Fort Valley State University, Fort Valley, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2007

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, 2007
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

2

B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

3

C STATEMENT OF CASH FLOWS

4

D NOTES TO THE FINANCIAL STATEMENTS

5

SUPPLEMENTARY INFORMATION

SCHEDULES

1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND

22

2 BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT

(NON-GAAP BASIS) BUDGET FUND

23

3 RECONCILIATION OF SALARIES AND TRAVEL

25

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
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
November 29, 2007

Honorable Sonny Perdue, Governor Members ofthe General Assembly of Georgia Members ofthe Board ofRegents ofthe University System of Georgia
and Honorable Larry E. Rivers, 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, 2007. 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 ofAmerica. 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 ofGeorgia, in conformity with accounting principles generally accepted in the United States of America.

07ARL-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, 2007, 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.
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 ofAmerica. We have applied certain limited procedures, which consisted principally of inquiries ofmanagement regarding the methods ofmeasurement 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,
~~-~~ Russell W. Hinton, CPA, CGFM State Auditor
RWH:gp 07ARL-62

REQUIRED SUPPLEMENTARY INFORMATION

FORT VALLEY STATE UNIVERSITY
Management's Discussion and Analysis

Introduction

Fort Valley State University is one of the 35 institutions of higher education of the University System of Georgia. The University, located in Fort Valley, Georgia, was founded in 1895.

Fort Valley State University is a land-grant university with state-wide commitments and responsibilities. It is the fifth oldest diversified institution of higher education. As a comprehensive land-grant institution, the University offers associate, baccalaureate and master 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 students each year. The institution's enrollment data is shown by the comparison numbers that follow.

Faculty

Students {Headcount)

Students {FTE)

Fiscal Year 2007 Fiscal Year 2006 Fiscal Year 2005

110

2,176

2,043

117

2,174

2,000

126

2,558

2,345

Overview ofthe Financial Statements and Financial Analysis

Fort Valley State University is proud to present its financial statements for fiscal year 2007. 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 2007 and fiscal year 2006.

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.

-I-

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 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

June 30, 2007

June 30, 2006

Assets Current Assets Capital Assets, Net Other Assets

$ 3,582,014 49,876,441 2,154,409

$ 3,276,924 46,959,833 2,354,255

Total Assets

$ 55,612,864

$ 52,591,012

Liabilities Current Liabilities Noncurrent Liabilities

$ 4,570,245 1,150,802

$ 5,513,759 1,741,976

Total Liabilities

$ 5,721,047

$ 7,255,735

Net Assets Invested in Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Unrestricted

$ 49,876,441 68,099
2,084,767 -2,137,490

$ 46,959,833 69,317
2,307,514 -4,001,387

Total Net Assets

$ 49!891!817

$ 45!335!277

The total assets of the institution increased by $3,021,852. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $2,916,608 in the category of Capital Assets, Net.

The total liabilities for the year decreased by $1,534,688. The combination of the increase in total assets of $3,021,852 and the decrease in total liabilities of $1,534,688 yields an increase in total net assets of $4,556,540. The increase in total net assets is primarily in the category of Invested in Capital Assets, Net of Debt, in the amount of $2,916,608.

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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

June 30. 2007

June 30, 2006

Operating Revenues Operating Expenses

$ 30,717,999 54,320.413

$ 26,865,944 49,791.870

Operating Loss

$ -23,602,414

$ -22,925,926

Nonoperating Revenues and Expenses

23,320.478

20,196,837

Income (Loss) Before Other Revenues, Expenses, Gains or Losses

$ -281,936

$ -2,729,089

Other Revenues, Expenses, Gains or Losses

2,353,968

4,464,348

Increase (Decrease) in Net Assets

$ 2,072,032

$ 1,735.259

Net Assets at Beginning of Year, as Originally Reported

$ 45,335,277

$ 43,600,018

Prior Period Adjustment

2,484,508

0

Net Assets at Beginning of Year Restated

$ 47,819,785

$ 43,600,018

Net Assets at End of Year

$ 49,891,817

$ 45,335.277

The Statement of Revenues, Expenses and Changes in Net Assets reflects a positive year with an increase 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 For The Years Ended June 30, 2007 and June 30, 2006

June 30. 2007

June 30. 2006

Operating Revenue Tuition and Fees Federal Appropriations Grants and Contracts Sales and Services of Educational Departments Auxiliary Other

$ 4,538,830 5,049,637 14,524,794
142,940 6,222,490
239,308

$ 4,348,605 4,697,025 13,509,480
129,799 4,027,094
153.941

Total Operating Revenue

$ 30,717.999

$ 26,865,944

Nonoperating Revenue State Appropriations Gifts Investment Income Other

$ 22,971,005 418,577 89,501 -158,605

$ 19,057,949 1,474,566 63,268 -398,946

Total Nonoperating Revenue

$ 23,320.478

$ 20,196,837

Capital Grants and Gifts State

$ 2,353.968

$ 4.464,348

Total Revenues

$ 56,392,445

$ 51,527,129

Expenses (By Functional Classification) For The Years Ended June 30, 2007 and June 30, 2006

June 30. 2007

June 30. 2006

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

$ 12,345,473 5,910,422 2,790,103 6,715,956 3,749,347 7,334,717 6,009,484 2,174,851 5,467,747 1,822,313

$ 12,586,514 3,952,375 2,628,062 6,106,503 3,838,723 6,393,989 5,189,648 2,033,044 5,320,279 1,742.733

Total Operating Expenses

$ 54,320,413

$ 49,791,870

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Operating revenues increased by $3,852,055 in fiscal year 2007. Although Tuition and Fees included a 4% increase, revenues increased in Grants and Contracts, Auxiliary and Other categories.
The Auxiliary revenue increase of $2,195,396 is a result of the changing environment of residential life on the University's campus. During the year, residential life constructed over 950 beds of new housing on the campus using the Fort Valley State University Foundation in a construction and leasing relationship. The net effect to the campus is that the students actually have more on-campus residential life availability. The housing complex rental agreement commences August 1, 2007 and will be treated as a capital lease.
Nonoperating revenues increased by $3,123,641 for the year; however, there was an increase of $3,913,056 in State Appropriations offset by decreases in Gifts and Other revenues.
The compensation and employee benefits category decreased by $308,789 and primarily affected the Instruction, Research, Public Service and Plant Operations and Maintenance categories.
Utilities increased by $27,736 during the past year. The increase was primarily associated with the increased natural gas costs that were experienced in the winter of fiscal year 2007 and affected the Plant Operations and Maintenance category.
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, 2007 and June 30, 2006, Condensed

June 30, 2007

June 30, 2006

Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities

$ -20,448,763 23,194,424 -1,906, 104 243,905

$ -20,215,477 20,435,424 -2,841,882 1,418,578

Net Change in Cash Cash, Beginning of Year

$ 1,083,462 -970,539

$ -1,203,357 232,818

Cash, End of Year Capital Assets

$===="1==12"=",="92==3

$ -970.539

The University had two significant capital asset additions for facilities in fiscal year 2007. The renovation of the Health and Physical Education Building was completed and the building was reopened for the 2006-2007 basketball season. Renovation of the Warner Robins site was completed and placed into service early in fiscal year 2007. Projected funding by GSFIC for fiscal year 2008 will be approximately the same. The University has one significant project in progress at June 30, 2007.

For additional information concerning Capital Assets, see Notes 1, 5, and 9 in the Notes to the Financial Statements.

Long-Term Liabilities

Fort Valley State University had Long-Term Liabilities of $2,682,110 of which $1,531,308 was reflected as current liability at June 30, 2007.

For additional information concerning Long-Term Liabilities, 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 strong. Even with a relatively flat funded year, the University was able to generate a modest increase in Net Assets. 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.

Larry E. Rivers, President Fort Valley State University

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BASIC FINANCIAL STATEMENTS - 1-

FORT VALLEY STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30, 2007
ASSETS
Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable, Net (Note 3) Federal Financial Assistance Other
Total Current Assets
Noncurrent Assets Investments Notes Receivable, Net Capital Assets, Net (Note 5)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Deposits Deferred Revenue (Note 6) Other Liabilities Funds Held for Others Compensated Absences U. S. Department of Education Settlement
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. -2 -

EXHIBIT"A"

$

112,923

72,789

2,546,902 849 400

$

3,582,014

$

43,629

2,110,780

49 876,441

$ 52,030,850

$ 55,612,864

$

1,031,289

176,505

1,150

1,155,945

2,867

671,181

1,325,031

206,277

$

4,570,245

$

404,676

746,126

$

1,150,802

$

5 721,047

$ 49,876,441
68,099 2,084,767 -2,137,490

$ 49,891,817

FORT VALLEY STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30, 2007

EXHIBIT"B"

OPERATING REVENUES
Student Tuition and Fees Less: Scholarship Allowances
Federal Appropriations Grants and Contracts
Federal State Other 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 Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES)
State Appropriations Gifts Interest and Other Investment Income Other Nonoperating Revenues
Net Nonoperating Revenues
Income (Loss) Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts State
Increase (Decrease) in Net Assets
Net Assets - Beginning of Year, as Originally Reported
Prior Period Adjustment (See Note 1)
Net Assets - Beginning of Year, Restated

$

7,653,759

-3, 114,929

5,049,637

13,802,233 307,998 414,563 142,940

2,566,669 51,296
2,117,894 106,013 349,037 949,353 82,228 239,308

$ 30,717,999

$

7,135,517

17,430,510

7,342,226

499,881

3,823,719

2,905,961

11,513,232

3,669,367

$ 54,320,413

$ -23,602,414

$ 22,971,005 418,577 89,501 -158,605

$ 23,320,478

$

-281,936

$

2,353,968

$

2,072,032

$ 45,335,277

2,484,508

$ 47,819,785

Net Assets - End of Year
The notes to the financial statements are an integral part of this statement. -3-

$ ==49='=89=1,.,,8=1=7

FORT VALLEY STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Federal Appropriations 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 Parldng/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
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 Proceeds from Sales and Maturities of Investments Interest on Investments
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 Operating Income to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Prepaid Items Notes Receivable, Net Accounts Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts
The notes to the financial statements are an integral part of this statement.
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EXHIBIT"C"

$

4,538,830

5,049,637

14,434,067

142,940

-22,645,656

-24,648,266

-3,823,719

-263,952

305,558

2,566,669 51,296
2,117,894 106,013 349,037 949,353 82,228 239,308

$ -20,448,763

$ 22,971,005 64,324 418,577
-259,482
$ 23,194.424

$

-1,906,104

$

150,000

93905

$

243,905

$

1,083,462

-970,539

$

112,923

$ -23,602,414
3,669,367 -401,862 213,530
41,606 -425,138 311,135 -162,624
-92,363
$ -20,448,763
$ _ _-_2_,3_5_3_,_96_8

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS Fort Valley State University serves the state, national and international 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-five (35) State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of 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.
Legally separate, tax exempt organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential component units of the State. See Note 14 for additional information.
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 was also required to adopt 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 and are presented as required by these standards to provide a comprehensive, entitywide 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
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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION materiality, Institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the predominant 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.
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 Statement 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 fees charged 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 includes 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.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000 or 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.
For projects managed by GSFIC, the GSFIC retains construction in progress on its books throughout the construction period and transfers the entire project to the University when complete. For projects managed by the University, the University retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2007, GSFIC transferred capital additions valued at $2,353,968 to Fort Valley State University.
DEPOSITS Deposits represent good faith deposits from students to reserve housing assignments m a University residence hall.
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 compensated absences in the Statement of Net
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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPENSATED ABSENCES 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 $1,822,070 as of July 1, 2006. For fiscal year 2007, $559,936 was earned in compensated absences and employees were paid $652,299, for a net decrease of $92,363. The ending balance as of June 30, 2007 in accrued liability for compensated absences was $1,729,707.

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.

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:

Federal Loans Quasi-Endowments

$ 2,042,681 42,086

Total Restricted Expendable

$ 2,084,767

-8-

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NET ASSETS 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 Fort Valley State 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). Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the Office of Treasury and Fiscal Services. At June 30, 2007, there was no surplus balance to be refunded. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff.

Unrestricted Net Assets includes the following items which are quasi-restricted by management.

R&RReserve Reserve for Encumbrances Other Unrestricted
Total Unrestricted Net Assets

$ 25,902 988,160
-3,151,552
$ -2,137,490

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, net of scholarship allowances, (3) most Federal, state and local grants and contracts and Federal appropriations, 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.

-9-

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
RESTATEMENT OF PRIOR YEAR NET ASSETS Fort Valley State University has a restatement of prior year net assets increasing beginning net assets by $2,484,508. This is due to removing capital assets that were disposed of in prior years as well as adjusting the useful lives of certain buildings to reflect the University's accounting policy.
NOTE 2: DEPOSITS AND INVESTMENTS
DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the Fort Valley State University's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.
2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.
3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.
4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "D"

NOTE 2: DEPOSITS AND INVESTMENTS

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

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

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

At June 30, 2007, the carrying value of deposits was $183,912 and the bank balance was $1,816,343. Of the University's deposits, $1,544,160 were uninsured. Of these uninsured deposits, $1,544,160 were uncollateralized.

INVESTMENTS At June 30, 2007, the carrying value of the University's investments was $43,629, which is materially the same as fair value. These investments were comprised entirely of funds invested in the Board of Regents investment pool as follows:

Investment Pool Board of Regents Balanced Income Fund

$==4="3=,6~2;,,s9

The Board of Regents Investment Pool is not registered with the Securities and Exchange Commission as an investment company. The fair value of investments is determined daily. The pool does not issue shares. Each participant is allocated a pro rata share of each investment at fair value along with a pro rata share of the interest that it earns. Participation in the Board of Regents Investment Pool is voluntary. The Board of Regents Investment Pool is not rated. Additional information on the Board of Regents Investment Pool is disclosed in the audited Financial Statements of the Board of Regents of the University System of Georgia - University System Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at http://www.audits.state.ga.us/internet/ searchRpts.html.

Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University practice is to follow the System's policy for managing interest rate risk which is contained in the investment policy guidelines for the various pooled investments.

- 11 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "D"

NOTE 2: DEPOSITS AND INVESTMENTS

INVESTMENTS The Weighted Average Maturity of the Balanced Income Fund is 9.35 years. Of the University's total investment of $43,629 in the Balanced Income Fund, $26,334 is invested in debt securities.

Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University's practice is to invest in high quality institutional money market mutual funds or other high quality short-term instruments.

As previously stated, the Board of Regents Investment pool is not rated.

NOTE 3: ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at June 30, 2007:

Student Tuition and Fees Federal Financial Assistance Other

$ 863,439 2,546,902 440,961

$ 3,851,302

Less: Allowance for Doubtful Accounts

455.000

Net Accounts Receivable

$ 3,396.302

NOTE 4: NOTES/LOANS RECEIVABLE

The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2007. 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 allowance for uncollectible loans was $1,301,169 as of June 30, 2007.

NOTES: CAPITALASSETS

Following are the changes in capital assets for the year ended June 30, 2007:

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "D"

NOTE 5: CAPITAL ASSETS

Beginning Balance July l, 2006 (Restated)

Additions

Reductions

Ending Balance June 30, 2007

Capital Assets, Not Being Depreciated:

Land

$

Construction Work-In-Progress

3,762,548 0 $

$ 1,382,221

0 $ 3,762,548 1,382,221

Total Capital Assets Not Being Depreciated

$ 3,762,548 $ 1,382,221 $

0 $ 5,144,769

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

60,288,090 $ 1,506,124 7,563,474 6,310,077

2,353,968
343,729 $ 180,154

$ 200,264

62,642,058 1,506,124 7,706,939 6,490,231

Total Assets Being Depreciated

$ 75,667,765 $ 2,877,851 $

200,264 $ 78,345,352

Less: Accumulated Depreciation: Building and Building Improvements $ Facilities and Other Improvements Equipment Library Collections

19,323,456 $ 1,342,637 3,944,020 5,375,859

2,009,103 9,453
1,460,457 $ 190 354

$ 41,659

21,332,559 1,352,090 5,362,818 5,566,213

Total Accumulated Depreciation

$ 29,985,972 $ 3,669,367 $

41 659 $ 33,613,680

Total Capital Assets, Being Depreciated,

Net

$ 45,681,793 $

-791,516 $

158,605 $ 44,731,672

Capital Assets, Net

$ 49.444.341 $

590.705 $

158.605 $ 49.876.441

NOTE 6: DEFERRED REVENUE

Deferred revenue consisted of the following at June 30, 2007:

Prepaid Tuition and Fees Other Deferred Revenue

$

87,264

1,068.681

Total

$ 1,155.945

NOTE 7: LONG-TERM LIABILITIES

Long-term liability activity for the year ended June 30, 2007 was as follows:

Beginning Balance Jul:y 1, 2006

Additions

Reductions

Ending Balance June 30, 2007

Current Portion

Compensated Absences

$

U. S. Department of Education

Settlement

1,822,070 $ 1,211,885

559,936 $

652,299 $ 259,482

1,729,707 $ 952,403

1,325,031 206,277

Total Long-Term Obligations $ 3.033.955 $

559 936 $

911,781 $ 2,682,110 $ 1.531.308

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "D"

NOTE 8: SIGNIFICANT COMMITMENTS

The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $705,118 as of June 30, 2007.

In addition, the University executed a rental agreement for a Student Housing Complex with the Fort Valley State University Foundation, Inc., in June 2006. The rental agreement commences in fiscal year 2008 and will expire in fiscal year 2037. The present value of the minimum lease payments over the life of the rental agreement is $43,334,897.

These amounts are not reflected in the accompanying basic financial statements.

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 Georgia General Assembly. TRS provides retirement allowances and other benefits for plan participants. 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 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 2007, the employer contribution rate was 9.28% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2007 2006 2005

100% 100% 100%

$1,597,028 $1,593,422 $1,622,022

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"D"

NOTE 9: RETIREMENT PLANS
REGENTS RETIREMENT PLAN
Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 4721-1 et.seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts.
Funding Policy 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. For fiscal year 2007, the employer contribution was 9.66% for the first six months and 8.13% for the last six months of the participating employee's eamable compensation. Employees contribute 5% of their eamable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.
Fort Valley State University and the covered employees made the required contributions of $398,015 (9.66% or 8.13%) and $223,523 (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.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

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 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.
Contributions Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member.
Total contributions made by employees during fiscal year 2007 amounted to $43,940 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.
NOTE 10: RISK MANAGEMENT
The University System of Georgia offers its employees and retirees access to 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 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.

- 16 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "D"

NOTE 10: RISK MANAGEMENT
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.
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 that 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, 2007.
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
- 17 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT "D"

NOTE 12: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS

group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.

As of June 30, 2007, there were 204 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2007, Fort Valley State University recognized as incurred $841,605 of expenditures, which was net of $269,744 of participant contributions.

NOTE 13: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS

The University's operating expenses by functional classification for fiscal year 2007 are shown below:

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

Instruction

Research

Functional Classification

Public Service

Academic Surmort

Student Services

Institutional Su1mort

$ 7,123,313 $ 1,693,365 2,022,335 97,0ll
395,388 102,782
809,944 101,335
$ 12 345 473 $

12,204 2,829,029 $
786,504 88,114
15,194 34,727
1,758,013 386,637
5 9)0 422 $

1,443,796 $ 425,649 ll9,642
3,244 23,053
675,255 99464
2790 )03 $

3,674,418 $ 1,030,640
75,578
2,832 ll6,605
1,427,923 387,960
6 715 956 $

2,218,172 $ 555,342 62,670
60,151 35,319
815,239 2 454
3 749 347 $

3,416,787 1,806,046
48,409
545,859 61,624
1,439,751 16,241
7 334 7)7

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

Plant Operations and Maintenance

Functional Classification

Scholarships and Fellowshi12s

Auxiliary Entemrises

Unallocated De12reciation

Total Operating Ex12enses

$ 1,177,485 458,966 -391,595

$

977,458

234,170 $

400,052

$ 7,135,517

17,430,510

22,574

7,342,226

499,881

$ 2,174,851 2,303,963

626,200 227,888

3,823,719 2,905,961

962,303 1,498,362

3,624,804 -622,825

1,799,739

ll,513,232 3,669,367

$ 6 009 484 $ 2 174 851 $ 5 467 747 $ I 822 313 $ 54 320 413

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007

EXHIBIT"D"

NOTE 14: AFFILIATED ORGANIZATIONS
In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment of GASB Statement No. 14, The Reporting Entity, which became effective for the year ended June 30, 2004, the Fort Valley State University Foundation, Inc. has been determined to be a legally separate, tax exempt organization whose activities primarily support Fort Valley State University, a unit of the University System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office has determined Component Units of the State of Georgia, as required by GASB Statement No. 39, should be assessed in relation to their significance to the State of Georgia. Accordingly, Fort Valley State University has not included financial activity for Fort Valley State University Foundation, Inc. in these financial statements.

- 19 -

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SUPPLEMENTARY INFORMATION - 21 -

FORT VALLEY STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS)
BUDGET FUND JUNE 30, 2007
ASSETS Accounts Receivable
Federal Financial Assistance Other
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Cash Overdraft Accounts Payable Other Liabilities Total Liabilities
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

$

1,802,858.00

817,234.00

$ ====2=,6=2=0=,0=9=2=.0=0=

$

1,235,622.00

1,905,854.00

2,867.00

$

3,144,343.00

$

20,419.00

818.00

111,271.00

-742,939.00

86,180.00

$

-524,251.00

$ =====2,.6.2.=0=,0=9=2.=00=

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.
- 22 -

FORT VALLEY STATE UNIVERSITY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GMP BASIS)
BUDGET FUND YEAR ENDED JUNE 30, 2007

SCHEDULE "2"

REVENUES
State Appropriation State General Funds
Federal Funds Other Funds
Total Revenues
EXPENDITURES
Public Service/Special Funding Initiatives Teaching
Total Expenditures
Excess of Funds Available over Expenditures
FUND BALANCE JULY 1
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Prior Year Receivables/Revenues Unreserved Fund Balance Deficit Funded by the
Office of Treasury and Fiscal Services Year Ended June 30, 2006
FUND BALANCE JUNE 30
SUMMARY OF FUND BALANCE
Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable
Total Reserved

BUDGET

ACTUAL

VARIANCEFAVORABLE (UNFAVORABLE)

$ 21,791,177.00 $ 21,791,177.00 $

27,746,702.00

18,781,188.00

10,862,659.00

9,280,835.00

$ 60A00,538.00 $ 49,853,200.00 $

0.00 -8,965,514.00 -1,581,824.00
-10,547,338.00

$ 1,808,088.00 $ 1,788,663.00 $

58,592,450.00

47,907,953.00

$ 60,400,538.00 $ 49,696,616.00 $

$

0.00 $

156,584.00 $

19,425.00 10,684,497.00
1o, 703,922.00
156,584.00

-501,548.00 -1,179,828.00

113,033.00 -292,320.00
1,179,828.00 $ -524,251.00

$

20,419.00

818.00

111,271.00

-742,939.00

86,180.00

$ =====-5=2=4'=25=1=.0=0=

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.
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FORT VALLEY STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2007

SCHEDULE "3"

Totals per Annual Supplement
Accruals June 30, 2007 June 30, 2006
Compensated Absences June 30, 2007 June 30, 2006
Unidentified Variance

SALARIES

$

24,555,843 $

TRAVEL 499,251

176,505 -166,381

1,606,788 -1,692,587

85,859

630

$

24,566,027 $ =====4=99=,8=81=

- 25 -

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, 2007

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-533-05-01 FS-533-05-02 FS-533-05-03 FS-533-05-04 FS-533-06-01 FS-533-06-02 FS-533-06-03 FS-533-06-04 FS-533-06-05 FS-533-06-06

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 Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented

CORRECTIVE ACTION/RESPONSES

REVENUESIRECEIVABLES/RECEIPTS CAPITAL ASSETS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls Finding Control Number: FS-533-06-01

The University revised procedure number 1009 thru 1010, Property Control Procedure, to include procedures relating to the acquisition and disposal of property and equipment. Further, these procedures were revised to include instructions on tracking the location of inventoried assets campus-wide.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

F A-533-02-01 FA-533-04-01 FA-533-05-03 F A-533-06-01

Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses

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FORT VALLEY STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES REPORTING Reports Not Reconciled Finding Control Number: FA-533-06-01 The University has worked in connection with the Department of Education to reconcile the FISAP reports to the University's General Ledger. The University submitted edits and corrections to prior years FISAP submissions. The University also submitted documentation from our general ledger and A-13 3 reports for each program expenditure that was identified by the Department as not reconciling. The University repaid the Department based on the Final Audit Determination performed by the Department and received payment confirmation electronically. AUDITORS NOTE: Fort Valley did reconcile and resubmitted their FISAP report to the U.S. Department of Education and received a notice that finding FA-0533-06-01 was closed. However, when testing was done the reports could not be reconciled to the General Ledger due to subsequent changes made by the University. This finding will be shown as Unresolved.
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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, 2007

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS Inadequate Subsidiary Records Material Weakness Finding Control Number: FS-533-07-01

Condition:

The accounting procedures ofthe University were insufficient to provide for adequate controls over Revenues/Receivables/Receipts.

Criteria:

The University's management is responsible for designing and maintaining internal controls that provide reasonable assurance that receivable activity is properly documented, processed and reported.

Questioned Cost: NIA

Information:

The following deficiencies were noted during testing ofreceivables:

1. A review ofAccounts Receivable - Federal Financial Assistance revealed that $321, 178 reported was invalid. The University proposed an adjustment of $292,320 which partially corrected this deficiency on the University's financial statements.

2. A review ofAccounts Receivable - Other revealed that $245,501 ofthe amount reported was invalid. The University proposed an adjustment of $201,333 which partially corrected this deficiency on the University's financial statements.

3. Notes Receivable as reported on the University's Annual Financial Report could not be reconciled to the supporting documentation. An unidentified variance of $148,414 remained.

Cause:

The University failed to implement satisfactory accounting procedures to ensure that all transactions were posted to the appropriate subsidiary modules. Additionally, reconciliations between the general ledger and subsidiary records were not completed by the University.

Effect:

Without proper accounting controls and procedures in place, the University could place itself in a position where potential misappropriation of assets could occur. In addition, the lack of controls could impact reporting of its financial position and results of operations.

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FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS Inadequate Subsidiary Records Material Weakness Finding Control Number: FS-533-07-01

Recommendation:

To reduce the risk ofreporting incomplete and/or inaccurate information, the University should implement policies and procedures to ensure that receivable transactions are posted correctly in the appropriate subsidiary ledger. At a minimum, procedures should be developed which require the reconciliation of subsidiary ledgers to the general ledger on a regular basis.

CAPITAL ASSETS Inadequate Internal Controls Material Weakness Finding Control Number: FS-533-07-02

Condition:

The accounting procedures ofthe University were insufficient to provide for adequate controls over Capital Assets.

Criteria:

AICPA Professional Standards, AU 319.04, states that internal control is a process - effected by an entity's board of directors, management and other personnel - designed to provide reasonable assurance regarding the achievement of objectives in the following categories: (a) reliability of financial reporting, (b) effectiveness and efficiency of operations, and (c) compliance with applicable laws and regulations.

Questioned Cost: NIA

Information:

Testing performed on the University's internal control structure revealed that the University did not have adequate internal controls in place to ensure that all capital assets purchased and disposed of during the year were properly recorded within the capital asset subsidiary ledger. Our testing also revealed that the University did not have adequate internal controls in place to track the location of capital assets on campus. In addition, the following deficiencies/weaknesses were also noted:

1. A GSFIC project managed by the University incurred expenditures of $186,397 that were not included in the Construction Work in Progress amount.

2. The equipment deletion amount in Note 5 did not agree to documentation provided by the University by $155,115.

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FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Inadequate Internal Controls Material Weakness Finding Control Number: FS-533-07-02

3. Current year depreciation expense could not be reconciled to the General Ledger.

4. There were numerous equipment items capitalized with the wrong useful lives, thus causing errors in the depreciation calculations for the related assets.

5. The Asset Management Module in PeopleSoft (Subsidiary Ledger) could not be relied upon during audit procedures. The auditor had to utilize manual capital asset records to determine the validity of amounts reported by the University on it's financial statements.

6. Three journal entries made to the General Ledger related to capital assets could not be documented by the University.

7. The University restated beginning net assets during the period under review to correct prior period errors related to capital assets, as disclosed in Note 1 to the basic financial statements.

Cause:

The University failed to implement satisfactory accounting procedures to ensure that all transactions were posted to the appropriate subsidiary modules.

Effect:

Without proper accounting controls and procedures in place, the University could place itself in a position where potential misappropriation of assets could occur. In addition, the lack of controls could impact reporting of its financial position and results of operations.

Recommendation:

To reduce the risk ofreporting incomplete and/or inaccurate information, the University should implement policies and procedures to ensure that capital asset transactions are posted correctly in the appropriate subsidiary ledger. The University should also ensure that all capital assets can be tracked by location on their campus. Procedures should be developed which require the reconciliation ofsubsidiary ledgers to the general ledger on a regular basis to ensure that the subsidiary ledger accurately reflects the capital asset changes during the year.

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FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No findings were reported.
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