STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS I FORT VALLEY STATE UNIVERSITY FORT VALLEY, GEORGIA REPORT ON REVIEW OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Russell W. Hinton State Auditor FORT VALLEY STATE UNIVERSITY - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS EXHIBITS A STATEMENT OF NET ASSETS 3 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 4 C STATEMENT OF CASH FLOWS 5 D NOTES TO THE FINANCIAL STATEMENTS 6 SUPPLEMENTARY INFORMATION SCHEDULES SCHEDULES OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GAAP BASIS) 1 RESIDENT INSTRUCTION 23 2 LOTTERY FOR EDUCATION 24 3 RECONCILIATION OF SALARIES AND TRAVEL 25 4 RECONCILIATION OF PER DIEM AND FEES 26 SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS FORT VALLEY STATE UNIVERSITY - TABLE OF CONTENTS - SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL RUSSELL W. HINTON STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400 November 26, 2003 Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia and Honorable Kofi Lomotey, President Fort Valley State University INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Ladies and Gentlemen: We have reviewed the accompanying basic financial statements (Exhibits A through D) of Fort Valley State University, an organizational unit of the State of Georgia, as of and for the year ended June 30, 2003, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Fort Valley State University. A review consists principally of inquiries of Fort Valley State University personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective ofwhich is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, with the exception ofthe matters discussed in the following paragraph, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. The financial statements of Fort Valley State University do not reflect accumulated depreciation or the effect of current year depreciation for library collections as required by accounting principles generally accepted in the United States of America. Additionally, the University failed to include residual values on its depreciable capital assets in accordance with capitalization policies adopted by 03ARL-67X the Board ofRegents ofthe University System of Georgia and with accounting principles generally accepted in the United States of America. The effects of these departures on the basic financial statements have not been determined. Management's Discussion and Analysis is not a required part ofthe basic financial statements but is supplementary information required by accounting principles generally accepted in the United States ofAmerica. We have applied certain limited procedures, which consisted principally ofinquiries of management regarding the methods of measurement and presentation of this supplementary information, and we are not aware of any material modifications that should be made thereto. Our review was made for the purpose of expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with accounting principles generally accepted in the United States ofAmerica. The accompanying supplementary information (Schedules 1 through 4) is presented for additional analysis purposes. Such information has been subjected to the inquiries and analytical procedures applied in the review ofthe financial statements, and we are not aware ofany material modifications that should be made to such data. Respectfully submitted, w.~ RWH:gp 03ARL-67X State Auditor REQUIRED SUPPLEMENTARY INFORMATION FORT VALLEY STATE UNIVERSITY Management's Discussion and Analysis Introduction Fort Valley State University is one of the 34 institutions of the University System of Georgia. The University, located in Fort Valley, Georgia, was founded in 1895 and has become known for its agricultural research, technology and technology-related programs. The University offers associate, baccalaureate and masters degrees in a wide variety of subjects. This wide range of educational opportunities attracts a highly qualified faculty and a student body of more than 2,000 EFT students each year, as shown by the comparison numbers that follow. Faculty Students FY2003 FY2002 FY2001 148 2,004 170 2,054 182 2,049 Overview ofthe Financial Statements and Financial Analysis Fort Valley State University is proud to present its financial statements for fiscal year 2003. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and, the Statement of Cash Flows. This discussion and analysis of the University's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2002 and fiscal year 2003. Statement ofNet Assets The Statement of Net Assets presents the assets, liabilities, and net assets of the University as of the end of the fiscal year. The Statement of Net Assets is a point of time financial statement. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a fiscal snapshot of Fort Valley State University. The Statement of Net Assets presents end-ofyear data concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements. From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors. Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the institution's equity in property, plant and equipment owned by the institution. The next asset category is restricted net assets, which is divided into two categories, nonexpendable and expendable. The - 1- corpus of nonexpendable restricted resources is only available for investment purposes. Expendable restricted net assets are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted net assets are available to the institution for any lawful purpose of the institution. Statement of Net Assets, Condensed (thousands of dollars) June 30, 2003 June 30, 2002 Assets Current Assets Capital Assets, Net Other Assets $ 3,809 26,308 3 405 $ 4,496 26,473 3 553 Total Assets $ 33,522 $ 34,522 Liabilities Current Liabilities Noncurrent Liabilities $ 4,443 $ 3,791 2 955 3 007 Total Liabilities $ 7 398 $ 6 798 Net Assets Invested in Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Unrestricted $ 26,308 1,523 2,158 -3 865 $ 26,473 1,481 2,292 -2,522 Total Net Assets $ 26,124 $ 27 724 The total assets of the institution decreased by $999,439.59. A review of the Statement of Net Assets will reveal that the decrease was primarily due to a reduction in current assets. The total liabilities for the year increased by $600,167.94. The primary cause for the increase was due to a cash overdraft of $595,236.64. The combination of the decrease in total assets of $999,439.59 and the increase in total liabilities of $600,167.94 yields a decrease in total net assets of $1,599,607.53. Statement ofRevenues, Expenses and Changes in Net Assets Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received by the institution, both operating and nonoperating, and the expenses paid by the institution, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the institution. Generally speaking operating revenues are received for providing goods and services to the various customers and constituencies of the institution. Operating expenses are those expenses paid to acquire or - 11 - produce the goods and services provided in return for the operating revenues, and to carry out the mission of the institution. Nonoperating revenues are revenues received for which goods and services are not provided. For example state appropriations are nonoperating because they are provided by the Legislature to the institution without the Legislature directly receiving commensurate goods and services for those revenues. Statement of Revenues, Expenses and Changes in Net Assets, Condensed (thousands of dollars) June 30, 2003 June 30, 2002 Operating Revenues Operating Expenses $ 20,231 50,932 $ 21,448 51,128 Operating Loss $ -30,701 $ -29,680 Nonoperating Revenues and Expenses 29,101 26,591 Increase (Decrease) in Net Assets $ -1 600 $ -3 089 Net Assets at Beginning of Year, as Originally Reported $ 27,724 $ 94,054 Cumulative Effect of Changes in Accounting Principle -63,241 Net Assets at Beginning of Year Restated $ 27,724 $ 30,813 Net Assets at End of Year $ 26,124 $ 27,724 The Statement of Revenues, Expenses and Changes in Net Assets reflects a decrease in the net assets at the end of the year. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are as follows: - 111 - Revenue By Source (thousands of dollars) For The Years Ended June 30, 2003 and June 30, 2002 Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Auxiliary Other Total Operating Revenue Nonoperating Revenue State Appropriations Investment Income Grants and Contracts Other Total Nonoperating Revenue Total Revenues June 30, 2003 $ 3,135 11,674 70 4,510 842 $ 20,231 $ 21,600 54 7,548 6 $ 29,208 $ 49 439 June 30, 2002 $ 6,066 10,244 87 4,447 604 $ 21448 $ 22,363 -57 6,450 3 $ 28,759 $ 50,207 Expenses (By Functional Classification) (thousands of dollars) For The Years Ended June 30, 2003 and June 30, 2002 June 30, 2003 June 30, 2002 Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises Unallocated Depreciation $ 16,094 $ 14,038 4,386 3,854 3,134 2,603 5,810 5,241 3,925 3,732 6,370 6,190 4,861 3,798 1,858 5,157 4,494 4,765 1 750 Total Operating Expenses $ 50,932 $ 51,128 Nonoperating Expenses Interest Expense 107 2,168 Total Expenses $ 51,039 $ 53,296 - IV - Governmental grants and contracts, both operating and nonoperating, increased in the amount of approximately $2,539,000. This is primarily a result of the increase in various grants related to the University's agriculture research, head start and cooperative extension programs. Revenues associated with tuition and fees, net of scholarship allowances, category decreased $2,931,082.71 during the year. This decrease is a result of the allowance for scholarship allowances not being reflected in the financial statement for fiscal year 2002. The compensation and employee benefits category increased by $1,217,522.55. The increase reflects a pay raise for the employees of the institution of approximately three percent with the associated fringe benefits. The increase also reflects an increased cost of health insurance for the employees of the institution. Utilities increased by $18,996.16 during the past year. The increase was primarily associated with the increased natural gas costs that were experienced in the winter of fiscal year 2003. Under nonoperating revenues (expenses) state appropriations decreased by $762,744.17. Given the mandatory cost increases of various categories of expenses, the University actually had a relatively significant decrease in funding with all things considered. Statement ofCash Flows The final statement presented by the Fort Valley State University is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets. Cash Flows for the Years Ended June 30, 2003 and June 30, 2002, Condensed Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities Net Change in Cash Cash, Beginning of Year Cash, End of Year June 30, 2003 $ -29,600 29,026 -1,510 12 $ -2,072 1 477 $======-5===9===5 June 30, 2002 $ -31,791 28,849 -293 -63 $ -3,298 4 775 $====1.,,.,4='==7==7 -v- Capital Assets The University had one significant capital asset addition for upgrade of the University's campus computer network system in fiscal year 2003. For additional information concerning Capital Assets, see Notes 1 and 6 in the Notes to the Financial Statements. Long-Term Debt Fort Valley State University had a total Long-Term Debt of $3,942,582.62 of which $987,596.73 was reflected as current liability at June 30, 2003. For additional information concerning Long-Term Debt see Notes 1 and 8 in the Notes to the Financial Statements. Economic Outlook The University is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. Even with the significant decrease in funding during the fiscal year ending June 30, 2003, the University's ability to institute a number of cost saving measures, as well as a reduction of all nonessential services, resulted in the University's financial position remaining stable. The University anticipates the current fiscal year will be much like last and will maintain a close watch over resources to maintain the University's ability to react to unknown internal and external issues. Kofi Lomotey, President Fort Valley State University - Vl - BASIC FINANCIAL STATEMENTS - 1- FORT VALLEY STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30. 2003 ASSETS Current Assets Short-Term Investments Accounts Receivable, Net Federal Financial Assistance Other Prepaid Items Inventories Total Current Assets Noncurrent Assets Investments Notes Receivable, Net Capital Assets, Net (See Note 6) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Cash Overdraft Salaries Payable Accounts Payable Deferred Revenue Funds Held for Others Compensated Absences U. S. Department of Education Settlement Other Liabilities Total Current Liabilities Noncurrent Liabilities Compensated Absences U. S. Department of Education Settlement Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Nonexpendable Expendable Unrestricted Total Net Assets See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement. -3- EXHIBIT"A" $ 68,357.32 2,724,072.49 821,050.19 71,538.00 124,037.06 $ 3,809,055.06 $ 1,448,570.91 1,956,636.88 26,308,149.15 $ 29,713,356.94 $ 33,522,412.00 $ 595,236.64 124,857.37 1,554,065.12 945,582.31 103,789.90 827,412.52 160,184.21 131,586.93 $ 4,442,715.00 $ 1,001,776.43 1,953,209.46 $ 2,954,985.89 $ 7,397,700.89 $ 26,308,149.15 1,523,048.52 2,158,299.78 -3,864,786.34 $ 26,124,711.11 FORT VALLEY STATE UNIVERSITY STATEMENT OF REVENUES. EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30. 2003 EXHIBIT"B" OPERATING REVENUES Student Tuition and Fees Less: Scholarship Allowances Grants and Contracts Federal State Nongovernmental Sales and Services of Educational Departments 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 Income (Loss) NONOPERATING REVENUES (EXPENSES} State Appropriations Grants and Contracts Federal State Nongovernmental Interest and Other Investment Income Interest Expense Other Nonoperating Revenues Net Nonoperating Revenues Increase (Decrease) in Net Assets Net Assets Net Assets - Beginning of Year $ 5,925,442.91 -2,790,174.22 11,165,060.90 65,059.37 444,211.13 69,736.43 1,636,253.98 49,307.26 1,647,677.40 322,537.45 779,837.96 73,782.85 842,189.73 $ 20,230,923.15 $ 8,205,498.00 17,247,891.39 7,393,021.43 632.50 548,788.17 3,462,754.33 2,316,415.66 10,081.548.56 1,675,145.74 $ 50,931,695.78 $ -30, 700,772.63 $ 21,600,271.13 6,984,950.17 392,101.07 171,094.69 53,806.71 -107,252.91 6194.24 $ 29,101,165.10 $ -1,599,607.53 27,724,318.64 Net Assets - End of Year See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement. -4- $ 26 124,711.11 FORT VALLEY STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30 2003 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 Loans Issued to Students and Employees Collection of Loans to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Health Services Intercollegiate Athletics 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 Other Nonoperating Receipts Principal Paid on Installment Debt Interest Paid on Installment Debt 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 Net Income (Loss) to Net Cash Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivables, Net Inventories Prepaid Items Notes Receivables, Net Accounts Payable Salaries Payable Deferred Revenue Other Liabilities Compensated Absences Net Cash Provided (Used) by Operating Activities See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement. -5- EXHIBIT"C" $ 3,097,641.52 10,572,458.27 69,736.43 -19,867,221.99 -25,361,289.02 -3,462,754.33 -155,692.00 271,514.29 1,629,721.11 49,307.26 1,647,677.40 322,537.45 779,837.96 73,782.85 732 616.95 $ -29,600, 125.85 $ 21,600,271.13 20,376.01 7,548,145.93 6,194.24 -42,047.33 -107 252.91 $ 29 025 687.07 $ -1510120.79 $ 11 875.72 $ -2,072,683.85 1 477 447.21 $ -595 236.64 $ -30, 700,772.63 1,675,145.74 -827,955.60 114,127.73 -3,096.00 115,822.29 362,152.60 12,495.45 -477,759.82 50,109.47 79 604.92 $ -29,600, 125.85 FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Fort Valley State University serves the state, and national communities by providing its students with academic instruction that advances fundamental knowledge, and by disseminating knowledge to the people of Georgia and throughout the country. REPORTING ENTITY Fort Valley State University is one of thirty-four (34) 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 Fort Valley 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. Fort Valley State University does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Fort Valley 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. FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia was required to implement GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the University is also required to adopt GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. The financial statement presentation required by GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38 provides a comprehensive, entity-wide perspective of the University's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fund group perspective previously required. Generally Accepted Accounting Principles (GAAP) requires that the reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year. Due to the lack of materiality, Institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the predominate activity takes place. -6 - FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the preceding paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-university transactions have been eliminated. The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University has elected to not apply FASB pronouncements issued after the applicable date. CASH AND CASH EQUIVALENTS Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. SHORT-TERM INVESTMENTS Short-Term Investments consist of investments of 90 days - 13 months. This would include certificates of deposits or other time restricted investments with original maturities of six months or more when purchased. Funds are not readily available and there is a penalty for early withdrawal. INVESTMENTS The University accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the statements of revenues, expenses and changes in net assets. The Board of Regents Balanced Income Fund is included under Investments. ACCOUNTS RECEIVABLE Accounts receivable consists of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Georgia. Accounts receivable also include amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University's grant and contracts. Accounts receivable are recorded net of estimated uncollectible amounts. -7- FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES Consumable supplies are carried at the lower of cost or market on either the first-in, first-out ("FIFO") basis. Resale Inventories are valued at cost using the average-cost basis. NONCURRENT CASH AND INVESTMENTS Cash and investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets. CAPITAL ASSETS Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. For equipment, the University's capitalization policy includes all items with a unit cost of $5,000.00 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000.00 and significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 7 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements. To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged. Effective July 1, 2001, the GSFIC retains construction in progress on their books throughout the construction period and transfers the entire project to Fort Valley State University when complete. For the year ended June 30, 2003, GSFIC transferred no capital additions to Fort Valley State University. DEPOSITS Deposits represent good faith deposits from students to reserve housing assignments m a University residence hall. -8- FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DEFERRED REVENUES Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned. COMPENSATED ABSENCES Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as accrued vacation payable in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statements of Revenues, Expenses and Changes in Net Assets. Fort Valley State University had accrued liability for compensated absences in the amount of $1,749,584.03 as of July 1, 2002. For fiscal year 2003, $921,030.93 was earned in compensated absences and employees were paid $841,426.01, for a net increase of $79,604.92. The ending balance as of June 30, 2003 in accrued liability for compensated absences is $1,829,188.95. Compensated absences include a current liability of $827,412.52. NONCURRENT LIABILITIES Noncurrent liabilities include (1) liabilities that will not be paid within the next fiscal year; and (2) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets. NET ASSETS The University's net assets are classified as follows: Invested in capital assets, net ofrelated 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. The term "debt obligations" as used in this definition does not include debt of the GSFIC as discussed previously in Note 1 - Capital Assets section. Restricted 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 University may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 4415-7 of Annotated Code of Georgia. -9- FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS Restricted net assets - 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. 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) which must be refunded to the Board of Regents of the University System of Georgia - Administrative Central Office for remittance to the Office of Treasury and Fiscal Services. At June 30, 2003, 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. Unrestricted Net Assets includes the following items which are quasi-restricted by management. R& RReserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted Total Unrestricted Net Assets June 30, 2003 $ 730,221.27 1,979,912.45 186,672.08 -6,761,592.14 $-3.864. 786.34 When an expense is incurred that can be paid using either restricted or unrestricted resources, the University's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources. INCOME TAXES Fort Valley State University, as a political subdivision of the State of Georgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended. CLASSIFICATION OF REVENUES The University has classified its revenues as either operating or nonoperating revenues in the Statement of Revenues, Expenses and Changes in Net Assets according to the following criteria: Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) sales and services of auxiliary enterprises, (3) most Federal, state and local grants and contracts and Federal appropriations, and (4) interest on institutional student loans. - 10 - FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CLASSIFICATION OF REVENUES Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income. SCHOLARSHIP ALLOWANCES Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net Assets. Scholarship allowances are the difference between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or third parties making payments on the students' behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs, are recorded as either operating or nonoperating revenues in the University's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded contra revenue for scholarship allowances. NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds belonging to the State of Georgia (and thus Fort Valley State 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, bill, certificates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia. 2. Bonds, bills, certificates of indebtedness, notes, 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. - 11 - FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES 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, or 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. As authorized in the Official Code of Georgia Annotated Section 50-17-53, the State Depository Board has adopted policies which allow agencies of the State of Georgia (and thus Fort Valley State University), the option of exempting demand deposits from the collateral requirements. 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. CATEGORIZATION OF DEPOSITS The University's cash deposits are categorized by risk as follows: Category 1 - Amounts covered by depository insurance or collateralized with securities (at fair value) held by the University or by its agent in the University's name. Category 2 - Amounts collateralized with securities (at fair value) held by the pledging financial institution's trust department or agent in the University's name. Category 3 - Amounts collateralized with securities (at fair value) held by the pledging financial institution, or by its trust department or agent but not in the University's name, and amounts uncollateralized. Cash Deposits as of June 30, 2003 are as follows: Cash Deposits Carrying Amount Bank Balances Risk Categories 2 3 $ -527.343.82 $ 563 209.60 $ 267,000.00 $===0.0=0 $ 296,209.60 CATEGORIZATION OF INVESTMENTS The University's investments are categorized as to credit risk within the three categories described below: - 12 - FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS CATEGORIZATION OF INVESTMENTS Category 1 - Insured or registered, or securities held by the University or its agent in the University's name. Category 2 - Uninsured and unregistered, with securities held by the counter party's trust department or agent in the University's name. Category 3 - Uninsured and unregistered, with securities held by the counter party, or by its trust department or agent, but not in the University's name. At June 30, 2003, the University's investments consisted of the following: Type of Investments U. S. Government Securities $ Investments Not Subject to Categorizations: Board of Regents Balanced Income Fund Total Investments Risk Categories 2 1,325.00 $ 0 00 $ Carrying 3 Amount 000 $ 1,325.00 1,447,245.91 $ 1.448.570.91 Funds invested in an investment pool managed by another governmental entity are not required to be categorized since the University did not own any specific, identifiable investment securities of the pool. NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2003. Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal, State and Private Funds Other $ 456,041.24 318,932.52 3,242,571.78 494.47 Less Allowance for Doubtful Accounts $ 4,018,040.01 472,917.33 Net Accounts Receivable $ 3,545,122.68 - 13 - FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 4: INVENTORIES Inventories consisted of the following at June 30, 2003. Bookstore Physical Plant $ 102,329.65 21,707.41 Total $ 124,037.06 NOTE 5: NOTES/LOANS RECEIVABLE Notes/Loans receivable primarily consist of student loans made through the Federal Perkins Loan Program (the Program) comprise substantially all of the loans receivable at June 30, 2003 and 2002. The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. As the University determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans are written off and assigned to the U.S. Department of Education. The University has provided an allowance for uncollectible loans, which, in management's opinion, is sufficient to absorb loans that will ultimately be written off. At June 30, 2003 the allowance for uncollectible loans was $1,066,945.56. NOTE 6: CAPITAL ASSETS Following are the changes in capital assets for the year ended June 30, 2003: Capital Assets, Not Being Depreciated: Land and Land Improvements Capital Assets Being Depreciated: Buildings and Building Improvements Facilities and Other Improvements Equipment Library Collections Less Accumulated Depreciation: Buildings and Building Improvements Facilities and Other Improvements Equipment Total Capital Assets Being Depreciated, Net Capital Assets - Net Balance Jul:t l, 2002 Additions Balance Reductions June 30, 2003 $ 1,262,548.17 $ 1,262,548.17 $37,418,879.66 $ 33,428.40 $ 1,506,124.00 7,459,575.99 1,476,692.39 5,651,935.48 $52,036,515.13 $ 1,510,120.79 $ 0.00 $37,452,308.06 1,506,124.00 8,936,268.38 5,651,935.48 0.00 $53,546,635.92 $20,499,200.87 $ 868,158.40 $ l, 195,220.86 108,541.35 5,131,467.47 698,445.99 $26,825,889.20 $ 1,675,145.74 $ 0.00 $21,367,359.27 1,303,762.21 5,829,913.46 0.00 $28,501,034.94 $25,210,625.93 $ -165,024.95 $ $26 473 174.10 $ -165,024.95 $ 0.00 $25,045,600.98 0.00 $26 308,149.15 - 14 - FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 7: DEFERRED REVENUE Deferred revenue consists of the following at June 30, 2003. Prepaid Tuition and Fees Federal and State Grants $ 23,292.19 922,290.12 Totals $ 945,582.31 NOTE 8: LONG-TERM LIABILITIES Long-Term liability activity for the year ended June 30, 2003 was as follows: Beginning Balance Jul):'. I, 2002 Additions Reductions Ending Balance June 30, 2003 Current Portion Compensated Absences U. S. Department of Education Settlement $ 1,749,584.03 $ 921,030.93 $ 841,426.01 $ 1,829,188.95 $ 827,412.52 2,155,441.00 42,047.33 2,113,393.67 160,184.21 Total Long-Term Obligations $ 3 905,025.03 $ 921 030.93 $ 883 473.34 $ 3,942,582.62 $ 987.596.73 NOTE 9: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description Fort Valley State University 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 Georgia Department of Audits and Accounts. Funding Policy Employees of Fort Valley State University who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Fort Valley State University 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 2003, the employer contribution rate was 9.24% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: - 15 - FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 9: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Funding Policy Fiscal Year Percentage Contributed Required Contribution 2003 100% $ 1,728,015.65 2002 100% $ 1,647,366.55 2001 100% $1,967,019.67 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. Under this plan, the Board of Regents may purchase annuity contracts for the purpose of providing retirement and death benefits for eligible faculty and principal administrators. 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 Fort Valley 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. The employer contributes 10.02% 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. Fort Valley State University and the covered employees made the required contributions of $426,678.31 (10.02%) and $212,914.25 (5%), respectively. GEORGIA DEFINED CONTRIBUTION PLAN Plan Description Fort Valley 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. - 16 - FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 9: RETIREMENT PLANS GEORGIA DEFINED CONTRIBUTION PLAN 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 $ 3,500.00 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 2003 amounted to $52,864.36 which represents 7.5% of covered payroll. These contributions met the requirements of the plan. NOTE 10: RISK MANAGEMENT Fort Valley State University is a participant in the Board of Regents of the University System of Georgia Health Benefits Plan, which is a self-insurance program of health and dental benefits for employees and retirees of the University System of Georgia. Fort Valley State University and participating employees and retirees pay premiums to the Health Benefits Plan for this health insurance coverage. The Health Benefits Plan is 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 of the Health Benefits Plan. The Health Benefits Plan is considered a self-sustaining risk fund that provides health coverage for its members up to a maximum lifetime benefit of $2,000,000.00 per person and dental coverage up to an annual maximum of $1,000.00 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia to process claims in accordance with the Health Benefits Plan as established by the Board of Regents. The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' - 17 - FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 10: RISK MANAGEMENT indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. Fort Valley State University, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment. A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund. 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 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 Fort Valley State University expects such amounts, if any, to be immaterial to its overall financial position. Litigation, claims and assessments filed against Fort Valley State University (an organizational unit of the Board of Regents of the University System of Georgia), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2003. NOTE 12: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 203-31, 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. - 18 - FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 EXHIBIT "D" NOTE 12: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS As of June 30, 2003, there were 171 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2003, Fort Valley State University recognized as incurred $588,681.05 of expenses, which was net of $235,143.82 of participant contributions. NOTE 13: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS The University's operating expenses by functional classification are shown below: Statement of Operating Expenses - Natural vs Functional Classifications For the Fiscal Year Ended June 30, 2003 Functional Classification Natural Classification Instruction Research Public Service Academic Support Student Services Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation $ 8,205,498.00 1,766,038.23 2,424,104.49 133,995.73 240,185.74 118,770.97 1,648,374.76 1,556,842.63 $ 2,454,061.29 700,116.85 107,412.76 188,523.51 27,665.50 873,847.73 34,030.86 $ 1,649,277.08 475,847.08 119,281.17 5,987.95 35,283.76 838,041.74 10,085.53 $ 3,596,168.50 925,831.15 65,509.51 16,560.15 130,588.62 1,006,967.13 68 177.13 $ 2,096,558.44 488,722.52 58,063.64 299,946.14 43,212.04 936,278.04 2,224.59 Total Operating Expenses $16 093 810 55 $ 4 385,658 50 $ 3,133,804 31 $ 5,809,802 19 $ 3 925 005.41 Natural Classification Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Institutional Support Functional Classification Plant Operations and Scholarships Auxiliary Maintenance and Fellowships Enterprises Total Operating Expenses $ 3,024,299.36 1,567,175.49 632.50 53,112.72 473,258.06 83,429.91 1,165,712.77 2,469.23 $ 6 370 090 04 $ 1,716,566.64 589,633.81 1,319.07 1,736,225.94 816,536.73 1 315.77 $ 486159796 $ 1,857,927.78 $ I 857 927.78 $ 944,921.85 221,590.04 10,093.57 380,365.00 141,238.92 2,795,789.66 $ 4 493 999.04 $ 8,205,498.00 17,247,891.39 7,393,021.43 632.50 548,788.17 3,462,754.33 2,316,415.66 10,081,548.56 1,675 145.74 $50 931 695.78 - 19 - SUPPLEMENTARY INFORMATION - 21 - FORT VALLEY STATE UNIVERSITY SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GAAP BASIS) RESIDENT INSTRUCTION YEAR ENDED JUNE 30, 2003 SCHEDULE "1" REVENUES State Appropriations Other Revenues Retained BUDGET ACTUAL (1) VARIANCEFAVORABLE (UNFAVORABLE) $ 21,457,195.00 $ 21,457,195.00 $ 46,922,286.00 35,917,173.44 0.00 -11,005,112.56 $ 68,379,481.00 $ 57,374,368.44 $ ---:...:..-..1:.1-'-,'0--0-'5--,'1-..1.:2....C5.6... EXPENDITURES Personal Services: Education, General and Departmental Services Sponsored Operations Operating Expenses: Education, General and Departmental Services Sponsored Operations Capital Outlay Special Funding Initiative $ 21,271,036.00 $ 21,150,814.15 $ 10,665,486.00 8,321,241.65 4,275,227.00 25,683,103.00 3,736,477.00 2,748,152.00 4,564,779.11 20,316,238.68 0.00 2,656,800.03 120,221.85 2,344,244.35 -289,552.11 5,366,864.32 3,736,477.00 91 351.97 $ 68,379,481.00 $ 57,009,873.62 $ _ _1_1.:..:;,3-=-.69:..:.,6=--.:0:..:..7~.3-=--8 Excess of Revenues over Expenditures $ 364,494.82 $===~3=6=4,l=4=94==8=2 (1) Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. - 23- FORT VALLEY STATE UNIVERSITY SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GMP BASIS) LOTTERY FOR EDUCATION YEAR ENDED JUNE 30. 2003 SCHEDULE "2" REVENUES State Appropriations EXPENDITURES Equipment, Technology and Construction Trust Fund BUDGET ACTUAL (1) VARIANCEFAVORABLE (UNFAVORABLE) $ 92,722.00 $ 92,722.00 $ - - - - - -0.0-0 $ 92,722.00 $ 132,280.95 $ _ _ _-3_9-'-,.,5_5_8._95_ Excess of Revenues over Expenditures $ -39,558.95 $ ====-=39=,5=58=.9=5 (1) Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. - 24 - FORT VALLEY STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2003 SCHEDULE "3" Totals per Annual Supplement Accruals June 30, 2003 June 30, 2002 Compensated Absences June 30, 2003 June 30, 2002 Adjustments Shared Services on Jointly Staffed Personnel Darton College Kitamura, Nattsu Maddineni, Sreenivasa Pace, Michelle Taylor, Delia Other Bridges, Tammicca Dudley, Albert Eferighe, Isaac Hubbard, Erica Unidentified Variance SALARIES $ 25,351,126.30 $ TRAVEL 549,733.93 124,857.37 -112,361.92 1,829,188.95 -1,749,584.03 5,000.00 4,000.00 100.00 924.00 60.00 40.00 -37.00 175.00 -99.28 -945.76 $ 25,453,389.39 $===54,;;8;l,;,7=8=8.=1=7 See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. - 25 - FORT VALLEY STATE UNIVERSITY RECONCILIATION OF PER DIEM AND FEES YEAR ENDED JUNE 30, 2003 SCHEDULE "4" Totals per Annual Supplement Unidentified Variance FEE AMOUNT EXPENSE AMOUNT $ 608,616.76 $ 45,489.87 $ 1,473.56 -2,137.64 TOTAL 654,106.63 -664.08 $ 610,090.32 $ 43,352.23 $ ===65=3=,4=4=2.=55= See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. - 26 - SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS FORT VALLEY STATE UNIVERSITY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-533-98-03 FS-533-99-02 FS-533-00-02 FS-533-00-03 FS-533-01-01 FS-533-01-02 FS-533-01-03 FS-533-01-04 FS-533-01-05 FS-533-01-06 FS-533-01-07 FS-533-01-08 FS-533-01-09 FS-533-02-01 FS-533-02-02 FS-533-02-03 FS-533-02-04 FS-533-02-05 FS-533-02-06 FS-533-02-07 FS-533-02-08 FS-533-02-09 FS-533-02-10 FS-533-02-11 FS-533-02-12 Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Further Action Not Warranted Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses Further Action Not Warranted Further Action Not Warranted Further Action Not Warranted Unresolved - See Corrective Action/Responses Further Action Not Warranted Further Action Not Warranted Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Further Action Not Warranted Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Further Action Not Warranted Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS H.O.P.E. Disbursements Made to Ineligible Students Questioned Costs: $743.00 Finding Control Number: FS-533-98-03 The Institution does not concur with finding, and the information was submitted to Georgia Student Finance Commission to determine eligibility. The Institution has not received a response from the agency. - 1- FORT VALLEY STATE UNIVERSITY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS H.O.P.E. Disbursements Made to Ineligible Students Questioned Costs: $5,265.00 Finding Control Number: FS-533-99-02 The Institution has submitted the finding to the Georgia Student Finance Commission and has not received their final determination. EXPENDITURES/LIABILITIES/DISBURSEMENTS H.O.P.E. Disbursements Made to Ineligible Students Questioned Costs: $1,422.00 Finding Control Number: FS-533-00-03 The Institution has submitted the finding to the Georgia Student Finance Commission and has not received their final determination. REVENUES/RECEIVABLES/RECEIPTS Student Accounts Receivable Not Supported by Financial Aid Finding Control Number: FS-533-01-03 Effective Summer Semester 2002, the University put into place the Board of Regents' policy that no student fees will be deferred unless the student has approved documentation of financial aid at the time of registration. In addition, if financial aid is recalled on a student, the student will be given the opportunity to pay his or her fees from other sources. However, if the fees are not paid by other sources their registration will be cancelled. Also, the University put in operation, effective Summer Semester 2002, a policy and procedure for canceling student registrations for non-payment of fees. Dates were established for the cancellation process to be performed. Should a student's registration be cancelled for non-payment of fees the student would have to pre-pay the fees before being allowed to re-register for classes. Registration holds are placed on students' accounts for outstanding balances and where appropriate accounts are turned over to a third party for collection. -2- FORT VALLEY STATE UNIVERSITY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES FUND EQUITIES Dormant/Deficit Restricted Funds Finding Control Number: FS-533-01-07 University personnel have initiated contact with the granting agencies to resolve dormant accounts. At the present time, three ofthe twelve accounts have not been resolved. When University grants and contracts are completed and funds remain on hand, the funding agencies will be contacted for instructions on handling the balances. Should funds be due the University, steps will be taken to collect the balance due. ACCOUNTING CONTROLS (OVERALL) Inadequate Closing Procedures Finding Control Number: FS-533-02-01 The accounting services department with the assistance of OIIT in Athens is working to resolve this problem. It is expected that the University will not experience this problem at the end of this fiscal year (fiscal year 2004). CASH AND CASH EQUIVALENTS Failure to Reconcile Cash Finding Control Number: FS-533-02-02 Bank reconciliations are currently being completed on a monthly basis. We have established procedures for this to be ongoing. GENERAL LEDGER Reports Not Reconciled to Accounting Records Finding Control Number: FS-533-02-11 These accounts are currently being analyzed such that all adjustments will be made for the preparation of the Financial Statements for fiscal year ended June 30, 2003. -3- FORT VALLEY STATE UNIVERSITY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES CAPITAL ASSETS/PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System and Equipment Inventory Records Finding Control Number: FS-533-02-12 Capital assets are now being managed by the Director of Auxiliary Services and proper records are being maintained to track all assets. Also, the University has established and hired a Records Retention Officer who is refurbishing our Ohio Hall building and reviewing Fort Valley State University records retention policies and guidelines. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-533-01-01 FA-533-01-05 FA-533-01-06 FA-533-02-01 FA-533-02-02 F A-533-02-03 Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses Further Action Not Warranted Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES REPORTING Expenditures in Excess of Authorization Finding Control Number: FA-533-01-05 The Pell Grant Program expenditures are being reconciled to identify the student awards that must be increased to justify the expenditure of$9,976.75 over the total Pell Grant for fiscal year 2001. The University has responded to the U.S. Department of Education on the audit finding (see letter to the U.S. Department of Education, dated September 25, 2002) and will take action based on final determination of the finding. -4- FORT VALLEY STATE UNIVERSITY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ELIGIBILITY Overpayment of Student Financial Aid Student Financial Aid Cluster Program Questioned Cost: $24,489.00 Finding Control Number: FA-533-02-01 Information has been submitted to U. S. Department ofEducation and we will take action based on final determination of the finding. REPORTING Expenditures in Excess of Authorization Student Financial Aid Cluster Program Finding Control Number: FA-533-02-02 Information has been submitted to U.S. Department ofEducation and we will take action based on final determination of the finding. REPORTING Reports Not Reconciled Student Financial Aid Cluster Program Finding Control Number: FA-533-02-03 Information has been submitted to U.S. Department ofEducation and we will take action based on final determination of the finding. -5- SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS ACCOUNTING CONTROLS (OVERALL) Inadequate Closing Procedures Finding Control Number: FS-533-03-01 Criteria: Closing procedures are necessary to establish and maintain adequate control over the operation, utilization, and integrity of their data processed with the GeorgiaFIRST System. Condition: The University did not comply with a final closing date for the GeorgiaFIRST Accounting System as set by the Board of Regents. Questioned Cost: NIA Information: The University did not close its accounting records until late November, well past the July 31, 2003, date set by the Board of Regents. Effect: Without the adequate closing procedures, data presented for review was incomplete and required extensive review procedures to determine the validity of the information provided. Cause: The University failed to adhere to the final fiscal year end 2003 closing date established for the GeorgiaFIRST Accounting System. Recommendation: The University should work with Board of Regents Central Office to develop procedures that will result in complete reporting of all financial data in a more efficient and timely manner. CASH AND CASH EQUIVALENTS Failure to Reconcile Cash Finding Control Number: FS-533-03-02 Criteria: NCGA Statement 1, paragraph 1, which prescribes that an accounting system (1) present fairly and fully disclose its financial position including its financial operation of its funds in accordance with generally accepted accounting principles and (2) demonstrate compliance with finance related legal and contractual provisions. Condition: The accounting procedures of the University were insufficient to provide controls over Cash and Cash Equivalents. Questioned Cost: NIA - 1- FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS Failure to Reconcile Cash Finding Control Number: FS-533-03-02 Information: We noted the following weakness relating to Cash and Cash Equivalents. 1) The reconciliation prepared by the University for the Operating Account did not agree with the general ledger by $779.55. 2) Numerous reconciling items, such as unposted deposits and checks, were not corrected in a timely manner. 3) Unexplained variances of $653.17 were noted on the reconciliation. Effect: Without proper accounting controls and procedures in place, the University could place itselfin a position where potential misappropriation ofassets could occur. In addition, the lack of controls could impact reporting of its financial position and results of operations. Cause: University management failed to implement satisfactory controls to ensure that cash is reconciled on a monthly basis and in a timely manner. Recommendation: The University should establish appropriate procedures and controls to ensure that: 1) Cash is reconciled to the general ledger. 2) Uncorrected items identified when reconciling bank statements to the general ledger are posted in a timely manner. 3) All variances are cleared timely. REVENUE/RECEIVABLES/RECEIPTS Student Accounts Receivable Not Supported by Financial Aid Finding Control Number: FS-533-03-03 Criteria: Board ofRegents Policy Manual Section 704.03 states "All tuition and fees are due and payable upon registration". Condition: The University had students who were awarded financial aid at the time of registration which was applied towards their tuition and fees. The awarded financial aid was later denied which resulted in an accounts receivable not supported by approved financial aid. Questioned Cost: NIA -2- FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUE/RECEIVABLES/RECEIPTS Student Accounts Receivable Not Supported by Financial Aid Finding Control Number: FS-533-03-03 Information: A review of accounts receivable revealed during the year the University had students whose financial aid was denied which resulted in an increase to accounts receivable by $28,844.19. Effect: By not adhering to Board ofRegent's policy the University is allowing students to attend the institution and potentially not being paid for that service. Cause: This condition occurred because financial aid awarded to some students was later denied. Recommendation: The University should continue collection efforts of the tuition and fees incurred for those students that were denied financial aid. GENERAL LEDGER Reports Not Reconciled to Accounting Records Finding Control Number: FS-533-03-04 Criteria: Reconciliation is to be conducted by the University, verifying all awards and disbursements to students and resolving any discrepancies between the University's records and the H.O.P.E. Scholarship Reconciliation Report provided by the Georgia Student Finance Commission. Condition: The University's H.O.P.E. Scholarship Program reconciliation did not reconcile to the accounting records. Questioned Cost: NIA Information: The University's H.O.P.E. Scholarship Program did not reconcile to the accounting records as indicated below: Report Item Per H.O.P.E. Reconciliation Per Accounting Records Unreconciled Difference Cash Disbursed to School $1,509,857.00 $1,861,094.00 $351,237.00 Amount Awarded to Students $1,526,654.00 $1,839,485.00 $312,831.00 -3- FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Reports Not Reconciled to Accounting Records Finding Control Number: FS-533-03-04 Effect: The lack ofproper reconciliation procedures causes incorrect data to be sent to the Georgia Student Finance Commission and could result in the overpayment or underpayment to the University. Cause: The unreconciled differences identified above occurred because management failed to reconcile accounting records to the H.O.P.E. Scholarship Program reports at year-end. Recommendation: Procedures should be established to ensure that all H.O.P.E. Scholarship Program reconciliation reports are reconciled to the University's formal accounting records. CAPITAL ASSETS Inadequacies in Operation of Property Management System and Equipment Inventory Records Finding Control Number: FS-533-03-05 Criteria: The University should maintain their subsidiary ledger for Capital Assets in accordance with the Board of Regents' Capital Asset Guide for University System of Georgia. Condition: The University did not maintain adequate controls over their subsidiary ledger for Capital Assets. Questioned Cost: NIA Information: We noted the following weaknesses/deficiencies relating to Capital Assets: 1) The general ledger did not agree with the subsidiary ledger by $31,550.59. 2) The University did not record current year Library Collection additions in the amount of $163,614.62. 3) Accumulated depreciation and the current year depreciation for Library Collections have not been reflected in the Financial Statements. 4) There were numerous items on the inventory listing that were below capitalization thresholds established by the Board of Regents. -4 - FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Inadequacies in Operation of Property Management System and Equipment Inventory Records Finding Control Number: FS-533-03-05 5) A test of seventy five items revealed the following: a) 13 items could not be located. b) 13 items did not have inventory tags affixed. c) 18 items were not in their proper location as shown on the inventory listing. 6) The University did not perform a complete physical inventory during the year in accordance with their policy. Effect: Without proper accounting controls and procedures in place, the University could place itself in a position where potential misappropriation ofassets could occur. In addition, the lack of controls could impact reporting of its financial position and results of operations. Cause: These deficiencies were due to management's failure to implement controls adequate to ensure capital asset records and equipment inventories are properly maintained. Recommendation: The University should establish appropriate procedures and controls to ensure capital assets are properly maintained and reported correctly in the general ledger and that equipment items are easily identified and tracked through the Capital Asset system. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS REPORTING Expenditures in Excess of Authorization Federal Pell Grant Program (CFDA 84.063) Finding Control Number: FA-533-03-01 Criteria: Provisions contained in 34 CFR 690.83 indicates an Institution should provide to the U. S. Department of Education each student's Payment Data for each award year which is then used to determine the institution's authorized award for the Federal Pell Grant Program. Condition: The University exceeded the amount authorized in the Statement of Account. Questioned Cost: NIA -5 - FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS REPORTING Expenditures in Excess of Authorization Federal Pell Grant Program (CFDA 84.063) Finding Control Number: FA-533-03-01 Information: The Statement of Account report from the U. S. Department of Education authorized the University to expend $4,366,821.00. The University's accounting record reported $4,376,229.00 as fiscal year 2003 Pell Grant Program expenditures. As a result, the University expended $9,408.00 in excess of the authorized amount. Effect: The University will not be reimbursed the amount of overexpenditure unless they can provide the U.S. Department ofEducation appropriate documentation. Cause: The University does not have procedures implemented to ensure that the expenditures do not exceed the authorized amount. Recommendation: The University should implement procedures to ensure that the amounts expended do not exceed the amount authorized. In order to be reimbursed for the excess Pell Grant program expenditures, the University, in conformity with Federal guidelines, must certify the validity of the payments to the U. S. Department of Education. The Federal agency can then provide appropriate adjustments of the fiscal year 2003 authorized amount in order to make the funds available to the University. REPORTING Reports Not Reconciled Federal Work-Study Program (CFDA 84.033) Federal Perkins Loan Program (CFDA 84.038) Federal Pell Grant Program (CFDA 84.063) Federal Direct Student Loan Program (CFDA 84.268) Finding Control Number: FA-533-03-02 Criteria: Federal regulations (34 CFR 674.19, 675.19, 685.309, 690.81 and 690.83) require the University to ensure reported information is accurate and reconciled as necessary. Condition: Amounts reported on several of the required reports for Federal Financial Assistance programs submitted by the University to the U.S. Department of Education were not properly reconciled. Questioned Cost: NIA -6- FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS REPORTING Reports Not Reconciled Federal Work-Study Program (CFDA 84.033) Federal Perkins Loan Program (CFDA 84.038) Federal Pell Grant Program (CFDA 84.063) Federal Direct Student Loan Program (CFDA 84.268) Finding Control Number: FA-533-03-02 Information: The following reports were not properly reconciled: 1) The Pell Year to Date Report, which reports Federal Pell Grant Program expenditures for the year, was not reconciled to the accounting records. 2) The Fiscal Operations and Application to Participate (FISAP) report for fiscal year ending June 30, 2002, which was the most current report available during the review, had amounts reported for State Grant and Scholarships Made to Undergraduates, Tuition and Fees, the Pell Grant Program, the Federal Work-Study Program and the Perkins Loan Program that did not reconcile to the accounting records. 3) The University did not reconcile monthly the Federal Direct Loan Program activity to the accounting records in accordance with Section 2 ofThe Blue Book. Effect: Information submitted to the U.S. Department ofEducation is not accurate and not supported by the accounting records. Cause: The deficiencies identified were a result ofmanagement's failure to adequately reconcile activity reported in Federal financial assistance program reports to the accounting records. Recommendation: The University should implement adequate controls to ensure that all reports submitted to the U.S. Department of Education are accurately completed and supported by the accounting records. -7-