth, and fifth floors of the Cancer Research Center for a thirty year period that began January 2006 and expires December 2035. At the end of the lease, title to the building is transferred to the University. In October 2014, the MCG-PPG Cancer Research Center, LLC, refunded the bonds associated with this lease and passed the perceived economic advantages of this refunding to the University by reducing the interest rate to 4.15% and the lease term maturity to December 2034. The future minimum lease payments did not change as a result of the refund. The outstanding liability at June 30, 2015, on this capital lease is $24,615,660. In August 2004, Georgia Regents University entered into a capital lease of $20,246,137 at 5.23% with the Augusta State University Foundation whereby the University leases a student housing complex for a thirty year period that began September 2005 and will expire January 2035. In November 2012, the original bond associated with this lease was refunded at 4.26% for the same term. The outstanding liability at June 30, 2015, on this capital lease is $18,978,446. In February 2005, the University entered into another capital lease of $11,782,962 at 4.72% with the Augusta State University Foundation whereby the University leases a student activities center for a twenty-nine year term that began March 2006 and will expire June 2034. In October 2014, the Augusta State University Foundation refunded the bonds associated with this lease and passed the perceived economic advantages of this refunding to the University by reducing the effective interest rate to 3.72% with a maturity date of July 1, 2034. The future minimum lease payments did not change as a result of the refund. The outstanding liability at June 30, 2015, on this capital lease is $9,901,667. Georgia Regents University also has various capital leases for equipment with an outstanding balance at June 30, 2015 in the amount of $750,260. Note 14. Retirement Plans Georgia Regents University participates in various retirement plans administered by the State of Georgia under two major retirement systems: Teachers' Retirement System of Georgia (TRS) and Employees' Retirement System of Georgia (ERS). 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 administrative offices. The significant retirement plans that Georgia Regents 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. - 23 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Teachers' Retirement System of Georgia and Employees' Retirement System of Georgia General Information about the Teachers' Retirement System P lan description: All teachers of the University as defined in 47-3-60 of the Official Code of Georgia Annotated (O.C.G.A.) are provided a pension through the Teachers' Retirement System of Georgia (TRS). TRS, a cost-sharing multiple-employer defined benefit pension plan, is administered by the TRS Board of Trustees (TRS Board). Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. TRS issues a publicly available financial report that can be obtained at www.trsga.com/publications. Benefits provided: TRS provides service retirement, disability retirement, and death benefits. Normal retirement benefits are determined as 2% of the average of the employee's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. An employee 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. Ten years of service is required for disability and death benefits eligibility. Disability benefits are based on the employee's creditable service and compensation up to the time of disability. Death benefits equal the amount that would be payable to the employee's beneficiary had the employee retired on the date of death. Death benefits are based on the employee's creditable service and compensation up to the date of death. Contributions: Per Title 47 of the O.C.G.A., contribution requirements of active employees and participating employers, as actuarially determined, are established and may be amended by the TRS Board. Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employees were required to contribute 6.00% of their annual pay during fiscal year 2015. The University's contractually required contribution rate for the year ended June 30, 2015 was 13.15% of annual University payroll. University contributions to TRS were $23,837,005 for the reporting period (fiscal year ended June 30, 2015). Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. General Information about the Employees' Retirement System P lan description: - ERS is a cost-sharing multiple-employer defined benefit pension plan 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. Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. ERS issues a publicly available financial report that can be obtained at www.ers.ga.gov/formspubs/formspubs. - 24 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Benefits provided: The ERS Plan supports three benefit tiers: Old Plan, New Plan, and Georgia State Employees' Pension and Savings Plan (GSEPS). Employees under the old plan started membership prior to July 1, 1982 and are subject to 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 modified plan provisions. Effective January 1, 2009, new state employees and rehired state employees who did not retain membership rights under the Old or New Plans are members of GSEPS. ERS members hired prior to January 1, 2009 also have the option to irrevocably change their membership to GSEPS. Under the old plan, the 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 the monthly average of the member's highest 24 consecutive calendar months, multiplied by the number of years of creditable service, multiplied by the applicable benefit factor. Annually, postretirement cost-of-living adjustments may also 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. Contributions: 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, the state pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these state 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. The University's contractually required contribution rate, actuarially determined annually, for the year ended June 30, 2015 was 21.96% of annual covered payroll for old and new plan members and 18.87% for GSEPS members. The University's contributions to ERS totaled $143,532 for the year ended June 30, 2015. Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2015, the University reported a liability for its proportionate share of the net pension liability for TRS and ERS, totaling $220,560,622. The net pension liability was measured as of June 30, 2014. The total pension liability used to calculate the net pension liability was based on an actuarial valuation as of June 30, 2013. An expected total pension liability as of June 30, 2014 was determined using standard roll-forward techniques. The University's proportion of the net pension liability was based on contributions to TRS and ERS during the fiscal year ended June 30, 2014. At June 30 2014, the University's TRS proportion was 1.738329%, which was an increase of 0.029683% from its proportion measured as of June 30, 2013. At June 30, 2014, the University's ERS proportion was 0.025214%, which was an increase of 0.000046% from its proportion measured as of June 30, 2013. For the year ended June 30, 2015, the University recognized pension expense of $16,011,289 for TRS and $58,611 for ERS. At June 30, 2015, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: - 25 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" TRS Deferred Deferred Outflow of Inflows of Resources Resources ERS Deferred Deferred Outflow of Inflows of Resources Resources Net difference between projected and actual earnings on pension plan investments $ 76,562,424 $ 230,812 Changes in proportion and differences between University contributions and proportionate share of contributions $ 4,214,407 $ 1,374 University contributions subsequent to the measurement date 23,837,005 143,532 Total $ 28,051,412 $ 76,562,424 $ 144,906 $ 230,812 University contributions subsequent to the measurement date of $23,837,005 for TRS and $143,532 for ERS are reported as deferred outflows of resources and will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending June 30: TRS ERS 2016 2017 2018 2019 2020 Thereafter $ -18,182,782 $ $ -18,182,782 $ $ -18,182,782 $ $ -18,182,782 $ $ 383,111 $ $ 0$ -56,844 -57,187 -57,703 -57,704 0 0 Actuarial assum ptions: The total pension liability as of June 30, 2014 was determined by an actuarial valuation as of June 30, 2013 using the following actuarial assumptions, applied to all periods included in the measurement: Teachers' Retirement System: Inflation Salary increases Investment rate of return 3.00% 3.75% - 7.00% 7.50% average, including inflation net of pension plan investment expense including inflation Mortality rates were based on the RP-2000 Combined Mortality Table for Males or Females set back two years for males and set back three years for females. The actuarial assumptions used in the June 30, 2013 valuation were based on the results of an actuarial experience study for the period July 1, 2004 - June 30, 2009. - 26 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Employees' Retirement System: Inflation Salary increases Investment rate of return 3.00% 5.45% - 9.25% 7.50% average, including inflation net of pension plan investment expense including inflation Mortality rates were based on the RP-2000 Combined Mortality Table for the periods after service retirement, for dependent beneficiaries, and for deaths in active service, and the RP-2000 Disabled Mortality Table set back eleven years for males for the period after disability retirement. The actuarial assumptions used in the June 30, 2013 valuation were based on the results of an actuarial experience study for the period July 1, 2004 - June 30, 2009. The long-term expected rate of return on TRS and ERS pension plan investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected nominal returns, net of pension plan investment expense and the assumed rate of inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return * Fixed Income Domestic large equities Domestic mid equities Domestic small equities International developed market equities International emerging market equities 30.00% 39.70% 3.70% 1.60% 18.90% 6.10% 3.00% 6.50% 10.00% 13.00% 6.50% 11.00% 100.00% * Rates shown are net of the 3.00% assumed rate of inflation Discount rate: The discount rate used to measure the total TRS and ERS pension liability was 7.50%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that employer and State of Georgia contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the TRS and ERS pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the University's proportionate share of the net pension liability to changes in the discount rate: The following presents the University's proportionate share of the net pension liability calculated using the discount rate of 7.50%, as well as what the University's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50%) or 1-percentage-point higher (8.50%) than the current rate: - 27 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Teachers' Retirement System: University's proportionate share of the net pension liability 1% Decrease (6.50%) Current Discount Rate (7.50%) 1% Increase (8.50%) $ 404,720,869 $ 219,614,941 $ 67,184,052 Employees' Retirement System: University's proportionate share of the net pension liability 1% Decrease (6.50%) Current Discount Rate (7.50%) 1% Increase (8.50%) $ 1,378,990 $ 945,681 $ 576,834 P ension plan fiduciary net position: Detailed information about the pension plan's fiduciary net position is available in the separately issued TRS and ERS financial reports which are publically available at www.trsga.com/publications and www.ers.ga.gov/formspubs/formspubs, respectively. 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 all exempt full and partial benefit eligible employees, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from three approved vendors (VALIC, 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 Georgia Regents 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 2015, 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 nonforfeitable at all times. Georgia Regents University and the covered employees made the required contributions of $13,407,284 (9.24%) and $8,706,029 (6%), respectively. VALIC, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices. - 28 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Early Retirement Pension Plan Plan Description Georgia Regents University Early Retirement Pension Plan (ERP) is a single-employer defined benefit pension plan. The plan was derived by the Georgia Regents University as a means of workforce reduction and was approved by the Board of Regents of the University System of Georgia (BOR) effective January 1, 2000. The plan was designed to provide eligible participants additional benefits above the amounts payable through Teachers' Retirement System of Georgia (TRS). The plan was designed to allow vested employees aged 55 or employees of any age with 25 years of creditable service to retire without penalties as applied by the Teachers' Retirement System of Georgia (TRS) for early retirement. The plan would allow for all participants to retire as if they were vested and aged 60 or had attained 30 years of creditable service. Any member who opted into the Optional Retirement Plan aged 55 with 10 years of service by June 30, 2000 was also eligible to participate in the plan. The plan is closed to new entrants. There were no active plan participants. As of January 1, 2015, plan participants consisted of the following: Inactive Plan Participants: Retirees and Beneficiaries Currently Receiving Benefits 648 Terminated Employees Entitled to Deferred Benefits 0 Disabled Employees Entitled to Deferred Benefits 0 Total 648 Benefits Provided TRS provides a benefit equal to 2% of the participant's average annual compensation during the two consecutive years of creditable service which produce the highest such average, multiplied by the number of years of creditable service, limited to 40 years. If the participant has less than 30 years of creditable service and has not attained age 60 at the time of retirement, the benefit will be reduced by the lesser of 1/12 of 7% for each month that retirement precedes age 60 or 7% for each year or fraction of a year by which the participant has less than 30 years of creditable service at the time of retirement. In addition, a one-time 3% increase is applied to the first $37,500 of the participant's benefit at retirement. The ERP provides the additional benefits that would have been payable under TRS based on the following adjustments: Age of the participant was increased five years Participant's creditable service was increased five years Participant's annual rate of earnings as of August 1, 1999 was projected five years into the future with 3% increases each year ERP benefits will be increased 3% a year as a cost-of-living adjustment (COLA): 1-1/2% on each January 1 and July 1. The ERP provided COLA's for both the ERP and TRS benefits until actual eligibility for a COLA through TRS occurred. Since that time, the ERP has provided COLA's only on the portion of the benefit paid by the ERP, and TRS has provided COLA's under the terms of the TRS plan. The ERP does not issue a standalone report. - 29 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Funding Policy The fund sources that provided for an employee's salary, as of December 31, 1999, would be responsible for funding the annuity to provide for retiree benefits. There is no additional cost to the employee/retiree, Board of Regents, or State of Georgia for this plan. Contributions are made by the University based on the actuarial valuation of the plan. We do not consider this to be a special funding situation. Since this plan was not pre-funded, Georgia Regents University's approach to collect and deposit as much into the ERP fund in the earlier years as is possible, thereby, realizing a greater return on investment. Effective January 1, 2009, the period to amortize the unfunded accrued liability was extended 4 years. With this change, the plan should be fully funded by June 30, 2023. The funding policy is reasonable and in compliance with minimum funding requirements set forth in Code Section 47-20-10 of the Public Retirement Systems Standards Law. Investments Georgia Regents University maintains an investment policy which fosters sound and prudent judgment in the management of assets to ensure safety of capital consistent with the fiduciary responsibility of the institution to the citizens of Georgia and which conforms to the Board of Regents investment policy. All investments are consistent with Board of Regents policy and applicable Federal and state laws. Investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price. The University's Investment Policy and Guidelines for managing concentration of credit risk requires that stocks and debt issues be diversified. The University also relies upon the concentration of credit risk policy of the individual investment vehicles related to plan assets. More than 5% of the plan's investments are in the iShares Core Total U. S. Aggregate Bond Exchange-traded Fund (ETF), Vanguard Institutional Index Fund, iShares Russell 1000 Value ETF, and iShares Russell 1000 Growth ETF. These investments are 10.1%, 40.7%, 6.3%, and 10.1% respectively of the plan's investments. For the fiscal year ended June 30, 2015, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 4.13%. Net Pension Liability (NPL) The components of the net pension liability at June 30, 2015 were as follows: Total Pension Liability Plan Fiduciary Net Position $ 143,780,226 -79,125,737 Net Pension Liability $ 64,654,489 Plan Fiduciary Net Position as a percentage of total pension liability is 55.03%. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of January 1, 2015 with the results rolled forward to the June 30, 2015 measurement date using the following actuarial assumptions, applied to all periods included in the measurement: a) rate of return of 7.75% net of pension plan investment expense and including inflation: b) inflation of 3 percent and c) cost of living increases of 3 percent per annum. Mortality rates were based on the RP-2000 Mortality Table for Healthy Annuitants with projected improvement from year 2000 to year 2022 under Projection Scale AA. - 30 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" The projection of cash flows used to determine the discount rate of 7.5% per annum, compounded annually assumes that employer contributions will be made at rates equal to the actuarially determined contribution rates. Based on that assumption, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. The long-term expected rate of return on pension plan investments was determined using a buildingblock method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return Domestic Equity International Equity Fixed Income Real Estate Cash 64.40% 9.45% 15.26% 3.43% 7.46% 6.50% 7.25% 1.25% 5.75% 0.50% Sensitivity of Net Pension Liability to Changes in the Discount Rate The following represents the net pension liability calculated using the stated discount rate, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentagepoint lower or 1-percentage-point higher than the current rate: 1% Decrease 6.50% Current Rate 7.50% 1% Increase 8.50% Net Pension Liability $ 76,394,128 $ 64,654,489 $ 54,407,022 Schedule of Changes in Net Pension Liability For the year ended June 30, 2015, the University recognized net pension liability of $64,654,489 calculated as follows: - 31 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Balance, June 30, 2014 Interest Experience losses (gains) Contributions - Employer Net Investment income Benefit payments Net Change Balance, June 30, 2015 Total Pension Liability (a) Plan Fiduciary Net Position (b) Net Pension Liability (a) - (b) $ 145,384,819 $ 76,193,610 $ 69,191,209 10,405,981 1,266,248 -13,276,822 13,084,672 3,124,277 -13,276,822 10,405,981 1,266,248 -13,084,672 -3,124,277 -1,604,593 2,932,127 -4,536,720 $ 143,780,226 $ 79,125,737 $ 64,654,489 Schedule of Changes in Deferrals and Pension Expense For the year ended June 30, 2015, the University recognized pension expense of $6,481,522 and deferred outflows of resources of $2,066,430 as follows: Deferred Pension Outflows of Resources Deferred Pension Inflows of Resources Pension Expense Balance, June 30, 2014 $ 0$ 0$ 0 Interest Experience losses (gains) Expected investment income Investment losses (gains) 2,066,430 10,405,981 1,266,248 -5,707,315 516,608 Net Change 2,066,430 0 6,481,522 Balance, June 30, 2015 $ 2,066,430 $ 0$ 6,481,522 - 32 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Pension Expense and Deferred Outflows/Inflows of Resources At June 30, 2015, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Pension Outflows of Resources Deferred Pension Inflows of Resources Net difference between projected and actual earnings on pension plan investments $ 2,066,430 $ 0 Total $ 2,066,430 $ 0 Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending June 30: 2016 2017 2018 2019 2020 Thereafter $ 516,608 $ 516,608 $ 516,608 $ 516,606 $ 0 $ 0 Note 15. Risk Management The University System of Georgia offers its employees and retirees access to four different healthcare plan options. For the University System of Georgia's Plan Year 2015, the following healthcare plan options were available: BlueChoice HMO Comprehensive Care Plan Consumer Choice HSA Plan Kaiser Permanente HMO Georgia Regents University and participating employees and retirees pay premiums to the healthcare plan options to access benefits coverage. The respective health 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 the self-insured plans; including the BlueChoice HMO, Comprehensive Care Plan and Consumer Choice HSA Plan. 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 to serve as the claims administrator for the selfinsured healthcare plans. 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 Permanente. - 33 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" 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 losses 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. Georgia Regents 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. Georgia Regents University is responsible for asbestos abatement as a small part of the project costs for various projects. The University did not record a liability and expense related to pollution remediation at June 30, 2015. The University does not anticipate any significant changes to the expected remediation outlay. Pollution remediation liability activity in fiscal year 2015 was as follows: Beginning Balance July 1, 2014 Additions Reductions Ending Balance June 30, 2015 Current Portion Pollution Remediation Obligations $ 1,234 $ 42,599 $ 43,833 $ 0$ 0 Note 16. 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 Georgia Regents University expects such amounts, if any, to be immaterial to its overall financial position. Litigation, claims and assessments filed against Georgia Regents 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 pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2015. - 34 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Note 17. Subsequent Events On Tuesday, September 15, 2015, the Board of Regents of the University System of Georgia voted unanimously to change the name of Georgia Regents University to Augusta University. Though the Board of Regents made the change "effective immediately", there will be a period of discussion and planning to ensure a smooth transition. Note 18. 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. As of June 30, 2015, there were 1,943 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2015, Georgia Regents University recognized as incurred $11,714,347 of expenditures, which was net of $5,057,543 of participant contributions. - 35 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" Note 19. Natural Classifications with Functional Classifications The University's operating expenses by functional classification for fiscal year 2015 are shown below: Natural Classification Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Natural Classification Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Instruction Research Functional Classification Public Service Academic Support Student Services Institutional Support $ 63,914,877 $ 29,638,175 19,883,431 84,628 2,117,952 517,767 791,545 20,911,905 8,124,289 $ 145,984,569 $ 10,897,938 $ 12,170,522 6,594,856 -1,837 417,574 21,370 3,784 18,208,858 585,511 9,885,271 $ 14,944,070 7,161,068 23,564 431,679 80,083 113,148 8,544,530 406,929 11,489,803 $ 25,624,664 13,607,302 11,866 295,804 10,604 105,943 1,511,410 1,801,131 199,654 $ 3,101,552 1,177,413 22,412 81,978 139,743 50,096 1,779,565 29,168 2,660,352 25,019,521 11,734,510 267,235 226,686 203,041 26,933,664 9,302,557 48,898,576 $ 41,590,342 $ 54,458,527 $ 6,581,581 $ 76,347,566 Plant Operations and Maintenance Functional Classification Scholarships and Auxiliary Fellowships Enterprises Patient Care Total Operating Expenses $ -225 $ 78,094 $ 73,942,473 $ 173,068,237 11,090,107 4,434,285 103,573,519 229,596,415 4,380,491 1,651,927 47,869,696 114,060,694 -758,812 769,563 81 418,700 28,809 $ 1,381 81,762 451,743 4,135,368 7,638,426 915,626 11,098 9,334,717 9,563,356 526,486 398,209 11,755,608 11,047,537 1,941 6,771,195 96,814,233 192,524,838 6,956,798 1,292,512 28,498,895 $ 42,308,061 $ 7,641,748 $ 16,521,450 $ 323,061,052 $ 763,393,472 Note 20. Affiliated Organizations The MCG Health, Inc., MCG Health System, Inc., Medical College of Georgia Foundation, Inc., Medical College of Georgia Physicians Practice Group Foundation, Georgia Regents Research Institute, Inc., Georgia Regents University College of Dental Medicine Faculty Practice Group, and Augusta State University Foundation are legally separate, tax-exempt organizations whose activities primarily support Georgia Regents University, a unit of the University System of Georgia. Because the University System of Georgia is an organizational unit of the State of Georgia these affiliated organizations are considered potential component units of the State of Georgia in accordance with GASB Statements 61, 39, and 14. Therefore, the financial statements of these affiliated organizations are not included in these financial statements. Copies of the financial statements may be obtained from Georgia Regents University. - 36 - GEORGIA REGENTS UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 EXHIBIT "F" MCG Health, Inc., MCG Health System, Inc., and Medical College of Georgia Foundation, Inc. have been determined significant to the State of Georgia for the year ended June 30, 2015, and as such, are reported as a component unit in the Comprehensive Annual Financial Report of the State of Georgia (CAFR). - 37 - (This page left intentionally blank) REQUIRED SUPPLEMENTARY INFORMATION GEORGIA REGENTS UNIVERSITY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY TEACHERS' RETIREMENT SYSTEM OF GEORGIA FOR THE YEAR ENDED JUNE 30, 2015 University's proportion of the net pension liability University's proportionate share of the net pension liability University's covered-employee payroll University's proportionate share of the net pension liability as a percentage of its covered employee payroll Plan fiduciary net position as a percentage of the total pension liability SCHEDULE "1" 2015 1.74% $ 219,614,941 $ 177,368,194 123.82% 84.03% This schedule is intended to show information for 10 years. Additional years will be displayed as they become available. - 40 - GEORGIA REGENTS UNIVERSITY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA FOR THE YEAR ENDED JUNE 30, 2015 SCHEDULE "2" University's proportion of the net pension liability University's proportionate share of the net pension liability University's covered-employee payroll University's proportionate share of the net pension liability as a percentage of its covered employee payroll Plan fiduciary net position as a percentage of the total pension liability 2015 0.025% $ 945,681 $ 567,746 166.57% 77.99% This schedule is intended to show information for 10 years. Additional years will be displayed as they become available. - 41 - GEORGIA REGENTS UNIVERSITY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CONTRIBUTIONS TEACHERS' RETIREMENT SYSTEM OF GEORGIA FOR THE LAST TEN FISCAL YEARS* SCHEDULE "3" Contractually required contribution Contributions in relation to the contractually required contribution Contribution deficiency (excess) University's covered-employee payroll Contributions as a percentage of covered-employee payroll 2015 2014 2013 $ 23,837,005 $ 21,780,531 $ 19,623,178 $ 23,837,005 $ 21,780,531 $ 19,623,178 $ 0$ 0$ 0 $ 181,274,041 $ 177,368,194 $ 171,985,813 13.15% 12.28% 11.41% * This schedule is intended to show information for 10 years. Georgia Regents University was created by a merger in fiscal year 2013. Additional years will be displayed as they become available. - 42 - GEORGIA REGENTS UNIVERSITY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CONTRIBUTIONS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA FOR THE LAST TEN FISCAL YEARS* SCHEDULE "4" Contractually required contribution Contributions in relation to the contractually required contribution Contribution deficiency (excess) University's covered-employee payroll Contributions as a percentage of covered-employee payroll 2015 2014 2013 $ 143,532 $ 104,806 $ 89,395 $ 143,532 $ 104,806 $ 89,395 $ 0$ 0$ 0 $ 653,608 $ 567,746 $ 599,617 21.96% 18.46% 14.91% * This schedule is intended to show information for 10 years. Georgia Regents University was created by a merger in fiscal year 2013. Additional years will be displayed as they become available. - 43 - (This page left intentionally blank) GEORGIA REGENTS UNIVERSITY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS EARLY RETIREMENT PROGRAM FOR THE LAST TWO FISCAL YEARS* SCHEDULE "5" Total Pension Liability Interest Differences Between Expected and Actual Experience Benefit Payments/Refunds Net Change in Total Pension Liability Total Pension Liability - Beginning Total Pension Liability - Ending (a) Dollar Amount in Millions 2015 Dollar Amount in Millions 2014 $ 10.4 $ 10.6 1.3 -0.1 -13.3 -13.1 -1.6 145.4 -2.6 148.0 143.8 145.4 Plan Fiduciary Net Position Contributions - Employer Net Investment Income Benefit Payments/Refunds Net Change in Plan Fiduciary Net Position Plan Fiduciary Net Position - Beginning Plan Fiduciary Net Position - Ending (b) Net Pension Liability - Ending (a-b) Plan Fiduciary Net Position as a percentage of the Total Pension Liability Covered Employee Payroll Employers' and Nonemployers' Net Pension Liability as a Percentage of Covered Employee Payroll N/A indicates data not available. 13.1 3.1 -13.3 2.9 76.2 13.1 11.8 -13.1 11.8 64.4 79.1 76.2 $ 64.7 $ 69.2 55.0% N/A 52.4% N/A N/A N/A *This schedule is to be built prospectively until it contains ten years of data. - 45 - GEORGIA REGENTS UNIVERSITY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CONTRIBUTIONS EARLY RETIREMENT PROGRAM FOR THE LAST TEN FISCAL YEARS Actuarially required contribution Actual contribution Contribution deficiency (excess) Percentage Contributed University's covered-employee payroll Contributions as a percentage of covered-employee payroll N/A indicates data not available. 2015 2014 2013 2012 $ 13,225,850.00 $ 13,588,064.00 $ 13,549,860.00 $ 13,300,187.00 13,084,672.00 13,084,672.00 13,225,850.00 13,225,850.00 $ -141,178.00 $ -503,392.00 $ -324,010.00 $ -74,337.00 98.9% 96.3% 97.6% 99.4% N/A N/A N/A N/A N/A N/A N/A N/A - 46 - SCHEDULE "6" 2011 2010 $ 13,368,807.00 $ 13,410,238.00 $ 13,225,850.00 13,225,850.00 $ -142,957.00 $ -184,388.00 $ 98.9% 98.6% N/A N/A N/A N/A 2009 2008 2007 2006 13,778,696.00 $ 13,510,767.00 $ 13,363,491.00 $ 12,874,094.00 13,225,850.00 12,996,492.00 12,936,540.00 12,905,079.00 -552,846.00 $ -514,275.00 $ -426,951.00 $ 30,985.00 96.0% 96.2% 96.8% 100.2% N/A N/A N/A N/A N/A N/A N/A N/A - 47 - GEORGIA REGENTS UNIVERSITY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF INVESTMENT RETURNS EARLY RETIREMENT PROGRAM FOR THE LAST TWO FISCAL YEARS* SCHEDULE "7" Annual Money-Weighted Rate of Return, Net of Investment Expense 2015 4.13% 2014 18.35% *This schedule is to be built prospectively until it contains ten years of data. - 48 - GEORGIA REGENTS UNIVERSITY NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED JUNE 30, 2015 SCHEDULE "8" Teachers Retirement System Changes of assumptions : In 2010 and later, the expectation of retired life mortality was changed to the RP2000 Mortality Tables rather than the 1994 Group Annuity Mortality Table, which was used prior to 2010. In 2010, rates of withdrawal, retirement, disability and mortality were adjusted to more closely reflect actual experience. In 2010, assumed rates of salary increase were adjusted to more closely reflect actual and anticipated experience. Method and assumptions used in calculations of actuarially determined contributions : The actuarially determined contribution rates in the schedule of contributions are calculated as of June 30, three years prior to the end of the fiscal year in which contributions are reported. The following actuarial methods and assumptions were used to determine the contractually required contributions for year ended June 30, 2015 reported in that schedule: Valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method Inflation rate Salary increases Investment rate of return June 30, 2012 Entry age Level percentage of payroll, open 30 years Seven-year smoothed market 3.00% 3.75 7.00%, including inflation 7.50%, net of pension plan investment expense, including inflation Employees' Retirement System Changes of assumptions : There were no changes in assumptions or benefits that affect the measurement of the total pension liability since the prior measurement date. Method and assumptions used in calculations of actuarially determined contributions : The actuarially determined contribution rates in the schedule of contributions are calculated as of June 30, three years prior to the end of the fiscal year in which contributions are reported. The following actuarial methods and assumptions were used to determine the contractually required contributions for year ended June 30, 2015 reported in that schedule: Valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method Inflation rate Salary increases Investment rate of return June 30, 2012 Entry age Level dollar, open 30 years Seven-year smoothed market 3.00% 2.725% 4.625% for FY 2012-2013, 5.45% - 9.25% for FY2014+ 7.50%, net of pension plan investment expense, including inflation Early Retirement Program Method and assumptions used to determine contribution rates : Actuarially determined contribution rate is determined as of January 1, 2014. Actuarial valuation method Amortization method Remaining Amortization period Asset valuation method Inflation Cost of living adjustments Investment rate of return Mortality Rates (per 1,000 lives) Entry age normal Level dollar 9 years Fair Market Value based on quoted market prices 3.0% per annum, compounded annually 3.0% per annum, compounded annually 7.5% per annum, compounded annually RP-2000 Mortality Table for Healthy Annuitants with improvement - 49 - (This page left intentionally blank) SUPPLEMENTARY INFORMATION GEORGIA REGENTS UNIVERSITY BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30, 2015 ASSETS Cash and Cash Equivalents Investments Accounts Receivable Federal Financial Assistance Other Margin Allocation Prepaid Expenditures Inventories Total Assets LIABILITIES AND FUND EQUITY Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Deferred Revenue Total Liabilities Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Carry-Over Per State Accounting Office Inventories Unreserved Surplus Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "9" $ 20,089,442.27 65,717,963.94 6,606,275.45 48,960,624.46 1,073,420.00 771,802.15 149,664.95 $ 143,369,193.22 $ 1,605,880.84 21,525,931.27 1,223,038.49 53,123,331.01 77,478,181.61 4,104,355.99 31,815,811.73 229,649.75 22,575,819.39 273,306.60 2,274,913.63 4,344,869.03 141,400.34 130,885.15 65,891,011.61 $ 143,369,193.22 Actual amounts were 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. - 52 - GEORGIA REGENTS UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2015 SCHEDULE "10" 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 Special Funding Initiative Teaching Total Expenditures Excess of Funds Available over Expenditures FUND BALANCE JULY 1 Reserved Unreserved ADJUSTMENTS Prior Year Payables/Expenditures Unreserved Fund Balance (Surplus) Returned to Board of Regents - University System Office Year Ended June 30, 2014 Prior Year Reserved Fund Balance Included in Funds Available FUND BALANCE JUNE 30 BUDGET ACTUAL VARIANCE FAVORABLE (UNFAVORABLE) $ 187,785,862.00 $ 187,785,862.00 $ 0.00 730,921,388.00 578,408,641.98 -152,512,746.02 918,707,250.00 766,194,503.98 -152,512,746.02 0.00 0.00 0.00 0.00 918,707,250.00 55,602,002.63 821,796,506.61 55,602,002.63 -96,910,743.39 18,798,582.00 899,908,668.00 918,707,250.00 $ 0.00 14,453,627.35 749,781,164.14 4,344,954.65 150,127,503.86 764,234,791.49 154,472,458.51 57,561,715.12 $ 57,561,715.12 63,800,499.64 333,056.41 130,799.48 -333,056.41 -55,602,002.63 $ 65,891,011.61 SUMMARY OF FUND BALANCE Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Carry-Over Per State Accounting Office Inventories Total Reserved Unreserved Surplus Total Fund Balance Actual amounts were 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. - 53 - $ 4,104,355.99 31,815,811.73 229,649.75 22,575,819.39 273,306.60 2,274,913.63 4,344,869.03 141,400.34 65,760,126.46 130,885.15 $ 65,891,011.61 GEORGIA REGENTS UNIVERSITY STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2015 Special Funding Initiatives State Appropriation State General Funds Teaching State Appropriation State General Funds Other Funds Total Teaching Total Operating Activity Original Appropriation Amended Appropriation Final Budget Current Year Revenues $ 13,162,729.00 $ 13,162,729.00 $ 18,798,582.00 $ 18,798,582.00 173,699,931.00 583,457,119.00 757,157,050.00 173,699,931.00 583,457,119.00 757,157,050.00 168,987,280.00 730,921,388.00 168,987,280.00 578,408,641.98 899,908,668.00 747,395,921.98 $ 770,319,779.00 $ 770,319,779.00 $ 918,707,250.00 $ 766,194,503.98 Actual amounts were 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. - 54 - SCHEDULE "11" Funds Available Compared to Budget Prior Year Adjustments and Total Carry-Over Program Transfers Funds Available Variance Negative Expenditures Compared to Budget Variance Actual Positive Excess of Funds Available Over Expenditures $ 0.00 $ 0.00 $ 18,798,582.00 $ 0.00 $ 14,453,627.35 $ 4,344,954.65 $ 4,344,954.65 0.00 55,602,002.63 55,602,002.63 0.00 0.00 0.00 168,987,280.00 634,010,644.61 802,997,924.61 0.00 -96,910,743.39 -96,910,743.39 168,987,280.00 580,793,884.14 749,781,164.14 0.00 150,127,503.86 150,127,503.86 0.00 53,216,760.47 53,216,760.47 $ 55,602,002.63 $ 0.00 $ 821,796,506.61 $ -96,910,743.39 $ 764,234,791.49 $ 154,472,458.51 $ 57,561,715.12 - 55 - GEORGIA REGENTS UNIVERSITY STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2015 Special Funding Initiative State Appropriation State General Funds Teaching State Appropriation State General Funds Other Funds Total Teaching Total Operating Activity Prior Year Reserves Not Available for Expenditure Inventories Uncollectible Accounts Receivable Early Retirement Program Beginning Fund Balance July 1 Fund Balance Carried Over from Prior Period as Funds Available Return of Fiscal Year 2014 Surplus Prior Period Adjustments $ 20,642.20 $ 0.00 $ -20,642.20 $ 47,603.58 161,454.59 55,752,962.25 55,914,416.84 55,935,059.04 0.00 -55,602,002.63 -55,602,002.63 -55,602,002.63 -161,454.59 -150,959.62 -312,414.21 -333,056.41 71,355.07 11,840.83 83,195.90 130,799.48 146,103.90 265,316.03 7,787,077.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Budget Unit Totals $ 64,133,556.05 $ -55,602,002.63 $ -333,056.41 $ 130,799.48 Actual amounts were 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. - 56 - SCHEDULE "12" Other Adjustments Early Return Fiscal Year 2015 Surplus Excess of Funds Available Over Expenditures Ending Fund Balance June 30 Analysis of Ending Fund Balance Reserved Surplus Total $ 0.00 $ 0.00 $ 4,344,954.65 $ 4,392,558.23 $ 4,344,869.03 $ 47,689.20 $ 4,392,558.23 0.00 7,783,790.07 7,783,790.07 7,783,790.07 0.00 0.00 0.00 0.00 0.00 53,216,760.47 53,216,760.47 57,561,715.12 71,355.07 61,012,391.37 61,083,746.44 65,476,304.67 0.00 61,000,550.49 61,000,550.49 65,345,419.52 71,355.07 11,840.88 83,195.95 130,885.15 71,355.07 61,012,391.37 61,083,746.44 65,476,304.67 -4,703.56 7,990.57 -7,787,077.08 0.00 0.00 0.00 0.00 0.00 0.00 141,400.34 273,306.60 0.00 141,400.34 273,306.60 0.00 0.00 0.00 0.00 141,400.34 273,306.60 0.00 $ 0.00 $ 0.00 $ 57,561,715.12 $ 65,891,011.61 $ 65,760,126.46 $ 130,885.15 $ 65,891,011.61 Summary of Ending Fund Balance Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Carry-Over Per State Accounting Office Inventories Unreserved Surplus Total Ending Fund Balance - June 30 $ 4,104,355.99 31,815,811.73 229,649.75 22,575,819.39 273,306.60 2,274,913.63 4,344,869.03 141,400.34 $ $ 65,760,126.46 $ $ 4,104,355.99 31,815,811.73 229,649.75 22,575,819.39 273,306.60 2,274,913.63 4,344,869.03 141,400.34 130,885.15 130,885.15 130,885.15 $ 65,891,011.61 - 57 - GEORGIA REGENTS UNIVERSITY RECONCILIATION OF BUDGET TO GAAP YEAR ENDED JUNE 30, 2015 SCHEDULE "13" Presented below is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 10 to Net Position of business-type activities, as reported on Exhibit A. Total Fund Balances - Budget Fund - Non-GAAP Basis (Schedule "10") $ 65,891,011.61 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. 534,422,694.00 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. -273,306.60 Funds placed on deposit with the Georgia State Financing and Investment Commission for use in capital outlay projects are reported as an outlay in the Budget Fund, but are included as a prepaid item on the Statement of Net Position. 943,627.65 Restricted Funds indirect cost allocation not reported in the Budget Fund, but included as an accounts receivable on the Statement of Net Assets. 1,047,283.57 Changes in the Fair Market Value of Investments are recognized on the Statement of Net Position, but are not reported in the Budget Fund. 1,974.95 Agency Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Agency Fund Activity $ 90,191,329.18 -90,191,329.18 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 $ 6,030,677.15 -1,046,337.59 4,984,339.56 Endowment Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Endowment Fund Activity $ 9,862,868.92 0.00 9,862,868.92 Loan Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Loan Fund Activity $ 7,034,457.66 -2,147.82 7,032,309.84 Student Activities Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Student Activity Fund Activity $ 2,006,596.61 -177,013.78 1,829,582.83 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. Prepaid items reported in the Budget Fund that are based on encumbrances are eliminated for GAAP reporting. Payables for goods and services provided in the current fiscal year reported in the Budget Fund as encumbrances payable are reported as accounts payable for GAAP reporting. Georgia State Financing and Investment activity reported as revenues in the Budget Fund that are for expenditures based on encumbrances are eliminated for GAAP reporting. Reimbursement from grantors reported as revenues in the Budget Fund that are for expenditures based on encumbrances are deferred for GAAP reporting. Total Net Effect of Encumbrance Activity $ 21,525,931.27 296,166.21 -7,724,759.04 -10,210,337.34 3,487,238.52 7,374,239.62 - 58 - GEORGIA REGENTS UNIVERSITY RECONCILIATION OF BUDGET TO GAAP YEAR ENDED JUNE 30, 2015 SCHEDULE "13" 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 Contracts Payable Certain assets, deferred outflows of resources, liabilities and deferred inflows of resources are not reported in the in the Budget Fund Total Liabilities Rounding Variance Net Position of Business-Type Activities (Exhibit "A") $ -54,246,032.91 -36,679,958.92 -617,710.90 -331,745,599.00 $ -423,289,301.73 -0.22 $ 209,827,324.00 The supplementary information presented on Schedules 9, 10, 11 and 12 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 10, to Net Position of business-type activities, as reported on Exhibit A. - 59 - (This page left intentionally blank) GEORGIA REGENTS UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2015 SCHEDULE "14" Totals per Annual Supplement Accruals June 30, 2015 June 30, 2014 Compensated Absences June 30, 2015 June 30, 2014 Adjustments Shared Services on Jointly Staffed Personnel Darton State College Poisel, Mark Allen East Georgia State College Brady, James A. III Flakes, Gina Jones, Julie B. Fort Valley State University Mackey, Dorothea Katrice Georgia College and State University Woodruff, Sidney Dustin University of North Georgia Woodruff, Sidney Dustin University of West Georgia Ricketson, Frederick Adjustments Azziz, Ricardo Henkes, Kory Thompson O'Keefe, John F. Jr. Unidentified Variance SALARIES TRAVEL $ 402,067,310 $ 4,119,238 1,647,734 -1,527,351 119,157 -103,028 34,073,348 -33,521,733 -538 -4,199 -2,374 1,315 -26,590 -19,366 -2,790 1,486 -9,600 -6,000 -6,000 1 $ 402,664,652 $ 4,135,368 - 61 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS 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 December 3, 2015 Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia and Dr. Brooks Keel, President INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ladies and Gentlemen: We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the basic financial statements of Georgia Regents University as of and for the year ended June 30, 2015, and have issued our report thereon dated December 3, 2015. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Georgia Regents University's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Georgia Regents University's internal control. Accordingly, we do not express an opinion on the effectiveness of Georgia Regents University's internal control. 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. 2015YB-30 Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. We did identify a certain deficiency in internal control, described in the accompanying Schedule of Findings and Questioned Costs as item FS 2015-001 that we consider to be a significant deficiency. Compliance and Other Matters As part of obtaining reasonable assurance about whether Georgia Regents University's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we have reported to management of Georgia Regents University in a separate letter dated December 3, 2015. Georgia Regents University's Response to Findings Georgia Regents University's response to the finding identified in our audit is described in the accompanying Schedule of Findings and Questioned Costs. Georgia Regents University's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Respectfully submitted, GSG:as 2015YB-30 Greg S. Griffin State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS GEORGIA REGENTS UNIVERSITY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2015 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS No matters were reported. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-0512-13-01 Previously Reported Corrective Action Implemented SECTION IV CURRENT YEAR FINDINGS AND QUESTIONED COSTS GEORGIA REGENTS UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2015 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FS 2015-001 Control Category: Internal Control Impact: Compliance Impact: Inadequate Internal Control over Capital Assets CAPITAL ASSETS Significant Deficiency N/A Description: The University did not perform a complete physical inventory of all equipment items for the fiscal year under review. Capital asset activity recorded by the University contained significant errors and omissions. Criteria: The Board of Regents' Business Procedures Manual Section 11.4 Mandatory Physical Equipment Inventory Requirements states in part, "All institutions within the University System of Georgia must conduct a mandatory physical equipment inventory annually. The results of this inventory will be updated into the equipment inventory systems utilized by the institution to satisfy state reporting requirements." The University should also maintain capital asset records in accordance with capitalization guidelines and instructions provided in Section 7 of the Board of Regents' Business Procedures Manual. Condition: The following deficiencies were noted relating to capital assets: 1) The Asset Management Department did not receive verification for performance of physical inventories for thirty eight of the sixty five departments included in our testing. 2) A sample of forty eight equipment items revealed seven items that could not be located, resulting in a projected misstatement in the amount of $1,063,535.00. The asset location was not properly updated within the accounting system for five additional items included in the sample. 3) One equipment item purchased during the year was not capitalized at the correct amount. Questioned Cost: N/A Cause: In discussing these issues with University management, they stated that deficiencies related to the physical inventory of equipment occurred as a result of not adequately monitoring the inventory process and that the other errors were attributable to human error. Effect or Potential Effect: Failure to accurately record, maintain and monitor capital assets could result in potential misappropriation of assets. In addition, misrepresentation of the University's financial position and results of operations could occur. Recommendation: The University should review the accounting controls and procedures currently in place, identify weaknesses, and design and implement procedures necessary to strengthen controls over capital assets. This should include, but not be limited to, a physical inventory of equipment performed annually. Management should monitor these procedures to ensure Capital Assets are properly maintained and accurately recorded. - 1 - GEORGIA REGENTS UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2015 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS Views of Responsible Officials and Corrective Action Plans: We concur with this finding. We acknowledge that our inventory procedures were not followed and a complete annual inventory was not performed during the fiscal year. All departments will have a delegated property manager who will be held responsible for completing a departmental inventory annually. Inventory records will be maintained and provided to enable update in the system. Procedures and policies will be created, reviewed, and/or revised as necessary to ensure inventory is completed in accordance with the Board of Regents Business Procedures Manual physical inventory requirements. Contact Person: Title: Telephone: Fax: Email: Clay Trover Director, Supply Chain Management (706) 721-4854 (706) 723-0301 ctrover@gru.edu FEDERAL AWARD FINDINGS AND QUESTIONED COSTS. No matters were reported. - 2 -