Fort Valley State University, Fort Valley, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2008

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, 2008
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

24

2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT

(NON-GAAP BASIS) BUDGET FUND

25

3 STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING

SOURCE COMPARED TO BUDGET

(NON-GAAP BASIS) BUDGET FUND

26

4 RECONCILIATION OF SALARIES AND TRAVEL

29

FORT VALLEY STATE UNIVERSITY - TABLE OF CONTENTS -
SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
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
January 9, 2009

Honorable Sonny Perdue, Governor Members ofthe General Assembly of Georgia Members ofthe Board of Regents of the 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 throughD) ofFort Valley State University, an organizational unit of the State of Georgia, as of and for the year ended June 30, 2008. 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.

08ARL-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, 2008, 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 ofinquiries 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 offorming an opinion on the basic financial statements of Fort Valley State University taken as a whole. The accompanying supplementary information (Schedules 1 through 4) is presented for purposes ofadditional 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,
~~~w~..is..
;u~ll W. Hinton, CPA, CGFM State Auditor
RWH:as 08ARL-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 2008 Fiscal Year 2007 Fiscal Year 2006

122

2,562

2,433

125

2,176

2,043

117

2,174

2,000

Overview ofthe Financial Statements and Financial Analysis

Fort Valley State University is proud to present its financial statements for fiscal year 2008. 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 2008 and fiscal year 2007.

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.

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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, 2008

June 30, 2007

Assets Current Assets Capital Assets, Net Other Assets

$ 5,097,422 92,439,163 2,076,736

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

Total Assets

$ 99,613,321

$ 55,612,864

Liabilities Current Liabilities Noncurrent Liabilities

$ 5,687,692 45,102,296

$ 4,570,245 1,150,802

Total Liabilities

$ 50,789,988

$ 5,721,047

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

$ 48,363,450 68,099
2,008,638 -1,616,854

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

Total Net Assets

$ 48!823!333

$ 49!891!817

The total assets of the institution increased by $44,000,457. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $42,562,722 in the category of Capital Assets, Net. The balance of the increase is mainly in cash and cash equivalent categories.

The total liabilities for the year increased by $45,068,941. The combination of the increase in total assets of $44,000,457 and the increase in total liabilities of $45,068,941 yields a decrease in total net assets of $1,068,484.

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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, 2008

June 30, 2007

Operating Revenues Operating Expenses

$ 37,660,673 61,247,532

$ 30,717,999 54,320,413

Operating Loss

$ -23,586,859

$ -23,602,414

Nonoperating Revenues and Expenses

21,802,899

23,320,478

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

$ -1,783,960

$ -281,936

Other Revenues, Expenses, Gains or Losses

715 476

2,353,968

Increase (Decrease) in Net Assets

$ -1,068,484

$ 2,072,032

Net Assets at Beginning of Year, as Originally Reported

$ 49,891,817

$ 45,335,277

Prior Year Adjustments

2,484,508

Net Assets at Beginning of Year Restated

$ 49,891,817

$ 47,819,785

Net Assets at End of Year

$ 48!823)33

$ 49!891!817

The Statement of Revenues, Expenses and Changes in Net Assets reflects a negative year with 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 For The Years Ended June 30, 2008 and June 30, 2007

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

June 30. 2008
$ 3,754,304 5,376,065 16,542,809
173,910 11,640,541
173,044
$ 37,660,673
$ 22,799,393 591,375 73,924 -102,892
$ 23,361.800
$ 715,476
$ 61,131,2~2

June 30. 2007
$ 4,538,830 5,049,637 14,524,794
142,940 6,222,490
239,308
$ 30,717.999
$ 22,971,005 418,577 89,501 -158,605
$ 23,320,478
$ 2,353,968
$ 56,322.445

- IV -

Expenses (By Functional Classification) For The Years Ended June 30, 2008 and June 30, 2007

June 30, 2008

June 30, 2007

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

$ 12,915,764 7,120,713 2,854,168 7,156,913 4,220,704 8,304,741 7,236,129 1,299,697 10,138,703

$ 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

Total Operating Expenses

$ 61,247,532

$ 54,320,413

Nonoperating Expenses Interest Expense (Capital Assets)

1,558,901

Total Expenses

$ 62,806,433

$ 54,320,413

Operating revenues increased by $6,942,674 in fiscal year 2008. Although Tuition and Fees included a 17% decrease, revenues increased in Grants and Contracts and Auxiliary categories.

The Auxiliary revenue increase of $5,418,051 is a result of the changing environment of residential life on the University's campus. During the year, residential life placed in-service over 950 beds of new housing on the campus using the Fort Valley State University Foundation Properties, LLC 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 commenced on August 1, 2007 and is treated as a capital lease.

The compensation and employee benefits category increased by $1,695,104 and primarily affected the Research, Institutional Support and Academic Support categories. The increase reflects the addition of faculty and staff members, merit increases and an increased cost of health insurance for the employees of the institution.

Utilities increased by $453,524 during the past year. The increase was primarily associated with the increased natural gas costs that were experienced in the winter of fiscal year 2008 and affected the Plant Operations and Maintenance category.

Statement of Cash 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

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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 an~ Changes in Net Assets.

Cash Flows for the Years Ended June 30, 2008 and June 30, 2007, Condensed

June 30, 2008

June 30, 2007

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

$ -19,608,779 23,692,455 -2,698,690 88 094

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

Net Change in Cash Cash, Beginning of Year

$ 1,473,080 112,923

$ 1,083,462 -970 539

Cash, End of Year

$ 1,586.003

$ 112,923

Capital Assets

The University had two significant capital asset additions for facilities in fiscal year 2008. The Hendricks Houses renovation was completed. Construction of the Wildcat Commons residential housing was completed and placed into service early in fiscal year 2008.

For additional information concerning Capital Assets, see Notes 1, 5, 7, 8, and 9 in the Notes to the Financial Statements.

Long-Term Liabilities

Fort Valley State University had Long-Term Liabilities of $46,578,507 of which $1,476,211 was reflected as current liability at June 30, 2008.

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

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business operations. The University's overall financial position is strong. Even with a relatively flat funded year, the University was able to minimize the decrease to its 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, 2008
ASSETS
Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Prepaid Items
Total Current Assets
Noncurrent Assets Investments Notes Receivable Capital Assets, Net (Note 5)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Deferred Revenue (Note 6) Other Liabilities Funds Held for Others Capital Leases Compensated Absences U. S. Department of Education Settlement
Total Current Liabilities
Noncurrent Liabilities Capital Leases 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 (Deficit)
Total Net Assets
The notes to the financial statements are an integral part of this statement. -2-

EXHIBIT"A"

$

1,586,003

74,523

1,760,914 1,672,922
3 060

$

5,097,422

$

41,479

2,035,257

92,439,163

$

94,515,899

$

99,613,321

$

1,049,622

213,493

1,173,650

595,570

1,179,146

98,489

1,160,892

216,830

$

5,687,692

$

43,977,224

595,776

529,296

$

45,102,296

$

50,789,988

$

48,363,450

68,099 2,008,638 -1,616854

$ ===4=8,=82=3=,3=3=3

FORT VALLEY STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30, 2008

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 Other Personal Services 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 Interest Expense (Capital Assets) 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
Net Assets - End of Year
The notes to the financial statements are an integral part of this statement. -3-

$

9,107,902

-5,353,598

5,376,065

15,390,284 372,606 779,919 173,910

6,226,919 319,125
3,427,226 114,707 299,743
1,183,415 69,406 173 044

$

37,660,673

$

7,351,513

18,375,728

7,876,116

396,106

500,377

3,249,842

3,359,485

16,873,000

3,265,365

$

61,247,532

$

-23,586,859

$

22,799,393

591,375

73,924

-1,558,901

-102 892

$

21,802,899

$

-1,783,960

715 476

$

-1,068,484

49,891,817

$ ===4=8,=82=3==,3=3=3

FORT VALLEY STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2008
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 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
Net Cash Flows Provided (Used) by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of Capital Assets Interest Paid on Capital Debt and Lease
Net Cash Provided (Used) by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Prepaid Items Notes Receivables Accounts Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of Investments Recognized as a Component of Interest Income Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts Change in Accrued Interest Payable Affecting Interest Paid
The notes to the financial statements are an integral part of this statement.
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EXHIBIT"C"

$

2,932,376

5,393,770

17,328,797

173,910

-20, 124,886

-33,539,408

-3,645,948

-101,758

163,527

6,226,919 319,125
3,427,226 114,707 299,743
1,183,415 69,406 170 300

$

-19,608,779

$

22,799,393

507,964

591,375

-206,277

$

23,692,455

$

-1,853,604

-845,086

$

-2,698,690

$

88094

$

1,473,080

112 923

$

1,586,003

$

-23,586,859

3,265,365
-37,534 -3,060 61,769 55,321 17,705
591,553 26,961

$

-191608?79

s_ _4_3,..,3.,..61"",0""9,0
$ ===-=~14!!"1~7~0 $ ~==;!;;7~15i104~7~6 $ =~--7..,13..,8._1.5..

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

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-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 15 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.
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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION Generally Accepted Accounting Principles (GAAP) requires that the reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year. Due to the lack of materiality, Institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the 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 and demand deposits in authorized financial institutions.
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
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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE 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 INVESTMENTS 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 $ l 00,000 and/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, 2008, GSFIC did not transfer any capital additions to Fort Valley State University.
DEFERRED REVENUES Deferred revenues include amounts received from grant and contract sponsors that have not yet been earned.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE I: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 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 $1,729,707 as of July I, 2007. For fiscal year 2008, $1,166,271 was earned in compensated absences and employees were paid $1,139,310, for a net increase of $26,961. The ending balance as of June 30, 2008 in accrued liability for compensated absences was $1,756,668.
NONCURRENT LIABILITIES Noncurrent liabilities include (I) 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 expended or added to principal. The University may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 44-15-7 of Annotated Code of Georgia.
Restricted net 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.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NET ASSETS Expendable Restricted Net Assets include the following:

Federal Loans Quasi-Endowments

$ 1,967,158 41,480

Total Restricted Expendable

$ 2,008.638

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) of $10,772.07. 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. 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 & R Reserve Reserve for Encumbrances Other Unrestricted

$ 945,597 246,552
-2,809,003

Total Unrestricted Net Assets

$ -1.616,854

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:

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CLASSIFICATION OF REVENUES Operating revenues: Operating revenues include act1v1hes 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.
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: DEPOSITS AND INVESTMENTS
DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the University's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.
2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.
3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.
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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 2: DEPOSITS AND INVESTMENTS

DEPOSITS 4. Industrial revenue bonds and bonds of development authorities created by the laws of the
State of Georgia.

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

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, 2008, the carrying value of deposits was $1,659,626 and the bank balance was $2,229,473. Of the University's deposits, $2,028, 109 was uninsured. Of these uninsured deposits, $1,954,950 were collateralized with securities held by the financial institution's trust department or agent in the University's name and $73,159 were uncollateralized.

INVESTMENTS At June 30, 2008, the carrying value of the University's investments was $41,479, 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:

Investments Pool Board of Regents Balanced Income Fund

$==4==1=4==7==9

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.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 2: DEPOSITS AND INVESTMENTS

INVESTMENTS 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.

The Weighted Average Maturity of the Balanced Income Fund is 7.84 years. Of the University's total investment of $41,479 in the Balanced Income Fund, $26,672 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, 2008:

Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal Financial Assistance Other

$ 1,016,540 824,830
I, 760,914 286,552

Less Allowance for Doubtful Accounts

$ 3,888,836 455,000

Net Accounts Receivable

$ 3,433,836

NOTE 4: NOTES/LOANS RECEIVABLE

The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2008. The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of I00% if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. As the University determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans are written off and assigned to the U.S. Department of Education. The University has provided an allowance for uncollectible loans, which, in management's opinion, is sufficient to absorb loans that will ultimately be written off. At June 30, 2008 the allowance for uncollectible loans was $1,301,169.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 5: CAPITAL ASSETS

Following are the changes in capital assets for the year ended June 30, 2008:

Capital Assets, Not Being Depreciated: Land Construction Work-In-Progress
Total Capital Assets Not Being Depreciated
Capital Assets, Being Depreciated: Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections
Total Assets Being Depreciated
Less: Accumulated Depreciation: Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections
Total Accumulated Depreciation
Total Capital Assets, Being Depreciated, Net
Capital Assets, Net

Beginning Balance Jul:i 1, 2007
$ 3,762,548 1,382,221
$ 5,144,769
$ 62,642,058 1,506,124 7,706,939 0 6,490,231
$ 78,345,352
$ 21,332,559 1,352,090 5,362,818 0 5,566,213
$ 33,613,680
$ 44,731,672
$ 49 876.441

Additions
$ 1,316,861
$ 1,316,861
$ 1,501,410 1,077,938
43,361,898 55,092
$ 45,996,338
$ 1,331,757 406
753,665 993,091 186,446 $ 3,265,365
$ 42,730,973 $ 44,047.834

Reductions $ 1,382,221 $ 1,382,221
$ 312,205 $ 312,205
$ 209,314 $ 209,314 $ 102,891 $ I 485 112

Ending Balance June 30, 2008
$ 3,762,548 1,316,861
$ 5,079,409
$ 64,143,468 1,506,124 8,472,672
43,361,898 6,545,323
$ 124,029,485
$ 22,664,316 1,352,496 5,907,169 993,091 5,752,659
$ 36,669,731
$ 87,359,754
$ 92 439 )63

NOTE 6: DEFERRED REVENUE

Deferred revenue consisted of the following at June 30, 2008:

Other Deferred Revenue

$ 1.173,650

NOTE 7: LONG-TERM LIABILITIES

Long-term liability activity for the year ended June 30, 2008 was as follows:

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT"D"

NOTE 7: LONG-TERM LIABILITIES

Beginning
Balance
July 1. 2007

Leases Lease Obligations

$

0

Other Liabilities

Compensated Absences

$

U.S. Department of Education

Settlement

1,729,707 952,403

Total

$ 2,682,110

Total Long-Term Obligations $ 2,682,110

Additions $ 44,075.713 $ 1,166,271
$ 1,166,271 $ 45,241,984

Reductions

$

0

$ 1,139,310 206,277
$ 1,345,587
$ l 345 581

Ending Balance June 30, 2008
$ 44,075,713
$ 1,756,668 746,126
$ 2,502,794
$ 46 518 501

Current Portion

$

98,489

$ 1,160,892 216,830
$ 1,377,722 $ 1416211

NOTE 8: SIGNIFICANT COMMITMENTS

The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $745,000 as of June 30, 2008. This amount is not reflected in the accompanying basic financial statements.

NOTE 9: LEASE OBLIGATIONS

Fort Valley State University is obligated under various operating leases for the use equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition ofreal property.
CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2009 and 203 7. Expenditures for fiscal year 2008 were $1,711,457 of which $1,558,901 represented interest and $152,556 represented additional rent towards repairs and maintenance. Of the $1,558,901 in interest expense, $713,815 was added to the principal balance. Interest rates range from 4.54 percent to 5.00 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2008:

Buildings Equipment

$ 42,341,806 27.001

Total Assets Held Under Capital Lease

$ 42,368.807

Certain capital leases provide for renewal and/or purchase options. Generally purchase options at bargain prices of one dollar are exercisable at the expiration of the lease terms.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 9: LEASE OBLIGATIONS
CAPITAL LEASES Fort Valley State University had one capital lease with related entities in the current fiscal year. In August 2007, Fort Valley State University entered into a capital lease of $43,334,897 at 4.544 percent with the Fort Valley State University Foundation Properties, LLC, whereby the University leases a building for a thirty-year period that began August 2007 and ends July 2037.
Fort Valley State University also has various capital leases for equipment with an outstanding balance at June 30, 2008 in the amount of $27,001.
OPERATING LEASES Fort Valley State University's noncancellable operating leases having remaining terms of more than one year expire in various fiscal years from 2009 through 2012. Certain operating leases provide for renewal options for periods from one to three years at their fair rental value at the time of renewal. All agreements are cancellable if the State of Georgia does not provide adequate funding, but that is considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are generally payable on a monthly basis. Examples of property under operating leases are copiers and other small business equipment.
FUTURE COMMITMENTS Future commitments for capital leases (which here and on the Statement of Net Assets include other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2008, were as follows:

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT"D"

NOTE 9: LEASE OBLIGATIONS

FUTURE COMMITMENTS

Real Property and Equipment

Capital

Operating

Leases

Leases

Year Ending June 30: 2009 2010 2011 2012 2013 2014 - 2018 2019 - 2023 2024-2028 2029 - 2033 2034-2037

$ 2,104,356 $ 2,162,013 2,221,400 2,280,943 2,291,391 12,149,609 13,854,251 15,316,213 17,590,688 16,770,901

45,033 31,997 31,997 27,234

Total Minimum Lease Payments

$ 86,741,765 $ 136,261

Less: Interest

42,666,052

Principal Outstanding

$ 44,075.713

Fort Valley State University's fiscal year 2008 expense for rental of real property and equipment under operating leases was $34,429.

NOTE 10: 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.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 10: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA

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 2008, 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

2008 2007 2006

100% 100% 100%

$ 1,622,581 $ 1,597,028 $ 1,593,422

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 2008, the employer contribution was 8.13% for the first six months and 8.15% for the last six months of the participating employee's earnable compensation. Employees contribute 5% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 10: RETIREMENT PLANS
REGENTS RETIREMENT PLAN
Funding Policy Fort Valley State University and the covered employees made the required contributions of $369,230 (8.13% or 8.15%) and $226,798 (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 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 2008 amounted to $87,000 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.
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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 11: 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, a fully insured HSA/High Deductible PPO healthcare plan and 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.
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.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT"D"

NOTE 12: 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, 2008.
NOTE 13: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 203-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.
The Board of Regents Retiree Health Benefit Plan is a single employer defined benefit plan. Financial statements and required supplementary information for the Plan are included in the publicly available Consolidated Annual Financial Report of the University System of Georgia. The University pays the employer portion of health insurance for its eligible retirees based on rates that are established annually by the Board of Regents for the upcoming plan year. For 2007 and 2008 plan years, the employer rate was approximately 75% of the total health insurance cost for eligible retirees and the retiree rate was approximately 25%.
As of June 30, 2008, there were 280 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2008, Fort Valley State University recognized as incurred $1,004,712 of expenditures, which was net of$427,765 of participant contributions.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2008

EXHIBIT "D"

NOTE 14: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS

The University's operating expenses by functional classification for fiscal year 2008 are shown below:

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

Instruction

Functional Classification

Research

Public Service

Academic SUQQOrt

Student Services

$ 7,323,345 1,575,144 2,103,833
88,100
540,947 87,794
1,045,085 151 516
$ 12 915 764

$

12,204

3,107,781

825,017

107,546

54,217 63,305

2,430,502 520 141

$ 7 120,713

$ 1,453,283 427,733 113,722
21,747 758,122
79 561 $ 2 854 168

$

500

4,010,271

1,143,392

55,321

3,413 113,353

1,430,424 400 239

$ 7 156 913

$

12,951

2,441,411

610,048

54,053

61,345 41,299

992,101 7 496

$ 4 220 704

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

Institutional SUQQOrt

Functional Classification

Plant

Operations and Scholarships

Auxiliary

Maintenance and FellowshiQS

Entemrises

Total Operating ExQenses

$

2,513

3,923,923

2,172,900

396,106

73,617

444,148 112,637

1,157,168 21 729

$ 8 304 741

$ 1,291,338 461,322 3,786
2,794,384 749,676
1,935,623 $ 7,236 129

$ 1,299,697 $ 1 299 697

$ 572,577 131,871
4,232
846,075 124,966
8,309,922 149 060
$ 10 138 703

$ 7,351,513 18,375,728 7,876,116 396,106 500,377
3,249,842 3,359,485
16,873,000 3,265,365
$ 61 247 532

NOTE 15: 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.

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SUPPLEMENTARY INFORMATION - 23 -

FORT VALLEY STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS)
BUDGET FUND JUNE 30, 2008
ASSETS
Investments Accounts Receivable
Federal Financial Assistance Other Prepaid Expenditures
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Cash Overdraft Accounts Payable Encumbrances Payable Deferred Revenue Other Liabilities
Total Liabilities
Fund Balances Reserved Departmental Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Tuition Carry-Over Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

$

2,340.25

1,760,914.00 1,792,849.25
3,060.00

$ =====3=,5=5=9=,1=6=3=.=5=0=

$

708,585.81

927,100.52

186,063.54

1,173,650.01

409,426.48

$

3,404,826.36

$

46,381.00

103,736.79

142,218.97

-380,287.22

231,515.53

10,772.07

$

154,337.14

$ ======3,=55=9=1,=63=.5=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.
- 24 -

FORT VALLEY STATE UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)
BUDGET FUND YEAR ENDED JUNE 30, 2008

SCHEDULE "2"

REVENUES State Appropriation State General Funds Other Funds Total Revenues
CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance Total Funds Available
EXPENDITURES Special Funding Initiative Teaching Total Expenditures Excess of Funds Available over Expenditures
FUND BALANCE JULY 1 Reserved
ADJUSTMENTS Prior Year Payables/Expenditures Prior Year Reserved Fund Balance Included in Funds Available
FUND BALANCE JUNE 30

BUDGET

ACTUAL

VARIANCEFAVORABLE (UNFAVORABLE)

$

22,799,393.00 $

22,799,393.00 $

0.00

45,095,310.00

31,852,537.75

-13,242,772.25

$

67,894,703.00 $

54,651,930.75 $ -13,242,772.25

0.00

-610,431.00

-610,431.00

$

67,894,703.00 $

54,041,499.75 $ -13,853,203.25

$

1,866,111.00 $

1,821,399.48 $

44,711.52

66,028,592.00

51,974,718.29

14,053,873.71

$

67,894,703.00 $

53,796,117.77 $

14,098,585.23

$

0.00 $

245,381.98 $

245,381.98

-524,251.00

-177,224.84 610,431.00

$

154 337.14

SUMMARY OF FUND BALANCE
Reserved Departmental Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Tuition Carry-Over
Total Reserved
Unreserved Surplus

$

46,381.00

103,736.79

142,218.97

-380,287.22

231,515.53

$

143,565.07

10772.07

Total Fund Balance

$ ======15z4=3z3=7.=14..,

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.
-25-

FORT VALLEY UNIVERSITY STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2008

Spacial Funding lnlUallvas
State Appropriation State General Funds

Original Appropriation

Final Budget

Current Year Revenues

Funds Available Comeared to Bu!!set

Prior Year Carry-Over

Total Funds Available

Variance Positive (Negative)

$

1,866,111.00 $

1,866,111.00 $

1,866,111.00 $

0.00 $

1,866,111.00 $

0.00

Teaching S-Apprapriation State General Funds Other Funds
Total Teaching
Grand Totals -All Programs

$

22,054,318.00 $

20,933,282.00 $

20,933,282.00 $

35062129.00

45,095,310.00

31,852,537.75

$

57 116 447.00 $

66028,592.00 $

5U8S,S19.75 $

0.00 $ -610,431.00
-a101431.00 $

20,933,282.00 $ 31 242 106.75
52,175 388.75 $

0.00 -13 653 203.25
-13 853 203.25

$

58,982,558.00 $

67,894,703.00 $

54,651,930.75 $

-610,431.00 $

54,041,499.75 $ -13,853,203.25

Actual amounts were prepared on a preacribed 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.

-26-

SCHEDULE "3"

ExE!!!Jdituras Coml!!!rad to Bud!!!!

Variance

Positive

Actual

(Negative)

Actual Funds Available
Over/(Under) Expenditures

Prior Period Adjustments

Other Adjustments

Program Fund
Balances

Transfers

Program Fund Balances

Reserve

Surplus

Total Fund Balance

$ 1,821,399.48 $

44 711.52 $

44,711.52 $

0.00 $

0.00 $ 44,711.52 $ -33,939.45 $

0.00 $ 10,TT2.07 $ 10,112.01

$ 21,044,145.12 $ 30,930 573.17
$ 51.974:718.29 $

-110,863.12 $ 14,164,736.83
14 053 873.71 $

-110,863.12 $ 76,923.67 $

311 533.58

-254148.51

200670.46 $ -177 224.84 $

0.00 $ -33,939.45 $ 33,939.45 $

0.00 $

86180.00

143565.07

0.00

143,565.07

86180.00 $ 109 625.62 $ 33939.45 $ 143.565.07 $

0.00 $ 0.00
0.00 $

0.00 143,565.07
143565.07

$ 53.796,117.77 $ 14.098.585.23 $

245,381.98 $ -177,224.84 $ 86,180.00 $ 154,337.14 $

0.00 $ 143,565.07 $ 10,772.07 $ 154337.14

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FORT VALLEY STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2008

SCHEDULE "4"

Totals per Annual Supplement
Accruals June 30, 2008 June 30, 2007
Compensated Absences June 30, 2008 June 30, 2007
Unidentified Variance

SALARIES

$

25,664,704 $

TRAVEL 498,673

213,493 -176,505

1,631,832 -1,606,788
505

1,704

$

25,727,241 $ ===5=0=0=,3=77=

- 29 -

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, 2008

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER

AUDITEE'S RESPONSE/STATUS

SEE AUDITOR'S COMMENTS

FS-533-06-01

Further Action Not Warranted

(1)

FS-533-07-01

Unresolved - See Corrective Action/Responses

FS-533-07-02

Further Action Not Warranted

(1)

CORRECTIVE ACTION/RESPONSES

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

We will ask the readers ofthe financial statements to refer to the respective current year findings.

AUDITOR'S COMMENTS

(1) Findings/internal control deficiencies ofthis nature, that are not deemed significant deficiencies or material weaknesses and do not require reporting in the audit report in accordance with Statements on Auditing Standards (SAS) 112, will be communicated in a management letter.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-533-06-01 Further Action Not Warranted

SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CONTROL DEFICIENCIES

The auditor is required to communicate to management and those charged with governance control deficiencies identified during the course of the financial statement audit that, in the auditor's judgment, constitute significant deficiencies or material weakness.

A control deficiency exists when the design or operation ofa control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affect the Fort Valley State University's ability to initiate, authorize, record, process, or report financial data reliability in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement ofthe Fort Valley State University's financial statements that is more than inconsequential will not be prevented or detected by the Fort Valley State University's internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement ofthe financial statements will not be prevented or detected by the Fort Valley State University's internal control.

Any identified deficiencies in internal controls that we did not consider to be significant deficiencies and/or material weaknesses have been communicated to management and those charged with governance within a separate management letter dated January 9, 2009. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below:

REVENUES/RECEIVABLES/RECEIPTS Inadequate Subsidiary Records Significant Deficiency Finding Control Number: FS-533-08-01

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

- 1-

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS Inadequate Subsidiary Records Significant Deficiency Finding Control Number: FS-533-08-01

Information:

The following deficiencies were noted during testing of receivables:

1) A review of Accounts Receivable - Federal Financial Assistance revealed that $54,348 ofthe $1,760,914 reported on the Statement of Net Assets appeared to be invalid.

2) A review of Accounts Receivable - Other revealed that $157,139 of the $1,672,922 reported on the Statement of Net Assets appeared to be invalid.

3) Notes Receivable as reported on the University's Annual Financial report could not be reconciled to the supporting documentation. The University proposed an adjustment of $651,098 to correct the reporting error on the University's financial statements.

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.

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.

-2 -

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-533-08-02

Condition:

The accounting procedures ofthe University were insufficient to provide for adequate controls over revenues and receivables associated with auxiliary services activity.

Criteria:

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

Questioned Cost: NIA

Information:

The University did not have appropriate policies and procedures in place to ensure that auxiliary revenues associated with student housing and cafeteria sales were properly calculated, processed, and valid. The University did not perform any type of reconciliation between student charges for housing and cafeteria services posted within the BANNER system to other information such as class registers to determine ifrevenues were for legitimate charges to students on active enrollment status. Testing ofauxiliary revenues revealed numerous instances where housing and cafeteria charges were made for students that either were not registered for classes or did not receive services. Also due to the condition of the records, we were unable to verify that students on active enrollment status were the only individuals living in student housing.

Cause:

The University failed to implement satisfactory accounting procedures to ensure that cafeteria and/or housing charges were valid and properly recorded on the accounting records.

Effect:

Without proper accounting controls and procedures in place, the University could place itself in a position where auxiliary revenue could be improperly reported. In addition, lack ofcontrols and reconciling procedures could lead to situations where individuals remained in residency status after dropping out of enrollment status.

-3-

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-533-08-02

Recommendation:

To reduce the risk ofreporting incomplete and/or inaccurate information, the University should implement policies and procedures to ensure that auxiliary revenues are valid and recorded correctly. The University should establish reconciliation procedures for student housing and cafeteria charges to ensure that charges are appropriate and services are only provided for students on active enrollment status.

EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over the Reporting of Leases Significant Deficiency Finding Control Number: FS-533-08-03

Condition:

During our examination of Capital Leases, we noted weaknesses in internal controls which we consider relevant to the University's financial statements for the fiscal year ended June 30, 2008.

Criteria:

Controls should be in place to appropriately report lease activity and the associated capital asset on the financial statements. Generally accepted accounting principles and Board of Regents policy require that capital leases and associated capital assets be reported at the present value ofthe minimum lease payments at the inception of the lease.

Questioned Cost: NIA

Information:

In the year under review, the University entered into a capital lease agreement with the Fort Valley State University Properties, LLC, for the lease purchase of a building. The University correctly recorded the capital asset associated with the lease at $44,048,711.32; however, the corresponding lease liability was recorded utilizing a different amortization schedule and interest rate than was utilized for capitalization ofthe building. This difference in calculations resulted in an understatement of both interest expense and the capital lease liability of $713,814.68. To be in compliance with Regents policies, the capital lease liability and the asset should be recorded utilizing the same amortization schedule. Therefore, it was requested that the University provide a correcting entry which was posted to the financial statements.

-4 -

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Internal Controls over the Reporting of Leases Significant Deficiency Finding Control Number: FS-533-08-03

Cause:

Management did not properly record capital lease activity in line with Regents policies.

Effect:

Without proper controls over the reporting of capital lease activity, capital assets or related liabilities could be incorrectly reported in the financial statements.

Recommendation:

Management should implement controls to ensure that leases are properly evaluated based on the lease agreement and are reported within the financial statements in accordance with generally accepted accounting principles.

EMPLOYEE COMPENSATION Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-533-08-04

Condition:

The accounting procedures ofthe University were insufficient to provide for adequate controls over Compensated Absences.

Criteria:

The University's management is responsible for maintaining internal controls that provide reasonable assurance that the Compensated Absences balance reflected on the financial statements is properly documented, processed and reported.

Questioned Cost: NIA

Information:

During testing it was noted that in several instances the amounts recorded in the PeopleSoft system for annual leave taken did not agree with timesheets or leave request forms.

Cause:

The University failed to implement a supervisory review or a reconciliation process to ensure that all leave amounts entered into the PeopleSoft system were accurate.

Effect:

Without proper accounting controls and procedures in place, annual leave abuses could occur and the Compensated Absences balance reported could be misstated on the financial statements.

-5 -

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EMPLOYEE COMPENSATION Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-533-08-04

Recommendation:

To reduce the risk ofreporting incomplete and/or inaccurate information, the University should implement policies and procedures to ensure that all annual leave taken is properly documented in Peoplesoft. The University should also review compensated absences reports periodically for accuracy, especially at year-end prior to completing year-end journal entries associated with compensated absences.

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ELIGIBILITY Overpayment of Student Financial Aid Material Weakness U. S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-08-01

Condition:

The University's Student Financial Aid Office improperly determined the financial need and cost of attendance of eligible students.

Criteria:

Provisions included in 34 CFR 668 provide general prov1s1ons for administering Student Financial Aid (SFA) programs and 34 CFR 674, 675, 676, 682, 690, and 691 provide eligibility and other related program requirements that are specific to the Federal Perkins Loan Program, Federal Work-Study Program, Federal Supplemental Educational Opportunity Grant (SEOG), Federal Family Educational Loan Program (FFEL), Federal Pell Grant Program, and the Federal ACG/SMART Programs, respectively.

Questioned Cost:

Questioned Costs of $12,679.95 were identified for students who received student financial aid in excess of their eligible need, which when projected over the entire population, resulted in a projected misstatement of $599,476.67.

-6-

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ELIGIBILITY Overpayment of Student Financial Aid Material Weakness U.S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-08-01

Information:

A sample of fifty financial aid files was selected to determine if financial aid was properly calculated and disbursed to eligible students. The items sampled contained financial aid disbursements of $298,383.39 out of a population of $19,019,120.82. The University failed to consistently apply reasonable cost ofattendance budgets to determine a student's need and failed to document the criteria used for determining these costs in the budget. The following deficiencies were noted:

1. Fifteen students had incorrect Costs of Attendance (COA) calculations due to manual calculation errors, incorrect 12 month budgets, and unreasonable COA components. Two instances of overawarding were found due to incorrect COA calculations: (a) One student's SMART Grant was overawarded by $318.95. (b) One student's FFEL Subsidized Loan was overawarded by $375.

2. One student's COA budget was for an in-state resident due to his father living in Fort Valley and working for the University, but the student's Federal Student Aid Report on which his need for Federal Student Aid was based indicated he lived with his mother in Florida and included only his mother's income. This conflicting information should have been resolved by the University's Student Financial Aid Office.

3. Testing of housing and band stipends given to students in the financial aid audit revealed that thirteen stipends were not included in the calculation of need.

4. Two students were not in compliance with the University's published satisfactory academic progress policies. Federal regulations (34 CFR 668.32 and 668.34) state that a student must maintain satisfactory academic progress to be eligible to receive financial assistance under the Title IV programs. The two students failed to meet the quantitative requirements of satisfactory academic progress which resulted in SFA over disbursements of $4,627 and $6,055.

-7-

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ELIGIBILITY Overpayment of Student Financial Aid Material Weakness U. S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-08-01

5. Four students received FFEL Unsubsidized Student Loans before the Subsidized need-based loan limit was reached.

6. Four students received all F's during a semester but there was no evidence that the University reviewed the enrollment status of these students to determine if they should be considered "unofficial withdraws" in accordance with University policies and procedures. If "unofficial withdraw" status was determined for these students, a refund on the Title IV grant would have resulted.

7. One student's Pell Grant was incorrectly based on time enrollment when the student was enrolled full-time.

8. Several problems were found with Academic Competitiveness Grant (ACG) awards: (a) Three students were qualified to receive ACG but were not awarded the grant at all during the academic year. (b) One student was eligible for both fall and spring semesters, but only received the ACG for the fall semester. (c) One student was eligible for the entire $650 per semester, but only received $260 per semester. (d) One student received $375 in ACG funds for the fall semester, but was not eligible due to GPA requirements.

9. Two students were not in compliance with the annual and aggregate loan limit provisions for loans under the FFEL Program. One student received $150 over the annual loan limit and one student received $779 over the aggregate loan limit.

Cause:

The University's Student Financial Aid Office had not performed a risk assessment of its procedures to identify areas subject to nonconformity with eligibility requirements, and thus controls were not in place to assure that SFA funds were properly awarded to students based on using a correct Cost of Attendance in determining their financial need.

-8-

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ELIGIBILITY Overpayment of Student Financial Aid Material Weakness U.S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-08-01

Effect:

The University was not in compliance with Federal regulations concerning the awarding of SFA funds to students. For seven students, a total of $12,679.95 was disbursed in excess of their eligibility. For six students, $3,275 in eligible aid was not disbursed.

Recommendation:

The University should perform a risk assessment of its processes and procedures for determining each student's financial aid eligibility. Where vulnerable, the University should develop and/or modify its policies and procedures to ensure that correct amounts will be awarded to students in conformity with financial need requirements. Additionally, the University should develop and implement a monitoring process to ensure that controls are properly implemented. The University should contact the U. S. Department of Education regarding the resolution of this finding.

REPORTING Reports Not Reconciled Significant Deficiency U.S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-08-02

Condition:

Amounts reported on the Fiscal Operations and Application to Participate (FISAP) report submitted by the University to the U. S. Department of Education were not properly reconciled.

Criteria:

Federal regulations (34 CPR 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

-9 -

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

REPORTING Reports Not Reconciled Significant Deficiency U.S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-08-02

Information:

The FISAP report included amounts reported for Tuition and Fees for Undergraduates, State Grant and Scholarships Made to Undergraduates, Information on Eligible Aid Applicants Enrolled in the University, the Pell Grant Program, the Federal Work-Study Program, the Federal Supplemental Educational Opportunity Grant Program and the Perkins Loan Program that did not reconcile to the accounting records.

Cause:

The deficiencies identified were a result of management's failure to adequately reconcile information submitted on the FISAP with activity recorded in the accounting records.

Effect:

Information submitted to the U. S. Department ofEducation was not accurate and was not supported by the accounting records.

Recommendation:

The University should implement adequate controls to ensure that all reports submitted to the U. S. Department ofEducation are accurately completed and supported by the accounting records.

SPECIAL TESTS AND PROVISIONS Deficiencies in Student Financial Aid Refund Process Significant Deficiency U.S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-08-03

Condition:

The Student Financial Aid Office failed to properly perform the refund process and to ensure that unearned Title IV funds were returned in a timely manner.

Criteria:

Provisions included in 34 CFR 668 provide general prov1s1ons for administering Student Financial Aid (SFA) programs.

Questioned Cost: $20,209.06

- 10 -

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

SPECIAL TESTS AND PROVISIONS Deficiencies in Student Financial Aid Refund Process Significant Deficiency U.S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-08-03

Information:

Eighteen students that received Federal financial aid and officially withdrew from the University were selected to determine ifrefunds were calculated and returned in the correct amount to the proper funding agency and/or student. Our examination revealed the following deficiencies:

1. For one student, unearned Title IV funds were not applied by the University to the appropriate student financial aid programs within 30 days as required by the Higher Education Amendments of 1998, Public Law 105-244.

2. The University failed to properly calculate withdrawal refunds for seventeen students who received SFA funds. None of the Title IV funds, totaling $20,209.06 were returned.

Cause:

These deficiencies were the result of management's failure to properly process student financial aid refunds in accordance with Federal regulations.

Effect:

The SFA Office refunded SFA funds to students incorrectly and unearned funds were not returned in a timely manner.

Recommendation:

The University should develop and implement procedures to ensure that student financial aid refunds are properly calculated and that unearned funds are correctly returned to the appropriate accounts in a timely manner in accordance with the Higher Education Amendments 1998, Public Law 105244. The University should also contact the U.S. Department of Education regarding resolution of this finding.

- 11 -

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

SPECIAL TESTS AND PROVISIONS Inadequate Control Procedures over Unofficial Withdrawals Significant Deficiency U.S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-08-04

Condition:

The University did not have adequate internal control procedures in place to identify students who unofficially withdraw during an academic semester.

Criteria:

Provisions included 34 CFR 668 provide general provisions for administering Student Financial Aid (SFA) programs.

Questioned Cost: NIA

Information:

The University failed to perform refund calculations for students who unofficially withdrew in accordance with the University's grading policy. Based on the grading policy, a student with all Withdrawn Failing (WF) or Incomplete (IC) grades denotes an unofficial withdrawal. For the year under review, the Bursar's office did not calculate a refund for students with all WF and/or IC grades.

Cause:

These conditions occurred because the University did not follow its established procedures for unofficial withdrawals.

Effect:

The University did not properly calculated a refund for students who unofficially withdrew. Unearned Title IV funds are not being returned as required.

Recommendation:

The University should establish appropriate controls to ensure that the procedures in place are utilized and properly applied to determine whether a SFA recipient who began attendance during a semester completed the academic period or unofficially withdrew. The University should also contact the U. S. Department of Education regarding the resolution of this finding.

- 12 -

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

SPECIAL TESTS AND PROVISIONS Inadequate Control Procedures Significant Deficiency U.S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-08-05

Condition:

The internal control procedures over the timesheet system for the Federal Work-Study Program (FWS) were inadequate.

Criteria:

Provisions included in 34 CFR 675 provide reporting requirements specific to the Federal Work-Study Program.

Questioned Cost: NIA

Information:

Procedures were not in place to ensure that time sheets were always approved and/or approved only after the last date indicated as worked on the time sheet. Federal regulations (34 CFR 675.19b) state that "the Institution shall also establish and maintain program and fiscal records that include a certification that each student has worked and earned the amount being paid. The student's supervisor, an official of the Institution or off-campus agency shall sign the certification".

Cause:

The deficiencies were a result of management's failure to implement and monitor the proper procedures to ensure that timesheets were properly approved after work was performed.

Effect:

Without adequate control procedures in place, the University could place itself in a position where FWS wages are paid to students who have not earned the funds.

Recommendation:

The University should establish appropriate procedures and controls to ensure that timesheets are reviewed and approved after FWS wages are earned to ensure compliance with Federal regulations. Additionally, the University should develop and implement a monitoring process to ensure that controls are adhered to.

- 13 -

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2008

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

SPECIAL TESTS AND PROVISIONS Deficiencies Over the Verification Process Significant Deficiency U.S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-08-06

Condition:

The Student Financial Aid Office failed to meet student verification and documentation requirements.

Criteria:

Provisions included in 34 CFR 668 provide the compliance requirements for the verification process that the University should follow for students who receive financial aid and identifies what documentation is acceptable.

Questioned Cost: NIA

Information:

Our testing of 24 students who were selected for verification revealed the following deficiencies:

1. Six students' tax returns were not signed by either the filer or tax preparer.

2. Two students' tax returns did not agree to their most recent Institutional Student Information Report (ISIR).

Cause:

The Student Financial Aid Office did not adequately follow the Federal requirements for verification.

Effect:

Without properly verifying the information in the selected student files, the University places itself in a position to award students incorrectly.

Recommendation: The Student Financial Aid Office must ensure that verification and documentation requirements are met.

- 14 -