Audit report, state of Georgia, Georgia Military College, Milledgeville, Georgia, year ended June 30, 1998

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AUDITREPORT STATE OF GEORGIA GEORGIA MILITARY COLLEGE MILLEDGEVILLE, GEORGIA YEARENDED JUNE 30,1998

STATE OF GEORGIA DEPARTMENT OF AUDITS
254 WASHINGTON STREET
ATLANTA. GEORGIA 30334

GEORGIA MILITARY COLLEGE - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

EXlllBITS

FINANCIAL STATEMENTS

A COMBINED BALANCE SHEET

ALL FUND GROUPS

2

B COMBINED STATEMENT OF CHANGES IN FUND BALANCES

ALL FUND GROUPS

4

C STATEMENT OF CURRENT FUNDS REVENUES, EXPENDITURES,

AND OTHER CHANGES

7

D NOTES TO THE FINANCIAL STATEMENTS

8

SUPPLEMENTARY INFORMATION

SCHEDULE

1 RECONCILIATION OF SALARIES AND TRAVEL

20

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

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

SECTION I FINANCIAL

CLAUDE L. VICKERS
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.w., Suite 214 Atlanta, Georgia 30334-8400
December 10, 1998

Governor of the State of Georgia Members of the General Assembly of Georgia Members of the Board of Trustees of Georgia Military College
and Major General Peter J. Boylan, President
INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying financial statements (Exhibits A through D) of Georgia Military College as of and for the year ended June 30, 1998. These financial statements are the responsibility of the College's management. Our responsibility is to express an opinion on these financial statements based on our audit.
Except as discussed in the third and fourth paragraphs, we conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The College could not provide adequate subsidiary fixed asset records or other evidence supporting the Plant Fund Investment in Plant of $8,677,097.65 as shown on the Combined Balance Sheet. Accordingly, we were unable to satisfy ourselves as to the accuracy of this amount as reflected on the financial statements as of June 30, 1998.
Governmental Accounting Standards Board Technical Bulletin 98-1, Disclosures About Year 2000Issues,
requires disclosure of certain matters regarding the year 2000 issue. Georgia Military College has included such disclosures in the Notes to the Financial Statements. Because ofthe unprecedented nature of the year 2000 issue, its effects and the success of related remediation efforts will not be fully determinable until year 2000 and thereafter. Accordingly, insufficient audit evidence exists to support Georgia Military College's disclosures with respect to the year 2000 issue made in the Notes to the Financial Statements. Further, we
98ARL-63X

do not provide assurance that Georgia Military College is or will be year 2000 ready, that Georgia Military College's year 2000 remediation efforts will be successful in whole or in part, or that parties with which . Georgia Military College does business will be year 2000 ready.
In our opinion, except for the effects on the financial statements of adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves as to the accuracy ofthe Investment in Plant as discussed in the third paragraph, and except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to examine sufficient evidence regarding year 2000 disclosures as discussed in the fourth paragraph, the financial statements referred to above present fairly, in all material respects.the fmancial position of Georgia Military College as of June 30, 1998, and the changes in fund balances and the current operating revenues, expenditures, and other changes for the year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplementary information (Schedule 1) is presented for purposes of additional analysis and is not a required part of the fmancial statements of Georgia Military College. Such information has been subjected to the auditing procedures applied in the audit ofthe financial statements and, in our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to examine sufficient evidence supporting the Investment in Plant amount and year 2000 disclosures, such information is fairly presented in all material respects in relation to the financial statements taken as a whole.

CLV:ds 98ARL-63X

Claude 1. Vickers State Auditor

FINANCIAL STATEMENTS -1 -

GEORGIA MILITARY COLLEGE COMBINED BALANCE SHEET
ALL FUND GROUPS JUNE 30, 1998

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable (Net of Allowances for Doubtful Accounts) Inventories Prepaid Items Due from Other Fund Groups Investment in Plant
Total Assets

CURRENT FUNDS

UNRESTRICTED

RESTRICTED

ENDOWMENT FUNDS

$

1,044,644,22 $

1,037,971.12 377,154,34 2,032,63 2,885.04

341,252,19
$
671,306.77

548,435.07

$

2,464,687.35 $

=== 1,012,558.96 $ =====5=48..,.4...3..5.07

LIABILITIES AND FUND BALANCES
Liabilities Accounts Payable Salaries Payable Student Deposits Deferred Revenue Tuition and Fees Other Bonds Payable Deposits Held in Custody for Others Due to Other Fund Groups Compensated Absences Capital Lease Obligations
Total Liabilities
Fund Balances Endowment Net Investment in Plant Restricted Unrestricted
Total Fund Balances
Total Liabilities and Fund Balances

$

614,671.36

417,435,38

21,852.89

487,067,59 150,000,00

112,177.10

$

1,803,204,32

$

$

1,012,558,96

$

661,483,03

$

661,483,03 $

1,012,558,96 $

548,435,07 548,435,07

$

2,464,687,35 $

==== 1,012,558,96 $ ====5=48..,.4...3..5,07

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

EXHIBIT "A"

PLANT FUNDS

INVESTMENT

UNEXPENDED

IN PLANT

AGENCY FUNDS

TOTAL (Memorandum
Only)

$

0.00

$

36,206.15 $

1,422,102.56

548,435.07

1,709,277.89

3n,154.34

2,032.63

2,885.04

8,677,097.65

$

0.00 $

8,677,097.65 $

36,206.15 $ 12,738,985.18

$

614,671.36

417,435.38

21,852.89

$

7,000.00

2,885.04

$

36,206.15

$'

131,374.50

487,067.59 150,000.00
7,000.00 36,206.15 2,885.04 112,1n.10 131,374.50

$

9,885.04 $

131,374.50 $

36,206.15 $

1,980,670.01

$

8,545,723.15

$

-9,885.04

$

-9,885.04 $

8,545,723.15

$

548,435.07

8,545,723.15

1,012,558.96

651,597.99

$ 10,758,315.17

$

0.00 $

8,677,097.65 $

36,206.15 $, 12,738,985.18

-3-

GEORGIAMILITARY COLLEGE COMBINED STATEMENT OF CHANGES IN FUND BALANCES
ALL FUNDGROUPS YEAR ENDEDJUNE 30,1998

REVENUES AND OTHERADDITIONS
Unrestricted CurrentFund Revenues FederalGrants and Contracts State Grants and Contracts Priva~e Gifts, Grants, and Contracts InvestmentIncome
Endowment Net IncreaselDecrease in Fair Value of Investments Adjustments
Prior Years' Expenditures/Accounts Payable Expended for Plant Facilities
Current Funds
Total Revenues and OtherAdditions
EXPENDITURES AND OTHERDEDUCTIONS
Educational and GeneralExpenditures Auxiliary Enterprises Expenditures IndirectCosts Recovered Refunded to Grantors Adjustments
Prior Years' Revenues/Accounts Receivable Expended for Plant Facilities
Noncapitalized
Total Expenditures and Other Deductions
Net Increase/(Decrease) for the Year
FUNDBALANCES JULY 1. 1997 (Restated - See Note 1)
FUND BALANCES JUNE 30.1998

CURRENTFUNDS

UNRESTRICTED

RESTRICTED

$ 12,960,334.72 $

3,084,283.84 3,263,169.05
201,288.10

2,568.00

$ 12,962,902.72 $

6,548,740.99

$ 12,236,586.56 $ 1,259,290.75

6,345,996.13 6,635.00

281,371.33

$ 13,777,248.64 $

$

-814,345.92 $

1,475,828.95

6,352,631.13 196,109.86 816,449.10

$

661,483.03 $

1,012,558.96

The notes to the financial statementsare an integralpart of this statement. -4-

EXHIBIT"B"

ENDOWMENT FUNDS

PLANT FUNDS

INVESTMENT

UNEXPENDED

IN PLANT

TOTAL (Memorandum
Only)

$

$

6,138.38

21,836.45 49,408.33

$

77,383.16 $

0.00
$ 0.00 $

$
335,730.31 335,730.31 $

12,960,334.72 3,084,283.84 3,263,169.05
207,426.48
21,836.45 49,408.33
2,568.00
335,730.31
19,924,757.18

$

2,183.53

$

$

2,183.53 $

$

75,199.63 $

473,235.44

$
1,095.00 1,095.00 $ -1,095.00 $ -8,790.04

0.00 $
0.00 $ 335,730.31 $ 8,209,992.84

18,582,582.69 1,259,290.75
6,635.00 2,183.53
281,371.33
1,095.00
20,133,158.30
-208,401.12
10,966,716.29

$

548,435.07 $

-9,885.04 $

8,545,723.15 $ 10,758,315.17

-5-

THIS PAGE LEn BLANK

GEORGIAMILITARYCOLLEGE STATEMENTOF CURRENTFUNDS REVENUES, EXPENDITURES,
AND OTHERCHANGES YEAR ENDEDJUNE 30, 1998

EXHIBIT"C"

Net Increase/(Decrease) in Fund Balances

$

-814,345,92 $

========== 196,109.86 $

-618,236,06

The notes to the financial statements are an integralpart of this statement. -7-

GEORGIA MILITARY COLLEGE NOTES TO TIIE FINANCIAL STATEMENTS
JUNE 30. 1998

EXIllBIT "0"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY Georgia Military College was created as a public authority and is an instrumentality of the State of Georgia and a public corporation. The Board of Trustees is composed ofthe mayor of the City of Milledgeville and six additional members, one of which shall be elected from each of the six municipal voting districts of the City ofMilledgeville. The government, control and management of Georgia Military College shall be vested in the Board of Trustees. Georgia Military College shall receive any designated funds appropriated by the General Assembly through the State Board ofRegents. In order to incur debt, the Board ofTrustees must first receive permission from the Georgia. State Financing and Investment Commission, as required for all state authorities. Accordingly, Georgia Military College is considered a component unit of the State of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational and financial relationships with the State of Georgia These reporting entity relationships are defined in Section 2100 of the Governmental Accounting Standards Board Codification of Governmental Accounting and Financial Reporting Standards.
FUND ACCOUNTING In order to ensure observance of limitations and restrictions placed on the use of the resources available to the College, the accounts ofthe College are maintained in accordance with the principles of fund accounting. This is the procedure by which resources for various purposes are classified for accounting and reporting purposes into funds that are in accordance with activities or objectives specified. Separate accounts are maintained for each fund; however, in the accompanying financial statements, funds that have similar characteristics have been combined into fund groups. Accordingly, all financial transactions have been recorded and reported by fund group.
Within each fund group, the College's fund balance allocations and designations represent those portions of the fund balances that are reserved, restricted and/or designated for specific future use by legal covenants or College policies.
Fund groups and funds presented in the accompanying financial statements are as follows:
CURRENT FUNDS
UNRESTRICTED - The fund used to account for those economic resources over which the College retains full control to use for purposes of performing the primary functions of the College, e.g., instruction, auxiliary enterprises, student activities, etc:
RESTRICTED - The fund used to record externally restricted funds which may only be utilized in accordance with the purposes established by their source. Restricted current funds are recorded as revenues and expenditures when expended for current operating purposes.

-8-

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
. JUNE 30, 1998

EXHIBIT"D"

NOTE 1: SUMMARy OF SIGNIFICANT ACCOUNTING POLICIES
FUND ACCOUNTING
ENDOWMENT FUNDS
. The fund used to account for gifts that are subject to the restrictions of gift instruments requiring that the principal be invested in perpetuity and income only be utilized.
PLANT FUNDS
UNEXPENDED - The fund used to account for financial resources utilized to acquire or to construct physical properties for institutional purposes.
INVESTMENT IN PLANT - The fund which shows the total amounts representing the book value of all physical properties owned by the College. Net Investment in Plant is an equity account showing the total book value ofphysical properties belonging to the College less the amount of any indebtedness to others.
AGENCY FUNDS
The fund used to account for resources held by the College as custodian or fiscal agent for individual students, faculty, staff members, and organizations.
BASIS OF ACCOUNTING The financial statements of Georgia Military College have been prepared on the accrual basis of accounting. No depreciation on capital assets has been provided which is allowable under generally accepted accounting principles applicable to public colleges and universities. The Statement of Current Funds Revenues, Expenditures and Other Changes is a statement of financial activities of current funds related to the current reporting period. It does not purport to present the results of operations or the net income or loss for the period as would a statement income or a statement of revenues and expenses.
RESTATEMENT OF PRIOR YEAR FUND BALANCE In the prior year, the expenditures for the Georgia Military College Development Fund was reported in the College's Unrestricted Current Fund. These expenditures totaling $400,296.74 should have been charged to the College's Restricted Current Fund. For the fiscal year 1998, the beginning fund balance for the College's Unrestricted Current Fund has been increased and the Restricted Current Fund has been decreased by this amount.
CASH AND CASH EQUIVALENTS Cash and Cash Equivalents consist ofpetty cash, demand deposits and temporary investments in authorized financial institutions.

-9-

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXHIBIT "D" .

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS Investments are reported at fair value. Funds received by the College as endowments or for restricted purposes are invested according to conditions stipulated by the donor, grantor, or in accordance with the Board ofRegents authorizing resolutions. Gains and losses on investment transactions are accounted for in the funds where such assets are recorded.

ACCOUNTS RECEIVABLE Accounts receivable consist of reimbursements due from Federal, State, local, and private grants and contracts, and other receivables disclosed from information available. The College has recorded its accounts receivable for Student Accounts in the Unrestricted - Current Funds net ofallowance for doubtful accounts as follows:

Gross Receivables Allowance for Doubtful Accounts
Net Receivables

$1,356,980.42 -452.500.00
$ 904.480.42

INVENTORIES Inventories of consumable supplies are recorded on the consumption method and are valued at cost on the Combined Balance Sheet using the first-in, first-out method.

Inventories of goods for resale are valued at cost using the first-in, first-out method.

MEMORANDUM ONLY - TOTAL COLUMNS The total columns on the financial statements are captioned "Memorandum Only" because they do not represent consolidated financial information and are presented only to facilitate financial analysis. The columns do not present information that reflects financial position or changes in fmancial position in . conformity with generally accepted accounting principles. Neither are such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation ofthis data.

NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds belonging to the State ofGeorgia 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 anyone or more ofthe following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:

(1) Bonds, bills, certifIcates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia.

(2) Bonds, bills, certificates of indebtedness, notes, or other obligations of the counties or municipalities ofthe State of Georgia.

~ 10-

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 3D. 1998

EXHIBIT"D"

NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES (3) Bonds ofany public authority created by the laws ofthe State of Georgia, providing that the statute that created the authority authorized the use ofthe bonds for this purpose.

(4) Industrial revenue bonds and bonds ofdevelopment authorities created by the laws of the State of Georgia.

(5) Bonds, bills, certificates ofindebtedness, notes, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest, or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.

(6) Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.

CATEGORIZATION OF DEPOSITS AND INVESTMENTS For purposes of analysis of custodial credit risk, cash deposits consist of all bank balances which include demand deposits and/or interest bearing accounts. The bank balances as of June 30, 1998, are categorized below in order to provide information about the extent to which such deposits are exposed to custodial credit risk:

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

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

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

Cash Deposits Investment PortfolioAccounts
Total Cash Deposits

Carrying Amount

Bank Balances

s s 1,417,877.56 2,114,501.32 $

120,957.59

120.957.59

s s $ 1 538835 15 2.235A58 91

Risk Categories

2

3

s 353,672.35
100,000.00

s 0.00 1,760,828.97

0.00

20,957.59

s 453672,35

s 000 1781.78656

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GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXlllBIT "D"

NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

CATEGORIZATION OF DEPOSITS AND INVESTMENTS Investments are summarized and classified as to custodial credit risk within the three categories described below:

Category 1 - Insured or registered, or securities held by the College or its agent in the College's name.

Category 2 - Uninsured and unregistered, with securities held by the counterparty's trust department or agent in the College's name.

Category J - Uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent but not in the College's name.

The carrying amounts of investment balances as of June 30, 1998, are categorized below:

Type of Investment
U. S. Government Securities
Investments Not Subject to Categorizations:
Investment Portfolio Accounts Mutual Funds
Total Investments

Risk Categories

1

2

3

Carrying Amount

$==~O~.Og(,O $ 159.211.04 $==~O~.O~O $ 159,211.04

268,266.44 $ 427.477.48

NOTE 3: INVESTMENT IN PLANT

Land, buildings and equipment are stated at cost as of the date of acquisition, insurance valuations, if applicable, or fair market value at date of the gift. Depreciation on physical plant and equipment is not recorded.

The following is a summary of Investment in Plant fixed assets as of June 30, 1998:

Land Buildings Equipment

$ 318,842.39 3,354,307.24 5,003,948.02

Total Investment in Plant

$ 8.677.097.65

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GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1998

EXlllBIT "0"

NOTE 4: OPERATINGLEASES

Georgia Military College has entered into a certain agreementto lease a building which is classified as an operating lease (leaseson assetsnot recorded on the balance sheet). Theseleasesgenerally containprovisions that, at the expirationdate ofthe original term of the lease, the College has the option of renewing the lease on a year-to-year basis. Futureminimumleasepayments for the operating leaseas ofJune 30, 1998, are listed below. Amounts are included only for multi-yearleases and for cancellable leases for which an option to renew for the subsequent fiscal year has been exercised.

Fiscal Year Ending June 30

1999 2000 2001 2002

$ 105,284.40 105,284.40 105,284.40 26.321.10

Total Future Minimum Lease Payments

$ 342.174.30

NOTE 5: CAPITAL LEASES

Georgia MilitaryCollegeacquires certainland and equipment throughmulti-year capital leases with varying terms and options.

As ofJune 30, 1998, future minimum lease payments under capital leases are as follows:

Fiscal Year Ending June 30

1999 2000 2001 2002 2003

$ 74,345.79 47,342.24 20,248.00 5,651.25 1.308.75

Total Future Minimum Lease Payments

$ 148,896.03

Less: Amounts RepresentingInterest

17.521.53

Present Value ofFuture Minimum Lease Payments

$ 131.374,50

-13 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXInBIT"D"

NOTE 6: DEFICITFUND BALANCE

The StudentActivityFund, a part of Unrestricted CurrentFunds,has a deficit fund balance of $975,713.70 which is not readily apparentfrom the financial statements.

NOTE 7: RISK MANAGEMENT

TheDepartment of Administrative Services (DOAS) has the responsibility for the Stateof Georgia ofmaking and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The Statebelieves it is moreeconomical to manage its risksinternally and set asideassets for'claim settlement. Accordingly, DOASprocesses 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, fidelityand certain other risks. The College, as part of the State of Georgiareporting entity, is coveredby 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 provideclaims servicing and claimspayment.

NOTE8: RETmEMENTPLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA

Plan Description GeorgiaMilitary Collegeparticipates in the Teachers Retirement System of Georgia(TRS), a cost-sharing multiple-employer defmed benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances and other benefits for teachers of the State of Georgia. TRS provides serviceretirement, disability retirement, and survivor's benefits for its members in accordance with Statestatute. The Teachers Retirement System of Georgia issues a separate standalonefinancial auditreport and a copy can be obtainedfrom the Georgia Department ofAudits and Accounts.

Funding Policy Employees of the College who are covered by TRS are required by State statute to contribute 5% of their grossearnings to TRS. The Collegemakesmonthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 1998, the employer contribution rate was 11.81% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal yearsare as follows:

Fiscal Year

Percentage Contributed

Required Contribution

1998 1997 1996

100% 100% 100%

$ 415,333.00 $ 356,094.90 $ 315,359.65

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GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXHIBIT"D"

NOTE 9: LEAVEPOUCffiS
Employees earn annual leave ranging from ten days to twenty days per year depending upon the employees' length of continuous State service with maximum accumulation of twenty days. Employees are paid for unused accumulated annual leave upon retirement or termination of employment.
Employees earn one and one quarter days of sick leave each month with a maximum accumulation of fortyfive days. Unused accumulated sick leave does not vest with the employee and is forfeited upon retirement or termination of employment, except as noted in the subsequent paragraph.
Effective July 1, 1998, certain employees who retire with a minimum of three months of unused sick leave are entitled to additional service credit in the Teachers Retirement System of Georgia,
NOTE 10: CONTINGENCffiS
Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures which are disallowed under grant terms. The amount of expenditures which maybe disallowed by the grantor cannot be determined at this time although the College expects such amounts, if any, to be immaterial to its overall fmancial position.
Litigation, claims and assessments filed against Georgia Military College, 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, 1998.
NOTE 11: TUITION AND FEE WAIVERS
Tuition and Fee Waivers of $986,828.87 were issued by Georgia Military College during fiscal year 1998. This amount is not readily apparent from the fmancial statements.
NOTE 12: YEAR 2000 SYSTEMS READINESS
The year 2000 issue is the result of shortcomings in many electronic data processing systems and other electronic equipment that may adversely affect Georgia Military College's operations as early as calendar year 1999. Georgia Military College has completed an inventory of computer systems and other electronic equipment that may be affected by the year 2000 issue and that are necessary to conducting College operations. The following stages have been identified as necessary to implement year 2000 compliant systems.
Awareness Stage - Encompasses establishing a budget and project plan for dealing with the year 2000 Issue.
Assessment Stage - The actual process ofidentifying all systems and individual components ofsystems to check for compliance.
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GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, i998

EXIllBIT "D"

NOTE 12: YEAR 2000 SYSTEMS READINESS

Remediation Stage - The time when changes are made to systems and equipment.

Validationffesting Stage - The processof ensuring that the changes made to systemsand equipment will produce a year 2000 compliantsystem.

It will be necessary for the College to progress through all four of these stages for each computer and/or electronic system, not already year2000compliant, in orderto assure that these systems will not be adversely affected.

The Collegehas identified the following systems requiring year 2000 remediation:

SYSTEMS

STATUS

ESTIMATED RESOURCES NEEDED ASOF 6/30/98

New Student Systems Software (Datatel)

ValidationlTesting Stage Completed

lIP 9000 Server for new Student Records Software

ValidationlTesting Stage Completed

486 PCS Upgrade

Remediation Stage in Progress

$60,000.00

New PC's for currently non-compliant non-486s

Assessment Stage in Progress

$40,000.00

New Server Hardware

Remediation Stage in Progress

$35,000.00

Upgrade/New Software

Remediation Stage in Progress

$30,000.00

Upgrade of Server Software (Novell 3.2)

Assessment Stage in Progress

$7,000.00

PC Compliance Inventory

Remediation Stage in Progress

Timeofpe~onnelinvolved

Network Compliance/Bookstore & Cafeteria Point of Sale System

Remediation Stage in Progress

Not known at this time

Datatel and related software Compliance

Remediation Stage in Progress

Time of personnel involved

Other Software Compliance

Remediation Stage in Progress

Tiine of personnel involved

*Systems in the remediation stage are scheduled to be completed by the end offiscal year 1999. *Systems in the assessment stage are scheduled to be completed by November 30,1999.

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GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

EXHIBIT"D"

NOTE 12: YEAR 2000 SYSTEMS READINESS

Because of the unprecedented nature ofthe year 2000 issue, its effects and the success of related remediation efforts will not be fully determinable until the year 2000 and thereafter. Management cannot assure that Georgia Military College will beyear 2000 ready, that the College's remediation efforts willbe successful in whole or in part or that parties with whom the College does business will be year 2000 ready.

NOTE 13: ENROLLMENT

The equivalent full-time student enrollment for the junior college division of Georgia Military College was as follows:

Regular Term Fall Quarter, 1997 Winter Quarter I, 1998 Winter Quarter IT, 1998 Spring Quarter, 1998

2,724 1,828 3,124 2,942

Average

Summer School, 1997

The enrollment by grade for the secondary school division of Georgia Military College for the 1997-1998 academic year was as follows:

Sixth Grade Seventh Grade Eighth Grade Ninth Grade Tenth Grade Eleventh Grade Twelfth Grade

59 53 67 67 44 38
~

Total Enrollment

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SUPPLEMENTARY INFORMA nON -19-

Totals per Annual Supplement
Accruals June 30, 1998 June 30, 1997
Other Unidentified Variance

GEORGIAMILITARYCOLLEGE RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDEDJUNE 30, 1998

SCHEDULE "1"

SALARIES $ 8,055,821.39 $

TRAVEL 82,196.54

. 417,435,38 -396,136.49

-2,097,23

$ 8,075,023.05 $=======8=2=,1=9=6=.5=4=

See notes to the financial statements.

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SECTIONll AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

GEORGIA MILITARY COLLEGE AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

590-96-02 FS-590-97-01 FS-590-97-02

Further Action Not Warranted - See FS-590-97-01 Unresolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses

CORRECTIVE ACTIONIRESPONSES

GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-590-97-01

Georgia Military College continues implementation ofthe new inventory system into FY99 when it will be completed. This new system will be integrated with the financial accounting system and will enable the College to insure that newly purchased equipment is added to the inventory in a more timely and accurate manner. No funds were provided in FY99 to obtain outside, professional assistance to properly assess the valuation of the older buildings owned by Georgia Military College. The College will attempt to set funds aside in its operating budget for FYOO.

GENERAL LEDGER Inadequate Accounting Procedures Finding Control Number: FS-590-97-02

Georgia Military College closed its accounting records for FY98 on September 22, 1998; plan had been to accomplish the closing on August 15, 1998. Goal remains to close accounting records no later than August 15 each year.

Georgia Military College has made the necessary adjustments in its accounting procedures to insure that Restricted Fund activity is properly recorded. Further, procedures now in place insure that the general ledger cash balance is correct.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

590-96-06

Previously Reported Corrective Action Implemented

SECTION ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS

GEORGIA MILITARY COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
INTERNAL CONTROLS OVERALL General Matters: Policy and Procedures Manual Finding Control Number: FS-590-98-01
For the year under review, we noted a lack offonnal establishment of financial management policies and
procedures at Georgia Military College. The Standard Operating Procedure Manual and various other
manuals and personnel handbooks noted during the engagement provide, in many instances, only broad base perspective on accounting and administrative policy and procedure.
Georgia Military College should develop a current accounting and administrative policies and procedures manual that specifically addresses all areas of the internal control process. Such policies and procedures should include the following components:
Control environment: the tone of the institution, which influences the control consciousness of the employees, and provides discipline and structure.
Risk assessment: the process that the institution must conduct to identify and assess any relevant risks to its objectives, and to determine how to manage them.
Control activities: the policies and procedures that help ensure that management directives are carried out. Information and communication: the elements that aid management in carrying out its responsibilities, and
establish the timely and effective process for relaying information, Monitoring: the process the institution uses to assess the quality of its internal control performance over
time.
INVENTORIES Inadequate Segregation of Duties Finding Control Number: FS-590-98-02
Our examination included a review ofthe internal accounting controls utilized by the College in maintaining their bookstore and food service inventories. The following deficiency was found to exist:
(1) The same person at each location buys, receives goods and completes a receiving report. This person also performs inventory counts at year end.
This condition was caused by a lack ofpersonnel involved with the various inventory processes. The result ofnot establishing proper segregation ofduties creates a potential for errors and irregularities to occur without timely management intervention. However, we noted no material misstatements of the financial statements as a result of this condition.
Georgia Military College should take appropriate action to segregate duties associated with inventories to ensure a system of checks and balances over the inventory process.
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GEORGIAMILITARY COLLEGE SCHEDULE OF FINDINGS AND OUESTIONED COSTS
YEAR ENDED JUNE 30. 1998
FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS
REVENUES/RECEIVABLES/RECEIPTS Inadequate Segregation ofDuties Finding Control Number: FS-590-98-03
Proper internalcontrols over cash handlingprocedures require segregation ofduties as well as accountability at the employee level.
Duringthe review ofcash handlingprocedures at the variousbookstores, we noted that more than one person was allowed to transact business out of the same cash drawer. In addition, the person operating the cash drawerhad the authorityto void sales withoutapproval. Consequently, no systemchecks and balance existed to ensureaccountability at the individual level. However, we noted no materialmisstatements ofthe financial statements as a result ofthis condition.
Controls should be established such that all bookstore cashiers are provided with a separate cash drawer which is balanced daily. All overages and shortages should be reconciled and investigated promptly. In addition, all cash drawer voids shouldhave properapproval by someone other than the person operating the cash drawer.
EXPENDITURESILIABILITIESIDISBURSEMENTS Inadequate Segregation ofDuties Finding Control Number: FS-590-98-04
Our examination included a review of the internal controls utilized by the College over their expenditures, liabilities and disbursements. The following deficiencies were found to exist:
(l) Approval of purchase orders was not separatedfrom authorityto sign checks.
(2) Receipt of goods, in some instances, is done by the same person that ordered the goods.
These conditions resulted from a lack of policy requiring procedures for how various functions should be performed. The result ofnot establishing proper segregation of duties in the purchasing and receiving areas createsthe potential for errors and irregularities to occurand not be detected. However, we noted no material misstatements of the financial statements as a result of this condition.
The College should review the accounting procedures in place, design procedures which would enhance segregation ofduties and implementthoseprocedures to strengthen the internal controlsover these accounting functions.
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GEORGIA MILITARY COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30. 1998
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EXPENDITURESILIABILITIESIDISBURSEMENTS Improper Accounting of Bad Debt Expense Finding Control Number: FS-590-98-05
The College does not record bad debt expense until specific accounts are determined to be uncollectible. This practice is not in conformity with generally accepted accounting principles which 'requires that bad debt
expense be estimated at the end of each accounting period. The estimate is needed in order to match expected
bad debt losses with the revenue of the period that causes those losses. This condition resulted from management's decision to use the more convenient direct write-off method rather than generally accepted accounting principles.
Audit procedures were performed and journal entries were made to correct the College's financial statements.
The College should implement a method ofrecording bad debt expense that is in accordance with generally accepted accounting principles such that a bad debt expense will be estimated for the period and recorded on the general ledger.
EMPLOYEE COMPENSATION Inadequate Segregation of Duties Finding Control Number: FS-590-98-06
Our examination included a review ofthe internal accounting controls utilized by the College in maintaining their payroll records. The following deficiencies were found to exist:
(1) There was no documentation of review and approval ofthe payroll register by someone independent of the payroll process prior to disbursement.
(2) There was inadequate control over the employee's payroll master files. Employees in personnel and payroll along with individuals with accounting responsibilities have access to the payroll master files.
Failure to establish proper internal controls in the payroll process creates a potential for errors and irregularities to occur without timely management intervention. However, we noted no material misstatements of the financial statements as a result ofthis condition.
Georgia Military College should segregate duties in the payroll' processing functions to ensure a system of checks and balances over the payroll process.
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GEORGIA MILITARY COLLEGE SCHEDULE OF FINDINGS AND OUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS
GENERAL LEDGER Inadequate Accounting Procedures Finding Control Number: FS-590-98-07
Our examination included a review ofthe internal accounting controls utilized by the College in maintaining their accounting records. The following conditions relating to inadequate accounting procedures were found to exist:
(1) The accounting records for fiscal year 1998 were not closed until September 22, 1998.
(2) Activity for Restricted Funds was not accounted for on a project basis on the general ledger.
(3) The income for the Endowment Fund was not broken out by individual endowment as required. In
addition, the income is not being properly recorded :first in Restricted Funds with amounts to remain
with the corpus being transferred to Endowment Funds.
Proper internal accounting controls necessitate that all accounting activity be properly posted to the accounting records and that the accounting records are closed in a timely manner. Inadequate accounting procedures create an environment which does not provide reasonable assurance that accounting data and financial statements are accurate and complete.
The conditions identified above resulted from poor accounting practices and because ofmanagement's failure to ensure that all activity is properly recorded to the accounting records and that the accounting records are closed in a timely manner.
Extensive audit procedures and numerous journal entries were necessary to correct the financial statements utilizing source documentation.
The College should review the accounting procedures in place, design procedures to correct deficiencies noted, and implement those procedures to strengthen the internal controls over the accounting function.
GENERAL LEDGER Inadequate Endowment Agreements/ No Separate Accountability Finding Control Number: FS-590-98-08 .
According to the "Industry Audit Guide for Colleges and Universities" published by the American Institute of Certified Public Accountants, internal controls over endowment funds includes the maintenance of adequate information for each individual fund indicating nature of principal, restrictions on investment of principal or uses of income, termination, etc. This information usually involves the maintenance by the institution of an up-to-date register of each endowment fund containing summary information about the donor, time and amount of gift, type of fund, any internal or external restrictions, and reference to formal
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GEORGIA MILITARY COLLEGE
SCHEDULE OF FINDINGS AND OUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS
GENERAL LEDGER Inadequate Endowment Agreements/ No Separate Accountability Finding Control Number: FS-590-98-08
acceptance by the institution, as well as individual files of correspondence with donors and their representatives and copies of all bequests and other documents pertinent to the administration of a gift. In addition it requires separate accountability for each endowment.
Georgia Military College has several endowments contained in Account 25 General Scholarship Endowment Fund. The following deficiencies were noted:
1. The formal agreement for the following endowments did not include information indicating the nature of the principal, restrictions on investment of principal, or termination:
John A. Sibley Scholarship Fund John Bulow Campbell Scholarship Fund Charles Whitfield Scholarship Fund
2. The Edgar B. Jackson Scholarship requires that only 80% of the earnings be disbursed. At present, the College is disbursing 100% of the earnings.
3. According to the formal agreement on the Abe and Celia Goldstein Scholarship, it appears this endowment should be maintained as a part of the College's foundation records.
4. Georgia Military College does not maintain subsidiary records which show income and the net change in fair value for each individual endowment.
The conditions above resulted from management's failure to obtain formal agreements that included all components required by the "Industry Audit Guide for Colleges and Universities" on each individual endowment and the failure to maintain endowment activity separately in the endowment fund.
The College should research each endowment fund to determine if formal agreements can be produced that contain all the components required by the "Industry Audit Guide for Colleges and Universities". Ifthere is no documentation stating that the principal ofendowments should be kept in tact, the College should consider moving the money to restricted funds. In addition, the funds that are determined to be actual endowments should be accounted for on an individual endowment basis consistent with the principles enumerated in the "Industry Audit Guide for Colleges and Universities".
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GEORGIA MILITARY COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEARENDED JUNE 30. 1998
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in OperationofPropertyManagement System Finding ControlNumber: FS-590-98-09 The College wasunable to provide subsidiary fixedassets records or otherhistorical cost evidence supporting the balance for general fixedassets. Properinternal controls necessitate the maintenance ofsubsidiary records for general fixed assets along with periodiccomparisons of physical counts with those subsidiarylistings. Thiscondition resulted frommanagement's failure to adequately monitor and implement procedures to ensure that all generalfixed assets are properlyrecorded and accounted for. The College should take appropriate action to provide for an adequate property management system for general fixed assets whichwouldinclude subsidiary records that reflect an inventoryof land, buildings, and equipment owned by the College. Such records shouldinclude but not be limited to (1) date acquired, (2) acquisition cost, (3) estimated replacement cost, (4) location and description. Detailed records should be maintained for all deletions and additions to the PlantFund. The College shouldalso implementprocedures to periodically perform a physical inventory of all general fixed assets and reconcile these counts to the subsidiary records.
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