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, 2013

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
ATLANTA, GEORGIA
REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2013
Georgia Department of Audits and Accounts Greg S. Griffin 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 BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
REQUIRED SUPPLEMENTARY INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
BASIC FINANCIAL STATEMENTS
EXHIBITS
A STATEMENT OF NET POSITION
B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
C STATEMENT OF CASH FLOWS
D STATEMENT OF FIDUCIARY NET POSITION BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND
E STATEMENT OF CHANGES IN FIDUCIARY NET POSITION BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND
F NOTES TO THE FINANCIAL STATEMENTS
SCHEDULES
REQUIRED SUPPLEMENTARY INFORMATION
1 SCHEDULE OF FUNDING PROGRESS
SUPPLEMENTARY INFORMATION
2 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 3 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT
(NON-GAAP BASIS) BUDGET FUND 4 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET
BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND
5 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND
6 RECONCILIATION OF BUDGET TO GAAP

Page
i
2 3 4 5 6 7
33 35 37 38 40 42

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
- TABLE OF CONTENTS -

SECTION I
FINANCIAL
SCHEDULES
SUPPLEMENTARY INFORMATION
7 SCHEDULE OF APPROVED BUDGET 8 SCHEDULE OF ALLOTMENTS TO UNITS OF THE UNIVERSITY SYSTEM OF
GEORGIA 9 ANALYSIS OF PRIOR YEAR'S SURPLUS FUNDS COLLECTED FROM
INSTITUTIONS 10 RECONCILIATION OF SALARIES AND TRAVEL

Page
43 44 46 47

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

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

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

SECTION I FINANCIAL

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

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
March 6, 2014

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable Henry M. Huckaby, Chancellor

INDEPENDENT AUDITOR'S REPORT
Ladies and Gentlemen:
Report on the Financial Statements
We have audited the accompanying basic financial statements (Exhibits A through F) of University System Office (Oversight Unit) of the Board of Regents of the University System of Georgia, a unit of the University System of Georgia, which is an organizational unit of the State of Georgia, as of and for the year ended June 30, 2013.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the University System Office's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
13ARL-62

the purpose of expressing an opinion on the effectiveness of the University System Office's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the business type activities and aggregate remaining fund information of the University System Office as of June 30, 2013, and the respective changes in financial position and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
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 cash flows of only that portion of the business-type 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 of the State of Georgia as of June 30, 2013, the changes in its financial position or its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
As described in Note 1 to the financial statements, in 2013, the University System Office adopted new accounting guidance, GASB Statement No. 63, Reporting Deferred Outflows, Deferred Inflows, and Net Position. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages i through vii be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquires of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
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Other Information
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of the University System Office. The accompanying supplementary information (Schedules 2 through 10) is presented for purposes of additional analysis and is not a required part of the basic financial statements.
The accompanying supplementary information (Schedules 2 through 10) is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting or other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated March 6, 2014, on our consideration of the University System Office's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University System Office's internal control over financial reporting and compliance.
Respectfully,

GSG:as 13ARL-62

Greg S. Griffin State Auditor

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 19 members, five of whom are appointed from the state-at-large, and one from each of the 14 congressional districts. The Board elects a chancellor who serves as its chief executive officer and the chief administrative officer of the University System.
The Board oversees 31 institutions: four research institutions, two regional universities, 12 state universities, and 13 state colleges. In addition, one marine research institute is governed by the Board. These institutions enroll more than 314,000 students and employ approximately 14,000 faculty and 30,000 staff to provide teaching and related services to students and the communities in which they are located.
The University System Office also serves as custodian of the Board of Regents Retiree Health Benefit Fund, for University System of Georgia retiree health and life insurance benefits.
Overview of the Financial Statements and Financial Analysis
The University System Office is pleased to present its financial statements for fiscal year 2013. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Position; the Statement of Revenues, Expenses and Changes in Net Position; 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 2013 and fiscal year 2012. As custodian of the Board of Regents Retiree Health Benefit Fund, two additional statements are presented: the Statement of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position.
Statement of Net Position
The Statement of Net Position presents the assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position of the University System Office as of the end of the fiscal year. The Statement of Net Position is a point-of-time financial statement. The Statement of Net Position presents a fiscal snapshot of University System Office. The Statement of Net Position presents end-of-year data concerning assets (current and noncurrent) plus deferred outflows, and liabilities (current and noncurrent) plus deferred inflows, and net position (assets plus deferred outflows minus liabilities plus deferred inflows). The differences between current and noncurrent assets are discussed in the Notes to the Financial Statements.
From the data presented, readers of the Statement of Net Position are able to determine the assets available to continue the operations of the University System Office and how much the University System Office owes vendors.
Finally, the Statement of Net Position provides a picture of the net position (assets plus deferred outflows of resources minus liabilities plus deferred inflows of resources) and their availability for expenditure by the University System Office. Net position is divided into three major categories. The first category, net investment in capital assets, provides the University System Office's equity in property, plant and equipment owned by the University System Office. The next category is restricted, which is divided into two categories, nonexpendable and expendable.
i

The corpus of nonexpendable, restricted resources is available only for investment purposes. Expendable, restricted resources 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. Unrestricted resources are available to the University System Office for any lawful purpose.
Statement of Net Position, Condensed

June 30, 2013

June 30, 2012

Assets Current Assets Capital Assets, Net Other Assets

$ 609,427,923 40,872,408 10,588,654

$ 549,094,066 25,529,656 10,233,429

Total Assets

$ 660,888,985

$ 584,857,151

Liabilities Current Liabilities Noncurrent Liabilities

$ 480,082,245 14,831,908

$ 464,595,465 15,067,157

Total Liabilities

$ 494,914,153

$ 479,662,622

Net Position Net Investment in Capital Assets Restricted Nonexpendable Expendable Unrestricted

$ 27,111,543
4,375,648 105,985,171
28,502,470

$ 11,043,492
3,612,043 68,589,207 21,949,787

Total Net Position

$ 165,974,832

$ 105,194,529

Total assets increased by $76,031,834 which was primarily due to an increase of $60,333,857 in the category of Current Assets. The balance of the increase is mainly in Cash and Cash Equivalents.

Total liabilities increased for the year by $15,251,531. The combination of the increase in total assets of $76,031,834 and the increase in total liabilities of $15,251,531 yields an increase in net position of $60,780,303. The increase in net position is primarily in the category of Expendable Restricted Assets, in the amount of $37,395,964.
Statement of Revenues, Expenses and Changes in Net Position

Changes in total net position as presented on the Statement of Net Position are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Position. 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. Generally, 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

ii

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 Position, Condensed

June 30, 2013

June 30, 2012

Operating Revenues Operating Expenses

$ 415,087,794 496,930,143

$ 399,489,182 513,175,786

Operating Gain/Loss

$ -81,842,349

$ -113,686,604

Nonoperating Revenues and Expenses

124,828,722

139,015,458

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

$ 42,986,373

$ 25,328,854

Other Revenues, Expenses, Gains or Losses

17,793,930

-14,970,477

Increase in Net Position

$ 60,780,303

$ 10,358,377

Net Position at Beginning of Year

105,194,529

94,836,152

Net Position at End of Year

$ 165,974,832

$ 105,194,529

The Statement of Revenues, Expenses and Changes in Net Position reflect a positive year, which is represented by an increase in net position at the end of the year. Some highlights of the information presented on this statement are as follows:

iii

Revenue by Source For the Years Ended June 30, 2013 and June 30, 2012

June 30, 2013

June 30, 2012

Operating Revenue Grants and Contracts Sales and Services of Educational Departments Other

$ 8,671,582 42,779,520
363,636,692

$ 9,562,793 39,667,657
350,258,732

Total Operating Revenue

$ 415,087,794

$ 399,489,182

Nonoperating Revenue State Appropriations Grants and Contracts Investment Income

$ 133,164,644 3,673,988 735,047

$ 129,175,740 22,810,415 409,036

Total Nonoperating Revenue

$ 137,573,679

$ 152,395,191

Special Item Total Revenues

$ 17,793,930 $ 570,455,403

$

0

$ 551,884,373

Expenses (By Functional Classification) For the Years Ended June 30, 2013 and June 30, 2012

June 30, 2013

June 30, 2012

Operating Expenses Instruction Public Service Academic Support Student Services Institutional Support Scholarships and Fellowships

$ 67,941,063 16,080,213
412,735,594 173,273

$ 1,550,924 68,897,757 17,374,217 381,922
424,771,498 199,468

Total Operating Expenses

$ 496,930,143

$ 513,175,786

Nonoperating Expenses Interest Expense (Capital Assets) Other

$

880,754

11,864,203

$

706,793

12,672,940

Total Nonoperating Expenses

$ 12,744,957

$ 13,379,733

Special Item

$

0

$ 14,970,477

Total Expenses and Special Item

$ 509,675,100

$ 541,525,996

iv

Operating revenues increased by $15,598,612 in fiscal year 2013. This was due primarily to an increase in Other Operating Revenues which is comprised mostly of Health Insurance Premiums.
Nonoperating revenues decreased $14,812,512 for the year primarily due to a decrease in Grant funds due to a decrease in Federal Stimulus funding.
The compensation and employee benefits category increased by $443,693 and primarily affected the Institutional Support category. The increase reflects additional expenses due to filling of key positions in the organization and the addition of new functions at the University System Office.
Supplies and Other Services decreased by $19,786,091 during the past year. The decrease was primarily associated with a decrease in health insurance claims paid for the self-funded plans.
Statement of Cash 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 University System Office. 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 Position.
Cash Flows for the Years Ended June 30, 2013 and 2012, Condensed

June 30, 2013

June 30, 2012

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

$

-49,642,179

120,427,856

-3,719,365

2,348,604

$

-116,194,518

212,322,679

-6,739,766

500,853

Net Change in Cash Cash, Beginning of Year

$

69,414,916

356,684,241

$

89,889,248

266,794,993

Cash, End of Year Capital Assets

$

426,099,157

$

356,684,241

The University System Office entered into a forty-year intergovernmental agreement with the Georgia Public Telecommunications Commission (Commission) effective July 1, 2012. The Commission transferred other property and equipment at its headquarters location to the University System Office. In fiscal year 2013, building and equipment transferred to the University System Office totaled $28,339,594. The accumulated depreciation transferred totaled $10,545,665, for a net book value of $17,793,929. This transfer is required to obtain the use of twenty-year and five-year general obligation bonds sold in the Board of Regents' name on behalf of the Commission. The Commission, an authority created after 1967, cannot have bonds sold on its behalf. The intergovernmental agreement allows the Commission to utilize these funds for the following bond projects:

v

Communication Systems and Information Systems upgrades, 5 year bonds, $1,780,000 Facility roof replacement and cooling system improvements, 20 year bonds, $1,265,000 The intergovernmental agreement is designed to accommodate future general obligation bond issues for the Commission. All equipment and property will be transferred back to the ownership of the Commission upon termination of this agreement with the Board of Regents. It is anticipated that any current and future bond issues will be paid for in full within twenty years. 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 $17,341,324 of which $2,509,416 was reflected as current liability at June 30, 2013. 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 the statement in the Annual Financial Report, including the liability for claims incurred but not reported. The summary information regarding revenues, expenditures and the related liability for fiscal year 2013 is provided below:
vi

Employees; Unpaid Claims and Claim Adjustments (Prior Year IBNR)

June 30, 2013

June 30, 2012

$ 26,269,302 $ 23,289,175

Incurred Claims and Claim Adjustments Expenses Provisions for Insured Events of the Current Year

325,395,148

318,490,596

Payments - Claims and Claim Adjustments Attributable To Insured Events of the Current Year and Prior Years

318,927,296

315,510,469

Unpaid Claims and Claim Adjustments (Current Year IBNR)

$ 32,737,154 $ 26,269,302

Retirees: Unpaid Claims and Claim Adjustments (Prior Year IBNR)

$

9,714,307 $

7,539,783

Incurred Claims and Claim Adjustments Expenses Provisions for Insured Events of the Current Year

113,908,368

117,510,071

Payments - Claims and Claim Adjustments Attributable To Insured Events of the Current Year and Prior Years

114,296,083

115,335,547

Unpaid Claims and Claim Adjustments (Current Year IBNR) Retiree Health Benefit Fund

$

9,326,592 $

9,714,307

The University System Office is the custodian for the Board of Regents Retiree Health Benefit Fund. 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

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. Even with a relatively flat funded year, the University System Office was able to generate a modest increase in Net Position. The University System Office anticipates the current fiscal year will be much like last and will maintain a close watch over resources to maintain the University's ability to react to unknown internal and external issues.

John E. Brown, Vice Chancellor for Fiscal Affairs/Treasurer Board of Regents University System Office

vii

BASIC FINANCIAL STATEMENTS - 1 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) STATEMENT OF NET POSITION JUNE 30, 2013
ASSETS
Current Assets Cash and Cash equivalents Short-term Investments Accounts Receivable, net (Note 3) Receivables - Federal Financial Assistance Receivables - Other Inventories (Note 4) 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 Salaries Payable Benefits Payable Unearned Revenue (Note 7) 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 POSITION
Net Investment in Capital Assets Restricted for:
Nonexpendable Expendable Unrestricted
Total Net Position
The notes to the financial statements are an integral part of this statement. - 2 -

EXHIBIT "A"

$ 426,099,157 153,123,075
1,326,005 27,824,553
404,921 650,212
$ 609,427,923

$

8,855,822

1,732,832

40,872,408

$

51,461,062

$ 660,888,985

$

5,505,241

29,376

32,737,154

409,551

438,891,507

583,377

1,926,039

$ 480,082,245

$

13,177,488

1,654,420

$

14,831,908

$ 494,914,153

$

27,111,543

4,375,648 105,985,171
28,502,470

$ 165,974,832

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION JUNE 30, 2013
OPERATING REVENUES
Grants and Contracts Federal Other
Sales and Services Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Staff
Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal Federal Stimulus Other Investment Income Interest Expense Other Nonoperating Expenses
Net Nonoperating Revenues
Income (Loss) Before Special Item
Special Item - Capital Asset Transfer (Note 17)
Increase in Net Position
Net Position - Beginning of Year
Net Position - End of Year

EXHIBIT "B"

$

8,063,393

608,189

42,779,520

363,636,692

$ 415,087,794

$

29,783,883

8,204,341

10,924

543,082

173,273

4,749,109

448,563,239

4,902,292

$ 496,930,143

$

-81,842,349

$ 133,164,644

49,238 2,156,377 1,468,373
735,047 -880,754 -11,864,203

$ 124,828,722

$

42,986,373

17,793,930

$

60,780,303

105,194,529

$ 165,974,832

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 JUNE 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES Grants and Contracts (Exchange) Sales and Services 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
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 (loss) to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, Net Inventories Prepaid Items Accounts Payable Unearned Revenue Other Benefits Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Change in Accrued Interest Payable Affecting Interest Paid Change in Fair Value of Investments Recognized as a Component of Interest Income Special Item - Capital Asset Transfer
The notes to the financial statements are an integral part of this statement.
- 4 -

EXHIBIT "C"

$

8,542,850

42,798,228

-450,178,603

-29,300,859

-173,273

378,669,478

$

-49,642,179

$

133,164,644

-4,190,833

3,673,989

-12,219,944

$

120,427,856

$

526,923

-2,640,235

-884,205

-721,848

$

-3,719,365

$

1,649,099

699,505

$

2,348,604

$

69,414,916

356,684,241

$

426,099,157

$

-81,842,349

4,902,292
15,190,837 -124,734 -7,686
5,070,300 91,889
6,633,582 443,690

$

-49,642,179

$

-158,906

$

35,542

$

17,793,930

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 POSITION JUNE 30, 2013
ASSETS Cash and Cash Equivalents Receivables
Employer Employee
Total Assets LIABILITIES Benefits Payable Other Total Liabilities
NET POSITION Net Position Held in Trust for Other Post-Employment Benefits

EXHIBIT "D"

$

4,075,222

4,123,959 1,698,060

$

9,897,241

$

9,326,592

353,874

$

9,680,466

$

216,775

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

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 POSITION
JUNE 30, 2013
ADDITIONS
Contributions Employer Plan Member Other
Total Contributions
Investment Income Interest/Dividends
Total Additions
DEDUCTIONS
Benefits Life Insurance Premium Expense Administrative Expense
Total Deductions
Net Increase
Beginning Net Position
Net Position Held in Trust for Other Post-Employment Benefits

EXHIBIT "E"

$

83,414,616

30,135,574

14,999,814

$ 128,550,004

107,533 $ 128,657,537

$ 114,296,083 8,398,592 5,911,771

$ 128,606,446

$

51,091

165,684

$

216,775

The notes to the financial statements are an integral part of this statement. - 6 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

Note 1. Summary of Significant Accounting Policies
Nature of Operations 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 19 members, five of whom are appointed from the state-at-large, and one from each of the 14 congressional districts. The Board elects a Chancellor who serves as its chief executive officer and the chief administrative officer of the University System.
The Board oversees 31 institutions: four research institutions, two regional universities, 12 state universities, and 13 state colleges. In addition, one marine research institute is governed by the Board. These institutions enroll more than 314,000 students and employ approximately 14,000 faculty and 30,000 staff to provide teaching and related services to students and the communities in which they are located.
The University System Office also serves as custodian of the Board of Regents Retiree Health Benefit Fund, for University System of Georgia retiree health and life insurance benefits.
Reporting Entity The University System Office is the administrative central office for the thirty-one (31) State supported member institutions of higher education in Georgia which comprise the University System of Georgia and one marine research institute, an organizational unit of the State of Georgia. The University System Office also is the custodian of a 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 University System Offices' 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 affiliated organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential component units of the State. See Note 16 for additional information.
Financial Statement Presentation The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the University System Office's assets, liabilities, net position, revenues, expenses, changes in net position and cash flows.

- 7 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

Basis of Accounting For financial reporting purposes, the University System Office is considered a special-purpose government engaged only 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 intrasystem transactions have been eliminated.
New Accounting Pronouncements In fiscal year 2013, the University System Office adopted the Governmental Accounting Standards Board (GASB) Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements. The provisions of this Statement establish accounting and financial reporting standards for governments who enter into Service Concession Arrangements (SCA) with other governmental or nongovernmental entities. As of June 30, 2013, the Board of Regents has not entered into any arrangements that meet the qualifications to be reported as a SCA in accordance with this standard.
In fiscal year 2013, the University System Office adopted the Governmental Accounting Standards Board (GASB) Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The provisions of this Statement incorporate certain accounting and financial reporting guidance into authoritative GASB literature.
In fiscal year 2013, the University System Office adopted the Governmental Accounting Standards Board (GASB) Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position. The provisions of this Statement establish financial reporting standards for the presentation of deferred outflows of resources and deferred inflows of resources and their effects on a government's net position. The University System Office changed its presentation of net assets to net position for fiscal year 2013. There were no other applicable reporting changes for the University System Office.
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 Board of Regents Short-Term Investment Pool.
Short-Term Investments Short-Term Investments consist of investments of 90 days 13 months, which includes 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. The Board of Regents Balanced Income Fund, the Board of Regents Total Return Fund, and portions of the Board of Regents Legal Fund and the Board of Regents Diversified Fund, are included under Short-Term Investments.
Investments Investments include financial instruments with terms in excess of 13 months, certain other securities for the production of revenue, land, and other real estate held as investments by endowments. The University System Office accounts for its investments at fair value. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Position. Portions of the Board of Regents Legal Fund and the Board of Regents Diversified Fund Pool are included under Investments.
- 8 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

Accounts Receivable Accounts receivable consists of amounts due from other institutions within the University System of Georgia, primarily for health insurance premiums. Accounts receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University System Office's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
Inventories Resale Inventories are valued at cost using the "first in, first out" (FIFO) basis.
Noncurrent Investments Investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Position.
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, which also includes amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, and copyrights, as well as software, is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values generally are 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
To fully understand plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. These bonds 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, 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, 2013, GSFIC did not transfer any capital additions to the University System Office.
Deposits Held for Other Organizations The University System Office had $438,891,507 in Deposits Held for Other Organizations as of June 30, 2013. 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.
Unearned Revenues Unearned revenues include amounts received from grant and contract sponsors that have not yet been earned.

- 9 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

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 Position, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Position. The University System Office had accrued liability for compensated absences in the amount of $3,136,766 as of July 1, 2012. For fiscal year 2013, $2,191,216 was earned in compensated absences and employees were paid $1,747,523, for a net increase of $443,693. The ending balance as of June 30, 2013 in accrued liability for compensated absences was $3,580,459.

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 Position The University System Office's net position is classified as follows:
Net Investment in Capital Assets: 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 the net investment in capital assets. The term "debt obligations" as used in this definition does not include debt of the GSFIC as discussed previously in Note 1 Capital Assets section.
Restricted nonexpendable: includes 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 be either 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 expendable: includes resources in which the University System Office is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties.

Expendable Restricted include the following at June 30, 2013:

Restricted - E&G and Other Organized Activities Health Insurance Reserve (USO only)

$

10,185,771

95,799,400

Total Restricted Expendable

$

105,985,171

Unrestricted: Unrestricted represents resources derived from state appropriations, and sales and services of institutional departments. 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 $72,299.05. Unexpended state appropriations must be refunded to the Office of the State Treasurer.

- 10 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

Unrestricted resources include the following items which are quasi-restricted by management at June 30, 2013:

Reserve for Encumbrances Other Unrestricted

$

12,129,109

16,373,361

Total Unrestricted Net Position

$

28,502,470

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.

Classification of Revenues and Expenses

The Statement of Revenues, Expenses and Changes in Net Position classify fiscal year activity as operating and nonoperating according to the following criteria:
Operating revenue includes activities that have the characteristics of exchange transactions, such as (1) certain Federal, state and local grants and contracts, (2) sales and services, and (3) health insurance premiums received from institutions within the University System of Georgia for selfinsured health plans offered.
Nonoperating revenue includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenue by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.
Operating Expense Operating expense includes activities that have the characteristics of exchange transactions.
Nonoperating expense includes activities that have the characteristics of nonexchange transactions, such as capital financing costs and costs related to investment activity.
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:

- 11 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.
2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.
3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.
4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.
5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association.
6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.
The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.
At June 30, 2013, the carrying value of deposits was $130,199,307 and the bank balance was $132,070,197. Of the deposits, $132,015,180 were uninsured. Of these uninsured deposits, $132,015,180 were collateralized with securities held by the financial institution, by its trust department or agency, but not 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.

- 12 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

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.
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 ten 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.
Hedge Funds The investment approach to this asset class is to use a multi-strategy, multi-manager 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.

- 13 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

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, 2013 are presented below. All investments are presented by investment type and debt securities are presented by maturity.

Investment Type

Fair Value

Less Than 3 Months

Investment Maturity

4 - 12 Months

1 - 5 Years

6 - 10 years

More than 10 Years

Debt Securities

U. S. Treasuries

$

7,623,106

$

U. S. Agencies

Explicitly Guaranteed

21,239,731

Implicitly Guaranteed

247,875,395

$ 3,047,160

Bond Securities

44,888,760

Mutual Bond Bund

3,613,864

Bond Money Market Fund

3,141,195 $ 3,141,195

Repurchase Agreements

36,695,863

36,695,863

3,023,269 $ 4,599,837

3,323,249 45,580,653 10,309,782

17,764,731 $ 151,751

44,006,994 155,240,588

27,987,278

6,591,700

3,613,864

$ 365,077,914 $ 39,837,058 $ 3,047,160 $

62,236,953 $ 97,972,704 $ 161,984,039

Other Investments Equity Mutual Funds Equity Securities - Domestic Real Estate Investment Fund

20,426,469 71,085,318
5,364,268

Total Investments

$ 461,953,969

Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University System Office's policy for managing interest rate risk is contained in the investment policy guidelines for the various pooled funds:
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.

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

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 institution 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, 2013, $365,077,914 of the University System Office's applicable investments were uninsured and held by the investment's counterparty in the University System Office's name.
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 non-investment grade debt issues up to a limit of 15% of the entire portfolio.

- 15 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

The investments subject to credit quality risk are reflected below:

Credit Quality Risk

Fair Value

AAAm

AAf

Af

BBBf

Unrated

Related Debt Investments U. S. Agencies Implicitly Guaranteed Bond Securities Mutual Bond Fund Bond Money Market Fund Repurchase Agreements - Underlying U. S. Agency Securities

$ 247,875,395

$

44,888,760

$ 4,835,318 $ 33,461,742 $ 6,591,700

3,613,864

3,141,195 $ 3,141,195

36,695,863

247,875,395 3,613,864
36,695,863

$ 336,215,077 $ 3,141,195 $ 4,835,318 $ 33,461,742 $ 6,591,700 $ 288,185,122

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 investments exceeded 5% of the total reported investment amount as of June 30, 2013:

Investment
Federal National Mortgage Association Federal Home Loan Mortgage Corporation Bank of America Repurchase Agreement iShares Core Total U. S. Bond Market ETF

Amount:

$

188,996,663

$

58,307,428

$

41,094,322

$

33,461,742

% of Total
40.9% 12.6%
8.9% 7.2%

- 16 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

Condensed financial information for the investment pool is as follows:

Statement of Net Position - June 30, 2013

Assets Investments Accrued Interest and Other Receivables

$ 461,334,460 619,509

$ 461,953,969

Net Position Held in Trust for Pool Participants Internal Portion External Portion

$ 23,517,158 438,436,811

$ 461,953,969

Statement of Changes in Net Position - For the Year Ended June 30, 2013

Revenues Interest Income Net Increase (Decrease) in Fair Value of Investments

$

9,192,184

8,983,805

Total Revenues

$ 18,175,989

Expenses Operating Expenses
Administrative Expenses

-800,751

Net Increase (Decrease) in Assets Resulting from Operations

$ 17,375,238

Distribution to Participants Capital Transactions

-56,774,356 44,336,544

Total Increase (Decrease) in Assets Resulting from Operations

$

4,937,426

Net Position July 1, 2012

457,016,543

Net Position June 30, 2013

$ 461,953,969

- 17 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

Note 3. Accounts Receivable

Accounts receivable consisted of the following at June 30, 2013:

Federal Financial Assistance Other

$

1,326,005

27,864,270

Less Allowance for Doubtful Accounts

$

29,190,275

39,717

Net Accounts Receivable

$

29,150,558

Note 4. Inventories

Inventories consisted of the following at June 30, 2013:

Other

$

404,921

Note 5. Notes/ Loans 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 fiscal year 2008. GSOU has an obligation to send the USO annual payments of $205,320 through the year 2025. In fiscal year 2013, the University System Office collected $205,320, $99,683 of which represented interest. Total principal collected on the Note Receivable was $105,637. At June 30, 2013, the Notes Receivable balance was $1,732,832 There is no allowance for doubtful collection.

- 18 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

Note 6. Capital Assets

Following are the changes in capital assets for the year ended June 30, 2013:

Beginning Balance July 1, 2012

Special Item
Transfer

Additions

Reductions

Ending Balance June 30, 2013

Capital Assets, Not Being Depreciated:

Land

$ 2,227,424 $

0$

0$

Capitalized Collections

10,000

0$

2,227,424

10,000

Total Capital Assets, Not Being Depreciated $ 2,237,424 $

0$

0$

0$

2,237,424

Capital Assets, Being Depreciated: Building and Building Improvements Equipment Capital Leases Software

$

0 $ 26,861,834

46,530,402 1,477,760 $ 2,640,235 $

18,424,836

18,830,317

$ 3,766,194 1,503,211
1

26,861,834 46,882,203 16,921,625 18,830,316

Total Assets Being Depreciated

$ 83,785,555 $ 28,339,594 $ 2,640,235 $

5,269,406 $ 109,495,978

Less: Accumulated Depreciation: Building and Building Improvements Equipment Capital Leases Software

$

0 $ 9,367,737

40,462,154 1,177,928 $ 1,952,314 $

6,761,642

2,107,149

13,269,527

842,829

$ 2,053,183 3,027,103

9,367,737 41,539,213
5,841,688 14,112,356

Total Accumulated Depreciation

$ 60,493,323 $ 10,545,665 $ 4,902,292 $

5,080,286 $

70,860,994

Total Capital Assets, Being Depreciated, Net $ 23,292,232 $ 17,793,929 $ -2,262,057 $

189,120 $

38,634,984

Capital Assets, Net

$ 25,529,656 $ 17,793,929 $ -2,262,057 $

189,120 $

40,872,408

A special item transfer was made to move assets from the Georgia Public Telecommunications Commission to the University System Office See Note 17.
Note 7. Unearned Revenue

Unearned revenue consisted of the following at June 30, 2013:

Other Unearned Revenue

$

409,551

- 19 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

Note 8. Long-Term Liabilities

Long-Term liability activity for the year ended June 30, 2013 was as follows:

Beginning Balance July 1, 2012

Additions

Reductions

Ending Balance June 30, 2013

Current Portion

Leases Lease Obligations

$ 14,486,164 $

158,906 $

884,205 $ 13,760,865 $

583,377

Other Liabilities Compensated Absences

3,136,766

2,191,216

1,747,523

3,580,459

1,926,039

Total Long-Term Obligations $ 17,622,930 $ 2,350,122 $ 2,631,728 $ 17,341,324 $ 2,509,416

Note 9. Significant Commitments

The University System Office had no significant unearned, outstanding, construction or renovation contracts as of June 30, 2013.
Note 10. Lease Obligations

The University System Office is obligated under various operating leases for the use of real property (land, buildings, and office facilities) and equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of real property.

CAPITAL LEASES

Capital leases are generally payable in installments ranging from monthly to annually and have

terms expiring in various years between 2013 and 2030. Expenditures for fiscal year 2013 were

$1,764,959 of which $880,754 represented interest. Total principal paid on capital leases was

$884,205 for the fiscal year ended June 30, 2013. Interest rates range from 2.62 percent to 14.02

percent. The following is a summary of the carrying values of assets held under capital lease at

June 30, 2013:

Net Position

Outstanding

Held Under

Balances per

Accumulated

Capital Lease Lease Schedules

Description

Gross Amount

Depreciation at June 30, 2013 at June 30, 2013

(+)

(-)

(=)

Land

$

50,600 $

0$

50,600 $

50,600

Equipment

48,511

44,836

3,675

3,377

Buildings - (PPV Only)

16,873,114

5,796,853

11,076,261

13,706,888

Total Assets Held Under Capital Lease at June 30, 2013 $

16,972,225 $

5,841,689 $ 11,130,536 $ 13,760,865

- 20 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

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.
In April 2010, the University System Office entered into a capital lease with a third party for the Shared Services Center in the amount of $3,578,343. The leased assets include land and a building located in Sandersville, Georgia. The lease expires in January, 2030, with an interest rate of 4%. Payments on the lease do not begin until the sixth year of the twenty year lease term. The outstanding principal balance as of June 30, 2013 was $4,072,488 due to the addition of $158,906 in capitalized interest to the principal balance.
The University System Office also has a capital lease for one building with an outstanding balance at June 30, 2013 in the amount of $9,685,000.
The University System Office also has various capital leases for equipment with an outstanding balance at June 30, 2013 in the amount of $3,376.
OPERATING LEASES
The University System Office has one operating lease for office space used by the Georgia Public Library System. The lease term began in fiscal year 2012 and is annually renewable through fiscal year 2020.
FUTURE COMMITMENTS
Future commitments for capital leases and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2013, were as follows:

Real Property and Equipment

Capital

Operating

Leases

Leases

Year Ending June 30: 2014 2015 2016 2017 2018 2019 - 2023 2024 - 2028 2029 - 2033

$

954,502 $

183,538

1,060,781

189,055

1,367,756

194,798

1,388,256

200,653

1,397,556

206,734

7,263,331

432,272

4,077,631

679,877

Total Minimum Lease Payments

$

18,189,690 $ 1,407,050

Less: Interest

4,428,825

Principal Outstanding

$

13,760,865

University System Office's fiscal year 2013 expense for rental of real property and equipment under operating leases was $1,549,081 .

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

Note 11. Retirement Plans
The University System Office participates in various retirement plans administered by the State of Georgia under two major retirement systems: Employees' Retirement System of Georgia (ERS System) and Teachers Retirement System of Georgia. These two systems issue separate publicly available financial reports that include the applicable financial statements and required supplementary information. The reports may be obtained from the respective system offices. The significant retirement plans that University System Office participates in are described below. More detailed information can be found in the plan agreements and related legislation. Each plan, including benefit and contribution provisions, was established and can be amended by State law.
Employees' Retirement System of Georgia
The ERS System is comprised of individual retirement systems and plans covering substantially all employees of the State of Georgia except for teachers and other employees covered by the Teachers Retirement System of Georgia. One of the ERS System plans, the Employees' Retirement System of Georgia (ERS), is a cost-sharing multiple-employer defined benefit pension plan that was established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees and has the powers and privileges of a corporation. ERS acts pursuant to statutory direction and guidelines, which may be amended prospectively for new hires but for existing members and beneficiaries may be amended in some aspects only subject to potential application of certain constitutional restraints against impairment of contract.
On November 20, 1997, the Board created the Supplemental Retirement Benefit Plan (SRBP-ERS) of ERS. SRBP-ERS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of the SRBP-ERS is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC Section 415. Beginning January 1, 1998, all members and retired former members in ERS are eligible to participate in the SRBP-ERS whenever their benefits under ERS exceed the limitation on benefits imposed by IRC Section 415.
The benefit structure of ERS is established by the Board of Trustees under statutory guidelines. Unless the employee elects otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. Members hired on or after July 1, 1982 but prior to January 1, 2009 are "new plan" members subject to the modified plan provisions. Effective January 1, 2009, newly hired State employees, as well as rehired State employees who did not maintain eligibility for the "old" or "new" plan, are members of the Georgia State Employees' Pension and Savings Plan (GSEPS). ERS members hired prior to January 1, 2009 also have the option to change their membership to the GSEPS plan.
Under the old plan, new plan, and GSEPS, a member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60 or 30 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60.
Retirement benefits paid to members are based upon a formula adopted by the Board of Trustees for such purpose. The formula considers the monthly average of the member's highest 24 consecutive calendar months of salary, the number of years of creditable service, and the member's

- 22 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

age at retirement. Post-retirement cost-of-living adjustments may be made to members' benefits provided the members were hired prior to July 1, 2009. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension, at reduced rates, to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS.

Member contribution rates are set by law. Member contributions under the old plan are 4% of annual compensation up to $4,200 plus 6% of annual compensation in excess of $4,200. Under the old plan, the University System Office pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these University System Office contributions are included in the members' accounts for refund purposes and are used in the computation of the members' earnable compensation for the purpose of computing retirement benefits. Member contributions under the new plan and GSEPS are 1.25% of annual compensation. The University System Office is required to contribute at a specified percentage of active member payroll established by the Board of Trustees determined annually in accordance with actuarial valuation and minimum funding standards as provided by law. These University System Office contributions are not at any time refundable to the member or his/her beneficiary.

Employer contributions required for fiscal year 2013 were based on the June 30, 2010 actuarial valuation as follows:

Old Plan* New Plan GSEPS

14.90% 14.90% 11.54%

*10.15% exclusive of contributions paid by the employer on behalf of old plan members

Members become vested after 10 years of service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions; the member forfeits all rights to retirement benefits.

Teachers Retirement System of Georgia

The Teachers Retirement System of Georgia (TRS) is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS.

On October 25, 1996, the Board created the Supplemental Retirement Benefit Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1, 1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits.

- 23 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.
Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 30 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Options are available for distribution of the member's monthly pension, at a reduced rate, to a designated beneficiary on the member's death. Death, disability and spousal benefits are also available.
TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 10 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2013 were 6.00% of annual salary. Employer contributions required for fiscal year 2013 were 11.41% of annual salary as required by the June 30, 2010 actuarial valuation.
The following table summarizes the University System Office contributions by defined benefit plan for the years ending June 30, 2013, June 30, 2012, and June 30, 2011 (dollars in thousands):

Fiscal Year

ERS

Required

Percentage

Contribution

Contributed

TRS

Required

Percentage

Contribution

Contributed

2013 2012 2011

$ 195,569

$ 112,663

$

72,484

100% 100% 100%

$ 2,453,831 $ 2,057,251 $ 2,083,786

100% 100% 100%

Regents Retirement Plan
Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 47-21-1 et.seq. and administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts.

- 24 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

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 2013, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 6% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.
The University System Office and the covered employees made the required contributions of $372,806 (9.24%) and $225,168 (6%), respectively.
AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.
Georgia Defined Contribution Plan
Plan Description 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 2013 amounted to $5,791 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 four different selfinsured healthcare plan options. For the University System of Georgia's Plan Year 2013, the following health care options were available:
Blue Choice HMO plan (Blue Cross Blue Shield) HSA Open Access POS plan (Blue Cross Blue Shield) Open Access POS plan Kaiser Permanente HMO plan
- 25 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

The University System Office and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these plans are considered to be a self-sustaining risk fund. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WellPoint, to serve as the claims administrator for the self-insured healthcare plan products. In addition to the self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HMO healthcare plan option is also offered to System employees through Kaiser.
The prescription drug plan is administered through Medco Health Solutions. Pharmacy drug claims are processed in accordance with guidelines established for the Board of Regents' Prescription Drug Benefit Program. Generally, claims are submitted by participating pharmacies directly to Medco Health Solutions for verification, processing and payment. Medco Health Solutions 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, 2012, and June 30, 2013 is shown below:

Employees; Unpaid Claims and Claim Adjustments (Prior Year IBNR)

June 30, 2013

June 30, 2012

$ 26,269,302 $ 23,289,175

Incurred Claims and Claim Adjustments Expenses Provisions for Insured Events of the Current Year

325,395,148

318,490,596

Payments - Claims and Claim Adjustments Attributable To Insured Events of the Current Year and Prior Years

318,927,296

315,510,469

Unpaid Claims and Claim Adjustments (Current Year IBNR) $ 32,737,154 $ 26,269,302

Retirees: Unpaid Claims and Claim Adjustments (Prior Year IBNR)

$

9,714,307 $

7,539,783

Incurred Claims and Claim Adjustments Expenses Provisions for Insured Events of the Current Year

113,908,368

117,510,071

Payments - Claims and Claim Adjustments Attributable To Insured Events of the Current Year and Prior Years

114,296,083

115,335,547

Unpaid Claims and Claim Adjustments (Current Year IBNR) $

9,326,592 $

9,714,307

- 26 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. 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.
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 expenditure disallowed under grant terms. The amount of expenditures which 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, 2013.
Note 14. Post-Employment Benefits Other Than Pension Benefits
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 20-3-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits.

- 27 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

The Board of Regents Retiree Health Benefit Plan is a single employer defined benefit plan. Financial statements and required supplementary information for the Plan are included in the publicly available Annual Financial Report of the University System of Georgia.

Membership of the plan consisted of the following at June 30, 2013:

Retirees and Beneficiaries Receiving Benefits Terminated Plan Members Entitled To But Not Yet Receiving Benefits Active Plan Members

$

21,601

0

37,768

Total

$

59,369

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 2013 plan year, the employer rate was between 70-75% of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%. 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 2013, the University System of Georgia contributed $83,414,616 to the plan, for current premiums or claims. Plan members receiving benefits contributed $30,135,574 for current premiums or claims.

As of June 30, 2013, there were 97 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2013, University System Office recognized as incurred $475,684 of expenditures, which was net of $202,746 of participant contributions.

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 fiscal year 2013, 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):
- 28 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

Annual Required Contribution Interest on Net OPEB Obligation Adjustment to Annual Required Contribution
Annual OPEB Cost (Expense) Less: Contributions Made
Increase in Net OPEB Obligation Net OPEB Obligation - Beginning of Year
Net OPEB Obligation - End of Year

June 30, 2013

$

362.4

57.5

-52.1

$

367.8

-83.4

$

284.4

1,278.2

$

1,562.6

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 the Retiree Health Benefit Plan for the current and past two fiscal years were as follows (dollar amounts in millions):

Annual OPEB Cost and Net OPEB Obligation

Fiscal Year Ended

Annual OPEB Cost

Percentage of Annual OPEB Cost Contributed

Net OPEB Obligation

2011 2012 2013

$ 397.7 $ $ 349.6 $ $ 367.8 $

20.2 $ 25.4 $ 22.7 $

1,017.4 1,278.2 1,562.6

Funded Status and Funding Progress

Actuarial Valuation
Date

Actuarial Value of Assets
(a)

Actuarial Accrued Liability (AAL)-Projected
Unit Credit (b)

Unfunded AAL (UAAL) (b-a)

Funded Ratio (a/b)

Annual Covered Payroll
(c)

UAAL as a Percentage of Covered
Payroll ((b-a)/c)

7/1/2010 $ 7/1/2011 $ 7/1/2012 $

122,538 $ 3,384,099,942 $ 3,383,977,404 123,230 $ 3,494,501,238 $ 3,494,378,008 165,684 $ 3,758,969,936 $ 3,758,804,252

0.0% $ 2,432,366,796 0.0% $ 2,526,211,986 0.0% $ 2,466,313,700

139.1% 138.3% 152.4%

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

- 29 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

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:

1 Valuation date 2 Cost method 3 Asset method 4 Amortization method 5 Amortization period 6 Interest Rate* 7 Inflation 8 Salary growth 9 Salary Scale 10 Initial Health Care Trend*
11 Ultimate Trend* 12 Year Ultimate trend is reached

July 1, 2012

Projected Unit Credit

Market Value

Level percent of payroll, closed

30 years

4.50%

2.50%

3.00%

4.00%

7.80%

Pre Medicare

7.30%

Medicare

4.50%

2027

*Includes an inflation assumption of 2.5%. Please note that the Interest Rate of Return percentage can change.

- 30 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "F"

Note 15. Natural Classifications with Functional Classifications

The University System Office's operating expenses by functional classification for fiscal year 2013 are shown below:

Functional Classification

Scholarships

Total

Public

Academic

Institutional

and

Operating

Natural Classification

Service

Support

Support

Fellowships

Expenses

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

$

2,181,676 $

616,431

53,910

2,300,090 62,598,893
190,063

623,930 $ 26,978,277

176,188

7,411,722

10,924

18,688

470,484

$

1,581

2,447,438

14,950,673 371,013,673

309,153

4,403,076

$ 173,273

29,783,883 8,204,341 10,924 543,082 173,273 4,749,109
448,563,239 4,902,292

Total Operating Expenses

$ 67,941,063 $

16,080,213 $ 412,735,594 $

173,273 $ 496,930,143

Note 16. Affiliated Organizations
The University System Office Foundation is a legally separate, tax exempt organization whose activities primarily support University System Office. This affiliated organization is considered a potential component unit of the State of Georgia in accordance with GASB Statement No. 61, The Financial Reporting Entity: Omnibus - an amendment of GASB Statements No. 14 and No. 34, and GASB Statement No. 39, Determining Whether Certain Organizations are Component Units. Therefore, the financial statements of the affiliated organization are not included in these financial statements. Copies of the financial statements for the affiliated organization may be obtained from University System Office.
The University System Office Foundation has been determined significant to the State of Georgia for the year ended June 30, 2013, and as such, is reported as a blended component unit in the Comprehensive Annual Financial Report of the State of Georgia (CAFR). Significant blended affiliated organizations issue separate audited financial statements that can be obtained from University System Office.
Note 17. Special Item Transfer
The University System Office entered into a forty-year intergovernmental agreement with the Georgia Public Telecommunications Commission (Commission) effective July 1, 2012. The Commission transferred other property and equipment at its headquarters location to the University System Office. In fiscal year 2013, building and equipment transferred to the University System Office totaled $28,339,594. The accumulated depreciation transferred totaled $10,545,665, for a net book value of $17,793,929. This transfer of assets is noted as a Special Item Transfer on the Statement of Revenues, Expenses and Changes in Net Position. See Note 6 for additional information.

- 31 -

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) SCHEDULE OF FUNDING PROGRESS YEAR ENDED JUNE 30, 2013

SCHEDULE "1"

Actuarial Valuation
Date

Actuarial Value of Assets
(a)

7/1/2010 $ 7/1/2011 $ 7/1/2012 $

122,538 $ 123,230 $ 165,684 $

Actuarial Accrued Liability (AAL) Projected Unit Credit
(b)

Unfunded AAL (UAAL) (b-a)

3,384,099,942 $ 3,494,501,238 $ 3,758,969,936 $

3,383,977,404 3,494,378,008 3,758,804,252

Funded Ratio (a/b)

Covered Payroll (c)

0.0% $ 0.0% $ 0.0% $

2,432,366,796 2,526,211,986 2,466,313,700

UAAL as a Percentage of Covered
Payroll ((b-a)/c)
139.1% 138.3% 152.4%

BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND SCHEDULE OF EMPLOYER CONTRIBUTIONS

Fiscal Year

Required Contribution

Percentage Contributed

2011 2012 2013

$ 411,515,899 $ 345,297,650 $ 362,426,199

19.5% 25.7% 23.0%

- 33 -

SUPPLEMENTARY INFORMATION - 34 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30, 2013

SCHEDULE "2"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable
Federal Financial Assistance Other Prepaid Expenditures Inventories
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Unearned Revenue
Total Liabilities
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Restricted/Sponsored Funds Uncollectible Accounts Receivable Property Reserves Inventories Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances

$

29,205,207.12

3,597,992.86

1,326,005.43 3,009,550.70 1,287,693.79
404,920.73

$

38,831,370.63

$

29,376.15

12,129,108.53

203,458.54

409,550.89

$

12,771,494.11

$

13,979,965.15

526,167.94

6,910,783.47

39,716.59

4,126,023.59

404,920.73

72,299.05

$

26,059,876.52

$

38,831,370.63

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 35 -

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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, 2013

SCHEDULE "3"

REVENUES
State Appropriation State General Funds
Other Funds
Total Revenues
ADJUSTMENTS AND PROGRAM TRANSFERS
CARRY-OVER FROM PRIOR YEARS
Transfers from Reserved Fund Balance
Total Funds Available
EXPENDITURES
Public Libraries Regents Central Office Medical College of Georgia Hospital and Clinics Georgia Public Telecommunications Commission Georgia Radiation Therapy Center Georgia Military College Special Funding Initiative Teaching
Total Expenditures
Excess of Funds Available over Expenditures
FUND BALANCE JULY 1
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Unreserved Fund Balance (Surplus) Returned
to Office of the State Treasurer Year Ended June 30, 2012
Unreserved Fund Balance (Surplus) Returned to Board of Regents - University System Office Year Ended June 30, 2012
Prior Year Reserved Fund Balance Included in Funds Available
FUND BALANCE JUNE 30
SUMMARY OF FUND BALANCE
Reserved Department Sales and Services Indirect Cost Recoveries Restricted/Sponsored Funds Uncollectible Accounts Receivable Property Reserves Inventories
Total Reserved
Unreserved Surplus
Total Fund Balance
Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 37 -

BUDGET

ACTUAL

VARIANCE FAVORABLE (UNFAVORABLE)

$ 133,535,182.00 $ 133,535,182.00 $

0.00

74,912,246.00

60,343,276.43

-14,568,969.57

$ 208,447,428.00 $ 193,878,458.43 $ -14,568,969.57

0.00

0.00

0.00

0.00

24,832,263.94

24,832,263.94

$ 208,447,428.00 $ 218,710,722.37 $ 10,263,294.37

$ 36,445,836.00 $ 35,317,841.83 $

8,102,099.00

8,096,356.70

28,297,463.00

28,297,463.00

13,370,145.00

13,370,145.00

3,625,810.00

3,625,810.00

2,269,752.00

2,269,752.00

1,366,899.00

1,366,893.08

114,969,424.00

100,661,525.84

1,127,994.17 5,742.30 0.00 0.00 0.00 0.00 5.92
14,307,898.16

$ 208,447,428.00 $ 193,005,787.45 $ 15,441,640.55

$

0.00 $ 25,704,934.92 $ 25,704,934.92

25,152,166.84 370,537.57

35,038.70
-2,977,784.38
2,607,246.81 -24,832,263.94 $ 26,059,876.52

$ 13,979,965.15 526,167.94
6,910,783.47 39,716.59
4,126,023.59 404,920.73
$ 25,987,577.47
72,299.05
$ 26,059,876.52

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2013

Public Libraries State Appropriation State General Funds Other Funds
Total Public Libraries
Regents Central Office State Appropriation State General Funds
Medical College of Georgia Hospital and Clinics State Appropriation State General Funds
Georgia Public Telecommunications Commission State Appropriation State General Funds
Georgia Radiation Therapy Center Other Funds
Georgia Military College State Appropriation State General Funds
Special Funding Initiative State Appropriation State General Funds
Teaching State Appropriation State General Funds Other Funds
Total Teaching
Total Operating Activity

Original Appropriation

Amended Appropriation

Final Budget

Current Year Revenues

$

32,189,109.00 $

32,189,109.00 $

31,223,436.00 $ 31,223,436.00

5,222,400.00

5,222,400.00

5,222,400.00

4,095,599.71

$

37,411,509.00 $

37,411,509.00 $

36,445,836.00 $ 35,319,035.71

$

8,231,266.00 $

8,231,266.00 $

8,102,099.00 $

8,102,099.00

$

29,172,642.00 $

29,172,642.00 $

28,297,463.00 $ 28,297,463.00

$

12,850,843.00 $

12,850,843.00 $

13,370,145.00 $ 13,370,145.00

$

3,625,810.00 $

3,625,810.00 $

3,625,810.00 $

3,625,810.00

$

2,339,951.00 $

2,339,951.00 $

2,269,752.00 $

2,269,752.00

$

4,230,000.00 $

4,230,000.00 $

1,366,899.00 $

1,366,899.00

$

52,996,999.00 $

52,996,999.00 $

48,905,388.00 $ 48,905,388.00

82,596,076.00

82,596,076.00

66,064,036.00

52,621,866.72

$

135,593,075.00 $

135,593,075.00 $

114,969,424.00 $ 101,527,254.72

$

233,455,096.00 $

233,455,096.00 $

208,447,428.00 $ 193,878,458.43

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 special purpose framework.
- 38 -

SCHEDULE "4"

Funds Available Compared to Budget

Prior Year

Adjustments and

Total

Carry-Over

Program Transfers

Funds Available

Variance Positive (Negative)

Expenditures Compared to Budget

Variance

Actual

Positive (Negative)

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

$

0.00 $

0.00

$

0.00 $

0.00 $ 0.00

31,223,436.00 $ 4,095,599.71

0.00 $ 35,319,035.71 $

0.00 $ -1,126,800.29
-1,126,800.29 $

31,222,242.12 $ 4,095,599.71
35,317,841.83 $

1,193.88 $ 1,126,800.29
1,127,994.17 $

1,193.88 0.00
1,193.88

$

0.00 $

0.00 $

8,102,099.00 $

0.00 $

8,096,356.70 $

5,742.30 $

5,742.30

$

0.00 $

0.00 $ 28,297,463.00 $

0.00 $ 28,297,463.00 $

0.00 $

0.00

$

0.00 $

$

0.00 $

0.00 $ 13,370,145.00 $

0.00 $

3,625,810.00 $

0.00 $ 13,370,145.00 $

0.00 $

3,625,810.00 $

0.00 $ 0.00 $

0.00 0.00

$

0.00 $

0.00 $

2,269,752.00 $

0.00 $

2,269,752.00 $

0.00 $

0.00

$

0.00 $

0.00 $

1,366,899.00 $

0.00 $

1,366,893.08 $

5.92 $

5.92

$

0.00 $

24,832,263.94

$ 24,832,263.94 $

0.00 $ 0.00

48,905,388.00 $ 77,454,130.66

0.00 $ 126,359,518.66 $

0.00 $ 11,390,094.66

48,900,649.83 $ 51,760,876.01

11,390,094.66 $ 100,661,525.84 $

4,738.17 $ 14,303,159.99
14,307,898.16 $

4,738.17 25,693,254.65
25,697,992.82

$ 24,832,263.94 $

0.00 $ 218,710,722.37 $

10,263,294.37 $ 193,005,787.45 $

15,441,640.55 $

25,704,934.92

- 39 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2013

Public Libraries State Appropriation State General Funds Other Funds
Total Public Libraries
Regents Central Office State Appropriation State General Funds
Medical College of Georgia Hospital and Clinics State Appropriation State General Funds
Georgia Public Telecommunications Commission State Appropriation State General Funds
Georgia Radiation Therapy Center Other Funds
Georgia Military College State Appropriation State General Funds
Special Funding Initiative State Appropriation State General Funds
Teaching State Appropriation State General Funds Other Funds
Total Teaching
Total Operating Activity
Prior Year Reserves Not Available for Expenditure Inventories Uncollectible Accounts Receivable

Beginning Fund Balance/(Deficit)
July 1

Fund Balance Carried Over from
Prior Period as Funds Available

Return of Fiscal Year 2012
Surplus

Prior Period Adjustments

$

595.43 $

0.00

$

595.43 $

0.00 $ 0.00
0.00 $

-595.43 $ 0.00
-595.43 $

0.00 0.00
0.00

$

0.00 $

0.00 $

0.00 $

0.00

$

0.00 $

0.00 $

0.00 $

0.00

$

0.00 $

$

0.00 $

0.00 $ 0.00 $

0.00 $ 0.00 $

0.00 0.00

$

0.00 $

0.00 $

0.00 $

0.00

$

79,729.11 $

0.00 $

-79,729.11 $

0.00

$

290,213.03 $

0.00 $

24,832,263.94

-24,832,263.94

$

25,122,476.97 $

-24,832,263.94 $

$

25,202,801.51 $

-24,832,263.94 $

-290,213.03 $ 0.00
-290,213.03 $
-370,537.57 $

34,994.70 44.00
35,038.70
35,038.70

280,186.31 39,716.59

0.00 0.00

0.00 0.00

0.00 0.00

Budget Unit Totals

$

25,522,704.41 $

-24,832,263.94 $

-370,537.57 $

35,038.70

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 special purpose framework.
- 40 -

SCHEDULE "5"

Other Adjustments

Early Return Fiscal Year 2013
Surplus

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

Ending Fund Balance/(Deficit)
June 30

Analysis of Ending Fund Balance

Reserved

Surplus/(Deficit)

Total

$

0.00 $

0.00

$

0.00 $

0.00 $ 0.00
0.00 $

1,193.88 $ 0.00
1,193.88 $

1,193.88 $ 0.00
1,193.88 $

0.00 $ 0.00
0.00 $

1,193.88 $ 0.00
1,193.88 $

1,193.88 0.00
1,193.88

$

0.00 $

0.00 $

5,742.30 $

5,742.30 $

0.00 $

5,742.30 $

5,742.30

$

0.00 $

0.00 $

0.00 $

0.00 $

0.00 $

0.00 $

0.00

$

0.00 $

$

0.00 $

0.00 $ 0.00 $

0.00 $ 0.00 $

0.00 $ 0.00 $

0.00 $ 0.00 $

0.00 $ 0.00 $

0.00 0.00

$

0.00 $

0.00 $

0.00 $

0.00 $

0.00 $

0.00 $

0.00

$

0.00 $

0.00 $

5.92 $

5.92 $

0.00 $

5.92 $

5.92

$

0.00 $

-124,734.42

$

-124,734.42 $

$

-124,734.42 $

0.00 $ 0.00
0.00 $
0.00 $

4,738.17 $ 25,693,254.65

39,732.87 $

0.00 $

25,568,564.23

25,542,940.15

25,697,992.82 $ 25,608,297.10 $ 25,542,940.15 $

25,704,934.92 $ 25,615,239.20 $ 25,542,940.15 $

39,732.87 $

39,732.87

25,624.08

25,568,564.23

65,356.95 $ 25,608,297.10

72,299.05 $ 25,615,239.20

124,734.42 0.00

0.00 0.00

0.00 0.00

404,920.73 39,716.59

404,920.73 39,716.59

0.00 0.00

404,920.73 39,716.59

$

0.00 $

0.00 $

25,704,934.92 $ 26,059,876.52 $ 25,987,577.47 $

72,299.05 $ 26,059,876.52

Summary of Ending Fund Balance Reserved
Department Sales and Services Indirect Cost Recoveries Restricted/Sponsored Funds Uncollectible Accounts Receivable Property Reserves Inventories Unreserved Surplus
Total Ending Fund Balance - June 30

$ 13,979,965.15 526,167.94
6,910,783.47 39,716.59
4,126,023.59 404,920.73
$
$ 25,987,577.47 $

$ 13,979,965.15 526,167.94
6,910,783.47 39,716.59
4,126,023.59 404,920.73

72,299.05

72,299.05

72,299.05 $ 26,059,876.52

- 41 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) RECONCILIATION OF BUDGET TO GAAP YEAR ENDED JUNE 30, 2013

SCHEDULE "6"

Presented below is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 2, to Net Position of business-type activities, as reported on Exhibit A.
Total Fund Balances - Budget Fund - Non-GAAP Basis (Schedule "2")
Amounts reported for Business-Type Activities in the Statement of Net Position are different because:
Capital Assets used in Business-Type Activities are not reported in the Budget Fund.
Uncollectible accounts receivable are reported as an asset and reserved fund balance in the Budget Fund and as a contra-asset account on the Statement of Net Position.
Notes Receivable reported on the Statement of Net Position is not reported in the Budget.
Changes in the Fair Market Value of Investments are recognized on the Statement of Net Position, but are not reported in the Budget Fund.
Agency Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Agency Fund Activity
Endowment Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Endowment Fund Activity
Health Insurance Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Health Insurance Fund Activity
The budgetary basis of accounting implemented by the State of Georgia recognizes expenditures when encumbered. The following adjustments were made to eliminate this activity for reporting on the Statement of Net Position. Payables reported in the Budget Fund that are based on encumbrances are eliminated for GAAP reporting. Payables for goods and services provided in the current fiscal year reported in the Budget Fund as encumbrances payable are reported as accounts payable for GAAP reporting. Total Net Effect of Encumbrance Activity
Certain Liabilities are not due and payable in the current period and therefore are not reported as liabilities in the Budget Fund. Capital Leases Payable Compensated Absences Payable Total Liabilities
Unidentified Variance

$ 26,059,877

40,872,408

-39,717 1,732,832

1,645,786

$ 438,891,507 -438,891,507 0

$

4,375,648

0

4,375,648

$ 129,588,450 -33,735,173

95,853,277

$ 12,129,109

683,418

12,812,527

$ -13,760,865 -3,580,459

-17,341,324 3,518

Net Position of Business-Type Activities (Exhibit "A")

$ 165,974,832

The supplementary information presented on Schedules 2, 3, 4 and 5 was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework. The information was derived from, and relates directly to, the same information used to prepare the financial statements. However, the budgetary statutes and regulations of the State of Georgia require reporting of certain information that is not in accordance with generally accepted accounting principles. Presented on this schedule is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Position of business-type activities, as reported on Exhibit A.
- 42 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) SCHEDULE OF APPROVED BUDGET YEAR ENDED JUNE 30, 2013

SCHEDULE "7"

REVENUES
State Appropriation Other Funds
Total Revenues
CARRY-OVER FROM PRIOR YEARS
Transfers from Reserved Fund Balance
Total Funds Available
EXPENDITURES
Agricultural Experiment Station Athens and Tifton Veterinary Laboratories Cooperative Extension Service Enterprise Innovation Institute Forestry Cooperative Extension Forestry Research Georgia Military College Georgia Public Telecommunications Georgia Radiation Therapy Center Georgia Tech Research Institute Marine Institute Marine Resources Extension Center Medical College of Georgia Hospital and Clinics Public Libraries Regents Central Office Research Consortium Skidaway Institute of Oceanography Special Funding Initiative Teaching Veterinary Medicine Experiment Station Veterinary Medicine Teaching Hospital
Total Expenditures

ORIGINAL APPROPRIATION

FINAL APPROVED
BUDGET

LESS: BUDGET TRANSFERS TO OTHER UNITS

TOTAL

$ 1,828,569,784.00 $ 1,747,463,827.00 $ 1,613,928,645.00 $ 133,535,182.00

4,353,668,931.00

5,161,041,433.00

5,086,129,187.00

74,912,246.00

$ 6,182,238,715.00 $ 6,908,505,260.00 $ 6,700,057,832.00 $ 208,447,428.00

0.00

0.00

0.00

0.00

$ 6,182,238,715.00 $ 6,908,505,260.00 $ 6,700,057,832.00 $ 208,447,428.00

$

72,659,924.00 $

105,974,176.00 $

105,974,176.00 $

0.00

4,944,522.00

6,578,443.00

6,578,443.00

0.00

54,551,780.00

70,099,782.00

70,099,782.00

0.00

17,850,440.00

20,582,077.00

20,582,077.00

0.00

1,002,786.00

1,326,190.00

1,326,190.00

0.00

11,530,354.00

14,301,734.00

14,301,734.00

0.00

2,339,951.00

2,269,752.00

0.00

2,269,752.00

12,850,843.00

13,370,145.00

0.00

13,370,145.00

3,625,810.00

3,625,810.00

0.00

3,625,810.00

229,709,589.00

329,209,589.00

329,209,589.00

0.00

1,215,731.00

1,495,203.00

1,495,203.00

0.00

2,544,650.00

3,299,176.00

3,299,176.00

0.00

29,172,642.00

28,297,463.00

0.00

28,297,463.00

37,411,509.00

36,445,836.00

0.00

36,445,836.00

8,231,266.00

8,102,099.00

0.00

8,102,099.00

6,293,244.00

6,104,447.00

6,104,447.00

0.00

4,779,305.00

5,902,426.00

5,902,426.00

0.00

18,843,915.00

18,278,598.00

16,911,699.00

1,366,899.00

5,650,083,001.00

6,214,855,236.00

6,099,885,812.00

114,969,424.00

2,546,463.00

2,470,069.00

2,470,069.00

0.00

10,050,990.00

15,917,009.00

15,917,009.00

0.00

$ 6,182,238,715.00 $ 6,908,505,260.00 $ 6,700,057,832.00 $ 208,447,428.00

See notes to the financial statements.

- 43 -

RESEARCH UNIVERSITIES
Georgia Institute of Technology Georgia Regents University Georgia State University University of Georgia
COMPREHENSIVE UNIVERSITIES
Georgia Southern University Kennesaw State University University of West Georgia Valdosta State University
STATE UNIVERSITIES
Albany State University Armstrong Atlantic State University Clayton State University Columbus State University Fort Valley State University Georgia College and State University Georgia Southwestern State University Savannah State University Southern Polytechnic State University University of North Georgia
STATE COLLEGES
Abraham Baldwin Agricultural College Atlanta Metropolitan State College Bainbridge State College College of Coastal Georgia Dalton State College Darton State College East Georgia State College Georgia Gwinnett College Georgia Highlands College Georgia Perimeter College Gordon State College Middle Georgia State College South Georgia State College
OTHER
Skidaway Institute of Oceanography

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, 2013

AGRICULTURAL EXPERIMENT
STATION

COOPERATIVE EXTENSION SERVICE

ENTERPRISE INNOVATION INSTITUTE

FORESTRY COOPERATIVE EXTENSION

FORESTRY RESEARCH

GEORGIA TECH
RESEARCH INSTITUTE

$ 7,154,177.00

$ 5,569,382.00

$ 34,053,795.00 $ 28,583,815.00

$

487,702.00 $ 2,502,530.00

$ 34,053,795.00 $ 28,583,815.00 $ 7,154,177.00 $

487,702.00 $ 2,502,530.00 $ 5,569,382.00

See notes to the financial statements.

- 44 -

SCHEDULE "8"

MARINE INSTITUTE

MARINE RESOURCES EXTENSION
CENTER

RESEARCH CONSORTIUM

SKIDAWAY INSTITUTE OF OCEANOGRAPHY

SPECIAL FUNDING INITIATIVE

TEACHING

VETERINARY MEDICINE EXPERIMENT STATION

VETERINARY MEDICINE TEACHING HOSPITAL

TOTAL

$ 5,896,551.00 $ 707,566.00 $ 1,163,147.00

$ $ 11,271,099.00
145,850.00

188,416,516.00 150,838,210.00 178,934,363.00 292,816,194.00 $

2,470,069.00 $

$ 416,168.00

207,036,626.00 162,109,309.00 179,080,213.00 363,200,986.00

207,896.00

126,000.00 503,020.00 101,506.00

76,205,063.00 75,563,271.00 42,455,062.00 44,914,799.00

76,205,063.00 75,897,167.00 42,958,082.00 45,016,305.00

162,633.00 399,750.00 3,664,741.00
58,500.00
39,700.00

19,154,146.00 26,682,356.00 21,736,525.00 30,445,360.00 18,135,983.00 27,240,350.00 11,026,793.00 17,273,383.00 39,089,954.00 21,529,737.00

19,154,146.00 26,682,356.00 21,899,158.00 30,845,110.00 21,800,724.00 27,240,350.00 11,085,293.00 17,273,383.00 39,089,954.00 21,569,437.00

117,000.00
136,200.00 185,700.00

12,439,122.00 8,228,293.00 8,815,059.00
12,751,032.00 13,269,964.00 14,155,641.00
6,487,311.00 34,786,134.00 13,435,434.00 45,018,238.00 11,240,659.00 32,190,225.00 10,135,837.00

12,439,122.00 8,228,293.00 8,815,059.00
12,868,032.00 13,269,964.00 14,155,641.00
6,487,311.00 34,786,134.00 13,435,434.00 45,018,238.00 11,376,859.00 32,375,925.00 10,135,837.00

$

1,192,426.00

1,200,708.00

2,393,134.00

$ 707,566.00 $ 1,163,147.00 $ 6,104,447.00 $

1,192,426.00 $ 16,911,699.00 $ 1,506,611,722.00 $ 2,470,069.00 $ 416,168.00 $ 1,613,928,645.00

- 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 YEAR ENDED JUNE 30, 2013

SCHEDULE "9"

RESEARCH INSTITUTIONS
Georgia Institute of Technology Georgia State University Georgia Health Sciences University University of Georgia
REGIONAL UNIVERSITIES
Georgia Southern University Valdosta State University
STATE UNIVERSITIES
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 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 State College Macon State College Middle Georgia College
TWO-YEAR COLLEGES
Atlanta Metropolitan State College Bainbridge State College Darton State College East Georgia State College Georgia Highlands College Georgia Perimeter College South Georgia College Waycross College
OTHER
Skidaway Institute of Oceanography
See notes to the financial statements.

- 46 -

COLLECTED

$

152,893.91

147,382.59

213,221.90

116,015.71

185,952.50 184,607.06

516,711.92 12,991.11 15,868.27 28,830.89 14,514.53 42,674.57 10,582.88 982.58 11,274.82 17,155.86
402,338.03 21,359.93

266.48 7,882.19
994.36 183.67 9,115.07 41,519.68 128,315.28

23,279.61 15,098.40
845.18 767.14 2,297.02 222,917.50 28,587.83 3,529.64

26,288.70

$ 2,607,246.81

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2013

SCHEDULE "10"

Totals per Annual Supplement
Accruals June 30, 2013 June 30, 2012
Compensated Absences June 30, 2013 June 30, 2012
Adjustments Shared Services on Jointly Staffed Personnel Shared Services Center Employees Reported by Middle Georgia State College Employee Awards Classified as Other Personal Services Variance in Reporting of Compensated Absences

SALARIES

$

28,115,986 $

TRAVEL 543,082

29,376 0

3,306,554 -2,896,804

321,756 905,552
-950 2,413

$

29,783,883 $

543,082

- 47 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

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

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
March 6, 2014

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable Henry M. Huckaby, Chancellor
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the basic financial statements of the University System Office as of and for the year ended June 30, 2013, and have issued our report thereon dated March 6, 2014.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the University System Office's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the University System Office's internal control. Accordingly, we do not express an opinion on the effectiveness of the University System Office's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
2013YB-10

Compliance and Other Matters
As part of obtaining reasonable assurance about whether the University System Office's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Respectfully submitted,

GSG:as 2013YB-10

Greg S. Griffin State Auditor

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

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2013
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
No matters were reported.
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
No matters were reported.

SECTION IV 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, 2013
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.