STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS I BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2008 Russell W. Hinton State Auditor BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS EXHIBITS A STATEMENT OF NET ASSETS 2 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 3 C STATEMENT OF CASH FLOWS 4 D STATEMENT OF FIDUCIARY ASSETS BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND 5 E STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND 7 F NOTES TO THE FINANCIAL STATEMENTS 8 SUPPLEMENTARY INFORMATION SCHEDULES 1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 38 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND 39 3 STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET (NON-GAAP BASIS) BUDGET FUND 40 4 SCHEDULE OF APPROVED BUDGET 43 5 SCHEDULE OF ALLOTMENTS TO UNITS OF THE UNIVERSITY SYSTEM OF GEORGIA 44 6 ANALYSIS OF PRIOR YEAR'S SURPLUS FUNDS COLLECTED FROM INSTITUTIONS AND REDISTRIBUTED TO INSTITUTIONS WITH DEFICITS 46 7 RECONCILIATION OF SALARIES AND TRAVEL 47 BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) - TABLE OF CONTENTS - 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 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 February 2, 2009 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 Erroll B. Davis, Jr., Chancellor INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Ladies and Gentlemen: We have audited the accompanying financial statements of the business-type activities and the aggregate remaining fund information (Exhibits A through F) of the University System Office (Oversight Unit) ofthe Board ofRegents ofthe University System ofGeorgia, an organizational unit of the State of Georgia, as of and for the year ended June 30, 2008. These financial statements are the responsibility ofthe University System Office's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1, the financial statements of the University System Office are intended to present the financial position and changes in financial position, and where applicable, cash flows of only that portion of activities of the State of Georgia that is attributable to the transactions of the University System Office. They do not purport to, and do not, present fairly the financial position and changes in financial position, and where applicable, cash flows of the State of Georgia, in conformity with accounting principles generally accepted in the United States of America. 08ARL-62 In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the aggregate remaining fund information of the University System Office as of June 30, 2008, and the respective changes in financial position, and where applicable cash flows, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the financial statements, the University System Office implemented Governmental Accounting Standards Board Statement No. 43, Financial Reporting of Postemployment Benefit Plans Other Than Pension Plans, and Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions for fiscal year 2008. Management's Discussion and Analysis is not a required part of the financial statements but is required supplementary information required by accounting principles generally accepted in the United States ofAmerica. We have applied certain limited procedures, which consisted principally of inquiries ofmanagement regarding the methods ofmeasurement and presentation ofthis required supplementary information. However, we did not audit this information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the financial statements of the University System Office taken as a whole. The accompanying supplementary information (Schedules 1 through 7) is presented for purposes ofadditional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. Respectfully submitted, ~~ ell W. Hinton, CPA, CGFM State Auditor RWH:gp 08ARL-62 REQUIRED SUPPLEMENTARY INFORMATION UNIVERSITY SYSTEM OFFICE Management's Discussion and Analysis Introduction The University System Office of Georgia's Board of Regents was created in 1931 as part of a reorganization of Georgia's state government. With this act, public higher education in Georgia was unified for the first time under a single governing and management authority. The governor appoints members to the Board, who each serve seven years. Today, the Board of Regents is composed of 18 members, five of whom are appointed from the state-at-large, and one from each of the 13 congressional districts. The Board elects a chancellor who serves as the chief executive officer and the chief administrative officer of the University System. The Board oversees 35 institutions: four research institutions, two regional universities, 13 state universities, seven state colleges, and nine two-year colleges. In addition, one marine research institute is governed by the Board. These institutions enroll more than 270,000 students and employ more than 11,000 faculty and 28,600 staff to provide teaching and related services to students and the communities in which they are located. The University System Office also is the custodian of a newly created Fiduciary Fund for University System of Georgia retiree health and life insurance benefits. Overview ofthe Financial Statements and Financial Analysis The University System Office is proud to present its financial statements for fiscal year 2008. The emphasis of discussions about these statements will be on current year data. There are three primary 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 System Office's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2008 and fiscal year 2007. As custodian of the Board of Regents Retiree Health Benefit Fund, two additional statements are presented: the Statement of Fiduciary Net Assets and the Statement of Changes in Fiduciary Net Assets. Statement ofNet Assets The Statement of Net Assets presents the assets, liabilities, and net assets of the University System Office 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 the University System Office. 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. - 1- From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the University System Office. They also are able to determine how much the University System Office 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 University System Office. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the University System Office's equity in property, plant and equipment owned by the University System Office. The next asset category is restricted net assets, which is divided into two categories, nonexpendable and expendable. The corpus of nonexpendable restricted resources only is available for investment purposes. Expendable restricted net assets are available for expenditure by the University System Office 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 University System Office for any lawful purpose of the University System Office. Statement of Net Assets, Condensed Assets Current Assets Capital Assets, Net Other Assets Total Assets Liabilities Current Liabilities Noncurrent Liabilities Total Liabilities Net Assets Invested in Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Unrestricted Total Net Assets June 30, 2008 $ 239,792,056 38,015,009 5,820.141 $ 283,627.206 $ 223,071,142 24,238,938 $ 247,310.080 $ 8,785,101 3,612,043 16,270,567 7,649,415 $ 36,317,126 June 30. 2007 $ 163,749,761 38,074,946 3,612,043 $ 205,436,750 $ 149,109,263 25,022,843 $ 174,132,106 $ 9,016,623 3,612,043 10,554,442 8,121,536 $ 31,304,644 The total assets of the University System Office increased by $78,190,456. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase in cash and cash equivalents of $64,464,772, which was partially offset by a decrease in short-term investments of $6,385,802. Capital Assets, Net, decreased by $59,937. Other assets increased $2,208,098, which was attributable to a Note Receivable that was transferred to the University System Office, from Georgia Education Authority (University) (GEA (U)). See Note 5 for additional details. -11- The total liabilities for the year increased by $73,177,974. This was primarily due to the increase in deposits held for other organizations of $64,270,195, increase in accounts payable of $11,433,974 and decrease in benefits payable of $3,098,435. The combination of the increase in total assets of $78,190,456 and the increase in total liabilities of $73,177,974 yields an increase in total net assets of $5,012,482. The increase in total net assets is primarily in the category of restricted, expendable in the amount of $5,716,125, which was partially offset by the decrease in invested in capital assets, net of debt, in the amount of $231,522 and a decrease in unrestricted net asset balance of $472,121. 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 University System Office, both operating and nonoperating, and the expenses paid by the University System Office, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the University System Office. Operating revenues are received for providing goods and services to the various customers and constituencies of the University System Office. 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 University System Office. 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 University System Office without the Legislature directly receiving commensurate goods and services for those revenues. Statement of Revenues, Expenses and Changes in Net Assets, Condensed June 30, 2008 June 30, 2007 Operating Revenues Operating Expenses $ 266,014,185 432,031,929 $ 323,192,952 472,882,393 Operating Loss $ -166,017,744 $ -149,689,441 Nonoperating Revenues and Expenses 166,628,304 152,780,956 Income (Loss) Before Other Revenues, Expenses, Gains or Losses $ 610,560 $ 3,091,515 Other Revenues, Expenses, Gains or Losses 4,401,922 3,930,389 Increase (Decrease) in Net Assets $ 5,012,482 $ 7,021,904 Net Assets at Beginning of Year 31,304,644 24,282,740 Net Assets at End of Year $ 36,317,126 $ 31,304.644 - 111 - The Statement of Revenues, Expenses and Changes in Net Assets reflects a positive year, as demonstrated by an increase in net assets of $5,012,482 at the end of the year. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are provided in the following sections. Revenue By Source For The Years Ended June 30, 2008 and June 30, 2007 Operating Revenue Grants and Contracts Sales and Services Other Total Operating Revenue Nonoperating Revenue State Appropriations Grants and Contracts Investment Income Other Total Nonoperating Revenue Capital Grants and Gifts and Special Items State Special Items Total Capital Grants and Gifts and Special Items Total Revenues June 30, 2008 $ 11,899,973 27,336,275 226,777.937 $266,014.185 $165,172,381 2,466,332 345,412 -44 445 $ 167,939,680 $ 1,688,517 2,713.405 $ 4,401,922 $ 438,355,78:Z June 30. 2007 $ 17,487,147 23,670,772 282,035,033 $ 323.192,952 $ 151,241,538 1,314,311 1,539,582 14.230 $ 154,109,661 $ 3,930,389 $ 3,930,389 $ 481,233,002 - IV - Expenses (By Functional Classification) For The Years Ended June 30, 2008 and June 30, 2007 June 30, 2008 June 30, 2007 Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Scholarships and Fellowships $ 3,071,652 229,322 99,688,676 23,839,064 281,848 304,669,679 251,688 $ 3,970,782 385,005 99,536,846 20,697,178 280,625 347,780,221 231,736 Total Operating Expenses $ 432,031,929 $ 472,882,393 Nonoperating Expenses Interest Expense (Capital Assets) 1,311,376 1,328,705 Total Expenses $ 433,343.305 $474,211,098 Total operating revenue decreased by $57,178,767 in fiscal 2008. This was primarily due to a $55,257,096 decrease in other operating revenue related to the transfer of retiree-related health insurance premiums to the Retiree Health Benefit Fund. Additional operating revenue increases included increased sales and services revenue of $3,665,503, which were primarily related to increased billings for GALILEO $1,587,131, PeopleSoft $893,382, Oracle $810,112, and Peachnet $234,256. Operating revenue increases were partially offset by decreased grants and contracts revenue of $5,587,174, primarily due to funding decreases in the National Foundation on the Arts and Humanities and the Partnership for Reform in Science and Mathematics (PRISM) grants. Nonoperating revenues increased by $13,830,019 for the year, primarily due to an increase of $13,930,843 in State Appropriations. Nonoperating grants and contracts revenue increased $1,152,021, which was related to public/private venture (PPV) funding. These increases were partially offset by decreased investment income of $1,194,170. The Special Item of $2,713,405 is related to the transfer of all of the assets and liabilities of the Georgia Education Authority (GEAU) to the University System Office as noted in the explanation for Other Current Assets provided above. Additional details related to this transaction may be found in Note 5. Operating expenses decreased by $40,850,464 in fiscal year 2008. Operating expense decreases were primarily related to the transfer of retiree-related health insurance expenses to the Retiree Health Benefit Fund. This decrease was partially offset by increased software purchases of $4,524,831, increased consulting contracts of $3,743,307 that were primarily related to the PeopleSoft upgrade, and increased information technology contracts of $1,995,614. - V- Statement ofCash Flows The third statement presented by the University System Office is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the University System Office 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, 2008 and June 30, 2007, Condensed June 30. 2008 June 30. 2007 Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities $ -167,177,903 234,393,786 -7,911,589 5,160,478 $ -142,474,649 142,507,019 -6,686,361 393,594 Net Change in Cash Cash, Beginning of Year $ 64,464,772 66,218,624 $ -6,260,397 72,479,021 Cash, End of Year $ 130,683.396 $ 66,218,624 Capital Assets In fiscal year 2006 and 2007, the Georgia Public Telecommunications Commission ("the Commission") transferred to the University System Office other property and equipment located at its tower sites throughout the State through an intergovernmental agreement to the University System Office. In fiscal year 2008, additional equipment was transferred to the University System Office under this arrangement. The value of the equipment transferred in fiscal year 2008 was $1,688,517; in addition, $17,925 in equipment disposals also was recorded. The total value of the land and equipment transferred in fiscal years 2008 and 2007 was $26,698,347, and the accumulated depreciation was $21,374,872, for a net value of $5,323,475. The transfer was required for the Commission to obtain the use of five-year, general obligation bonds sold in the University System Office's name on behalf of the Commission. The Commission, an authority created after 1967, cannot have bonds sold on its behalf. An intergovernmental agreement has been executed between the Commission and the University System Office that allows the Commission to utilize these funds for the digital conversion of the towers and antennae. The bonds were sold September 7, 2005, and the agreement with the - vi - University System Office expires at the end of the five-year period when the bonds are paid in full. All equipment will be transferred back to the ownership of the Commission at the expiration of the intergovernmental agreement. For additional information concerning Capital Assets, see Notes 1, 6, 8, and 10 in the Notes to the Financial Statements. Long-Term Liabilities The University System Office had Long-Term Liabilities of $32,299,552, of which $8,060,614 was reflected as current liability at June 30, 2008. For additional information concerning Long-Term Liabilities, see Notes 1 and 8 in the Notes to the Financial Statements. Health and Dental Insurance The University System Office is the fiscal agent for health and dental insurance for all of the institutions in the University System of Georgia. The financial information for all related health and dental insurance transactions is included on the face of these financial statements, including the liability for claims incurred but not reported. The summary information regarding revenues, expenditures and the related liability for fiscal year 2008 is provided below: June 30, 2008 Employees: Unpaid Claims and Claim Adjustments (Prior Year IBNR) $ 27,147,291 Incurred Claims and Claim Adjustments Expenses Provisions for Insured Events of the Current Year 204,892,976 Payments - Claims and Claim Adjustments Attributable To Insured Events of the Current Year and Prior Years 207.991,411 $ 24.048.856 Retirees: Unpaid Claims and Claim Adjustments (Current Year IBNR) $ 0 Incurred Claims and Claim Adjustments Expenses Provisions for Insured Events of the Current Year 90,144,273 Payments - Claims and Claim Adjustments Attributable To Insured Events of the Current Year and Prior Years 83,441,613 Unpaid Claims and Claim Adjustments (Current Year IBNR) $ 6,702,660 June 30, 2007 $ 27,983,473 264,356,511 265.192.693 $ 27,147.291 $ 0 0 0 $ 0 - vu - Retiree Health Benefit Fund As a result of creating the Board of Regents Retiree Health Benefit Fund, the Board of Regents implemented the provisions of GASB Statement Nos. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans and 45, Accounting and Financial Reporting by Employers for Post-employment Benefits Other than Pensions in fiscal 2008. This fund was authorized pursuant to Official Code of Georgia Annotated Section 47-21-21 for the purpose of accumulating funds necessary to meet employer costs of retiree post-employment health insurance benefits. Please see Note 14 for additional information. Economic Outlook Although the State of Georgia is experiencing a less positive year from a budgetary standpoint, the University System Office is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. The University System Office's overall financial position is strong, and the State of Georgia is committed to providing educational opportunities for its citizenry. Even with a relatively flat funded year, the University System Office was able to generate a modest increase in Net Assets. Due to the current state budget constraints, the University System Office will maintain an even closer watch over resources to ensure the University System Office's ability to react to unknown internal and external issues. Usha Ramachandran, Vice Chancellor for Fiscal Affairs/Treasurer The Board of Regents University System Office - Vlll - BASIC FINANCIAL STATEMENTS - 1- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) STATEMENT OF NET ASSETS JUNE 30, 2008 EXHIBIT"A" ASSETS Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Prepaid Items Total Current Assets Noncurrent Assets Investments Notes Receivable, Net Capital Assets, Net (Note 6) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts Payable Benefits Payable Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences Total Current Liabilities Noncurrent Liabilities Lease Purchase Obligations Compensated Absences Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Nonexpendable Expendable Unrestricted Total Net Assets $ 130,683,396 89,831,625 1,172,624 18,099,975 4436 $ 239,792,056 $ 3,612,043 2,208,098 38,015,009 $ 43,835,150 $ 283,627,206 $ 11,453,273 24,048,856 179,508,399 6,232,259 1,828,355 $ 223,071, 142 $ 22,997,649 1,241,289 $ 24,238,938 $ 247,310,080 $ 8,785,101 3,612,043 16,270,567 7,649,415 $ 36,317,126 The notes to the financial statements are an integral part of this statement. -2- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 2008 EXHIBIT"B" OPERATING REVENUES Grants and Contracts Federal Other Sales and Services of Educational Departments Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Salaries 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 Other Interest and Other Investment Income Interest Expense Other Nonoperating Revenues Net Nonoperating Revenues Income (Loss) Before Other Revenues, Expenses, Gains, or Losses Capital Grants and Gifts State Special Item - Note Receivable Transfer Special Item - Authority Dissolution Total Other Revenues, Expenses, Gains or Losses Increase (Decrease) in Net Assets Net Assets - Beginning of Year Net Assets - End of Year $ 11,587,848 312,125 27,336,275 226,777,937 $ 266,014,185 $ 26,387,280 6,700,976 759,614 251,688 23,587,137 365,890,276 8,454,958 $ 432,031,929 $ -166,017,744 $ 165,172,381 213,612 2,252,720 345,412 -1,311,376. -44 445 $ 166,628,304 $ 610,560 $ 1,688,517 2,288,636 424 769 $ 4,401,922 $ 5,012,482 31,304,644 $ ====3='6,=3=17='1=2=6 The notes to the financial statements are an integral part of this statement. -3- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2008 CASH FLOWS FROM OPERATING ACTIVITIES Grants and Contracts Sales and Services of Educational Departments Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships 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 Special Item - Authority Dissolution Net Cash Flows Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Sale of Capital Assets 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 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating Income (Loss) Adjustments to Reconcile Operating Income to Net Cash Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Prepaid Items Accounts Payable Benefits Payable Compensated Absences Net Cash Provided (Used) by Operating Activities NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of Investments Recognized as a Component of Interest Income Special Item - Note Receivable Transfer Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts The notes to the financial statements are an integral part of this statement. -4- EXHIBIT"C" $ 11,074,122 27,251,894 -389,011,322 -26,000,227 -251,688 209,759,318 $ -167, 177,903 $ 165,172,381 66,228,917 2,466,332 101,387 424 769 $ 234,393,786 $ 66,232 -1,100,799 -5,565,646 -1 311 376 $ -7911589 $ 4,668,850 491 628 $ 5160 478 $ 64,464,772 66,218,624 $ 130,683,396 $ -166,017,744 8,454,958 -17,928,851 -4,436 11,015,950 -3,098,435 400655 $ ==5===73=7=2=3=1 $ ===-=14=6-=2=16= $ =====2=",2=8=8"'=,6=36= $ ==-=1,,.,68=8=",5=1=7 BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2008 EXHIBIT"D" ASSETS Cash and Cash Equivalents Receivables Employer Total Assets LIABILITIES Benefits Payable NET ASSETS Net Assets Held in Trust for Other Post-employment Benefits $ 4,374,041 2,618,873 $ 6,992,914 $ 6,702,660 $ 290,254 The notes to the financial statements are an integral part of this statement. -5- (This page left intentionally blank) BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS YEAR ENDED JUNE 30, 2008 EXHIBIT "E" ADDITIONS Contributions Employer Plan Member Total Contributions Investment Income lnteresUDividends Total Additions DEDUCTIONS Benefits Life Insurance Premium Expense Administrative Expense Total Deductions Net Increase/Decrease Net Assets Held in Trust for Other Post-employment Benefits $ 66,717,298 21,091,336 $ 87,808,634 19 245 $ 87,827,879 $ 79,995,991 4,096,012 3,445,622 $ 87,537,625 $ 290,254 $ ===29=0=,2=5===4 The notes to the financial statements are an integral part of this statement. -7- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The Board of Regents of the University System of Georgia, an organizational unit of the State of Georgia, was created by the "Reorganization Act of 1931 ". With this act, public higher education in Georgia was unified for the first time under a single governing and management authority. The governor appoints members to the Board, who each serve seven years. The Board of Regents currently is composed of 18 members, five of whom are appointed from the state-at-large, and one from each of the 13 congressional districts. The Chancellor is appointed by the Board of Regents as chief executive officer and serves at the pleasure of the Board. The Board oversees 35 institutions (four research institutions, two regional universities, 13 state universities, seven state colleges, and nine two-year colleges), Skidaway Institute of Oceanography and an administrative central office (the University System Office). These institutions enroll 270,000 students and employ more than 11,000 faculty and 28,600 staff to provide teaching and related services to students and the communities in which they are located. REPORTING ENTITY The University System Office is the administrative central office for the thirty-five (35) Statesupported, member institutions of higher education in Georgia and one marine research institute, which comprise the University System of Georgia, an organizational unit of the State of Georgia. The University System Office also is the custodian of a newly created Fiduciary Fund for retiree health and life insurance benefits. The accompanying financial statements reflect the operations of the University System Office as a separate reporting entity and as custodian of the Board of Regents Retiree Health Benefit Fund. 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. The University System Office does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, the University System Office is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards. Legally separate, tax exempt organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential component units of the State. See Note 17 for additional information. -8- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia implemented GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the University System Office was also required to adopt GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the University System Office's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fund group perspective previously required. As a result of creating the Board of Regents Retiree Health Benefit Fund, the Board of Regents implemented the provisions of GASB Statement Nos. 43 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans and 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions in fiscal 2008. The financial statements for the plan are presented directly after the University System Office Enterprise Fund financial statements and include a Statement of Fiduciary Net Assets and a Statement of Changes in Fiduciary Net Assets. See Note I 4 - Post-Employment Retiree Health Benefit Plan for additional information regarding this fund. BASIS OF ACCOUNTING For financial reporting purposes, the University System Office is considered a special-purpose government engaged in business-type and fiduciary activities. Accordingly, the University System Office's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-system transactions have been eliminated. The University System Office has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University System Office 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. This includes the State Investment Pool and the Board of Regents Short-Term Investment Pool. -9- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT} NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SHORT-TERM INVESTMENTS Short-Term Investments consist of investments of 90 days - 13 months. This would include certificates of deposits or other time restricted investments with original maturities of six months or more when purchased. Funds are not readily available and there is a penalty for early withdrawal. INVESTMENTS The University System Office accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Assets. The Board of Regents Legal Fund, the Board of Regents Balanced Income Fund, the Board of Regents Total Return Fund, the Board of Regents Diversified Fund, and the Georgia Extended Asset Pool are included under Investments. ACCOUNTS RECEIVABLE Accounts receivable consists of 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 System Office's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts. NONCURRENTINVESTMENTS 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 System Office'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 is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements. To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of - 10 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CAPITAL ASSETS 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 System Office when complete. For projects managed by the University System Office, the University System Office retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2008, GSFIC transferred equipment for the Georgia Public Telecommunications Commission to the University System Office valued at $1,688,517. DEPOSITS HELD FOR OTHERS The University System Office had $179,508,399 in Deposits Held for Other Organizations as of June 30, 2008. Deposits held for others consist of the external portion of the University System of Georgia's Pooled Investment Fund program and other funds held by the University System Office as an agent for various governments or individuals. COMPENSATED ABSENCES Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as compensated absences in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statements of Revenues, Expenses and Changes in Net Assets. The University System Office had accrued liability for compensated absences in the amount of $2,668,989 as of July 1, 2007. For fiscal year 2008, $2,145,896 was earned in compensated absences and employees were paid $1,745,241, for a net increase of $400,655. The ending balance as of June 30, 2008 in accrued liability for compensated absences was $3,069,644. 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 System Office's net assets are classified as follows: Invested in capital assets, net of related debt: This represents the University System Office'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. - 11 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS 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 System Office 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 System Office is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. Expendable Restricted Net Assets include the following: Restricted - E&G and Other Organized Activities $ 16,270,567 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 System Office, 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 $646,920.30. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the Office of Treasury and Fiscal Services. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. Unrestricted Net Assets includes the following items which are quasi-restricted by management. Reserve for Encumbrances Other Unrestricted $ 4,996,555 2,652,860 Total Unrestricted Net Assets $ 7 649 415 When an expense is incurred that can be paid using either restricted or unrestricted resources, the University System Office's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources. INCOME TAXES The University System Office, 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. - 12 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CLASSIFICATION OF REVENUES The University System Office 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 act1v1tles that have the characteristics of exchange transactions, such as (1) sales and services of educational departments, (2) most Federal, state and local grants and contracts, and (3) University System of Georgia's self insurance receipts. Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income. NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the University System Office's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University System Office) 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: I. 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, - 13 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association. 6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation. The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia. At June 30, 2008, the carrying value of deposits was $27,733,269 and the bank balance was $29,908,718. Of the University System Office's deposits, $29,908,718 were uninsured. Of these uninsured deposits, $29,908,718 were collateralized with securities held by the financial institution's trust department or agent in the University System Office's name. INVESTMENTS The University System Office serves as fiscal agent for various units of the University System of Georgia and cooperative organizations. The University System Office pools the monies of these organizations with the University System Office's monies for investment purposes. The University System Office cannot allocate pool investments between the internal (University System) and external (cooperative organizations) investment pool portions. The investment pool is not registered with the SEC as an investment company. The fair value of the 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. The University System Office maintains investment policy guidelines for each pooled investment fund that is offered to qualified University System participants. These policies are intended to foster sound and prudent responsibility each institution has to the citizens of Georgia and which conforms to the Board of Regents investment policy. All investments must be consistent with donor intent, Board of Regents policy, and applicable Federal and state laws. Units of the University System of Georgia and their affiliated organizations may participate in the Pooled Investment Fund program. The overall character of the pooled fund portfolio should be one of above average quality, possessing at most an average degree of investment risk. Short-Term Fund The Short-Term fund provides a current return and stability of principal while affording a means of overnight liquidity for projected cash needs. The investment maturities of the fund will range between daily and two years. - 14 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT"F" NOTE 2: DEPOSITS AND INVESTMENTS INVESTMENTS Legal Fund The Legal fund provides an opportunity for greater income and modest principal growth to the extent possible with the securities allowed under Georgia Code 50-17-59 and 50-17-63. The average maturity of this fund will typically range between five and 10 years, with a maximum of thirty years for any individual investment. The overall character of the portfolio should be one of treasury and agency quality, possessing virtually no degree of financial risk. Balanced Income Fund The Balanced Income fund is designed to be a vehicle to invest funds that are not subject to the state regulations concerning investing in equities. This fund is comprised of fixed income, equity and cash equivalent instruments. The equity allocation range shall be between 30% and 40%, with a target of 35% of the total portfolio. The fixed income (bond) portion of the portfolio shall be between 60% and 70%, with a target of 65% of the total portfolio. Reserves for contingencies and stock and bond purchases are expected to comprise the balance of the fund. Reserves and excess income should be invested at all times in practical amounts. Reserves can be invested in high quality institutional money market mutual funds or other high quality, short-term instruments. Total Return Fund The Total Return fund is another pool designed to be a vehicle to invest funds that are not subject to state regulations concerning investing in equities. This pool offers the greatest percentage of overall equity exposure, with well over half of the funds typically invested in equities. The equity allocation range shall be between 60% and 70%, with a target of 65% of the total portfolio. The fixed income (bond) portion of the portfolio shall be between 30% and 40%, with a target of 35% of the total portfolio. Reserves for contingencies and stock and bond purchases are expected to comprise the balance of the fund. Reserves and excess income should be invested at all times in practical amounts. Reserves can be invested in high quality institutional money market mutual funds or other high quality, short-term instruments. Diversified Fund The Diversified fund is designed to gain further diversification and increase exposures to assets that have lower correlation to equity and bond markets by utilizing alternative asset classes. In addition, this fund is constructed to build an optimal portfolio where return is increased and risk is reduced. The equity allocation range shall be between 50% and 75% of the portfolio. The fixed income (bond) portion of the portfolio shall be between 20% and 40%. The portfolio may also consist of Hedge Funds, Real Estate and Venture Capital/Private Equity/Post Venture Capital. - 15 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 2: DEPOSITS AND INVESTMENTS INVESTMENTS Hedge Funds - The investment approach to this asset class is to use a multi-strategy, multimanager fund of hedge funds. The Board of Regents believes that a fund of fund strategy will provide the best access to a highly diversified pool of hedge fund strategies and managers. Real Estate - The Board of Regents' approach to investing in this asset class is to use real estate investment trusts (REITs). REITs are more liquid than owning commercial real estate and diversification can be achieved by purchasing a mutual fund. Venture Capital/Private Equity/Post Venture Capital - This asset class is the riskiest and most volatile permitted investment opportunity. This asset should be considered as an additional diversification investment strategy due to the low correlation with stock and bonds. Reserves for contingencies and stock and bond purchases are expected to comprise the balance of the fund. Reserves and excess income should be invested at all times in practical amounts. Reserves can be invested in high quality, institutional money market mutual funds or other high quality, short-term instruments. The University System Office's investments as of June 30, 2008 are presented below. All investments are presented by investment type and debt securities are presented by maturity. Investment Type Debt Securities U. S. Treasuries U. S. Agencies Explicitly Guaranteed Implicitly Guaranteed Mutual Bond Fund Other Investments Bond/Equity Mutual Funds Equity Mutual Funds Equity Securities - Domestic Real Estate Investment Fund Total Investments Fair Value Investment Maturity Less Than I -5 I Year Years 6- IO Years $ 6,399,792 $ 4,051,090 $ 2,348,702 1,425,021 $ 569,480 I 12,194,514 45,702,687 26,940,853 855,541 66,491,827 24,830,683 2,110,170 $ 146,960,180 $ 46,272.167 $ 96 229 141 $ 4 458.872 1,662,106 36,944,466 12,604,226 2,596,858 $ 200,767.836 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 Board of Regents policy for managing interest rate risk is contained in the investment policy guidelines for the various pooled funds: - 16 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 2: DEPOSITS AND INVESTMENTS INVESTMENTS Interest Rate Risk 1. In the Short-Term fund, the average maturity of the fixed income portfolio shall not exceed three years. 2. In all the other pooled funds, the average maturity of the fixed income portfolio shall not exceed ten years. 3. Fixed income investments, except in the Diversified Fund, shall be limited to U.S. government agency and corporate debt instruments that meet investment eligibility under Georgia Code 50-17-63. 4. The fixed income target allocation is defined in the investment policy guidelines for each pooled investment fund. These targets may be modified upon recommendation of the fund's investment manager and approval by the Board of Regents. Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the college/university will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The University System Office's policy for managing custodial credit risk for investments is: 1. The University System Office has appointed a Federally regulated banking institution as custodian. The custodian performs its duties to the standards of a professional custodian and is liable to the University System Office for claims, losses, liabilities and expenses arising from its failure to exercise ordinary care, its willful misconduct, or its failure to otherwise act in accordance with the contract. 2. All securities transactions are to be settled on a delivery vs. payment basis through an approved depository institution such as the Depository Trust Company or the Federal Reserve. 3. Repurchase agreements are to be collateralized by United States Treasury securities at 102% of the market value of the investment at all times. At June 30, 2008, $132,623,553 of the University System Office's applicable investments was uninsured and held by the investment's counterparty in the University System Office's name. - 17 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 2: DEPOSITS AND INVESTMENTS INVESTMENTS 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 System Office's policy for managing credit quality risk is contained in the investment policy guidelines for the various pooled investment funds: 1. In all pooled funds except the Diversified Fund, all debt issues must be eligible investments under Georgia Code 50-17-63. Portfolios of debt security funds also must meet the eligible investment criteria under the same code section. 2. The Diversified Fund is permitted to invest in noninvestment grade debt issues up to a limit of 15% of the entire portfolio. 3. The portfolio shall be well diversified as to issuer and maturity. The investments subject to credit quality risk are reflected below: Fair Value Unrated Related Debt Investments U. S. Agencies Mutual Bond Fund $ 112,194,514 $ 112,194,514 26,940.853 26.940.853 $ 139.135.367 $ 132.135.361 Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The University System Office's policy for managing concentration of credit risk is to diversify investments to the extent that any single issuer shall be limited to 5% of the market value in a particular investment fund. The following U. S. Agency investments exceeded 5% of the total reported investment amount as of June 30, 2008: Investment Amount % of Total Federal National Mortgage Association $81,864,105 41% Federal Home Loan Mortgage Corporation $22,142,409 11% Condensed financial information for the investment pool is as follows: - 18 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 2: DEPOSITS AND INVESTMENTS INVESTMENTS Statement of Net Assets - June 30, 2008 Assets Investments Accrued Interest and Other Receivables Net Assets Held in Trust for Pool Participants Internal Portion External Portion Statement of Net Assets - June 30. 2008 Revenues Interest Income Net Increase (Decrease) in Fair Value oflnvestments Total Revenues Expenses Operating Expenses Administrative Expenses Net Increase (Decrease) in Assets Resulting from Operations Distribution to Participants Capital Transactions Total Increase (Decrease) in Assets Resulting from Operations Net Assets July I, 2007 Net Assets June 30, 2008 $ 198,521,222 399,525 $ 198,920,747 $ 19,772,415 179,148.332 $ 198,920,747 $ 5,749,548 -8,396,833 $ -2,647,285 -377,394 $ -3,024,679 -17, 191,992 89,029,662 $ 68,812,991 130,107,756 $ 198,920,747 - I9 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2008: Federal Financial Assistance Other $ 1,172,624 18,139,692 $ 19,312,316 Less: Allowance for Doubtful Accounts 39 717 Net Accounts Receivable $ 19!272!599 NOTE 4: INVENTORIES The University System Office had no inventories at June 30, 2008. NOTE 5: NOTES RECEIVABLE The Georgia Education Authority (University), (GEA (U)), was authorized to acquire, construct and operate housing accommodations for students of any institution under the control of the Board of Regents of the University System of Georgia. The GEA (U) constructed a dormitory on the campus of Georgia Southern University (GSOU) and financed the construction by obtaining a loan in 1994 from the U.S. Department of Education in the amount of $3,000,000 at an interest rate of 5.5% for a term of thirty years. In July 2007, GEA (U) met and resolved to no longer conduct business as a state authority and dispose of all its assets and liabilities. As a result of that decision, a Note Receivable that is payable from GSOU was transferred by Resolution from GEA (U) to the University System Office (USO) in the amount of $2,288,636. GSOU has an obligation to send the USO annual payments of $205,321 through the year 2025. In fiscal year 2008, the USO collected $205,321, $124,783 of which represented interest. Total principal collected on the Note Receivables was $80,538. At June 30, 2008, the Notes Receivable balance was $2,208,098. NOTE 6: CAPITAL ASSETS Following are the changes in capital assets for the year ended June 30, 2008: - 20- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE6: CAPITAL ASSETS Beginning Balance Julx 1, 2007 Additions Reductions Ending Balance June 30, 2008 Capital Assets, Not Being Depreciated: Land $ 2,476,877 $ 0 $ 0 $ 2,476,877 Capitalized Collections 10000 IO 000 Total Capital Assets Not Being Depreciated $ 2,486,877 $ 0 $ 0 $ 2,486,877 Capital Assets, Being Depreciated: Equipment Capital Leases $ 52,494,274 $ 43,478,191 2,789,316 $ 11,576,466 $ 43,707,124 5,737,231 49,215,422 Total Assets Being Depreciated $ 95,972,465 $ 8,526,547 $ 11,576,466 $ 92,922,546 Less: Accumulated Depreciation: Equipment Capital Leases $ 45,596,093 $ 14,788,303 2,273,083 $ 11,444,940 $ 36,424,236 6,181,875 20,970,178 Total Accumulated Depreciation $ 60,384,396 $ 8,454,958 $ 11,444,940 $ 57,394,414 Total Capital Assets, Being Depreciated, Net $ 35,588,069 $ 71 589 $ I31,526 $ 35,528,132 Capital Assets, Net $ 38,QH,246 $ ZI 582 $ 131 526 $ 38,015,QQ2 In fiscal year 2006, the Georgia Public Telecommunications Commission ("the Commission") transferred to the University System Office other property and equipment located at its tower sites throughout the State through an intergovernmental agreement to the University System Office. In fiscal year 2007 and 2008, additional land and equipment was transferred to the University System Office under this arrangement. In fiscal year 2008, additional equipment was transferred to the University System Office under this arrangement The value of the equipment transferred in fiscal year 2008 was $1,688,517; in addition, $17,925 in equipment disposals also were recorded. The total value of the land and equipment transferred is $26,698,347 and the accumulated depreciation is $21,374,872, for a net value of $5,323,475. The transfer of assets is included on the Statement of Revenues, Expenses and Changes in Net Assets as Capital Grants and Gifts, State and on the Statement of Cash Flows as Noncash Investing, Noncapital Financing, and Capital and Related Financing Transactions as Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts of $1,688,517. NOTE 7: DEFERRED REVENUE The University System Office had no deferred revenue at June 30, 2008. NOTE 8: LONG-TERM LIABILITIES Long-term liability activity for the year ended June 30, 2008 was as follows: - 21 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 8: LONG-TERM LIABILITIES Leases Lease Obligations Other Liabilities Compensated Absences Total Long-Term Obligations Beginning Balance July I, 2007 $ 29,058,323 2,668,989 $ 31,727,312 Additions $ 5,737,231 2,145,896 $ 7 883 127 Reductions Ending Balance June 30, 2008 $ 5,565,646 $ 29,229,908 1745241 $ 7.310,887 3,069,644 $ 32 299 552 Current Portion $ 6,232,259 1,828,355 $ 8 060 6)4 NOTE 9: SIGNIFICANT COMMITMENTS The University System Office had no significant unearned, outstanding construction or renovation contracts executed as of June 30, 2008. NOTE 10: LEASE OBLIGATIONS The University System Office is obligated under various capital leases and installment purchase agreements for the acquisition of real property and equipment. CAPITAL LEASES The University System Office has 21 capital leases payable in monthly installments with terms expiring in various years between 20 IO and 2025. Expenditures for fiscal year 2008 were $6,877,022, of which $1,311,376 represented interest. Total principal paid on capital leases was $5,565,646 for the fiscal year ended June 30, 2008. Interest rates range from 2.62 percent to 4.88 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2008: Buildings Equipment $ 11,378,997 16,866,247 Total Assets Held Under Capital Lease $ 28,245,244 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. The University System Office entered into five new capital lease obligations in the current year. In September 2007, the University System Office entered into a capital lease of $1,221,041 at 3.772 percent for optical equipment, and capital leases of $1,203,028 and $1,064,237 at 3.73 percent for equipment, software, support and installation. The outstanding liability at June 30, 2008 on these capital leases is $2,986,656. In February 2008, the University System Office entered into a capital lease of $650,000 at 2.99 percent for equipment, software, support and installation. The outstanding liability at June 30, 2008 on this capital lease is $599,463. In - 22 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 10: LEASE OBLIGATIONS CAPITAL LEASES March 2008, the University System Office entered into a capital lease of $1,598,925 at 2.62 percent for video conference equipment and support. The outstanding liability at June 30, 2008 on this capital lease is $1,498,716. The University System Office also has various capital leases for equipment and a capital lease for one building with outstanding balances at June 30, 2008 in the amount of $11,799,437 and $12,345,636, respectively. OPERATING LEASES The University System Office has one operating lease for office space used by the Georgia Public Library System. The lease is annually renewable through fiscal 2010. FUTURE COMMITMENTS Future commitments for capital and operating leases, including other installment purchase agreements, are as follows: Real Property and Equipment Capital Operating Leases Leases Year Ending June 30: 2009 2010 2011 2012 2013 2014- 2018 2019 - 2023 2024-2028 $ 7,371,343 $ 6,665,234 4,717,147 2,778,463 1,536,527 5,532,533 5,960,111 1,562.413 177,777 187,155 Total Minimum Lease Payments $ 36,123,771 $ 364.932 Less: Interest 6,893,863 Principal Outstanding $ 29,229,908 The University System Office's expense for rental of real property and/or equipment under operating leases in fiscal year 2008 was $177,777. - 23 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 11: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description The University System Office participates in the Teachers Retirement System of Georgia (TRS), a cost-sharing, multiple-employer defined benefit pension plan established by the Georgia General Assembly. TRS provides retirement allowances and other benefits for plan participants. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the TRS offices or from the Georgia Department of Audits and Accounts. Funding Policy Employees of the University System Office who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. The University System Office makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2008, the employer contribution rate was 9.28% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2008 2007 2006 100% 100% 100% $ 1,952,167 $ 1,787,733 $ 1,657,223 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description The University System Office participates in the Employees' Retirement System of Georgia (ERS), a cost-sharing, multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia. The benefit structure of ERS is defined by State statute and was significantly modified on July 1, 1982. Unless elected otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July I, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. All other members are "new plan" members subject to the modified plan provisions. Under both the old plan and new plan, members become vested after IO years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60. Additionally, there are certain provisions allowing for retirement after 25 years of service regardless of age. - 24- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 11: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description Retirement benefits paid to members are based upon a formula which considers the monthly average of the member's highest twenty-four consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. 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 also are available through ERS. In addition, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan (SRBP) effective January 1, 1998. The SRBP 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 SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415. The ERS issues a financial report each fiscal year, which may be obtained through ERS. Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political subdivisions, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The University System Office's payroll for the year ended June 30, 2008, for employees covered by ERS was $593,025. The University System Office's total payroll for all employees was $26,387,280. For the year ended June 30, 2008 under the old plan, member contributions consist of 6.5% of annual compensation minus $7 .00. Of these member contributions, the employee pays the first 1.5% and the University System Office pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.5% of annual compensation paid by employee. The University System Office also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation for both old and new plans. For the year ended June 30, 2008, the ERS employer contribution rate for the University System Office amounted to I0.41 % of covered payroll and included the amounts contributed on behalf of the employees under the old plan referred to above. Employer contributions also are made on amounts paid for accumulated leave to retiring employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: ) - 25 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT"F" NOTE 11: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Funding Policy Fiscal Year Percentage Contributed Required Contribution 2008 2007 2006 100% 100% 100% $ 61,924 $ 40,840 $ 45,379 Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2008 financial report, which may be obtained through ERS. REGENTS RETIREMENT PLAN Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 4721-1 et.seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts. Funding Policy The University System Office makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2008, the employer contribution was 8.13% for the first six months and 8.15% for the last six months of the participating employee's earnable compensation. Employees contribute 5% of their eamable compensation. Amounts attributable to all plan contributions are fully vested and non-forfeitable at all times. The University System Office and the covered employees made the required contributions of $260,768 (8.13% or 8.15%) and $158,389 (5%), respectively. - 26 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 11: RETIREMENT PLANS REGENTS RETIREMENT PLAN Funding Policy 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 The University System Office participates in the Georgia Defined Contribution Plan (GDCP) which is a single-employer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia. Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $3,500 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute. Contributions Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member. Total contributions made by employees during fiscal year 2008 amounted to $17,788 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 12: RISK MANAGEMENT The University System of Georgia offers its employees and retirees access to two different selfinsured healthcare plan options - a PPO/PPO Consumer healthcare plan, and an indemnity - 27 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 12: RISK MANAGEMENT healthcare plan. The University System Office and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these two plans are considered to be a self-sustaining risk fund. Both selfinsured healthcare plan options provide a maximum lifetime benefit of $2,000,000 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WellPoint, to serve as the claims administrator for the two self-insured healthcare plan products. In addition to the two different, self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HSA/High Deductible PPO healthcare plan and two fully insured HMO healthcare plan options are also offered to System employees. Express Scripts is the administrator of the Board of Regents' prescription drug plan. Pharmacy drug claims will be processed in accordance with guidelines established for the Board of Regents' Prescription Drug Benefit Program. Generally, claims are submitted by participating pharmacies directly to Express Scripts for verification, processing and payment. Express Scripts maintains an eligibility file based on information furnished by Blue Cross - Blue Shield on behalf of the various organizational units of the University System of Georgia. A reconciliation of total estimated claims liabilities for employees and retirees for the fiscal years ended June 30, 2008 and June 30, 2007 is shown below: - 28 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 12: RISK MANAGEMENT Employees: Unpaid Claims and Claim Adjustments (Prior Year IBNR) Incurred Claims and Claim Adjustments Expenses - Provisions for Insured Events of the Current Year Payments - Claims and Claim Adjustments Attributable to Insured Events of the Current Year and Prior Years June 30, 2008 $ 27,147,291 204,892,976 207,991,411 June 30, 2007 $ 27,983,473 264,356,511 265,192,693 Unpaid Claims and Claim Adjustments (Current Year IBNR) Retirees: Unpaid Claims and Claim Adjustments (Prior Year IBNR) Incurred Claims and Claim Adjustments Expenses - Provisions for Insured Events of the Current Year $ 24,048.856 $ 27,147,291 $ 0 $ 0 90,144,273 0 Payments - Claims and Claim Adjustments Attributable to Insured Events of the Current Year and Prior Years 83,441,613 0 Unpaid Claims and Claim Adjustments (Current Year IBNR) $ 6,702.660 $======0 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 compensatiGn, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. The University System Office, 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. - 29 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 12: RISK MANAGEMENT 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 13: CONTINGENCIES Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures that are disallowed under grant terms. The amount of expenditures that may be disallowed by the grantor cannot be determined at this time, although the University System Office expects such amounts, if any, to be immaterial to its overall financial position. Litigation, claims and assessments filed against the University System Office (an organizational unit of the Board of Regents of the University System of Georgia), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2008. NOTE 14: POST-EMPLOYMENT RETIREE HEALTH BENEFIT PLAN Plan Description The Board of Regents Retiree Health Benefit Fund (the "Plan") is a single-employer, defined benefit, healthcare plan administered by the University System Office. The plan was authorized pursuant to Official Code of Georgia Annotated Section 47-21-21 for the purpose of accumulating funds necessary to meet employer costs of retiree post-employment health insurance 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 who 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. The Board of Regents of the University System of Georgia issues a publicly available financial report that includes financial statements and required supplementary information for the Plan within its Consolidated Annual Financial Report. This report may be obtained at the following website address: - 30 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 14: POST-EMPLOYMENT RETIREE HEALTH BENEFIT PLAN Plan Description http://www.usg.edu/usg stats/annual fin rep/ Membership of the plan consisted of the following at June 30, 2008: Retirees and Beneficiaries Receiving Benefits Terminated Plan Members Entitled to But Not Yet Receiving Benefits Active Plan Members 18,909 0 33 794 Total 52.703 Summary of Significant Accounting Policies The financial statements of the Plan are prepared using the accrual basis of accounting. Employer contributions are recognized in the period in which they are due. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Funding Policy The contribution requirements of plan members and the University System of Georgia, as employer, are established and may be amended by the Board of Regents. The Plan is substantially funded on a "pay-as-you-go" basis; however, amounts above the pay-as-you-go basis may be contributed annually, either by specific appropriation or by Board designation. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for eligible retirees. The employer portion of health insurance for its eligible retirees is based on rates that are established annually by the Board of Regents for the upcoming plan year. For the 2008 plan year, the employer rate was approximately 75% of the total health insurance cost for eligible retirees and the retiree rate was approximately 25%. 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 retiree. For fiscal year 2008, the University System of Georgia contributed $66,717,298 to the plan, including $66,446,289 for current premiums or claims and an additional $271,009 to pre-fund benefits. Plan members receiving benefits contributed $21,091,336 for current premiums or claims. The University System Office had 71 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits as of June 30, 2008. For the year ended June 30, 2008, the University System Office recognized as incurred $382,751 of expenditures, which was net of $120,420 of participant contributions. - 31 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT"F" NOTE 14: POST-EMPLOYMENT RETIREE HEALTH BENEFIT PLAN Annual OPEB Cost and Net OPEB Obligation The University System of Georgia's annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed thirty years. The following table shows the components of the University System's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the University System's net OPEB obligation to the Retiree Health Benefit Fund (dollar amounts in millions): Annual Required Contribution Interest on Net OPEB Obligation Adjustment to Annual Required Contribution $ 224.9 0.0 ____Q.Q Annual OPEB Cost (Expense) Less: Contributions Made Increase in Net OPEB Obligation $ 224.9 -66.7 $ 158.2 Net OPEB Obligation -Beginning of Year Net OPEB Obligation - End of Year Since the net OPEB obligation to the Retiree Health Benefit Fund is a liability of the entire University System and not only the University System Office, the annual OPEB cost and net OPEB obligation are reported in the Consolidated Annual Financial Report of the University System of Georgia. The University System's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2008, which is the transition year for the Retiree Health Benefit Plan, were as follows (dollar amounts in millions): Fiscal Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 2008 $224.9 29.7% $158.2 - 32 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "F" NOTE 14: POST-EMPLOYMENT RETIREE HEALTH BENEFIT PLAN Funded Status and Funding Progress Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL)Projected Unit Credit (bl Unfunded AAL (UAAL) (b-a) Funded Ratio (alb) Covered Payroll (c) 7/1/2007 $ 0 $1,985,200,000 $1,985,200,000 0.0% $2,201,804,465 Note: The allocation and transfer of assets to the plan took place subsequent to the actuarial valuation date. UAAL as a Percentage of Covered Payroll ((b-a)/c) 90.2% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Additional information as of the latest actuarial valuation follows: Valuation Date Actuarial Cost Method Amortization Method Asset Valuation Method Remaining Amortization Period Actuarial Assumptions: Investment Rate of Return* Healthcare Cost Trend Rate* Ultimate Trend Rate Year of Ultimate Trend Rate July 1, 2007 Projected Unit Credit Level Dollar, Closed, 30-year Market Value of Assets 30 years 6.00% 8.50% 5.50% 2012 *Includes an inflation assumption of 2.5% - 33 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT"F" NOTE 15: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS The University System Office's operating expenses by functional classification for fiscal year 2008 are shown below: Natural Classification Salaries Staff Employee Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Instruction Functional Classification Research Public Service Academic Su1mort $ 1,361,899 $ 252,037 39,735 27,517 6,515 $ 2,065,502 491,311 77,689 $ 1,874,236 472,738 79,366 3,040 19,350,787 45,939 1,414,061 880 195,290 77,475,746 227,641 20,613,869 752,916 $ 3 07) 652 $ 229 322 $ 99 688 676 $ 23 839 064 Natural Classification Salaries Staff Employee Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses NOTE 16: SPECIAL ITEMS Student Services Functional Classification Institutional Su~~ort Scholarships and Fellowshi~s Total Operating Ex~enses $ 226,108 $ 20,832,018 44,250 5,434,125 8,638 554,186 $ 26,387,280 6,700,976 759,614 1,465 $ 4,185,906 251,688 251,688 23,587,137 1,387 266,189,923 7,473,521 365,890,276 8,454,958 $ 28) 848 $ 304 669 679 $ 25) 688 $ 432 03) 929 Georgia Education Authority (University), (GEA(U)), an entity outside of the Board of Regents of the University System of Georgia reporting entity, is authorized to acquire, construct and operate housing accommodations for students of any institution under the control of the Board of Regents. In July 2007, GEA(U) met and resolved to no longer conduct business as a state authority and dispose of all its assets and liabilities. As a result of that decision, a Note Receivable that is payable from Georgia Southern University was transferred by Resolution from GEA(U) to the University System Office (USO) in the amount of $2,288,636. This amount is reported as a Note Receivable in the Statement of Net Assets and as a Special Item - Note Receivable Transfer on the Statements of Revenues, Expenses and Changes in Net Assets and Cash Flows. Payments on the note receivable will be made by Georgia Southern University to the USO according to the original amortization schedule, which matures in 2025. - 34 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT"F" NOTE 16: SPECIAL ITEMS After funding a start-up amount to the Georgia Higher Education Facilities Authority, the balance of GEA(U)'s remaining assets were transferred to the USO in the form of a payment of $424,769. This amount is reported as Cash and Cash Equivalents in the Statement of Net Assets and as a Special Item - Authority Dissolution on the Statements of Revenues, Expenses and Changes in Net Assets and Cash Flows. NOTE 17: AFFILIATED ORGANIZATIONS In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment of GASB Statement No. 14, The Reporting Entity, which became effective for the year ended June 30, 2004, the University System of Georgia Foundation, Inc. has been determined to be a legally separate, tax exempt organization whose activities primarily support the University System Office of the Board of Regents of the University System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office has determined Component Units of the State of Georgia, as required by GASB Statement No. 39, should be assessed in relation to their significance to the State of Georgia. Accordingly, the University System Office has not included financial activity for the University System of Georgia Foundation, Inc., in these financial statements. - 35 - (This page left intentionally blank) SUPPLEMENTARY INFORMATION - 37 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30, 2008 SCHEDULE "1" ASSETS Cash and Cash Equivalents Investments Accounts Receivable Federal Financial Assistance Other Prepaid Expenditures Total Assets LIABILITIES AND FUND EQUITY Liabilities Accounts Payable Encumbrances Payable Total Liabilities Fund Balances Reserved Departmental Sales and Services Indirect Cost Recoveries Restricted/Sponsored Funds Uncollectible Accounts Receivable Property Sale Unreserved Surplus Total Fund Balances Total Liabilities and Fund Balances $ 17,616,810.87 7,570,455.43 1,172,624.18 1,025,405.13 4,435.91 $ 27,389,731.52 $ 4,112,587.49 4,996,554.78 $ 9,109,142.27 $ 4,255,053.79 863,343.89 8,936,811.11 39,716.59 3,538,743.57 646,920.30 $ 18,280,589.25 $ 27,389,731.52 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. - 38- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2008 SCHEDULE "2" REVENUES State Appropriation State General Funds Other Funds Total Revenues CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance Total Funds Available EXPENDITURES Georgia Military College Georgia Public Telecommunications MCG Hospital and Clinics Public Libraries Regents Central Office Research Consortium 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 Office of Treasury and Fiscal Services Year Ended June 30, 2007 Unreserved Fund Balance (Surplus) Returned to Board of Regents - University System Office Year Ended June 30, 2007 Prior Year Reserved Fund Balance Included in Funds Available FUND BALANCE JUNE 30 SUMMARY OF FUND BALANCE Reserved Departmental Sales and Services Indirect Cost Recoveries Restricted/Sponsored Funds Uncollectible Accounts Receivable Property Sale Total Reserved Unreserved Surplus Total Fund Balance BUDGET ACTUAL VARIANCEFAVORABLE (UNFAVORABLE) $ 165,382,996.00 $ 165,382,996.00 $ 0.00 57 951 691.00 42 649 941.71 -15 301 749.29 $ 223,334,687.00 $ 208,032,937.71 $ -15,301,749.29 0.00 14 070 744.18 $ 223,334,687.00 $ 222,103,681.89 $ 14 070 744.18 -1 231 005.11 $ 3,062,152.00 $ 18,069,614.00 33,181,112.00 44,851,896.00 7,762,975.00 2,000,000.00 9,151,732.00 105,255,206.00 3,062,152.00 $ 18,069,614.00 33,181,112.00 44,657,879.92 7,701,818.79 2,000,000.00 9,144,603.17 86,606,885.20 $ 223,334,687.00 $ 204,424,065.08 $ $ 0.00 $ 17,679,616.81 $ 0.00 0.00 0.00 194,016.08 61,156.21 0.00 7,128.83 18,648,320.80 18 910 621.92 17 679 616.81 14,110,460.77 210,614.62 559,262.85 1,993.00 -1,968,440.84 1,757,826.22 -14 070 744.18 $ 18,280,589.25 $ 4,255,053.79 863,343.89 8,936,811.11 39,716.59 3 538 743.57 $ 17,633,668.95 646 920.30 $ 18,280,589.25 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. - 39 - BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2008 Georgia MIiitary College State Appropriation State General Funds Georgia Public Telecommunications State Appropriation State General Funds Original Appropriation Final Budget Current Year Revenues Funds Available Com(!ared to Budget PriorYear Carry-Over Total Funds Available Variance Positive (Negative) 3,062,152.00 $ 3,062,152.00 $ 3,062,152.00 $ 0.00 $ 3,062,152.00 $ 0.00 18,069,614.00 $ 18,069,614.00 $ 18,069,614.00 $ 0.00 $ 18,069,614.oo s _ _ _ _ _ _o_.o_o MCG Hoapltal and Clinics State Appropriation State General Funds 33,181,112.00 $ 33,181,112.00 $ 33,181,112.00 $ 0.00 $ 33,18u12.oo s_ _ _ _ _o_.o_o_ Public Libraries State Appropriation State General Funds Other Funds Total Public Libraries 41,015,101.00 $ 4,522,400.00 45 537 501.00 $ 40,329,496.00 4,522 400.00 44 851 896.00 $ 40,329,496.00 $ 4,395,430.71 0.00 $ 22 773.34 s_ _ _ 44 724 920.11 ,.2.2.1,_1_,3.,.34.._ 40,329,496.00 4 418 204.05 0.00 -104195.95 s_ _ _ 44141100.05 -1.,04""'1"95"'_9,.5._ Regenia Central Office State Appropriation State General Funds Olher Funds Total Regents Central Office Research Consortium State Appropriation Stale General Funds Special Funding Initiative State Appropriation State General Funds 7,683,800.00 $ 0.00 7 683 800.00 $ 7,683,800.00 79 175.00 7,762,975.00 $ 7,683,800.00 $ 73 319.24 7757119.24 $ 0.00 $ 5696 782.64 5,696,782.64 $ 7,683,800.00 $ 5770101.88 0.00 5690 926.88 s _ _ _ 13:4531901.88 5,1.6_90,...,9..,26_.e_e_ 1,500,000.00 $ 2,000,000.00 $ 2,000,000.00 $ 0.00 $ 210001000.00 s_ _ _ _....o_.o_o.. 7,904,779.00 $ 9,151,732.00 $ 9,151,732.00 $ 0.00 $ 9,151,132.00 s______o._oo_ Teaching Stale Approprielion State General Funds Olher Funds Tolal Teaching Grand Totals All Programs $ 43,969,840.00 35,035,604.00 51,905,090.00 $ 53 350 116.00 51,905,090.00 $ 38,181,191.76 $ 79 005 444.00 $ 105 255 206.00 90,086,281.76 $ 0.00 $ 8,351,188.20 e 1351 11ee.20 $ 51,905,090.00 $ 46,532,379.96 98,437,469.96 0.00 -6 817 738.04 -6 817 738.04 $ 195,944,402.00 $ 223,334,687.00 $ 208,032,937.71 $ 14,070,744.18 $ 222,103,681.89 $ -1,231,005.11 Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statulas and ragulatlons of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. -40- SCHEDULE "3" E!!!!!!ndilures Coml!!!red to Budget Variance Positive Actual {Negative) Actual Funds Available Over/(Under) Expenditures Prior Period Adjustments Other Adjustments Total Program Fund Balances Transfers P~ram Fund Balances Reserve Surplus Total $ 3,062,152.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ ~ $ 0.00 $ 0.00 $ 0.00 S 18,069,614.00 $ 0.00 $ 0.00 $ 0.00 $ o.oo s _ _ _ _o_.o_o_ s ~ s 0.00 $ o.oo s_____o..,o.o.. $ 33,181,112.00 $ 0.00 $ 0.00 $ 0.00 $ o.oo s_ _ _=o.,..o..,o.. s ~ s 0.00 $ o.oo s_____o._oo_ $ 40,298,425.87 $ 4 359454.05 $ 44,657,879.92 $ 31,070.13 $ 162,945.95 194,016.08 $ 31,070.13 $ 133,382.40 $ 58 750.00 0.00 89,820.13 $ 133,382.40 $ 0.00 0.00 0.00 $ 164,452.53 $ 0.00 $ 58 750.00 ______Q,QQ_ 223 202.53 $ _.!!J!!!. $ 0.00 S 164,452.53 $ 58 750.00 0.00 164,452.53 58 750.00 58 1so.oo s s 154 452.53 _==22=3=2=0.2..=53"" 7,641,783.99 $ 60034.80 s 7101 1010.19 42,016.01 19140.20 61156.21 $ 42,016.01 $ 5 710 067.08 5 7521083.09 0.00 $ 0.00 0.00 0.00 o.oo s_____o_.o_o_ s 42.016.01 $ 0.00 $ 5 710 067.08 ______Q,QQ_ s s 5 152 083.o9 ~ 0.00 5,710 067.08 5 710,067.08 $ 42.016.01 $ 0.00 42 016.01 $ 42,016.01 5 710 067.08 5 752 083.09 s 2,000,000.oo o.oo s_ _ _ _o_.o_o_ s o.oo s_____o._oo._ s o.oo s_,!!;!!2_ s_____o._o.o.. s o.oo s_____o.,..oo._ 9,144,603.17 $ 7,128.83 $ s s_ _ _ 1,128.83 57,014.57 ==o.=oo=s 64,143.40 S_.!!J!!!. s_ _ _ _o.=oo= s s_ _ _ 64,143.40 64_1_4_3._4.o.. 51,899,643.73 $ 5,446.27 $ 5,446.27 34 707 241.47 18 642 874.53 11 825 138.49 370,858.88 $ 0.00 s $ 86,606,885.20 $ 18,648,320.80 $ 11 630 564.76 370 858.88 $ s 204,424,065.08 $ 18,910,621.92 17,679,616.81 $ 561,255.85 $ 0.00 $ 376,305.15 $ 0.00 $ 0.00 11 825 138.49 ______Q,QQ_ 0.00 12,201,443.64 $ ~ $ 0.00 $ 376,305.15 $ 11 825 135.28 3.21 s 11,825,135.28 376,308.36 $ 376,305.15 11,825, 138.49 12 201 443.64 s 0.00 $ 18,240,872.66 $ -2.2!!. $ 17,593,952.36 $ 646,920.30 18,240,872.66 Unexpendable Reserves Uncollectible Accounts Receivable 39 716.59 $ 18 280 569.25 -41- (This page left intentionally blank) BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) SCHEDULE OF APPROVED BUDGET YEAR ENDED JUNE 30, 2008 SCHEDULE "4" REVENUES State Appropriations Other Revenues Retained ORIGINAL APPROPRIATION FINAL APPROVED BUDGET LESS: BUDGET TRANSFERS TO OTHER UNITS TOTAL $ 2,135,814,859.00 $ 2,142,061,132.00 $ 2,908,641,879.00 3,301,748,942.00 1,976,678,136.00 $ 3,243,797,251.00 165,382,996.00 57 951 691.00 $ 5,044,456,738.00 $ 5 443 810 074.00 $ 5,220,475,387.00 $ 223,334,687.00 EXPENDITURES Advanced Technology Development Center/Economic Development Institute Agricultural Experiment Station Athens and Tifton Veterinary Laboratories Cooperative Extension Service Forestry Cooperative Extension Forestry Research Georgia Eminent Scholar Endowment Trust Fund Georgia Military College Georgia Public Telecommunications Georgia Radiation Therapy Center Georgia Tech Research Institute MCG Hospitals and Clinics Marine Institute Marine Resources Extension Center Office of Minority Business Enterprise Payments to Georgia Cancer Coalition Public Libraries Regents Central Office Research Consortium Skidaway Institute of Oceanography Special Funding Initiative Student Education Enrichment Program Teaching Veterinary Medicine Experiment Station Veterinary Medicine Teaching Hospital $ 27,974,712.00 $ 29,574,712.00 $ 75,377,483.00 86,015,877.00 4,882,330.00 6,268,386.00 58,486,061.00 68,438,718.00 987,793.00 1,170,484.00 5,826,331.00 7,706,916.00 500,000.00 3,062,152.00 18,069,614.00 3,625,810.00 130,786,385.00 33,181,112.00 1,731,994.00 2,761,521.00 884,273.00 14,587,799.00 45,537,501.00 7,683,800.00 36,745,015.00 7,370,710.00 46,081,344.00 314,737.00 4,507,411,422.00 3,384,254.00 7,202,585.00 500,000.00 3,062,152.00 18,069,614.00 3,625,810.00 154,736,385.00 33,181,112.00 1,786,536.00 4,316,521.00 884,273.00 14,587,799.00 44,851,896.00 7,762,975.00 36,745,015.00 6,470,710.00 45,856,344.00 314,737.00 4,852,246,263.00 3,384,254.00 12,252,585.00 29,574,712.00 $ 86,015,877.00 6,268,386.00 68,438,718.00 1,170,484.00 7,706,916.00 500,000.00 0.00 0.00 3,625,810.00 154,736,385.00 0.00 1,786,536.00 4,316,521.00 884,273.00 14,587,799.00 0.00 0.00 34,745,015.00 6,470,710.00 36,704,612.00 314,737.00 4,746,991,057.00 3,384,254.00 12,252,585.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3,062,152.00 18,069,614.00 0.00 0.00 33,181,112.00 0.00 0.00 0.00 0.00 44,851,896.00 7,762,975.00 2,000,000.00 0.00 9,151,732.00 0.00 105,255,206.00 0.00 0.00 $ 5,044,456,738.00 $ 5,443,810,074.00 $ 5,220,475,387.00 $ 223,334,687.00 See notes to the financial statements. -43- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) SCHEDULE OF ALLOTMENTS TO UNITS OF THE UNIVERSITY SYSTEM OF GEORGIA YEAR ENDED JUNE 30, 2008 RESEARCH INS!IIUTIQN~ Georgia Institute of Technology Georgia State University Medical College of Georgia University of Georgia B!;GIQNA~ !,!NIVER~ITIES Georgia Southern University Valdosta State University STATE UNIVERIIIE~ Albany State University Armstrong Atlantic State University Augusta State University Clayton State University Columbus State University Fort Valley State University Georgia College and State University Georgia Southwestern State University Kennesaw State University North Georgia College and State University Savannah State University Southern Polytechnic State University University of West Georgia STATE COLLEGES Abraham Baldwin Agricultural College Dalton Stale College Gainesville State College Georgia Gwinnett College Gordon College Macon Slate College Middle Georgia College TWO-YEAB COLLEGES Atlanta Metropolitan College Bainbridge College Coastal Georgia Community College Darton College East Georgia College Georgia Highlands College Georgia Perimeter College South Georgia College Waycross College OTHER Skidaway Institute of Oceanography ADVANCED TECHNOLOGY DEVELOPMENT CENTER/ ECONOMIC DEVELOPMENT INSTITUTE AGRICULTURAL EXPERIMENT STATION ATHENS AND TIFTON VETERINARY LABORATORIES COOPERATIVE EXTENSION SERVICE FORESTRY COOPERATIVE EXTENSION FORESTRY RESEARCH 15,099,712.00 42,936,221.00 $ 62,192.00 $ 35,391,924.00 $ 687,388.00 $ 3,276,331.00 GEORGIA EMINENT SCHOLAR ENDOWMENT TRUST FUND GEORGIA TECH RESEARCH INSTITUTE MARINE ~ 7,868,427.00 $ 964,361.00 500,000.00 15 099i712.00 42 9361221.00 62 192.00 $ 3513911924.00 $ 687 388.00 $ 3 276 331.00 $ 500 000.00 $ 7 868 427.00 $ 9641361.00 See notes to the financial statements. -44- SCHEDULE 5 MARINE RESOURCES EXTENSION CENTER OFFICE OF MINORITY BUSINESS ENTERPRISE PAYMENTS TO GEORGIA CANCER COALITION SPECIAL FUNDING INITIATIVE RESEARCH CONSORTIUM SKIDAWAY INSTITUTE OF OCEANOGRAPHY STUDENT EDUCATION ENRICHMENT PROGRAM TEACHING VETERINARY MEDICINE EXPERIMENT STATION VETERINARY MEDICINE TEACHING HOSPITAL TOTAL $ 1,576,721.00 $ 480,189.00 14,587,799.00 931,082.00 298,001.00 13,447,543.00 1,648,860.00 19,621,408.00 6,336,530.00 904,658.00 6,404,587.00 314,737.00 231,623,776.00 207,400,730.00 147,011,068.00 373,878,314.00 $ 3,384,254.00 $ 502,585.00 275, 144,403.00 228,623,060.00 161,678,006.00 471,193,907.00 293,850.00 32,480.00 425,253.00 91,265,921.00 53,090,796.00 92,485,024.00 53,123,276.00 91,931.00 153,218.00 451,255.00 375,684.00 114,480.00 366,979.00 123,479.00 1,888,111.00 1,410,987.00 21,761.00 459,114.00 865,632.00 466,038.00 10,613.00 84,040.00 562,665.00 263,971.00 105,945.00 22,562,277.00 33,579,622.00 28,580,188.00 25,562,287.00 38,124,124.00 20,933,282.00 31,753,335.00 14,317,132.00 81,334,254.00 25,932,487.00 18,796,412.00 22,390,091.00 48,492,412.00 23,105,463.00 34,538,171.00 28,847,864.00 25,931,266.00 38,247,603.00 22,799,393.00 33,164,322.00 14,338,893.00 82,057,339.00 26,798,099.00 19,262,450.00 22,506,849.00 48,576,452.00 169,995.00 5,369.00 9,988.00 11,010,778.00 16,263.00 848,025.00 523,725.00 15,635,429.00 14,435,367.00 19,360,735.00 11,999,778.00 13,073,087.00 21,830,426.00 17,718,212.00 15,805,424.00 14,440,736.00 19,370,723.00 23,010,556.00 13,089,350.00 22,478,451.00 18,241,937.00 158,955.00 6,485.00 3,650.00 15,895.00 27,343.00 742,191.00 192,835.00 50,575.00 3,918.00 7,388.00 8,736,609.00 9,465,455.00 11,643,046.00 16,996,840.00 5,887,643.00 15,533,000.00 83,915,763.00 7,727,725.00 4,076,223.00 8,902,049.00 9,469,105.00 11,658,941.00 17,024,183.00 6,809,834.00 15,725,835.00 63,968,338.00 7,731,643.00 4,083,611.00 100,000.00 1 712,710.00 835,070.00 2 647 780.00 $ 11576 721.00 $ 884 273.00 $ 14 587 799.00 $ 36 704 612.00 $ 34 745 015.00 $ 1 712 710.00 $ 314 737.00 $ 1 775 478 874.00 $ 3 384 254.00 $ 502 585.00 $ 119761678 136.00 -45- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) ANALYSIS OF PRIOR YEAR'S SURPLUS FUNDS COLLECTED FROM INSTITUTIONS AND REDISTRIBUTED TO INSTITUTIONS WITH DEFICITS YEAR ENDED JUNE 30, 2008 SCHEDULE "6" RESEARCH INSTITUTIONS Georgia State University Medical College of Georgia University of Georgia REGIONAL UNIVERSITIES Georgia Southern University Valdosta State University STATE UNIVERSITIES Armstrong Atlantic State University Augusta State University Clayton State University Georgia College and State University Georgia Southwestern State University Kennesaw State University North Georgia College and State University Savannah State University Southern Polytechnic State University University of West Georgia STATE COLLEGES Abraham Baldwin Agricultural College Dalton State College Gainesville State College Georgia Gwinnett College Gordon College Macon State College Middle Georgia College TWO-YEAR COLLEGES Atlanta Metropolitan College Bainbridge College Coastal Georgia Community College Darton College East Georgia College Georgia Perimeter College South Georgia College Waycross College OTHER Skidaway Institute of Oceanography COLLECTED REDISTRIBUTED $ 442,218.14 $ 80,148.40 16,622.11 0.00 36,797.23 44,275.82 4,731.11 1,260.41 22,471.79 10,130.82 1,813.39 944.95 5,766.80 369,564.64 9,573.44 75.06 3,821.45 102,864.89 22.91 2,629.16 9,900.11 22,216.71 33,209.40 72,701.80 58,957.43 3,003.00 7,311.20 10,088.19 369,306.65 15,037.38 360.84 0.99 $ 1 757 826.22 $ ========0.=00= See notes to the financial statements. -46- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2008 SCHEDULE "7" Totals per Annual Supplement Compensated Absences June 30, 2008 June 30, 2007 Adjustments Shared Services on Jointly Staffed Personnel Clayton State University Holmes, Bruce SALARIES TRAVEL $ 26,011,645 $ 759,614 2,851,503 -2,479,320 3452 $ 26,387,280 $===7=5=9=6=1=4 - 47 - SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CONTROL DEFICIENCIES The auditor is required to communicate to management and those charged with governance control deficiencies identified during the course of the financial statement audit that, in the auditor's judgment, constitute significant deficiencies or material weakness. A control deficiency exists when the design or operation ofa control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affect the University System Office's ability to initiate, authorize, record, process, or report financial data reliability in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the University System Office's financial statements that is more than inconsequential will not be prevented or detected by the University System Office's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement ofthe financial statements will not be prevented or detected by the University System Office's internal control. Any identified deficiencies in internal controls that we did not consider to be significant deficiencies and/or material weaknesses have been communicated to management and those charged with governance within a separate management letter dated February 2, 2009. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below: FINANCIAL REPORTING Balance Sheet Transactions Were Not Properly Reported At The Balance Sheet Date Significant Deficiency Finding Control Number: FS-472-08-0 I Condition: At year end, insurance premiums due from various Units of the University System were incorrectly recorded as cash receipts instead of accounts receivable. Criteria: In order to conform to Generally Accepted Accounting Principles (GAAP) proper cutoff procedures should be observed when recording balance sheet activity. Questioned Cost: NIA -I- BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINANCIAL REPORTING Balance Sheet Transactions Were Not Properly Reported At The Balance Sheet Date. Significant Deficiency Finding Control Number: FS-472-08-0 I Information: Testing of balance sheet activity revealed that cash was overstated and accounts receivable were understated in the financial statements presented for audit. Cause: At year end, the system office kept their general ledger open for several days past year end. Insurance premiums receipted during this time period were incorrectly posted as cash receipts for fiscal year 2008 instead of fiscal year 2009 as appropriate. Effect: Cash was overstated and accounts receivable were understated on the 2008 financial statements presented for audit. By not adhering to a strict closing of the general ledger at June 30th, the system office's controls for maintaining proper cutoff procedures of balance sheet transactions was compromised. Recommendation: Management should implement and monitor procedures over balance sheet cutoff dates and ensure balance sheet line items are properly reported as of the balance sheet date. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -2-