I I ATL-ITIC STATE UNIVERSITY SAVANNAH, GEORGIA MANAGEMENT REPORT FOR FISCAL YEAR ENDED ' JUNE 30,2011 A Member Institution of the University System of Georgia I State Auditor ARMSTRONG ATLANTIC STATE UNIVERSITY - TABLE OF CONTENTS - SECTION I FINANCIAL LETTER OF TRANSMITTAL SELECTED FINANCIAL INFORMATION EXH IBlTS A STATEMENT OF NET ASSETS - (GAAP BASIS) 6 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (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 SALARIES AND TRAVEL Page 20 21 2 2 24 27 SECTION II ENTITY'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS ARMSTRONG ATLANTIC STATE UNIVERSITY - TABLE OF CONTENTS - SECTION Ill FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SCHEDULE OF FINDINGS, QUESTIONEDCOSTS AND OTHER ITEMS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 666-2174 DEPARTMENOTF AUDITSAND ACCOUNTS 270 Washington Street, S.W., Suite 1-1 56 Atlanta, Georgia 30334-8400 December 8 , 2 0 1 1 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 Linda M. Bleicken, President Armstrong Atlantic State University Ladies and Gentlemen: As part of our audits of the basic financial statements of the University System of Georgia presented in the Annual Financial Repurtfor the University System of Georgia, the basic financial statements of the State of Georgia presented in the State of Georgia ComprehensiveAnnual Financial Reporfand the issuance of a State of Georgia Single Audit Reportpursuant to the Single Audit Act Amendments, as of and for the year ended June 30, 2011, we have performed certain audit procedures at Armstrong Atlantic State University. Accordingly, the financial statements and compliance activities of Armstrong Atlantic State University were examined to the extent considered necessary in order to express an opinion as to the fair presentation of the financial statements contained in the foregoing documents and to issue reports on compliance and internal control as required by the Single Audit Act Amendments of 1996. This Management Report contains information pertinent to the financial and compliance activities of Armstrong Atlantic State University as of and for the year ended June 30, 2011. 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 2.11.1is enumerated in the Table of Contents. This report is intended solely for the information and use of the management of Armstrong Atlantic State University, members of the Board of Regents of the University System of Georgia and the Southern Association of Colleges and Schools - Commission on Colleges and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~ k s e lWl. Hinton, CPA, CGFM State Auditor SELECTED FINANCIAL INFORMATION ARMSTRONG ATLANTIC STATE UNIVERSITY - STATEMENT OF NET ASSETS (GAAP BASIS) JUNE 30.2011 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable, Net Federal Financial Assistance Other Due From Affiliated Organizations Inventories Prepaid Items Total Current Assets Noncurrent Assets Noncurrent Cash Investments (Externally Restricted) Investments Notes Receivable, Net Capital Assets, Net Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts Payable Salaries Payable Deposits Deferred Revenue Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences Due to Affiliated Organizations Total Current Liabilities Noncurrent Liabilities Lease Purchase Obligations Compensated Absences Total Noncurrent Liabilities Total Liabil~t~es NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Nonexpendable Expendable Unrestricted Total Net Assets EXHIBIT "An ARMSTRONG ATLANTIC STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSESAND CHANGES IN NET ASSETS - (GMP BASIS) YEAR ENDED JUNE 30.2011 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 ParkingITransportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarshipsand Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES1 State Appropriations Grants and Contracts Federal Gifts Investment Income Interest Expense Net NonoperatingRevenues Income (Loss) Before Other Revenues. Expenses, Gains, or Losses Capital Grants and Gifts state Increase in Net Assets Net Assets - Beginning of Year Net Assets - End of Year EXHIBIT "B" ARMSTRONG ATLANTIC STATE UNIVERSITY - STATEMENT OF CASH FLOWS (GAAP BASIS) YEAR ENDED JUNE 30,2011 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Paymentsto Suppliers Paymentsto Employees Paymentsfor Scholarships and Fellowships Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Receipts (Payments) Net Cash Provided (Used) by OperatingActivities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Receivedfor Other than Capital Purposes Net Cash Flows Provided(Used) by Noncapital FinancingActivities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Gifts and Grants Received Purchases of Capital Assets Principal Paid on Capital Debt and Leases lnterest Paid on Capital Debt and Leases Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments Interest on lnvestments Net Cash Provided (Used) by Investing Activities Net Increase (Decrease) in Cash Cash and Cash Equivalents - Beginning of Year Cash and Cash Eauivalents -End of Year EXHIBIT "C" ARMSTRONG ATLANTIC STATE UNIVERSITY - STATEMENT OF CASH FLOWS (GAAP BASIS) YEAR ENDED JUNE 30.2011 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating Income (Loss) Adjustments to ReconcileOperating income to Net Cash Provided (Used) by Operating Activities Depreciation Change in Assets and Liabii~ties: Accounts Receivable, Net Inventories Other Assets Prepaid Items Accounts Payable Deferred Revenue Other Liabilities COmDenSated Absences Net Cash Provided(Used) by OperatingActivities NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of Investments Recognizedas a Component of lnterest Income Change in Accrued lnterest Payable Affecting Interest Paid EXHIBIT "C" (This page left intentionally blank) ARMSTRONG ATLANTIC STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30,2011 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANTACCOUNTING POLICIES REPORTING ENTITY Armstrong Atlantic State University is one of thirty-five (35) 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 Armstrong Atlantic State University as a separate reporting entity. The Board of Regents has constitutional authority to govern, control and manage the University System of Georgia. This authority includes but is not limited to the power to designate management, the ability to significantly influence operations, the authority to control institutions' budgets, the power to determine allotments of State funds to member institutions and the authority to prescribe accounting systems and administrative policies for member institutions. Armstrong Atlantic State University does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Armstrong Atlantic State University is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards. NET ASSETS The University's net assets are classified as follows: Invested in capital assets, net of related debt: This represents the University's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restridednetassets - nonexpendable: Nonexpendable restricted net assets consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. The University may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 44-15-7 of Annotated Code of Georgia. Restricted net assei3 - expendable: Restricted expendable net assets include resources in which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. ARMSTRONG ATLANTIC STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30,2011 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANTACCOUNTING POLICIES NET ASSITS Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus). At June 30, 2011, there was no surplus balance. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the Office of State Treasurer. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the University's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59: 1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia. 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 MortgageAssociation. 6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation. ARMSTRONG ATLANTIC STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30,2011 EXHIBlT "D" NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the UniversitySystem of Georgia. At June 30, 2011, the carrying value of deposits was $17,046,721 and the bank balance was $20,735,259. Of the University's deposits, $20,735,259 were uninsured. Of these uninsured deposits, $20,735,259 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the University's name. INVESTMENTS At June 30, 2011, the carrying value of the University's investment was $2,584,610, which is materially the same as fair value. These investments were comprised entirely of funds invested in the Board of Regents investment pools as follows: lnvestment Pools Board of Regents Short-Term Fund Legal Fund Diversified Fund Total Investments $ 2,584,610 The Board of Regents lnvestment 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 lnvestment Pool is voluntary. The Board of Regents Short-Term Fund is reported as Cash and Cash Equivalents on Exhibit "A" of this report. NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2011. Student Tuition and Fees $ Auxiliary Enterprises and Other Operating Activities Federal Financial Assistance Due from Affiliated Organizations Other 968,175 1,246,418 787,427 72,159 1,870,094 Less Allowance for Doubtful Accounts Net Accounts Receivable $ 4,649,427 ARMSTRONG ATLANTIC STATE UNIVERSrPl SELECTED FINANCIAL NOTES JUNE 30, 2011 EXHIBIT "D" NOTE 4: CAPITAL ASSETS Following are the changes in the University's capital assets for the year ended June 30, 2011: Beginning Balance July 1.2010 Additions Reductions Ending Balance June 30,2011 Capital Assets. Not Being Depreciated: Land Construction Work-In-Progress $ 4.678.254 77,975 $ 402,904 $ $ 409.686 4,678,254 71.193 Total Capital Assets, Not Being Depreciated $ 4,756,229 $ 402,904 $ 409,686 $ 4,749,447 Capital Assets. Being Depreciated: Infrastructure Building and Building Improvements Facilities and Other lmprovements Equipment Capital Leases Library Collections Capitalized Collections Total Assets Being Depreciated $ 169,345,816 $ 37,837,215 $ 84,160 $ 207,098.871 Less: Accumulated Depreciation: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections Capitalized Collections Total Accumulated Depreciation $ 47,530.637 $ 6,087,463 $ 84.160 $ 53,533,940 Total Capital Assets, Being Depreciated, Net Capital Assets, Net $ 121,815,179 $ 31,749,752 $ 0 $ 153.564.931 NOTE 5: DEFERRED REVENUE Deferred revenue consisted of the following at June 30, 2011. Prepaid Tuition and Fees Other Deferred Revenue Total Deferred Revenue ARMSTRONG ATLANTIC STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30,2011 EXHIBIT "D" NOTE 6: LONG-TERM LIABILITIES The University's Long-Term liability activity for the year ended June 30, 2 0 1 1 was as follows: Beginning Balance July 1,2010 Additions Reductions Ending Balance June 30.2011 Current Portion Leases Lease Obligations $ 71,389,394 $ 34,906.799 $ 2,177.279 $ 104,118,914 $ 1,434,103 Other Liabilities Compensated Absences 1,881.413 1,161,220 Total Long-Term Obligations $ 73,270,807 $ 36,068.019 $ 1,213,965 1,828.668 3,391,244 $ 105,947,582 $ 1,195.332 2.629.435 NOTE 7: NET ASSETS Changes in Net Asset activity for the year ended June 30, 2 0 1 1 are as follows: Beginning Balance July 1.2010 Additions Reductions Invested in Capital Assets Net of Related Debt Restricted Net Assets 2,367.236 21,180,471 20,845,043 Unrestricted Net Assets Total Net Assets Ending Balance June 30,2011 2,702,664 NOTE 8: LEASE OBLIGATIONS Armstrong Atlantic State University is obligated under various operating leases for the use of real property (land, buildings, and office facilities) and equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of real property and equipment. CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2012 and 2039. Expenses for fiscal year 2 0 1 1 were $6,856,825 of which $4,679,546 represented interest. Total principal paid on capital leases was $2,177,279 for the fiscal year ended June 30, 2011. Interest rates range from 3.0 percent to 7.2 percent. ARMSTRONG ATLANTIC STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2011 EXHIBIT "D" NOTE 8: LEASE OBLIGATIONS OPERATING LEASES Armstrong Atlantic State University's noncancellable operating leases provide for renewal options for periods from one to three years at their fair rental value at the time of renewal. All agreements are cancelable if the State of Georgia does not provide adequate funding, but that is considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are generally payable on a monthly basis. Examples of property under operating leases are copiers, other small business equipment, and buildings. Noncancellable operating lease rental expenses in 2 0 1 1 were $1,750,836 for real property and equipment. FUTURE COMMITMENTS Future commitments for capital leases (which here and on the Statement of Net Assets include other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30,2011, were as follows: Real Propemand Equipment Capital Operating Leases Leases Year EndingJune 30: 2012 2013 2014 2015 2016 2017 - 2021 2022 - 2026 2027 - 2031 2032 - 2036 2037 - 2039 Total Minimum Lease Payments $ Less: Interest - 184,355,784 $ 8,499,277 Principal Outstanding $ 104,118,914 NOTE 9: RETIREMENT PLANS Armstrong Atlantic State University participates in various retirement plans administered by the State of Georgia under two major retirement systems: Employees' Retirement System of Georgia (ERS System) and Teachers Retirement System of Georgia. These two systems issue separate publicly available financial reports that include the applicable financial statements and required supplementary information. The reports may be obtained from the respective system offices. The ARMSTRONG ATLANTIC STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2011 EXHIBIT "D" NOTE 9: RETIREMENT PLANS significant retirement plans that Armstrong Atlantic State University participates in are described below. More detailed information can be found in the plan agreements and related legislation. Each plan, including benefit and contribution provisions, was established and can be amended by State law. Employees' Retirement System of Georgia The ERS System is comprised of individual retirement systems and plans covering substantially all employees of the State of Georgia except for teachers and other employees covered by the Teachers Retirement System of Georgia. One of the ERS System plans, the Employees' Retirement System of Georgia (ERS), is a cost-sharing multiple-employer defined benefit pension plan that was established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees and has the powers and privileges of a corporation. ERS acts pursuant to statutory direction and guidelines, which may be amended prospectively for new hires but for existing members and beneficiaries may be amended in some aspects only subject to potential application of certain constitutional restraints against impairment of contract. On November 20, 1997, the Board created the Supplemental Retirement Benefit Plan (SRBP-ERS)of ERS. SRBP-ERS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of the SRBP-ERS is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC Section 415. Beginning January 1,1998, all members and retired former members in ERS are eligible to participate in the SRBP-ERS whenever their benefits under ERS exceed the limitation on benefits imposed by IRC Section 415. The benefit structure of ERS is established by the Board of Trustees under statutory guidelines. Unless the employee elects otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1,1982, is an "old plan" member subject to the plan provisions in effect prior to July 1,1982. Members hired on or after July 1,1982 but prior to January 1,2009 are "new plan" members subject to the modified plan provisions. Effective January 1,2009, newly hired State employees, as well as rehired State employees who did not maintain eligibility for the "old" or "new" plan, are members of the Georgia State Employees' Pension and Savings Plan (GSEPS). ERS members hired prior to January 1,2009 also have the option to change their membership to the GSEPS plan. Under the old plan, new plan, and GSEPS, a member may retire and receive normal retirement benefits after completion of 1 0 years of creditable service and attainment of age 6 0 or 30 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60. Retirement benefits paid to members are based upon a formula adopted by the Board of Trustees for such purpose. The formula considers the monthly average of the member's highest 24 consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Post-retirement cost-of-living adjustments may be made to members' benefits provided the members were hired prior to July 1,2009. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension, at reduced rates, to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS. ARMSTRONG ATLANTIC STATE UNIVERSrrY SELECTED FINANCIAL NOTES JUNE 30,2011 EXHIBIT "D" NOTE 9: RETIREMENT PLANS Employees' RetirementSystem of Georgia Member contribution rates are set by law. Member contributions under the old plan are 4% of annual compensation up to $4,200 plus 6% of annual compensation in excess of $4,200. Under the old plan, Armstrong Atlantic State University pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these Armstrong Atlantic State University 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. Armstrong Atlantic State University is required to contribute at a specified percentage of active member payroll established by the Board of Trustees determined annually in accordance with actuarial valuation and minimum funding standards as provided by law. These Armstrong Atlantic State University contributions are not at any time refundable to the member or his/her beneficiary. Employer contributions required for fiscal year 2 0 1 1 were based on the June 30, 2008 actuarial valuation for the old and new plans and were set by the Board of Trustees on September 18, 2008 for GSEPS as follows: Old Plan* New Plan GSEPS 10.41% 10.41% 6.54% * 5.66% exclusive of contributions paid by the employer on behalf of old plan members Members become vested after 1 0 years of service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions; the member forfeits all rights to retirement benefits. Teachers Retirement System of Georgia The Teachers Retirement System of Georgia (TRS) is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS. On October 25, 1996, the Board created the Supplemental Retirement Benefit Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1,1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits. TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 3 0 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. A R M m O N G ATLANTIC STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30,2011 NOTE 9: RETIREMENT PLANS Teachers Retirement System of Georgia 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 4 0 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 6 0 or by 7% for each year or fraction thereof by which the member has less than 3 0 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 lumpsum 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 1 0 years of service. If a member terminates with less than 1 0 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, 2 0 1 1 were 5.53% of annual salary. Employer contributions required for fiscal year 2 0 1 1 were 10.28% of annual salary as required by the June 30, 2009 actuarial valuation. The following table summarizes the Armstrong Atlantic State University contributions by defined benefit plan for the years ending June 30, 2011, June 30, 2010, and June 30, 2009 (dollars in thousands): ERS TRS Required Percentage Required Percentage Fiscal Year Contribution Contributed Contribution Contributed 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. ARMSTRONG ATLANTIC STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2011 EXHIBIT "D" NOTE 9: RETIREMENT PLANS Regents Retirement Plan Funding Policy Armstrong Atlantic State University makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2011, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 5% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and non-forfeitable at all times. Armstrong Atlantic State University and the covered employees made the required contributions of $1,448,404 (9.24%) and $783,770 (5%), 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 Armstrong Atlantic State University participates in the Georgia Defined Contribution Plan (GDCP) which is a single-employer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia. Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $3,500 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute. Contributions Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member. Total contributions made by employees during fiscal year 2 0 1 1 amounted to $135,400 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. ARMSTRONG ATLANTIC STATE UNIVERSrrY SELECTED FINANCIAL NOTES JUNE 30, 2011 EXHIBIT "D" NOTE 10: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Pursuant t o 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 UniversitySystem 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 2010 and 2 0 1 1 plan years, 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, 2011, there were 188 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2011, Armstrong Atlantic State University recognized as incurred $867,816 of expenditures, which was net of $367,609 of participant contributions. NOTE 11: AFFILIATED ORGANIZATIONS The Armstrong Atlantic State University Foundation, Inc., Armstrong Atlantic State University Educational Properties Foundation, Inc., and the Armstrong Atlantic State University Cyber Security Research Foundation, Inc., are legally separate, tax exempt organizations whose activities primarily support Armstrong Atlantic State University. These affiliated organizations are considered potential component units of the State of Georgia in accordance with GASB Statement No. 39, Determining Whether Certain Organizafions are Component Units. Therefore, the financial statements of these affiliated organizations are not included in these financial statements. Copies of the financial statements for the affiliated organizations may be obtained from Armstrong Atlantic State University. Armstrong Atlantic State University Educational Properties Foundation, Inc. has been determined significant to the State of Georgia for the year ended June 30, 2011, and as such, is reported as a discretely presented component unit in the Comprehensive Annual Financial Report of the State of Georgia (CAFR). The significant discretely presented component unit issues separate audited financial statements that can be obtained from the Board of Regents of the University System of Georgia. (This page left intentionally blank) SUPPLEMENTARY INFORMATION ARMSTRONG ATLANTIC STATE UNIVERSITY BALANCE SHEET (STATUTORY BASIS) BUDGET FUND JUNE 30,2011 ASSETS Cash and Cash Equivalents Investments Accounts Receivable Federal Financial Assistance Other Prepaid Expenditures Total Assets LIABILITIES AND FUND EOUITY Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Deferred Revenue Total L~abilities Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "1" Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutesand regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. -20- ARMSTRONG ATLANTIC STATE UNIVERSITY' SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (STATUTORY BASIS) BUDGET FUND YEAR ENDEDJUNE 30.2011 REVENUFS State Appropriation State General Funds Other Funds Total Revenues ADJUSTMFNTSAND PROGRAM TRANSFERS CARRY-OVER FROM PRIOR YEARS Transfers from Reserved Fund Balance Total Funds Available EXPENDITURES Excess of Funds Available over Expend~tures FUND BALANCE J U Y 1 Reserved Unreserved ADJUSTMENTS Pr~oYr ear Payables/Expend~tures Pr~oYr ear Receivables/Revenues Unreserved Fund Balance (Surplus) Returned to Board of Regents - Un~versttySystem Office Year EndedJune 30.2010 Prlor Year Reserved Fund Balance Included in Funds Available FUND BALANCE JUNE 3 0 SUMMARY OF FUND BALANB Reserved Department Sales and Serv~ces Indirect Cost Recoveries Technology Fees Restrlcted/Sponsored Funds Uncollectible Accounts Rece~vable Tuition Carry-Over Total Fund Balance BUDGET ACTUAL SCHEDULE "2" VARIANCE - FAVORABLE (UNFAVORABLE) Statutory Basis financ~aIlnformation was prepared on a prescribed basis of accountingthat demonstrates compl~ancewith budgetary statutes and regulations of the State of Georg~a. which IS a comprehensivebasis of accounting other than generally accepted accounting princ~ples. ARMSTRONG ATLANTIC STATE UNIVERSITY STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND YEAR ENDEDJUNE 30.2011 Teeching State Appropr~at~on State General Funds Federal Funds American Recovery and Reinvestment Act Federal Stabilization Funds Other Funds Total Teachlng Total Operating Activity Original Appropriation Amended Appropr~ation Final Budget Current Year Revenues Statutory Basis financial information was prepared on a prescrlbed basis of accounting that demonstrates compliance wlth budgetary statutes and regulations of the State of Georgia, wh~chis a comprehensive basis of accounting other than generally accepted accounting principles. SCHEDULE "S" Funds Available Compared to Budget Prior Year Adjustments and Total Carry-Over Program Transfers Funds Available Varlance Posit~ve(Negative) Expend~turesCompared to Budget Variance Actual Positive (Negative) Excess (Def~c~ency) of Funds Available Over/(Under) Expenditures ARMSTRONG ATLANTIC STATE UNIVERSITY STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND YEAR ENDEDJUNE 30.2011 Teaching State Appropriation State General Funds Federal Funds American Recoveryand Reinvestment Act Federal Stabllizatlon Funds Other Funds Total Teachlng Total Operating Actlvlty Pnor Year Reserves Not Available for Expenditure Inventories Uncollect!ble Accounts Receivable Beginning Fund Balance/(Deficit) July 1 Fund Balance Carried Over from Prior Period as Funds Available Retum of Fiscal Year 2010 Surplus Prior Period Adjustments Budget Unit Totals Statutory Basis financial information was prepared on a prescribed basis of accountingthat demonstrates compliance wlth budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. - 24 SCHEDULE "4" Other Adjustments Early Return Fiscal Year 2 0 1 1 Surplus Excess (Deficiency) of Funds Available Over/(Under) Expenditures Endme-.Fund Balance/(Deficlt) June 3 0 Analysis of Ending Fund Balance Resewed Surplus/(Deficit) Total Summary of EndingFund Balance Reserved Department Sales and Services lnd~recCt ost Recoveries Technology Fees Restricted/Sponsored Funds Uncollect~bleAccounts Receivable Tuition Carry-Over Unreserved Surplus Total Ending Fund Balance J u n e 3 0 (This page left intentionally blank) ARMSTRONG ATLANTIC STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30,2011 SCHEDULE "5" Totals per Annual Supplement Accruals June 30,2011 June 30,2010 Compensated Absences June 30,2011 June 30,2010 Adjustments Shared Services on Jointly Staffed Personnel Abraham Baldwin Agricultural College Martin, Vicki College of Coastal Georgia Cunningham, Sherri Harris, Terral Kirkland, Leann Peeples, Joseph Darton College McCarthy, Michael Georgia Southern University Craft, John Hardy, Charlie Leverett. Chr~stopher Saye, Georgia State University Donna Froelicher-Grundrnann, Margarete Savannah State University Yount, Lisa Skidaway Institute of Oceanography Frischer, Marc University System of Georgia, Board of Regents Awong-Taylor, J. Waycross College Douglas, Brenda Unidentified Variance SALARIES $ 35,651,959 $ TRAVEL 485,895 SECTION II ENTITY'S RESPONSETO PRIOR YEAR FINDINGS AND QUESTIONED COSTS ARMSTRONG ATLANTIC STATE UNIVERSITY ENTITY'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONEDCOSTS YEAR ENDED JUNE 30,2011 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS Further Action Not Warranted Previously Reported Corrective Action Implemented Previously Reported Corrective Action lmplemented Previously Reported Corrective Action lmplemented PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION Ill FINDINGS, QUESTIONEDCOSTS AND OTHER ITEMS ARMSTRONG ATLANTIC STATE UNIVERSITY SCHEDULE OF FINDINGS, QUESTIONEDCOSTS AND OTHER ITEMS YEAR ENDED JUNE 3 0 , 2 0 1 1 FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND OUESTIONED COSTS No matters were reported. OTHER ITEMS (NOTED FOR MANAGEMENT'S CONSIDERATION) ACCESS CONTROLS Our examination of the University included a review of the access controls related to their financial systems. We noted two users that had multiple user accounts within the Peoplesoft financial system which would allow an employee to circumvent established workflow segregation of duties within the system. Management should enhance policies and procedures to ensure that users have only one active user account. Additionally, management should continue to monitor access controls to ensure that rights and roles complement the established separation of duties structure. These policies along with continued monitoring will assist in mitigating threats that could cause loss, manipulation or corruption of data maintained in the financial information system. INADEQUATEDOCUMENTATION FOR ACCOUNTS RECEIVABLE The University failed to provide documentation to support accounts receivable in the amount of $34,468.14. The University should review and enhance policies and procedures to ensure accounts receivable are properly documented. FAILURE TO COMPLY WITH REPORT DISTRIBUTION REQUIREMENTS The University failed to submit written notification of the fiscal year 2010 audit to a Pass-Through Organization from which the University received Federal funds in fiscal year 2010 as required by OMB Circular A-133, Paragraph 320. The University should implement policies and procedures to ensure that all Single Audit reporting requirements are satisfied within thirty days of the issuance of the audit report.