STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS MANAGEMENT REPORT GEORGIA HIGHLANDS COLLEGE ROME, GEORGIA AN ORGANIZATIONAL UNIT OF THE STATE OF GEORGIA YEAR ENDED JUNE 30, 2007 Russell W. Hinton State Auditor GEORGIA HIGHLANDS COLLEGE - TABLE OF CONTENTS - SECTION I FINANCIAL LETTER OF TRANSMITTAL SELECTED FINANCIAL INFORMATION EXHIBITS A STATEMENT OF NET ASSETS - (GAAP BASIS) 2 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - (GAAP BASIS) 3 C STATEMENT OF CASH FLOWS-(GAAP BASIS) 5 D SELECTED FINANCIAL NOTES 6 SUPPLEMENTARY INFORMATION SCHEDULES 1 BALANCE SHEET - (STATUTORY BASIS) BUDGET FUND 18 2 BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (STATUTORY BASIS) BUDGET FUND 19 3 RECONCILIATION OF SALARIES AND TRAVEL 21 SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION III FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 November 19, 2007 Honorable Sonny Perdue, Governor Members ofthe General Assembly of Georgia Members of the Board of Regents ofthe University System of Georgia and Honorable J. Randy Pierce, President Georgia Highlands College Ladies and Gentlemen: As part ofour audit ofthe basic financial statements ofthe State ofGeorgia 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, 2007, we have performed certain audit procedures at Georgia Highlands College. Accordingly, the financial statements and compliance activities ofGeorgia Highlands College were examined to the extent considered necessary in order to express an opinion as to the fair presentation ofthe 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 Georgia Highlands College as of and for the year ended June 30, 2007. Information contained in this report is a by-product ofour audit ofthe basic financial statements ofthe State ofGeorgia and is the representation ofmanagement. 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 ofthe management of Georgia Highlands College, members ofthe Board of Regents ofthe University System of Georgia and the Southern Association ofColleges 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, , RWH:as U-)~ Russ 11 W. Hinton, CPA, CGFM State Auditor SELECTED FINANCIAL INFORMATION - 1- GEORGIA HIGHLANDS COLLEGE STATEMENT OF NET ASSETS - (GAAP BASIS) JUNE 30, 2007 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Prepaid Items Total Current Assets Noncurrent Assets Investments Capital Assets, Net (Note 4) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deferred Revenue (Note 5) Funds Held for Others Compensated Absences Other Liabilities Total Current Liabilities Noncurrent Liabilities Compensated Absences Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Nonexpendable Expendable Unrestricted Total Net Assets EXHIBIT"A" $ 313,609 216,681 2,620,829 472,388 $ 3,623,507 $ 28,365 33,379,650 $ 33.408,015 $ 37,031,522 $ 246,256 97,972 203,837 1,284,595 159,796 443,903 20,213 $ 2,456,572 210 191 $ 2,666,763 $ 33,379,650 26,612 50,011 908,486 $ 34,364,759 -2- GEORGIA HIGHLANDS COLLEGE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - (GAAP BASIS) YEAR ENDED JUNE 30, 2007 EXHIBIT"B" OPERATING REVENUES Student Tuition and Fees Less: Scholarship Allowances Grants and Contracts Federal State Local Sales and Services of Educational Departments Rents and Royalties Auxiliary Enterprises Bookstore Food Services 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 Income (Loss) NONOPERATING REVENUES (EXPENSES) State Appropriations Grants and Contracts Federal State Local Gifts Interest and Other Investment Income Other Nonoperating Revenues Net Nonoperating Revenues Income (Loss) Before Other Revenues, Expenses, Gains, or Losses Capital Grants and Gifts State Increase (Decrease) in Net Assets Net Assets - Beginning of Year (Restated) Net Assets - End of Year $ 6,896,320 -1,244,917 2,767,315 1,693 7,036 221,653 5,840 171,438 22,556 267,597 227 443 $ 9 343 974 $ 5,990,884 5,996,968 3,367,613 48,779 243,947 1,796,399 1,060,196 2,858,546 1,335,813 $ 22,699,145 $ -13 355 171 $ 13,065,414 175,552 115,247 178,595 30,337 114,571 -194 231 $ 13,485,485 $ 130,314 1,681,820 $ 1,812,134 32,552,625 $ ====3.,;4,=36=4=,7=5==9 -3- (This page left intentionally blank) GEORGIA HIGHLANDS COLLEGE STATEMENT OF CASH FLOWS - (GAAP BASIS) YEAR ENDED JUNE 30, 2007 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: Bookstore Food Services Other Organizations Other Receipts (Payments) Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Net Cash Flows Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of Capital Assets CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments Net Increase (Decrease) in Cash Cash and Cash Equivalents - Beginning of Year Cash and Cash Equivalents - End of Year RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating Income (Loss) Adjustments to Reconcile Operating Income to Net Cash Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Inventories Prepaid Items Accounts Payable Deferred Revenue Other Liabilities Compensated Absences Net Cash Provided (Used) by Operating Activities NONCASH ACTIVITY Change in Fair Value of Investments Recognized as a Component of Interest Income -5- EXHIBIT"C" $ 5,684,538 2,253,292 221,653 -7,608,426 -11,832,276 -1,796,399 153,261 21,800 301,933 570 334 $ -12,030,290 $ 13,065,414 97,841 500,235 $ 13,663,490 $ -2 441 734 $ 112,818 $ -695,716 1,009,325 $ 313,609 $ -13,355, 171 1,335,813 -1,469,568 9,652 -22,370 54,818 1,284,596 70,140 61,800 $ -12,030,290 $ ==-1,_7:.:;5,;;;.3 GEORGIA HIGHLANDS COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2007 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY Georgia Highlands College 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 Georgia Highlands 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. Georgia Highlands College does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Georgia Highlands 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. NET ASSETS The College's net assets are classified as follows: Invested in capital assets, net of related debt: This represents the College'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. Restricted net assets - 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 College may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 44-15-7 of Annotated Code of Georgia. Restricted net assets - expendable: Restricted expendable net assets include resources in which the College is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. 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 College and may be used at the discretion of the governing board to meet -6 - GEORGIA HIGHLANDS COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2007 EXHIBIT"D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS current expenses for those purposes, except for unexpended state appropriations (surplus). 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 Treasury and Fiscal Services. At June 30, 2007, there was no surplus balance to be refunded. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. RESTATEMENT OF PRIOR YEAR NET ASSETS Georgia Highlands College has a restatement of prior year net assets increasing beginning net assets by $2,500,000. This is due to the donation of land for the Cartersville campus that was not reported in the prior year. NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the College's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the college) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59: 1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia. 2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia. 3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose. 4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia. 5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association. -7- GEORGIA HIGHLANDS COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2007 EXHIBIT"D" NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS 6. Guarantee or msurance 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, 2007, $910,187 of the College's deposits were uninsured. Of these ttninsured deposits, $810,187 were collateralized with securities held by the financial institution's trust department or agent in the College's name. INVESTMENTS At June 30, 2007, the carrying value of the College's investment was $28,365, 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: Investment Pool Board of Regents Balanced Income Fund $==-28-.3~6"=5 The Board of Regents Investment Pool is not registered with the Securities and Exchange Commission as an investment company. The fair value of investments is determined daily. The pool does not issue shares. Each participant is allocated a pro rata share of each investment at fair value along with a pro rata share of the interest that it earns. Participation in the Board of Regents Investment Pool is voluntary. NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2007. Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal, State and Private Funds Georgia State Financing and Investment Commission Other $ 250,406 1,834 216,681 1,681,820 724,278 Less Allowance for Doubtful Accounts $ 2,875,019 37,509 Net Accounts Receivable $ 2,837.510 -8- GEORGIA HIGHLANDS COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2007 EXHIBIT "D" NOTE 4: CAPITAL ASSETS Following are the changes in the College's capital assets for the year ended June 30, 2007: Beginning Balance July 1, 2006 (Restated) Additions Reductions Ending Balance June 30, 2007 Capital Assets, Not Being Depreciated: Land $ Construction Work-In-Progress 3,069,490 226,191 $ 1,885,657 $ $ 226,191 3,069,490 1,885,657 Total Capital Assets Not Being Depreciated $ 3,295,681 $ 1,885,657 $ 226,191 $ 4,955,147 Capital Assets, Being Depreciated: Building and Building Improvements $ Infrastructure Facilities and Other Improvements Equipment Library Collections 36,592,223 $ 1,831,261 1,375,203 2,296,005 2,312,040 459,243 $ 290,537 236,325 106,113 $ -8,096 208,971 269,094 552 36,945,353 1,839,357 1,166,232 2,317,448 2,547,813 Total Assets Being Depreciated $ 44,406,732 $ 986,105 $ 576,634 $ 44,816,203 Less: Accumulated Depreciation: Building and Building Improvements $ Infrastructure Facilities and Other Improvements Equipment Library Collections 9,682,507 $ 1,095,815 1,107,251 1,607,378 1,951,043 1,110,746 $ 14,208 9,113 111,979 89 767 -30,310 $ -68,704 181,462 188,813 116,846 10,823,563 1,178,727 934,902 1,530,544 1,923,964 Total Accumulated Depreciation $ 15,443,994 $ 1,335,813 $ 388,107 $ 16,391,700 Total Capital Assets, Being Depreciated, Net $ 28,962,738 $ -349,708 $ 188,527 $ 28,424,503 Capital Assets, Net $ 32.258.419 $ 1.535.949 $ 4)4 7)8 $ 33 379 650 NOTE 5: DEFERRED REVENUE Deferred revenue consisted of the following at June 30, 2007. Prepaid Tuition and Fees Other Deferred Revenue Totals NOTE 6: LONG-TERM LIABILITIES $ 979,841 304,754 $ 1,284.595 The College's Long-Term liability activity for the year ended June 30, 2007 was as follows: Other Liabilities Compensated Absences Beginning Balance July 1, 2006 Additions Reductions Ending Balance June 30, 2007 Current Portion $ 592.295 $ 446.673 $ 384.874 $ 654.094 $ 443.903 -9- GEORGIA HIGHLANDS COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2007 EXHIBIT "D" NOTE 7: NET ASSETS Changes in Net Asset activity for the year ended June 30, 2007 are as follows: Invested in Capital Assets Net of Related Debt Restricted Net Assets Unrestricted Net Assets Total Net Assets NOTE 8: LEASE OBLIGATIONS Balance July 1, 2006 (Restated) Additions Reductions Balance June 30, 2007 $ 32,258,419 $ 1,535,949 $ 414,718 $ 33,379,650 140,514 3,245,438 3,309,329 76,623 153,692 21,265,841 20,Sll,047 908 486 $ 32 552 625 $ 26 047.228 $ 24,235.094 $ 34.364.759 Georgia Highlands College is obligated under various operating leases for the use of real property (land, buildings, and office facilities) and equipment. OPERATING LEASES Georgia Highlands College's noncancellable operating leases having remaining terms of more than one year expire in fiscal year 2008. Certain 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 leasing of parking lot space. Cancellable operating lease rental expenses in 2007 were $154,269 for real property and/or equipment. FUTURE COMMITMENTS Future commitments for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2007, were as follows: Operating Leases Year Ending June 30: 2008 $===1==58-,2==8"'=2 GEORGIA HIGHLANDS COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2007 EXHIBIT "D" NOTE 9: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description Georgia Highlands College participates in the Teachers Retirement System of Georgia (TRS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances and other benefits for teachers of the State of Georgia. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the TRS offices or the Georgia Department of Audits and Accounts. Funding Policy Employees of Georgia Highlands College who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Georgia Highlands College makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2007, the employer contribution rate was 9.28% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2007 2006 2005 100% 100% 100% $ 663,994 $ 665,258 $ 587,585 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description Georgia Highlands College participates in the Employees' Retirement System of Georgia (ERS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia. The benefit structure of ERS is defined by State statute and was significantly modified on July 1, 1982. Unless elected 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. All other members are "new plan" members subject to the modified plan provisions. - 11 - GEORGIA HIGHLANDS COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2007 EXHIBIT"D" NOTE 9: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description Under both the old plan and new plan, members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60. Additionally, there are certain provisions allowing for retirement after 25 years of service regardless of age. Retirement benefits paid to members are based upon a formula which considers the monthly average of the member's highest twenty-four consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. 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. In addition, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan (SRBP) effective January 1, 1998. The SRBP 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 SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415. The ERS issues a financial report each fiscal year, which may be obtained through ERS. Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political subdivisions, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The College's payroll for the year ended June 30, 2007, for employees covered by ERS was $75,412. The College's total payroll for all employees was $11,987,852. For the year ended June 30, 2007 under the old plan, member contributions consist of 6.5% of annual compensation minus $7.00. Of these member contributions, the employee pays the first 1.5% and the College pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.5% of annual compensation paid by employee. The College also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation for both old and new plans. For the year ended June 30, 2007, the ERS employer contribution rate for the College amounted to 10.41% of covered payroll and included the amounts contributed on behalf of the employees under the old plan referred to above. Employer contributions are also made on amounts paid for accumulated leave to retiring employees. - 12 - GEORGIA HIGHLANDS COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2007 EXHIBIT"D" NOTE 9: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Funding Policy Total contributions to the plan made during fiscal year 2007 amounted to $8,982, of which $7,850 was made by the College and $1,132 was made by employees. These contributions met the requirements of the plan. Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2007 financial report, which may be obtained through ERS. 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. 4721-1 et. seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts. Funding Policy Georgia Highlands 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 2007, the employer contribution was 9.66% for the first six months and 8.13% for the last six months of the participating employee's eamable compensation. Employees contribute 5% of their eamable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times. Georgia Highlands College and the covered employees made the required contributions of $282,675 (9.66% or 8.13%) and $150,071 (5%), respectively. AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices. - 13 - GEORGIA HIGHLANDS COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2007 EXHIBIT"D" NOTE 9: RETIREMENT PLANS GEORGIA DEFINED CONTRIBUTION PLAN Plan Description Georgia Highlands College participates in the Georgia Defined Contribution Plan (GDCP) which is a single-employer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia. Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and 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 and Vesting 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 2007 amounted to $70,237 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: 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 expenditures which are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Georgia Highlands College expects such amounts, if any, to be immaterial to its overall financial position. - 14 - GEORGIA HIGHLANDS COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2007 EXHIBIT"D" NOTE 10: CONTINGENCIES Litigation, claims and assessments filed against Georgia Highlands 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, 2007. NOTE 11: AFFILIATED ORGANIZATIONS The Georgia Highlands College Foundation is a legally separate, tax exempt organization whose activities primarily support Georgia Highlands College. This affiliated organization is considered a potential component unit of the State of Georgia in accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units. Therefore, the financial statements of this affiliated organization are not included in these financial statements. Copies of the financial statements for the affiliated organization may be obtained from Georgia Highlands College. - 15 - (This page left intentionally blank) SUPPLEMENTARY INFORMATION - 17 - GEORGIA HIGHLANDS COLLEGE BALANCE SHEET (STATUTORY BASIS) BUDGET FUND . JUNE 30, 2007 ASSETS Accounts Receivable Federal Financial Assistance Other Prepaid Expenditures Total Assets LIABILITIES AND FUND EQUITY Liabilities Cash Overdraft Accrued Payroll Accounts Payable Deferred Revenue Other Liabilities Total Liabilities Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "1" $ 101,115.00 3,506,135.00 473,201.00 $ ====4=,0=8=0=,4=5=1=.0=0= $ 441,255.00 97,294.00 1,009,536.00 2,377,311.00 -25.00 $ 3,925,371.00 $ 20,572.00 7,740.00 45,976.00 46,842.00 33,950.00 $ 155,080.00 $ ======4,=08=0=,4=5=1.=00= Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrated compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. - 18 - GEORGIA HIGHLANDS COLLEGE BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (STATUTORY BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2007 SCHEDULE "2" REVENUES State Appropriation State General Funds Federal Funds Other Funds Total Revenues EXPENDITURES Special Funding Initiatives Teaching Total Expenditures Excess of Funds Available over Expenditures FUND BALANCE JULY 1 Reserved FUND BALANCE JUNE 30 BUDGET ACTUAL VARIANCEFAVORABLE (UNFAVORABLE) $ 13,065,414.00 $ 13,065.414.00 $ 3,598,728.00 3,244,898.00 9,136,572.00 11,318,316.00 $ 25,800,714.00 $ 27,628,628.00 $ 0.00 -353,830.00 2,181,744.00 1,827,914.00 $ 194,431.00 $ 194,430.00 $ 25,606,283.00 27,475,287.00 $ 25,800,714.00 $ 27,669,717.00 $ $ 0.00 $ -41,089.00 $ 1.00 -1,869,004.00 -1,869,003.00 -41,089.00 196,169.00 $ ===1=5='51.,,08=0=.o=o= SUMMARY OF FUND BALANCE Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable $ 20,572.00 7,740.00 45,976.00 46,842.00 33,950.00 Total Fund Balance $ ==15.,.5.,.,0..,8=0..o.o.== Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrated compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. -19- (This page left intentionally blank) GEORGIA HIGHLANDS COLLEGE RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2007 SCHEDULE "3" Totals per Annual Supplement Accruals June 30, 2007 June 30, 2006 Compensated Absences June 30, 2007 June 30, 2006 Prepaid Salaries June 30, 2007 June 30, 2006 Unidentified Variance SALARIES $ 11,927,300 $ TRAVEL 243,722 97,972 -98,274 607,612 -595,241 -370,138 413,195 5,426 225 $ 11,987,852 $ ====2=43=,94=7 - 21 - SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS GEORGIA HIGHLANDS COLLEGE AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-573-05-01 FS-573-05-03 FS-573-05-04 FS-573-06-01 FS-573-06-02 FS-573-06-03 Previously Reported Correction Action Implemented Further Action Not Warranted Further Action Not Warranted Previously Reported Correction Action Implemented Unresolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES GENERAL LEDGER CAPITAL ASSETS Inadequate Accounting Procedures Finding Control Number: FS-573-06-02 We concur with this finding. We must reiterate that the information on the Annual Financial Report is correct. We followed the instruction for entering this information and realized that we were not getting the expected results from the PeopleSoft System. We, along with the assistance of a sister institution prepared the information manually. We are now trying to find the flaw in the "system". GENERAL LEDGER Inadequate Accounting Procedures over Budgetary Statements Finding Control Number: FS-573-06-03 We concur with this finding. We recognized our staff limitations in preparing these specific statements, and with the concurrence of individuals at all levels, we solicited and received approval to request help from a sister institution. That assistance was invaluable to us in that the statements were prepared and submitted. We recognized a keying error and requested permission to re-enter the system to correct the error. Permission was not granted. We still think it prudent to request assistance when we identify an internal staffing or procedural problem. SECTION III FINDINGS, QUESTIONED COSTS AND OTHER ITEMS GEORGIA HIGHLANDS COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Subsidiary Records Finding Control Number: FS-573-07-01 Condition: The accounting procedures of the College were insufficient to provide for adequate documentation for Revenues/Receivables/Receipts and Expenditures/Liabilities/Disbursements. Criteria: The College's management is responsible for designing and maintaining policies and procedures that provide reasonable assurance that transactions are properly approved, documented, processed and reported. Questioned Cost: NIA Information: We noted the following deficiencies: (1) A review of the Accounts Payable balance of $246,256 at June 30, 2007 revealed that no subsidiary records were provided to support $37,970 of the total amount reported. (2) A review of the Accounts Receivable - Other balance of $2,620,829 at June 30, 2007 revealed that no subsidiary records were provided to support $13,874 of the total amount reported. (3) A review of the Other Liabilities balance of $20,213 at June 30, 2007 revealed that no subsidiary records were provided to support the amount reported. (4) A review of the Deferred Revenue balance of $1,284,595 at June 30, 2007 revealed that no subsidiary records were provided to support $979,841 of the total amount reported. (5) A review of the Fee Waiver Contra-Revenue balance of $296,723, excluding staff fee waivers, revealed that no subsidiary records were provided to support $140,646 of the total amount reported. Cause: The College failed to implement satisfactory accounting procedures to ensure that all transactions were posted to the appropriate subsidiary modules. Additionally, reconciliations between the general ledger and subsidiary records were not completed by the College. - 1- GEORGIA HIGHLANDS COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Subsidiary Records Finding Control Number: FS-573-07-01 Effect: Without proper accounting policies and procedures in place, the College could place itself in a position where potential misappropriation of assets could occur. In addition, the lack of policies and procedures could impact reporting of its financial position and results of operations. Recommendation: To reduce the risk ofreporting incomplete and/or inaccurate information, the College should implement policies and procedures to ensure that transactions are posted correctly in the appropriate subsidiary ledgers. At a minimum, procedures should be developed which require the reconciliation of subsidiary ledgers to the general ledger on a regular basis. CAPITAL ASSETS Inadequate Accounting Procedures Finding Control Number: FS-573-07-02 Condition: The accounting procedures used by the College were insufficient to ensure that Capital Assets were properly recorded and maintained. Criteria: Section 7 of the Board of Regents of the University of Georgia's Business Procedures Manual (BPM) provides units of the University System of Georgia with guidelines for "assets purchased, constructed or donated that meet or exceed established capitalization thresholds". Questioned Cost: NIA Information: The following deficiencies were noted: (1) The College did not correctly utilize the Asset Management Module within PeopleSoft. The College posted manual journal entries to the Capital Ledger in PeopleSoft to reconcile the ledger to the detailed Capital Assets listing. (2) The College had numerous significant error adjustments related to prior year activity that was corrected on the Summary of Capital Assets through the asset deduction column. Cause: College management failed to implement adequate procedures to properly record and maintain capital assets. -2 - GEORGIA HIGHLANDS COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Inadequate Accounting Procedures Finding Control Number: FS-573-07-02 Effect: Without satisfactory accounting procedures in place, the College could place itself in a position where potential misappropriation ofassets could occur. In addition, the lack of policies and procedures could impact reporting of its financial position and results of operations. Recommendation: The College should review the accounting policies and procedures currently in place, identify weaknesses, and design and implement procedures necessary to strengthen the accounting functions related to Capital Assets. GENERAL LEDGER Reports Not Reconciled to Accounting Records Finding Control Number: FS-573-07-03 Condition: The College's H.O.P.E. Scholarship Program reconciliation was not completed for year ended June 30, 2007. Criteria: The College is required to reconcile the H.O.P .E. Scholarship Reconciliation Report provided by the Georgia Student Finance Commission to the College's accounting records. This reconciliation process should include verifying all awards and disbursements to students and resolving any discrepancies between the College's records and the report. Questioned Cost: NIA Information: The College did not provide a reconciliation between the College's records and the H.O.P.E. Scholarship Reconciliation Report provided by the Georgia Student Finance Commission. Cause: Management failed to ensure the accounting records were reconciled to the H.O.P.E. Scholarship Program reports at year-end. Effect: The failure to perform this reconciliation could cause incorrect data to be sent to the Georgia Student Finance Commission and could result in the overpayment or underpayment to the College. Recommendation: Procedures should be established to ensure that all H.O.P.E. Scholarship Program reconciliation reports are reconciled to the College's formal accounting records. -3 - GEORGIA HIGHLANDS COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2007 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No findings were reported. OTHER ITEMS (NOTED FOR MANAGEMENT'S CONSIDERATION) ACCOUNTS RECEIVABLE Georgia Highlands College does not have sufficient procedures in place to ensure that uncollectible accounts receivables are approved by the State Accounting Office for write offprior to removing the receivables from the accounting records. It was noted that the College wrote off uncollectible accounts receivables in November 2006 but requested approval from the State Accounting Office in June 2007. Management should develop and implement appropriate policies and procedures to ensure that all write offs are approved in accordance with Section 10.4 of the Board of Regents' Business Procedures Manual and the Official Code of Georgia (O.C.G.A.) 50-16-18. INVENTORIES Georgia Highlands College liquidated the cafeteria and supply inventory during the fiscal year under review and did not provide documentation of the method followed for liquidation. The inventory balance at the beginning of the fiscal year totaled $9,652.07. Management should develop and implement appropriate policies and procedures to ensure that inventories are accounted for in accordance with Section 11 of the Board of Regents' Business Procedures Manual. BUDGETARY OVEREXPENDITURES Georgia Highlands College does not have sufficient procedures in place to ensure that the funds are not expended in excess ofthe approved budget. It was noted that Georgia Highlands College had an approved expenditure budget for Teaching in the amount of$25,606,283. The College exceeded the approved budget amount by $1,869,004. The College should closely monitor their budget operations to prevent expenditure of funds in excess of budget approval. BUDGET STATEMENTS Georgia Highlands College does not have sufficient procedures in place to ensure that the Budget Statements are properly prepared and reported. For fiscal year 2007, the services of another organization within the University System of Georgia were retained to prepare the Budget Statements on Georgia Highlands College for submission to the Board ofRegents. When the Budget Statements were submitted to Board of Regents, the College failed to include the Balance Sheet Activity with the Statements. The auditor utilized a worksheet prepared by the other organization to prepare the Budget Statements for inclusion in the engagement report. The College should closely monitor their policies and procedures over budget operations to ensure that the budget statements are correctly reported and the surplus is accurately calculated. -4-