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, 2016 [June 30, 2016]

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
ATLANTA, GEORGIA
REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2016

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

Page

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S REPORT

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

i

BASIC FINANCIAL STATEMENTS

EXHIBITS

A STATEMENT OF NET POSITION

2

B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION

3

C STATEMENT OF CASH FLOWS

4

D STATEMENT OF FIDUCIARY NET POSITION

5

E STATEMENT OF CHANGES IN FIDUCIARY NET POSITION

6

F NOTES TO THE FINANCIAL STATEMENTS

7

REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULES

1 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY

TEACHERS RETIREMENT SYSTEM OF GEORGIA

41

2 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY

EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA

42

3 SCHEDULE OF CONTRIBUTIONS TEACHERS RETIREMENT SYSTEM OF GEORGIA

43

4 SCHEDULE OF CONTRIBUTIONS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA 44

5 SCHEDULE OF FUNDING PROGRESS

45

6 NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION

46

SUPPLEMENTARY INFORMATION

7 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND

48

8 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT

(NON-GAAP BASIS) BUDGET FUND

49

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

SECTION I
FINANCIAL
SUPPLEMENTARY INFORMATION
SCHEDULES
9 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND
10 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND
11 SCHEDULE OF APPROVED BUDGET 12 SCHEDULE OF ALLOTMENTS TO UNITS OF THE UNIVERSITY SYSTEM OF
GEORGIA 13 ANALYSIS OF PRIOR YEAR'S SURPLUS FUNDS COLLECTED FROM
INSTITUTIONS

Page
50 52 54 56 59

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

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SECTION I FINANCIAL

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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
December 30, 2016

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

INDEPENDENT AUDITOR'S REPORT
Ladies and Gentlemen:
Report on the Financial Statements
We have audited the accompanying financial statements of the 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, 2016 and the related notes to the financial statements, which comprise the University System Office's basic financial statements as listed in the table of contents.
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

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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 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.
Opinions
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, 2016, and the respective changes in financial position and cash flows thereof for the year then ended in accordance 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, the 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, 2016, 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. Our opinions are not modified with respect to this matter.
As described in Note 1 to the financial statements, in 2016, the University System Office adopted new accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application. Our opinions are not modified with respect to this matter.
As discussed in Note 1 to the financial statements, the prior period financial statements have been restated to correct the beginning balance of Capital Assets and Net Investment in Capital Assets. Our opinions are 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 ix and the Schedules of Proportionate Share of the Net Pension Liability, Schedules of Contributions to Retirement Systems, Schedule of Funding Progress and the Notes to the Required Supplemental Information on pages 41 through 46 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 7 through 13) is presented for purposes of additional analysis and is not a required part of the basic financial statements.
The accompanying supplementary information (Schedules 7 through 13) 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 December 30, 2016, 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,
Greg S. Griffin State Auditor

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BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
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 29 institutions: four research institutions, four comprehensive universities, 10 state universities, and 11 state colleges. These institutions enroll more than 318,000 students and employ approximately 14,600 faculty and 30,500 staff to provide teaching and related services to students and the communities in which they are located. The Board has oversight of the Georgia Archives and the Georgia Public Library System.
The University System Office also serves as custodian of the 457(f) Deferred Compensation and 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 2016. 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 2016 and fiscal year 2015. Two additional statements are presented: the Statement of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position for the Pension Trust and Retirees Health Benefits Funds.
Statement of Net Position
The Statement of Net Position is a financial condition snapshot as of June 30, 2016 and includes all assets (both current and noncurrent), deferred outflows of resources, liabilities (both current and noncurrent) and deferred inflows of resources. The differences between current and non-current assets are discussed in the Notes to the Financial Statements. The Statement of Net Position is prepared under the accrual basis of accounting which requires revenue and asset recognition when the service is provided, and expense and liability recognition when goods or services are received despite when cash is actually exchanged.
i

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. The difference between assets, deferred outflows of resources, liabilities and deferred inflows of resources (net position) is one indicator of the University System Office's financial health. Increases or decreases in net position provide an indicator of the improvement or decline of the University System Office's financial health when considered in conjunction with other nonfinancial conditions, such as facilities and enrollment.
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. 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, 2016

June 30, 2015 (1)

Assets Current Assets Capital Assets, Net Other Assets

$ 1,024,514,018 364,708,112 11,755,164

$ 788,074,122 346,190,139 11,208,425

Total Assets

1,400,977,294

1,145,472,686

Deferred Outflows of Resources

9,324,043

7,090,723

Liabilities Current Liabilities Noncurrent Liabilities

760,780,043 84,460,770

658,056,398 77,706,118

Total Liabilities

845,240,813

735,762,516

Deferred Inflows of Resources

400,284,495

324,163,539

Net Position Net Investment in Capital Assets Restricted Nonexpendable Expendable Unrestricted

296,811,509
4,391,602 10,373,178 -146,800,260

300,071,175
4,388,201 99,390,713 -311,212,735

Total Net Position

$ 164,776,029

$

92,637,354

(1) The June 30, 2015 amounts do not reflect the effects of the restatement of July 1, 2015 net position. See Note 1 in the Notes to the Financial Statements for more information.

ii

Total assets and deferred outflows of resources increased by $257,737,928 which was primarily due to increases of $110,743,089 in the categories of Cash and Cash Equivalents and Non-current Cash, $81,448,554 in the category of Accounts Receivable and $44,739,552 in the category of Short-term Investments. The increases in Cash and Cash Equivalents and Short-term Investments are primarily attributable to increased investments in the Board of Regents Investment Pool, including the reporting of the Diversified Fund for Foundations in fiscal year 2016. The Board of Regents Investment Pool is further discussed in Note 2 in the Notes to the Financial Statements. The increase in Accounts Receivable is primarily due to a Service Concession Agreement transaction related to USG housing projects. Service Concession Arrangements are discussed in detail in Note 9 in the Notes to the Financial Statements.
Total liabilities and deferred inflows of resources increased for the year by $185,599,253. This increase is directly correlated with the increased Cash and Investments in the Board of Regents Investment Pool by organizational units and affiliated organizations of the University System of Georgia, and the increase in Accounts Receivable described above. The combination of the increase in total assets and deferred outflows of resources and the increase in total liabilities and deferred inflows of resources yielded an increase in net position of $72,138,675. The increase in net position is primarily in the category Unrestricted Net Assets, in the amount of $164,412,475. The decrease in Restricted Expendable is due to the reclassification of the Health Insurance Reserve Net Assets to the Unrestricted category in fiscal year 2016.
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 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.
iii

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

June 30, 2016

June 30, 2015 (1)

Operating Revenues Operating Expenses

$ 535,858,619 651,349,911

$ 460,315,729 599,043,977

Operating Loss

-115,491,292

-138,728,248

Nonoperating Revenues and Expenses

184,679,203

143,505,082

Income Before Other Revenues, Expenses, Gains or Losses

69,187,911

4,776,834

Other Revenues, Expenses, Gains or Losses

13,870

-42,598,441

Increase (Decrease) in Net Position

69,201,781

-37,821,607

Net Position at Beginning of Year, as Originally Reported

92,637,354

166,955,019

Prior Year Adjustments

2,936,894

-36,496,058

Net Position at Beginning of Year, Restated

95,574,248

130,458,961

Net Position at End of Year

$ 164,776,029

$ 92,637,354

(1) The June 30, 2015 amounts do not reflect the effects of the restatement of July 1, 2015 net position. See Note 1 in the Notes to the Financial Statements for more information.

iv

The Statement of Revenues, Expenses and Changes in Net Position reflects 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:

Revenue by Source For the Years Ended June 30, 2016 and June 30, 2015

June 30, 2016

June 30, 2015

Operating Revenue Grants and Contracts Sales and Services Auxiliary Other

$

145,549

52,720,998

6,500,459

476,491,613

$

8,922,706

50,484,284

12,720,688

388,188,051

Total Operating Revenue

535,858,619

460,315,729

Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income

177,122,170 20,592,336 3,102,115 642,570

157,565,896 2,120,351
254,753

Total Nonoperating Revenue

201,459,191

159,941,000

Capital Grants and Gifts State

13,870

855,929

Total Revenues

$ 737,331,680

$ 621,112,658

v

Expenses (By Functional Classification) For the Years Ended June 30, 2016 and June 30, 2015

June 30, 2016

June 30, 2015

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

$

46,025

81,801,789

22,376,378

521,840,014

60,000 25,225,705

$

49,388

73,548,041

19,102,497

495,288,192

490,166

197,638

10,368,055

Total Operating Expenses

651,349,911

599,043,977

Nonoperating Expenses Interest Expense (Capital Assets) Other

1,807,807 14,972,181

1,884,851 14,551,067

Total Nonoperating Expenses

16,779,988

16,435,918

Special Items Capital Asset and Related Debt Loss on Debt Retirement

0

42,772,879

681,491

Total Special Items

0

43,454,370

Total Expenses and Special Items

$ 668,129,899

$ 658,934,265

Operating revenues increased by $75,542,890 in fiscal year 2016, consisting primarily of USG System health premiums and prescription rebates reported in the Other Operating Revenues category. The Grants and Contracts decrease of $8,777,157 is due to a combination of grants that either ended or were reclassified to Nonoperating Grants and Contracts due to their nonexchange nature.
The Auxiliary revenue decrease of $6,220,229 represents an expected decline in scheduled P3 project revenues in the second year of the Service Concession agreement as compared to the first year, which included amounts intended to cover one-time costs. The P3 projects are a portfolio of residence hall or other student services projects across the University System of Georgia that are managed through a Service Concession arrangement with a third party.
Nonoperating revenues and expenses increased by $41,174,121 for the year primarily due to increases in State Appropriations and Grants and Contracts revenue. The Grants and Contracts category increase is affected by the reclassification of grant revenue from operating to nonoperating discussed above and $12,879,302 in contract revenue recognized that is related to P3 Service Concession arrangement Deferred Inflows.

vi

The compensation and employee benefits category increased by $5,652,561 and primarily affected the Institutional Support and Public Service categories. The increase reflects the addition of staff, merit increases and an increased cost of health insurance for the employees of the University System Office.
Utilities increased $3,624,461 during the past year. The increase was primarily associated with expansion of fiber and fiber routes across the state of Georgia.
Supplies and Other Services increased by $33,642,593 during the past year. The increase affected all categories, including increases in health claims expense, software license and support costs and Retained Services funds distributed to USG institutions within the P3 portfolio.
Depreciation Expense increased by $9,296,112 as a result of a full year of depreciation expense on the P3 portfolio of housing projects.

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. Cash flow information can be used to evaluate the financial viability of the University System Office's ability to meet financial obligations as they mature. 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, 2016 and 2015, Condensed

June 30, 2016

June 30, 2015

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

$ -125,403,287 248,170,935 -12,775,638 751,079

$ -117,873,444 163,107,290 -15,225,648 27,763,958

Net Change in Cash

110,743,089

57,772,156

Cash, Beginning of Year

561,106,375

503,334,219

Cash, End of Year

$

671,849,464

$

561,106,375

vii

Capital Assets

The University System Office recorded two newly constructed residence hall projects that came on line during fiscal year 2016 at East Georgia College for $11,989,213 and College of Coastal Georgia for $10,650,907. Both projects are included in the P3 portfolio that is managed by Service Concession arrangement.

Other significant additions to Capital Assets include Software Development in Progress totaling $7,069,709. This represents software license and development costs associated with the HCM (Human Capital Management) project that began in fiscal year 2015 and continued throughout fiscal year 2016.

For additional information concerning Capital Assets, see Notes 1, 6, 8, 9 and 13 in the Notes to the Financial Statements.

Long-Term Liabilities

The University System Office had Long-Term Liabilities of $89,271,918 of which $4,811,148 were reflected as current liability at June 30, 2016.

For additional information concerning Long-Term Liabilities, see Note 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 2016 is provided below:

June 30, 2016

June 30, 2015

Employees:

Unpaid Claims and Claim Adjustments (Prior Year IBNR)

$

36,497,000 $

39,089,023

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

385,414,556

379,213,694

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

370,933,721

381,805,717

Unpaid Claims and Claim Adjustments (Current Year IBNR) $

50,977,835 $

36,497,000

Retirees:

Unpaid Claims and Claim Adjustments (Prior Year IBNR)

$

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

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

Unpaid Claims and Claim Adjustments (Current Year IBNR)

$

11,425,000 $

12,119,357

124,501,761

150,240,224

127,115,346 8,811,415 $

150,934,581 11,425,000

viii

Retiree Health Benefit Fund 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 17 for additional information. The Notes to the Financial Statements are an integral part of the basic financial statements and communicate information essential for fair presentation. For example, the notes convey information concerning significant accounting policies used to prepare the financial statements, detailed information on cash and investments, receivables, capital leases, compensated absences, retirement and other postemployment benefits, capital assets and a report of operating expenses by function. 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. 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 System Office's ability to react to unknown internal and external issues. Shelley C. Nickel, Vice Chancellor for Fiscal Affairs and Planning/Treasurer Board of Regents University System Office
ix

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BASIC FINANCIAL STATEMENTS - 1 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) STATEMENT OF NET POSITION JUNE 30, 2016
ASSETS
Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable, Net (Note 3) Receivables - Federal Financial Assistance Receivables - Other Due from Affiliated Organizations Inventories (Note 4) Prepaid Items Other Assets
Total Current Assets
Noncurrent Assets Investments Notes Receivable, Net Noncurrent Cash (Externally Restricted) Investments (Externally Restricted) Capital Assets, Net (Note 6)
Total Noncurrent Assets
Total Assets
Deferred Outflows of Resources Deferred Loss on Defined Benefit Pension Plan
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Claims Payable Advances (Note 7) Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences
Total Current Liabilities
Noncurrent Liabilities Lease Purchase Obligations Compensated Absences Net Pension Liability
Total Noncurrent Liabilities
Total Liabilities
Deferred Inflows of Resources Deferred Gain on Defined Benefit Pension Plan Deferred Grants Received in Advance of Timing Deferred Service Concession Agreements
Total Deferred Inflows of Resources
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"

$

671,069,905

228,069,566

392,051 121,943,046
39,135 326,944 323,029 2,350,342

1,024,514,018

5,984,313 1,379,249
779,559 3,612,043 364,708,112
376,463,276
1,400,977,294

9,324,043

7,628,217 60,278
50,977,835 578,692
696,723,873 2,243,089 2,568,059
760,780,043
41,734,926 1,650,969
41,074,875
84,460,770
845,240,813
3,778,503 2,350,342 394,155,650
400,284,495

296,811,509
4,391,602 10,373,178 -146,800,260

$

164,776,029

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2016
OPERATING REVENUES
Grants and Contracts Federal
Sales and Services Auxiliary Enterprises
Residence Halls 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 Loss
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal Other Gifts Investment Income (Endowments, Auxiliary and Other) Interest Expense (Capital Assets) Other Nonoperating Expenses
Net Nonoperating Revenues
Income Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts State
Increase in Net Position
Net Position - Beginning of Year, Restated

EXHIBIT "B"

$

145,549

52,720,998

6,500,459 476,491,613

535,858,619

38,945,551 11,885,803
47,982 1,099,327
60,000 6,841,202 574,962,211 17,507,835
651,349,911
-115,491,292
177,122,170
6,214,688 14,377,648
3,102,115 642,570
-1,807,807 -14,972,181
184,679,203
69,187,911
13,870
69,201,781
95,574,248

Net Position - End of Year

$

164,776,029

The notes to the financial statements are an integral part of this statement. - 3 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES Payments from Customers Grants and Contracts (Exchange) Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Other Receipts (Payments)
Net Cash 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 Noncapital Financing Receipts Other Noncapital Financing Payments
Net Cash Flows Provided by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Purchases of Capital Assets Principal Paid on Capital Debt and Leases Interest Paid on Capital Debt and Leases
Net Cash Used by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments Investment Income
Net Cash Provided by Investing Activities
Net Increase in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES:
Operating Loss Adjustments to Reconcile Operating Loss to Net Cash
Used by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, Net Inventories Prepaid Items Accounts Payable Salaries Payable Claims Payable Advances Funds Held for Others Compensated Absences Net Pension Liability Change in Deferred Inflows/Outflows of Resources: Deferred Inflows of Resources Deferred Outflows of Resources
Net Cash Used by Operating Activities
NONCASH ACTIVITY Noncapital Financing Activities Accounts Receivable, Net of Allowances Recognition of Noncapital Financing Activities Advances and Deferred Inflows Gift of Capital Assets Loss on Disposal of Capital Assets Accrual of Capital Asset Related Payables Recognition of Capital Financing Activities Advances and Deferred Inflows Reinstated Missing Capital Assets Unrealized Loss on Investments
The notes to the financial statements are an integral part of this statement.
- 4 -

EXHIBIT "C"

$ 510,513,298 384,425
-596,545,453 -39,681,339 -60,000 -14,218
-125,403,287
177,122,170 65,707,871 20,238,404 100,000 -14,997,510
248,170,935
304,247 -9,131,129 -2,140,949 -1,807,807
-12,775,638
13,225 737,854
751,079
110,743,089
561,106,375
$ 671,849,464

$ -115,491,292
17,507,835
-18,033,004 -241,496 190,951
-16,887,304 233
14,480,835 -7,193,903
-14,218 363,305 9,020,441
-6,872,351 -2,233,319
$ -125,403,287

$

73,232,485

$

12,865,433

$

22,640,120

$

-235,994

$

-1,292,336

$

13,868

$

261,323

$

-95,284

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2016

EXHIBIT "D"

ASSETS
Cash Investments Receivables
Employer Employee
Total Assets
LIABILITIES
Claims Payable
Total Liabilities
NET POSITION
Held In Trust for: Other Post Employer Benefits Deferred Compensation Benefits TOTAL NET POSITION

457 Deferred Compensation
Plan Fund

Retiree Health Benefit Fund

Total

$

$

5,748,000

5,748,000

7,950,664 $
2,574,822 1,184,431 11,709,917

7,950,664 5,748,000
2,574,822 1,184,431
17,457,917

8,811,415 8,811,415

8,811,415 8,811,415

5,748,000

$

5,748,000 $

2,898,502 2,898,502 $

2,898,502 5,748,000
8,646,502

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)
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION JUNE 30, 2016

EXHIBIT "E"

ADDITIONS
Contributions Employer Plan member
Total Contributions
Investment Income Net appreciation/(loss) in fair value of investments Interest/Dividends
Less: Investment expense
Net Investment Income
Total Additions
DEDUCTIONS
Benefits Premium Expense Withdrawal Administrative Expense
Total Deductions
Net Increase
NET POSITION RESTRICTED FOR OTHER Beginning Net Position
End of year

457 Deferred Compensation
Plans Fund

Retiree Health Benefit Fund

Total

$

811,156 $

111,813,724 $

112,624,880

266,666

28,586,933

28,853,599

1,077,822

140,400,657

141,478,479

110,127 243,376
-16 353,487 1,431,309

-16,495 48,402
31,907 140,432,564

93,632 291,778
-16 385,394 141,863,873

1,328,284
1,328,284 103,025

124,501,761 4,948,068 8,364,829
137,814,658 2,617,906

124,501,761 4,948,068 1,328,284 8,364,829
139,142,942
2,720,931

5,644,975

280,596

5,925,571

$

5,748,000 $

2,898,502 $

8,646,502

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, 2016

EXHIBIT "F"

Note 1. Summary of Significant Accounting Policies
Nature of Operations The University System Office (USO) is the administrative central office for the 29 State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The USO is also the custodian of the Board of Regents Retiree Health Benefit Fund and the IRS 457(f) Deferred Compensation Fund.
Reporting Entity As defined by Official Code of Georgia Annotated (O.C.G.A) 20-3-50, the University System Office is part of the University System of Georgia (USG), an organizational unit of the State of Georgia (the State) under the governance of the Board of Regents (Board). The Board has constitutional authority to govern, control and manage the USG. The Board is composed of 19 members, one member from each congressional district in the State and five additional members from the state-at-large, appointed by the Governor and confirmed by the Senate. Members of the Board serve a seven-year term and members may be reappointed to subsequent terms by a sitting governor.
The University System Office does not have the right to sue/be sued without recourse to the State. The University System Office's property is the property of the State and subject to all the limitations and restrictions imposed upon other property of the State by the Constitution and laws of the State. In addition, the University System Office is not legally separate from the State. Accordingly, the University System Office is included within the State's basic financial statements as part of the primary government as defined in section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards.
The accompanying basic financial statements are intended to supplement the State's Comprehensive Annual Financial Report (CAFR) by presenting the financial position and changes in financial position and cash flows of only that portion of the business-type activities of the State 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 as of June 30, 2016, 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.
The accompanying basic financial statements should be read in conjunction with the State's CAFR. The State's CAFR as of and for the year ended June 30, 2016 has not been issued as of the release of this report. The most recent State of Georgia CAFR can be obtained through the State Accounting Office, 200 Piedmont Avenue, Suite 1604 (West Tower), Atlanta, Georgia 30334 or found at https://sao.georgia.gov/comprehensive-annual-financial-reports.
Legally separate, tax exempt affiliated organizations whose activities primarily support units of the USG are considered potential component units of the State.
Basis of Accounting and 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, deferred outflows, liabilities, deferred inflows, 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, 2016

EXHIBIT "F"

The University System Office's business-type activities and fiduciary fund 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. Grants and similar items are recognized as revenues in the fiscal year in which eligibility requirements imposed by the provider have been met. All significant intra-University System Office transactions have been eliminated.
The University System Office reports the following Fiduciary Funds:
Board of Regents Retiree Health Benefit Fund and the IRS 457(f) Deferred Compensation Fund.
New Accounting Pronouncements For fiscal year 2016, the University System Office adopted Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements.
For fiscal year 2016, the University System Office adopted GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That are not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. The adoption of this Statement does not have a significant impact on the University System Office's financial statements.
For fiscal year 2016, the University System Office adopted GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to identify in the context of the current governmental financial reporting environment -- the hierarchy of GAAP. The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The adoption of this Statement does not have a significant impact on the University System Office's financial statements.
For fiscal year 2016, the University System Office adopted GASB Statement No. 79, Certain External Investment Pools and Pool Participants. This Statement addresses accounting and financial reporting for certain external investment pools and pool participants. The adoption of this Statement does not have a significant impact on the University System Office's financial statements.
Cash and Cash Equivalents Cash and Cash Equivalents consist of demand deposits and time deposits in authorized financial Institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the State Investment Pool and the Board of Regents Short-Term Investment Pool.

- 8 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

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.
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 basis.
Prepaid Items Payments made to vendors and state and local government organizations for services that will benefit periods beyond June 30, 2016 are recorded as prepaid items.
Capital Assets Capital assets are recorded at cost at the date of acquisition, or acquisition value (entry price) 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 Office, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) an organization that is external to the University System Office. GSFIC issues bonds for and on behalf of the State, pursuant to powers granted to it in the Constitution of the State and the Act creating the GSFIC. These bonds constitute direct and general obligations of the State, to the payment of which the full faith, credit and taxing power of the State are pledged.
Deferred Outflows of Resources Deferred outflows of resources consist of the consumption of net assets by the University System Office that are applicable to a future reporting period.
Advances Advances 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, 2016

EXHIBIT "F"

Deposits Held for Other Organizations Deposits held for other organizations result primarily from the University System Office acting as an agent, or fiduciary, for another entity. Deposits held for others consist of scholarships, fellowships and other funds held for various governments, companies, clubs or individuals. Deposits held for others also consists of the University System of Georgia's Pooled Investment Fund program and Capital Liability Reserve Fund balances held for participating colleges, universities and affiliated organizations.
In fiscal year 2014, the Capital Liability Reserve Fund (Fund) was established by the Board of Regents to protect the fiscal integrity of the University System of Georgia (USG) to maintain the strongest possible credit ratings associated with Public Private Venture (PPV) projects and to ensure that the Board of Regents can effectively support its long-term capital lease obligations. The Fund is financed by all USG institutions participating in the PPV program. The Fund serves as a pooled reserve that is managed by the Board of Regents. The Fund shall only be used to address significant shortfalls and only insofar as a requesting USG institution is unable to make the required PPV capital lease payment to the designated cooperative organization. The Fund will continue as long as the Board of Regents has rental obligations under the PPV program and at the conclusion of the program, funds will be returned to the institutions. The balance in the reserve included in Deposits Held for Other Organizations as of June 30, 2016 was $21,334,192.
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.
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.
Deferred Inflows of Resources Deferred inflows of resources consist of the acquisition of net assets by the University System Office that are applicable to a future reporting period.
Pensions and Net Pension Liability The Net Pension Liability represents the unfunded pension obligation which is the difference between the total pension obligation as a result of the exchange for employee services for compensation and the fiduciary net position or the fair value of the plan assets as of a given measurement date.
For the purpose of measuring the Net Pension Liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position, additions/deductions from fiduciary net position have been determined on the same basis as they are reported by Teachers Retirement System of Georgia and Employees' Retirement System of Georgia. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

- 10 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Service Concession Arrangements Service concession arrangements are arrangements between a government (transferor) and a third party (operator) in which all of the following criteria are met:
a. The University System Office conveys to the operator the right and obligation to provide public services through the use and operation of a capital asset in exchange for significant consideration. Significant consideration could be in the form of up-front payments, installment payments, a new facility or improvements to existing facility.
b. The operator collects and is compensated by fees from third parties. c. The University System Office has the ability to modify or approve what services the
operator is required to provide, to whom services are provided, and prices or rates that can be charged for those services. d. The University System Office is entitled to significant residual interest in the service utility of the asset as the end of the arrangement.
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 accumulated amortization/depreciation and reduced by outstanding debt obligations related to those 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. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction or improvement of capital assets or related debt are included in Net Investment in Capital Assets. If there are significant unspent related debt proceeds or deferred inflows of resources at the end of the reporting period, the portion of the debt or deferred inflows of resources attributable to the unspent amount are not included in Net Investment in Capital Assets.
Restricted non-expendable 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. For University System Office-controlled, donor-restricted endowments, the by-laws of the Board of Regents of the University of Georgia permits each individual University System Office to use prudent judgment in the spending of current realized and unrealized endowment appreciation. Donor-restricted endowment appreciation is periodically transferred to restricted-expendable accounts for expenditure as specified by the purpose of the endowment. The University System Office maintains pertinent information related to each endowment fund including donor; amount and date of donation; restrictions by the source of limitations; limitations on investments, etc.
Restricted expendable includes resources in which the USG is legally or contractually obligated to spend resources in accordance with restrictions by external third parties.

- 11 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Unrestricted: Unrestricted represents resources derived from state appropriations, sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University System Office, and may be used at the discretion of the University System Office to meet current expenses for those purposes, except for unexpended state appropriations (surplus) in the amount of $636,132.86. Unexpended state appropriations must be refunded to the Office of the State Treasurer. Unrestricted Net Position also includes resources specifically designated by management, such as:
Auxiliary Enterprises Operations These resources are used for the continued operation of auxiliary enterprise activities, which are substantially self-supporting business operations conducted on campuses that provide services to students, faculty, and staff.
Auxiliary Enterprises Renewals and Replacement (R&R) Reserve These resources can be used for renewals and replacement of capitalizable assets related to auxiliary services. This R&R reserve can also be used for major renovations and rehabilitations auxiliary projects that do not meet the capitalization threshold.
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.
See Note 10, Net Position, for additional information.
Income Taxes The University System Office, as a political subdivision of the State, 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) health insurance premiums received from institutions within the University System of Georgia for self-insured health plans offered, (2) certain federal, state and local grants and contracts, and (3) sales and services.
Non-operating revenue includes activities that have the characteristics of non-exchange 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 Non-expendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.
Operating Expenses: Operating expense includes activities that have the characteristics of exchange transactions.
Non-operating expense includes activities that have the characteristics of non-exchange transactions, such as capital financing costs and costs related to investment activity.

- 12 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Restatement of Prior Year Net Position The University System Office made the following restatements related to business-type activities:
For fiscal year 2016, the University System Office restated Software Development-in-Progress within Capital Assets to include software costs associated with the HCM project that were expensed in the prior year. As a result of the restatement, beginning Capital Assets and Net Investment in Capital Assets increased by $2,936,894.
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:
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, 2016, the carrying value of deposits was $107,896,620 and the bank balance was $109,093,449. Of the University System Office's deposits, $108,343,449 were uninsured. Of these uninsured deposits, $108,343,449 were collateralized with securities held by the financial institution, by its trust department or agency in the University System Office's name.

- 13 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

The following schedule reconciles cash and cash equivalents to the carrying value of deposits:

Business-type Activities Statement of Net Position
Cash and Cash Equivalents Non-current Cash and Cash Equivalents

$

671,069,905

779,559

Statement of Fiduciary Net Pension Cash and Cash Equivalents

7,950,664

Total Cash and Cash Equivalents

679,800,128

Less: Investment pool reported as Cash and Cash Equivalents
Board of Regents Short-Term Fund Georgia Fund 1

-503,641,374 -68,262,134

Total Carrying Value of Deposits - June 30, 2016

$

107,896,620

Investments The University System Office maintains an investment policy which fosters sound and prudent judgment in the management of assets to ensure safety of capital consistent with the fiduciary responsibility it has to the citizens of Georgia and which conforms to Board of Regents investment policy. All investments are consistent with donor intent, Board of Regents policy and applicable Federal and state laws.
The USO has adopted GASB No. 72, Fair Value Measurements and Application, which requires fair value measurement be classified and disclosed in one of the following three categories ("Fair Value Hierarchy"):
Level 1 Quoted prices are available in active markets for identical investments as of the reporting date.
Level 2 Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level 1; inputs include comparable market transactions, pricing of similar instruments, values reported by the administrator, and pricing expectations based on internal modeling. Fair value is determined through the use of models or other valuation methodologies.
Level 3 Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investments.
The following table summarizes the valuation of the USO's investments measured at fair value on a recurring basis and at net asset value as of June 30, 2016.

- 14 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Type Mutual Bond Funds Equity Mutual Funds - Domestic Equity Securities - Domestic LGIP Pool Money Market Mutual Funds Real Estate Investment Trusts US Agencies - Explicitly Guaranteed US Agencies - Implicitly Guaranteed US Treasuries Grand Total

Level 1 71,047,188 64,599,576 82,614,104
3,727,388 9,367,598
36,525,269 33,947,905 301,829,028

Level 2
125,314,825 319,911,443 445,226,268

See Note 2 68,262,134 68,262,134

Grand Total 71,047,188 64,599,576 82,614,104 68,262,134 3,727,388 9,367,598
125,314,825 356,436,712
33,947,905 815,317,430

Note 2: The University System Office holds a position in an external investment pool that is not a 2a7-like external investment pool. The unit of account is each share held, and the value of the position would be the fair value of the pool's share price multiplied by the number of shares held. The University System Office does not "look through" the pool to report a pro rata share of the pool's investments, receivables, and payables.
Investments classified in Level 1 are valued using prices quoted in active markets for those securities.
Investments classified in Level 2 are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities' relationship to benchmark quoted prices.
Board of Regents Pooled Investment Program The University System Office serves as fiscal agent for various units of the University System of Georgia and affiliated organizations. The University System Office pools the monies of these organizations with the University System Office's monies for investment purposes. 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 pooled investment fund balance at fair value along with a pro rata share of the pooled fund's investment returns.
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.

- 15 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

The Board of Regents' pooled investment fund options are described below.
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. Investments are in securities allowed under Georgia Code 50-17-59 and 50-17-63. The average maturities of investments in this fund will typically range between daily and three years, and the fund will typically have an overall average duration of - 1 year. The overall character of the portfolio is of Agency quality, possessing a minimal degree of financial risk. The market value of the Short-Term Fund at June 30, 2016 was $503,641,374.
Legal Fund The Legal Fund provides an opportunity for greater return and modest principal growth to the extent possible with the securities allowed under Georgia Code 50-17-59 and 50-17-63. The average maturities of investments in 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 Agency quality, possessing virtually no degree of financial risk. The market value of the Legal Fund at June 30, 2016 was $12,058,068.
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 pool is appropriate for investing longer term funds that require a more conservative investment strategy. Permitted investments in the fund are domestic U.S. equities, domestic investment grade fixed income, and cash equivalents.
The equity allocation shall range between 30% and 40%, with a target of 35% of the total portfolio. The fixed income (bond) portion of the portfolio shall range between 60% and 70%, with a target of 65% of the total portfolio. Cash reserves and excess income are invested at all times in the highest quality (A1, P1) institutional money market mutual funds, or other high quality short-term instruments. Reserves are invested in high quality institutional money market mutual funds or other high quality, short-term instruments. The market value of the Balanced Income Fund at June 30, 2016 was $6,659,419.
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 greater overall equity exposure and is appropriate for investing longer term funds such as endowments. Permitted investments in the fund are domestic US equities, domestic investment grade fixed income, and cash equivalents.
The equity allocation shall range between 60% and 70%, with a target of 65% of the total portfolio. The fixed income (bond) portion of the portfolio shall range between 30% and 40%, with a target of 35% of the total portfolio. Cash reserves and excess income are invested at all times in the highest quality (A1, P1) institutional money market mutual funds, or other high quality short-term instruments. Reserves are invested in high quality institutional money market mutual funds or other high quality, short-term instruments. The market value of the Total Return Fund at June 30, 2016 was $13,325,815.
Diversified Fund The Diversified Fund is designed to provide improved return characteristics with reduced volatility through greater diversification. This pool is appropriate for investing longer term funds such as endowments. Permitted investments in the fund may include domestic, international and emerging market equities, domestic fixed income and global fixed income.
- 16 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

The equity allocation shall range between 50% and 75% of the portfolio, with a target of 65% of the total portfolio. The fixed income (bond) portion of the portfolio shall range between 25% and 50%, with a target of 35% of the total portfolio. Cash reserves and excess income are invested at all times in the highest quality (A1, P1) institutional money market mutual funds, or other high quality shortterm instruments. The market value of the Diversified Fund at June 30, 2016 was $161,637,616.
Diversified Fund for Foundations The Diversified Fund for Foundations is available only to University System of Georgia affiliated organizations. Like the Diversified Fund, the fund is designed to provide improved return characteristics with reduced volatility through greater diversification and is appropriate for investing longer term funds such as endowments. Investments in the fund may include domestic, international and emerging market equities, domestic and global investment grade and non-investment grade fixed income and alternative investments.
The equity allocation shall range between 40% and 75% of the portfolio, with a target of 65% of the total portfolio. The fixed income (bond) portion of the portfolio shall range between 10% and 40% of the portfolio, with a target of 20% of the total portfolio. The alternatives portion of the portfolio shall range between 0% and 30% of the portfolio, with a target of 15% of the total portfolio. Cash reserves and invested income are invested at all times in the highest quality (A1, P1) institutional money market funds, or other high quality short-term instruments. The market value of the Diversified Fund for Foundations at June 30, 2016 was $43,985,004.
Condensed financial information for the investment pool is as follows:

Statement of Net Position - June 30, 2016

Assets Cash and Cash Equivalents* Investments* Receivables

$ 66,715,907 674,081,575 509,814

Distribution of Net Position USO Account Balance Organizational Units' and Affiliated Organizations'
Account Balance**

$ 741,307,296 $ 66,694,690
674,612,606

$ 741,307,296

*Cash and Cash Equivalents and Investments in Short-Term Investment Pool of $503,641,374 are reported as Cash and Cash Equivalents on the Statements of Net Position and Fiduciary Net Position.

**This balance is included in Deposits Held for Other Organizations on the USO's Statement of Net Position.

- 17 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Statement of Changes in Net Position - June 30, 2016

Market Value Plus Accrued Income on July 1, 2015*

$ 630,125,149

Receipts

181,717,934

Disbursements Administrative Expenses Distributions

-748,657 -77,137,852

Investment Results Income Collected and Accrued Realized Gain on Assets Sold Change in Unrealized Loss Amortization (Short-Term Fund)

10,314,086 3,636,641 -5,346,898 -1,253,107

Market Value Plus Accrued Income on June 30, 2016

$ 741,307,296

*Beginning Market Value is restated to include $39,157,349 in investments in the Diversified Fund for Foundations, which the USO assumed administrative responsibility for during fiscal year 2016. There is no effect on the July 1, 2015 Net Position reported on the USO's Statement of Revenues, Expenses and Changes in Net Position.

The University System Office's investments as of June 30, 2016 are presented below and consist

of the $741,307,296 BOR Pooled Investment Program, $68,262,134 Georgia Fund 1 and

$5,748,000 IRS 457(f) Deferred Compensation Fund investments. All investments are presented by

investment type and debt securities are presented by maturity.

Fair Value

Less Than 3 Months

Investment Maturity

4-12 Months

1-5 Years

6-10 Years

More Than 10 Years

Investment type
Debt Securities U.S. Treasuries U.S. Agencies Explicitly Guaranteed Implicitly Guaranteed Money Market Mutual Fund Mutual Bond Funds

$ 33,947,905 $ 30,190,638

$ 1,948,752 $ 1,808,515

125,314,825 356,436,712
3,727,388 71,047,188

33,083,428 $ 85,653,529 92,898,990 226,019,315
3,727,388

6,577,868 37,056,449

461,958

15,780,589 40,855,633 $ 14,410,966

Other Investments Bond/Equity Mutual Funds Equity Mutual Funds - Domestic Equity Mutual Funds - International Equity Securities - Domestic Real Estate Investment Trusts
Investment Pool Office of the State Treasurer Georgia Fund 1

590,474,018 $ 159,900,444 $ 311,672,844 $ 61,363,658 $ 43,126,106 $ 14,410,966
7,494,236 32,382,165 24,723,175 82,614,104
9,367,598
68,262,134

Total Investments

$ 815,317,430

- 18 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

The Georgia Fund 1 Investment Pool, managed by the Office of the State Treasurer, is not registered with the Securities and Exchange Commission as an investment company, and the State does not consider Georgia Fund 1 to be a 2a7-like pool. This investment is valued at the pool's share price, $1.00 per share. The Georgia Fund 1 Investment Pool is an AAAf rated investment pool by Standard and Poor's. The Weighted Average Maturity of the Fund is 42 days.
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.
3. Fixed income investments, except in the Diversified Funds, 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 entity 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, 2016, $672,055,977 of the University System Office's applicable investments were uninsured and held by the investment's counterparty in the University System Office's name and $1,032,144 were uninsured and held by the investment's counterparty's trust department or agent, but not in the University System Office's name.

- 19 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

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 Funds, 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 Funds are permitted to invest in noninvestment grade debt issues up to a limit of 15% of the entire portfolio.
The investments subject to credit quality risk are reflected below:

Credit Quality Risk

Fair Value

Unrated

Related Debt Investments U. S. Agency Securities Money Market Mutual Fund Mutual Bond Fund

$ 356,436,712 $ 3,727,388
71,047,188

356,436,712 3,727,388
71,047,188

$ 431,211,288 $ 431,211,288

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, 2016:

Investments:

Amount

% of Total

Federal National Mortgage Association Federal National Mortgage Association Pool Federal Home Loan Mortgage Corporate Government National Mortgage Association

$ 119,870,610

$ 112,952,697

$

98,552,625

$

66,773,478

14.7% 13.9% 12.1%
8.2%

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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, 2016

EXHIBIT "F"

Note 3. Accounts Receivable Accounts receivable consisted of the following at June 30, 2016:

Business Type Activites

Fiduciary Fund

Auxiliary Enterprises and Other Operating Activities $ Federal Financial Assistance Georgia State Financing and Investment Commission Due from Affiliated Organizations Due from Other USG Institutions Other
Less: Allowance for Doubtful Accounts

65,660,314 392,051 31,775 39,135
35,524,467 $ 20,774,414
122,422,156 47,924

3,759,253 3,759,253

Net Accounts Receivable

$

122,374,232 $

3,759,253

Note 4. Inventories Inventories consisted of the following at June 30, 2016:

Merchandise for Resale

$

326,944

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 2008. GSOU has an obligation to send the USO annual payments of $205,320 through the year 2025. In fiscal year 2016, the University System Office collected $205,320, $81,010 of which represented interest. Total principal collected on the Note Receivable was $124,310. At June 30, 2016, the Notes Receivable balance was $1,379,249. There is no allowance for doubtful collection.

- 21 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Note 6. Capital Assets Following are the changes in capital assets for the year ended June 30, 2016:

Beginning Balance July 1, 2015 (Restated)

Capital Lease Recategorization

Additions

Reductions

Ending Balance June 30, 2016

Capital Assets, Not Being Depreciated: Land Capitalized Collections Software Development Work-In-Progress

$ 1,891,415 $ 10,000
3,991,015

0

$

$ 7,069,709

0$

1,891,415 10,000
11,060,724

Total Capital Assets, Not Being Depreciated

5,892,430

0

7,069,709

0

12,962,139

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

5,801,120 367,750,029
50,537,382 61,357,344 19,927,716

61,357,344 -61,357,344

22,640,120 3,353,756

3,502,488 1,750,000

5,801,120 451,747,493
50,388,650 0
18,177,716

Total Assets Being Depreciated/Amortized

505,373,591

0 25,993,876

5,252,488

526,114,979

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

4,422,543 82,653,293 40,295,911 18,969,227 15,798,014

18,969,227 -18,969,227

91,235 12,630,057
3,864,873
921,670

3,586,150 1,691,667

4,513,778 114,252,577
40,574,634 0
15,028,017

Total Accumulated Depreciation

162,138,988

0 17,507,835

5,277,817

174,369,006

Total Capital Assets, Being Depreciated, Net

343,234,603

0

8,486,041

-25,329

351,745,973

Capital Assets, Net

$ 349,127,033 $

0 $ 15,555,750 $

-25,329 $ 364,708,112

Software Development-in-Progress beginning balance was restated to include $2,936,894 in Software costs associated with the HCM project that were expensed in the prior year.

In addition, Infrastructure assets totaling $2,684,626 and Infrastructure accumulated depreciation of $4,280,540 were reclassified from Equipment assets and Equipment accumulated depreciation, respectively. These reclassifications corrected activity related to Dark Fiber assets into the proper asset category and had no impact on Capital Assets, net beginning balance.

Leased Buildings were recategorized from the Capital Leases to Building and Building Improvements category.

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, 2016, GSFIC did not transfer any capital additions to the University System Office.
- 22 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Note 7. Advances

Advances consisted of the following at June 30, 2016:

Other - Advances
Note 8. Long-Term Liabilities

$

578,692

Long-Term liability activity for the year ended June 30, 2016 was as follows:

Beginning Balance July 1, 2015

Additions

Reductions

Ending Balance June 30, 2016

Current Portion

Leases Lease Purchase Obligations $ 46,118,964 $

0 $ 2,140,949 $ 43,978,015 $ 2,243,089

Other Liabilities Compensated Absences Net Pension Liability

3,855,722 32,054,434

2,963,699 9,020,441

2,600,393

4,219,028 41,074,875

2,568,059

Total

35,910,156 11,984,140

2,600,393

45,293,903

2,568,059

Total Long-Term Obligations $ 82,029,120 $ 11,984,140 $ 4,741,342 $ 89,271,918 $ 4,811,148

Note 9. Service Concession Arrangements
At June 30, 2016, the University System Office was a participant in a Service Concession Arrangement.
During fiscal year ended June 30, 2015, the Board of Regents of the University System of Georgia (BOR) entered into a Service Concession Arrangement (SCA) with Corvias Campus Living-USG,LLC, whereby Corvias Campus Living-USG,LLC, manages, maintains and operates certain existing student housing resources on the campuses of nine institutions: Abraham Baldwin Agricultural College; Armstrong State University; Augusta University; College of Coastal Georgia; Columbus State University; Dalton State College; East Georgia State College; Georgia State University; and the University of North Georgia.
Pursuant to the contractual stipulations of this SCA, whereby the BOR and Corvias Campus Living- USG, LLC, are the "parties" participating in this agreement, as of May 14, 2015, the institutions noted above transferred the housing resources covered by this SCA, along with associated capital lease obligations to the University System Office in fiscal year 2015 through a Special Item Transfer. In accordance with the SCA, in May 2015, Corvias Campus Living-USG, LLC, provided $311,561,781 to the BOR to retire the capital lease obligations transferred to the University System Office. These lease obligations were subsequently retired using the funds provided. The housing assets are reported in Note 6 in the Building and Building Improvements category. The $311,561,781 received from Corvias Campus Living-USG, LLC, was reported as a Deferred Inflow of Resources in fiscal year 2015. The SCA is for 65 years (780 months) to end in June 2080. The University System Office amortized $399,438 of this Deferred Inflow in June 2015, and $4,793,258 in June 2016, leaving a remaining Deferred Inflow of Resources balance of $306,369,085 at June 30, 2016.
- 23 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

In addition to the existing student housing arrangement, Corvias Campus Living-USG, LLC designs and constructs authorized new housing projects that, once constructed, will be similarly managed, maintained and operated on seven of the nine campuses with existing student housing resources. Two of these projects were completed within fiscal year 2016 and their fair market values were capitalized increasing Capital Assets by $10,650,907 for the College of Coastal Georgia student housing project and by $11,989,213 for the student housing project on the East Georgia State College campus. These additions are reported in Note 6 in the Building and Building Improvements category. A Deferred Inflow of Resources was recorded as the offset to the Capital Asset additions. The Deferred Inflow associated with these new projects is being amortized over the remaining life of the SCA. As of June 30, 2016, $13,868 of the Deferred Inflows related to these two projects was amortized, leaving a remaining Deferred Inflow of Resources balance of $22,626,252.

Also part of this SCA, and beginning in fiscal year 2016, the University System Office receives $8,000,000 in Ground Rent and $500,000 in Supplemental Capital Repair and Replacement funds each year for the next ten years, with each amount escalating by 3% annually. The University System Office recorded Accounts Receivable and Deferred Inflow of Resources in the amount of $73,232,489 representing the present value of this revenue stream based on the agreement terms and will amortize the Deferred Inflows over a ten-year period. For the year ended June 30, 2016, the University System Office amortized $8,072,175 and recognized $427,825 in associated interest income, leaving a Deferred Inflow balance of $65,160,313 as of June 30, 2016.

The University System Office also receives Retained Services funds each year as a percentage of gross revenues for that year.

The University System Office has no reportable future obligation for these services.

Note 10. Net Position

Net Position is reported in the following three categories: Net Investment in Capital Assets, Restricted Non-Expendable, Restricted-Expendable, and Unrestricted.

The amounts within each category at June 30, 2016 were as follows:
June 30, 2016

Net Investments in Capital Assets

$

296,811,509

Restricted for Nonexpendable Permanent Endowment

4,391,602

Expendable Restricted E&G and Other Organized Activities

10,373,178

Unrestricted R & R Reserve Reserve for Encumbrances Other Unrestricted

500,000 21,529,505 -168,829,765

Total Unrestricted

-146,800,260

Total Net Position

$

164,776,029

- 24 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Note 11. Endowments

Donor Restricted Endowments Investments of the University System Office's endowment funds are pooled, unless required to be separately invested by the donor. For University System Office controlled, donor-restricted endowments, where the donor has not provided specific instructions, the Board of Regents permits the University System Office to develop policies for authorizing and spending realized and unrealized endowment income and appreciation as they determine to be prudent. Realized and unrealized appreciation in excess of the amount budgeted for current spending is retained by the endowments. Current year net appreciation for the endowment accounts was $3,401 and is reflected as restricted net position.

For endowment funds where the donor has not provided specific instructions, investment return of the University System Office's endowment funds is predicated under classical trust doctrines. Unless the donor has stipulated otherwise, capital gains and losses are accounted for as part of the endowment principal and are not available for expenditure.

Note 12. Significant Commitments

See Note 10 for amounts reserved for outstanding encumbrances at June 30, 2016. The University System Office had no other significant unearned, outstanding, construction or renovation contracts executed as of June 30, 2016.

Note 13. 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 2030 and 2052. Expenditures for fiscal year 2016 were

$4,073,756 of which $1,807,807 represented interest and $125,000 represented executory costs.

Total principal paid on capital leases was $2,140,949 for the fiscal year ended June 30, 2016.

Interest rates are 4 percent.

Outstanding

Original

Lease

Principal Balance

Description

Lessor

Principal

Term Begin

End at June 30, 2016

Shared Services Center Building Sandersville, GA
Daniells Bridge ITS Building Athens, GA
Georgia State Archives Jonesboro, GA

Washington County

Public Facilities Authority $ 3,578,343

Daniells Bridge Technology

Center LLC

13,627,541

Development Authority of

Clayton County

44,484,230

20 yrs 11 yrs 50 yrs

4/ 2010 1/2030 $ 7/2014 6/2025 2/2003 6/2052

Total Leases

$ 61,690,114

$

4,093,546 7,845,000 32,039,469 43,978,015

- 25 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Operating Leases The University System Office's non-cancellable operating leases having remaining terms of more than one year expire in various fiscal years from 2017 through 2020. All agreements are cancellable if the State of Georgia does not provide adequate funding, but that is considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are generally payable on a monthly basis.
Facilities and equipment rented through operating leases are not recorded as assets on the balance sheet. Operating lease expenditures totaled $4,796,537 for the fiscal year ended June 30, 2016.
The University System Office has seven operating leases as of June 30, 2016 that have one or more years' future commitment. Real property leases include office space for the Georgia Public Library System, a lease for the Atlanta-Fulton County Library, and three leases related to the Georgia Film Academy for Pinewood office/classroom space, Pinewood Studios and Pinewood Workshop. The Georgia Public Library System lease term began in fiscal year 2010 and extends through 2020. The remaining real property operating leases expire at the end of fiscal year 2017 unless renewed. In addition to real property operating leases, the University System Office is obligated under leases for data storage space and fiber optic cable through fiscal year 2017.
Future Commitments Future commitments for capital leases (which include other installment purchase agreements) and for non-cancellable operating leases having remaining terms in excess of one year as of June 30, 2016, were as follows:

Year Ending June 30:
2017 2018 2019 2020 2021 2022 - 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 - 2046 2047 - 2051 2052

Real Property and Equipment

Capital Leases

Operating Leases

$

4,095,656 $ 2,818,146

4,101,706

206,734

4,126,656

212,927

4,145,056

219,345

4,156,556

19,779,895

14,988,013

7,734,555

3,869,257

3,869,258

3,869,257

773,852

Total Minimum Lease Payments

75,509,717 $ 3,457,152

Less: Interest Less: Executory Costs (if paid)

15,387,209 16,144,493

Principal Outstanding

$ 43,978,015

- 26 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

The following is a summary of the carrying values of assets held under capital lease at June 30, 2016:

Description

Gross Amount (+)

Accumulated Depreciation
(-)

Net Capital Assets Held Under Capital Lease
at June 30, 2016 (=)

Outstanding Balances per Lease Schedules at June 30, 2016

Land - (PPV) Buildings - (PPV Only)

$

50,600

$

50,600 $

61,357,343 $ 18,727,260

42,630,083

57,885 43,920,130

Total Assets Held Under Capital Lease

at June 30, 2016

$

61,407,943 $ 18,727,260 $

42,680,683 $

43,978,015

Note 14. Retirement Plans
The University System Office participates in various retirement plans administered by the State of Georgia under two major retirement systems: Teachers Retirement System of Georgia (TRS) and Employees' Retirement System of Georgia (ERS). 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 administrative offices.
The significant retirement plans that the 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.
Teachers Retirement System of Georgia and Employees' Retirement System of Georgia
Summary of Significant Accounting Policies
Pensions: For purposes of measuring the Net Pension Liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Teachers Retirement System of Georgia (TRS) and Employees' Retirement System (ERS), additions to/deductions for TRS's and ERS's fiduciary net position have been determined on the same basis as they are reported by TRS and ERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.
General Information about the Teachers Retirement System
Plan description: All eligible employees of the University System Office as defined in 47-3-60 of the Official Code of Georgia Annotated (O.C.G.A.) are provided a pension through the Teachers Retirement System of Georgia (TRS). TRS, a cost-sharing multiple-employer defined benefit pension plan, is administered by the TRS Board of Trustees (TRS Board). Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. TRS issues a publicly available financial report that can be obtained at www.trsga.com/publications.
Benefits provided: TRS provides service retirement, disability retirement, and death benefits. Normal retirement benefits are determined as 2% of the average of the employee's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 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, 2016

EXHIBIT "F"

An employee 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. Ten years of service is required for disability and death benefits eligibility. Disability benefits are based on the employee's creditable service and compensation up to the time of disability. Death benefits equal the amount that would be payable to the employee's beneficiary had the employee retired on the date of death. Death benefits are based on the employee's creditable service and compensation up to the date of death.
Contributions: Per Title 47 of the O.C.G.A., contribution requirements of active employees and participating employers, as actuarially determined, are established and may be amended by the TRS Board. Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employees were required to contribute 6% of their annual pay during fiscal year 2016.
The University System Office's contractually required contribution rate for the year ended June 30, 2016 was 14.27% of annual University System Office payroll. University System Office contributions to TRS were $4,037,014 for the year ended June 30, 2016.
General Information about the Employees' Retirement System
Plan description: ERS is a cost-sharing multiple-employer defined benefit pension plan 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. Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. ERS issues a publicly available financial report that can be obtained at www.ers.ga.gov/formspubs/formspubs.
Benefits provided: The ERS Plan supports three benefit tiers: Old Plan, New Plan, and Georgia State Employees' Pension and Savings Plan (GSEPS). Employees under the old plan started membership prior to July 1, 1982 and are subject to 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 modified plan provisions. Effective January 1, 2009, new state employees and rehired state employees who did not retain membership rights under the Old or New Plans are members of GSEPS. ERS members hired prior to January 1, 2009 also have the option to irrevocably change their membership to GSEPS.
Under the old plan, the 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 the monthly average of the member's highest 24 consecutive calendar months, multiplied by the number of years of creditable service, multiplied by the applicable benefit factor. Annually, postretirement cost-of-living adjustments may also 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.
Contributions: 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 state pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these state contributions are included in the members' accounts for refund purposes and are used in the
- 28 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

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's contractually required contribution rate, actuarially determined annually, for the year ended June 30, 2016 was 19.97% of annual covered payroll for old plan members, 24.72% for new plan members and 24.72% for GSEPS members. The University System Office's contributions to ERS totaled $645,414 for the year ended June 30, 2016. Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability.

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions

At June 30, 2016, the University System Office reported a liability for its proportionate share of the Net Pension Liability for TRS and ERS, totaling $41,074,875. The Net Pension Liability was measured as of June 30, 2015. The total pension liability used to calculate the Net Pension Liability was based on an actuarial valuation as of June 30, 2014. An expected total pension liability as of June 30, 2015 was determined using standard roll-forward techniques. The University System Office's proportion of the Net Pension Liability was based on contributions to TRS and ERS during the fiscal year ended June 30, 2015. At June 30 2015, the University System Office's TRS proportion was 0.245822%, which was an increase of 0.013686% from its proportion measured as of June 30, 2014. At June 30, 2015, the University System Office's ERS proportion was 0.090115%, which was an increase of 0.017404% from its proportion measured as of June 30, 2014.

For the year ended June 30, 2016, the University System Office recognized pension expense of

$3,439,505 for TRS and $918,818 for ERS. At June 30, 2016, the University System Office reported

deferred outflows of resources and deferred inflows of resources related to pensions from the

following sources:

TRS

ERS

Deferred

Deferred

Deferred

Deferred

Outflows of

Inflows of

Outflows of

Inflows of

Resources

Resources

Resources

Resources

Differences between expected and actual experience

$

329,163

$

29,170

Net difference between projected and actual earnings on pension plan investments

3,156,750

263,420

Changes in proportion and differences between University System Office contributions and proportionate share of $ contributions

3,912,306

$

729,309

University System Office contributions subsequent to the measurement date

4,037,014

645,414

Total

$

7,949,320 $

3,485,913 $

1,374,723 $

292,590

- 29 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

University System Office contributions subsequent to the measurement date of $4,037,014 for TRS and $645,414 for ERS are reported as deferred outflows of resources and will be recognized as a reduction of the Net Pension Liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Year Ending June 30:

TRS

ERS

2017 2018 2019 2020 2021

$ -499,076 $ $ -499,076 $ $ -499,078 $ $ 1,849,606 $ $ 74,017

430,035 35,279
-117,412 88,817

Actuarial assumptions: The total pension liability as of June 30, 2015 was determined by an actuarial valuation as of June 30, 2014 using the following actuarial assumptions, applied to all periods included in the measurement:

Teachers Retirement System:

Inflation Salary increases Investment rate of return

3.00% 3.75% - 7.00%
7.50%

average, including inflation net of pension plan investment expense
including inflation

Mortality rates were based on the RP-2000 Combined Mortality Table for Males or Females set back two years for males and set back three years for females.
The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period July 1, 2004 June 30, 2009.

Employees' Retirement System:

Inflation Salary increases Investment rate of return

3.00% 5.45% - 9.25%
7.50%

average, including inflation net of pension plan investment expense
including inflation

Mortality rates were based on the RP-2000 Combined Mortality Table for the periods after service retirement, for dependent beneficiaries, and for deaths in active service, and the RP-2000 Disabled Mortality Table set back eleven years for males for the period after disability retirement.
The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period July 1, 2004 June 30, 2009.

- 30 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

The long-term expected rate of return on TRS and ERS pension plan investments was determined

using a log-normal distribution analysis in which best-estimate ranges of expected future real rates

of return (expected nominal returns, net of pension plan investment expense and the assumed rate

of inflation) are developed for each major asset class. These ranges are combined to produce the

long-term expected rate of return by weighting the expected future real rates of return by the target

asset allocation percentage and by adding expected inflation. The target allocation and best

estimates of arithmetic real rates of return for each major asset class are summarized in the

following table:

Target

Long-Term Expected

Asset Class

Allocation Real Rate of Return *

Fixed Income Domestic large equities Domestic mid equities Domestic small equities International developed market equities International emerging market equities

30.00% 39.70%
3.70% 1.60% 18.90% 6.10%

3.00% 6.50% 10.00% 13.00% 6.50% 11.00%

100.00% * Rates shown are net of the 3.00% assumed rate of inflation

Discount rate: The discount rate used to measure the total TRS and ERS pension liability was 7.50%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that employer and State of Georgia contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the TRS and ERS pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

- 31 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Sensitivity of the University System Office's proportionate share of the Net Pension Liability to changes in the discount rate: The following presents the University System Office's proportionate share of the Net Pension Liability calculated using the discount rate of 7.50%, as well as what the University System Office's proportionate share of the Net Pension Liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50%) or 1-percentage-point higher (8.50%) than the current rate:

Teachers Retirement System:
University System Office's proportionate share of the net pension liability

1% Decrease (6.50%)

Current Discount Rate
(7.50%)

1% Increase (8.50%)

$ 64,310,243 $ 37,423,958 $ 15,263,263

Employees' Retirement System:

1%

Current

1%

Decrease

Discount Rate

Increase

(6.50%)

(7.50%)

(8.50%)

University System Office's proportionate share

of the net pension liability

$ 5,175,306 $ 3,650,917 $ 2,351,317

Pension plan fiduciary net position: Detailed information about the pension plan's fiduciary net position is available in the separately issued TRS and ERS financial reports which are publically available at www.trsga.com/publications and www.ers.ga.gov/formspubs/formspubs, respectively.

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 all exempt full and partial benefit eligible employees, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from three approved vendors (VALIC, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts.

Funding Policy The University System Office makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2016, 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 non-forfeitable at all times.

The University System Office and the covered employees made the required contributions of $624,158 (9.24%) and $405,298 (6%), respectively.

- 32 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

VALIC, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.
Note 15. Risk Management
The USG offers its employees and retirees under the age of 65 access to four different healthcare plan options. For the USG's Plan Year 2016, the following healthcare plan options were available:
BlueChoice HMO Comprehensive Care Consumer Choice HSA Kaiser Permanente HMO
The University System Office, participating employees and retirees pay premiums to the healthcare plan options to access benefits coverage. The respective health plan options are included in the financial statements of the Board of Regents of the University System of Georgia University System Office. All units of the USG share the risk of loss for claims associated with the self-insured plans; including the BlueChoice HMO, Comprehensive Care, and Consumer Choice HSA Plan.
Retirees age 65 and older participate in a secondary healthcare coverage for Medicare-eligible retirees and dependents provided through a retiree healthcare exchange option. The USG makes contributions to a health reimbursement account, which can be used by the retiree to pay premiums and out-of-pocket healthcare-related expenses.
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 to serve as the claims administrator for the self-insured healthcare plans. In addition to the self-insured healthcare plan options offered to the employees of the USG, a fully insured HMO healthcare plan is also offered to System employees.
The prescription drug plan is administered through CVS/Caremark. Pharmacy drug claims are processed in accordance with guidelines established for the Board of Regents' Prescription Drug Benefit Program. Generally, claims are submitted to the plan administrator for verification, processing and payment. The plan administrator 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. The dental plan was administered through Delta Dental.

- 33 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

A reconciliation of total estimated claims liabilities for employees and retirees for the fiscal years ended June 30, 2016, and June 30, 2015 is shown below:

Employees: Unpaid Claims and Claim Adjustments (Prior Year)

June 30, 2016

June 30, 2015

$

36,497,000 $

39,089,023

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

385,414,556

379,213,694

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

370,933,721

381,805,717

Unpaid Claims and Claim Adjustments (Current Year)

$

50,977,835 $

36,497,000

Retirees: Unpaid Claims and Claim Adjustments (Prior Year)

$

11,425,000 $

12,119,357

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

124,501,761

150,240,224

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

127,115,346

150,934,581

Unpaid Claims and Claim Adjustments (Current Year)

$

8,811,415 $

11,425,000

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.

- 34 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Note 16. 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 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, 2016.

Note 17. Post-Employment Benefits Other Than Pension Benefits
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 20-3-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.
The Board of Regents Retiree Health Benefit Plan is a single-employer, defined benefit plan. Financial statements and required supplementary information for the Plan are included in the publicly available Consolidated Annual Financial Report of the University System of Georgia. The University System Office pays the employer portion of health insurance for its eligible retirees based on rates that are established annually by the Board of Regents for the upcoming plan year.

Membership of the plan consisted of the following at June 30, 2016:

Retirees and Beneficiaries Receiving Benefits

$

Active Plan Members Receiving Benefits

18,836 39,485

Total

$

58,321

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.

- 35 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

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 2016 plan year, the employer rate was approximately 79% of the total health insurance cost for eligible retirees and the retiree rate was approximately 21%. 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 2016, the University System of Georgia contributed $ $111,813,724 to the plan, for current premiums or claims. Plan members receiving benefits contributed $28,586,933 for current premiums or claims.
As of June 30, 2016, there were 114 University System Office employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2016, the University System Office recognized as incurred $526,402 of expenditures, which was net of $160,840 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 2016, 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):
June 30, 2016

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

$

295.2 97.3 -88.2
304.3 -111.8 192.5 2,163.4
2,355.9

- 36 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

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

Contribution

Percentage of Annual OPEB Cost Contributed

Net OPEB Obligation

2014 2015 2016

$ 409.8 $ $ 450.1 $ $ 304.3 $

120.9 129.8 111.8

29.5% 28.8% 36.7%

$ 1,843.1 $ 2,163.4 $ 2,355.9

Funded Status and Funding Progress

Actuarial Valuation
Date

Actuarial Value of Assets
(a)

Actuarial Accrued Liability
(b)

Unfunded AAL (UAAL) (b-a)

Funded Ratio (a/b)

Annual Covered Payroll
(c)

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

7/1/2013 7/1/2014 7/1/2015*

$ 216,775 $ 4,095,304,172 $ 4,095,087,397 $ 81,519 $ 4,278,445,406 $ 4,278,363,887 $ 280,596 $ 2,657,095,907 $ 2,656,815,311

0.0% $ 2,594,800,486 0.0% $ 2,608,756,645 0.0% $ 3,087,013,265

157.8% 164.0%
86.1%

*Changes in Plan Provisions: Effective January 1, 2016, all post-65 Medicare eligible retirees access medical coverage through an individual Healthcare Exchange marketplace. The Board of Regents provides an annual fixed dollar HRA contribution for these retirees.

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

- 37 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

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, 2015 Projected Unit Credit Market Value Level Percent of Payroll, Closed 30 Years 4.50% 2.50% 3.00% 4.00% 7.5% Pre-Medicare 4.5% Medicare 4.50% 2031

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

- 38 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016

EXHIBIT "F"

Note 18. Natural Classifications with Functional Classifications

Operating expenses by functional classification for fiscal year 2016 are shown below:

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

Research

Functional Classification Public Service Academic Support

Institutional Support

$

13,159 $

3,870,507 $

423,571 $

34,288,649

2,539

1,202,101

132,688

10,461,307

47,982

150,082

28,131

894,989

30,327

1,523,504 73,296,293
1,759,302

95 21,642,023
149,870

5,316,555 465,654,115
5,176,417

$

46,025 $ 81,801,789 $

22,376,378 $ 521,840,014

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

Functional Classification

Scholarships and Fellowships

Auxiliary Enterprises

Total Operating Expenses

$

349,665 $

38,945,551

87,168

11,885,803

47,982

26,125

1,099,327

$

60,000

60,000

1,048

6,841,202

14,339,453

574,962,211

10,422,246

17,507,835

$

60,000 $ 25,225,705 $ 651,349,911

Note 19. Subsequent Events
In the subsequent fiscal year, Certificates of Substantial Completion were issued on the five remaining student housing resource projects referenced in Note 9 on the campuses of Augusta University, Columbus State University, Dalton State College, Georgia State University, and the University of North Georgia. The fair market values of the respective projects will be capitalized as Building Assets and Deferred Inflows of Resources in fiscal year 2017.

- 39 -

REQUIRED SUPPLEMENTARY INFORMATION - 40 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) REQUIRED SUPPLEMENTARY INFORMATION
SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY TEACHERS RETIREMENT SYSTEM OF GEORGIA FOR THE YEAR ENDED JUNE 30

SCHEDULE "1"

Year Ended
June 30, 2016 June 30, 2015

Proportion of the Net Pension Liability

Proportion of the Net Pension Liability

Covered Employee Payroll

Proportionate Share of the Net Pension
Liability as a Percentage of Covered Payroll

Plan Fiduciary Net Position as a
Percentage of the Total Pension Liability

0.245822% $ 0.232136% $

37,423,958 $ 25,611,344.00 29,327,322 $ 23,724,792.00

146.12% 123.61%

81.44% 84.03%

This schedule is intended to show information for 10 years. Additional years will be displayed as they become available. - 41 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) REQUIRED SUPPLEMENTARY INFORMATION
SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA FOR THE YEAR ENDED JUNE 30

SCHEDULE "2"

Year Ended
June 30, 2016 June 30, 2015

Proportion of the Net Pension Liability

Proportion of the Net Pension Liability

Covered Employee Payroll

Proportionate Share of the Net Pension
Liability as a Percentage of Covered Payroll

Plan Fiduciary Net Position as a
Percentage of the Total Pension Liability

0.090115% $ 3,650,917.00 $ 2,202,271.00 0.072711% $ 2,727,112.00 $ 1,688,599.00

165.78% 161.50%

76.20% 77.99%

This schedule is intended to show information for 10 years. Additional years will be displayed as they become available. - 42 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CONTRIBUTIONS TEACHERS RETIREMENT SYSTEM OF GEORGIA FOR THE YEAR ENDED JUNE 30

SCHEDULE "3"

Year Ended

Contractually Required
Contribution

Contributions in Relation to the Contractually Required Contribution

Contribution Deficiency (Excess)

Covered Employee Payroll

Contributions as a Percentage of Covered-
Employee Payroll

June 30, 2016 $ June 30, 2015 $ June 30, 2014 $ June 30, 2013 $ June 30, 2012 $ June 30, 2011 $ June 30, 2010 $ June 30, 2009 $ June 30, 2008 $ June 30, 2007 $

4,037,014 $ 3,367,743 $ 2,908,206 $ 2,454,080 $ 2,057,251 $ 2,083,786 $ 2,235,964 $ 2,085,313 $ 1,952,167 $ 1,787,733 $

4,037,014 $ 3,367,743 $ 2,908,206 $ 2,454,080 $ 2,057,251 $ 2,083,786 $ 2,235,964 $ 2,085,313 $ 1,952,167 $ 1,787,733 $

0$ 0$ 0$ 0$ 0$ 0$ 0$ 0$ 0$ 0$

28,290,216 25,611,344 23,724,792 21,538,492 20,012,169 20,270,292 22,956,509 22,471,045 21,036,282 19,264,364

14.27% 13.15% 12.26% 11.40% 10.28% 10.28%
9.74% 9.28% 9.28% 9.28%

- 43 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CONTRIBUTIONS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA FOR THE YEAR ENDED JUNE 30

SCHEDULE "4"

Year Ended

Contractually Required
Contribution

Contributions in Relation to the Contractually Required Contribution

Contribution Deficiency (Excess)

Covered Employee Payroll

Contributions as a Percentage of Covered-
Employee Payroll

June 30, 2016 $ June 30, 2015 $ June 30, 2014 $ June 30, 2013 $ June 30, 2012 $ June 30, 2011 $ June 30, 2010 $ June 30, 2009 $ June 30, 2008 $ June 30, 2007 $

645,414 $ 451,830 $ 302,231 $ 178,569 $ 112,663 $
72,484 $ 55,733 $ 62,341 $ 61,924 $ 40,840 $

645,414 $ 451,830 $ 302,231 $ 178,569 $ 112,663 $
72,484 $ 55,733 $ 62,341 $ 61,924 $ 40,840 $

0$ 0$ 0$ 0$ 0$ 0$ 0$ 0$ 0$ 0$

2,099,333 2,202,271 1,688,599 1,300,762
968,727 696,292 535,379 597,001 593,025 390,602

30.74% 20.52% 17.90% 13.73% 11.63% 10.41% 10.41% 10.44% 10.44% 10.46%

- 44 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) SCHEDULE OF FUNDING PROGRESS JUNE 30, 2016

SCHEDULE "5"

Actuarial Valuation
Date

Actuarial Value of Assets
(a)

7/1/2013 $ 7/1/2014 $ 7/1/2015 * $

216,775 $ 81,519 $
280,596 $

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

Unfunded AAL (UAAL) (b-a)

4,095,304,172 $ 4,278,445,406 $ 2,657,095,907 $

4,095,087,397 4,278,363,887 2,656,815,311

Funded Ratio (a/b)

Covered Payroll (c)

0.0% $ 0.0% $ 0.0% $

2,594,800,486 2,608,756,645 3,087,013,265

UAAL as a Percentage of Covered
Payroll ((b-a)/c)
157.8% 164.0%
86.1%

BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND SCHEDULE OF EMPLOYER CONTRIBUTIONS

Fiscal Year

Required Contribution

Percentage Contributed

2014 2015 2016*

$ 403,314,315 $ 442,358,794 $ 295,191,975

30.0% 29.5% 37.9%

*Changes in Plan Provisions: Effective January 1, 2016, all post-65 Medicare eligible retirees access medical coverage through an individual Healthcare Exchange marketplace. The Board of Regents provides an annual fixed dollar HRA contribution for these retirees.

- 45 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)
NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED JUNE 30, 2016

SCHEDULE "6"

Teachers Retirement System
Changes of assumptions: In 2010 and later, the expectation of retired life mortality was changed to the RP2000 Mortality Tables rather than the 1994 Group Annuity Mortality Table, which was used prior to 2010. In 2010, rates of withdrawal, retirement, disability and mortality were adjusted to more closely reflect actual experience. In 2010, assumed rates of salary increase were adjusted to more closely reflect actual and anticipated experience.

Method and assumptions used in calculations of actuarially determined contributions: The actuarially determined contribution rates in the schedule of contributions are calculated as of June 30, three years prior to the end of the fiscal year in which contributions are reported. The following actuarial methods and assumptions were used to determine the contractually required contributions for year ended June 30, 2016 reported in that schedule:

Valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method Inflation rate Salary increases Investment rate of return

June 30, 2013 Entry age Level percentage of payroll, open 30 years Seven-year smoothed market 3.00% 3.75 7.00%, including inflation 7.50%, net of pension plan investment
expense, including inflation

Employees' Retirement System
Changes of assumptions : There were no changes in assumptions or benefits that affect the measurement of the total pension liability since the prior measurement date.

Method and assumptions used in calculations of actuarially determined contributions: The actuarially determined contribution rates in the schedule of contributions are calculated as of June 30, three years prior to the end of the fiscal year in which contributions are reported. The following actuarial methods and assumptions were used to determine the contractually required contributions for year ended June 30, 2016 reported in that schedule:

Valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method Inflation rate Salary increases
Investment rate of return

June 30, 2013 Entry age Level dollar, open 30 years Seven-year smoothed market 3.00% 2.725% 4.625% for FY 2012-2013, 5.45% - 9.25% for FY2014+ 7.50%, net of pension plan investment
expense, including inflation

- 46 -

SUPPLEMENTARY INFORMATION - 47 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30, 2016
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable
Federal Financial Assistance Other Prepaid Expenditures Inventories Other Assets
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Deferred Revenue
Total Liabilities
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Restricted/Sponsored Funds Uncollectible Accounts Receivable Inventories Carry-Over "Per State Accounting Office" Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "7"

$

60,976,573.93

4,163,706.32

392,051.24 2,981,671.24
259,121.10 326,943.36
11,581.25

$

69,111,648.44

$

60,278.40

21,529,505.06

3,902,323.64

578,692.21

26,070,799.31

28,591,777.20 279,923.94
7,137,994.87 47,924.37
326,943.36 6,020,152.53
636,132.86
43,040,849.13

$

69,111,648.44

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.
- 48 -

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, 2016

SCHEDULE "8"

REVENUES
State Appropriation State General Funds Tobacco Funds
Other Funds
Total Revenues
ADJUSTMENTS AND PROGRAM TRANSFERS
CARRY-OVER FROM PRIOR YEARS
Transfers from Reserved Fund Balance
Total Funds Available
EXPENDITURES
USO - Archives USO - Public Libraries USO - Regents Central Office USO - Medical College of Georgia Hospital and Clinics USO - Georgia Public Telecommunications Commission USO - Georgia Radiation Therapy Center USO - 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 Prior Year Receivables/Revenues Unreserved Fund Balance (Surplus) Returned
to Office of the State Treasurer Year Ended June 30, 2015
Unreserved Fund Balance (Surplus) Returned to Board of Regents - University System Office Year Ended June 30, 2015
Prior Year Reserved Fund Balance Included in Funds Available
FUND BALANCE JUNE 30

BUDGET

ACTUAL

VARIANCE FAVORABLE (UNFAVORABLE)

$

177,142,741.00 $

177,142,741.00 $

0.00

247,158.00

247,158.00

0.00

85,536,298.00

69,461,089.66

-16,075,208.34

262,926,197.00

246,850,988.66

-16,075,208.34

0.00

0.00

0.00

0.00 262,926,197.00

34,997,937.36 281,848,926.02

34,997,937.36 18,922,729.02

5,726,018.00 38,994,244.00 12,094,954.00 28,840,775.00 14,997,510.00
4,466,022.00 3,547,852.00 12,986,659.00 141,272,163.00

262,926,197.00

$

0.00

5,575,438.81 37,461,675.70 11,946,827.00 28,840,775.00 14,997,510.00
0.00 3,547,852.00 12,562,896.65 124,202,080.94
239,135,056.10
42,713,869.92 $

150,579.19 1,532,568.30
148,127.00 0.00 0.00
4,466,022.00 0.00
423,762.35 17,070,082.06
23,791,140.90
42,713,869.92

35,123,101.14 267,728.54

399,597.03 -197,781.60

-2,496,946.21

2,229,217.67 -34,997,937.36

$

43,040,849.13

SUMMARY OF FUND BALANCE
Reserved Department Sales and Services Indirect Cost Recoveries Restricted/Sponsored Funds Uncollectible Accounts Receivable Inventories Carry-Over "Per State Accounting Office"
Total Reserved
Unreserved Surplus

$

28,591,777.20

279,923.94

7,137,994.87

47,924.37

326,943.36

6,020,152.53

42,404,716.27

636,132.86

Total Fund Balance

$

43,040,849.13

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.
- 49 -

BOARD OF REGENTS OF THE UNVERSITY 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, 2016

Archives State Appropriation State General Funds Other Funds
Total Archives
Public Libraries State Appropriation State General Funds Other Funds
Total Public Libraries
Regents Central Office State Appropriation State General Funds Other Funds
Total Regents Central Office
Georgia Health Sciences University 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 Initiatives State Appropriation State General Funds Tobacco Funds
Total Special Funding Initiatives
Teaching State Appropriation State General Funds Other Funds
Total Teaching
Total Operating Activity

Original Appropriation

Amended Appropriation

Final Budget

Current Year Revenues

$

4,646,252.00 $

4,646,252.00 $

4,646,252.00 $

4,646,252.00

689,281.00

689,281.00

1,079,766.00

1,095,139.62

5,335,533.00

5,335,533.00

5,726,018.00

5,741,391.62

32,869,520.00 5,222,400.00
38,091,920.00

32,869,520.00 5,222,400.00
38,091,920.00

32,869,520.00 6,124,724.00
38,994,244.00

32,869,520.00 4,661,756.06
37,531,276.06

11,894,954.00 0.00
11,894,954.00

11,894,954.00 0.00
11,894,954.00

11,894,954.00 200,000.00
12,094,954.00

11,894,954.00 483,586.73
12,378,540.73

28,840,775.00

28,840,775.00

28,840,775.00

28,840,775.00

14,997,510.00 4,837,326.00

14,997,510.00 4,837,326.00

14,997,510.00 4,466,022.00

14,997,510.00 0.00

3,547,852.00

3,547,852.00

3,547,852.00

3,547,852.00

13,701,771.00 247,158.00
13,948,929.00

13,701,771.00 247,158.00
13,948,929.00

12,739,501.00 247,158.00
12,986,659.00

12,739,501.00 247,158.00
12,986,659.00

69,611,022.00 115,694,987.00
185,306,009.00

69,611,022.00 115,694,987.00
185,306,009.00

67,606,377.00 73,665,786.00
141,272,163.00

67,606,377.00 63,220,607.25
130,826,984.25

$ 306,800,808.00 $ 306,800,808.00 $ 262,926,197.00 $ 246,850,988.66

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.
- 50 -

SCHEDULE "9"

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

Excess of Funds Available
Over Expenditures

$

0.00 $

996,603.38

996,603.38

0.00 $ 0.00
0.00

4,646,252.00 $ 2,091,743.00
6,737,995.00

0.00 $ 1,011,977.00
1,011,977.00

4,646,252.00 $ 929,186.81
5,575,438.81

0.00 $ 150,579.19
150,579.19

0.00 1,162,556.19
1,162,556.19

0.00 0.00
0.00

0.00 -69,600.36
-69,600.36

32,869,520.00 4,592,155.70
37,461,675.70

0.00 -1,532,568.30
-1,532,568.30

32,869,520.00 4,592,155.70
37,461,675.70

0.00 1,532,568.30
1,532,568.30

0.00 0.00
0.00

0.00 0.00
0.00

0.00 3,872,051.92
3,872,051.92

11,894,954.00 4,355,638.65
16,250,592.65

0.00 4,155,638.65
4,155,638.65

11,886,827.00 60,000.00
11,946,827.00

8,127.00 140,000.00
148,127.00

8,127.00 4,295,638.65
4,303,765.65

0.00

0.00

28,840,775.00

0.00

28,840,775.00

0.00

0.00

0.00 0.00

0.00 0.00

14,997,510.00 0.00

0.00 -4,466,022.00

14,997,510.00 0.00

0.00 4,466,022.00

0.00 0.00

0.00

0.00

3,547,852.00

0.00

3,547,852.00

0.00

0.00

0.00 0.00
0.00

0.00 0.00
0.00

12,739,501.00 247,158.00
12,986,659.00

0.00 0.00
0.00

12,315,738.65 247,158.00
12,562,896.65

423,762.35 0.00
423,762.35

423,762.35 0.00
423,762.35

0.00 34,001,333.98
34,001,333.98

0.00 -3,802,451.56
-3,802,451.56

67,606,377.00 93,419,489.67
161,025,866.67

0.00 19,753,703.67
19,753,703.67

67,601,404.60 56,600,676.34
124,202,080.94

4,972.40 17,065,109.66
17,070,082.06

4,972.40 36,818,813.33
36,823,785.73

$ 34,997,937.36 $

0.00 $ 281,848,926.02 $ 18,922,729.02 $ 239,135,056.10 $

23,791,140.90 $ 42,713,869.92

- 51 -

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, 2016

Archives State Appropriation State General Funds Other Funds
Total Archives
Public Libraries State Appropriation State General Funds
Regents Central Office State Appropriation State General Funds Other Funds
Total Regents Central Office
Georgia Health Sciences University 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 Initiatives State Appropriation State General Funds Tobacco Funds
Total Special Funding Initiatives
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 July 1

Fund Balance Carried Over from
Prior Period as Funds Available

Return of Fiscal Year 2015
Surplus

Prior Period Adjustments

$

1,710.49 $

0.00 $

996,603.38

-996,603.38

998,313.87

-996,603.38

-1,710.49 $ 0.00
-1,710.49

89.80 0.00
89.80

10,404.12

0.00

-10,404.12

26,667.14

13,594.72 0.00
13,594.72

0.00 0.00
0.00

-13,594.72 0.00
-13,594.72

16,249.33 0.00
16,249.33

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

5,280.88 0.00
5,280.88

0.00 0.00
0.00

-5,280.88 0.00
-5,280.88

0.00 0.00
0.00

161,095.83 34,076,976.48
34,238,072.31
35,265,665.90

0.00 -34,001,333.98
-34,001,333.98
-34,997,937.36

-161,095.83 -75,642.50
-236,738.33
-267,728.54

343,077.29 -184,268.13
158,809.16
201,815.43

85,447.19 39,716.59

0.00 0.00

0.00 0.00

0.00 0.00

Budget Unit Totals

$

35,390,829.68 $

-34,997,937.36 $

-267,728.54 $

201,815.43

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.
- 52 -

SCHEDULE "10"

Other Adjustments

Early Return Fiscal Year 2016
Surplus

Excess of Funds Available
Over Expenditures

Ending Fund Balance June 30

Analysis of Ending Fund Balance

Reserved

Surplus

Total

$

0.00 $

0.00

0.00

0.00

0.00 0.00
0.00

0.00

0.00 0.00

0.00

0.00 0.00
0.00

-191,497.53 -58,206.42
-249,703.95
-249,703.95

241,496.17 8,207.78

$

0.00 $

0.00 $ 0.00
0.00

0.00 $ 1,162,556.19
1,162,556.19

89.80 $ 1,162,556.19
1,162,645.99

0.00 $ 1,162,556.19
1,162,556.19

89.80 $ 0.00
89.80

89.80 1,162,556.19
1,162,645.99

0.00

0.00

26,667.14

0.00

26,667.14

26,667.14

0.00 0.00
0.00

8,127.00 4,295,638.65
4,303,765.65

24,376.33 4,295,638.65
4,320,014.98

0.00 4,295,638.65
4,295,638.65

24,376.33 0.00
24,376.33

24,376.33 4,295,638.65
4,320,014.98

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

423,762.35 0.00
423,762.35

423,762.35 0.00
423,762.35

0.00 0.00
0.00

423,762.35 0.00
423,762.35

423,762.35 0.00
423,762.35

0.00 0.00
0.00
0.00

4,972.40 36,818,813.33
36,823,785.73
42,713,869.92

156,552.16 36,576,338.78
36,732,890.94
42,665,981.40

0.00 36,571,653.70
36,571,653.70
42,029,848.54

156,552.16 4,685.08
161,237.24
636,132.86

156,552.16 36,576,338.78
36,732,890.94
42,665,981.40

0.00 0.00

0.00 0.00

326,943.36 47,924.37

326,943.36 47,924.37

0.00 0.00

326,943.36 47,924.37

0.00 $

42,713,869.92 $ 43,040,849.13 $

42,404,716.27 $

636,132.86 $ 43,040,849.13

Summary of Ending Fund Balance

Reserved

Departmental Sales and Services

$

28,591,777.20

Indirect Recoveries

279,923.94

Restricted/Sponsored Funds

7,137,994.87

Uncollectible Accounts Receivable

47,924.37

Inventories

326,943.36

Carry-Over "Per State Accounting Office"

6,020,152.53

Unreserved

Surplus

$

$

42,404,716.27 $

$
636,132.86 636,132.86 $

28,591,777.20 279,923.94
7,137,994.87 47,924.37
326,943.36 6,020,152.53
636,132.86
43,040,849.13

- 53 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT) SCHEDULE OF APPROVED BUDGET YEAR ENDED JUNE 30, 2016

SCHEDULE "11"

REVENUES
State Appropriation Other Funds
Total Revenues
CARRY-OVER FROM PRIOR YEARS
Transfers from Reserved Fund Balance
Total Funds Available
EXPENDITURES
Agricultural Experiment Station Archives 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 Skidaway Institute of Oceanography Special Funding Initiative Teaching Veterinary Medicine Experiment Station Veterinary Medicine Teaching Hospital
Total Expenditures

ORIGINAL APPROPRIATION

FINAL APPROVED
BUDGET

BUDGET TRANSFERS TO OTHER UNITS

TOTAL

$ 2,025,395,691.00 $ 2,025,395,691.00 $ 1,848,005,792.00 $

5,087,746,763.00

5,700,971,016.00

5,615,434,718.00

7,113,142,454.00

7,726,366,707.00

7,463,440,510.00

177,389,899.00 85,536,298.00
262,926,197.00

0.00

4,344,869.00

4,344,869.00

0.00

$ 7,113,142,454.00 $ 7,730,711,576.00 $ 7,467,785,379.00 $ 262,926,197.00

$

76,047,446.00 $ 110,269,464.00 $ 110,269,464.00 $

5,528,725.00

5,726,018.00

5,785,273.00

6,915,058.00

6,915,058.00

63,621,347.00

73,323,517.00

73,323,517.00

19,490,935.00

20,732,502.00

20,732,502.00

1,386,419.00

1,488,383.00

1,488,383.00

12,910,812.00

14,946,904.00

14,946,904.00

3,547,852.00

3,547,852.00

14,997,510.00

14,997,510.00

4,466,022.00

4,466,022.00

367,445,871.00

376,932,999.00

376,932,999.00

1,413,279.00

1,904,719.00

1,904,719.00

2,589,238.00

2,971,453.00

2,971,453.00

28,840,775.00

28,840,775.00

38,091,920.00

38,994,244.00

11,894,954.00

12,094,954.00

5,073,798.00

6,458,431.00

6,458,431.00

37,691,972.00

42,036,841.00

29,050,182.00

6,394,751,347.00

6,942,253,145.00

6,800,980,982.00

2,649,796.00

2,723,823.00

2,723,823.00

14,917,163.00

19,086,962.00

19,086,962.00

0.00 5,726,018.00
0.00 0.00 0.00 0.00 0.00 3,547,852.00 14,997,510.00 4,466,022.00 0.00 0.00 0.00 28,840,775.00 38,994,244.00 12,094,954.00 0.00 12,986,659.00 141,272,163.00 0.00 0.00

$ 7,113,142,454.00 $ 7,730,711,576.00 $ 7,467,785,379.00 $ 262,926,197.00

See notes to the financial statements.

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RESEARCH UNIVERSITIES
Augusta University Georgia Institute of Technology 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 Middle Georgia State University Savannah 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 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, 2016

AGRICULTURAL EXPERIMENT
STATION

COOPERATIVE EXTENSION SERVICE

ENTERPRISE INNOVATION INSTITUTE

FORESTRY COOPERATIVE
EXTENSION

FORESTRY RESEARCH

GEORGIA TECH
RESEARCH INSTITUTE

$ 8,590,935.00

$ 38,494,527.00 $ 32,287,418.00

$

$ 5,694,440.00 810,431.00 $ 2,660,386.00

$ 38,494,527.00 $ 32,287,418.00 $ 8,590,935.00 $ 810,431.00 $ 2,660,386.00 $ 5,694,440.00

See notes to the financial statements.

- 56 -

SCHEDULE "12"

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

$ 926,998.00 $ 1,243,709.00
$ $ 926,998.00 $ 1,243,709.00 $

$ 18,612,880.00 $ 170,000.00

176,586,639.00 219,386,588.00 197,084,655.00 337,071,817.00 $

2,649,796.00 $

$ 417,163.00

195,199,519.00 233,671,963.00 197,254,655.00 416,562,245.00

198,784.00 540,000.00 506,502.00

91,539,102.00 115,182,372.00
49,421,540.00 45,819,606.00

91,737,886.00 115,722,372.00
49,928,042.00 45,819,606.00

325,840.00 107,000.00 3,725,725.00
40,000.00 158,312.00 250,270.00

19,471,697.00 29,927,995.00 25,198,595.00 34,513,634.00 18,089,884.00 31,507,908.00 11,154,775.00 32,260,380.00 22,026,701.00 54,501,335.00

19,471,697.00 29,927,995.00 25,524,435.00 34,620,634.00 21,815,609.00 31,547,908.00 11,313,087.00 32,510,650.00 22,026,701.00 54,501,335.00

70,000.00

14,958,174.00 10,395,948.00
7,721,997.00 13,318,875.00 15,227,320.00 15,753,305.00
6,927,604.00 48,456,874.00 15,319,285.00 47,225,523.00 11,983,938.00 10,217,432.00

14,958,174.00 10,395,948.00
7,721,997.00 13,318,875.00 15,227,320.00 15,753,305.00
6,927,604.00 48,456,874.00 15,319,285.00 47,225,523.00 12,053,938.00 10,217,432.00

0.00 $

1,273,178.00

1,273,178.00

0.00 $

1,273,178.00 $ 24,705,313.00 $ 1,728,251,498.00 $ 2,649,796.00 $ 417,163.00 $ 1,848,005,792.00

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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, 2016

SCHEDULE "13"

RESEARCH INSTITUTIONS
Augusta University Georgia Institute of Technology Georgia State University University of Georgia
REGIONAL 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 Middle Georgia State University Savannah 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 South Georgia State College

COLLECTED

$

130,885.15

470,917.62

282,907.71

153,733.10

97,213.01 29,692.00 56,450.91 345,931.88

17,592.15 8,053.32
12,494.76 39,385.04 191,728.97 10,944.07
318.03 75,139.10 11,912.77 55,660.38

4,935.25 13,346.84
527.33 1,976.87 27,829.48
389.60 3,773.48 1,195.95 21,745.15 27,135.04 73,232.66 62,170.05

$ 2,229,217.67

See notes to the financial statements.

- 59 -

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
December 30, 2016

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Mr. 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, 2016, and have issued our report thereon dated December 30, 2016.
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.
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,
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, 2016

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FS-472-14-01 Deficiencies in Controls over Capital Assets

Control Category:
Internal Control Impact: Compliance Impact:

Capital Assets Financial Reporting and Disclosure Significant Deficiency None

Finding Status:

Previously Reported Corrective Action Implemented

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, 2016
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
No matters were reported.
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
No matters were reported.