Fort Valley State University, Fort Valley, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2011

FORT VALLEY STATE
UNIVERSITY
FORT VALLEY, GEORGIA
REPORT ON AUDIT OF THE FINANCW STATEMENTS FOR THE FISCAL YEAR ENDED
JUNE 30,2011

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 STATEMENTOFNETASSETS
B STATEMENT OF REVENUES, EXPENSESAND CHANGES IN NET ASSETS
C STATEMENT OF CASH FLOWS
D NOTES TO THE FINANCIAL STATEMENTS
SUPPLEMENTARY INFORMATION
SCHEDULES
1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT
(NON-GAAP BASIS) BUDGET FUND 3 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET
BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND
4 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM PAND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND
5 RECONCILIATIONOF SALARIES AND TRAVEL

Page
24 2 5 26 28 31

SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

FORT VALLEY STATE UNIVERSITY - TABLE OF CONTENTS -
SECTION Ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

Russell W. Hinton
STATE AUDITOR
(404) 666-2174

DEPARTMENOTF AUDITSAND ACCOUNTS
270 Washington Sweet, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
November 23,2011

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the UniversitySystem of Georgia
and Honorable Larry E. Rivers, President Fort Valley State University
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying basic financial statements (Exhibits A through D) of Fort Valley State University, a unit of the University System of Georgia, which is an organizational unit of the State of Georgia as of and for the year ended June 30, 2011. These financial statements are the responsibility of the Fort Valley State University's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 of only 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 of the State of Georgia, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Fort Valley State University as of June 30, 2011, and the respective changes in financial position and cash flows, thereof, 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 of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit this information and express no opinion on it.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Fort Valley State University taken as a whole. The accompanying supplementary information (Schedules 1through 5) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it.
Respectfully submitted,
II W. Hinton, CPA, CGFM

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 education opportunities attracts a highly qualified faculty and a student body of more than 3,500 students. The institutions enrollment data is shown by the comparison numbers that follow.

Students

Students

Faculty

(Headcount)

Fiscal Year 2 0 1 1 Fiscal Year 2 0 1 0 Fiscal Year 2 0 0 9
Overview of fhe financial Statementsand Financial Analysis
Fort Valley State University is proud to present its financial statements for fiscal year 2011. 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 2 0 1 1 and fiscal year 2010.
Statement of Net 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-of-yeardata concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements.
From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors.
Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the institution's equity in property, plant and equipment owned by the institution. The next asset category is restricted net assets, which is divided into two categories, nonexpendable and expendable. The 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
Assets Current Assets Capital Assets, Net Other Assets
Total Assets
Liabilities Current Liabilities Noncurrent Liabilities
Total Liabilities
Net Assets Invested in Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Unrestricted
Total Net Assets

June 30,2011

$

63,655,069

68,099

1,532,498

-1,011,032

June 30,2010

$

62,889,249

68,099

1,549,400

18,528

The total assets of the institution increased by $17,320,160. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $20,011,197 in the category of Capital Assets, Net.
The total liabilities for the year increased by $17,600,802. The combination of the increase in total assets of $17,320,160 and the increase in total liabilities of $17,600,802 yields a decrease in total net assets of $280,642. The decrease in total net assets is primarily in the category of Unrestricted, in the amount of $1,029,560.
Statementof Revenues, Expenses and Changesin NetAssets
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 30,2011

Operating Revenues Operating Expenses

Operating Loss

$

-37,863,968

$

Nonoperating Revenues and Expenses

31,760,505

Income (Loss) Before Other Revenues,

Expenses, Gains or Losses

$

-6,103,463

$

Other Revenues, Expenses, Gains or Losses

5,822,821

Increase (Decrease)in Net Assets

$

-280,642

$

Net Assets at Beginning of Year

Net Assets at End of Year

June 30,2010
-34,460,326 32,565,186 -1,895,140 16,104,912 14,209,772

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

Revenue by Source For the Years Ended June 30,2011 and June 30,2010

June 3 0 , 2 0 1 1

Operating Revenue

Tuition and Fees

$

8,098,099

$

Federal Appropriations

4,756,895

Grants and Contracts

11,100,244

Sales and Services of Educational Departments

510,310

Auxiliary

18,492,236

Other

299,387

Total Operating Revenue

$

43,257,171

$

Nonoperating Revenue

State Appropriations

$

20,970,110

$

Federal Stimulus - Stabilization Funds

Grants and Contracts

14,830,693

Gifts

161,392

Investment Income

25,457

Other

-83,372

Total Nonoperating Revenue

Capital Grants and Gifts State Other

Total Capital Grants and Gifts

$

5,822,821

$

Total Revenues

Expenses(By Functional Classification) For the Years Ended June 30,2011 and June 30,2010
June 3 0 , 2 0 1 1

Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarshipsand Fellowships Auxiliary Enterprises
Total Operating Expenses
Nonoperating Expenses Interest Expense (Capital Assets)

Total Expenses

June 30,2010
6,488,217 5,857,889 11,173,626
549,526 17,855,531
173,568 42,098,357
17,724,293 3,340,250
13,553,119 31,842
455,903
16,104,912
June 30,2010

Operating revenues increased by $1,158,814 in fiscal year 2011. Although Tuition and Fees included a 24% increase, revenues decreased in Grants and Contracts, but increased in Auxiliary and Other categories.

Nonoperating revenues increased by $798,873 for the year primarily due to an increase in State Appropriations.

The compensation and employee benefits category increased by $2,366,112 and primarily affected the Instruction, Public Service and Institutional Support categories. The increase primarily reflects the increased cost of health insurance for the employees of the institution.

Utilities increased by $243,948 during the past year. The increase was primarily associated with the increased natural gas costs that were experienced in the winter of fiscal year 2 0 1 1 and affected the Plant Operations and Maintenance category.
Ststement 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 institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets.

June 30,2011

June 30,2010

Cash Provided (Used) By:

Operating Activities

$

Noncapital FinancingActivities

Capital and Related FinancingActivities

Investing Activities

-35,065,719 37,245,496 -4,463,361
14,390

$

-29,725,136

35,002,401

-4,038,938

29,279

Net Change in Cash Cash, Beginning of Year

Cash, End of Year

Capital Assets
The University had one significant capital asset additions for facilities in fiscal year 2011. The $19,451,021 construction of the Student Activities Center and Football Stadium was completed and placed into service early in fiscal year 2011.
For additional information concerning Capital Assets, see Notes 1,5, 7, and 9 in the Notes to the Financial Statements.

Long- Term Liabilities
Fort Valley State University had Long-Term Liabilities of $85,212,553 of which $1,480,996 was reflected as current liability at June 30, 2011.
For additional information concerning Long-Term Liabilities, see Notes 1and 7 in the Notes to the Financial Statements.
Economic OutJook
Recently, the Governor's Office has asked for additional spending plan reductions, of at least 2%, which is very troubling. As Georgia's economy has reeled, the University has endured several years of budget cuts from the state, most recently a 29% reduction in fiscal year 2011. Management has taken action to reduce costs in support functions as much as possible, attempting to preserve funding for its core academic missions and growingstudent body. Steps taken have been successful in that there has been modest growth in enrollment. However, further cuts could force the elimination of some academic programs and impair the effectiveness of many others. In addition, the University works in partnership with several Federal agencies to deliver social and enrichment programs to the surrounding community as a part of its public service mission. These programs, many of which have increased demand in time of economic recession, are also at risk if budgets are slashed further. In essence the University is a financial victim of its mission initiative and success. While serving more, much less has been available from the state level.
Mission impact notwithstanding, the University's management will continue to be vigilant in monitoring its financial resources. As circumstances dictate, action will be taken to balance the budget as required by state law and sound fiscal management, but, because of the commitment and concern of the University's leadership and faculty, every effort will be made to maximize the quality of educational opportunities provided to the student body.
Larry E. Rivers, President Fort Valley State University

BASIC FINANCIAL STATEMENTS

FORT VALLEY STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30.2011
ASSETS
Current Assets Short-Term Investments Accounts Receivable, Net (Note 3)
- Receivables FederalF~nanciaAl ssistance
Receivables - Other
Due from Affiliated Organizations Prepaid Items
Total Current Assets
Noncurrent Assets lnvestments Notes Receivable, Net Capital Assets, Net (Note 5)
Total NoncurrentAssets
Total Assets
LIABILITIES
Current Liabilities Cash Overdraft Accounts Payable Salaries Payable Contracts Payable Deposits Deferred Revenue (Note 6 ) Other Liabilities Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences U. S. Department of EducationSettlement
Total Current Liabilities
Noncurrent Liabilities Lease Purchase Obligations Compensated Absences
Total Noncurrent Liabilities
Total Liabilities
NET ASSETS
Invested in Cap~taAl ssets, Net of Related Debt Restricted for:
Nonexpendable Expendable Unrestricted
Total Net Assets
The notes to the financial statements are an integral part of this statement.
-2-

EXHIBIT "A"

FORT VALLEY STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDEDJUNE 30.2011
OPERATING RNENUES
Student Tuition and Fees Less: Scholarship Allowances
Federal Appropriations Grants and Contracts
Federal Federal Stimulus State Other Sales and Sew~ces Aux~llaryEnterprises Residence Halls Bookstore Food S e ~ ~ c e s ParkingilransportaUon Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues
Total Operating Revenues
DPFRATING EXPENSES
Salarles Faculty Staff
Employee Benefits Other Personal Sewlces Travel Scholarships and Fellowsh~ps Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES1
State AppropriaUons Grants and Contracts
Federal Gifts Investment Income Interest Expense Other Nonoperatlng Revenues
Net Nonoperating Revenues
Income (Loss) Before Other Revenues. Expenses. Galns, or Losses
Capital Grants and Gifts Federal State Other
Total Other Revenues, Expenses. Galns or Losses
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-

EXHIBIT 'W

FORT VALLEY STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDEDJUNE 30,2011
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Federal Appropriations Grants and Contracts Sales and Services Paymentsto Suppliers Paymentsto Employees Paymentsfor Scholarships and Fellowships Loans Issued to Students and Employees Collection of Loansto Students and Employees Auxiliary EnterpriseCharges: Residence Halls Bookstore Food Services Parkingflransportation Health Services Intercollegiate Athletics Other Organizations Other Receipts (Payments)
Net Cash Provided (Used) by OperatingActivities
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 Other NonoperatingReceipts Negative Cash Balance Implicitly Financed
Net Cash Flows Provided (Used) by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Purchasesof Capital Assets PrincipalPaid on Capital Debt and Leases Interest Paid on Capital Debt and Leases
Net Cash Provided (Used)by Capital and Related FinancingActivities
CASH FLOWS FROM INVESTING ACTIVITIES Proceedsfrom Sales and Maturities of Investments Interest on Investments Purchase of lnvestments
Net Cash Provided (Used) by InvestingActivities
Net Increase (Decrease)in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year

EXHIBIT "C"

FORT VALLEY STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDEDJUNE 30.2011
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustmentsto Reconcile Operating Income(Loss)to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Prepaid Items Notes Receivable. Net Accounts Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obl~gations Change in Fair Value of InvestmentsRecogn~zedas a Component of Interest Income Gift of Capital Assets Reducing Proceedsof Capital Grants and Gifts

EXHIBIT "C"

The notesto the financial statements are an integral part of this statement. -5-

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2011

EXHIBlT "D"

Note 1: Summary of Signifiant 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 1 6 for additional information.
Financial Statement Presentation 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, entity-wide perspective of the University's assets, liabilities, net assets, revenues, expenses, changes in net assets and cash flows.
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 intraUniversity 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.

FORT VALLEY STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2011

EXHIBIT "D"

Cash and Cash Equivalents Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions.
Short-Term lnvestments Short-Term lnvestments 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.
lnvestments lnvestments include financial instruments with terms in excess of 13 months, certain other securities for the production of revenue, land, and other real estate held as investments by endowments. The University accounts for its investments at fair value. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Assets. The Board of Regents Balanced Income Fund is included under Investments.
Accounts Receivable Accounts receivable consists of tuition and fees charged to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Georgia. Accounts receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
Noncurrent lnvestments lnvestments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets.
Capital Assets Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. For equipment, the University's capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000 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, which also includes amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, and copyrights, as well as software is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 5 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)- a n 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.

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2011

EXHIBIT "D"

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, 2011, GSFIC transferred capital additions valued at $2,080,374 t o Fort Valley State University.
Deposits Deposits represent good faith deposits from students to reserve housing assignments in a University residence hall.
Deferred Revenues Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned.
Compensated Absences Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as compensated absences in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Assets. Fort Valley State University had accrued liability for compensated absences in the amount of $2,255,891 as of July 1, 2010. For fiscal year 2011, $1,554,509 was earned in compensated absences and employees were paid $1,512,729, for a net increase of $41,780. The ending balance as of June 30, 2 0 1 1 in accrued liability for compensated absences was $2,297,671.
Noncurrent Liabilities Noncurrent liabilities include (1)liabilities that will not be paid within the next fiscal year; (2) capital lease obligations with contractual maturities greater than one year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets.
Net Assets The University's net assets are classified as follows:
Invested in capital assets, net of related 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.
Restrided 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.
Restrided 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.

FORT VALLEY STATE UNIVERSE7 NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2011

EXHIBIT "D"

Expendable Restricted Net Assets include the following:

Restricted- E&G and Other Organized Activities $
Federal Loans Quasi-Endowments

-236,507 1,703,963
65,042

Total Restricted Expendable

$

1,532,498

Unrestrictednet asseis: 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 $83,959.69. 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 the State Treasurer. 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

Total Unrestricted Net Assets

$

-1,011,032

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 and Expenses
The Statement of Revenues, Expenses and Changes in Net Assets classify fiscal year activity as operating and nonoperating according to the following criteria:

Operating Revenues: Operating revenue includes activities that have the characteristics of exchange transactions, such as (1)student tuition and fees, net of scholarship allowances, (2) certain Federal, state and local grants and contracts, and (3)sales and services.

Nonoperating Revenues: Nonoperating revenue includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenue by GASB No. 9, Reporting a s h Flows of Proprietary and Nonexpendable Trust Funds and GovernmentalEntities That Use Pruprieta~yFund Accounting, and GASB No. 34, such as state appropriations and investment income.

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2011

EXHIBIT "D"

Operating Expenses: Operating expense includes activities that have the characteristics of exchange transactions.

Nonoperating Expenses: Nonoperating expense includes activities that have the characteristics of nonexchangetransactions, such as capital financing costs and costs related to investment activity.

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.

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.

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2011

EXHIBIT "D"

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, 2011, the carrying value of deposits was -$949,109 and the bank balance was $418,258. Of the University's deposits, $75,245 were uninsured. Of these uninsured deposits, $75,245 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the University's name.
Investments
At June 30, 2011, the carrying value of the University's investments were $48,638, which is materially the same as fair value. These investments were comprised entirely of funds invested in the Board of Regents investment pools as follows:
Investment Pools Board of Regents Balanced lncome Fund
The Board of Regents lnvestment 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 lnvestment Pool is voluntary. The Board of Regents lnvestment Pool is not rated. Additional information on the Board of Regents lnvestment Pool is disclosed in the audited Financial Statements of the Board of Regents of the University System of Georgia - System Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at htt~://www.audits.aa.aov.
lnterest Rate Risk lnterest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University's policy for managing interest rate risk is to structure the portfolio so that securities mature to meet cash requirements for ongoing operations without needing to be sold prior to maturity and invested only in allowed investments set out in the investment policy statement.
The Effective Duration of the Balanced lncome Fund is 2.71 years. Of the University's total investment of $48,638 in the Balanced lncome Fund, $30,174 is invested in debt securities.
Credit Qualitv Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University's policy for managing credit quality risk is by limiting investments to those securities with high credit ratings; analysis of financial institutions, investment companies, intermediaries with who the Accounts will do business, and diversify the portfolio to the extent possible.

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2011

Note 3: Accounts Reaivable

Accounts receivable consisted of the following at June 30, 2011:

Student Tuition and Fees Auxiliary Enterprisesand Other OperatingActivities Federal Financial Assistance Georgia State Financingand Investment Commission Due from Affiliated Organizations Other

$

663,124

589,839

2,097,633

1,342,428

EXHIBIT "D"

Less Allowance for Doubtful Accounts

Net Accounts Receivable

$ 5,538,135

Note 4: Notes/Loans Receivable

The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2011. The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. As the University determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans are written off and assigned to the U. S. Department of Education. The University has provided an allowance for uncollectible loans, which, in management's opinion, is sufficient to absorb loans that will ultimately be written off. At June 30, 2011, the allowance for uncollectible loans was approximately $1,313,276.

FORT VALLEY =ATE UNIVERSITf NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2011

EXHIBIT " D

Note 5: CapilalAssets

Following are the changes in capital assets for the year ended June 30, 2011:

Beanning Balance
July 1,2010

Additions

Redudions

Ending Balance
June 30,2011

Capital Assets. Not Being Depreciated: Land Construction Work-In-Progress

$

3,762,548

$

3,762,548

4,359,037 $

2,025,249 $

1,166,599

5,217,687

Total Capital Assets. Not B e ~ n Dg eprec~ated $

8.12L585 $

2,025,249 $

1,166,599 $

8,980,235

Capital Assets. Being Depreciated: Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases L~braryCollectrons

$

80,836,377 $

1,500,026

9.362.108

2.811.500 $ 565,586
1218,778

237.205 $ 582,175

83,410,672 2,065,612 9,998,711

Total Assets Being Depreciated

$

162468,793 $

24,459,090 $

2,684,544 $

183,243,339

Less: Accumulated Depreciation: Building and Building Improvements Facilitres and Other Improvements Equipment Capital Leases Library Collections

$

25,338,050$

1,350,024

L675.541 $ 20,381

72,213 $

26,941.378 &370,405

Total Accumulated Depreciation

$

43,093,411 $

4,928,281$

2,306,282 $

45,715,410

Total Capital Assets, Being Depreciated, Net $

118,375,382$

19,530,809 $

378,262 $

137,527,929

Capital Assets, Net

Note 6: Deferred Revenue

Deferred revenue consisted of the following at June 30, 2011:

Other Deferred Revenue

$

1,809,877

FORT VALLEY STATE UNIVERSITY NOTESTO THE FINANCIAL STATEMENTS
JUNE 30, 2011

EXHIBIT "D"

Note 7: Long- Term Liabi/ities Long-Term liability activity for the year ended June 30, 2 0 1 1 was as follows:

Beginning Balance July 1,2010

Additions

Reductions

Ending Balance June 30, 2011

Leases Lease Obligations

Other Liabilities Compensated Absences U. S. Department of Education Settlement

Total

Total Long-Term Obligat~ons

Current Portion

Note 8: Signifiwnt Commitments
The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $2,366,959 as of June 30, 2011. 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 of real property (land, buildings, and office facilities) and equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of real property.
CAPITAL LEASES
Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2 0 1 1 and 2040. Expenditures for fiscal year 2 0 1 1 were $4.4 million of which $4.1 million represented interest. Total principal paid on capital leases was $275,688 for the fiscal year ended June 30, 2011. Interest rates range from 4.50 percent to 7.58 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2011:
Buildings Equipment
Total Assets Held Under Capital Lease

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.

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2011

EXHIBIT "D"

Fort Valley State University had three capital leases with related entities in the current fiscal year. In August 2007, Fort Valley State University entered into a capital lease of $43,334,987 at 4.544 percent with the Fort Valley State University Foundation Properties, LLC whereby the University leases buildings for a thirty year period that began August 2007 and expires July 2037. In March 2007, Fort Valley State University entered into a capital lease of $19,603,070 at 4.850 percent with the Fort Valley State University Foundation Properties, LLC whereby the University leases buildings for a thirty year period that began March 2008 and expires April 2038. In July 2010, Fort Valley State University entered into a capital lease of $19,451,021 at 6.139 percent with the Georgia Higher Education Facilities Authority (GHEFA)whereby the University leases buildings for a thirty year period that began July 2010 and expires June 2040. The outstanding balances of these leases at June 30, 2011, were $43,560,093, $19,776,826 and $19,507,139, respectively.
Fort Valley State University also has various capital leases for equipment with an outstanding balance at June 30, 2 0 1 1 in the amount of $9,037.
OPERATING LEASES
Fort Valley State University's noncancellable operating leases having remaining terms of more than one year expire in various fiscal years from 2 0 1 1through 2014. 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 real estate, copiers and other small business equipment.
In 2009, Fort Valley State University entered into a real property operating lease with the Fort Valley University Foundation, Inc. a related party, for instruction space from 2009 through 2014 for annual rentals of $30,000.
In 2010, Fort Valley State University entered into a rental property operating lease with the Fort Valley State University Foundation, Inc. a related party, for instruction space from 2010 through 2012 for annual rentals of $69,600. Fort Valley State University also entered into a 24 passenger bus lease with Auto Max for the use of four buses from 2010 through 2014 for annual rentals of $75,600.
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 30,2011, were as follows:

FORT VALLEY STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2011

EXHIBIT "D"

Real Pro~ertvand Eauiornent

Capital

Operating

Leases

Leases

Year EndingJune 30: 2012 2013 2014 2015 2016 2017 - 2021 2022 - 2026
2027 - 2031
2032 - 2036
2037 - 2040

Total Minimum Lease Payments

Less: Interest

Principal Outstanding
Fort Valley State University's fiscal year 2 0 1 1 expense for rental of real property and equipment under operating leases was $204,253.
Note 10: Retimment Plans
Fort Valley State University participates in various retirement plans administered by the State of Georgia under two major retirement systems: Employees' Retirement System of Georgia (ERS System) and Teachers Retirement System of Georgia. These two systems issue separate publicly available financial reports that include the applicable financial statements and required supplementary information. The reports may be obtained from the respective system offices. The significant retirement plans that Fort Valley State University participates in are described below. More detailed information can be found in the plan agreements and related legislation. Each plan, including benefit and contribution provisions, was established and can be amended by State law.
Teachers Retirement System of Georgia
The Teachers Retirement System of Georgia (TRS) is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS.
On October 25, 1996, the Board created the Supplemental Retirement Benefit Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1,1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits.

FORT VALLEY STATE UNIVERSIW NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2011

EXHIBIT "D"

TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 3 0 years of creditable service, regardless of age, or after 1 0 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.

Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 4 0 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 3 0 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lumpsum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available.

TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 1 0 years of service. If a member terminates with less than 1 0 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2010 were 5.25% of annual salary. The member contribution rate will increase to 5.53% effective July 1, 2010. Employer contributions required for fiscal year 2010 were 9.74% of annual salary as required by the June 30, 2008 actuarial valuation. The employer contribution rate increased to 10.28% effective July 1, 2010.

The following table summarizes the Fort Valley State University contributions by defined benefit plan for the years ending June 30,2011, June 30,2010, and June 30,2009:

Fiscal Year

TRS
Percentage Contributed

Required Contribution

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. 47-21-1et.seq. and 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.

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2011

EXHIBIT "D"

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 2011, the employer contribution was 9.24% for 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.
Fort Valley State University and the covered employees made the required contributions of $542,357 (9.24%) and $293,484 (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 2 0 1 1 amounted to $181,692 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.

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL !STATEMENTS
JUNE 30, 2011

EXHIBlT "D"

Note 11: Risk Management
The University System of Georgia offers its employees and retirees access to three different selfinsured healthcare plan options. A PPO/PPO Consumer healthcare plan was offered for the entire reporting period, and effective 01/01/2011, a HSA/High Deductible PPO and a HMO are also offered on a self-insured basis. The HSA/High Deductible PPO and HMO were previously insured through Blue Cross Blue Shield of Georgia. 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 plans are considered to be a self-sustaining risk fund. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WellPoipt, to serve as the claims administrator for the self-insured healthcare plan products. In addition to the self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HMO healthcare plan option is also offered to System employees through Kaiser.
The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. Fort Valley State University, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.
A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund.
Note 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 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, 2011.

FORT VALLEY STATE UNIVERSITY NOTES TO T H E FINANCIAL STATEMENTS
JUNE 30,2011

EXHIBIT "D"

Note 13: Post-Emp/oymentBenefits Other ThanPension Benefits
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 20-3-31, 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 UniversitySystem of Georgia. The College 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 the 2010 and 2 0 1 1 plan years, the employer rate was between 70-75% of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%.
As of June 30, 2011, there were 258 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2011, Fort Valley State University recognized as incurred $932,726 of expenditures, which was net of $422,299 of participant contributions.

FORT VALLEY STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2011

EXHIBIT "D"

Note 14: Natural Classifi~dtionswith Funcbonal Classifications The University'soperating expenses by functional classification for fiscal year 2 0 1 1 are shown below:
Functional Classification

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

Instruction

Research

Public Service

Academic Support

Student Services

$

17,161,268 $

7.159.223 $ 3.029.791 $

8,088.496 $ 4,145.910

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

Institutional Support

Functional Classification

Plant Operations Scholarships

and

and

Maintenance

Fellowships

Auxiliary Enterprises

Total Operating Expenses

$

10,923,004 $

8.703.844 $ 5,566,415 $

16,343.188 $ 81.121.139

Note 15: Affiliated Organizations
In accordance with GASB Statement No. 39, Determining WWhether Certain Organizations are Cbmponent Unib, 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, Inc., in these financial statements.
-21-

(This page left intentionally blank)

SUPPLEMENTARY INFORMATION

FORT VALLEY STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS)
BUDGET FUND JUNE 30.2011
ASSETS
Investments Accounts Rece~vable
Federal Financial Assistance Other Prepaid Expenditures
Total Assets
LIABILITIES AND FUND EOUITY
Liabilities Cash Overdraft Encumbrances Payable Accounts Payable Deferred Revenue Funds Held for Others Other Liabilities
Total Liabilities
Fund Balances Reserved Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Tuition Carry-Over Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

Actual amounts were prepared on a prescribed basis of accountingthat 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 VALLN STATE UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)
BUDGET FUND YEAR ENDED JUNE 30.2011

REVENUES
State Appropriation State General Funds
Other Funds
Total Revenues
ADJUSTMENTS AND PROGRAM TRANSFERS
CARRY-OVER FROM PRIOR YEARS
Transfers from Reserved Fund Balance
Total Funds Available
EXPENDITURES
Special Funding lnit~ative Teaching
Total Expenditures
Excessof Funds Available over Expenditures
FUND BALANCE JULY 1
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Ex~enditures UnreSe~edFund Balance (Surplus) Returned
to Board of Regents University System Office Year EndedJune 30,2010
Prior Year Reserved Fund Balance Included in Funds Available
FUND BALANCE JUNE 3 0

BUDGET

SUMMARY OF FUND BALANCE
Reserved Indirect Cost Recover~es Technology Fees Restricted/Sponsored Funds Tuit~onCarry-Over
Total R e s e ~ e d
Unreserved Surplus

Total Fund Balance

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 comprehens~vebasis of accounting other than generally accepted accounting principles.

ACTUAL

SCHEDULE "2"
VARIANCE FAVORABLE (UNFAVORABLE)

FORT VALLEY STATE UNIVERSITY STATEMENT OF FUNDSAVAILABLE AND EXPENDITURESCOMPARED TO BUDGET BY PROGRAM AND FUNDINGSOURCE
(NON-GAAPBASIS) BUDGET FUND YEAR ENDEDJUNE 30.2011

Special Funding Initiative State Appropriation State General Funds
Teaching State Approprlatlon State General Funds Federal Funds Amerlcan Recoveryand Re~nvestmenAt ct Federal Stab~llrat~oFnunds Other Funds
Total Teaching
Total Operat~nAgctivlty

Original A~~rooriation

Amended ~u~ro~rlat~on

Final Budeet

Current Year Revenues

Actual amounts were prepared on a prescribed basis of accountlng that demonstrates compliance with budgetary statutes and regulations of the State of Georgia. which is a comprehensive bass of accounting other than generally accepted accounting principles.

SCHEDULE 3"

Funds Available Compared to Budget

Prior Year

Adjustments and

Total

Carry-Over

Program Transfers

Funds Ava~lable

Varlance Posltlve (Negative)

Expenditures Compared to Budget

Variance

Actual

Positive (Negative)

Excess (Deflclency) of Funds Available
Over./(.Under) Expenditures

FORT VALLEY STATE UNIVERSITY STATEMENT OF CHANGESTO FUND BALANCE BY PROGRAM AND FUNDING SOURCE
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 3 0 , 2 0 1 1

Special Funding Initiative State Appropr~ation State General Funds
Teaching State Appropr~ation State General Funds Federal Funds Amerlcan Recovery and Reinvestment Act Federal Stab~lizatlonFunds Other Funds
Total Teachlng

B e g ~ n n ~ nFgund Balance/(Def~clt)
July 1

Fund Balance Carr~edOver from
Pr~oPr er~od as Funds Ava~lable

Return of F~scaYl ear 2010
Surplus

Pr~orPer~od Adjustments

Budget Unit Totals

Actual amounts were prepared on a prescrlbed basis of accountlng that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehenslve basls of accountlng other than generally accepted accounting principles.

SCHEDULE "4"

Other Adjustments

Early Return Fiscal Year 2011
Surplus

Excess (Deficiency) of Funds Available
Over/(Under) Expend~tures

Ending Fund Balance/(Deficit)
June 3 0

Analysis of Ending Fund Balance

Reserved

Surplus/(Deficit)

Total

Summary of Ending Fund Balance Resewed
lnd~recCt ost Recover~es Technology Fees Restricted/Sponsored Funds T u ~ t ~ oCnarry-Over Unreserved Surplus
Total EndingFund Balance -June 3 0

(This page left intentionally blank)

FORT VALLEY STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDEDJUNE 3 0 , 2 0 1 1

rotals per Annual Supplement

Accruals June 3 0 , 2 0 1 1 June 3 0 , 2 0 1 0

Compensated Absences June 3 0 , 2 0 1 1 June 3 0 . 2 0 1 0

Adjustments

Shared Services on Jointly Staffed Personnel

Gordon College

Moore,

T.

SALARIES

SCHEDULE "5" TRAVEL

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 3 0 , 2 0 1 1

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS

FINDING CONTROL NUMBER

AUDITEEIS RESPONSWSTATUS

SEE AUDITORS COMMENTS

FS-533-09-03 FS-533-09-05 FS-533-10-01 FS-533-10-02

Further Action Not Warranted Further Action Not Warranted Further Action Not Warranted Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

EMPLOYEE COMPENSATION Inadequate Internal Controls Finding Control Number: FS-533-10-02

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

AUDITORS COMMENTS

(1) Findings/internal control deficiencies of this 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 or Governmental Auditing Standards(Yellow Book), will be communicated in a management letter.

PRIOR YEAR FEDERAL AWARD FINDINGS AND OUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

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

CORRECTIVE ACTION/RESPONSES

ELlGl Bl LlTY Overpayment of Student Financial Aid Finding Control Number: FA-533-10-01

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

SECTION Ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 3 0 , 2 0 1 1

FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS

COMMUNICATION OF INTERNAL 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 of a 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 of the 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 of the 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 November 23, 2011. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below:

ACCOUNTING CONTROLS (OVERALL) Inadequate Separation of Duties Significant Deficiency Finding Control Number: FS-533-11-01

Condition:

The University did not maintain adequate separation of duties involving key accounting functions.

Criteria:

Management of the University is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are properly processed and reported. Separation of duties involving key accounting functions, both manual and automated, is the basis for achieving an adequate system of internal control.

Questioned Cost:

N/A

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30,2011

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

ACCOUNTING CONTROLS (OVERALL) Inadequate Separation of Duties Significant Deficiency Finding Control Number: FS-533-11-01

Information:

The following deficiencies were noted:

1. Two employees both prepared and approved the same journal entries. Although the University did have a manual journal entry approval process, an instance was noted during testing where a separate journal entry review was not completed.
2. The employee performing the bank reconciliation also prepares and approvesjournal entries.
3. The employee receiving cash and checks also prepares deposit slips, posts receipts into BANNER and reconciles the deposits posted to the general ledger.
4. The employee who created paychecks for the University performed the payroll reconciliation.
5. Four employees both entered and approved the same purchase orders.
6. The employee responsible for the TGRRCON between BANNER and PeopleSoft also updates detail codes within BANNER, posted receipts, approved deposits, and had custody of cash.
7. Management has granted application access within the PeopleSoft and BANNER Financial Accounting Systems which allows conflicting responsibilities.
8. Employees who have the ability to add new hires also have the ability to make pay changes.

Cause:

The University did not adequately segregate the functions of initiating, authorizing, and recording transactions, reconciliations, and maintaining the custody of assets. Compensating controls were either not adequately designed or not formally documented. Additionally, the University has not limited the PeopleSoft or BANNER Financial Accounting System application access to restrict conflictingjob responsibilities.

Effect:

Without satisfactory accounting policies and procedures requiring separation of duties, the University could place itself in a position where potential misappropriation of assets, fraud, errors and/or irregularities could occur. In addition, the lack of controls could impact reporting of the University's financial position and results of operations.

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 3 0 , 2 0 1 1

FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS

ACCOUNTING CONTROLS (OVERALL) lnadequate Separation of Duties Significant Deficiency Finding Control Number: FS-533-11-01

Recommendation:

Management should review the established internal control structure and revise or implement controls to ensure that proper separation of duties exists. Application access controls in the accounting information systems should complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of the employee's duties. In the case when management determines separation of duties is not cost beneficial, management should implement compensating controls that assist in assuring that financial transactions are properly processed and reported.

EMPLOYEE COMPENSATION lnadequate Internal Controls Significant Deficiency Finding Control Number: FS-533-11-02

Condition:

This is a repeat finding (FS-533-10-02, FS-533-09-05, and FS-533-08-04) from years ended June 30, 2010, June 30, 2009, and June 30, 2008, respectively. The accounting procedures of the 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:

N/A

Information:

Our testing revealed that the University did not have adequate internal controls in place to ensure that earned and used portions of Compensated Absences activity was properly recorded during the year. Upon testing twentyseven employees from the University's Compensated Absences Report, the following deficiencies were noted:

1. Three employees earned an incorrect amount of leave based upon hire date and the University'sannual leave policy.
2. Six employees' ending leave balances were incorrect based upon a review of beginning balances and current year activity.

Cause:

The University failed to implement satisfactory accounting procedures to ensure that all leave amounts were entered into ADP, and that the Compensated Absences Report was accurate prior to the posting of year-end Compensated Absences journal entries.

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 3 0 , 2 0 1 1

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EMPLOYEE COMPENSATION lnadequate Internal Controls Significant Deficiency Finding Control Number: FS-533-11-02

Effect:

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

Recommendation:

To reduce the risk of reporting incomplete and/or inaccurate information, the University should implement policies and procedures to ensure that all annual leave taken is properly documented within the leave system. 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.

BUDGET PREPARATION/EXECUTION GENERAL LEDGER lnadequate Accounting Procedures Material Weakness Finding Control Number: FS-533-11-03

Condition:

Through our examination, it was determined that the University failed to properly monitor budgetary financial activity during the year.

Criteria:

Management is responsible for establishing, maintaining and monitoring internal controls, the purpose of which is to ensure the fair presentation of the budget basis financial statements provided for inclusion of the State of Georgia Budgetary Compliance Report.

Questioned Cost:

N/A

Information:

The following deficiencies were noted in the University's Budget Basis Financial Statements:

1. The University did not complete the Budget Basis Financial Statements according to the Board of Regents recommended policy.
2. An invalid and unsupported material journal entry was made to the budget funds.
3. Invalid encumbrances of $335,141.87 were noted during the review of encumbrances.
4. An inappropriate transfer was made to the budget funds from an agency fund and proper approval was not provided.
5. Georgia State Financing and Investment Commission (GSFIC) accounts receivable and revenue were materially misstated.
6. Encumbrances payable per budget statement did not agree with the
accounting records by $1,249,032.09.

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 3 0 , 2 0 1 1

FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS

BUDGET PREPARATION/EXECUTION GENERAL LEDGER Inadequate Accounting Procedures Material Weakness Finding Control Number: FS-533-11-03

7. A budgetary basis adjusting entry was made in error which incorrectly removed $153,132.86 of expenditures as an adjustment and program transfer.
8. Numerous items presented on the Budget Basis Balance Sheet appear to be incorrect and are not supported by the accounting records.

Cause:

These deficiencies were the result of a lack of internal controls over the preparation of budget basis financial statements. The University failed to perform the completion of the budget basis financial statements in accordance with Board of Regents policy.

Effect:

Failure to prepare and submit accurate budget basis statements prohibits users from having access to pertinent financial information needed for decision making.

Recommendation:

The University should design and implement controls over its budget basis preparation process.

FINANCIAL REPORTING Inadequate Controls over the Financial Reporting Process Material Weakness Finding Control Number: FS-533-11-04

Condition:

The University's accounting procedures were insufficient to provide for adequate controls over the financial statements preparation process.

Criteria:

A system of internal control over financial reporting does not stop at the general ledger. Management is responsible for implementing a system of internal control over the preparation of financial statements prepared in accordance with generally accepted accounting principles (GAAP).

Questioned Cost:

N/A

Information:

The following deficiencies were noted in the University's GAAP basis financial statements:

1. Numerous misstatements and misclassifications were noted on the Statement of Net Assets and the Statement of Revenues, Expenses and Changes in Net Assets.
2. Several errors were noted in the Notes to the Financial Statements requiring adjustments.

FORT VALLEY STATE UNlVERSlTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 3 0 . 2 0 1 1

FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS

FINANCIAL REPORTING Inadequate Controls over the Financial Reporting Process Material Weakness Finding Control Number: FS-533-11-04

3. The Management's Discussion and Analysis and Statement of Cash Flows required adjustment to agree to the Financial Statements.
4. Two invalid and undocumented journal entries were made during the year under audit causing material misstatements. An adjustment was proposed and posted to correct the error.
5. Several account balances included in accounts payable had debit balances at year-end and were not properly documented.
6. Construction Work-in-Progress and Contracts Payable were misstated on the financial statements.
7. A capital asset building was understated due to not increasing the cost of the asset for expenditures incurred during the fiscal year. An adjustment was proposed and posted to correct the error.
8. Unrecorded accounts payable of $258,161 was noted. Additionally, numerous potentially invalid accounts payable balances dating back to 2006 were noted on the accounting records.
9. Revenue and accounts receivable associated with Georgia State Financing and Investment Commission (GSFIC) were misstated at year-end. An adjustment was proposed and posted to correct the error.
10. Significant invalid accounts receivable were noted at year-end. 11.The University was not able to provide an aging analysis of student
receivables that agreed to the financial statements. It was noted that Student Receivables and Allowance for Doubtful Accounts increased during the fiscal year. It does not appear that the University is adequately managing delinquent student accounts receivables. 12. Federal accounts receivable associated with Pell of $268,910.69 were reported but the auditors were unable to substantiate the validity of this balance because the University had not reconciled Federal Pell activity nor requested Federal reimbursement as of the end of fieldwork.

Cause:

The University's management failed to adequately review the yearend financial statements to ensure that the statements as presented for audit were accurate and properly supported by underlying accounting records.

Effect:

Material misstatements and significant misclassifications were included in the financial statements presented for audit. In addition, the lack of controls and monitoring could impact the reporting of the University's financial position and results of operations.

Recommendation:

The University should review the accounting controls and procedures currently in place, identify weaknesses, and design and implement procedures necessary to strengthen controls over the preparation of the financial statements.

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30,2011

FEDERAL AWARD FINDINGS AND OUESTIONED COSTS

ELIGIBILITY Overpayment of Student Financial Aid Material Weakness U. S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-11-01

Condition:

This is a repeat finding (FA-533-10-01, FA-533-09-01 and FA-533-08-01) from years ended June 30, 2010, June 30, 2009 and June 30, 2008, respectively. The University's Student Financial Aid Office improperly determined the financial need of eligible students.

Criteria:

Provisions included in 34 CFR 668 provide general provisions for administering Student Financial Aid (SFA) programs and 34 CFR 674, 675, 676, 682, 690, and 6 9 1 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 $25,253.96 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 $1,417,043.25.

Information:

A sample of sixty 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 $813,501.51 out of a population of $45,646,972.74. The following deficiencies were noted:

1. Testing of the Scholarships and Fellowships balance reflected on the Statement of Revenues, Expenses and Changes in Net Assets revealed that a significant amount of scholarships were not processed through BANNER but were instead processed through the University's accounts payable system, which could have resulted in the omission of these scholarships from the calculation of student's financial need.
2. Two students in the sample 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 and this noncompliance resulted in SFA over disbursements totaling $21,629.00.
3. Two students in the sample received Direct Unsubsidized Student Loans before the Subsidized need-based loan limit was reached.

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30,2011

FEDERAL AWARD FINDINGS AND OUESTIONED COSTS

ELIGIBILITY Overpayment of Student Financial Aid Material Weakness U. S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-11-01

4. One student in the sample was disbursed Direct Student Loans in excess of the annual loan limit totaling $2,301.00.
5. One student in the sample was disbursed Direct Subsidized Student Loans in excess of the aggregate loan limit.
6. Four students were qualified to receive Academic Competitiveness Grant (ACG) awards and did not receive the grant during the academic year.
7. One student was qualified to receive SMART Grant funds and did not receive the grant during the academic year.
8. A refund calculation was not prepared for one student in the sample who unofficially withdrew during the academic year and received Federal financial aid payments. Upon performing a Return of Title IV Funds calculation, it was noted that the University should have returned $1,323.96 in funds disbursed to the student.

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 there were insufficient controls in place to assure that SFA funds were awarded and disbursed correctly.

Effect:

The Universitywas not in compliance with Federal regulations concerning the awarding of SFA funds to students. A total of $25,253.96 was disbursed in excess of eligibility. Additionally, $3,138.00 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 also contact the U. S. Department of Education regarding the resolution of this finding.

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30,2011

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

CASH MANAGEMENT Excessive Cash Balances Significant Deficiency U. S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-11-02

Condition:

The University maintained excessive cash balances related to the Federal Direct Loan program.

Criteria:

Provisions included in 3 4 CFR 668.163 and 668.166 provide requirements for maintaining and accounting for funds and excess cash, respectively.

Questioned Cost:

N/A

Information:

Upon review of cash drawdowns and disbursements related to the Federal Direct Loan program, excessive cash balances were noted for seventeen days in the fiscal year. Provisions included in 34 CFR 668.166(a)(l), "The Secretary considers excess cash to be any amount of Title IV, HEA program funds, other than Federal Perkins Loan Program funds, that an institution does not disburse to students or parents by the end of the third business day following the date the institution received those funds from the Secretary." Provisions included in 3 4 CFR 668.163(~)(4a) llows the University to keep the initial $250 it earns on Federal Direct Loan funds. The University earned $580.33 interest during the seventeen days that funds were not disbursed to students or parents, resulting in $330.33 that should be returned to the U. S. Department of Education.

Cause:

The University failed to disburse Federal Direct Loan funds within three business days of the receipt of funds.

Effect:

The University was not in compliance with Federal regulations concerning the disbursement of Federal Direct Loan funds and excess cash.

Recommendation:

The University should establish procedures to ensure that Federal Direct Loan funds are disbursed within three days of the receipt of such funds. The University should only request Federal Direct Loan funds when the amounts are immediately needed to disburse funds to students or parents. Additionally, the University should develop and implement a monitoring process to ensure that controls are properly implemented. The University should also contact the U. S. Department of Education regarding the resolution of this finding.

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 3 0 , 2 0 1 1

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

MATCHING, LEVEL OF EFFORT AND EARMARKING Failure to Comply with Federal Work-Study Earmarking Requirements Significant Deficiency U. S. Department of Education Student Financial Aid Cluster Program Finding Control Number: FA-533-11-03

Condition:

The University failed to use at least seven percent of the sum of its initial and supplemental Federal Work-Study allocations for an award year to compensate students employed in community service activities.

Criteria:

Provisions included in 3 4 CFR 675.18 provide requirements for the use of Federal Work-Study program funds.

Questioned Cost:

N/A

Information:

Upon review of expenditures related to the Federal Work-Study (FWS) program, it was noted that the proper amount was not expended for community service activities. Per provisions included in 34 CFR 675.18(8)(1) and (2),"For the 2000-2001 award year and subsequent award years, an institution must use at least seven percent of the sum of its initial and supplemental FWS allocations for an award year to compensate students
... employed in community service activities The Secretary may waive the
requirements...of this section if the Secretary determines that an institution has demonstrated that enforcing the requirements...of this section would
cause a hardship for students at the institution." The University also failed to obtain a hardship waiver to provide for the University's exemption from this requirement. The FWS amount authorized for the University was $408,525. Seven percent of the authorization is $28,596.75. The University expended $19,790.88 for community service activities. The University should have expended an additional $8,805.87 for community service activities to be in compliance with Federal regulations.

Cause:

The University failed to adequately monitor Federal Work-Study program expenditures to ensure that the proper amount was expended for community service activities.

Effect:

The University was not in compliance with Federal regulations concerning the use of Federal Work-Study program funds.

Recommendation:

The University should establish procedures to ensure that the proper amount of Federal Work-Study program funds is expended for community service activities. Additionally, the University should develop and implement a monitoring process to ensure that controls are properly implemented. The University should also contact the U. S. Department of Education regarding the resolution of this finding.