Augusta University annual financial report, 2016 June 30

AUGUSTA UNIVERSITY
Annual Financial Report Fiscal Year Ended June 30, 2016
Augusta, Georgia

AUGUSTA UNIVERSITY - TABLE OF CONTENTS -

Page

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S REPORT

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

i

BASIC FINANCIAL STATEMENTS

EXHIBITS

A STATEMENT OF NET POSITION

2

B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION

4

C STATEMENT OF CASH FLOWS

6

D STATEMENT OF FIDUCIARY NET POSITION

FIDUCIARY FUNDS

7

E STATEMENT OF CHANGES IN FIDUCIARY NET POSITION

FIDUCIARY FUNDS

8

F NOTES TO THE FINANCIAL STATEMENTS

9

REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULES

1 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY

TEACHERS RETIREMENT SYSTEM OF GEORGIA

57

2 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY

EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA

58

3 SCHEDULE OF CONTRIBUTIONS TEACHERS RETIREMENT SYSTEM OF GEORGIA

59

4 SCHEDULE OF CONTRIBUTIONS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA 60

5 SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS

EARLY RETIREMENT PLAN

61

6 SCHEDULE OF CONTRIBUTIONS EARLY RETIREMENT PLAN

62

7 SCHEDULE OF INVESTMENT RETURNS EARLY RETIREMENT PLAN

63

8 NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION

64

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AUGUSTA UNIVERSITY - TABLE OF CONTENTS -

SECTION I
FINANCIAL
SUPPLEMENTARY INFORMATION
SCHEDULES
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

Page
67 68 70 72

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 FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

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SECTION I FINANCIAL

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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

August 7, 2017
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 Augusta University

INDEPENDENT AUDITOR'S REPORT
Ladies and Gentlemen:
Report on the Financial Statements
We have audited the accompanying financial statements of the business-type activities, the aggregate remaining fund information and the aggregate discretely presented component units of Augusta University (Institution), 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, 2016 and the related notes to the financial statements, which comprise the Institution's basic financial statements as listed in the tables of contents.
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 opinions on these financial statements based on our audit. We did not audit the financial statements of the aggregate discretely presented component units. Those statements were audited by other auditors whose report has been furnished to us, and our opinions, insofar as it relates to the amounts included for the aggregate discretely presented component units are based solely on the reports of the other auditors.
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

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are free from material misstatement. The financial statements of the Medical College of Georgia Physicians Practice Group Foundation (d/b/a AU Medical Associates) and Subsidiaries and the Medical College of Georgia Foundation, Inc. were not audited in accordance with Government Auditing Standards
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 Augusta 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 Augusta University's internal control. Accordingly, we express 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.
Opinions
In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities, the aggregate remaining fund information and the aggregate discretely presented component units of Augusta University as of June 30, 2016, and the respective changes in financial position and, where applicable, 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 Augusta University are intended to present the financial position, changes in financial position and, where applicable, cash flows of only that portion of the financial reporting entity of the State of Georgia that is attributable to the transactions of Augusta University. They do not purport to, and do not, present fairly the financial position of the State of Georgia as of June 30, 2016, the changes in its financial position or its cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Our opinions are not modified with respect to this matter.
As described in Note 1 to the financial statements, in 2016, Augusta University adopted new accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application. Our opinions are not modified with respect to this matter.
As discussed in Note 1 to the financial statements, the prior period financial statements have been restated due to a re-evaluation of capital lease agreements. Our opinions are 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 vii and the Schedules of Proportionate Share of the Net Pension Liability, Schedules of Contributions to Retirement Systems and the Notes

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to the Required Supplemental Information on pages 57 through 64 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 and other auditors 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.
Other Information
Our audit was conducted for the purpose of forming opinions on the basic financial statements of Augusta University. The accompanying supplementary information (Schedules 9 through 12) 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 12) 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 by us and other auditors. In our opinion, based on our audit, the procedures performed as described above, and the report of the other auditors, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated August 7, 2017, on our consideration of Augusta 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 Augusta University's internal control over financial reporting and compliance.
Respectfully,
Greg S. Griffin State Auditor

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REQUIRED SUPPLEMENTARY INFORMATION

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AUGUSTA UNIVERSITY
Management's Discussion and Analysis
Introduction
Located in Augusta, Georgia, Augusta University is a public research university and medical center dedicated to training the next generation of innovators, leaders, and health care providers. The Institution is one of the 29 institutions of higher education of the University System of Georgia.
Home to three campuses in Augusta and various satellite locations across Georgia, Augusta University is at the forefront of groundbreaking research focused on improving and enriching the human experience.
Offering undergraduate programs in the liberal arts and sciences, business and education, as well as a full range of graduate programs and hands-on clinical research opportunities, Augusta University is Georgia's innovation center for education and health care.
The combination of nationally ranked business and nursing schools as well as the state's flagship public medical school and only dental school, makes Augusta University a destination of choice for the students of today and leaders of tomorrow.
A brief historical comparison of student levels is shown by the comparison numbers that follow.
Students Students (Headcount) (FTE)

Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014

8,333 8,530 8,995

7,749 7,901 8,280

Overview of the Financial Statements and Financial Analysis
Augusta University is pleased to present its financial statements for fiscal year 2016. 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 Institution's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2016 and fiscal year 2015. However, the comparative data for fiscal year 2015 does not reflect the restatement of July 1, 2015 net position. See Note 1 in the Notes to the Financial Statements for more information about the restatement.

Statement of Net Position
The Statement of Net Position is a financial condition snapshot as of June 30, 2016 and includes all assets, deferred outflows of resources, liabilities, and deferred inflows of resources, both current and noncurrent. The differences between current and non-current 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.

i

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 Institution's financial health. Increases or decreases in net position provide an indicator of the improvement or decline of the Institution's financial health when considered in conjunction with other non-financial conditions, such as facilities and enrollment. Net position is divided into three major categories.
The first category is the net investment in capital assets. It 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.
The final category is unrestricted. Unrestricted resources are available to the Institution for any lawful purpose.
Statement of Net Position, Condensed

June 30, 2016

June 30, 2015 (1)

Assets Current Assets Capital Assets, Net Other Assets
Total Assets

$ 105,894,122 534,921,000 78,086,444
718,901,566

$

92,443,689

534,422,694

82,218,343

709,084,726

Deferred Outflows of Resources

37,714,705

30,262,748

Liabilities Current Liabilities Noncurrent Liabilities

111,401,169 405,488,965

99,045,594 353,681,320

Total Liabilities

516,890,134

452,726,914

Deferred Inflows of Resources

28,307,989

76,793,236

Net Position Net Investment in Capital Assets Restricted Nonexpendable Expendable Unrestricted (Deficit)

477,493,762
2,172,437 30,446,100 -298,694,151

480,176,661
2,146,676 40,599,863 -313,095,876

Total Net Position

$ 211,418,148

$ 209,827,324

(1) The June 30, 2015 amounts do not reflect the effects of the restatement of July 1, 2015 net position. See Note 1 in the Notes to the Financial Statement for more information.

ii

Total assets and deferred outflows of resources increased by $17,268,797 which was primarily due to an increase of $13,450,433 in the category of Current Assets. This increase was primarily due to an increase in the Other Receivable category.
Total liabilities and deferred inflows of resources increased for the year by $15,677,973. The combination of the increase in total assets and deferred outflows of resources and the increase in total liabilities and deferred inflows of resources yielded an increase in net position of $1,590,824. The increase in net position is primarily in the category of Unrestricted in the amount of $14,401,725.
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, 2016

June 30, 2015 (1)

Operating Revenues Operating Expenses

$ 584,805,340 799,623,572

$ 563,602,692 763,393,472

Operating Loss

-214,818,232

-199,790,780

Nonoperating Revenues and Expenses

220,679,013

212,306,147

Income Before Other Revenues, Expenses, Gains or Losses

5,860,781

12,515,367

Other Revenues, Expenses, Gains or Losses

8,478,364

44,205,570

Increase in Net Position

14,339,145

56,720,937

Net Position at Beginning of Year, as Originally Reported

209,827,324

506,452,240

Prior Year Adjustments

-12,748,321

-353,345,853

Net Position at Beginning of Year, Restated

197,079,003

153,106,387

Net Position at End of Year

$ 211,418,148

$ 209,827,324

(1) The June 30, 2015 amounts do not reflect the effects of the restatement of July 1, 2015 net position. See Note 1 in the Notes to the Financial Statement for more information

iii

The Statement of Revenues, Expenses, and Changes in Net Position reflects a positive year, which is represented by an increase in net position at the end of the year. Some highlights of the information presented on this statement are as follows:

Revenue by Source For the Years Ended June 30, 2016 and June 30, 2015

June 30, 2016

June 30, 2015 (1)

Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Auxiliary Other

$ 86,148,215 470,062,674 10,167,422 17,473,339 953,690

$

81,330,970

455,641,730

8,771,719

17,150,840

707,433

Total Operating Revenue

584,805,340

563,602,692

Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other

195,068,634 13,626,484 13,982,821 570,075 -571,795

187,452,806 11,341,159 15,325,649 832,923 164,639

Total Nonoperating Revenue

222,676,219

215,117,176

Capital Grants and Gifts State Other

8,433,386 44,978

43,334,970 665,386

Total Capital Grants and Gifts

8,478,364

44,000,356

Special Item Capital Asset Transfer

0

205,214

Total Revenues

$ 815,959,923

$ 822,925,438

(1) The June 30, 2015 amounts do not reflect the effects of the restatement of July 1, 2015 net position. See Note 1 in the Notes to the Financial Statement for more information.

iv

Expenses (By Functional Classification) For the Years Ended June 30, 2016 and June 30, 2015

June 30, 2016

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

$ 158,840,109 46,651,886 43,779,261 57,002,258 7,549,692 79,236,910 42,821,068 7,475,123 15,521,733
340,745,532

$ 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

Total Operating Expenses

799,623,572

763,393,472

Nonoperating Expenses Interest Expense

1,997,206

2,811,029

Total Expenses

$ 801,620,778

$ 766,204,501

Operating revenues increased by $21,202,648 in fiscal year 2016. Tuition and Fees included a 5.9% increase and operating revenues increased in all categories including Grants and Contracts, Sales and Services, Auxiliary, and Other revenues.

Nonoperating revenues increased by $7,559,043 for the year primarily due to an increase in State Appropriations in fiscal year 2016.

The compensation and employee benefits category increased by $24,214,245 which was a 4.7% increase and primarily affected the Instruction, Student Services, and Institutional Support categories.

Utilities decreased $941,612 which was an 8% decrease in total utilities during the past year. The decrease was primarily associated with savings related to natural gas and water usage during fiscal year 2016.

Statement of Cash Flows

The final statement presented by Augusta 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 Institution'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.

v

Cash Flows for the Years Ended June 30, 2016 and June 30, 2015, Condensed

June 30, 2016

June 30, 2015

Cash Provided (Used) By:

Operating Activities

$ -208,903,768

Noncapital Financing Activities

219,974,030

Capital and Related Financing Activities

-32,087,181

Investing Activities

4,753,588

$ -190,726,186 216,016,797 -17,414,081 -9,737,527

Net Change in Cash Cash, Beginning of Year

-16,263,331 34,155,875

-1,860,997 36,016,872

Cash, End of Year

$

17,892,544

$

34,155,875

Capital Assets

The Institution had capital asset additions in fiscal year 2016. The College of Dental Medicine, Ambulatory Surgery Center was completed in fiscal year 2016 at a total cost of $598,402. In addition, the Institution had additions of $210,824 for the J. Harold Harrison Education Commons Building which was substantially completed in fiscal year 2015. Both of these project amounts were funded by Augusta University, and the projects were managed by Georgia State Financing and Investment Commission (GSFIC).

Other on-going projects funded by GSFIC included $5,231,203. Projected funding by GSFIC for fiscal year 2017 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

Augusta University had Long-Term Liabilities of $429,510,543 of which $24,021,578 was reflected as current liability at June 30, 2016.

For additional information concerning Long-Term Liabilities, see Note 9 in the Notes to the Financial Statements.

The Notes to the Financial Statements are an integral part of the basic financial statements and communicate information essential for fair presentation. For example, the notes convey information concerning significant accounting policies used to prepare the financial statements, detailed information on cash and investments, receivables, capital leases, compensated absences, retirement and other postemployment benefits, capital assets, and a report of operating expenses by function.

Economic Outlook

Augusta University continued to manage resources prudently in fiscal year 2016 and remains committed to student affordability and strategic allocation of resources to our core mission of teaching, discovery, clinical care, and service. Although enrollment declined 12.8% from fall of 2012 to fall of 2015, management considers Augusta University's economic outlook to be positive. Enrollment trends have stabilized and we anticipate that fiscal year 2017 will be similar to the prior year in terms of operating revenues and expenditures.

vi

Operating Revenue Highlights

State Appropriations increased from $187.5 million in fiscal year 2015 to $195.1 million in fiscal year 2016, an increase of 4.1%. This included $18.6 million in special funding initiative. In fiscal year 2016, Augusta University was allocated $6.3 million in new recurring funds for institutional priorities including cyber security education, medical and dental education, and student engagement and success. State appropriations accounted for 24% of total revenue in fiscal year 2016.

Although enrollment for fall 2015 decreased by 2.3%, tuition and fee revenue increased from $81.3 million in fiscal year 2015 to $86.1 million in fiscal year 2016. This is due in part to an increase in tuition rates per credit hour for both undergraduate and graduate students. Of more significance is the fact that while headcount decreased year over year, credit hours delivered actually increased by 0.6% over the same period. Tuition and fees accounted or 10.5% of total revenue for fiscal year 2016.

Dr. Brooks A. Keel, PhD., President Augusta University

Anthony E. Wagner, Executive Vice President Augusta University

vii

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BASIC FINANCIAL STATEMENTS - 1 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Note 1. Summary of Significant Accounting Policies
Nature of Operations Augusta University (the Institution) serves the State and national communities by providing its students with academic instruction that advances fundamental knowledge, and by disseminating knowledge to the people of Georgia and throughout the country. Augusta University is also custodian of the Early Retirement Plan.
Reporting Entity As defined by Official Code of Georgia Annotated (O.C.G.A.) 20-3-50, the Institution is part of the University System of Georgia (USG), an organizational unit of the State of Georgia (the State) under the governance of the Board of Regents (Board). The Board has constitutional authority to govern, control and manage the USG. The Board is composed of 19 members, one member from each congressional district in the State and five additional members from the state-at-large, appointed by the Governor and confirmed by the Senate. Members of the Board serve a seven year term and members may be reappointed to subsequent terms by a sitting governor.
The Institution does not have the right to sue/be sued without recourse to the State. The Institution's property is the property of the State and subject to all the limitations and restrictions imposed upon other property of the State by the Constitution and laws of the State. In addition, the Institution is not legally separate from the State. Accordingly, the Institution is included within the State's basic financial statements as part of the primary government as defined in section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards.
The accompanying basic financial statements are intended to supplement the State's Comprehensive Annual Financial Report (CAFR) by presenting the financial position and changes in financial position and cash flows of only that portion of the business-type activities of the State that is attributable to the transactions of the Institution. In addition, the following discretely presented component units of the State have been included since they have been determined to be essential to the fair presentation to these departmental statements: Medical College of Georgia Foundation, Inc. (MCGF), MCG Health System, Inc. d/b/a AU Health System (the Health System), and the Medical College of Georgia Physicians Practice Group d/b/a AU Medical Associates (AUMA). These financial statements do not purport to, and do not, present fairly the financial position of the State as of June 30, 2016, 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.
The accompanying basic financial statements should be read in conjunction with the State's CAFR. The most recent State of Georgia CAFR can be obtained through the State Accounting Office, 200 Piedmont Avenue, Suite 1604 (West Tower), Atlanta, Georgia 30334 or found at https://sao.georgia.gov/comprehensive-annual-financial-reports.
MCGF is a nonprofit corporation incorporated under the laws of the State in 1954. MCGF serves the needs and interests of the Institution, the Augusta University Health Sciences campus and the Augusta University Health System. MCGF receives and administers funds for the support and enhancement of the Institution, the Augusta University Health Sciences campus and the Augusta University Health System, and manages investments and distributed funds in accordance with donor instructions and board of director's intentions for gifts. MCGF provides support for faculty chairs, research in the health sciences fields, scholarships to qualified students and other institutional programs. MCGF is

- 9 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

a 501(c)(3) and 509(a)(1) public charity and functions as an independent corporation governed by its articles of incorporation, by-laws and its Board of Directors. Separately issued financial statements are available from the Foundation at the following address: Medical College of Georgia Foundation, Inc., 545 15th Street, Augusta, Georgia, 30901.
The Health System is a legally separate, tax-exempt organization, which was established to promote the health science education missions and other tax-exempt functions and purposes of the Institution, AUMA, and MCG Health, Inc. d/b/a AU Medical Center (AUMC) by strategically coordinating operations of AUMA and AUMC. The Health System was incorporated under the laws of the State as a nonprofit corporation on June 1, 2010. It began operations on June 1, 2010 as part of a Joint Operating Agreement (the Agreement) with AUMA and AUMC. The Agreement was subsequently amended on June 26, 2014 to incorporate Roosevelt Warm Springs Rehabilitation & Specialty Hospitals, Inc. and on August 28, 2014 to incorporate Georgia Regents Health Professions Associates, Inc., Georgia Regents Nursing Associates, Inc., and Medical College of Georgia Dental Foundation d/b/a Georgia Regents Dental Associates. Separately issued financial statements are available from the Foundation at the following address: AU Health System, Inc., 1120 15th Street, Room BA 8255, Augusta, Georgia, 30912.
AUMA was formed in 1958 as a nonprofit organization for the purpose of enhancing the clinical, research, and educational missions of the Institution and billing and collecting for medical services provided to patients. Revenues are obtained primarily from physician fees charged to patients at AU Medical Center and AU Children's Medical Center, which are operated by AUMC. Separately issued financial statements are available from the Foundation at the following address: Augusta University Medical Associates, 1499 Walton Way, Augusta, Georgia 30901.
See Note 19 for additional information related to Component Units.
Basis of Accounting and 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 Institution's assets, deferred outflows of resources, liabilities, deferred inflows of resources, net position, revenues, expenses, changes in net position and cash flows.
The Institution's business-type activities and fiduciary fund 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. Grants and similar items are recognized as revenues in the fiscal year in which eligibility requirements imposed by the provider have been met. All significant intra-Institution transactions have been eliminated.
The Institution reports the following Fiduciary Fund:
Pension Trust Fund Accounts for the activities of the Early Retirement Plan.
New Accounting Pronouncements
For fiscal year 2016, the Institution adopted Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements.

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

For fiscal year 2016, the Institution adopted GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets that are not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and 68. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. The adoption of this Statement does not have a significant impact on the Institution's financial statements.
For fiscal year 2016, the Institution adopted GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to identify in the context of the current governmental financial reporting environment--the hierarchy of GAAP. The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non-authoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The adoption of this Statement does not have a significant impact on the Institution's financial statements.
For fiscal year 2016, the Institution adopted GASB Statement No. 79, Certain External Investment Pools and Pool Participants. This Statement addresses accounting and financial reporting for certain external investment pools and pool participants. The adoption of this Statement does not have a significant impact on the Institution'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.
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 Institution 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 in Investments.
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. 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 Institution's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
Inventories Consumable supplies are carried at the lower of cost or market on the first-in, first-out basis. Resale Inventories are valued at cost using the "first in, first out" basis.
Non-current 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.
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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Prepaid Items Payments made to vendors and state and local government organizations for services that will benefit periods beyond June 30, 2016 are recorded as prepaid items.
Capital Assets Capital assets are recorded at cost at the date of acquisition, or acquisition value (entry price) at the date of donation in the case of gifts. For equipment, the Institution'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 Institution, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) an organization that is external to the Institution. GSFIC issues bonds for and on behalf of the State, pursuant to powers granted to it in the Constitution of the State and the Act creating the GSFIC. These bonds constitute direct and general obligations of the State, to the payment of which the full faith, credit and taxing power of the State are pledged.
Due From USO - Capital Liability Reserve Fund The Capital Liability Reserve Fund (Fund) was established by the Board of Regents to protect the fiscal integrity of the 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 University System Office. The Fund shall only be used to address significant shortfalls and only insofar as a requesting USG University is unable to make the required PPV capital lease payment to the designated cooperative organization. The Fund will continue as long as the USG has rental obligations under the PPV program. At the conclusion of the Institution's participation in the program, funds will be returned to the Institution. The $197,730 balance included on the Institution's Statement of Net Position represents the Institution's contribution to the Fund.
Deferred Outflows of Resources Deferred outflows of resources consists of the consumption of net assets by the Institution that are applicable to a future reporting period.
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.
Deposits Held for Other Organizations Deposits held for other organizations result primarily from the Institution acting as an agent, or fiduciary, for another entity. Deposits held for others consist of scholarships, fellowships, study abroad deposits and other funds held for various governments, companies, clubs, or individuals.

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

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 non-current assets.
Deferred Inflows of Resources Deferred inflows of resources consists of the acquisition of net assets by the Institution that are applicable to a future reporting period.
Pensions and Net Pension Liability The net pension liability represents the difference between the total pension obligation as a result of the exchange for employee services for compensation and the fiduciary net position or the fair value of the plan assets as of a given measurement date.
For the purpose 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, additions/deductions from fiduciary net position have been determined on the same basis as they are reported by Teachers Retirement System of Georgia and Employees' Retirement System of Georgia. For this purpose, benefit payments (including refunds of employees' contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.
Net Position The Institution's net position is classified as follows:
Net Investment in Capital Assets: This represents the Institution's total investment in capital assets, net of accumulated amortization/depreciation and reduced by outstanding debt obligations related to those 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. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction or improvement of capital assets or related debt are included in Net Investment in Capital Assets. If there are significant unspent related debt proceeds or deferred inflows of resources at the end of the reporting period, the portion of the debt or deferred inflows of resources attributable to the unspent amount are not included in Net Investment in Capital Assets.
Restricted non-expendable 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. For Institution-controlled, donorrestricted endowments, the by-laws of the Board of Regents of the University of Georgia permits each individual Institution to use prudent judgment in the spending of current realized and unrealized endowment appreciation. Donor-restricted endowment appreciation is periodically transferred to restricted-expendable accounts for expenditure as specified by the purpose of the endowment. The Institution maintains pertinent information related to each endowment fund including donor; amount and date of donation; restrictions by the source of limitations; limitations on investments, etc.

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Restricted expendable includes resources in which the Institution is legally or contractually obligated to spend resources in accordance with restrictions by external third parties.
Unrestricted: Unrestricted represents resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the Institution, and may be used at the discretion of the Institution to meet current expenses for those purposes, except for unexpended state appropriations (surplus) in the amount of $44,167. Unexpended state appropriations must be refunded to the Office of the State Treasurer. Unrestricted Net Position also includes resources specifically designated by management, such as:
Auxiliary Enterprises Operations These resources are used for the continued operation of auxiliary enterprise activities, which are substantially self-supporting business operations conducted on campuses that provide services to students, faculty, and staff.
Auxiliary Enterprises Renewals and Replacement (R&R) Reserve These resources can be used for renewals and replacement of capitalizable assets related to auxiliary services. This R&R reserve can also be used for major renovations and rehabilitations auxiliary projects that do not meet the capitalization threshold.
When an expense is incurred that can be paid using either restricted or unrestricted resources, the Institution's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources.
See Note 10, Net Position, for additional information.
Income Taxes Augusta University, as a political subdivision of the State, 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 classifies fiscal year activity as operating and non-operating 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.
Non-operating revenue includes activities that have the characteristics of non-exchange transactions, such as gifts and contributions, and other revenue sources that are defined as non-operating 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, such as state appropriations and investment income.
Operating Expenses: Operating expense includes activities that have the characteristics of exchange transactions.
Non-operating expense includes activities that have the characteristics of non-exchange transactions, such as capital financing costs and costs related to investment activity.

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Scholarship Allowances Scholarship allowances are the difference between the stated charge for goods and services provided by the Institution, 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 non-operating revenues in the Institution's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the Institution has recorded contra revenue for scholarship allowances. Student tuition and fees reported on the Statement of Revenues, Expenses, and Changes in Net Position are net of discounts and allowances of $14,541,818.

Restatement of Prior Year Net Position The Institution made the following restatements related to business-type activities:

For fiscal year 2016, the Institution increased beginning net position, increased deferred outflows of resources, and increased deferred inflows of resources related to the re-evaluation of capital lease agreements between the Institution and the related affiliates. This change is in accordance with generally accepted accounting principles.

For fiscal year 2016, the Institution decreased beginning net position $17,013,591 related to a prior understatement in amounts due to affiliated organizations.

For fiscal year 2016, the Institution increased net position $3,819,750 related to recognizing associated revenue related to sponsored grants that have met eligibility requirements for revenue recognition.

Below is a summary of adjustments made to July 1, 2015 Net Position.

Business-type Activities:

Net Position, Beginning of Year, As Originally Reported

$ 209,827,324

Adjustments related to re-evaulation of capital lease agreements Increase in capital lease liability Increase in deferred loss on debt refunding Increase in deferred gain on debt refunding
Increase due to Upper Payment Limits (UPL) with Component Unit Increase due to revenue recognition for sponsored grants

-1,633,369 2,973,434
-894,546 -17,013,591
3,819,751

Net Position, Beginning of Year, Restated

$ 197,079,003

Changes in Financial Accounting and Reporting

In fiscal year 2016, MCGF, the Health System, and AUMA have been determined to be essential to the fair presentation to these departmental statements resulting in an increase in the beginning net position for the discretely presented component units.

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Note 2. Deposits and Investments
Deposits The custodial credit risk for deposits is the risk that in the event of a bank failure, the Institution's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the Institution) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.
2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.
3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.
4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.
5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association.
6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation. The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.
At June 30, 2016, the carrying value of deposits was $14,987,160 and the bank balance was $25,797,190. Of the Institution's deposits, $25,547,190 were uninsured. Of these uninsured deposits, $25,547,190 were collateralized with securities held by the financial institution, by its trust department or agency, in the Institution's name.

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Reconciliation of Cash and Cash Equivalents Balances to Carrying Value of Deposits:

Business-type Activities: Statement of Net Position
Cash and Cash Equivalents
Fiduciary Fund: Statement of Fiduciary Net Position
Cash and Cash Equivalents

$

17,892,544

6,161,947

Total Cash and Cash Equivalents

24,054,491

Less: Cash on Hand
Investments with original maturity less than 90 days reported as Cash and Cash Equivalents

-71,329 -8,996,002

Total Carrying Value of Deposits - June 30, 2016

$

14,987,160

Investments The Institution 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 Institution has adopted GASB No. 72, Fair Value Measurements and Application, which requires fair value measurement be classified and disclosed in one of the following three categories ("Fair Value Hierarchy"):

Level 1 Quoted prices are available in active markets for identical investments as of the reporting date.
Level 2 Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level 1; inputs include comparable market transactions, pricing of similar instruments, values reported by the administrator, and pricing expectations based on internal modeling. Fair value is determined through the use of models or other valuation methodologies.

Level 3 Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investments.

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

The following table summarizes the valuation of the Institution's investments measured at fair value on a recurring basis and at net asset value as of June 30, 2016.

Investment Type

Level 1

Level 2

See Note 2

Total

Bond Securities

$

BOR Pool

Equity Mutual Funds

Equity Securities

Money Market Mutual Funds

Real Estate Investment Trusts

US Agencies-Explicitly Guaranteed

US Agencies-Implicitly Guaranteed

US Treasuries

12,513,934
34,636,685 23,752,424
4,663,577 3,257,358
$ 4,309,425
23,000

$

$

9,898,104

12,681,606 52,426,142

12,513,934 9,898,104
34,636,685 23,752,424
4,663,577 3,257,358 12,681,606 56,735,567
23,000

Total Investments

$

83,156,403 $

65,107,748 $

9,898,104 $

158,162,255

Note 2: The Institution holds a position in an external investment pool that is not a 2a7-like external investment pool. The unit of account is each share held, and the value of the position would be the fair value of the pool's share price multiplied by the number of shares held. The Institution does not "look through" the pool to report a pro rata share of the pool's investments, receivables and payables.

Investments classified in Level 1 are valued using prices quoted in active markets for those securities.

Investments classified in Level 2 are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities relationship to benchmark quoted prices.
Business-Type Activities The Institution's investments as of June 30, 2016 are presented below. All investments are presented by investment type and debt securities are presented by maturity.

Investment Type

Debt Securities

U. S. Treasuries

$

U. S. Agencies

Explicitly Guaranteed

Implicitly Guaranteed

Fair Value

Less Than 3 Months

Investment Maturity 4 - 12 Months

1 - 5 Years

23,000 $

23,000

12,681,606 56,735,567

5,192,362 $ 7,475,516 $

16,285,346

34,405,820

13,728 6,044,401

Investment Pools Board of Regents Diversified Fund
Total Investments

69,440,173 $ 21,500,708 $ 41,881,336 $ 6,058,129
9,898,104 $ 79,338,277

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

The Institution does not have a formal policy addressing variable-rate securities. The Institution relies upon the judgment of its Investment Managers and the policies of the investment vehicles related to Augusta 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.
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 Institution'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 4.64 years. Of the Institution's total investment of $9,898,104 in the Diversified Fund, $3,464,336 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 Institution will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The Institution does not have a formal policy for managing custodial credit risk for investments. Investment Managers are held accountable for custodial safety. The Institution'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, 2016, $69,440,173 of the Institution's applicable investments were uninsured and held by the investment's counterparty's trust department or agent, in the Institution'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 Institution 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:

Related Debt Investment

Fair Value

Unrated

U.S. Agency Securities

$ 56,735,567 $ 56,735,567

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

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 Institution's Investment Policy and Guidelines for managing concentration of credit risk requires that stocks and debt issues be diversified. The Institution also relies upon the concentration of credit risk policy of the individual investment vehicles related to Augusta University's investment assets. More than 5% of the Institution's investments are in Federal National Mortgage Association Notes, Federal Home Loan Mortgage Corporation Notes, Federal National Mortgage Association Pool, National Credit Union Administration Guaranteed Notes, Federal Home Loan Mortgage Corporation Pool, and Government National Mortgage Association Notes. These investments are 26.15%, 20.49%, 18.64%, 6.56%, 6.23%, and 5.58% respectively of the Institution's total investments.
Fiduciary Fund Type Pension Trust Fund Augusta 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 Institution's Pension Plan investments as of June 30, 2016, are presented below. All investments are presented by investment type and debt securities are presented by maturity.

Investment Type

Fair Value

Investment Maturity Less Than 3 Months 1 - 5 Years 6 - 10 Years

Debt Securities Bond Securities Money Market Mutual Fund

$ 12,513,934

$ 2,202,149 $ 10,311,785

4,663,577 $ 4,663,577

17,177,511 $ 4,663,577 $ 2,202,149 $ 10,311,785

Other Investments Equity Mutual Funds - Domestic Equity Mutual Funds - International Equity Securities - Domestic Equity Securities - International Real Estate Investment Trust

30,977,764 3,658,921
20,803,503 2,948,921 3,257,358

Total Investments

$ 78,823,978

Interest Rate Risk Interest rate risk is the risk that changes in interest rates for debt investments will adversely affect the fair value of an investment. The Institution'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.

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

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 Institution will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The Institution does not have a formal policy for managing custodial credit risk for investments. Investment Managers are held accountable for custodial safety. The Institution's Investment Policy and Guidelines requires that managers be registered in good standing as investment advisors; and will be experienced with proven track records.

At June 30, 2016, $17,177,511 of the Institution's Pension Plan applicable investments were uninsured and held by the investment's counterparty's trust department or agent, in the Institution'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 Institution 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:

Related Debt Investment

Fair Value

AA

Unrated

Bond Securities

$ 12,513,934

$ 12,513,934

Money Market Mutual Fund

4,663,577 $ 1,419,369

3,244,208

$ 17,177,511 $ 1,419,369 $ 15,758,142
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 Institution's Investment Policy and Guidelines for managing concentration of credit risk requires that stocks and debt issues be diversified. The Institution also relies upon the concentration of credit risk policy of the individual investment vehicles related to Augusta University's Pension Plan investment assets. More than 5% of the Pension Plan's Investments are in 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 9.7%, 39.3%, 5.9%, and 9.5% respectively of the Plan's total investments.

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Note 3. Accounts Receivable Accounts receivable consisted of the following at June 30, 2016:

June 30, 2016

Student Tuition and Fees

$

Auxiliary Enterprises and Other Operating Activities

Federal Financial Assistance

Georgia State Financing and Investment Commission

Margin Allocation Funds

Due from Other USG Institutions

Other

8,900,025 870,780
8,766,339 569,030
3,710,738 197,730
51,221,199

74,235,841

Less Allowance for Doubtful Accounts Net Accounts Receivable
Note 4. Inventories Inventories consisted of the following at June 30, 2016:

449,310

$

73,786,531

June 30, 2016

Consumable Supplies Merchandise for Resale

$

146,010

775,991

Total Inventories

$

Note 5. Prepaid Items

Prepaid Items consisted of the following at June 30, 2016:

922,001

June 30, 2016

Georgia State Financing and Investment Commision

$

12,634,402

Miscellaneous

877,519

Total

$

13,511,921

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Note 6. Notes/Loans Receivable
The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2016. 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 Institution for amounts cancelled under these provisions. As the Institution determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans are written off and assigned to the U. S. Department of Education. The Institution 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, 2016, the allowance for uncollectible loans was approximately $375,591.
Note 7. Capital Assets
Following are the changes in capital assets for the year ended June 30, 2016:

Beginning Balance July 1, 2015

Capital Leases Recategorization

Additions

Reductions

Ending Balance June 30, 2016

Capital Assets, Not Being Depreciated: Land Capitalized Collections Construction Work-In-Progress

$ 28,365,902 87,006
11,325,550 $

$ 0 $ 16,380,442 $ 8,487,620

28,365,902 87,006
19,218,372

Total Capital Assets, Not Being Depreciated

39,778,458

0

16,380,442

8,487,620

47,671,280

Capital Assets, Being Depreciated: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections

6,526,145 629,999,581
15,849,383 123,755,644
61,613,020 31,343,172

59,576,418
2,036,602 -61,613,020

13,306,282 1,104,347 8,864,924
373,592

259,000 15,348,061
2,709,609

6,526,145 702,623,281
16,953,730 119,309,109
0 29,007,155

Total Capital Assets Being Depreciated

869,086,945

0

23,649,145 18,316,670

874,419,420

Less: Accumulated Depreciation Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections

1,954,670 230,577,912
6,724,639 93,958,865 18,191,535 23,035,088

16,883,972
1,307,563 -18,191,535

301,392 18,572,593
589,767 8,038,833
1,391,659

259,000 13,198,644
2,709,609

2,256,062 265,775,477
7,314,406 90,106,617
0 21,717,138

Total Accumulated Depreciation

374,442,709

0

28,894,244 16,167,253

387,169,700

Total Capital Assets, Being Depreciated, Net

494,644,236

0

-5,245,099

2,149,417

487,249,720

Capital Assets, Net

$ 534,422,694 $

0 $ 11,135,343 $ 10,637,037 $ 534,921,000

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

For projects managed by GSFIC, GSFIC retains construction-in-progress on its books throughout the construction period and transfers the entire project to the Institution when complete. For projects managed by the Institution, the Institution retains construction-in-progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2016, GSFIC transferred capital additions valued at $809,226 to the Institution. In addition, at June 30, 2016, GSFIC had construction in progress of approximately $11,460,783 for incomplete projects for the Institution.
Note 8. Advances (Including Tuition and Fees)
Advances (Including Tuitions and Fees) consisted of the following at June 30, 2016:

Current Liabilities

Prepaid Tuition and Fees Research Other - Advances

$

14,782,515

29,228,812

6,646,851

Total Advances
Note 9. Long-Term Liabilities

$

50,658,178

Long-Term liability activity for the year ended June 30, 2016 was as follows:

Beginning Balance July 1, 2015 (Restated)

Additions

Reductions

Ending Balance June 30, 2016

Current Portion

Leases Lease Purchase Obligations $

55,879,401 $

5,330,912 $

3,349,218 $ 57,861,095 $

3,344,882

Other Liabilities Compensated Absences Net Pension Liability

36,679,959 285,215,111

26,684,642 48,727,053

25,657,317

37,707,284 333,942,164

20,676,696

Total Total Long-Term Obligations

321,895,070

75,411,695

25,657,317 371,649,448

20,676,696

$ 377,774,471 $ 80,742,607 $ 29,006,535 $ 429,510,543 $ 24,021,578

- 24 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Note 10. Net Position
Net position is reported in the following three categories: Net Investment in Capital Assets, Restricted Non-Expendable, Restricted-Expendable, and Unrestricted.
The amounts within each category at June 30, 2016 were as follows:

June 30, 2016

Net Investments in Capital Assets

$

477,493,762

Restricted for Nonexpendable Permanent Endowment

2,172,437

Expendable Organized Activities Federal Loans Institutional Loans Quasi-Endowments

15,585,507 6,228,024 957,563 7,675,006

Total Expendable

30,446,100

Unrestricted Auxiliary Operations R & R Reserve Reserve for Encumbrances Reserve for Inventory USO Reserve Fund Other Unrestricted

1,451,461 3,311,270 22,137,295
148,751 197,730 -325,940,658

Total Unrestricted

-298,694,151

Total Net Position
Note 11. Endowments

$

211,418,148

Donor Restricted Endowments: Investments of the Institution's endowment funds are pooled, unless required to be separately invested by the donor. For Institution controlled, donor-restricted endowments, where the donor has not provided specific instructions, the Board of Regents permits Augusta 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 $24,365 and is reflected as expendable restricted net position.

- 25 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

For endowment funds where the donor has not provided specific instructions, investment return of the Institution's endowment funds is predicated on the total return concept. The main goal of Augusta 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 longterm capital appreciation and growth of income, and to increase principal value at a rate at least equal to the rate of inflation. Annual payouts from the Institution's endowment funds are based on a spending policy which limits spending to no more than 3.5% of the three-year average of the endowment principal's market value, measured on March 31. To the extent that the total return for the current year exceeds the payout, the excess is added to principal. If current year earnings do not meet the payout requirements, the Institution uses accumulated income and appreciation from restricted expendable net asset endowment balances to make up the difference.
Note 12. Significant Commitments
See Note 10 for amounts reserved for outstanding encumbrances at June 30, 2016. In addition to these encumbrances, the Institution had other significant unearned, outstanding, construction or renovation contracts executed in the amount of $11,611,315 as of June 30, 2016. This amount is not reflected in the accompanying basic financial statements.
Note 13. Lease Obligations
The Institution 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 2019 and 2035. Expenditures for fiscal year 2016 were $5,507,168 of which $1,997,206 represented interest and $160,744 represented executory costs. Total principal paid on capital leases was $3,349,218 for the fiscal year ended June 30, 2016. Interest rates range from 2.496% to 12.99%.

Description

CAPITAL LEASE SCHEDULE

Lessor

Original Principal

Lease Term

Begin

Outstanding

Principal Balance

End

at June 30, 2016

Multiple Individual Copier Leases Computer Lease Telephone System CRC University Housing Student Center

Pollock

$

DeLage Landen

Key Government Finance, Inc.

MCG-PPG, CRC LLC

ASU Foundation

ASU Foundation

1,878,204 100,980
4,972,657 27,704,398 20,246,137 11,782,962

5 years 3 years 4 years 30 years 30 years 29 years

3/2011 1/2016 9/2015 1/2006 8/2005 1/2006

3/2021 $ 1/2019 9/2019 6/2034 1/2035 12/2033

Total Leases

$ 66,685,338

$

(1) These capital leases are related party transactions with affiliated organizations.

631,417 87,664
4,027,044 25,973,613 (1) 17,480,542 (1)
9,660,815 (1)
57,861,095

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AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Operating Leases Augusta University's non-cancellable operating leases have remaining terms of 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 $2,037 for the fiscal year ended June 30, 2016.

Future Commitments Future commitments for capital leases (which include other installment purchase agreements) and for non-cancellable operating leases having remaining terms in excess of one year as of June 30, 2016, were as follows:

Real Property and Equipment

Capital Leases

Operating Leases

Year Ending June 30: 2017 2018 2019 2020 2021 2022 - 2026 2027 - 2031 2032 - 2035

$

5,256,639 $

679

5,198,349

5,149,087

5,110,025

3,980,428

18,406,720

19,026,525

14,231,309

Total Minimum Lease Payments

76,359,082 $

679

Less: Interest Less: Executory Cost (if paid)

15,294,112 3,203,875

Principal Outstanding

$

57,861,095

The following is a summary of the carrying values of assets held under capital lease at June 30, 2016:

Description

Gross Amount (+)

Accumulated Depreciation
(-)

Net Capital Assets Held Under Capital Lease
at June 30, 2016 (=)

Outstanding Balances per Lease Schedules at June 30, 2016

Leased Equipment

$

Leased Buildings and Building Improvements

7,128,363 $ 2,176,551 $

61,655,306

18,600,764

4,951,812 $ 43,054,542

4,746,125 53,114,970

Total Assets Held Under Capital Lease at June 30, 2016

$

68,783,669 $ 20,777,315 $

48,006,354 $

57,861,095

- 27 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

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.
Augusta University had three capital leases with affiliated organizations in the current fiscal year.
In November 2004, Augusta University entered into a capital lease of $27,659,678 at 6.85% with the MCG-PPG Cancer Research Center, LLC, whereby the Institution 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 Institution. 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 Institution by reducing the effective interest rate to 2.93% and the lease term maturity to June 2034. The outstanding liability at June 30, 2016, on this capital lease is $25,973,613.
In August 2004, Augusta University entered into a capital lease of $20,246,137 at 5.23% with the Augusta State University Foundation whereby the Institution leases a student housing complex for a thirty year period that began September 2005 and will expire January 2035. In November 2012, the Augusta State University Foundation refunded the bonds associated with this lease and passed the perceived economic advantages of this refunding to the Institution by reducing the weighted average interest rate to 4.088% with a maturity date of January 2035. The outstanding liability at June 30, 2016, on this capital lease is $17,480,542.
In February 2005, the Institution entered into another capital lease of $11,782,962 at 4.72% with the Augusta State University Foundation whereby the Institution leases a student activities center for a twenty-nine year term that began March 2005 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 Institution by reducing the weighted average interest rate to 3.128% with a maturity date of December 2033. The outstanding liability at June 30, 2016, on this capital lease is $9,660,815.
Augusta University also has various capital leases for equipment with an outstanding balance at June 30, 2016 in the amount of $4,746,125.
Note 14. Retirement Plans
The Institution 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.
In addition to the retirement plans administered by TRS and ERS, USG administers the Regents' Retirement Plan as an optional retirement plan. The Institution administers the Early Retirement Pension Plan.
The significant retirement plans that the Institution 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.

- 28 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Teachers Retirement System of Georgia and Employees' Retirement System of Georgia
Summary of Significant Accounting Policies
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.
General Information about the Teachers Retirement System
Plan description: All teachers of the Institution 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% of their annual pay during fiscal year 2016. The Institution's contractually required contribution rate for the year ended June 30, 2016 was 14.27% of annual Institution payroll. Institution contributions to TRS were $26,234,649 for the year ended June 30, 2016.
General Information about the Employees' Retirement System
Plan 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.

- 29 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

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 Institution's contractually required contribution rate, actuarially determined annually, for the year ended June 30, 2016 was 24.72% of annual covered payroll for old and new plan members and 21.69% for GSEPS members. The Institution's contributions to ERS totaled $178,786 for the year ended June 30, 2016. 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, 2016, the Institution reported a liability for its proportionate share of the net pension liability for TRS and ERS. The net pension liability was measured as of June 30, 2015. The total pension liability used to calculate the net pension liability was based on an actuarial valuation as of June 30, 2014. An expected total pension liability as of June 30, 2015 was determined using standard roll-forward techniques. The Institution's proportion of the net pension liability was based on contributions to TRS and ERS during the fiscal year ended June 30, 2015. At June 30 2015, the Institution's TRS proportion was 1.716662%, which was a decrease of (0.021667)% from its proportion measured as of June 30, 2014. At June 30, 2015, the Institution's ERS proportion was 0.027218%, which was an increase of 0.002004% from its proportion measured as of June 30, 2014.

- 30 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

For the year ended June 30, 2016, the Institution recognized pension expense of $17,287,274 for TRS and $102,875 for ERS. At June 30, 2016, the Institution reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

TRS

Deferred

Deferred

Outflows of

Inflows of

Resources

Resources

ERS

Deferred

Deferred

Outflows of

Inflows of

Resources

Resources

Differences between expected and actual experience

$

2,298,662

$

8,810

Net diffierence between projected and actual earnings on pension plan investments

22,044,704

79,562

Changes in proportion and differences

between Institution contributions

and proportionate share of contributions

$

3,256,587

2,981,705 $

56,620

Institution contributions subsequent to the measurement date
Total

26,234,649

$

29,491,236 $

27,325,071 $

178,786 235,406 $

88,372

The Institution contributions subsequent to the measurement date of $26,234,649 for TRS and $178,786 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, 2017. 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

2017 2018 2019 2020 2021

$ -10,536,095 $ $ -10,536,095 $ $ -10,536,112 $ $ 7,791,240 $ $ -251,422

-3,418 -19,699 -35,463 26,828

Actuarial assumptions: The total pension liability as of June 30, 2015 was determined by an actuarial valuation as of June 30, 2014 using the following actuarial assumptions, applied to all periods included in the measurement:

Teachers Retirement System: Inflation

3.00%

Salary increases Investment rate of return

3.75 7.00%, average including inflation 7.50%, 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.

- 31 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period July 1, 2004 June 30, 2009.

Employees' Retirement System: Inflation

3.00%

Salary increases Investment rate of return

5.45 9.25%, including inflation 7.50%, 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, 2014 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%

Total

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.

- 32 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Sensitivity of the Institution's proportionate share of the net pension liability to changes in the discount rate: The following presents the Institution's proportionate share of the net pension liability calculated using the discount rate of 7.50%, as well as what the Institution'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:

Teachers Retirement System:
Institution's proportionate share of the Net Pension Liability

1% Decrease (6.50%)

Current Discount Rate (7.50%)

1% Increase (8.50%)

$ 449,101,182 $

261,344,743 $ 106,588,762

Employees' Retirement System:
Institution's proportionate share of the Net Pension Liability

1% Decrease (6.50%)

Current Discount Rate (7.50%)

1% Increase (8.50%)

$

1,563,130 $

1,102,710 $

710,183

Pension 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 The Institution 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 2016, 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.

- 33 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

The Institution and the covered employees made the required contributions of $13,660,980 (9.24%) and $8,870,768 (6%), respectively.
VALIC, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.

Early Retirement Pension Plan

Plan Description Augusta University Early Retirement Pension Plan (ERP) is a single-employer defined benefit pension plan administered by Bryan, Pendleton, Swats, and McAlister. The plan was derived by Augusta 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, 2016, plan participants consisted of the following:

Inactive Plan Participants:

Retirees and Beneficiaries Currently Receiving Benefits

638

Terminated Employees Entitled to Deferred Benefits

0

Disabled Employees Entitled to Deferred Benefits

0

Total

638

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

- 34 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

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.
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 Institution based on the actuarial valuation of the plan. For fiscal year 2016, affiliated organizations contributed $5,886,802 to the plan on-behalf of the Institution.
Since this plan was not pre-funded, Augusta 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, 2016, the period to amortize the unfunded accrued liability was extended 2 years. With this change, the plan should be fully funded by June 30, 2025. 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 Augusta 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 Institution's Investment Policy and Guidelines for managing concentration of credit risk requires that stocks and debt issues be diversified. The Institution also relies upon the concentration of credit risk policy of the individual investment vehicles related to plan assets. More than 5% of the Pension Plan's Investments are in 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 9.7%, 39.3%, 5.9%, and 9.5% respectively of the Plan's total investments.
For the fiscal year ended June 30, 2016, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 2.02%.
Net Pension Liability (NPL) The components of the net pension liability at June 30, 2016 were as follows:

Total Pension Liability Plan Fiduciary Net Position

$ 151,817,059 -80,322,348

Net Pension Liability

$ 71,494,711

Plan Fiduciary Net Position as a percentage of total pension liability is 52.91%.

- 35 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of January 1, 2016 with the results rolled forward to the June 30, 2016 measurement date using the following actuarial assumptions, applied to all periods included in the measurement: (a) rate of return of 7.50% per annum, compounded annually (b) inflation of 3 percent, and (c) cost of living increases of 3 percent per annum.
To better recognize current and future mortality improvements, effective June 30, 2016 mortality rates were based on the RP-2014 Mortality Table, adjusted to 2006, with generational mortality improvement projected after year 2006 using Scale MP-2015 rather than the previously used RP-2000 Mortality Table for Healthy Annuitants with projected improvement from year 2000 to year 2022 under Projection Scale AA.
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

64.46% 8.23%
15.58% 4.06% 7.67%

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:

Net Pension Liability

1% Decrease 6.50%
$ 84,587,641

Current Rate 7.50%

1% Increase 8.50%

$ 71,494,711 $ 60,145,990

- 36 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Schedule of Changes in Net Pension Liability For the year ended June 30, 2016, the Institution recognized net pension liability of $71,494,711 calculated as follows:

Balance, June 30, 2015 $

Total Pension Liability (a)
143,780,226 $

Plan Fiduciary Net Position
(b)
79,125,737 $

Net Pension Liability (a) - (b)
64,654,489

Interest Experience losses (gains) Changes of assumptions Contributions - Employer Net investment income Benefit payments

10,278,138 1,349,554 9,885,919
-13,476,778

13,084,672 1,588,717
-13,476,778

10,278,138 1,349,554 9,885,919
-13,084,672 -1,588,717 0

Net Change

8,036,833

1,196,611

6,840,222

Balance, June 30, 2016 $

151,817,059 $

80,322,348 $

71,494,711

Affiliated organizations contributed $5,886,802 to the plan on behalf of the Institution.
Schedule of Changes in Pension Expense For the year ended June 30, 2016, the Institution recognized pension expense of $16,976,695 at June 30, 2016.
Pension Expense

Interest

$

Projected Investment Income

Recognition of experience (gains) losses

Recognition of changes in assumptions

Investment losses (gains)

10,278,138 -5,919,726 1,349,554 9,885,919 1,382,810

Pension Expense June 30, 2016

$

16,976,695

- 37 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Deferred Outflows/Inflows of Resources At June 30, 2016, the Institution 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

$

5,014,629 $

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:

2017 2018 2019 2020
Note 15. Risk Management

$ 1,382,810 $ 1,382,810 $ 1,382,808 $ 866,201

The USG offers its employees and retirees under the age of 65 access to four different healthcare plan options. For the USG's Plan Year 2016, the following healthcare plan options were available:

BlueChoice HMO Comprehensive Care Consumer Choice HSA Kaiser Permanente HMO
The Institution, 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 USG share the risk of loss for claims associated with the self-insured plans; including the BlueChoice HMO, Comprehensive Care, and Consumer Choice HSA Plan.
Retirees age 65 and older participate in a secondary healthcare coverage for Medicare-eligible retirees and dependents provided through a retiree healthcare exchange option. The USG makes contributions to a health reimbursement account, which can be used by the retiree to pay premiums and out-ofpocket healthcare-related expenses.
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 USG, fully insured HMO healthcare plan are also offered to System employees.

- 38 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

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. The Institution, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.
A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1.
The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund.
Note 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 the Institution expects such amounts, if any, to be immaterial to its overall financial position.
Litigation, claims and assessments filed against the Institution (an organizational unit 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, 2016.
Note 17. 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.

- 39 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

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 Institution 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, 2016, there were 2,014 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2016, the Institution recognized as incurred $8,821,712 of expenditures, which was net of $3,937,129 of participant contributions.

Note 18. Natural Classifications with Functional Classifications Operating expenses by functional classification for fiscal year 2016 are shown below:

Natural Classification

Instruction

Research

Functional Classification Fiscal Year 2016

Public Service

Academic Support

Student Services

Institutional Support

Faculty

$

Staff

Employee Benefits

Other Personal Services

Travel

Scholarships and Fellowships

Utilities

Supplies and Other Services

Depreciation

64,282,523 $ 31,768,570 29,425,965
75,129 2,111,879
555,244 735,269 21,021,092 8,864,438

10,443,552 $ 12,500,049
6,394,251 359
453,789 63,552 5,096
16,243,270 547,968

10,132,963 $ 16,359,973
7,550,668 14,626
458,528 90,000
114,413 8,722,426
335,664

11,997,400 $ 26,330,469 13,592,460
47,461 269,903
15,063 114,245 2,798,003 1,837,254

211,599 $ 3,456,003 1,231,478
49,846 114,453
69,075 53,824 2,337,481 25,933

2,592,447 27,633,746 16,154,667
358,366 253,995
225,753 23,543,666
8,474,270

Total Expenses

$ 158,840,109 $ 46,651,886 $ 43,779,261 $ 57,002,258 $ 7,549,692 $ 79,236,910

Natural Classification

Plant Operations and
Maintenance

Functional Classification

Fiscal Year 2016

Scholarships and

Auxiliary

Patient

Fellowships Enterprises

Care

Total Expenses

Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation

$ 115,057 $ 74,644,409 $ 174,419,950

$ 11,230,553

4,303,970 104,217,825 237,801,158

4,456,204

1,676,116 48,236,674 128,718,483

23,244

1,050

570,081

30,111

80,320

425,763

4,198,741

$ 7,475,123

935,491

9,203,548

8,633,405

520,467

411,524 10,813,996

11,354,106

6,175,040 112,808,287 205,003,371

7,116,689

1,692,028

28,894,244

Total Expenses

$ 42,821,068 $ 7,475,123 $ 15,521,733 $ 340,745,532 $ 799,623,572

- 40 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Note 19. Component Units

MCG Health System, Inc. d/b/a AU Medical Center MCG Health System, Inc. d/b/a AU Health System (the Health System), located in Augusta, Georgia, is a legally separate, tax exempt component unit of the State of Georgia reporting entity. Although the Institution is not fiscally accountable for the Health System, the nature and significance of the relationship between the Institution and the Health System is such that exclusion from these departmental financial statements would render them misleading.

During fiscal year 2016, the Health System distributed approximately $43.0 million to the Institution for restricted and unrestricted purposes.

Deposits and Investments for Component Units:

Deposits: At June 30, 2016, $33,426,737 of the Health System's deposits were uninsured, uncollateralized or collateralized by securities held by the pledging institution, its trust department or agent in other than the company's name.

Investments: At June 30 2016, the Health System maintains an investment policy, which fosters and sound and prudent judgement 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 policy. All investments are consistent with donor intent, Board of Regents policy and applicable federal and state laws.

A summary of investments follows:

Investment type

Fair Value

Less Than 3 Months

4-12 Months

Investment Maturity

1-5 Years

6-10 Years

More Than 10 Years

Debt Securities

U.S. Treasuries

$

U.S. Agencies

Explicitly Guaranteed

Implicitly Guaranteed

Corporate Debt

Mortgage Backed Securities (Commercial)

Municipal Obligation

25,397,420

$ 24,438,435 $ 958,985

3,789,668 6,803,614 42,193,406 $ 26,587,722 16,797,700

$ 1,250,488

1,281,276 5,631,952
866,851

260,013 4,169,092 33,850,519 12,146,458 14,434,492

208,582 $ 98,814
1,460,447 4,141,790 1,496,357

3,321,073 1,254,432
10,299,474

121,569,530 $ 1,250,488 $ 7,780,079 $ 89,299,009 $ 8,364,975 $ 14,874,979

Other Investments Equity Securities - Domestic Equity Securities - International Accured Interest and Dividends Joint Venture

20,301,494 8,240,248 559,509 5,385,330

Total Investments

$ 156,056,111

- 41 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

As of June 30, 2016 and June 30, 2015, the Health System utilized two investment managers. These managers are required to make investments in adherence to the Health System's current investment policy and objectives.

The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to transact, the Health System will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The entire balance of the Health System's investments is held by the investment managers in the Health System's name as of June 30, 2016.

The Health System's investment strategy utilizes the total return approach with respect to investment returns, which recognizes that total return is comprised of both income and capital gains (realized and unrealized). When considering investment performance, the Health System measures the total returns, including dividends on stock, interest on fixed-income securities and capital gains. The Health System's long-term return objective is stated at 2% plus the Consumer Price Index.

The Health System allows for an overall level of investment risk sufficient to achieve the long-term return objective described above, managed primarily through its asset allocation policy. The Health System's investment policy requires cash levels adequate to meet all expected or unexpected cash flow needs by investing at least 90% of the Health System's assets in securities that can be sold readily and efficiently. The Health System's investment policy also states that the fixed income maturity for any single security should not exceed five years.

Capital Assets for Component Units: The Health System Capital Assets activity for the year ending June 30, 2016 was as follows:

Capital Assets, Not Being Depreciated Land Construction Work-in-Progress

Beginning Balance July 1, 2015

Additions

Reductions

Ending Balance June 30, 2016

$ 11,267,344

$ 11,267,344

58,260,455 $ 18,897,336 $ 55,598,805

21,558,986

Total Capital Assets Not Being Depreciated

69,527,799

18,897,336

55,598,805

32,826,330

Capital Assets, Being Depreciated: Building and Building Improvements Facilities and Other Improvements Equipment Software

32,847,341 119,324,446 233,291,686
9,491,310

44,491,858 13,223,606
392,427

355,557 7,755,924

32,847,341 163,460,747 238,759,368
9,883,737

Total Assets Being Depreciated

394,954,783

58,107,891

8,111,481

444,951,193

Less: Accumulated Depreciation Building and Building Improvements Facilities and Other Improvements Equipment Software
Total Accumulated Depreciation

5,610,565 44,164,346 142,362,385
5,810,049
197,947,345

943,507 7,787,507 21,900,411 1,631,976
32,263,401

7,214,967 7,214,967

6,554,072 51,951,853 157,047,829
7,442,025
222,995,779

Total Capital Assets, Being Depreciated, Net

197,007,438

25,844,490

896,514

221,955,414

Capital Assets, net

$ 266,535,237 $ 44,741,826 $ 56,495,319 $ 254,781,744

- 42 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Long-Term Liabilities for Component Units: Changes in long-term liabilities for the Health System for the fiscal year ended June 30, 2016 are shown below:

Beginning Balance July 1, 2015

Additions

Reductions

Ending Balance June 30, 2016

Current Portion

Compensated Absensces

$

Lease Purchase Obligation (Capital Lease)

Notes and Loans Payable

Interest Rate Swap

Revenue/Mortgage Bonds Payable

15,113,158 $ 41,003,334 47,112,500 22,158,481 121,890,000

4,912,058 $ 3,781,313
8,726,306

4,384,282 $ 6,534,229 3,241,667
3,700,000

15,640,934 $ 38,250,418 43,870,833 30,884,787 118,190,000

15,640,934 6,696,954 3,387,500
3,820,000

Total Long-Term Obligations

$ 247,277,473 $ 17,419,677 $ 17,860,178 $ 246,836,972 $ 29,545,388

Capital Lease Obligations: On June 27, 2013, the Health System entered into capital lease obligations as part of the Managed Services Alliance Agreement (MSA) with a global healthcare technology company (the Imaging Alliance Partner) to innovate the delivery of healthcare in a new business model. Under the MSA Agreement, the Imaging Alliance Partner will provide the Health System diagnostic imaging equipment, patient monitoring technology, maintenance services, education, performance improvement consulting, and other services. The Health System and the Imaging Alliance Partner are jointly incentivized in the MSA for clinical and operational outcomes. The MSA was effective July 1, 2013 and has a term of fifteen years. Equipment and technology financed through the MSA are recorded as capital lease obligations. The interest rate in the MSA is 6%.
In connection with the MSA, the Health System agreed to sell and leaseback certain equipment, which is accounted for as a capital lease, from the Imaging Alliance Partner. The net carrying value of the equipment sold was approximately $20,920,000 on the date of sale. Since the net carrying value of the equipment sold was equal to their sales price, there was no gain or loss recognized on the sale.
The assets under capital lease are included in capital assets with a cost of $52,640,000 and accumulated amortization of $20,282,000 at June 30, 2016. Amortization of assets under capital lease is included in depreciation and amortization expense.
On September 1, 2014, the Health System entered into a capital lease obligation to purchase a unified communication system. As of June 30, 2016, the balance of this obligation under capital lease was $2,000,000.

- 43 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

On December 14, 2015, the Health System entered into a capital lease obligation to purchase medical equipment. As of June 30, 2016, the balance of this obligation under capital lease was $71,000.

Year ending June 30: 2017 2018 2019 2020 2021 2022 through 2026 2027 through 2031

Capital Leases

$

8,822,279

8,551,937

8,016,685

7,365,238

5,641,800

6,679,686

353,311

Total Minimum Lease Payments

45,430,936

Less: Interest

7,180,518

Principal Outstanding

$ 38,250,418

Notes and Loans Payable On June 27, 2012, the Health System entered into a note in the amount of $50,000,000. Funds from the note are to be used to fund certain construction and renovation projects and to purchase new and replacement equipment. Through June 30, 2015, the note bore a fixed interest rate of 2.05% for a three-year term, and the interest was due monthly.

On June 30, 2015, the Health System entered into a modification of the terms of the note. Effective July 1, 2015, the note is modified to a variable interest note and incurs interest at a rate of LIBOR plus 0.65% per annum. Interest rates are reset monthly. The note is extended for a three-year term through July 1, 2018, and the interest is due monthly.

Year ending June 30: 2017 2018 2019

Principal

$

3,387,500

3,445,833

37,037,500

$ 43,870,833
Revenue Bonds Payable: Series 2008A and 2008B Bonds On April 1, 2008, the Health System issued a total of $135,000,000 of Development Authority of Richmond County Revenues Bonds, Series 2008A and 2008B (2008 Bonds), Proceeds from the 2008 Bonds were to be used to fund certain construction and renovation projects and to purchase new and replacement equipment. The proceeds were also used to refund outstanding capital lease obligations and to pay certain costs associated with the issuance of the 2008 Bonds. Each 2008 Bond series was generally secured through the trust indenture by the gross revenues of the Health System.

- 44 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Series 2014A and 2014B Bonds On July 15, 2014, the Health System refunded the 2008A and 2008B Bonds with the 2014A and 2014B Bonds (2014 Bonds), which are a direct bank placement of bonds in the amount of $60,945,000 for each of the 2014A and 2014B Bonds. The amortization of the 2014A and 2014B Bonds is approximately the same as the amortization of the 2008A and 2008B Bonds.
As of June 30, 2016, debt service requirements of the variable rate debt and net payments on the related swap, assuming current interest rates remain the same for their term, were as follows:

Year ending June 30: 2017 2018 2019 2020 2021 2022 through 2026 2027 through 2031 2032 through 2036 2037 through 2041

Revenue Bonds

$

3,820,000

3,950,000

4,080,000

4,220,000

4,360,000

24,100,000

28,440,000

33,520,000

11,700,000

Principal Outstanding

$ 118,190,000

Swap Concurrent with the issuance of the 2008 Bonds, the Health System entered into a variable-to-fixed interest rate swap (the Swap) to convert the Health System's variable interest rate on the 2008 Bonds into a synthetic fixed rate of 3.302%.

The Swap matures on July 1, 2037. The notional amount of the Swap at June 30, 2016 and June 30, 2015 was $118,190,000 and $121,890,000, respectively. The notional amount decreased from the initial notional amount of $135,000,000. The notional value of the Swap declines in conjunction with payments of bond principal such that the outstanding balance of the bonds approximate the notional amount of the Swap at all times. Under the Swap, the Health System pays the counterparty interest at a fixed rate of 3.302% and receives interest payments at a variable rate computed as 68% of LIBOR.

The fair value of the Swap is recorded as an asset or liability, depending on whether the termination of the Swap would result in amounts due to the Health System or the Swap counterparty. At June 30, 2016, the fair value of the Swap represented a liability to the Health System in the amount of $30,885,000 the Health System or the Swap counterparty is required to post collateral with the other party in the event that the fair value of the Swap exceeds certain thresholds, as defined. At June 30, 2016, the Health System had $11,400,000 posted cash collateral with the Swap counterparty, respectively.

- 45 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

As of June 30, 2016 and 2015, the Health System was exposed to credit risk in the amount of the fair value of the Swap. The Health System has two Swap counterparties. As of June 30, 2016, the Swap counterparties were rated A+ Fitch Ratings, A1 by Moody's Investors Services, and A by Standard & Poor's. To mitigate the potential for credit risk, various levels of collateralization by the counterparty may be required should the counterparty's credit rating be downgraded and the fair value of the Swap be in a liability position at a level above certain thresholds specified in the Swap agreement.

The Health System or the counterparty may terminate the Swap if the other party fails to perform under the terms of the agreement. If the Swap is terminated, the variable rate bonds would no longer carry a synthetic fixed interest rate. Also, if at the time of termination, the Swap has a negative fair value (unfavorable to the Health System), the Health System would be liable to the counterparty for a payment equal to the Swap's fair value.

Medical College of Georgia Foundation, Inc. Medical College of Georgia Foundation, Inc. (the "Foundation") is a component unit of the State of Georgia reporting entity. Although the Institution is not fiscally accountable for the Foundation, the nature and significance of the relationship between the Institution and the Foundation is such that exclusion from these departmental financial statements would render them misleading.

The Foundation is a private nonprofit organization that reports under FASB Standards. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. The FASB reports were reclassified to the GASB presentation for external financial reporting purposes in these financial statements.

During fiscal year 2016, the Foundation distributed approximately $3.7 million to the Institution for restricted and unrestricted purposes.
Investments for Component Units: Medical College of Georgia Foundation holds endowment and other investments in the amount of $214,424,385. The $187 million donor-restricted corpus of the endowment is nonexpendable, but the earnings on the investment may be expended as restricted by the donors. Medical College of Georgia Foundation, in conjunction with the donors, has established a spending plan whereby a certain percentage (generally not to exceed 3.5% of a rolling average of endowment net assets using the prior three calendar years ended December 31, 2015, 2014, and 2013) may be distributed for purposes of supporting unrestricted and temporarily restricted activities.

Investments are comprised of the following amounts at June 30, 2016:

Fair Value

Money Market Account Corporate Bonds Equity Securities Split Interest Investments Real Estate Diversifying Strategies

$

1,863,823

22,563,325

72,570,132

1,852,683

25,899,932

89,674,490

Total Investments

$ 214,424,385

- 46 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Capital Assets for Component Units: The Medical College of Georgia Foundation holds the following Capital Assets as of June 30, 2016:

Capital Assets not being Depreciated: Land

June 30, 2016 $ 4,070,983

Capital Assets being Depreciated: Buildings and Building Improvements Machinery and Equipment
Total Capital Assets being Depreciated/Amortized

218,321 204,859 423,180

Less Total Accumulated Depreciation/Amortization

218,326

Total Capital Assets being Depreciated, Net

204,854

Capital Assets, net

$ 4,275,837

Long-term Liabilities for Component Units At June 30, 2016, the Medical College of Georgia Foundation long-term liabilities consisted of a $944,492 liability due under a split-interest agreement.

Changes in long-term liabilities for the Medical College of Georgia Foundation for the fiscal year ended June 30, 2016 are show below:

Amounts due

Balance

Balance

within One

July 1, 2015

Additions

Reductions

June 30, 2016

Year

Liabilities under split interest agreement $ Notes and Loans Payable

834,695 $ 2,213,206

109,797 $

$ 8

944,492 2,213,198 $

2,213,198

Total Long Term Liablilities

$

3,047,901 $

109,797 $

8 $

3,157,690 $

2,213,198

Notes and Loans Payable During the year ended June 30, 2013, the Foundation entered into a non-revolving secured draw loan not to exceed $3,000,000 with a financial Institution to provide financing to obtain land located around Augusta University. The agreement was modified on October 7, 2014 to raise the not to exceed amount to $5,000,000. The draw note bears interest at a fixed 3.25%, and matures in October 2016. The note is collateralized by various real property owned by Resurgens Properties, LLC funded by the draw note.

- 47 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Annual debt service requirements to maturity for Notes and Loans payable are as follows:

Year ended June 30:

Notes and Loans Payable

Year

Principal

2017

1

$ 2,213,198

Medical College of Georgia Physicians Practice Group Foundation (d/b/a AU Medical Associates) and Subsidiaries The Medical College of Georgia Physicians Practice Group Foundation, d/b/a AU Medical Associates (AUMA or the Company), was formed in 1958 as a nonprofit organization for the purpose of enhancing the clinical, research, and educational missions of the Augusta University (AU) and billing and collecting for medical services provided to patients. Revenues are obtained primarily from physician fees charged to patients at AU Medical Center and AU Children's Medical Center, which are operated by MCG Health, Inc. and d/b/a AU Medical Center (AUMC).
PPG Properties, LLC is a limited liability company formed in 2001 by AUMA to manage real estate rental properties. This entity has no termination date.
PPG Alternative Collections, LLC is a limited liability company formed in 2003 by AUMA to bill and collect for anesthesia services provided to patients. This entity has no termination date.
Georgia Esoteric and Molecular Labs, LLC is a limited liability company formed in 2004 by AUMA to operate a specialized pathology laboratory with genetic or molecular testing capabilities. This entity has no termination date.
MCG-PPG Cancer Research Center, LLC (CRC) was formed in 2004 by AUMA to construct, own and operate a portion of a building to house a cancer research center on the campus of AU. This entity has no termination date.
GRMCGRMA, SP is an offshore captive, which AUMA entered into effective July 9, 2013 to provide insurance coverage.
AUMA is the sole equity member and has sole voting control of each of the LLC's.
AUMA is a component unit of the State of Georgia reporting entity. Although the Institution is not fiscally accountable for the Foundation, the nature and significance of the relationship between the Institution and the Foundation is such that exclusion from these departmental financial statements would render them misleading.
AUMA is a private nonprofit organization that reports under modified cash standards. As such, certain revenue/expense recognition criteria and presentation features are different from GASB revenue/expense recognition criteria and presentation features. AUMA's modified cash financial statements were reclassified to the GASB presentation for external financial reporting purposes in these financial statements. In addition, adjustments were made to convert patient receivables and Other Post-employment Benefits Obligations from the modified cash basis to accrual basis.

- 48 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

During fiscal year 2016, AUMA distributed approximately $100.8 million to the Institution for restricted and unrestricted purposes, including collections for medical services provided to patients. Note 13 of this financial report provides information on related party leases between AUMA (listed as MCG-PPG, CRC LLC) and the Institution.

Patient Receivables For the year 2016, patient receivables amounted to $10,535,982, which is net of uncollectible amounts of $48,016,723.

Investments for Component Units: Investments are comprised of the following amounts at June 30, 2016:

Cost

Fair Value

Certificates of Deposit Government and Agency Securities Corporte Bonds Equity Securities Mutual Funds Joint Ventrues/Partnerships Board of Regents Short-Term Fund

$

6,999,101 $

7,002,565

11,588,501

11,750,847

11,368,117

12,067,476

7,288,642

9,704,850

1,192,584

1,561,700

435,000

1,270,491

6,273,349

6,280,747

Total Investments

$ 45,145,294 $

Capital Assets for Component Units: PPG held the following Capital Assets as of June 30, 2016:

49,638,676

Capital Assets not being Depreciated: Land (and other assets)

June 30, 2016

$

4,044,523

Capital Assets being Depreciated: Buildings and Building Improvements Machinery and Equipment
Total Capital Assets being Depreciated/Amortized

3,585,200 10,208,231 13,793,431

Less Total Accumulated Depreciation/Amortization

10,528,475

Total Capital Assets being Depreciated, Net

3,264,956

Capital Assets, net

$

7,309,479

- 49 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Long-Term Liabilities for Component Units: Changes in long-term liabilities for component units for the fiscal year ended June 30, 2016 are show below:

Notes and Loans Payable Note Premium Other Post-Employment Benefit Obligation

Balance July 1, 2015

Additions

Reductions

Balance June 30, 2016

Amounts due within One Year

$ 24,490,000

$

2,262,660

$ 5,274,929

810,000 $ 196,729

23,680,000 $ 2,065,931 5,274,929

835,000

Total Long Term Liablilities

$ 26,752,660 $ 5,274,929 $ 1,006,729 $ 31,020,860 $ 835,000

Notes and Loans Payable: In 2004, the CRC issued a total of $32,870,000 Development Authority of Richmond County Education Facilities Revenue Bonds (the 2004 Bonds), Series 2004A and Series 2004B. Proceeds from the 2004 Bonds provided the funds to finance the cost of the construction of a portion of a cancer research center building on the campus of Augusta University. Semi-annual interest payments at interest rates range from 2.5% to 5.0%.

On October 30, 2014, CRC issued the Development Authority of Richmond County Revenue Refunding Bonds (the 2014 Bonds), Series 2014A, in the amount of $24,490,000. Proceeds of the Series 2014 Bonds were used to refund all of the 2004 Bonds, fund a debt service reserve fund for the Series 2014 Bonds, and pay the cost of issuing the 2014 Series Bonds, Semi-annual interest payments at interest rates range from 3.0% to 5.0%.
The effective interest rate at June 30, 2016 was 2.93%. Principal payments are due annually through December 2034.

Annual debt services requirements to maturity for Notes and Loans payable are as follows:

Year ending June 30: 2017 2018 2019 2020 2021 2022 through 2026 2027 through 2031 2032 through 2036

Year
1$ 2 3 4 5 6 - 10 11 - 15 16 - 20

Principal
835,000 865,000 905,000 945,000 970,000 5,585,000 6,940,000 6,635,000

Total Minimum Lease Payments

23,680,000

Less: Interest

2,065,931

Principal Outstanding

$ 21,614,069

- 50 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Post-Employment Benefits Other Than Pension Benefits
Plan Description and Funding Policy The Augusta University Medical Associates Retiree Plan (Plan) is a single-employer, defined-benefit, healthcare plan administered by the Medical College of Georgia Physicians Practice Group Foundation d/b/a Augusta University Medical Associates & Subsidiaries. The following description of the Plan provides only general information. Participants should refer to the Plan agreement for a complete description of the Plan's provisions.

Non-Faculty Participants Employees must attain age 60 with 10 years of service at retirement. No retiree contributions are required for non-faculty employees who attain age 60 with 20 years of services. Spouses of eligible retirees are covered during the retiree's lifetime. All benefits cease upon the death of the retiree.

Faculty Participants Employees who meet the university's retirement eligibility must have 10 years of service with Augusta University Medical Associates at retirement to receive lifetime benefits. If the eligible retiree has less than 10 years of service, temporary benefits are payable for the number of years equal to the retiree's years of service. The university's retirement eligibility is either the attainment of age 60 with 10 years of service with the university or the attainment of 25 years of service with the university. Spouses are covered for the same period that the retiree is covered. Additionally, a spouse of a retiree who is eligible for lifetime benefits is covered for 10 years following the retiree's death.

Membership of the Plan consisted of the following at June 30, 2016:

Non-Faculty Participants Actives (Covered) Actives (Not Covered) Retiress (Covered)
Faculty Participants Actives (Covered) Actives (Not Covered) Retirees (Covered) Retirees (Fringe Benefits Only) Surviving Spouses (Covered)

276 47 26
469 40
218 12 34

The benefits of the Plan are funded on a pay-as-you-go basis. The company funds on a cash basis as benefits are paid. No assets have been segregated and restricted to provide for postemployment benefits.

- 51 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Retiree contributions are assumed to increase at the health care cost trend rate. Non-faculty retirees and their spouses contribute 25% of the group premium rate below if the retiree is eligible for benefits but has less than 20 years of service. There are no other retiree contributions. For the fiscal year ended 2016, the Augusta University Medical Associates contributed $20,853,454 to the plan, for current premiums or claims. Plan members receiving benefits contributed $1,176,526 for current premiums or claims.

Pre-65 Non-Faculty Annual Premium Post-65 Non-Faculty Annual Premium

Retiree
$ 7,149 $ 4,647

Medical and fringe benefit claims cost with trend rate for future increases:

Spouse
$ 8,936 $ 5,808

Annual Cost

Trend Rate

Non-Faculty Participants Pre-65 Medical Claims - per Retiree/Spouse Post-65 Medical Claims - per Retiree/Spouse

$ 13,725 8% graded *

$

4,118 8% graded *

Faculty Participants Pre-65 Premium Reimbursement - per Retiree Retired before January 1, 2010 Retired on or after January 1, 2010 Pre-65 Premium Reimbursement - per Spouse Retired before January 1, 2010 Retired on or after January 1, 2010 Pre-65 Medical Reimbursement - per Retiree/Spouse Post-65 Total Reimbursement - per Retiree/Spouse Tuition Benefit - per Retiree Membership Dues Benefit - per Retiree
* - 8% graded uniformly to 5% over a 10 year period

$

3,052 8% graded *

$

1,277 8% graded *

$

3,406 8% graded *

$

1,427 8% graded *

$

2,324 8% graded *

$

1,000 No Increase

$

722

7%

$

147

2.50%

Annual OPEB Cost and Net OPEB Obligation The annual OPEB cost (expense) (AOC) for the Plan is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed 30 years.

- 52 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

The following table presents the components of the company's annual OPEB cost, the amount actually contributed, and changes in the net OPEB obligation (NOO) for the Plan for fiscal year 2016:

Annual Required Contribution Interest on Net OPEB Obligation (NOO) Amortization of NOO
Total Expense or Annual OPEB Cost (AOC) Actual Contribution Toward OPEB Cost
Increase in NOO Net OPEB Obligation, beginning of year Prior Year Adjustment

$

6,451,455

0

0

6,451,455

-1,176,526

5,274,929

0

0

Net OPEB Obligation, end of year

$

5,274,929

The company's annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan and the net OPEB obligation for the Plan were as follows:

Fiscal Year Ended

Annual OPEB Cost

Contribution

2016

$

6,451,455 $ 1,176,526

Percentage of Annual OPEB Cost
Contributed

18.2%

$

Net OPEB Obligation
5,274,929

Funded Status, Funding Progress, and Actuarial Methods and Assumptions

Actuarial Valuation
Date
6/30/2016

Actuarial Value of Assets
(a)

$

0$

Actuarial Accrued Liability (ALL) Entry Age
(b)
44,838,509 $

Unfunded AAL
(UAAL) (b-a)
44,838,509

Funded Ratio (a/b)
0.0% $

Annual Covered Payroll
( c )
20,853,454

UAAL as a Percentage of Covered
Payroll ((b-a)/c)
215.0%

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trends. Actuarially determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress with multi-year trend information is presented as required supplementary information following the notes to the financial statements.
The multi-year trend schedules indicate whether the actuarial values of plan assets are increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

- 53 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and Plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

Summary of actuarial assumptions

Valuation date June 30, 2016

Actuarial valuation method Entry Age Normal Actuarial Cost Method. A method under which the actuarial value of the projected benefits of each individual included in the actuarial valuation is allocated on a level basis over the earnings of the individual between entry age and assumed exit age(s).

Asset valuation method Not applicable

Mortality rates RP-2014 mortality tables, adjusted to 2006, with generational mortality improvement projected after year 2006 using Scale MP-2016.

Disability rates None assumed

Withdrawal rates:

Less than

1 Year

1 to 3 Years 4 to 8 Years

9+ Years

Age

of Service of Service

of Service

of Service

25

10.87%

8.57%

30

9.31%

6.79%

35

8.39%

5.51%

40

7.95%

5.17%

45

7.74%

4.73%

50

7.80%

4.45%

55

6.76%

3.91%

60

6.81%

3.92%

65

0.00%

0.00%

6.48% 4.19% 3.57% 3.01% 2.91% 2.66% 1.29% 1.06% 0.00%

4.37% 2.42% 2.51% 2.07% 1.87% 1.75% 0.44% 0.10% 0.00%

- 54 -

AUGUSTA UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "F"

Retirement rates:

Age

Non-Faculty

55 - 59 60
61 - 64 65
66 - 69 70 - 74
75

0% 35% 25% 35% 50% 100% 100%

Discount rate 4.5 per annum

Faculty
5% 20% 15% 25% 25% 50% 100%

Salary increases Not applicable

Expected long-term rate of return on plan assets Not applicable

Age variance Medical claims were adjusted downward 3% each year for aging for attained ages 55 to 65, while claims were increased by 3% each year for aging for attained ages 65 to 75.

Non-Faculty Participants Pre-65 Medical Claims - per Retiree/Spouse Post-65 Medical Claims - per Retiree/Spouse

Annual Cost

Trend Rate

$

13,725 8% graded *

$

4,118 8% graded *

Faculty Participants Pre-65 Premium Reimbursement - per Retiree Retired before January 1, 2010 Retired on or after January 1, 2010 Pre-65 Premium Reimbursement - per Spouse Retired before January 1, 2010 Retired on or after January 1, 2010 Pre-65 Medical Reimbursement - per Retiree/Spouse Post-65 Total Reimbursement - per Retiree/Spouse Tuition Benefit - per Retiree Membership Dues Benefit - per Retiree

$

3,052 8% graded *

$

1,277 8% graded *

$

3,406 8% graded *

$

1,427 8% graded *

$

2,324 8% graded *

$

1,000 No Increase

$

722

7%

$

147

2.50%

* - 8% graded uniformly to 5% over a 10 year period

- 55 -

REQUIRED SUPPLEMENTARY INFORMATION - 56 -

SUPPLEMENTARY INFORMATION - 66 -

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SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

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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
August 7, 2017

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 Augusta University
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 business-type activities and aggregate discretely presented component units of Augusta University as of and for the year ended June 30, 2016 and the related notes to the financial statements, and have issued our report thereon dated August 7, 2017.
Our report includes a reference to other auditors who audited the financial statements of the aggregate discretely presented component units as described in our report on the Augusta University's basic financial statements.
The financial statements of the Medical College of Georgia Foundation, Inc. and The Medical College of Georgia Physicians Practice Group Foundation were audited in accordance with auditing standards generally accepted in the United States of America, but were not audited in accordance with Government Auditing Standards, and accordingly, this report does not include reporting on internal control over financial reporting or instances of reportable noncompliance associated with those entities.
This report includes our consideration of the results of other auditors' testing of internal control over financial reporting and compliance and other matters that are reported on separately by those other auditors. However, this report, insofar as it relates to the results of the other auditors is based solely on the reports of the other auditors.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered Augusta 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

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statements, but not for the purpose of expressing an opinion on the effectiveness of the Augusta University's internal control. Accordingly, we do not express an opinion on the effectiveness of Augusta 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. 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 and other auditors 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 2016-001 that we consider to be a significant deficiency.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Augusta University's financial statements are free from material misstatement, we and other auditors 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 and those of other auditors disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
We noted certain matters that were reported to management of Augusta University in a separate letter.
Augusta University's Response to Findings
Augusta University's response to the finding identified in our audit is described in the accompanying Schedule of Findings and Questioned Costs. Augusta University's response to Findings 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,
Greg S. Griffin State Auditor

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SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

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AUGUSTA UNIVERSITY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS 2015-001

Partially resolved See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES
CAPITAL ASSETS Inadequate Internal Control over Capital Assets Finding Control Number: FS 2015-001
The previously implemented corrective action only partially resolved the deficiency and continued efforts to maintain accurate property records and complete an annual inventory in accordance with the Board of Regents Business Procedures Manual physical inventory requirements are being made. These include mandatory training for all property control managers, inventory being performed throughout the year rather than annually, and inventory results being tested on a sample basis. We anticipate this finding will be resolved by fiscal year end 2017.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported

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SECTION IV CURRENT YEAR FINDINGS AND QUESTIONED COSTS

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AUGUSTA UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2016

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FS 2016-001 Internal Controls over Capital Assets

Control Category: Internal Control Impact: Compliance Impact: Repeat of Prior Year Finding:

Capital Assets Significant Deficiency None FS 2015-001

Description: Capital asset activity recorded by the Institution contained significant errors and omissions.

Criteria: The Institution should maintain capital asset records in accordance with capitalization guidelines and instructions provided in Section 7 of the Board of Regents' Business Procedures Manual.

Condition: A sample of forty equipment items revealed two items that could not be located, resulting in a projected misstatement in the amount of $4,063,915. In addition, the asset location was not properly updated within the accounting system for four assets and one asset included on the listing had an incorrect serial number.

Cause: In discussing these issues with Institution management, they stated that the deficiencies were attributable to assistant equipment control officers in five departments not properly updating their physical inventory listings.

Effect or Potential Effect: The breakdown of internal control by the Institution over maintaining capital assets could result in potential misappropriation of assets and misrepresentation of the Institution's financial position and results of operations.

Recommendation: The Institution should review its accounting controls and procedures over the recording of capital assets and ensure appropriate documentation is complete so that capital assets are properly maintained and accurately recorded.

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 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: Greg Woodlief

Title:

Senior Manager of Purchasing and Contracts

Telephone: (706) 721-2213

Fax:

(706) 723-0303

Email:

gwoodlief@augusta.edu