Fort Valley State University, Fort Valley, Georgia, annual financial report for the fiscal year ended June 30, 2012 (including independent auditor's report)

FORT VALLEY STATE UNIVERSITY - TABLE OF CONTENTS -

SECTION I
FINANCIAL
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
REQUIRED SUPPLEMENTARY INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
BASIC FINANCIAL STATEMENTS
EXHIBITS
A STATEMENT OF NET ASSETS
B STATEMENT OF REVENUES, EXPENSES AND 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 AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND
5 BUDGET TO GAAP RECONCILIATION 6 RECONCILIATION OF SALARIES AND TRAVEL

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FORT VALLEY STATE UNIVERSITY - TABLE OF CONTENTS -
SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS
SECTION IV MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
October 4, 2012

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable Larry E. Rivers, President Fort Valley State University
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying basic financial statements (Exhibits A 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, 2012. 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.
Except as discussed in the following paragraph, 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 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.
In accordance with section 50-6-1(c) of the Official Code of Georgia Annotated, Greg S. Griffin was appointed State Auditor on July 1, 2012. During the year under review, Mr. Griffin served as the State Accounting Officer. As the State Accounting Officer, Mr. Griffin was responsible for the State's accounting and financial reporting practices.
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of Fort Valley State University as of June 30, 2012, 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.
12ARL-62

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 of the State of Georgia as of June 30, 2012, the changes in its financial position or its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages i through vi be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consists of inquires of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Fort Valley State University taken as a whole. The accompanying supplementary information (Schedules 1 through 6) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting or other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Respectfully,

GSG:as 12ARL-62

Greg S. Griffin State Auditor

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.

Faculty

Students (Headcount)

Students (FTE)

Fiscal Year 2012 Fiscal Year 2011 Fiscal Year 2010

175

3,896

163

3,728

229

3,553

Overview of the Financial Statements and Financial Analysis

3,719 3,473 3,366

Fort Valley State University is proud to present its financial statements for fiscal year 2012. 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 2012 and fiscal year 2011.
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-year data concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements.

From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors.

Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the institution's equity in property, plant and equipment owned by the institution. The next asset category is restricted net assets, which is divided into two categories, nonexpendable and expendable. The corpus of nonexpendable restricted resources is only available for investment purposes. Expendable restricted net assets are

i

available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted net assets are available to the institution for any lawful purpose of the institution.

Statement of Net Assets, Condensed

June 30, 2012

June 30, 2011

Assets Current Assets Capital Assets, Net Other Assets

$ 6,479,351 153,334,122 1,516,667

$ 5,996,724 146,508,164 1,752,601

Total Assets

$ 161,330,140

$ 154,257,489

Liabilities Current Liabilities Noncurrent Liabilities

$ 6,077,952 83,211,913

$ 6,281,298 83,731,557

Total Liabilities

$ 89,289,865

$ 90,012,855

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

$ 70,823,697 68,099
1,532,157 -383,678

$ 63,655,069 68,099
1,532,498 -1,011,032

Total Net Assets

$ 72,040,275

$ 64,244,634

The total assets increased by $7,072,651. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $6,825,958 in the category of Capital Assets, Net. The balance of the increase is mainly in cash and other assets categories.
The total liabilities decreased for the year by $722,990. The combination of the increase in total assets of $7,072,651 and the decrease in total liabilities of $722,990 yields an increase in total net assets of $7,795,641. The increase in total net assets is primarily in the category of Invested in Capital Assets, Net of Debt, in the amount of $7,168,628.
Statement of Revenues, Expenses and Changes in Net Assets
Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received by the institution, both operating and nonoperating, and the expenses paid by the institution, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the institution. Generally speaking operating revenues are received for providing goods and services to the various customers and constituencies of the institution. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the institution.

ii

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, 2012

June 30, 2011

Operating Revenues Operating Expenses

$ 47,718,759 81,712,833

$ 43,257,171 81,121,139

Operating Loss

$ -33,994,074

$ -37,863,968

Nonoperating Revenues and Expenses

29,672,814

31,760,505

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

$ -4,321,260

$ -6,103,463

Other Revenues, Expenses, Gains or Losses

13,721,137

5,822,821

Increase (Decrease) in Net Assets

$ 9,399,877

$

-280,642

Net Assets at Beginning of Year, as Originally Reported

$ 64,244,634

$ 64,525,276

Prior Year Adjustments

-1,604,236

Net Assets at Beginning of Year, Restated $ 62,640,398

$ 64,525,276

Net Assets at End of Year

$ 72,040,275

$ 64,244,634

The Statement of Revenues, Expenses and Changes in Net Assets reflect a positive year with an increase in the net assets at the end of the year. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are as follows:

iii

Revenue by Source For the Years Ended June 30, 2012 and June 30, 2011

June 30, 2012

June 30, 2011

Operating Revenue

Tuition and Fees

$

Federal Appropriations

Grants and Contracts

Sales and Services of Educational Departments

Auxiliary

Other

11,445,798 4,922,812
11,625,702 528,952
18,443,591 751,904

$

8,098,099

4,756,895

11,100,244

510,310

18,492,236

299,387

Total Operating Revenue

$

47,718,759

$

43,257,171

Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other

$

19,832,028

14,107,266

13,528 3,234

$

20,970,110

14,830,693

161,392

25,457

-83,372

Total Nonoperating Revenue

$

33,956,056

$

35,904,280

Capital Grants and Gifts State Other

$

13,608,096

113,041

$

5,019,485

803,336

Total Capital Grants and Gifts

$

13,721,137

$

5,822,821

Total Revenues

$

95,395,952

$

84,984,272

Expenses (By Functional Classification) For the Years Ended June 30, 2012 and June 30, 2011

June 30, 2012

June 30, 2011

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

$

16,938,790

6,555,764

4,199,194

8,169,277

4,142,188

13,370,029

6,916,521

4,939,980

16,481,090

$

17,161,268

7,159,223

3,029,791

8,088,496

4,145,910

10,923,004

8,703,844

5,566,415

16,343,188

Total Operating Expenses

$

81,712,833

$

81,121,139

Nonoperating Expenses Interest Expense (Capital Assets)

4,283,242

4,143,775

Total Expenses

$

85,996,075

$

85,264,914

iv

Operating revenues increased by $4,461,588 in fiscal year 2012. Although Tuition and Fees included a 41% increase, revenues also increased in Capital Grants and Gifts categories.
Nonoperating revenues decreased by $1,948,224 for the year primarily due to a decrease in State Appropriation of $1,138,082.
Other revenues increased by $7,898,316 primarily due to an increase in State Capital Grants and Gifts of $8,588,611 from the Georgia State Financing and Investment Commission.
The compensation and employee benefits category increased by $1,503,493 and primarily affected the Institutional Support, Auxiliary Services and Public Service categories.
Statement of Cash Flows
The final statement presented by the Fort Valley State University is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets.

Cash Flows for the Years Ended June 30, 2012 and June 30, 2012, Condensed

June 30, 2012

June 30, 2011

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

$

-27,840,634

32,100,200

-3,032,809

14,516

$

-35,065,719

37,245,496

-4,463,361

14,390

Net Change in Cash Cash, Beginning of Year

$

1,241,273

0

$

-2,269,194

2,269,194

Cash, End of Year Capital Assets

$

1,241,273

$

0

The University had four significant capital asset additions for facilities in fiscal year 2012. The Isaac Miller Academic Building renovation was completed and the Huntington Hall was reopened through Historic Preservation funds by Georgia State Financing and Investment Commission (GSFIC). Construction of the Ag Pavilion Arena was completed and placed into service early in fiscal year 2012.

Fort Valley State University also completed major renovations to the Ohio Hall Honors Building in fiscal year 2012. The $3.772 million for this project was funded by GSFIC and the Institution.

v

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 $84,832,013 which $1,620,100 was reflected as current liability at June 30, 2012. For additional information concerning Long-Term Liabilities, see Notes 1 and 7 in the Notes to the Financial Statements. Economic Outlook Recently, the Governor's Office has asked for additional spending plan reductions, of at least 3%, 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 cumulative 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 growing student 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
vi

BASIC FINANCIAL STATEMENTS - 1 -

ASSETS
Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable, Net (Note 3) Receivables - Federal Financial Assistance Receivables - Other Due from Affiliated Organizations Prepaid Items Other Assets
Total Current Assets
Noncurrent Assets Investments Notes Receivable, Net Capital Assets, Net (Note 5)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deposits Deferred Revenue (Note 6) Deposits Held for Other Organizations Lease Purchase Obligations (Current Portion) Compensated Absences (Current Portion)
Total Current Liabilities
Noncurrent Liabilities Lease Purchase Obligations (Noncurrent) Compensated Absences (Noncurrent)
Total Noncurrent Liabilities
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for:
Nonexpendable Expendable Unrestricted
Total Net Assets

FORT VALLEY STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30, 2012

The notes to the financial statements are an integral part of this statement. - 2 -

EXHIBIT "A"

$

1,241,273

75,396

1,585,483 1,444,328
971,325 103,677 1,057,869

$

6,479,351

$

49,552

1,467,115

153,334,122

$ 154,850,789

$ 161,330,140

$

1,387,141

104,477

92,023

5,399

2,412,544

456,268

438,349

1,181,751

$

6,077,952

$ 82,072,076 1,139,837
$ 83,211,913
$ 89,289,865

$ 70,823,697
68,099 1,532,157
-383,678

$ 72,040,275

FORT VALLEY STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30, 2012
OPERATING REVENUES
Student Tuition and Fees (Net of Allowance for Doubtful Accounts) Less: Scholarship Allowances
Federal Appropriations Grants and Contracts
Federal State Other Sales and Services Auxiliary Enterprises Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal Investment Income (Endowments, Auxiliary and Other) Interest Expense (Capital Assets) Other Nonoperating Revenues
Net Nonoperating Revenues
Income (Loss) Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts Federal State
Total Other Revenues, Expenses, Gains or Losses
Increase (Decrease) in Net Assets
Net Assets - Beginning of Year (Restated)
Net Assets - End of Year
The notes to the financial statements are an integral part of this statement.
- 3 -

EXHIBIT "B"

$

20,183,586

-8,737,788

4,922,812

10,460,044 107,638
1,058,020 528,952

8,307,955 881,507
5,888,850 249,581 534,626
1,647,568 933,504 751,904

$

47,718,759

$

12,897,731

21,059,388

10,736,170

10,162

663,768

7,301,425

4,476,741

19,180,476

5,386,972

$

81,712,833

$

-33,994,074

$

19,832,028

14,107,266 13,528
-4,283,242 3,234

$

29,672,814

$

-4,321,260

$

113,041

13,608,096

$

13,721,137

$

9,399,877

62,640,398

$

72,040,275

FORT VALLEY STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Federal Appropriations Grants and Contracts (Exchange) Sales and Services Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Loans Issued to Students and Employees Collection of Loans to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Receipts (Payments)
Net Cash Provided (Used) by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Principal Paid on Installment Debt Other Nonoperating Receipts 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 Purchases of Capital Assets Principal Paid on Capital Debt and Leases Interest Paid on Capital Debt and Leases
Net Cash Provided (Used) by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments Interest on Investments
Net Cash Provided (Used) by Investing Activities
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year

EXHIBIT "C"

$

10,511,341

5,525,479

12,374,700

528,952

-35,918,645

-33,375,554

-7,301,425

-40,516

277,364

12,360,069 874,153
6,094,607 213,817 549,683 516,312 289,267
-1,320,238

$

-27,840,634

$

19,832,028

-755,284

14,107,266

-61,787

1,181

-1,023,204

$

32,100,200

$

2,449,143

-856,040

-342,670

-4,283,242

$

-3,032,809

$

1,065

13,451

$

14,516

$

1,241,273

0

$

1,241,273

- 4 -

FORT VALLEY STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2012
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Operating Income (loss) to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, Net Other Assets Prepaid Items Notes Receivable, Net Accounts Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Change in Fair Value of Investments Recognized as a Component of Interest Income Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts

EXHIBIT "C"

$

-33,994,074

5,386,972
1,536,999 -1,057,869
279,667 236,848 -121,762 -242,422 111,090
23,917

$

-27,840,634

$

77

$

-11,271,994

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

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Note 1: Summary of Significant Accounting Policies
Nature of Operations Fort Valley State University serves the state and national communities by providing its students with academic instruction that advances fundamental knowledge, and by disseminating knowledge to the people of Georgia and throughout the country.
Reporting Entity Fort Valley State University is one of thirty-five (35) State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of Fort Valley State University as a separate reporting entity.
The Board of Regents has constitutional authority to govern, control and manage the University System of Georgia. This authority includes but is not limited to the power to designate management, the ability to significantly influence operations, the authority to control institutions' budgets, the power to determine allotments of State funds to member institutions and the authority to prescribe accounting systems and administrative policies for member institutions. Fort Valley State University does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Fort Valley State University is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards.
Legally separate, tax exempt Affiliated Organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential Component Units of the State. See Note 15 for additional information.
Financial Statement Presentation 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.
Change in Application of Accounting Principle During fiscal year 2012, Fort Valley State University changed its method of accounting for summer school revenues and expenses to more accurately reflect periodic results of operations between fiscal years. The effects of the change resulted in a net increase of revenues over expenses of $257,511 for current year activity. Prior period net assets have also been restated by $845,089 to properly reflect the effect of this change on beginning balances.
Generally Accepted Accounting Principles (GAAP) requires that the reporting of summer school revenues and expenses be between fiscal years rather than one fiscal year. For fiscal year 2012, the calculation used to determine this split was based on the academic calendar of days taught. For consistency and transparency, this will be the basis used for this calculation by Fort Valley State University.

- 6 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

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.
Cash and Cash Equivalents Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts.
Short-Term Investments Short-Term Investments consist of investments of 90 days - 13 months. This would include certificates of deposits or other time restricted investments with original maturities of six months or more when purchased. Funds are not readily available and there is a penalty for early withdrawal.
Investments Investments 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 Investments Investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets.
Capital Assets Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. For equipment, the University's capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $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

- 7 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged.
For projects managed by GSFIC, the GSFIC retains construction in progress on its books throughout the construction period and transfers the entire project to the University when complete. For projects managed by the University, the University retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2012, GSFIC transferred capital additions valued at $10,121,186 to 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 $2,297,671 as of July 1, 2011. For fiscal year 2012, $1,577,921 was earned in compensated absences and employees were paid $1,554,004, for a net increase of $23,917. The ending balance as of June 30, 2012 in accrued liability for compensated absences was $2,321,588.
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.

- 8 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Restricted net assets - nonexpendable: Nonexpendable restricted net assets consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. The University may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 44-15-7 of Annotated Code of Georgia.
Restricted net assets - expendable: Restricted expendable net assets include resources in which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties.

Expendable Restricted Net Assets include the following:

Federal Loans Quasi-Endowments

$

1,467,115

65,042

Total Restricted Expendable

$

1,532,157

Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) of $42,674.57. 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

$

3,838,197

1,542,871

-5,764,746

Total Unrestricted Net Assets

$

-383,678

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:

- 9 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

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 Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.
Operating Expenses: Operating expense includes activities that have the characteristics of exchange transactions.
Nonoperating Expenses: Nonoperating expense includes activities that have the characteristics of nonexchange transactions, 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.
Restatement of Prior Year Net Assets For fiscal year 2012, the University made a variety of prior period adjustments due to various errors or omissions, which require restatement of net assets. The result is a decrease in Net Assets at July 1, 2011, of $1,604,236. These changes are in accordance with generally accepted accounting principles.

Net Assets, July 1, 2011, as Previously Reported

$

64,244,634

Unrecorded Accounts Payable

-759,147

Adjust the Reporting of Summer School Revenues Between Fiscal Years (See Note 1)

-845,089

Net Assets, July 1, 2011, as Restated Note 2: Deposits and Investments

$

62,640,398

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:

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

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.
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, 2012, the carrying value of deposits was $1,315,744 and the bank balance was $2,665,142. Of the University's deposits, $905,242 were uninsured. Of these uninsured deposits, $905,242 were collateralized with securities held by the financial institution's trust department or agent but not in the University's name.
Investments At June 30, 2012, the carrying value of the University's investments were $49,552, which is materially the same as fair value. These investments were comprised entirely of funds invested in the Board of Regents and/or Office of the State Treasurer investment pools as follows:

Investment Pools Board of Regents Balanced Income Fund

$

49,552

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

- 11 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University'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 Income Fund is 2.79 years. Of the University total investment of $49,552 in the Balanced Income Fund, $30,016 is invested in debt securities.
Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University's 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.
Note 3: Accounts Receivable
Accounts receivable consisted of the following at June 30, 2012:

Student Tuition and Fees

$

Auxiliary Enterprises and Other Operating Activities

Federal Financial Assistance

Georgia State Financing and Investment Commission

Due from Affiliated Organizations

Other

550,773 478,955 1,585,483 660,708 971,325 289,852

Less Allowance for Doubtful Accounts

$

4,537,096

535,960

Net Accounts Receivable Note 4: Notes/Loans Receivable

$

4,001,136

The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2012. 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, 2012, the allowance for uncollectible loans was approximately $1,313,276.

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Note 5: Capital Assets Following are the changes in capital assets for the year ended June 30, 2012:

Beginning Balance July 1, 2011

Additions

Reductions

Ending Balance June 30, 2012

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

$

3,762,548

5,217,687 $

626,531 $

$ 4,957,802

3,762,548 886,416

Total Capital Assets, Not Being Depreciated $

8,980,235 $

626,531 $

4,957,802 $

4,648,964

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

$

83,410,672 $

14,752,510

2,065,612

663,208

9,998,711

1,005,261 $

82,415,989

5,352,355

38,326

$ 166,986

98,163,182 2,728,820
10,836,986 82,415,989
5,390,681

Total Assets Being Depreciated

$

183,243,339 $

16,459,305 $

166,986 $

199,535,658

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

$

26,941,378 $

1,370,405

6,751,031

6,446,123

4,206,473

1,891,733 22,233
927,810 $ 2,325,232
219,964

$ 251,882

28,833,111 1,392,638 7,426,959 8,771,355 4,426,437

Total Accumulated Depreciation

$

45,715,410 $

5,386,972 $

251,882 $

50,850,500

Total Capital Assets, Being Depreciated, Net $

137,527,929 $

11,072,333 $

-84,896 $

148,685,158

Capital Assets, Net
Note 6: Deferred Revenue

$

146,508,164 $

11,698,864 $

Deferred revenue consisted of the following at June 30, 2012:

4,872,906 $

153,334,122

Research Other Deferred Revenue

$

866,923

1,545,621

Total Deferred Revenue

$

2,412,544

- 13 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Note 7: Long-Term Liabilities Long-Term liability activity for the year ended June 30, 2012 was as follows:

Beginning Balance July 1, 2011

Additions

Reductions

Ending Balance June 30, 2012

Current Portion

Leases Lease Obligations

$ 82,853,095 $

0$

342,670 $ 82,510,425 $

438,349

Other Liabilities Compensated Absences Other Long-Term Liabilities

$ 2,297,671 $ 1,577,921 $ 1,554,004 $ 2,321,588 $ 1,181,751

61,787

61,787

0

Total

$ 2,359,458 $ 1,577,921 $ 1,615,791 $ 2,321,588 $ 1,181,751

Total Long-Term Obligations

$ 85,212,553 $ 1,577,921 $ 1,958,461 $ 84,832,013 $ 1,620,100

Note 8: Significant Commitments

The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $712,283 as of June 30, 2012. 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 2011 and 2040. Expenditures for fiscal year 2012 were $4.6 million of which $4.3 million represented interest. Total principal paid on capital leases was

$342,670 for the fiscal year ended June 30, 2012. 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, 2012:

Outstanding

Net Assets Held

Balances

Under Capital

per Lease

Accumulated

Lease at

Schedules at

Description

Gross Amount

Depreciation

June 30, 2012

June 30, 2012

(+)

(-)

(=)

Equipment

$

27,001 $

-22,501 $

4,500 $

3,950

Buildings

82,388,988

-8,748,854

73,640,134

82,506,475

Total Assets Held Under Capital Lease

at June 30, 2012

$

82,415,989 $

-8,771,355 $ 73,644,634 $ 82,510,425

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FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

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 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, 2012, were $43,260,557; $19,700,113; and $19,545,805, respectively.
Fort Valley State University also has various capital leases for equipment with an outstanding balance at June 30, 2011 in the amount of $3,950.
OPERATING LEASES
Fort Valley State University's noncancellable operating leases having remaining terms of more than one year expire in various fiscal years from 2012 through 2017. Certain operating leases provide for renewal options for periods from one to three years at their fair rental value at the time of renewal. All agreements are cancellable if the State of Georgia does not provide adequate funding, but that is considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are generally payable on a monthly basis. Examples of property under operating leases are copiers and other small business equipment.
Fort Valley State University also entered into a 24 passenger bus lease, amended, with Auto Max for the use of two buses from 2012 through 2017 for annual rentals of $38,820.

- 15 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

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, 2012, were as follows:

Real Property and Equipment

Capital

Operating

Leases

Leases

Year Ending June 30: 2013 2014 2015 2016 2017 2018 - 2022 2023 - 2027 2028 - 2032 2033 - 2037 2038 - 2040

$

4,548,711 $

4,622,901

4,758,085

4,890,085

5,018,731

27,223,978

30,050,788

32,735,188

35,965,747

6,556,198

182,340 182,340 182,340 182,340 182,340

Total Minimum Lease Payments

$ 156,370,412 $

911,700

Less: Interest

73,859,987

Principal Outstanding

$ 82,510,425

Fort Valley State University's fiscal year 2012 expense for rental of real property and equipment under operating leases was $244,576.
Note 10: Retirement 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.

Employees' Retirement System of Georgia

The ERS System is comprised of individual retirement systems and plans covering substantially all employees of the State of Georgia except for teachers and other employees covered by the Teachers' Retirement System of Georgia. One of the ERS System plans, the Employees' Retirement System of Georgia (ERS), is a cost-sharing multiple-employer defined benefit pension plan that was established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing

- 16 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees and has the powers and privileges of a corporation. ERS acts pursuant to statutory direction and guidelines, which may be amended prospectively for new hires but for existing members and beneficiaries may be amended in some aspects only subject to potential application of certain constitutional restraints against impairment of contract.
On November 20, 1997, the Board created the Supplemental Retirement Benefit Plan (SRBP-ERS) of ERS. SRBP-ERS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of the SRBP-ERS is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC Section 415. Beginning January 1, 1998, all members and retired former members in ERS are eligible to participate in the SRBP-ERS whenever their benefits under ERS exceed the limitation on benefits imposed by IRC Section 415.
The benefit structure of ERS is established by the Board of Trustees under statutory guidelines. Unless the employee elects otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. Members hired on or after July 1, 1982 but prior to January 1, 2009 are "new plan" members subject to the modified plan provisions. Effective January 1, 2009, newly hired State employees, as well as rehired State employees who did not maintain eligibility for the "old" or "new" plan, are members of the Georgia State Employees' Pension and Savings Plan (GSEPS). ERS members hired prior to January 1, 2009, also have the option to irrevocably change their membership to the GSEPS plan.
Under the old plan, new plan, and GSEPS, a member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60 or 30 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60.
Retirement benefits paid to members are based upon a formula adopted by the Board of Trustees for such purpose. The formula considers the monthly average of the member's highest 24 consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Post-retirement cost-of-living adjustments may be made to members' benefits provided the members were hired prior to July 1, 2009. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension, at reduced rates, to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS.
Member contribution rates are set by law. Member contributions under the old plan are 4% of annual compensation up to $4,200 plus 6% of annual compensation in excess of $4,200. Under the old plan, Fort Valley State University pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these Fort Valley State University contributions are included in the members' accounts for refund purposes and are used in the computation of the members' earnable compensation for the purpose of computing retirement benefits. Member contributions under the new plan and GSEPS are 1.25% of annual compensation. Fort Valley State University is required to contribute at a specified percentage of active member payroll established by the Board of Trustees determined annually in accordance with actuarial valuation and minimum funding standards as provided by law. These Fort Valley State University contributions are not at any time refundable to the member or his/her beneficiary.

- 17 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Employer contributions required for fiscal year 2012 were based on the June 30, 2009, actuarial valuation as follows:

Old Plan* New Plan GSEPS

11.63% 11.63%
7.42%

* 6.88% exclusive of contributions paid by the employer on behalf of old plan members
Members become vested after 10 years of service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions, the member forfeits all rights to retirement benefits.

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.

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 30 years of creditable service, regardless of age, or after 10 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 40 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 30 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 lump-sum 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 10 years of service. If a member terminates with less than 10 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.

- 18 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2012 were 5.53% of annual salary. Employer contributions required for fiscal year 2012 were 10.28% of annual salary as required by the June 30, 2009, actuarial valuation.
The following table summarizes the Fort Valley State University contributions by defined benefit plan for the years ending June 30, 2012, June 30, 2011, and June 30, 2010 (dollars in thousands):

Fiscal Year

ERS

Required

Percentage

Contribution

Contributed

TRS

Required

Percentage

Contribution

Contributed

2012

$

2011

$

2010

$

Regents Retirement Plan

2,093 0 0

100% 100% 100%

$ 2,198,303 $ 2,141,857 $ 1,999,789

100% 100% 100%

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. 47-21-1 et.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.

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 2012, 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 $535,350 (9.24%) and $289,693 (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.

- 19 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

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 2012 amounted to $197,981 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.
Note 11: Risk Management
The University System of Georgia offers its employees and retirees access to three different selfinsured healthcare plan options. Effective January 1, 2012, The Blue Cross Blue Shield of Georgia PPO and HDHP plan names were changed to BCBS Open Access PPO and HAS/HDHP Open Access POS, respectively; both plans use the Blue Cross Blue Shield Open Access POS network. Also effective January 1, 2012, the Consumer Choice Option was eliminated and the Blue Cross Blue Shield of Georgia HMO and the Kaiser Permanente HMO were frozen for new enrollment for active employees only; the Senior Advantage Plan 65+ remained open for new enrollment.
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 WellPoint, 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

- 20 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

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 expenditure 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, 2012.
Note 13: Post-Employment Benefits Other Than Pension 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 University System of Georgia. The University pays the employer portion of health insurance for its eligible retirees based on rates that are established annually by the Board of Regents for the upcoming plan year. For the 2012 plan year, 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, 2012, there were 193 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2012, Fort Valley State University recognized as incurred $980,601 of expenditures, which was net of $259,653 of participant contributions.

- 21 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Note 14: Natural Classifications with Functional Classifications The University's operating expenses by functional classification for fiscal year 2012 are shown below:
Functional Classification

Natural Classification

Instruction

Research

Public Service

Academic Support

Student Services

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

$ 10,403,482 $ 1,942,998 2,769,571
92,200 176,300
73,450 769,449 711,340
$ 16,938,790 $

976,245 $ 2,431,397
789,501

290,580 $ 2,099,319
693,799

82,116 189,929
85,034 1,614,359
387,183

219,590
19,293 795,007
81,606

6,555,764 $ 4,199,194 $

1,122,659 $ 3,397,733 1,338,164

1,750 2,218,481
596,876

80,285
114,225 1,687,783
428,428

58,606 327,730
37,028 889,091
12,626

8,169,277 $ 4,142,188

Natural Classification

Institutional Support

Functional Classification

Plant Operations Scholarships

and

and

Auxiliary

Maintenance

Fellowships

Enterprises

Total Operating Expenses

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

$

102,135

5,522,032 $

3,565,243

10,017

67,258

543,654

101,998

3,349,204

108,488

$ 1,249,614
474,515

1,867 $
3,400,454 638,780
1,151,291

4,939,980

880 $ 2,197,814
508,501 145
61,846 1,123,832
645,259 9,436,803 2,506,010

12,897,731 21,059,388 10,736,170
10,162 663,768 7,301,425 4,476,741 19,180,476 5,386,972

Total Operating Expenses

$ 13,370,029 $

6,916,521 $ 4,939,980 $ 16,481,090 $ 81,712,833

Note 15: Affiliated Organizations

In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment of GASB Statement No. 14, The Reporting Entity which became effective for the year ended June 30, 2004, Fort Valley State University Foundation, Fort Valley State University Real Estate Foundation, Fort Valley State University Research Foundation, and Fort Valley State Athletic Foundation are legally separate tax exempt organizations 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 determined Component Units of the State of Georgia, as required by GASB Statement No. 39 should not be assessed in relation to their significance to Fort Valley State University, but instead based on their significance to the State of Georgia.

- 22 -

FORT VALLEY STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Therefore, the financial statements of these affiliated organizations are not included in these financial statements. Copies of the financial statements for the affiliated organizations may be obtained from Fort Valley State University Foundation, LLC.

- 23 -

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SUPPLEMENTARY INFORMATION - 25 -

FORT VALLEY STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS)
BUDGET FUND JUNE 30, 2012
ASSETS
Accounts Receivable Federal Financial Assistance Other
Prepaid Expenditures Inventories
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Cash Overdraft Encumbrances Payable Accounts Payable Deferred Revenue
Total Liabilities
Fund Balances Reserved Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

$

1,585,482.59

2,162,961.89

103,338.11

1,059,015.52

$

4,910,798.11

$

1,429,340.75

1,542,871.09

291,809.51

866,922.97

$

4,130,944.32

$

301,896.36

488,293.77

-236,614.54

183,603.63

42,674.57

$

779,853.79

$

4,910,798.11

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 26 -

FORT VALLEY STATE UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)
BUDGET FUND YEAR ENDED JUNE 30, 2012

SCHEDULE "2"

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 Initiative Teaching
Total Expenditures
Excess of Funds Available over Expenditures
FUND BALANCE JULY 1
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Prior Year Receivables/Revenues Unreserved Fund Balance (Surplus) Returned
to Board of Regents - University System Office Year Ended June 30, 2011
Prior Year Reserved Fund Balance Included in Funds Available
FUND BALANCE JUNE 30

BUDGET

ACTUAL

VARIANCE FAVORABLE (UNFAVORABLE)

$

19,915,988.00 $

19,915,988.00 $

0.00

67,354,470.00

55,167,960.63

-12,186,509.37

$

87,270,458.00 $

75,083,948.63 $

-12,186,509.37

0.00

0.00

0.00

0.00

60,089.51

60,089.51

$

87,270,458.00 $

75,144,038.14 $

-12,126,419.86

$

1,150,713.00 $

1,150,713.00 $

0.00

86,119,745.00

72,986,612.51

13,133,132.49

$

87,270,458.00 $

74,137,325.51 $

13,133,132.49

$

0.00 $

1,006,712.63 $

1,006,712.63

60,089.51 83,959.69

354,476.84 -581,335.68

-83,959.69 -60,089.51

$

779,853.79

SUMMARY OF FUND BALANCE
Reserved Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable
Total Reserved
Unreserved Surplus

$

301,896.36

488,293.77

-236,614.54

183,603.63

$

737,179.22

42,674.57

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 comprehensive basis of accounting other than generally accepted accounting principles.
- 27 -

$

779,853.79

FORT VALLEY STATE UNIVERSITY STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2012

Special Funding Initiative State Appropriation State General Funds
Teaching State Appropriation State General Funds Other Funds
Total Teaching
Total Operating Activity

Original Appropriation

Amended Appropriation

Final Budget

Current Year Revenues

$

1,174,197.00 $

1,174,197.00 $ 1,150,713.00 $ 1,150,713.00

$ 19,127,832.00 $ 19,127,832.00 $ 18,765,275.00 $ 18,765,275.00

48,105,868.00

48,105,868.00

67,354,470.00

55,167,960.63

$ 67,233,700.00 $ 67,233,700.00 $ 86,119,745.00 $ 73,933,235.63

$ 68,407,897.00 $ 68,407,897.00 $ 87,270,458.00 $ 75,083,948.63

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 28 -

SCHEDULE "3"

Prior Year Carry-Over

Funds Available Compared to Budget

Adjustments and

Total

Program Transfers

Funds Available

Variance Positive (Negative)

Expenditures Compared to Budget

Variance

Actual

Positive (Negative)

Excess (Deficiency) of Funds Available
Over/(Under) Expenditures

$

0.00 $

0.00 $ 1,150,713.00 $

0.00 $ 1,150,713.00 $

0.00 $

0.00

$

0.00 $

60,089.51

$

60,089.51 $

$

60,089.51 $

0.00 $ 18,765,275.00 $

0.00

55,228,050.14

0.00 $ 73,993,325.14 $

0.00 $ 18,765,275.00 $

-12,126,419.86

54,221,337.51

-12,126,419.86 $ 72,986,612.51 $

0.00 $ 13,133,132.49
13,133,132.49 $

0.00 1,006,712.63
1,006,712.63

0.00 $ 75,144,038.14 $

-12,126,419.86 $ 74,137,325.51 $

13,133,132.49 $

1,006,712.63

- 29 -

FORT VALLEY STATE UNIVERSITY STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2012

Special Funding Initiative State Appropriation State General Funds
Teaching State Appropriation State General Funds Other Funds
Prior Year Reserves Not Available for Expenditure Uncollectible Accounts Receivable

Beginning Fund Balance/(Deficit)
July 1

Fund Balance Carried Over from
Prior Period as Funds Available

Return of Fiscal Year 2011
Surplus

Prior Period Adjustments

$

0.00 $

$

0.00 $

144,049.20

0.00

0.00 $

0.00 $

0.00

0.00 $ -60,089.51

0.00 $ -83,959.69

0.00 -410,462.47

0.00

0.00

183,603.63

Budget Unit Totals

$

144,049.20 $

-60,089.51 $

-83,959.69 $

-226,858.84

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 30 -

SCHEDULE "4"

Other Adjustments

Early Return Fiscal Year 2012
Surplus

Excess (Deficiency) of Funds Available
Over/(Under) Expenditures

Ending Fund Balance/(Deficit)
June 30

Analysis of Ending Fund Balance

Reserved

Surplus/(Deficit)

Total

$

0.00 $

0.00 $

0.00 $

0.00 $

0.00 $

0.00 $

0.00

$

0.00 $

0.00 $

0.00 $

0.00 $

0.00 $

0.00 $

0.00

0.00

0.00

1,006,712.63

596,250.16

553,575.59

42,674.57

596,250.16

0.00

0.00

0.00

183,603.63

183,603.63

0.00

183,603.63

$

0.00 $

0.00 $

1,006,712.63 $

779,853.79 $ 737,179.22 $

42,674.57 $

779,853.79

Summary of Ending Fund Balance Reserved
Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Unreserved Surplus
Total Ending Fund Balance - June 30

$ 301,896.36 488,293.77 -236,614.54 183,603.63
$
$ 737,179.22 $

$
42,674.57 42,674.57 $

301,896.36 488,293.77 -236,614.54 183,603.63
42,674.57
779,853.79

- 31 -

FORT VALLEY STATE UNIVERSITY BUDGET TO GAAP RECONCILIATION
JUNE 30, 2012
Total Fund Balances - Budget Fund - Non-GAAP Basis (Schedule "1")
Amounts reported for Business-Type Activities in the Statement of Net Assets are different because:
Capital Assets used in Business-Type Activities are not reported in the Budget Fund.
Prepaid student tuition and fees for services provided in the subsequent period are reported as revenues in the Budget Fund but are deferred for reporting on the Statement of Net Assets.
Uncollectible accounts receivable are reported as an asset and reserved fund balance in the Budget Fund and as a contra-asset account on the Statement of Net Assets.
Agency Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Agency Fund Activity
Auxiliary Enterprises Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Auxiliary Enterprises Fund Activity
Endowment Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Endowment Fund Activity
Loan Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Loan Fund Activity
Student Activities Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Student Activity Fund Activity
The budgetary basis of accounting implemented by the State of Georgia recognizes expenditures when encumbered. The following adjustments were made to eliminate this activity for reporting on the Statement of Net Assets. Payables reported in the Budget Fund that are based on encumbrances are eliminated for GAAP reporting. Payables for goods and services provided in the current fiscal year reported in the Budget Fund as encumbrances payable are reported as accounts payable for GAAP reporting. Reimbursement from grantors reported as revenues in the Budget Fund that are for expenditures based on encumbrances are deferred for GAAP reporting. Total Net Effect of Encumbrance Activity
Certain Liabilities are not due and payable in the current period and therefore are not reported as liabilities in the Budget Fund. Capital Leases Payable Compensated Absences Payable Contracts Payable Total Liabilities
Net Assets of Business-Type Activities (Exhibit "A")
The supplementary information presented on Schedules 1, 2, 3 and 4 was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. The information was derived from, and relates directly to, the same information used to prepare the financial statements. However, the budgetary statutes and regulations of the State of Georgia require reporting of certain information that is not in accordance with generally accepted accounting principles. Presented on this schedule is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Assets of business-type activities, as reported on Exhibit A.
- 32 -

SCHEDULE "5"

$

779,853.79

153,334,122.00

-403,033.74

$ 1,526,533.42 -1,526,533.42

$

0.00

-1,579,019.80

$ 1,572,852.57 0.00

$ 1,685,185.07 0.00

$

308,581.13

-16,503.91

-183,603.63 0.00
-1,579,019.80 1,572,852.57 1,685,185.07
292,077.22

$ 1,542,871.09
-99,410.50 22,417.88

1,465,878.47

$ -82,510,425.34 -2,321,588.13 -92,023.48

-84,924,036.95

$ 72,040,275.00

FORT VALLEY STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2012

SCHEDULE "6"

Totals per Annual Supplement
Accruals June 30, 2012 June 30, 2011
Compensated Absences June 30, 2012 June 30, 2011
Adjustments Shared Services on Jointly Staffed Personnel Albany State University Noel, V. Bainbridge College Wilson-Davis, T. Georgia College and State University Foster, B. Georgia Perimeter College Moore, T. Georgia State University Stark, R. Gordon College Burell, B. Fort Valley State University Foundation Carter, T.
Reclassification errors Harris, S. Watson, R.

SALARIES

$

34,077,024 $

TRAVEL 663,768

104,477 -308,678

2,156,607 -2,134,390

7,240 2,153 -4,000
-250 65,217 -5,900 -1,700
-861 180

$

33,957,119 $

663,768

- 33 -

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

FORT VALLEY STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2012

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-533-10-02 FS-533-11-01 FS-533-11-02 FS-533-11-03 FS-533-11-04

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

CORRECTIVE ACTION/RESPONSES

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

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

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

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

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

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

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-533-10-01 FA-533-11-01 FA-533-11-02 FA-533-11-03

Further Action Not Warranted Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented

SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

COMMUNICATION OF INTERNAL CONTROL DEFICIENCIES

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

A deficiency in internal control 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 deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively.

A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of Fort Valley State University's financial statements will not be prevented, or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

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 [2]. 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) Logical Access Inadequate Separation of Duties Significant Deficiency Finding Control Number: FS-533-12-01

Condition:

The University did not maintain adequate separation of duties involving key accounting functions. The University does not have a formal process to periodically review application access to financial systems. This is a repeat finding (FS-533-11-01) from the year ended June 30, 2011.

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 and the monitoring of user access to financial systems are the basis for achieving an adequate system of internal control.

- 1 -

FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

ACCOUNTING CONTROLS (OVERALL) Logical Access Inadequate Separation of Duties Significant Deficiency Finding Control Number: FS-533-12-01

Questioned Cost:

N/A

Information:

The following deficiencies were noted:

1. An employee responsible for the receipt and custody of cash also prepared and approved deposits; posted receipts into the student information system (BANNER); had the ability to maintain and update detail codes in the BANNER system; reconciled deposits posted to the general ledger in the financial accounting system (PeopleSoft); and performed the reconciliation of the feed of financial information from BANNER to PeopleSoft (TGRRCON).
2. Two employees were found to have a security role in the PeopleSoft System outside of their job responsibilities.
3. Employees who had the ability to add new hires also had the ability to make pay changes.
4. One user had inappropriate access to the privileged IT menus within the PeopleSoft financial system.
5. Three employees had continued access to the PeopleSoft and BANNER systems after the date of separation from employment.

Cause:

The University did not adequately separate the functions of initiating, authorizing, and recording transactions, reconciliations, and maintaining the custody of assets. Additionally, the University did not adequately establish a process to monitor appropriate access to financial systems. Compensating controls were either not adequately designed or not formally documented.

Effect:

Without satisfactory accounting policies and procedures requiring proper separation of duties and governing financial system access, 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.

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

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FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

ACCOUNTING CONTROLS (OVERALL) Logical Access Inadequate Separation of Duties Significant Deficiency Finding Control Number: FS-533-12-01

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. A periodic review of financial system access should be implemented by management to determine that access continues to be appropriate based on job responsibility. Evidence of the review process should be maintained for a period of 18 months.

CASH AND CASH EQUIVALENTS Inadequate Accounting Controls Significant Deficiency Finding Control Number: FS-533-12-02

Condition:

The accounting procedures of the University were insufficient to provide adequate controls over Cash and Cash Equivalents.

Criteria:

An adequate system of internal controls dictates that bank reconciliations be performed on a monthly basis, and include the following: 1) adequate supporting documentation, 2) reconciling items correctly identified by description, 3) adjustments identified and made in a timely manner, and 4) evidence of an effective supervisory review and approval function.

Questioned Cost:

N/A

Information:

A review of the bank reconciliations for the operating and payroll accounts revealed the following:

1. Bank reconciliations were not performed in a timely manner. No preparation date was reflected on any of the monthly bank reconciliations and many of the operating account reconciliations did not reflect a review and approval date.
2. The book balance per the June 30, 2012 operating account bank reconciliation did not agree to the general ledger by $43,866.44.
3. Reconciling items recurred on the operating account bank reconciliations for an extended period of time.
4. The bank reconciliations did not reflect the preparer's signature or initials. Therefore, auditors were unable to verify the actual preparer of the reconciliations.

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FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CASH AND CASH EQUIVALENTS Inadequate Accounting Controls Significant Deficiency Finding Control Number: FS-533-12-02

5. An entry to cash was duplicated on the general ledger, resulting in the overstatement of the operating cash by $129,869.

Cause:

The University's management did not implement satisfactory controls to ensure that bank reconciliations were properly performed and reviewed and reconciling items were properly identified and corrected within a reasonable amount of time.

Effect:

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

Recommendation:

Management should monitor accounting controls and procedures currently in place, identify weaknesses and implement procedures to strengthen the internal controls over the bank reconciliation process.

FINANCIAL REPORTING Inadequate Controls over the Financial Reporting Process Significant Deficiency Finding Control Number: FS-533-12-03

Condition:

The University's accounting procedures were insufficient to provide for adequate controls over the preparation of the financial statements. This is a repeat finding (FS-533-11-04) from the year ended June 30, 2011.

Criteria:
Questioned Cost: Information:

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) and the budget basis financial statements provided for inclusion of the State of Georgia Budgetary Compliance Report.
N/A
The following deficiencies were noted in the University's GAAP and budget basis financial statements:
1. Several reclassification and journal entry errors were made to the budget funds, causing fund balance reserves to be incorrect on the budget basis financial statements. Immaterial audit adjustments were proposed and posted to correct these errors.

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FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINANCIAL REPORTING Inadequate Controls over the Financial Reporting Process Significant Deficiency Finding Control Number: FS-533-12-03

2. Numerous misstatements and misclassifications were noted on the GAAP basis financial statements. Audit adjustments were proposed and posted to correct errors noted. The effect of the remaining uncorrected misstatements is immaterial.

3. Several errors were noted in the Notes to the Financial Statements. Audit adjustments were proposed and posted to correct these errors.

Cause:

The University's management did not implement controls to adequately review the year-end financial statements to ensure that the statements as presented for audit were accurate and properly supported by underlying accounting records.

Effect:

The lack of controls and monitoring could impact the reporting of the University's financial position and results of operations. Failure to prepare and submit accurate financial statements prohibits users from having access to pertinent financial information needed for decision making.

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.

REVENUES/RECEIVABLES/RECEIPTS Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-533-12-04

Condition:

Internal control procedures were insufficient to provide adequate collection of student accounts receivable balances.

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FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-533-12-04

Criteria:

The Board of Regents' Business Procedures Manual establishes guidelines for granting of credit to students and the collection and billing of student account balances. Violations of the following policy requirements were noted upon testing student accounts receivable amounts at the University:

1) Per Section 10.1.1, "all students having student accounts with a balance older than ninety (90) days must have services withheld until the balance is paid. The restriction of services will prevent the student from having access to transcripts, registering for additional classes, or graduating until the receivable is paid."

2) Per Section 10.7.4, "collection efforts should occur at 30, 60 and 90 days since the due date and the account should be referred to a collection agency when the account is more than 180 days past due."

3) Per Section 10.4.1, "all uncollectible accounts aged more than one hundred eighty (180) days from the due date should be reserved as an uncollectible account."

Questioned Cost:

N/A

Information:

A review of student accounts receivable balances revealed the following:

1. Upon testing of ten students, there were three instances noted of services that were provided to students and charges were placed on student accounts when the student had maintained an outstanding balance on their student account for a period greater than 90 days.

2. Auditor found that out of a sample of 36 students, collection efforts were not sufficient for 16 students.

3. Receivables amounts held in financial aid clearing accounts were not reviewed to determine if balances aged more than 180 days should be recorded as an uncollectible account.

Cause:

The University's management did not properly implement Board of Regents' policies designed to promote the collection of past due student accounts receivables.

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FORT VALLEY STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-533-12-04

Effect:

The University has incurred student accounts receivable that are not likely to be collected.

Recommendation:

The University should follow billing and collection guidelines as set forth in the Board of Regents' Business Procedures Manual.

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

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SECTION IV MANAGEMENT'S RESPONSES

FORT VALLEY STATE UNIVERSITY SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2012
Auditor's note: Fort Valley State University's response to the findings identified in our audit is
described in the accompanying Schedule of Management's Responses. We did not audit Fort Valley State University's response and, accordingly, we express no opinion on it.
Management's response:
Finding Control Number: FS-533-12-01 ACCOUNTING CONTROLS (OVERALL) Logical Access - Inadequate Separation of Duties Significant Deficiency
We concur with the finding. We will review and revise the internal control structure to ensure adequate separation of duties or compensating controls. To address the specific deficiencies noted in the audit:
TGRRCON duties will be transferred to another staffer who has no responsibility for creating Banner Detail Codes. Additionally, the staff member assigned to maintain Banner Detail Codes will not be permitted to perform cash receipting duties. This is in addition to the current mitigating control whereby the Payroll Office staff reconciles the daily cash receipts produced by the Bursar's Office staff to the Banner system and the bank deposit.
All data entry and other system maintenance duties associated with granting/activating access to university administrative systems have been moved to IT. This move was made possible with the hiring of an additional staff person to back up the current IT staff member performing these duties.
While staff members in the Payroll Office currently conduct a weekly review of all pay and employment changes entered by the Office of Human Resources, an additional control will be added in the Controller's Office such that a staff member will cross check a payroll audit report of pay changes to an already existing data base of approved Personnel Action Notices (PAN) that have been approved by the Budget Office. This will provide better, more auditable documentation that all pay and employment changes have been properly approved.
The university now has a clearance form that must be completed by all terminating employees prior to receiving a final pay check. It includes a sign off/acknowledgement by the Office of Information Technology (IT) that access to campus information systems has been eliminated. In addition, the university will conduct a quarterly review of system access to assure that only active employees or other authorized individuals have access. Documentation of this review will be maintained for a minimum of 18 months.
Contact: Kevin Howard, Associate Vice President for Business and Finance, howardk@fvsu.edu, 478.825.6300
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FORT VALLEY STATE UNIVERSITY SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2012
Finding Control Number: FS-533-12-02 CASH AND CASH EQUIVALENTS Inadequate Accounting Controls Significant Deficiency
We concur with this finding. We will address as follows:
The Director of Accounting or the Controller will review, sign, and date all bank reconciliations by the 15th of the month following the bank statement date, ensuring timely reconciliations.
The University is recruiting an Accounting Manager, who will be responsible for bank reconciliations and capital assets, including GSFIC and MRR accounting. This individual will reconcile bank accounts on a monthly basis, and will include his/her signature and date of completion on the reconciliation. The University will also consult with staff from another University to assist in training the Accounting Manager with daily account reconciliation to streamline the monthly reconciliation process.
Reconciling items will not exceed 30 days outstanding.
Contact: Kevin Howard, Associate Vice President for Business and Finance, howardk@fvsu.edu, 478.825.6300
Finding Control Number: FS-533-12-03 FINANCIAL REPORTING Inadequate Controls over the Financial Reporting Process Significant Deficiency
We concur with this finding. We will design and implement procedures to strengthen controls over the preparation of financial statements. We will take or have taken the following actions to address the specific deficiencies noted:
The Controller and/or Director will review journal entries to ensure proper supporting documentation is attached and that the entry is appropriate.
The university has retained a consultant with extensive USG financial reporting experience to do a complete mapping of the university's chart of accounts to the approved Board of Regents' chart. The University will update their year-end calendar and year-end staff assignments to ensure a more timely year-end close, and preparation of the financial statements. This will allow more time to review the statements for accuracy.
Contact: Kevin Howard, Associate Vice President for Business and Finance, howardk@fvsu.edu, 478.825.6300
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FORT VALLEY STATE UNIVERSITY SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2012 Finding Control Number: FA-533-12-04 REVENUES/RECEIVABLES/RECEIPTS Inadequate Accounting Procedures Significant Deficiency We concur with this finding. We are taking action to ensure that the Board of Regents' Business Procedures Manual is followed in relation to granting credit to students and the collection and billing of student account balances. We will take or have taken the following actions to address the specific deficiencies noted:
All students with an account balance greater than 90 days will be placed in an "AR Hold" status that will prevent the student from registering for classes. Further, a notice will be sent to all advisors that will inform them that no student account with an "AR Hold" should be overridden unless a documented extenuating circumstance exists that is approved by the Vice President for Business & Finance.
The Director of Student Financial Services will ensure that the TSRCBILL process is performed on a monthly basis to include all terms with an open student account balance. Collection efforts will be consistently applied to all past due accounts.
The Director of Student Financial Services will develop a process to ensure that all clearing accounts are reviewed in relation to the TGRRCON on a monthly basis. Further, the Director will ensure that balances aged more than 180 days are reserved in an allowance for doubtful accounts no less than quarterly.
Contact: Kevin Howard, Associate Vice President for Business and Finance, howardk@fvsu.edu, 478.825.6300
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