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STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
GAINESVILLE COLLEGE
GAINESVILLE, GEORGIA REPORT ON REVIEW
OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
Russell W. Hinton State Auditor

GAINESVILLE COLLEGE - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

BASIC FINANCIAL STATEMENTS

EXHIBITS

A STATEMENT OF NET ASSETS

3

' B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

4

C STATEMENT OF CASH FLOWS

5

D NOTES TO THE FINANCIAL STATEMENTS

7

SUPPLEMENTARY INFORMATION

SCHEDULES

SCHEDULES OF REVENUES AND EXPENDITURES COMPARED TO

BUDGET - (NON-GAAP BASIS)

RESIDENT INSTRUCTION

23

2

LOTTERY FOR EDUCATION

24

3 RECONCILIATION OF SALARIES AND TRAVEL

25

SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

RUSSELL W. HINTON
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
November 13, 2003

Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable Martha T. Nesbitt, President Gainesville College
INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have reviewed the accompanying basic financial statements (Exhibits A through D) of Gainesville College, an organizational unit of the State of Georgia, as of and for the year ended June 30, 2003, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute ofCertified Public Accountants. All information included in these financial statements is the representation of the management of Gainesville College.
A review consists principally of inquiries of Gainesville College personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.
Management's Discussion and Analysis is not a required part ofthe basic financial statements but is supplementary information required by accounting principles generally accepted in the United States ofAmerica. We have applied certain limited procedures, which consisted principally ofinquiries of management regarding the methods of measurement and presentation of this supplementary information, and we are not aware of any material modifications that should be made thereto.

03ARL-66

Our review was made for the purpose of expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with accounting principles generally accepted in the United States ofAmerica. The accompanying supplementary information (Schedules 1 through 3) is presented for additional analysis purposes. Such information has been subjected to the inquiries and analytical procedures applied in the review of the financial statements, and we are not aware ofany material modifications that should be made to such data.
Respectfully submitted,
tJ.~
RWH:gp 03ARL-66

REQUIRED SUPPLEMENTARY INFORMATION

GAINESVILLE COLLEGE
Management's Discussion and Analysis

Introduction

Gainesville College is one of the 34 institutions of the University System of Georgia. The College, located just south of Gainesville, Georgia, was founded in 1964 and has become known for its quality academic programs supported by state-of-the-art technology and strong academic support with a focus on student success. In 2002-03 the College opened a campus in Oconee County, near Athens, that serves almost 1,800 students. Gainesville College offers associate degrees in a wide variety of disciplines and selected career programs and certificates. The institution's quality and reputation are attracting a highly qualified faculty and staff and an increasing enrollment of students. The enrollment growth is indicated by the following data:

Faculty

Students

FY2003 FY2002 FY2001

392

10,390

351

9,010

315

8,001

Overview ofthe Financial Statements and Financial Analysis

Gainesville College is proud to present its financial statements for fiscal year 2003. 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 College's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2002 and fiscal year 2003.

Statement ofNet Assets

The Statement of Net Assets presents the assets, liabilities, and net assets of the College 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 Gainesville College. 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.

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Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the institution's equity in property, plant and equipment owned by the institution. The next asset category is restricted net assets, nonexpendable. The corpus of nonexpendable restricted resources is only available for investment purposes. 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, 2003

June 30, 2002

Assets Current Assets Capital Assets, Net Other Assets

$ 3,439,705.40 18,599,541.75 317,613.60

$ 3,087,439.05 18,663,896.12 10,722.50

Total Assets

$22,356,860.75

$21,762,057.67

Liabilities Current Liabilities Noncurrent Liabilities

$ 1,737,336.79 172,859.93

$ 1,470,370.32 142,076.80

Total Liabilities

$ L910,I96.72

$ 1,612,447.12

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

$18,599,541.75 10,722.50
1,836,399.78

$18,663,896.12 10,722.50
1,474,991.93

Total Net Assets

$20i4462664,03

$2021492610.55

The total assets of the institution increased by $594,803.08. A review of the Statement of Net Assets above will reveal that the increase was primarily due to an increase of current and other assets. See Note 1 in the Notes to the Financial Statements for additional information concerning the restatement of beginning net assets and the effect of this restatement on depreciable capital assets. The consumption of assets follows the institutional philosophy to use available resources to acquire and improve all areas of the institution to better serve the instruction, research and public service missions of the institution.

The total liabilities for the year increased by $297,749.60. The primary cause for the increase was in current liabilities, primarily $310,730.75 in deferred revenue which can be attributed directly to the increase in summer semester enrollment. The combination of the increase in total assets of $594,803.08 and the increase in total liabilities of $297,749.60 yields an increase in total net assets of $297,053.48. The increase in total net assets is primarily in the category of unrestricted net assets.

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Statement ofRevenues, Expenses and Changes in Net Assets

Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received by the institution, both operating and nonoperating, and the expenses paid by the institution, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the institution. Generally speaking operating revenues are received for providing goods and services to the various customers and constituencies of the institution. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the institution. Nonoperating revenues are revenues received for which goods and services are not provided. For example state appropriations are nonoperating because they are provided by the Legislature to the institution without the Legislature directly receiving commensurate goods and services for those revenues.

Statement of Revenues, Expenses and Changes in Net Assets, Condensed

June 30, 2003

June 30, 2002

Operating Revenues Operating Expenses

$ 9,568,330.51 22.275,540.93

$ 8,665,784.27 20.860,447.01

Operating Loss

$-12,707,210.42 $-12,194,662.74

Nonoperating Revenues and Expenses

12,184.777.57

11,551,897.98

Decrease in Net Assets

$ -522,432.85 $ -642,764.76

Net Assets at Beginning of Year, as Originally Reported

$20,149,610.55 $ 35,024,622.66

Cumulative Effect of Changes in Accounting Principle

-14,232,247.35

Prior Period Adjustments

819,486.33

Net Assets at Beginning of Year Restated

$20,969,096.88 $ 20,792,375.31

Net Assets at End of Year

$ 20,446,664.03

$20,149,610.55

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

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Revenue By Source For The Years Ended June 30, 2003 and June 30, 2002

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

June 30, 2003

June 30, 2002

$ 5,133,286.63 2,290,479.13
295,691.74 1,774,175.59
74,697.42
$ 9,568,330.51

$ 4,306,018.10 2,400,781.47
463,368.75 1,443,147.08
52,468.87
$ 8,665,784.27

$11,218,935.17 21,795.67
741,301.60 202,745.13
$12,184,777.57
$21,753.108.08

$11,258,197.05 43,181.28
236,902.66 13,616.99
$11,551,897.98
$2012171682.25

Expenses (By Functional Classification) For The Years Ended June 30, 2003 and June 30, 2002

June 30, 2003

June 30, 2002

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

$10,279,960.25 145,957.80
2,725,562.29 1,948,571.43 2,598,600.38 1,858,709.67 1,260,814.63 1,457,364.48

$ 8,853,934.93 137,241.88
2,337,331.80 1,665,126.05 2,556,700.21 1,958,797.69
995,239.35 1,173,292.78 1,182,782.32

Total Expenses

$22.275540.93

$20.860.447.01

Revenues of the College increased in several categories, with the largest increase in tuition and fees, net of Scholarship Allowances.

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Two areas showed a decrease: Sales and Services of Educational Departments and Operating Grants and Contracts. The decrease in Sales and Services of Educational Departments was due to the decline in the economy. The College's Continuing Education Department offers customdesigned classes to fit the needs of local companies. With the downturn in the economy, local companies had fewer dollars available for these purposes. Nonoperating Grants and Contracts increased during the year.

The compensation and employee benefits category increased by $819,633.29. The increase reflects the hiring of administration and staff for the Oconee campus opened during the 2003 fiscal year. The increase also reflects an increased cost of health insurance for the employees of the institution.

Under nonoperating revenues (expenses) state appropriations decreased by approximately $39,261.88. The College actually had a relatively flat funding year with all things considered.

Statement ofCash Flows

The final statement presented by the Gainesville College 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, 2003 and June 30, 2002, Condensed

June 30, 2003

June 30, 2002

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

$-11,430,907.99 12,149,552.06 21,795.67 -144,886. 98

$-11,882,045 .13 11,464,494.07 43,181.28 -5,742.90

Net Change in Cash Cash, Beginning of Year

$ 595,552.76 1,992,497.03

$ -380,112.68 2,372,609.71

Cash, End of Year

$ 2,588,049.79

$ l 1992A97.03

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Capital Assets For information concerning Capital Assets, see Notes 1 and 5 in the notes to the financial statements. Long-Term Debt Gainesville College had a total Long-Term Debt of $602,704.25 of which $429,844.32 was reflected as current liability at June 30, 2003. For additional information concerning Long-Term Debt, see Notes 1 and 7 in the notes to the financial statements. Economic Outlook The College is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. The College's overall financial position is strong. The College does anticipate that the current fiscal year will be tight due to state budget cuts and will maintain a close watch over resources to maintain the College's ability to react to unknown internal and external issues. Martha T. Nesbitt, President Gainesville College
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BASIC FINANCIAL STATEMENTS - 1-

GAINESVILLE COLLEGE STATEMENT OF NET ASSETS
JUNE 30, 2003
ASSETS
Current Assets Cash and Cash Equivalents Accounts Receivable, Net Federal Financial Assistance Other Prepaid Items Inventories
Total Current Assets
Noncurrent Assets Cash and Cash Equivalents Capital Assets, Net (See Note 5)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Deferred Revenue Funds Held for Others Compensated Absences
Total Current Liabilities
Noncurrent Liabilities Compensated Absences
Total Liabilities
NET ASSETS
Invested in Capital Assets. Net of Related Debt Restricted for:
Nonexpendable Unrestricted
Total Net Assets

EXHIBIT"A"

$ 2,270,436.19
10,123.04 493,915.89 516,763.23 148,467.05
$ 3,439,705.40

$

317,613.60

18,599,541.75

$ 18,917,155.35

$ 22,356,860.75

$

83,825.51

1,089,320.69

134,346.27

429,844.32

$ 1,737,336.79

$

172,859.93

$ 1,910,196.72

$ 18,599,541.75
10,722.50 1,836,399.78

$ 20,446,664.03

See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information.
The notes to the financial statements are an integral part of this statement. -3-

GAINESVILLE COLLEGE STATEMENT OF REVENUES. EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30, 2003

EXHIBIT"B"

OPERATING REVENUES
Student Tuition and Fees Less: Scholarship Allowances
Grants and Contracts Federal State Local Nongovernmental
Sales and Services of Educational Departments Auxiliary Enterprises
Bookstore Food Services Parking/Transportation Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES {EXPENSES}
State Appropriations Grants and Contracts
Federal State Local Nongovernmental Interest and Other Investment Income Other Nonoperating Revenues
Net Nonoperating Revenues
Increase (Decrease) in Net Assets
Net Assets Net Assets - Beginning of Year, as Originally Reported Prior Period Adjustments to Capital Assets - See Note 1
Net Assets - Beginning of Year, Restated
Net Assets - End of Year

$ 5,825,903.00 -692,616.37
1,990,884.61 109,850.00 119,868.52 69,876.00 295,691.74
1,745,917.78 26,807.41 1,450.40 74 697.42
$ 9,568,330.51

$ 5,673,722.00 6,006,691.31 3,162,320.15 137,536.99 1,323,150.23 703,353.50 4,141,496.24 1,127,270.51
$ 22,275,540.93
$ -12,707,210.42

$ 11,218,935.17

464,300.16 159,083.01 52,226.07 65,692.36 21,795.67 202,745.13

$ 12,184,777.57

$

-522,432.85

$ 20,149,610.55 819,486.33
$ 20,969,096.88

$ 20,446,664.03

See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information.
The notes to the financial statements are an integral part of this statement.
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GAINESVILLE COLLEGE STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30. 2003
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Auxiliary Enterprise Charges: Bookstore Food Services Parking/Transportation 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 Other Nonoperating Receipts
Net Cash Flows Provided (Used) by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of Capital Assets
CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
;q. lw
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and liabilities: Accounts Receivables, Net Inventories Prepaid Items Accounts Payable Deferred Revenue Other liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information.
The notes to the financial statements are an integral part of this statement. -5-

EXHIBIT"C"

$ 5,275,311.05 2,329,997.01 295,691.74 -8, 139,449.07
-11,688,251.21 -1,323, 150.23
1,745,917.78 26,807.41 -24,959.85 71 177.38
$ -11,430,907 .99

$ 11,218,935.17 -38,454.77 855,113.56 113,958.10
$ 12,149,552.06

$ _ _-_14_4..._,8_8_6._9_8

$ ____2__1..._7~9-'-5."'-6-'-7

$

595,552.76

1,992,497.03

$ 2,588,049.79

$ -12,707,210.42
1,127,270.51
-45,306.78 -4,907.27
-14,662.74 14,514.24 196,918.79 -4,349.17 6,824.85
$ -11,430,907.99

GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS Gainesville College 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 Gainesville College is one of thirty-four (34) State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of Gainesville College 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. Gainesville College does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Gainesville College 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.
FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia was required to implement GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the College is also required to adopt GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. The financial statement presentation required by GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38 provides a comprehensive, entity-wide perspective of the College's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fund group perspective previously required.
Generally Accepted Accounting Principles (GAAP) requires that the reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year. Due to the lack of materiality, Institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the predominate activity takes place.
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GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING For financial reporting purposes, the College is considered a special-purpose government engaged only in business-type activities. Accordingly, the College's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the preceding paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-college transactions have been eliminated.
The College has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The College has elected to not apply FASB pronouncements issued after the applicable date.
RESTATEMENT OF PRIOR YEAR NET ASSETS - BEGINNING OF YEAR In the initial year of implementation of GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities, the College failed to include residual values on its depreciable capital assets in accordance with asset capitalization policies adopted in the Capital Asset Guide for the University System of Georgia. As the result of the College's inclusion of residual values for depreciable capital assets, net assets at July 1, 2002 were increased by $1,026,575.00 for the effects on accumulated depreciation. In addition, the College modified the threshold for the capitalization of infrastructure to $1,000,000.00 in accordance with the Capital Asset Guide for the University System of Georgia. As a result of this adjustment, net assets at July 1, 2002, were decreased by $207,088.67 for the effects on assets and accumulated depreciation.
CASH AND CASH EQUIVALENTS Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits m authorized financial institutions.
ACCOUNTS RECEIVABLE Accounts receivable consists of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Georgia. Accounts receivable also include amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the College's grant and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
INVENTORIES Resale Inventories are valued at cost using the average-cost basis.
NONCURRENT CASH Cash that is externally restricted and cannot be used to pay current liabilities is classified as noncurrent assets in the Statement of Net Assets.
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GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 College's capitalization policy includes all items with a unit cost of $5,000.00 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000.00 and significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, IO years for library books, and 3 to 7 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.
Effective July I, 2001, the GSFIC retains construction in progress on their books throughout the construction period and transfers the entire project to Gainesville College when complete.
DEFERRED REVENUES Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned.
COMPENSATED ABSENCES Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as accrued vacation payable in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statements of Revenues, Expenses and Changes in Net Assets. Gainesville College had accrued liability for compensated absences in the amount of $595,879.40 as of July I, 2002. For fiscal year 2003, $458,952.59 was earned in compensated absences and employees were paid $452,127.74, for a net increase of $6,824.85. The ending balance as of June 30, 2003 in accrued liability for compensated absences is $602,704.25. Compensated absences include a current liability of $429,844.32.

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GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NONCURRENT LIABILITIES Noncurrent liabilities include (1) liabilities that will not be paid within the next fiscal year; and (2) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets.
NET ASSETS The College's net assets are classified as follows:
Invested in capital assets, net of related debt: This represents the College'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 I - Capital Assets section.
Restricted net assets - nonexpendable: Nonexpendable restricted net assets consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. The College 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.
Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state 1propriations, and sales and services of educational departments and auxiliary enterprises. T.,..se resources are used for transactions relating to the educational and general operations of the College, 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 $12,052.26. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia - Administrative Central Office for remittance to the Office of Treasury and Fiscal Services. 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.

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GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NET ASSETS

June 30, 2003

R& RReserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted

$

39.37

430,933.63

148,467.05

1,256,959.73

Total Unrestricted Net Assets

$ 1,836,399.78

When an expense is incurred that can be paid using either restricted or unrestricted resources, the College's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources.

INCOME TAXES Gainesville College, as a political subdivision of the State of Georgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended.

CLASSIFICATION OF REVENUES The College has classified its revenues as either operating or nonoperating revenues in the Statement of Revenues, Expenses and Changes in Net Assets according to the following criteria:

Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions. such as (I) student tuition and fees, net of scholarship allowances, (2) sales and services of auxiliary enterprises, (3) most Federal, state and local grants and contracts and Federal appropriations, and (4) interest on institutional student loans.

Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions. such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Fundr; and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.

SCHOLARSHIP ALLOWANCES Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net Assets. Scholarship allowances are the difference between the stated charge for goods and services provided by the College, and the amount that is paid by students and/or third parties making payments on the students' behalf. Certain governmental grants, such as Pell

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GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SCHOLARSHIP ALLOWANCES grants, and other Federal, state or nongovernmental programs, are recorded as either operating or nonoperating revenues in the College's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the College has recorded contra revenue for scholarship allowances.
NOTE 2: CASH AND CASH EQUIVALENTS AND OTHER DEPOSITS
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds belonging to the State of Georgia (and thus Gainesville College) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
1. Bonds, bill, certificates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia.
2. Bonds, bills, certificates of indebtedness, notes, or other obligations of the counties or municipalities of the State of Georgia.
3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.
4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.
5. Bonds, bills, certificates of indebtedness, notes, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest, or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, The Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.
6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.
As authorized in the Official Code of Georgia Annotated Section 50-17-53, the State Depository Board has adopted policies which allow agencies of the State of Georgia (and thus Gainesville College), the option of exempting demand deposits from the collateral requirements.
The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.
- 12 -

GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 2: CASH AND CASH EQUIVALENTS AND OTHER DEPOSITS

CATEGORIZATION OF DEPOSITS The College's cash deposits are categorized by risk as follows:

Category 1 - Amounts covered by depository insurance or collateralized with securities (at fair value) held by the College or by its agent in the College's name.

Category 2 - Amounts collateralized with securities (at fair value) held by the pledging financial institution's trust department or agent in the College's name.

Category 3 - Amounts collateralized with securities (at fair value) held by the pledging financial institution, or by its trust department or agent but not in the College's name, and amounts uncollateralized.

Cash Deposits as of June 30, 2003 are as follows:

Cash Deposits

Carrying Amount

Bank Balances

Risk Categories

2

3

$ 2 585 979 79 $ 3.145 405 33 $ 403 962.20 $ 2 542.460 29 $ 198.982 84

NOTE 3: ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at June 30, 2003.

Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal, State and Private Funds Other

$ 314,539.27 26,410.25 160,596.95 4,545.46

Less Allowance for Doubtful Accounts

$ 506,091.93 2,053.00

Net Accounts Receivable

$ 5042038.93

NOTE 4: INVENTORIES

Inventories consisted of the following at June 30, 2003.

Bookstore

$ 148A67.05

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GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 5: CAPITAL ASSETS

Following are the changes in capital assets for the year ended June 30, 2003:

Beginning
Balance July 1, 2002 {Restated)

Additions

Reductions

Ending Balance June 30, 2003

Capital Assets, Not Being Depreciated:

Land

$

Construction Work-In-Progress

105,849.29 0.00 $

9,755.80

$ 105,849.29 9,755.80

Total Capital Assets Not Being Depreciated

$ 105,849.29 $

9,755.80

$ 115,605.09

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

$ 371,830.00 25,117,160.00 1,094,105.00 1,904,452.72 $ 1,908,875.70

$ 82,624.98 62,261.72

$ 371,830.00 25,117,160.00
24,627.00 1,069,478.00 1,987,077.70
35,185.00 1,935,952.42

Total Assets Being Depreciated

$ 30,396,423.42 $ 144,886.70 $ 59,812.00 $ 30,481,498.12

Less: Accumulated Depreciation:

Infrastructure

$

Buildings and Building Improvements

Facilities and Other Improvements

Equipment

Library Collections

I 16,575.49 $ 7,034,303.43
857,129.77 1,306,094.12 1,704,787.45

81,419.84 $ 770,858.57
55,090.92 143,967.18 75,934.00

8,141.98 $ 77,085.86 28,186.47
35,185.00

189,853.35 7,728,076.14
884,034.22
1,450,061.30 1,745,536.45

Total Accumulated Depreciation

$ 11,018,890.26 $ 1,127,270.51 $ 148,599.31 $ ll,997,561.46

Total Capital Assets, Being Depreciated,

Net

$ 19,377,533.16 $ -982,3~3.81 $ -88,787.31 $ 18,483,936.66

Capital Assets, Net

$ 19 483.382.45 $ -972.628.0 I $ -88.787.31 $ 18.599.541 75

NOTE 6: DEFERRED REVENUE

Deferred revenue consists of the following at June 30, 2003.

Prepaid Tuition and Fees Other Deferred Revenue

$1,061,119.19 28,201.50

Totals

$ 1,089,320.69

NOTE 7: LONG-TERM LIABILITIES

Long-Term liability activity for the year ended June 30, 2003 was as follows:

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GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 7: LONG-TERM LIABILITIES

Other Liabilities Compensated Absences

Beginning Balance July 1, 2002

Additions

Reductions

Ending Balance June 30, 2003

Current Portion

$ 595.879.40 $ 458 952 59 $ 452 I27 74 $ 602.704 25 $ 429 844 32

NOTE 8: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA

Plan Description Gainesville College participates in the Teachers Retirement System of Georgia (TRS), a costsharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances and other benefits for teachers of the State of Georgia. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

Funding Policy Employees of Gainesville College who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Gainesville College makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2003, the employer contribution rate was 9.24% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2003 2002 2001

100% 100% 100%

$ 740,823.51 $ 722,567.71 $ 852,405.94

REGENTS RETIREMENT PLAN

Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 4721-1 et. seq. and is administered by the Board of Regents of the University System of Georgia. Under this plan, the Board of Regents may purchase annuity contracts for the purpose of providing retirement and death benefits for eligible faculty and principal administrators.

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GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT D 11 "

NOTE 8: RETIREMENT PLANS
REGENTS RETIREMENT PLAN
Plan Description 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 Gainesville College makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State Statute and as advised by their independent actuary. The employer contributes I 0.02% of the participating employee's earnable compensation. Employees contribute 5% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.
Gainesville College and the covered employees made the required contributions of $216,482.83 (10.02%) and $108,026.12 (5%), respectively.
GEORGIA DEFINED CONTRIBUTION PLAN
Plan Description Gainesville College 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 1s administered by the Board of Trustees of the Employees' Retirement System of Georgia.
Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $ 3,500.00 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.
Contributions and Vesting Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member.
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GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 8: RETIREMENT PLANS
GEORGIA DEFINED CONTRIBUTION PLAN
Contributions and Vesting Total contributions made by employees during fiscal year 2003 amounted to $55,342.15 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
NOTE 9: RISK MANAGEMENT
Gainesville College is a participant in the Board of Regents of the University System of Georgia Health Benefits Plan, which is a self-insurance program of health and dental benefits for employees and retirees of the University System of Georgia. Gainesville College and participating employees and retirees pay premiums to the Health Benefits Plan for this health insurance coverage. The Health Benefits Plan is 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 of the Health Benefits Plan. The Health Benefits Plan is considered a self-sustaining risk fund that provides health coverage for its members up to a maximum lifetime benefit of $2,000,000.00 per person and dental coverage up to an annual maximum of $1,000.00 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia to process claims in accordance with the Health Benefits Plan as established by the Board of Regents.
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. Gainesville College, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.
A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund.
- 17 -

GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 10: CONTINGENCIES
Amounts received or receivable from' grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures which are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Gainesville College expects such amounts, if any, to be immaterial to its overall financial position.
Litigation, claims and assessments filed against Gainesville College (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, 2003.
NOTE 11: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 203-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals.
As of June 30, 2003, there were 82 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2003, Gainesville College recognized as incurred $292,516.66 of expenditures, which was net of $123,311.67 of participant contributions.

- 18 -

GAINESVILLE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 12: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS

The College's operating expenses by functional classification are sho~ below:

Statement of Operating Expenses - Natural vs Functional Classifications For the Fiscal Year Ended June 30, 2003

Natural Classification

Instruction

Functional Clas~ification

Public Service

Academic Support

Student Services

Institutional Support

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

$ 5,660,431.66 1,076,182.75 1,532,017.93
69,239.47
94,702.63
779,476.30 1,067,909.51

$ 115,445.42 19,113.86 2,389.98
362.10 8,646.44

$ 8,883.34 1,511,557.42 387,493.47
20,410.34
42,534.39
667,428.23 87,255.10

$

630.00

1,244,476.60

290,187.25

23,998.01

21,237.20 368,042.37

$ 3,777.00 1,287,513.57 713,274.28
20,368.92
62,335.60 17,965.42
491,705.69 I 659.90

Total Operating Expenses

$)0 279 960 25 $ 145 957..80 $ 2 725 562 29 $ l 948 57143 $ 2 598 60038

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

Plant Operations and Maintenance

Functional Classification

Scholarships and Fellowships

Auxiliary Enterprises

Total Operating Expenses

$ 698,867.38 190,452.87 -39.535.86 988.03
524,221.32
513,309.30 -29 593.37
$ I 858 70967

$ 1.260,814.63 $ 1260 814 63

$ 72,648.17 29,780.49 39,535.86 142.24
2,330.44
1,312,887.91 39.37
$ 145736448

$ 5,673,722.00 6,006,691.31 3,162,320.15 0.00 137,536.99
1,323,150.23 703,353.50
4,141,496.24 1,127,270.51
$22,275 540 93

- 19 -

SUPPLEMENTARY INFORMATION - 21 -

GAINESVILLE COLLEGE SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO
BUDGET - (NON-GAAP BASIS) RESIDENT INSTRUCTION
YEAR ENDED JUNE 30. 2003

SCHEDULE "1"

REVENUES
State Appropriations Other Revenues Retained

BUDGET

ACTUAL (1)

VARIANCEFAVORABLE (UNFAVORABLE)

$ 11,121,374.00 $ 11,121,374.00 $

9,331,567.00

9,044,266.12

0.00 -287,300.88

$

20,452,941.00 $

____ 20,165,640.12 $

-287_.:,..3;._0:_0....;8:...8:...

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

$ 14,104,765.00 $ 13,937,995.52 $

582,461.00

483,762.60

2,911,249.00 2,367,404.00
198,958.00 288,104.00

3,103,593.32 2,248,423.61
110,058.10 288,104.00

166,769.48 98,698.40
-192,344.32 118,980.39
88,899.90 0.00

$ 20,452,941.00 $ 20,171,937.15 $ _ ____;;;2..:..81.;..:.,0.;..;0c..:.3.;..:.8..:..5

Excess of Revenues over Expenditures

$

-6,297.03 $====-=6=2=9.,.7.=0=3

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

See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information.
- 23-

GAINESVILLE COLLEGE SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO
BUDGET - (NON-GAAP BASIS} LOTTERY FOR EDUCATION YEAR ENDED JUNE 30, 2003

SCHEDULE "2"

REVENUES State Appropriations
EXPENDITURES Equipment, Technology and Construction
Trust Fund
Excess of Revenues over Expenditures

BUDGET

ACTUAL (1)

VARIANCEFAVORABLE (UNFAVORABLE)

$

102,010.00 $

102,010.00 $ - - - - - -0.0-0

$

102,010.00 $

$

97,876.36 $ - - - -4-,13-3.6-4
4, 133.64 $ --==4=,1.,.3.,.3.=64=

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

See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information.
-24-

GAINESVILLE COLLEGE RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2003

SCHEDULE "3"

Totals per Annual Supplement

Prepaid Salaries June 30, 2003 June 30, 2002

Adjustments

Shared Services on Jointly Staffed Personnel

North Georgia College and State University

Hudson,

Charlene

Compensated Absences June 30, 2003 June 30, 2002

SALARIES $ 11,690,980.76 $

TRAVEL 137,536.99

-451,779.39 433,072.09

1,800.00 559,873.90 -553,534.05
$ 11,680,413.31 $===13=7=,5=3=6=.9=9

See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information.
- 25-

SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS

GAINESVILLE COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Inadequate Capital Asset Records Finding Control Number: FS-575-03-01

Criteria:

NCGA Statement 1, paragraph 1, which prescribes that an accounting system (1) present fairly and fully disclose its financial position including its financial operations ofits funds and account groups in accordance with generally accepted accounting principles and (2) demonstrate compliance with finance related legal and contractual provisions. Administrative requirements contained in the University System ofGeorgia, Board ofRegents Business Manual and pertinent sections of the Official Code of Georgia Annotated (OCGA).

Condition:

Gainesville College's accounting procedures for the Capital Asset Management System were insufficient to provide adequate control over the College's capital assets.

Questioned Cost: NIA

Information:

We noted the following weaknesses/deficiencies relating to Capital Assets:

1) The College was unable to provide a Capital Asset Listing by Asset ID which detailed the acquisition cost, accumulated depreciation at July 1, 2002, current year depreciation, year ofacquisition and estimated useful life for individual assets.

2) The College failed to reconcile accumulated depreciation on Library Collections with the Library Collections subsidiary schedule. A variance of $108,845.00 was identified.

3) The College's Asset Management module for depreciation expense did not reconcile to the Capital Ledger resulting in a $35,372.19 unidentified variance in the equipment depreciation expense.

4) The College did not reconcile the property records to the Capital Asset ledger. Extensive procedures were performed in an attempt to determine the variances. Variances were identified in accumulated depreciation, infrastructure and equipment. Net adjustments of$654,962.03 were made to capital asset balances reported.

- 1-

GAINESVILLE COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Inadequate Capital Asset Records Finding Control Number: FS-575-03-01

Effect:

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

Cause:

These deficiencies are a result of management's failure to implement adequate policies and procedures to ensure that the College's capital assets are properly maintained.

Recommendation: The College should establish appropriate procedures to strengthen controls and ensure that assets are properly accounted for and safeguarded.

-2 -