DARTON STATE COLLEGE
ALBANY, GEORGIA
MANAGEMENT REPORT FOR FISCAL YEAR ENDED JUNE 30, 2014
A Member Institution of the University System of Georgia
Georgia Department of Audits and Accounts Greg S. Griffin State Auditor

DARTON STATE COLLEGE - TABLE OF CONTENTS -

SECTION I
FINANCIAL
LETTER OF TRANSMITTAL
SELECTED FINANCIAL INFORMATION
EXHIBITS
A STATEMENT OF NET POSITION - (GAAP BASIS)
B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION (GAAP BASIS)
C STATEMENT OF CASH FLOWS - (GAAP BASIS)
D SELECTED FINANCIAL NOTES
SUPPLEMENTARY INFORMATION
SCHEDULES
1 BALANCE SHEET - (STATUTORY BASIS) BUDGET FUND 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT
(STATUTORY BASIS) BUDGET FUND 3 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET
BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND
4 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND
5 RECONCILIATION OF BUDGET TO GAAP 6 RECONCILIATION OF SALARIES AND TRAVEL

Page
2 3 4 5
18 19 20 22 24 25

SECTION II FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS

SECTION I FINANCIAL

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
January 8, 2015

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the State Board of Regents of the University System of Georgia
and Honorable Paul Jones, Interim President Darton State College
Ladies and Gentlemen:
As part of our audits of the basic financial statements of the University System of Georgia presented in the Annual Financial Report for the University System of Georgia, the basic financial statements of the State of Georgia presented in the State of Georgia Comprehensive Annual Financial Report and the issuance of a State of Georgia Single Audit Report pursuant to the Single Audit Act Amendments, as of and for the year ended June 30, 2014, we have performed certain audit procedures at Darton State College. Accordingly, the financial statements and compliance activities of Darton State College were examined to the extent considered necessary in order to express an opinion as to the fair presentation of the financial statements contained in the foregoing documents and to issue reports on compliance and internal control as required by the Single Audit Act Amendments of 1996.
This Management Report contains information pertinent to the financial and compliance activities of Darton State College as of and for the year ended June 30, 2014. Information contained in this report is a by-product of our audits of the basic financial statements of the University System of Georgia and the basic financial statements of the State of Georgia and is the representation of management. Accordingly, we do not express an opinion or any other form of assurance on it. The particular information provided which includes a section on findings and other items reported in accordance with Commission on Colleges regulation 2.11.1 is enumerated in the Table of Contents.
This report is intended solely for the information and use of the management of Darton State College, members of the Board of Regents of the University System of Georgia and the Southern Association of Colleges and Schools - Commission on Colleges and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

GSG:as

Greg S. Griffin State Auditor

SELECTED FINANCIAL INFORMATION - 1 -

DARTON STATE COLLEGE STATEMENT OF NET POSITION - (GAAP BASIS)
JUNE 30, 2014
ASSETS
Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Inventories
Total Current Assets
Noncurrent Assets Due from USO - Capital Liability Reserve Fund Capital Assets, Net (Note 4)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Deposits Advances (Including Tuition and Fees) (Note 5) Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences
Total Current Liabilities
Noncurrent Liabilities Lease Purchase Obligations Advances Compensated Absences
Total Noncurrent Liabilities
Total Liabilities
NET POSITION
Net Investment in Capital Assets Unrestricted
Total Net Position

EXHIBIT "A"

$

6,084,695

139,362 1,682,840
14,110

7,921,007

307,038 76,487,113
76,794,151
84,715,158

423,929 76,084
252,900 1,980,726
903,767 380,681 560,470
4,578,557
44,330,802 300,000 501,568
45,132,370
49,710,927

31,775,630 3,228,601

$

35,004,231

- 2 -

DARTON STATE COLLEGE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION - (GAAP BASIS)
YEAR ENDED JUNE 30, 2014

EXHIBIT "B"

OPERATING REVENUES
Student Tuition and Fees Less: Scholarship Allowances
Grants and Contracts Federal State Other
Sales and Services of Educational Departments Rents and Royalties Auxiliary Enterprises
Residence Halls Bookstore Food Services Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Loss
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal Gifts Investment Income (Endowments, Auxiliary and Other) Interest Expense (Capital Assets) Other Nonoperating Expenses
Net Nonoperating Revenues
Loss Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts State Other
Total Other Revenues, Expenses, Gains, or Losses
Decrease in Net Position
Net Position - Beginning of Year
Net Position - End of Year
- 3 -

$

19,838,165

-8,315,329

531,139 1,517,343
727,834 189,435
2,155

2,825,825 132,199
1,333,660 43,613
1,272,052 166,715 218,773

20,483,579

10,478,900 10,736,850
6,330,413 174,579 200,611
9,175,271 1,417,380 9,795,207 3,470,072
51,779,283
-31,295,704

14,948,189
15,363,747 374,933 9,800
-2,881,135 -893,919
26,921,615
-4,374,089
1,086,150 100,000
1,186,150
-3,187,939
38,192,170

$

35,004,231

DARTON STATE COLLEGE STATEMENT OF CASH FLOWS - (GAAP BASIS)
YEAR ENDED JUNE 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Health Services Intercollegiate Athletics Other Organizations Other Payments, Net
Net Cash Used by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Other Nonoperating Expenses, Net
Net Cash Flows Provided by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Gifts and Grants Received Purchases of Capital Assets Principal Paid on Capital Debt and Leases Interest Paid on Capital Debt and Leases
Net Cash Used by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments
Net Decrease in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES:
Operating Loss Adjustments to Reconcile Operating Loss to Net Cash
Used by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Inventories Accounts Payable Unearned Revenue Other Liabilities Compensated Absences
Net Cash Used by Operating Activities
- 4 -

EXHIBIT "C"

$

11,246,981

3,557,763

189,435

-17,716,966

-21,224,802

-9,175,271

2,804,866 31,998
1,332,326 42,544
1,231,105 166,578 -613,021

-28,126,464

14,948,189 1,988,121
15,738,681 -893,753
31,781,238

1,186,150 -1,887,579
-300,252 -2,881,135
-3,882,816

9,800 -218,242 6,302,937

$

6,084,695

$

-31,295,704

3,470,072
247,616 -5,563
368,274 -882,225
-14,347 -14,587

$

-28,126,464

DARTON STATE COLLEGE SELECTED FINANCIAL NOTES
JUNE 30, 2014

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY Darton State College (College) is one of thirty-one (31) State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of Darton State College as a separate reporting entity.
The Board of Regents has constitutional authority to govern, control and manage the University System of Georgia. This authority includes but is not limited to the power to designate management, the ability to significantly influence operations, the authority to control institutions' budgets, the power to determine allotments of State funds to member institutions and the authority to prescribe accounting systems and administrative policies for member institutions. Darton State College does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Darton State College is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards.
FINANCIAL STATEMENT PREPARATION The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the College's assets, deferred outflow of resources, liabilities, deferred inflows of resources, net position, revenues, expenses, changes in net position and cash flows, if applicable.
BASIS OF ACCOUNTING For financial reporting purposes, the College is considered a special-purpose government engaged only in business-type activities. Accordingly, the College's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues, are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-College transactions have been eliminated.
NEW ACCOUNTING PRONOUNCEMENTS In fiscal year 2014, the College adopted the Governmental Accounting Standards Board (GASB) Statement No. 65, Items Previously Reported as Assets and Liabilities. The provisions of this Statement clarify the use of deferred inflows of resources and deferred outflows of resources. Certain items, including those items which were previously reported as assets and liabilities, will now be reported as outflows of resources or inflows of resources. As of June 30, 2014, the College did not have any deferred outflows of resources or deferred inflows of resources.
In fiscal year 2014, the College adopted Governmental Accounting Standards Board (GASB) Statement No. 66, Technical Corrections - 2012, an amendment to GASB Statements No. 10 and No. 62. The objective of this Statement is to resolve conflicting guidance by amending GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues and GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. GASB Statement No. 10 was amended by removing the provision that limited fund based reporting of an entity's risk and financing activities to certain funds. GASB Statement No. 62 was amended by modifying guidance on (1) operating lease payments that vary from

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DARTON STATE COLLEGE SELECTED FINANCIAL NOTES
JUNE 30, 2014

EXHIBIT "D"

a straight-line basis, (2) purchases of a loan or a group of loans, and (3) recognition of servicing fees on mortgage loans that are sold when the stated service fee rate differs from a current (normal) servicing fee rate. The adoption of this statement does not have a significant impact on the College's financial statements.
In fiscal year 2014, the College adopted Governmental Accounting Standards Board (GASB) Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. This Statement establishes accounting and reporting requirements for state and local governments that extend or receive financial guarantees that are nonexchange transactions. The adoption of this statement does not have a significant impact on the College's financial statements.
FUTURE ACCOUNTING PRONOUNCEMENTS In fiscal year 2015, the College will adopt Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions. The provisions of this Statement establish accounting and financial reporting standards for pensions that are provided to the employees of state and local governmental employers through pension plans that are administered through trusts. Implementation of this Statement will require the College to record a liability for its proportionate share of the Net Pension Liability of pension plans in which it participates. Actuarial estimates are currently being made to determine the College's liability, the effects of which are believed to be material.
NET POSITION The College's net position is classified as follows:
Net Investment in Capital Assets: This represents the College's total investment in capital assets, net of outstanding debt obligations, deferred outflows of resources and deferred inflows of resources related to those capital assets. To the extent debt has been incurred or deferred inflows of resources have been received but not yet expended for capital assets, such amounts are not included as a component of the net investment in capital assets.
Unrestricted: Unrestricted net position represents resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the College and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) of $10,809.93. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the Office of State Treasurer. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff.
NOTE 2: DEPOSITS AND INVESTMENTS
DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the College's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the College) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:

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DARTON STATE COLLEGE SELECTED FINANCIAL NOTES
JUNE 30, 2014

EXHIBIT "D"

1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.

2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.

3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.

4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.

5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association.

6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.

The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.

At June 30, 2014, the carrying value of deposits was $6,074,095 and the bank balance was $7,035,045. Of the College's deposits, $6,785,045 were uninsured. Of these uninsured deposits, $6,785,045 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the College's name.

NOTE 3: ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at June 30, 2014.

Student Tuition and Fees

$

Auxiliary Enterprises and Other Operating Activities

Federal, State and Private Funds

Other

444,536 162,982 139,362 1,768,362

Less Allowance for Doubtful Accounts

2,515,242 693,040

Net Accounts Receivable

$

1,822,202

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DARTON STATE COLLEGE SELECTED FINANCIAL NOTES
JUNE 30, 2014

EXHIBIT "D"

NOTE 4: CAPITAL ASSETS

Following are the changes in the College's capital assets for the year ended June 30, 2014:

Beginning Balance July 1, 2013

Additions

Reductions

Ending Balance June 30, 2014

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

$

989,113

$

1,437,894 $

936,734 $

2,351,851

989,113 22,777

Total Capital Assets, Not Being Depreciated

2,427,007

936,734

2,351,851

1,011,890

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

47,899,663 1,518,927 3,945,525
45,598,056 3,706,294

2,501,267 730,854 70,575

235,268 1,550

50,400,930 1,518,927 4,441,111
45,598,056 3,775,319

Total Assets Being Depreciated
Less: Accumulated Depreciation: Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections

102,668,465
15,797,174 1,338,137 2,862,589 3,776,772 3,251,029

3,302,696
1,247,438 6,279
551,094 1,574,712
90,549

236,818
235,103 1,550

105,734,343
17,044,612 1,344,416 3,178,580 5,351,484 3,340,028

Total Accumulated Depreciation

Total Capital Assets, Being Depreciated, Net

Capital Assets, Net

$

27,025,701 75,642,764 78,069,771 $

3,470,072 -167,376 769,358 $

236,653 165
2,352,016 $

30,259,120 75,475,223 76,487,113

NOTE 5: ADVANCES Current advances consisted of the following at June 30, 2014.
Prepaid Tuition and Fees Other Unearned Revenue
Total Advances

$

1,384,677

596,049

$

1,980,726

Long-term advances totaling $300,000 are related to the donation for the new bookstore facility.

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DARTON STATE COLLEGE SELECTED FINANCIAL NOTES
JUNE 30, 2014

EXHIBIT "D"

NOTE 6: LONG-TERM LIABILITIES

The College's Long-Term Liability activity for the year ended June 30, 2014 was as follows:

Beginning Balance July 1, 2013

Additions

Reductions

Ending Balance June 30, 2014

Current Portion

Leases Lease Obligations

$ 45,011,735

$

300,252 $ 44,711,483 $

380,681

Other Liabilities Compensated Absences

1,076,623 $

760,041

774,626

1,062,038

560,470

Total Long-Term Obligations

$ 46,088,358 $

760,041 $ 1,074,878 $ 45,773,521 $

941,151

NOTE 7: NET POSITION

Changes in Net Position for the year ended June 30, 2014 are as follows:

Beginning Balance July 1, 2013

Additions

Reductions

Ending Balance June 30, 2014

Invested in Capital Assets Net of Related Debt

$

33,058,036 $

1,069,610 $

2,352,016 $

31,775,630

Restricted Net Position

0

18,140,063

18,140,063

0

Unrestricted Net Position

5,134,134

33,156,725

35,062,258

3,228,601

Total Net Position

$

38,192,170 $

52,366,398 $

55,554,337 $

35,004,231

NOTE 8: LEASE OBLIGATIONS

Darton State College is obligated under various operating leases for the use of real property (land, buildings, and office facilities) and equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of real property and equipment.

CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2040 and 2041. Expenses for fiscal year 2014 were $3,181,387 of which $2,881,135 represented interest. Total principal paid on capital leases was $300,252 for the fiscal year ended June 30, 2014. Interest rates range from 5.78 percent to 6.14 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2014:

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DARTON STATE COLLEGE SELECTED FINANCIAL NOTES
JUNE 30, 2014

EXHIBIT "D"

Description
Equipment Buildings - PPV

Outstanding

Net Assets Held

Balances

Under Capital

per Lease

Accumulated

Lease at

Schedules at

Gross Amount

Depreciation

June 30, 2014

June 30, 2014

(+)

(-)

(=)

$

747,060 $

-747,060 $

0$

0

44,850,996

-4,604,424

40,246,572

44,711,483

Total Assets Held Under Capital Lease

at June 30, 2014

$

45,598,056 $ -5,351,484 $ 40,246,572 $ 44,711,483

Darton State College had three capital leases with related entities in the current fiscal year.
In July 2010, the College entered into a capital lease with Georgia Higher Education Facilities Authority whereby the College leases a student center building for a thirty year period that expires June 2040. The liability for the capital lease for the student center was $21,519,240 at June 30, 2014, and the interest rate on the lease is 6.14%
In December 2010, the College entered into a capital lease with the Darton Boosters Inc. to lease the Darton Commons student housing building. The lease is for thirty years and will expire in June 2041. The lease carries an interest rate of 5.78%, and the outstanding balance at June 30, 2014 was $10,337,273.
In July 2011, the College entered into a second capital lease with the Darton Boosters Inc. to lease the Darton Village South student housing building. The lease is for thirty years and will expire in June 2041. The lease carries an interest rate of 5.93% and the outstanding balance at June 30, 2014 was $12,854,970.
OPERATING LEASES Darton State College's noncancellable operating leases provide for renewal options for periods from one to three years at their fair rental value at the time of renewal. All agreements are cancelable if the State of Georgia does not provide adequate funding, but that is considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are generally payable on a monthly basis. Examples of property under operating leases are copiers, other small business equipment, and buildings.
Noncancellable operating lease rental expenses in 2014 were $106,148 for real property and equipment.

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DARTON STATE COLLEGE SELECTED FINANCIAL NOTES
JUNE 30, 2014

EXHIBIT "D"

FUTURE COMMITMENTS Future commitments for capital leases (which here and on the Statement of Net Position includes other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2014, were as follows:

Capital Leases

Operating Leases

Year Ending June 30: 2015 2016 2017 2018 2019 2020 - 2024 2025 - 2039 2030 - 2034 2035 - 2039 2040 - 2041

$

3,050,673 $

3,111,172

3,185,302

3,242,300

3,292,256

17,128,053

17,442,844

17,493,245

17,556,601

5,267,355

95,058 58,203 11,744
2,663

Total Minimum Lease Payments

90,769,801 $

167,668

Less: Interest

46,058,318

Principal Outstanding

$ 44,711,483

NOTE 9: RETIREMENT PLANS

Darton State College participates in various retirement plans administered by the State of Georgia under the Teachers Retirement System of Georgia. The system issued separate publicly available financial reports that include the applicable financial statements and required supplementary information. The reports may be obtained from the system office. The significant retirement plan that Darton State College participates in is described below. More detailed information can be found in the plan agreements and related legislation. The plan, including benefit and contribution provisions, was established and can be amended by State law.

Teachers Retirement System of Georgia

The Teachers Retirement System of Georgia (TRS) is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS.

On October 25, 1996, the Board created the Supplemental Retirement Benefit Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1, 1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits.

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DARTON STATE COLLEGE SELECTED FINANCIAL NOTES
JUNE 30, 2014

EXHIBIT "D"

TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.
Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 30 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available.
TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 10 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2014 were 6.00% of annual salary. Employer contributions required for fiscal year 2014 were 12.28% of annual salary as required by the June 30, 2011 actuarial valuation.
The following table summarizes Darton State College's contributions by defined benefit plan for the years ending June 30, 2014, June 30, 2013, and June 30, 2012:

Fiscal Year

Required Contribution

Percentage Contributed

2014 2013 2012

$ 1,569,657 $ 1,378,667 $ 1,158,177

100% 100% 100%

Regents Retirement Plan
Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 47-21-1 et.seq. and administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts.

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DARTON STATE COLLEGE SELECTED FINANCIAL NOTES
JUNE 30, 2014

EXHIBIT "D"

Funding Policy Darton State College makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2014, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 6% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.
Darton State College and the covered employees made the required contributions of $349,629 (9.24%) and $227,032 (6%), respectively.
AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.
Georgia Defined Contribution Plan
Plan Description Darton State College participates in the Georgia Defined Contribution Plan (GDCP) which is a singleemployer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia.
Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $3,500 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.
Contributions Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member.
Total contributions made by employees during fiscal year 2014 amounted to $129,403 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.
NOTE 10: RISK MANAGEMENT
The University System of Georgia offers its employees and retirees access to four different self-insured healthcare plan options. For the University System of Georgia's Plan Year 2014, the following health care options were available:

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DARTON STATE COLLEGE SELECTED FINANCIAL NOTES
JUNE 30, 2014

EXHIBIT "D"

Blue Choice HMO plan (Blue Cross Blue Shield) HSA Open Access POS plan (Blue Cross Blue Shield) Open Access POS plan Kaiser Permanente HMO plan
College and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these plans are considered to be a self-sustaining risk fund. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WellPoint, to serve as the claims administrator for the self-insured healthcare plan products. In addition to the self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HMO healthcare plan option is also offered to System employees through Kaiser.
The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental loses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. College, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.
A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund.
NOTE 11: CONTINGENCIES
Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditure disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Darton State College expects such amounts, if any, to be immaterial to its overall financial positions.
Litigation, claims and assessments filed against Darton State College (an organizational unit of the Board of Regents of the University System of Georgia), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2014.

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DARTON STATE COLLEGE SELECTED FINANCIAL NOTES
JUNE 30, 2014

EXHIBIT "D"

NOTE 12: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 20-3-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.
The Board of Regents Retiree Health Benefit Plan is a single employer defined benefit plan. Financial statements and required supplementary information for the Plan are included in the publicly available Consolidated Annual Financial Report of the University System of Georgia. The College pays the employer portion of health insurance for its eligible retirees based on rates that are established annually by the Board of Regents for the upcoming plan year. For the 2014 plan year, the employer rate was between 70-75% of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%.
As of June 30, 2014, there were 105 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2014, Darton State College recognized as incurred $498,123 of expenditures, which was net of $195,384 of participant contributions.
NOTE 13: AFFILIATED ORGANIZATIONS
The Darton State College Foundation, Inc., and the Darton Boosters Inc. are legally separate, tax exempt organizations whose activities primarily support Darton State College. These affiliated organizations are considered potential component units of the State of Georgia in accordance with GASB Statement No. 61, The Financial Reporting Entity: Omnibus - an amendment of GASB Statements No. 14 and No. 34, and GASB Statement No. 39, Determining Whether Certain Organizations are Component Units. Therefore, the financial statements of the affiliated organizations are not included in these financial statements. Copies of the financial statements for the affiliated organizations may be obtained from Darton State College.

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SUPPLEMENTARY INFORMATION - 17 -

DARTON STATE COLLEGE BALANCE SHEET (STATUTORY BASIS)
BUDGET FUND JUNE 30, 2014
ASSETS
Cash and Cash Equivalents Accounts Receivable
Federal Financial Assistance Other Inventories
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Advances (Including Tuition and Fees)
Total Liabilities
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Uncollectible Accounts Receivable Tuition Carry-Over Inventories Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

$

1,752,795.71

139,361.59 1,637,534.31
14,110.83

$

3,543,802.44

$

69,849.79

364,407.07

37,499.82

1,559,335.44

2,031,092.12

47,649.27 279,527.90 231,457.94 598,511.16 342,564.69
2,189.43
10,809.93
1,512,710.32

$

3,543,802.44

Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 18 -

DARTON STATE COLLEGE SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (STATUTORY BASIS)
BUDGET FUND YEAR ENDED JUNE 30, 2014

SCHEDULE "2"

REVENUES
State Appropriation State General Funds
Other Funds
Total Revenues
CARRY-OVER FROM PRIOR YEARS
Transfers from Reserved Fund Balance
Total Funds Available
EXPENDITURES
Teaching
Excess of Funds Available over Expenditures
FUND BALANCE JULY 1
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Unreserved Fund Balance (Surplus) Returned
to Board of Regents - University System Office Year Ended June 30, 2013
Prior Year Reserved Fund Balance Included in Funds Available
FUND BALANCE JUNE 30

BUDGET

ACTUAL

VARIANCE FAVORABLE (UNFAVORABLE)

$ 15,537,414.00 $ 15,537,414.00 $

0.00

37,780,303.00

35,387,043.65

-2,393,259.35

53,317,717.00

50,924,457.65

-2,393,259.35

0.00 53,317,717.00

744,989.67 51,669,447.32

744,989.67 -1,648,269.68

53,317,717.00

$

0.00

50,621,822.59

2,695,894.41

1,047,624.73 $ 1,047,624.73

1,211,589.58 589,224.61

-1,514.32
-589,224.61 -744,989.67 $ 1,512,710.32

SUMMARY OF FUND BALANCE
Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Uncollectible Accounts Receivable Tuition Carry-Over Inventories
Total Reserved
Unreserved Surplus
Total Fund Balance

$

47,649.27

279,527.90

231,457.94

598,511.16

342,564.69

2,189.43

1,501,900.39

10,809.93

$ 1,512,710.32

Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 19 -

DARTON STATE COLLEGE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE
(STATUTORY BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2014

Teaching State Appropriation State General Funds Other Funds
Total Teaching

Original Appropriation

Amended Appropriation

Final Budget

Current Year Revenues

$

15,537,414.00 $ 15,537,414.00 $ 15,537,414.00 $ 15,537,414.00

36,360,303.00

36,905,303.00 37,780,303.00 35,387,043.65

$

51,897,717.00 $ 52,442,717.00 $ 53,317,717.00 $ 50,924,457.65

Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 20 -

SCHEDULE "3"

Funds Available Compared to Budget

Prior Year

Adjustments and

Total

Carry-Over

Program Transfers Funds Available

Variance Positive (Negative)

Expenditures Compared to Budget

Variance

Actual

Positive (Negative)

Excess of Funds Available Over Expenditures

$

0.00 $

744,989.67

0.00 $ 15,537,414.00 $ 0.00 36,132,033.32

0.00 $ 15,535,910.80 $ -1,648,269.68 35,085,911.79

1,503.20 $ 2,694,391.21

1,503.20 1,046,121.53

$ 744,989.67 $

0.00 $ 51,669,447.32 $

-1,648,269.68 $ 50,621,822.59 $

2,695,894.41 $

1,047,624.73

- 21 -

DARTON STATE COLLEGE STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE
(STATUTORY BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2014

Teaching State Appropriation State General Funds Other Funds
Total Operating Activity
Prior Year Reserves Not Available for Expenditure Inventories Uncollectible Accounts Receivable

Beginning Fund Balance July 1

Fund Balance Carried Over from
Prior Period as Funds Available

Return of Fiscal Year 2013
Surplus

Prior Period Adjustments

$

1,461.24 $

1,332,753.04

1,334,214.28

0.00 $ -744,989.67
-744,989.67

-1,461.24 $ -587,763.37
-589,224.61

0.00 -1,514.32
-1,514.32

11,276.25 455,323.66

0.00 0.00

0.00 0.00

0.00 0.00

Budget Unit Totals

$ 1,800,814.19 $

-744,989.67 $

-589,224.61 $

-1,514.32

Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 22 -

SCHEDULE "4"

Other Adjustments

Early Return Fiscal Year 2014
Surplus

Excess of Funds Available Over Expenditures

Ending Fund Balance June 30

Analysis of Ending Fund Balance

Reserved

Surplus

Total

$

9,086.82 $

-143,187.50

-134,100.68

-9,086.82 143,187.50

$

0.00 $

0.00 $ 0.00
0.00

1,503.20 $ 1,046,121.53
1,047,624.73

10,590.02 $ 901,419.71
912,009.73

0.00 $ 901,199.80
901,199.80

10,590.02 $ 219.91
10,809.93

10,590.02 901,419.71
912,009.73

0.00 0.00

0.00 0.00

2,189.43 598,511.16

2,189.43 598,511.16

0.00 0.00

2,189.43 598,511.16

0.00 $

1,047,624.73 $

1,512,710.32 $ 1,501,900.39 $

10,809.93 $ 1,512,710.32

Summary of Ending Fund Balance Reserved
Department Sales and Services Indirect Cost Recoveries Technology Fees Uncollectible Accounts Receivable Tuition Carry-Over Inventories Unreserved Surplus
Total Ending Fund Balance - June 30

$

47,649.27

279,527.90

231,457.94

598,511.16

342,564.69

2,189.43

$

$ 1,501,900.39 $

$

47,649.27

279,527.90

231,457.94

598,511.16

342,564.69

2,189.43

10,809.93

10,809.93

10,809.93 $ 1,512,710.32

- 23 -

DARTON STATE COLLEGE RECONCILIATION OF BUDGET TO GAAP
JUNE 30, 2014

SCHEDULE "5"

Presented below is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Position of business-type activities, as reported on Exhibit A.

Total Fund Balances - Budget Fund - Non-GAAP Basis (Schedule "1")

$ 1,512,710.32

Amounts reported for Business-Type Activities in the Statement of Net Position are different because:

Capital Assets used in Business-Type Activities are not reported in the Budget Fund.

76,487,113.00

Uncollectible accounts receivable are reported as an asset and reserved fund balance in the Budget Fund and as a contra-asset account on the Statement of Net Position.

-598,511.16

Agency Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Agency Fund Activity

$

981,001.80

-981,001.80

0.00

Auxiliary Enterprises Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Auxiliary Enterprises Fund Activity

$ 1,602,444.95 -884,863.98

717,580.97

Student Activities Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Student Activity Fund Activity

$ 2,699,313.20 -288,099.78

2,411,213.42

The budgetary basis of accounting implemented by the State of Georgia recognizes expenditures when encumbered. The following adjustments were made to eliminate this activity for reporting on the Statement of Net Position. Payables reported in the Budget Fund that are based on encumbrances are eliminated for GAAP reporting. Payables for goods and services provided in the current fiscal year reported in the Budget Fund as encumbrances payable are reported as accounts payable for GAAP reporting. Total Net Effect of Encumbrance Activity

$

364,407.07

-116,756.80

247,650.27

Certain Liabilities are not due and payable in the current period and therefore are not reported as liabilities in the Budget Fund. Capital Leases Payable Compensated Absences Payable Total Liabilities

$ -44,711,484.00 -1,062,038.00

-45,773,522.00

Rounding

-3.82

Net Position of Business-Type Activities (Exhibit "A")

$ 35,004,231.00

The supplementary information presented on Schedules 1, 2, 3 and 4 was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework. The information was derived from, and relates directly to, the same information used to prepare the financial statements. However, the budgetary statutes and regulations of the State of Georgia require reporting of certain information that is not in accordance with generally accepted accounting principles. Presented on this schedule is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Position of business-type activities, as reported on Exhibit A.
- 24 -

DARTON STATE COLLEGE RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2014

SCHEDULE "6"

Totals per Annual Supplement
Accruals June 30, 2014 June 30, 2013
Compensated Absences June 30, 2014 June 30, 2013
Adjustments Shared Services on Jointly Staffed Personnel Armstrong Atlantic State University McCarthy, Michael Georgia College and State University Crawley, Cathy Jones, Paul Georgia Southwestern State University Story-Huffman, Mary South Georgia State College Buehrer, Danielle DiNicola, Andrew
Rounding Variance

SALARIES $ 20,997,673.26 $

TRAVEL 200,611.18

76,083.61 -63,014.86

986,565.85 -1,000,115.00

12,756.54
7,277.97 189,308.52
2,753.94
5,651.63 807.37
1.17

-0.18

$ 21,215,750.00 $

200,611.00

- 25 -

SECTION II FINDINGS, QUESTIONED COSTS AND OTHER ITEMS

DARTON STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS
YEAR ENDED JUNE 30, 2014

COMMUNICATION OF INTERNAL CONTROL DEFICIENCIES

The auditor is required to communicate to management and those charged with governance control deficiencies identified during the course of the financial statement audit that, in the auditor's judgment, constitute significant deficiencies or material weakness.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below:

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

No matters were reported.

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FA-570-14-01 Weaknesses in Logical Access IT General Controls

Compliance Requirement:
Internal Control Impact: Compliance Impact: Federal Awarding Agency: CFDA Number and Title:

Activities Allowed or Unallowed Eligibility Significant Deficiency N/A U. S. Department of Education 84.SFA Student Financial Assistance Cluster Program

Description: College policies and procedures were insufficient to provide adequate internal controls over logical access IT general controls.

Criteria: Management of the College is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are properly processed and reported.

Condition: Our review of the established internal control structure associated with significant financial applications at the College revealed design and operating effectiveness deficiencies in logical access controls intended to protect financial and student financial assistance information from unauthorized access, manipulation and corruption.

The details related to these deficiencies have been provided to College Management in accordance with Official Code of Georgia Annotated 50-6-9.

- 1 -

DARTON STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS
YEAR ENDED JUNE 30, 2014

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Cause: In discussing these deficiencies with the College, they stated that the cause was directly related to ineffective policies and failure to adequately monitor general security settings and user access to the financial application.

Effect or Potential Effect: Failure to maintain adequate internal controls related to logical access increases the risk that misappropriation of assets, fraud, errors, irregularities and/or noncompliance with Federal regulations could occur.

Recommendation: Management should review and enhance their policies and procedures to ensure the integrity and accuracy of the information used within the financial statements and as part of awarding financial assistance to students. Additionally, management should ensure proper separation of duties as it relates to financial and student financial assistance processes.

Views of Responsible Officials and Corrective Action Plans: We concur with this finding. Darton State College (DSC) revised the security group for all Financial Aid Personnel to allow query access only for student creation and Financial Aid Package Maintenance. Security controls have been enacted to prevent granting modify access of the Financial Aid Package Maintenance to any user except by the express approval of the primary Security Administrator.

Contact Person: Tracy Cosper, CTO Telephone: 229-317-6975 Email: tracy.cosper@darton.edu

FA-570-14-02 Overpayment of Student Financial Assistance

Compliance Requirement: Internal Control Impact: Compliance Impact: Federal Awarding Agency: CFDA Number and Title:

Eligibility Significant Deficiency Nonmaterial Noncompliance U. S. Department of Education 84.SFA Student Financial Assistance Cluster

Description: The College's Student Financial Assistance Office improperly determined the financial need of eligible students.

Criteria: Provisions included in 34 CFR 668 provide general provisions for administering Student Financial Assistance (SFA) programs and 34 CFR 675, 676, 685, and 690 provide eligibility and other related program requirements that are specific to the Federal Work-Study program, Federal Supplemental Educational Opportunity Grant (SEOG), Federal Direct Loan Program, and Federal Pell Grant Program, respectively.

- 2 -

DARTON STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS
YEAR ENDED JUNE 30, 2014
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Condition: A sample of 60 financial assistance files was selected to determine if financial assistance was properly calculated and disbursed to eligible students. The following deficiencies were noted:
1. One student in the sample received Direct Unsubsidized Student Loans before the Subsidized need-based loan limit was reached.
2. One student in the sample received additional funds in the form of a stipend that was not included in other resources available to the student in the calculation of need.
3. One student in the sample was awarded based upon the incorrect Cost of Attendance (COA) budget as the student was considered a dependent while an independent COA budget was utilized.
4. One student in the sample was not in compliance with the College's published satisfactory academic progress policies. Federal regulations (34 CFR 668.32 and 668.34) state that a student is eligible to receive financial assistance under Title IV programs if satisfactory academic progress is maintained. The student failed to meet the quantitative requirement of satisfactory academic progress, which resulted in SFA over disbursements totaling $2,722.00.
Questioned Cost: Questioned costs of $2,722.00, with likely questioned costs of $220,372.58, were identified for the students who received student financial assistance in excess of their eligible need.
Cause: In discussing this condition with Darton State College officials, they stated that this deficiency occurred as a result of processing errors within the student information system.
Effect or Potential Effect: The College was not in compliance with Federal regulations concerning awarding of SFA funds to students.
Recommendation: The College should review its processes and procedures for determining each student's financial aid eligibility. Where vulnerable, the College should develop and/or modify its policies and procedures to ensure that correct amounts will be awarded to students in conformity with financial need requirements. Additionally, the College should develop and implement a monitoring process to ensure that controls are properly implemented. The College should also contact the U.S. Department of Education regarding resolution of this finding.
Views of Responsible Officials and Corrective Action Plans: We concur with this finding. Darton State College (DSC) has implemented new procedures and processes that began during the fall 2014 semester, which fell outside the scope of this engagement. This automated award process will prevent the incorrect awarding of unsubsidized loans prior to meeting the subsidized loan limit and will also ensure the correct cost of attendance calculations. We are developing internal monitoring reports as a check on our processes as well.
- 3 -

DARTON STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS
YEAR ENDED JUNE 30, 2014

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

DSC began using an automated satisfactory academic progress (SAP) policy and we have developed multiple internal monitoring reports that allow us to check for possible errors. We monitor this process and make adjustments as needed. This will prevent the incorrect application of the DSC SAP policy going forward.

We have implemented a new procedure regarding the awarding of honors student stipends that will prevent the awarding of additional funds going forward.

Contact Person: Helen Catt, Director of Financial Aid Telephone: 229-317-6951 Fax: 229-317-6607 Email: helen.catt@darton.edu

FA-570-14-03 Verification Process

Compliance Requirement: Internal Control Impact: Compliance Impact: Federal Awarding Agency: CFDA Number and Title:

Special Tests and Provisions Significant Deficiency Nonmaterial Noncompliance U. S. Department of Education 84.SFA Student Financial Assistance Cluster

Description: The College's Student Financial Assistance Office failed to meet student verification requirements.

Criteria: Provisions included in 34 CFR 668 provide the compliance requirements for the verification process that the College should follow for students who receive financial aid and identifies what documentation is acceptable.

Condition: A sample of 29 students selected for verification revealed the following deficiencies:

1. Two students' tax returns did not agree to their most recent Institutional Student Information Report (ISIR). One student's Expected Family Contribution was calculated incorrectly, which resulted in SFA over disbursements totaling $150.00.

2. One student's child support paid per their verification form did not agree to their most recent ISIR.

Questioned Cost: Questioned costs of $150.00, with likely questioned costs of $11,651.78, were identified for the students who received student financial assistance in excess of their eligible need.

Cause: In discussing this condition with Darton State College officials, they stated that this deficiency was caused by the inaccurate processing of supporting documentation in performing the verification process.

- 4 -

DARTON STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS
YEAR ENDED JUNE 30, 2014

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Effect or Potential Effect: Without properly verifying the information in the selected student files, the College is in noncompliance with program provisions and places itself in a position to award students incorrectly.

Recommendation: The College should develop and implement procedures to ensure that verification requirements are met. The College should also contact the U.S. Department of Education regarding resolution of this finding.

Views of Responsible Officials and Corrective Action Plans: We concur with this finding. Darton State College (DSC) is performing process mapping of our verification processes and reorganizing the duties of the Financial Aid staff responsible for these processes. This will allow for those members of our staff that are responsible for verification to have a singular focus on this process. DSC will also implement an internal audit system in order to periodically check a sample of these verifications to further ensure accuracy.

Contact Person: Helen Catt, Director of Financial Aid Telephone: 229-317-6951 Fax: 229-317-6607 Email: helen.catt@darton.edu

FA-570-14-04 Return of Title IV Funds

Compliance Requirement: Internal Control Impact: Compliance Impact: Federal Awarding Agency: CFDA Number and Title:

Special Tests and Provisions Significant Deficiency Nonmaterial Noncompliance U. S. Department of Education 84.SFA Student Financial Assistance Cluster

Description: The College did not properly perform the refund process and ensure that unearned Title IV funds were returned in a timely manner.

Criteria: 34 CFR 668.22 provides requirements over the treatment of Title IV funds when a student withdraws. The College is required to determine the amount of Title IV grant that the student earned as of the student's withdrawal date when a recipient of a Title IV grant withdraws from an institution during a payment period or period of enrollment in which the recipient began attendance. A refund must be returned to Title IV programs when the total amount of Title IV grant or loan assistance that was disbursed to the student as of the withdrawal date.

Condition: A sample of 25 five students who received Federal financial assistance for the Fall 2013 and Spring 2014 semesters and withdrew from the College revealed the following deficiencies:

- 5 -

DARTON STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS
YEAR ENDED JUNE 30, 2014
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
1. The refund calculation for four students who withdrew during the Fall 2013 semester and one student who withdrew during the Spring 2014 semester was calculated incorrectly due to the use of the incorrect withdrawal date and/or the use of inaccurate institutional charges. These students were requested to return $2,764.45 less than the required amount to various SFA programs.
2. The proration between the school and student portion of the refund was incorrect for eight students who withdrew during the Fall 2013 semester and five students who withdrew during the Spring 2014 semester.
3. Funds were not returned to the appropriate grantor programs within the required time frame of 45 days for one of the eleven officially withdrawn students tested.
A sample of 21 students who received Federal financial assistance for the Fall 2013 and Spring 2014 semesters and never began attendance at the College revealed funds were not returned to the appropriate grantor programs within the required time frame of 30 days for one student.
Other testing performed revealed refunds for two students who withdrew during the Summer 2014 semester were calculated incorrectly due to the use of inaccurate institutional charges or errors in applying the refund in the accounting system. One student was requested to return $209.80 less than the required amount. The other student was requested to return $8.57 more than the required amount. Additionally, the proration between the school and student portion of the refund was incorrect for one student who withdrew during the Summer 2014 semester.
Questioned Cost: Questioned costs of $2,974.05, with likely questioned costs of $37,731.28, were identified for refunds calculated incorrectly.
Cause: In discussing the condition with Darton State College officials, these issues occurred due to breakdowns in procedures designed to review withdrawal dates entered into the accounting system and to review institutional charges entered in the Return of Title IV calculation module. Additionally, internal procedural errors led to the untimely return of funds to the appropriate grantor programs.
Effect or Potential Effect: The Student Financial Assistance Office did not calculate the correct amount of refunds for the Title IV Federal program and did not apply the SFA refunds to the Title IV Federal programs in a timely manner.
Recommendation: The College should develop and implement procedures to ensure that student financial aid refunds are properly calculated and that unearned funds are correctly returned to the appropriate accounts in a timely manner in accordance with the Higher Education Amendments 1998, Public Law 105-244. The College should also contact the U.S. Department of Education regarding resolution of this finding.
Views of Responsible Officials and Corrective Action Plans: We concur with this finding. Darton State College (DSC) will implement a report that will compare our list of students scheduled for (R2T4) to their entries in TSAAREV to confirm that the return has been completed. This will be run weekly to ensure that none are missed going forward.
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DARTON STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS
YEAR ENDED JUNE 30, 2014
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS DSC is creating a new purge process that will eliminate any future delays in the R2T4 process. DSC will begin (started retroactively for fall 2014 semester) to incorporate bookstore charges into our institutional charges when calculating the amount needed for R2T4. This process will begin in the spring 2015 semester. Contact Person: Helen Catt, Director of Financial Aid Telephone: 229-317-6951 Fax: 229-317-6607 Email: helen.catt@darton.edu OTHER ITEMS (NOTED FOR MANAGEMENT'S CONSIDERATION) General Ledger According to the Board of Regents' Business Procedures Manual, subsidiary reconciliations are required to be performed quarterly. Our review revealed a lack of documentation of quarterly reconciliations of the activity recorded in the accounts payable, accounts receivable and asset management subsidiary modules to the General Ledger. The College should review procedures in place and implement changes necessary to ensure that subsidiary reconciliations are completed in accordance with the Business Procedures Manual Section 10.6.2.
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