Fort Valley State University, Fort Valley, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2004

STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
I
FORT VALLEY STATE UNIVERSITY
FORT VALLEY, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Russell W. Hinton State Auditor

FORT VALLEY STATE UNIVERSITY - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON 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

7

SUPPLEMENTARY INFORMATION

SCHEDULES

1 SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO

BUDGET - (NON-GAAP BASIS)

RESIDENT INSTRUCTION

25

2 RECONCILIATION OF SALARIES AND TRAVEL

26

3 RECONCILIATION OF PER DIEM AND FEES

27

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 30, 2004

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 AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying basic financial statements (Exhibits A through D) ofFort Valley State University, an organizational unit of the State of Georgia, as of and for the year ended June 30, 2004. These financial statements are the responsibility ofthe Fort Valley State University's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1, the financial statements of Fort Valley State University are intended to present the financial position and changes in financial position and cash flows ofonly that portion of the business-type activities of the State of Georgia that is attributable to the transactions of Fort Valley State University. They do not purport to, and do not, present fairly the financial position and changes in financial position and cash flows ofthe State of Georgia, in conformity with accounting principles generally accepted in the United States of America.

04ARL-62

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position ofFort Valley State University as ofJune 30, 2004, and its changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1, the University adopted the provisions of the Governmental Accounting Standards Board, Statement Number 39, Determining Whether Certain Organizations are Component Units during the year ended June 30, 2004.
Management's Discussion and Analysis is not a required part ofthe basic financial statements but is required supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries ofmanagement regarding the methods of measurement and presentation ofthis required supplementary information. However, we did not audit this information and express no opinion on it.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Fort Valley State University taken as a whole. The accompanying supplementary information (Schedules 1 through 3) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Respectfully submitted,

RWH:gp 04ARL-62

Russell W. Hinton 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

FY2004 FY2003 FY2002

118

2,289

148

2,004

170

2,054

Overview ofthe Financial Statements and Financial Analysis

Fort Valley State University is proud to present its financial statements for fiscal year 2004. 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 2003 and fiscal year 2004.

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

- 1-

restricted net assets, which is divided into two categories, nonexpendable and expendable. The 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 ofNet Assets, Condensed (thousands of dollars)

June 30, 2004

June 30, 2003

Assets Current Assets Capital Assets, Net Other Assets

$

3,604

$

3,809

23,185

26,308

2,787

3 405

Total Assets

$_ _-=29"-'-,~57-=-6

$_ _.:;;.;33:;.:z.,5=2=2

Liabilities Current Liabilities Noncurrent Liabilities

$

3,953

$

4,443

2,800

2,955

Total Liabilities

$_ _~6~75~3

$_ _ _7~3~9-=-8

Net Assets

Invested in Capital Assets, Net of Debt

$

23,185

$

26,308

Restricted - Nonexpendable

1,525

1,523

Restricted - Expendable

2,024

2,158

Unrestricted

-3 911

-3,865

Total Net Assets

$====22=.8==2=3

$====26==12~4

The total assets of the institution decreased by $3,946,650.86. A review of the Statement of Net Assets will reveal that the decrease was primarily due to a decrease of $3,122,655.95 of investment in plant, net of accumulated depreciation.

The total liabilities for the year decreased by $645,176.05. The primary cause for the decrease was in current liabilities, primarily $1,214,530.03 in accrued payables, which contributed to the decrease in current assets. The overall decrease in total assets of $3,946,650.86 and the decrease in total liabilities of $645,176.05 yields a decrease in total net assets of $3,301,474.81. The decrease in total net assets is primarily in the category of invested in capital assets, net of debt in the amount of$3,122,655.95.

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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 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, 2004

June 30, 2003

Operating Revenues Operating Expenses

$

21,875

$

20,231

49 949

50,932

Operating Loss

$

-28,074

$

-30,701

Nonoperating Revenues and Expenses

27,299

29,101

Increase (Decrease) in Net Assets

$

-775

$

-1 600

Net Assets at Beginning of Year, as Originally Reported

$

26,124

$

27,724

Prior Period Adjustment

-2,526

Net Assets at Beginning of Year Restated

$

23,598

$

27,724

Net Assets at End of Year

$

22,823

$

26,124

The Statement of Revenues, Expenses and Changes in Net Assets reflect 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:

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Revenue By Source (thousands of dollars) For The Years Ended June 30, 2004 and June 30, 2003

Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Auxiliary Other
Total Operating Revenue
Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other
Total Nonoperating Revenue
Total Revenues

June 30, 2004

June 30, 2003

$

4,145

$

3,135

12,036

11,674

111 4,898
685

70 4,510
842

$

21,875

$

20,231

$

18,960

$

21,600

8,301

7,548

277

14

54

-159

6

$

27,393

$

29,208

$

49,268

$

49439

Expenses (By Functional Classification) (thousands of dollars) For The Years Ended June 30, 2004 and June 30, 2003

June 30, 2004

June 30. 2003

Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises

$

14,953

$

16,094

5,759

4,386

2,720

3,134

6,221

5,810

4,085

3,925

5,807

6,370

4,163

4,861

2,167

1,858

4 074

4494

Total Operating Expenses

$

49,949

$

50,932

Nonoperating Expenses Interest Expense

94

107

Total Expenses

$

50,043

$

51,039

- lV -

Governmental grants and contracts (operating and nonoperating) increased by $1,115,151.03. This is primarily a result of a new USDA grant for our Cooperative Extension program and an increase in student scholarships and financial assistance.
Revenues associated with the residential life and food services, scholarship allowances, category increased by $389,032.74 during the year. This increase reflects an improvement in our freshmen enrollment that resulted in more students living on campus. In addition, the increase is, in part due to our change in upgrading our food services provider. The compensation and employee benefits category decreased by $450,492.26. The decrease is a direct result of the institution's reduction in its workforce. Utilities increased by $65,797.00 during the past year. The increase was primarily associated with the increased natural gas costs that were experienced in the winter of fiscal year 2004. Under nonoperating revenues (expenses) state appropriations decreased by $2,640,218.13. The reduction of state appropriations system-wide, due to a sluggish economy, has created a challenge for all institutions of the University System of Georgia and, thus, for Fort Valley State University. We are hopeful that the economy is now on an upward trend.
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.
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Cash Flows for the Years Ended June 30, 2004 and June 30, 2003, Condensed (thousands of dollars)

June 30, 2004

June 30, 2003

Cash Provided (Used) By:

Operating Activities

$

-27,101

$

-29,600

Noncapital Financing Activities

27,664

29,026

Capital and Related Financing Activities

-1,472

-1,510

Investing Activities

716

12

Net Change in Cash Cash, Beginning of Year

$

-193

$

-2,072

-595

1477

Cash, End of Year Capital Assets

$ = = = -7=='8==8

$===--59==5

The University had significant capital asset reductions in fiscal year 2004. All capital assets below the $5,000 capitalization threshold were retired in addition to the retirement of several automobiles.

For additional information concerning Capital Assets, see Notes 1 and 5 in the Notes to the Financial Statements.

Long-Term Debt

Fort Valley State University had a total Long-Term Debt of $3,957,506.35 of which $1,157,510.55 was reflected as current liability at June 30, 2004.

For additional information concerning Long-Term Debt see Notes 1 and 7 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. The University's overall financial position is sound. 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

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BASIC FINANCIAL STATEMENTS - 1-

FORT VALLEY STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30, 2004
ASSETS
Current Assets Short-Term Investments Accounts Receivable, Net Federal Financial Assistance Other Prepaid Items
Total Current Assets
Noncurrent Assets Investments Notes Receivable, Net Capital Assets, Net (See Note 5)
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
The notes to the financial statements are an integral part of this statement. -3-

EXHIBIT"A"

$

68,357.32

2,329,580.72 922,401.01 283,780.65

$ 3,604,119.70

$

746,735.90

2,039,412.34

23,185,493.20

$ 25,971,641.44

$ 29,575,761.14

$

788,248.40

203,173.39

339,535.09

796,660.68

461,267.44

849,428.99

308,081.56

206,133.49

$ 3,952,529.04

$ 1,129,777.49 1,670,218.31
$ 2,799,995.80
$ 6,752,524.84

$ 23, 185,493.20
1,524,716.72 2,024,294.91 -3,911,268.53

$ 22,823,236.30

FORT VALLEY STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30, 2004

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 Parking/Transportation 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 Gifts 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, as Originally Reported Prior Period Adjustment on Depreciable Capital Assets - See Note 1
Net Assets - Beginning of Year, Restated
Net Assets - End of Year
The notes to the financial statements are an integral part of this statement. -4-

$ 6,951,008.68 -2,806,300.24
11,734,812.08 63,566.52
237,789.00 110,673.45
1,915,293.29 48,289.57
1,932,339.73 27,640.94
344,332.66 576,829.54
53,703.91 684,624.37
$ 21,874,603.50

$ 7,625,108.47 17,596,694.70 7,174,526.39 221.50 387,181.10 3,635,687.62 2,382,212.66 9,237,866.11 1,909,166.29
$ 49,948,664.84
$ -28,074,061.34

$ 18,960,053.00

7,877,746.26 322,773.06 100,941.44 276,499.22 14,421.99 -94,072.83 -159,381.75

$ 27,298,980.39

$

-775,080.95

$ 26,124,711.11 -2,526,393.86
$ 23,598,317.25

$ 22,823,236.30

FORT VALLEY STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30. 2004
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 Parking/Transportation 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 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 Purchases/Sales of Investments (Net)
Net Cash Provided (Used) by Investing Activities
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 Receivable, Net Inventories Prepaid Items Notes Receivable Accounts Payable Salaries Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY NONCAPITAL FINANCING, CAPITAL AND RELATED FINANCING TRANSACTIONS AND INVESTING ACTIVITIES Change in Fair Market Value of Investments Recognized as a Component of Interest Income
The notes to the financial statements are an integral part of this statement.
-5-

EXHIBIT"C"

$ 4,589,503.10 12,511,162.37 110,673.45 -20,602,507.70 -24,993,469.62 -3,635,687.62 -392,314.00 309.538.54
1,915,293.29 48,289.57
1,932,339.73 27,640.94
344,332.66 576,829.54
53,703.91 103 759.76
$ -27,100,912.08

$ 18,960,053.00 355,082.92
8,577,959.98 -135,093.80
-94 072.83
$ 27,663,929.27

$ -1,472,285.95

$

85,588.85

630 668.15

$

716 257.00

$

-193,011.76

-595,236.64

$

-788 248.40

$ -28,074,061 .34
1,909,166.29
511,991.45 124,037.06 -212,242.65 -82.775.46 -1,430,985.91 78,316.02 -148,921.63 74,546.56 150 017.53
$ -27, 100,912.08

$ ===-7=1=1=6=6.,.,86=

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

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.
The Board of Regents of the University System of Georgia (and thus Fort Valley State University) is required to implement GASB Statement No. 39 Determining Whether Certain Organizations are Component Units - an amendment of Statement No. 14, for fiscal year 2004. This statement requires the inclusion of the financial statements for foundations and affiliated organizations that qualify as component units of the institution. For fiscal year 2004, Fort Valley State University does not have any foundations or affiliated organizations that qualify as component units.
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 implemented 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 also adopted GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION and are presented as required by these standards to provide 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.
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.
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.
RESTATEMENT OF PRIOR YEAR NET ASSETS - BEGINNING OF YEAR In the initial year of implementation of GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities, the University failed to reflect accumulated depreciation or the effect of current year depreciation for library collections as required by accounting principles generally accepted in the United States. Additionally, the University failed to include residual values on its depreciable assets in accordance with asset capitalization policies adopted in the Capital Asset Guide for the University System of Georgia. As the result of the University's inclusion of Library collections and residual values for depreciable capital assets, net assets of July 1, 2003 were decreased by $2,526,393.86 for the effects on accumulated depreciation.
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.
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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
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 20 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.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CAPITAL ASSETS 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, 2004, GSFIC did not transfer any capital additions to Fort Valley State University.
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 $1,829,188.95 as of July 1, 2003. For fiscal year 2004, $938,918.55 was earned in compensated absences and employees were paid $788,901.02, for a net increase of $150,017.53. The ending balance as of June 30, 2004 in accrued liability for compensated absences was $1,979,206.48. Compensated absences include a current liability of $849,428.99.
NONCURRENT LIABILITIES Noncurrent liabilities include (1) liabilities that will not be paid within the next fiscal year; (2) capital lease obligations with contractual maturities greater than one year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as 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
- 10 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NET ASSETS 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.

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.

Expendable Restricted Net Assets include the following:

June 30, 2004

Restricted - E&G Federal Loans

$ -152,394.91 2,176,689.82

Total Restricted Expendable

$ 2,024,294.91

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, 2004, the University had an unrestricted deficit of $113,859.00 which will be funded by the Board of Regents - Administrative Central Office. 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.

June 30, 2004

R& R Reserve Reserve for Encumbrances Other Unrestricted

$ 730,221.27 545,909.25
-5,187,399.05

Total Unrestricted Net Assets

$-3,911.268.53

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.

- 11 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 (4) interest on institutional student loans.
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.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES 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.
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 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 entity or by its agent in the entity's name.
Category 2 - Amounts collateralized with securities (at fair value) held by the pledging financial institution's trust department or agent in the entity'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 entity's name, and amounts uncollateralized.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 2: CASH AND CASH EQUIVALENTS: OTHER DEPOSITS: AND INVESTMENTS

CATEGORIZATION OF DEPOSITS At June 30, 2004, the University's cash deposits were as follows:

Cash Deposits

Carrying Amount

Bank Balances

Risk Categories

2

3

$ -121.121 08 $ 106 523 58 $ 168 947 62 $.===o,..,o,...o $ 537 575 96

CATEGORIZATION OF INVESTMENTS Investments are categorized as to credit risk within the three categories described below:

Category 1 - Insured or registered, or securities held by the entity or its agent in the entity's name.

Category 2 - Uninsured and unregistered, with securities held by the counter party's trust department or agent in the entity'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 entity's name.

At June 30, 2004, 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

132500 $

0 00 $

Carrying

3

Amount

000 $ 1,325.00

745,410.90
$ 746.735 90

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, 2004.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 3: ACCOUNTS RECEIVABLE

Student Tuition and Fees Federal, State and Private Funds Other

$ 516,535.50 2,737,187.88 221,030.03

Less Allowance for Doubtful Accounts

$3,474,753.41 222,771.68

Net Accounts Receivable

$ 3,251,981.73

NOTE 4: NOTES/LOANS RECEIVABLE

Notes/Loans receivable consisted of the following at June 30, 2004:

Perkins Loans Less Allowance for Doubtful Accounts

$3,115,264.70 1,075,852.36

Net Notes/Loans Receivable

$2,039,412.34

The Federal Perkins Loan Program (the Program) comprise substantially all of the loans receivable at June 30, 2004. 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.

NOTE 5: CAPITAL ASSETS

Following are the changes in capital assets for the year ended June 30, 2004:

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTES: CAPITAL ASSETS

Beginning Balance
July 1, 2003 (Restated)

Additions

Reductions

Ending Balance June 30, 2004

Capital Assets, Not Being Depreciated:

Land

$ 1,262,548.17

$ 1,262,548.17

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

$ 37,452,308.06 $ 1,506,124.00 8,936,268.38 5,651,935.48

306,900.00
857,480.47 $ 307,905.48

$ 37,759,208.06 1,506,124.00
1,485,246.20 8,308,502.65 5,959,840.96

Total Assets Being Depreciated

$ 53,546,635.92 $ 1,472,285.95 $ 1,485,246.20 $ 53,533,675.67

Less: Accumulated Depreciation:

Buildings and Building Improvements $ 19,230,623.35 $

Facilities and Other Improvements

1,173,385.99

Equipment

5,829,913.46

Library Collections

4,793,506.00

842,323.18 106,567.84 752,037.27 $ 208,238.00

$ 20,072,946.53 1,279,953.83
1,325,864.45 5,256,086.28 5,001,744.00

Total Accumulated Depreciation

$ 31,027,428.80 $ 1,909,166.29 $ 1,325,864.45 $ 31,610,730.64

Total Capital Assets, Being Depreciated,

Net

$ 22,519,207.12 $ -436,880.34 $ 159,381.75 $ 21,922,945.03

Capital Assets, Net

$ 23.781.755.29 $ -436 880 34 $ 159 381 75 $ 23.185 493 20

NOTE 6: DEFERRED REVENUE

Deferred revenue consisted of the following at June 30, 2004.

Federal and State Grants Gifts

$ 588,714.62 207,946.06

Totals

$ 796,660.68

NOTE 7: LONG-TERM LIABILITIES

Long-Term liability activity for the year ended June 30, 2004 was as follows:

Beginning Balance July 1, 2003

Additions

Reductions

Ending Balance June 30, 2004

Current Portion

Compensated Absences

$ 1,829,188.95 $

U.S. Department of Education

Settlement

2,113,393.67

938,918.55 $

788,901.02 $ 1,979,206.48 $

135,093.80

1,978,299.87

849,428.99 308,081.56

Total Long-Term Obligations $ 3,942,582.62 $ 938,918.55 $ 923,994.82 $ 3,957,506,35 $ 1,157,510.55

- 16 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 8: 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 TRS offices or 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 2004, 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:

Fiscal Year

Percentage Contributed

Required Contribution

2004 2003 2002

100% 100% 100%

$1,719,223.98 $ 1,728,015.65 $ 1,647,366.55

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.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 8: RETIREMENT PLANS
REGENTS RETIREMENT PLAN
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 10.03% 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 $415,017.26 (10.03%) and $206,888.72 (5%), respectively.
AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.
GEORGIA DEFINED CONTRIBUTION PLAN
Plan Description 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.
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.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 8: RETIREMENT PLANS
GEORGIA DEFINED CONTRIBUTION PLAN
Contributions and Vesting Total contributions made by employees during fiscal year 2004 amounted to $53,475.31 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 9: RISK MANAGEMENT
The University System of Georgia offers its employees and retirees access to two different selfinsured healthcare plan options - a PPO/PPO Consumer healthcare plan, and an indemnity healthcare plan. Fort Valley State University and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these two plans are considered to be a self-sustaining risk fund. Both selfinsured healthcare plan options provide a maximum lifetime benefit of $2,000,000.00 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WellPoint, to serve as the claims administrator for the two self-insured healthcare plan products. In addition to the two different self-insured healthcare plan options offered to the employees of the University System of Georgia, two fully insured HMO healthcare plan options are also offered to System employees.
The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. 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.

- 19 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 9: RISK MANAGEMENT
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 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 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, 2004.
NOTE 11: 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 are on a pay as you go basis to finance the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000.00 for basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.
As of June 30, 2004, there were 180 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2004, Fort Valley State University recognized as incurred $708,356.88 of expenses, which was net of $302,482.24 of participant contributions.

- 20 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 12: 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, 2004

Functional Classification

Natural Classification

Instruction

Research

Public Service

Academic Su1mort

Student Services

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

$ 7,625,108.47

2,138,068.44 $ 2,364,479.07 $ 1,595,326.71 $ 3,631,850.94 $ 2,141,191.64

2,359,921.99

637,285.96

463,592.11

947,484.34

531,581.26

99,876.95

69,191.51

83,335.68

46,941.78

44,568.92

149,576.50 95,487.89

196,833.76 20,689.38

24,065.84

3,871.54 136,509.95

360,140.99 37,658.17

897,497.40 1,587,426.03

2,371,184.42 99,267.60

527,114.49 26,577.57

1,454,764.02

966,224.82 3 079.00

Total Operating Expenses

$ 14 952 963 67 $ 5 758 93) 70 $ 2 720 012 40 $ 622) 422 57 $ 4084444 80

Natural Classification
Salaries Faculty Staff
Employee Benefits Other Personal Services Travel Scholarships and
Fellowships Utilities Supplies and Other
Services Depreciation
Total Operating Expenses

Institutional Suimort

Functional Classification

Plant

Operations and Scholarships

Auxiliary

Maintenance and Fellowshil!s Entemrises

Total Operating Ex!!enses

$ 3,292,831.24 1,476,267.85
221.50 36,247.77

$ 1,382,076.52 532,521.23
749.61

$ 1,050,870.14 225,871.65
6,268.88

$ 7,625,108.47 17,596,694.70 7,174,526.39
221.50 387,181.10

324,892.68 74,865.80

$ 2,166,591.02 1,860,504.03

433,781.13 132,431.60

3,635,687.62 2,382,212.66

597,553.00 4,522.73

382,973.02 3 934.64

2,040,554.94 184,358.72

9,237,866.11 1,909,166.29

$ 5 807 402 57 $ 4 162 759 05 $ 2 166 591 02 $ 4 074 137 06 $ 49 948 664.84

- 21 -

SUPPLEMENTARY INFORMATION - 23 -

FORT VALLEY STATE UNIVERSITY SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO
BUDGET - (NON-GAAP BASIS) RESIDENT INSTRUCTION
YEAR ENDED JUNE 30. 2004

SCHEDULE "1"

REVENUES
State Appropriations Other Revenues Retained

BUDGET

ACTUAL (1)

VARIANCEFAVORABLE (UNFAVORABLE)

$

18,960,053.00 $ 18,960,053.00 $

0.00

36,935,228.00

26,975,393.50

-9,959,834.50

$

55,895,281.00 $ 45,935,446.50 $ _ _-9~,9_5_9~,8_3_4._50_

EXPENDITURES
Personal Services: Education, General and Departmental Services Sponsored Operations
Operating Expenses: Education, General and Departmental Services Sponsored Operations
Capital Outlay Special Funding Initiative

$

20,098,131.00 $ 20,233,909.94 $

9,459,292.00

8,407,105.78

3,671,986.00 19,540,708.00
465,520.00 2,659,644.00

3,599,503.29 11,148,106.43
306,405.18 2,490,131.77

-135,778.94 1,052,186.22
72,482.71 8,392,601.57
159,114.82 169,512.23

$

55,895,281.00 $ 46,185,162.39 $ _ _9-'-,7_1....:0,_11_8_.6_1

Excess of Revenues over Expenditures

$

-249,715.89 $ =====-=2=49=,=71=5=.=89=

(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 notes to the financial statements.

- 25 -

FORT VALLEY STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2004

SCHEDULE 211 11

Totals per Annual Supplement
Accruals June 30, 2004 June 30, 2003
Compensated Absences June 30,2004 June 30,2003
Adjustments Shared Services on Jointly Staffed Personnel Georgia College and State University Yasin, Jehad
Unidentified Variance

SALARIES $ 25,002,193.88 $

TRAVEL 384,068.00

203,173.39 -124,857.37

1,838,556.88 -1,690,800.14

-8,400.00 1,936.53

3 113.10

$ 25,221,803.17 $==3=8=7=,1=81=.1=0=

See notes to the financial statements.

- 26-

FORT VALLEY STATE UNIVERSITY RECONCILIATION OF PER DIEM AND FEES
YEAR ENDED JUNE 30, 2004

SCHEDULE "3"

Totals per Annual Supplement Unidentified Variance

FEE AMOUNT

EXPENSE AMOUNT

$

569,653.30 $

19,597.08 $

-338.10

-4,166.00

TOTAL 589,250.38
-4,504.10

$

569,315.20 $

15,431.08 $====58::4:!.:,7=4=6.=28=

See notes to the financial statements.

- 27 -

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, 2004

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-533-98-03 FS-533-99-02 FS-533-00-03 FS-533-01-03 FS-533-01-07 FS-533-02-01 FS-533-02-02 FS-533-02-11 FS-533-02-12 FS-533-03-01 FS-533-03-02 FS-533-03-03 FS-533-03-04 FS-533-03-05

Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Further Action Not Warranted Unresolved - See Corrective Action/Responses Further Action Not Warranted Further Action Not Warranted Further Action Not Warranted Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented

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 University did not concur with finding, and the information was submitted to Georgia Student Finance Commission to determine eligibility. The University has not received a response from the agency.

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 University has submitted the finding to the Georgia Student Finance Commission and has not received their final determination.

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FORT VALLEY STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004
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: $1,422.00 Finding Control Number: FS-533-00-03
The University has submitted the finding to the Georgia Student Finance Commission and has not received their final determination.
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 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-533-03-01
Controls are now in place whereby, the University is now performing hard closes after each submission to the data warehouse and in order to make an adjustment to a prior year, authorization has to be granted by Board of Regents.
REVENUE/RECEIVABLES/RECEIPTS Student Accounts Receivable Not Supported by Financial Aid Finding Control Number: FS-533-03-03
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.
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FORT VALLEY STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CORRECTIVE ACTION/RESPONSES

REVENUE/RECEIVABLES/RECEIPTS Student Accounts Receivable Not Supported by Financial Aid Finding Control Number: FS-533-03-03

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 offees 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.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-533-01-05 FA-533-02-01 FA-533-02-02 FA-533-02-03 F A-533-03-01 FA-533-03-02

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

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 of Education and we will take action based on final determination of the finding.

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FORT VALLEY STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES REPORTING Expenditures in Excess of Authorization Student Financial Aid Cluster Program Finding Control Number: FA-533-03-01 Information has been submitted to the U. S. Department of Education 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-533-03-02 Information has been submitted to the U. S. Department of Education and we will take action based on final determination of the finding.
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SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

No matters were reported.

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

REPORTING Expenditures in Excess of Authorization Federal Pell Grant Program (CFDA 84.063) Finding Control Number: FA-533-04-01

Condition:

The University exceeded the amount authorized in the Statement of Account.

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.

Questioned Cost: NIA

Information:

The Statement of Account report from the U. S. Department of Education authorized the University to expend $4,715,620.00. The University's accounting records reflected $4,717,772.00 as fiscal year 2004 Pell Grant Program expenditures. As a result, the University expended $2,152.00 in excess of the authorized amount.

Cause:

The University does not have procedures implemented to ensure that the expenditures do not exceed 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.

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 2004 authorized amount in order to make the funds available to the University.

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FORT VALLEY STATE UNNERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

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) Finding Control Number: FA-533-04-02

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.

Criteria:

Federal regulations (34 CFR 674.19, 675.19, 690.81 and 690.83) require the University to ensure that reported information is accurate and reconciled as necessary.

Questioned Cost: NIA

Information:

The following reports were not properly reconciled:

1) The Pell Year to Date Report and the Statement of Account, which reports Federal Pell Grant Program expenditures for the year, were not reconciled to the accounting records.
2) The Fiscal Operations and Application to Participate (FISAP) report 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.

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.

Effect:

Information submitted to the U. S. Department ofEducation is not accurate and not supported by 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.

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