STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS MANAGEMENT REPORT GEORGIA MILITARY COLLEGE MILLEDGEVILLE, GEORGIA AN ORGANIZATIONAL UNIT OF THE STATE OF GEORGIA YEAR ENDED JUNE 30, 2008 Russell W. Hinton State Auditor GEORGIA MILITARY COLLEGE - TABLE OF CONTENTS - SECTION I FINANCIAL LETTER OF TRANSMITTAL SELECTED FINANCIAL INFORMATION EXHIBITS A STATEMENT OF NET ASSETS 2 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 3 C STATEMENT OF CASH FLOWS 4 D SELECTED FINANCIAL NOTES 5 SUPPLEMENTARY INFORMATION SCHEDULE 1 RECONCILIATION OF SALARIES AND TRAVEL 19 SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION III FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 December 10, 2008 Honorable Sonny Perdue, Governor Members ofthe General Assembly of Georgia Members ofthe Board of Trustees of Georgia Military College and Major General Peter J. Boylan, President Ladies and Gentlemen: As part ofour audit ofthe basic financial statements ofthe State ofGeorgia presented in the State of Georgia Comprehensive Annual Financial Report and the issuance of a State ofGeorgia Single Audit Report pursuant to the Single Audit Act Amendments, as of and for the year ended June 30, 2008, we have performed certain audit procedures at Georgia Military College. Accordingly, the financial statements and compliance activities of Georgia Military College were examined to the extent considered necessary in order to express an opinion as to the fair presentation ofthe financial statements contained in the foregoing documents and to issue reports on compliance and internal control as required by the Single Audit Act Amendments of 1996. This Management Report contains information pertinent to the financial and compliance activities of Georgia Military College as ofand for the year ended June 30, 2008. Information contained in this report is a by-product ofour audit ofthe basic financial statements ofthe State ofGeorgia and is the representation of management. Accordingly, we do not express an opinion or any other form of assurance on it. The particular information provided which includes a section on findings and other items reported in accordance with Commission on Colleges regulation 2.11.1 is enumerated in the Table of Contents. This report is intended solely for the information and use of the management of Georgia Military College, members of the Board of Trustees of Georgia Military College and the appropriate accrediting regulatory agency and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~I--LMd~ Rus 11 W. Hinton, CPA, CGFM State Auditor RWH:gp SELECTED FINANCIAL INFORMATION - 1- GEORGIA MILITARY COLLEGE STATEMENT OF NET ASSETS JUNE 30, 2008 ASSETS Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Prepaid Items Inventories Total Current Assets Noncurrent Assets Investments Capital Assets, Net (Note 4) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Salaries Payable Accounts Payable Deferred Revenue (Note 5) Funds Held for Others Capital Leases Compensated Absences Notes Payable Total Current Liabilities Noncurrent Liabilities Capital Leases Notes Payable Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Non expendable Expendable Unrestricted Total Net Assets -2- EXHIBIT"A" $ 2,375,652 1,204,696 493,139 1,242,741 3,779 784,350 $ 6,104,357 $ 837,927 41,390,232 $ 42,228,159 $ 48,332,516 $ 573,772 1,412,401 1,243,685 71,090 65,696 361,854 170,633 $ 3,899,131 $ 146,401 6,552,759 $ 6,699,160 $ 10,598,291 $ 34,454,744 951,794 122,594 2,205,093 $ ==3=7,=73=4==,2=25= GEORGIA MILITARY COLLEGE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 2008 EXHIBIT"B" OPERATING REVENUES Student Tuition and Fees Less: Scholarship Allowances Grants and Contracts Federal State Nongovernmental Rents and Royalties Auxiliary Enterprises Residence Halls Bookstore Food Services Intercollegiate Athletics Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Salaries Faculty Staff Employee Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) Grants and Contracts State Gifts Interest and Other Investment Income Interest Expense (Capital Assets) Other Nonoperating Revenues Net Nonoperating Revenues Increase (Decrease) in Net Assets Net Assets - Beginning of Year Net Assets - End of Year $ 24,890,052 -8,322,494 8,727,086 4,574,487 220,208 32,700 658,932 2,894,416 788,569 24,513 306,975 $ 34,795,444 $ 8,637,186 7,692,469 3,064,902 290,400 5,740,764 1,119,933 9,640,794 1,728,139 $ 37,914,587 $ -3119143 $ 3,062,152 5,531 82,675 -311,029 379,943 $ 3,219,272 $ 100,129 37,634,096 $ ===3==7,=7=34=,2=2=5 -3 - GEORGIA MILITARY COLLEGE STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2008 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Other Receipts (Payments) Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Other Nonoperating Receipts Net Cash Flows Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of Capital Assets Principal Paid on Capital Debt and Lease Interest Paid on Capital Debt and Lease Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments Purchase of Investments Net Cash Provided (Used) by Investing Activities Net Increase (Decrease) in Cash Cash and Cash Equivalents Beginning of Year Cash and Cash Equivalents - End of Year RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating Income (Loss) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Inventories Prepaid Items Accounts Payable Salaries Payable Deferred Revenue Compensated Absences Net Cash Provided (Used) by Operating Activities NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations -4- EXHIBIT"C" $ 16,567,558 13,379,686 4,539,585 -14,029,205 -16,207,984 -5,740,764 377 814 $ -1,113,310 $ 5,195 3,118,404 379,942 $ 3,503,541 $ -1,229,367 -232,816 -311,029 $ -1,773,212 $ 82,675 -967,600 $ -884,925 $ -267,906 2,643,558 $ ===2'=37=5=,6=52= $ -3,119,143 1,728,139 178,915 -50,848 -372 141,476 34,477 -109,716 83762 $ ===1=11=3=3=1o.. $===4=9=,2=5=3 GEORGIA MILITARY COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Georgia Military College serves the state and national communities by providing its students with academic instruction that advances fundamental knowledge and by disseminating knowledge to the people of Georgia and throughout the country. REPORTING ENTITY 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 of the 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 of Milledgeville. 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 of Regents. In order to incur debt, the Board of Trustees 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 (GASB) Codification of Governmental Accounting and Financial Reporting Standards. NET ASSETS The College's net assets are classified as follows: Invested in capital assets, net of related debt: This represents the College's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restricted net assets - nonexpendable: Nonexpendable restricted net assets consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. The College may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 44-15-7 of Annotated Code of Georgia. Restricted net assets - expendable: Restricted expendable net assets include resources in which the College is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. -5- GEORGIA MILITARY COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, grants and contracts, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the College and may be used at the discretion of the governing board to meet current expenses for those purposes. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the College's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the College) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59: 1. Bonds, 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. -6 - GEORGIA MILITARY COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS The Georgia Military College Board of Trustees is responsible for all details relative to furnishing the required depository protection for Georgia Military College. At June 30, 2008, the carrying value of deposits was $3,588,422.31 and the bank balance was $3,855,397.00. Of the College's deposits, $3,440,038.42 were uninsured. All of these uninsured deposits were collateralized with securities held by the financial institution, by its trust department or agency, but not in the College's name. INVESTMENTS At June 30, 2008, the carrying value of the College's investment was $827,927.28, which is materially the same as fair value. The College's investments as of June 30, 2008 are presented below. These investments were entirely comprised of funds invested in the Century Bank and Trust Trustee Endowment. Investment Type Fair Value Debt Securities Mutual Bond Funds $ 276,974.27 Other Investments Equity Mutual Funds Common Stock 447,664.02 103,288.99 Total Investments $ 827,927.28 NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2008. Student Tuition and Fees Federal, State and Private Funds $ 1,320,825 493,139 Less Allowance for Doubtful Accounts $ 1,813,964 78 084 Net Accounts Receivable $ 1,735.880 -7- GEORGIA MILITARY COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 4: CAPITAL ASSETS Following are the changes in the College's capital assets for the year ended June 30, 2008: Beginning Balance Julx 1, 2007 Additions Reductions Ending Balance June 30, 2008 Capital Assets, Not Being Depreciated: Land $ 514,485 $ 0 $ 0 $ 514,485 Capitalized Collections 63,187 63,187 Construction Work-In-Progress 143,126 143,126 Total Capital Assets Not Being Depreciated $ 720,798 $ 0 $ 0 $ 720,798 Capital Assets, Being Depreciated: Infrastructure $ Building and Building Improvements Facilities and Other Improvements Equipment Library Collections 278,690 46,399,768 $ 1,767,311 1,816,417 2,220,771 353,921 325,775 359,179 $ 239,744 $ 77,139 39 604 278,690 46,753,689 2,093,086 2,098,457 2,420,911 Total Assets Being Depreciated $ 52,482,957 $ 1,278,619 $ 116 743 $ 53,644,833 Less: Accumulated Depreciation: Infrastructure $ Building and Building Improvements Facilities and Other Improvements Equipment Library Collections 237,344 $ 8,162,590 572,021 959,413 1,432,635 18,812 1,223,021 118,131 237,591 $ 130,584 $ 77,139 39 604 256,156 9,385,611 690,152 1,119,865 1,523,615 Total Accumulated Depreciation $ 11,364,003 $ 1,728,139 $ 116 743 $ 12,975,399 Total Capital Assets, Being Depreciated, Net $ 41,118,954 $ -449,520 $ 0 $ 40,669,434 Capital Assets, Net $ 41 839 752 $ -449.520 $ $ 41.390.232 NOTE 5: DEFERRED REVENUE Deferred revenue consisted of the following at June 30, 2008. Prepaid Tuition and Fees Other Deferred Revenue $ 690,449 553,236 Totals $ 1,243,685 NOTE 6: LONG-TERM LIABILITIES The College's Long-Tenn liability activity for the year ended June 30, 2008 was as follows: -8- GEORGIA MILITARY COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 6: LONG-TERM LIABILITIES Beginning Balance July 1, 2007 Additions Reductions Ending Balance June 30, 2008 Current Portion Leases Lease Obligations $ 221,615 $ 49,253 $ 58 771 $ 212,097 $ 65,696 Other Liabilities Compensated Absences Notes Payable $ 278,091 $ 6,897,437 442,003 $ 358,240 $ 174 045 361,854 $ 6,723,392 361,854 170,633 Total $ 7,175,528 $ 442,003 $ 532,285 $ 7,085,246 $ 532,487 Total Long-Term Obligations $ 7 397 ]43 $ 491.256 $ 591.056 $ 7.297.343 $ 598.183 NOTE 7: NET ASSETS Changes in Net Asset activity for the year ended June 30, 2008 are as follows: Invested in Capital Assets Net of Related Debt Restricted Net Assets Unrestricted Net Assets Total Net Assets NOTE 8: LEASE OBLIGATIONS Balance July 1, 2007 Additions Reductions Balance June 30, 2008 $ 34,720,700 $ -498,772 $ -232,816 $ 34,454,744 1,101,246 13,437,654 13,464,512 1,074,388 1,812,150 24,888,090 24,495,147 2,205,093 $ 37 634 096 $ 37 826 972 $ 37 726 843 $ 37 734 225 Georgia Military College 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 and equipment. CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2009 and 2013. Expenses for fiscal year 2008 were $71,183 of which $12,412 represented interest. Total principal paid on capital leases was $58,771 for the fiscal year ended June 30, 2008. OPERATING LEASES Georgia Military College's cancellable operating leases provide for renewal options for periods from one to three years at their fair rental value at the time of renewal. All agreements are cancelable 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 -9- GEORGIA MILITARY COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 8: LEASE OBLIGATIONS OPERATING LEASES replaced by other leases. Operating leases are generally payable on a monthly basis. Examples of property under operating leases are copiers and office facilities. Noncancellable operating lease rental expenses in 2008 were $1,283,444 for real property. FUTURE COMMITMENTS Future commitments for capital leases (which here and on the Statement of Net Assets include other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2008, were as follows: Capital Leases Operating Leases Year Ending June 30: 2009 2010 2011 2012 2013 2014 - 2018 $ 75,597 $ 1,255,079 63,371 571,113 55,721 445,796 29,456 427,161 7,919 407,814 1.378,341 Total Minimum Lease Payments $ 232,064 $ 4,485.304 Less: Interest 19,967 Principal Outstanding $ 212,097 NOTE9: NOTESPAYABLE Notes payable consisted of the following at June 30, 2008: College note payable secured by Baugh Barracks, dated July 2006, payable in monthly installments of$38,405, matures July 2015, interest rate 4.31 %. $ 6,723.392 MATURITY INFORMATION The scheduled maturities of Baugh Barracks notes payable are as follows: - 10 - GEORGIA MILITARY COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT"D" NOTE9: NOTESPAYABLE MATURITY INFORMATION Total Principal Interest Total Payments 2009 2010 2011 2012 2013 2014 2015 2016 $ 170,633 $ 178,238 186,185 193,738 203,123 212,179 221,024 5,358.272 290,223 282,619 274,672 267,118 257,733 248,677 239,832 $ 460,856 460,857 460,857 460,856 460,856 460,856 460,856 5,358.272 $ 6,723.392 $ 1,860.874 $ 8,584,266 NOTE 10: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description Georgia Military College participates in the Teachers Retirement System of Georgia (TRS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances and other benefits for teachers of the State of Georgia. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the TRS offices or the Georgia Department of Audits and Accounts. Funding Policy Employees of Georgia Military College who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Georgia Military College makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2008, the employer contribution rate was 9.28% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2008 100% $ 1,101,777 2007 100% $ 1,026,236 2006 100% $ 935,827 - 11 - GEORGIA MILITARY COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 10: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description Georgia Military College participates in the Employees' Retirement System of Georgia (ERS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia. The benefit structure of ERS is defined by State statute and was significantly modified on July 1, 1982. Unless elected otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. All other members are "new plan" members subject to the modified plan provisions. Under both the old plan and new plan, members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60. Additionally, there are certain provisions allowing for retirement after 25 years of service regardless of age. Retirement benefits paid to members are based upon a formula which considers the monthly average of the member's highest twenty-four consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension at reduced rates to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS. In addition, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan (SRBP) effective January 1, 1998. The SRBP was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion ofERS. The purpose of SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415. The ERS issues a financial report each fiscal year, which may be obtained through ERS. Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political subdivisions, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The College's payroll for the year ended June 30, 2008, for employees covered by ERS was $62,394. The College's total payroll for all employees was $16,329,655. - 12 - GEORGIA MILITARY COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT"D" NOTE 10: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Funding Policy For the year ended June 30, 2008 under the old plan, member contributions consist of 6.5% of annual compensation minus $7.00. Of these member contributions, the employee pays the first 1.5% and the College pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.5% of annual compensation paid by employee. The College also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation for both old and new plans. For the year ended June 30, 2008, the ERS employer contribution rate for the College amounted to 10.41 % of covered payroll and included the amounts contributed on behalf of the employees under the old plan referred to above. Employer contributions are also made on amounts paid for accumulated leave to retiring employees. Total contributions to the plan made during fiscal year 2008 amounted to $7,431, of which $6,495 was made by the College and $936 was made by employees. These contributions met the requirements of the plan. Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2008 financial report, which may be obtained through ERS. NOTE 11: POSTEMPLOYMENT BENEFITS The College participates in the Georgia Retiree Health Benefit Fund ("GRHBF") which is a costsharing multiple-employer defined benefit postemployment healthcare plan that covers retired employees of the State of Georgia. GRHBF provides health insurance benefits to eligible retirees and their qualified beneficiaries. Pursuant to Title 45, Chapter 18 of O.C.G.A., the authority to establish and amend the benefit provisions of the plan is assigned to the Board of Community Health ("Board"). Financial statements and required supplementary information for GRHBF are included in the publicly available financial report of the Department of Community Health. The College contributes to the fund based upon amounts recommended by the Board and set forth in the Appropriations Act. This contribution rate is established to fund both the active and retired employee health insurance plans based on projected pay-as-you-go financing requirements. The combined rate for the active and retiree plans (pay-as-you-go basis) for the fiscal year ended June 30, 2008, was 18.534% of covered payroll. An additional contribution of 4.309% of covered payroll was required by the Board for fiscal year 2008; eleven months of this - 13 - GEORGIA MILITARY COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 11: POSTEMPLOYMENT BENEFITS additional contribution will be deposited into the OPEB fund to prefund retiree benefits (such additional contribution amounts are determined annually). The College's contribution to the health insurance plan for the fiscal year ended June 30, 2008, was $322,298.09, which equaled the required contribution. The College also participates in a program of group term life insurance for retired and vested inactive eligible members of various retirement systems. The State Employees' Assurance Department ("SEAD-OPEB") is a single-employer defined benefit postemployment plan. Pursuant to Title 47 of the Official Code of Georgia Annotated, the authority to establish and amend the benefit provisions of the plan is assigned to the Boards of Trustees of the Employees' and Judicial Retirement Systems. Financial statements and required supplementary information for SEAD-OPEB are included in the publicly available financial report of the Employees' Retirement System. The College is required to contribute the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC for the year ended June 30, 2008, was zero (0). NOTE 12: CONTINGENCIES Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures which are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Georgia Military College expects such amounts, if any, to be immaterial to its overall financial 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, 2008. During fiscal year 2002, upon advice of the Attorney General's Office, Georgia Military College required that full-time employees participate in the Teachers Retirement System of Georgia. Previously, participation was elective by full-time employees. As a result of that change, a number of former full-time employees and "constructively qualified" faculty members were eligible to "purchase" prior service credit (based on employment at Georgia Military College) in Teachers Retirement System of Georgia, and Georgia Military College became responsible for its share of the purchase. For fiscal year 2008, Georgia Military College's potential liability for its share of the purchase has been estimated at $739,429. - 14 - GEORGIA MILITARY COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 13: AFFILIATED ORGANIZATIONS The Georgia Military College Foundation, Inc., is a legally separate, tax exempt organization whose activities primarily support Georgia Military College. This affiliated organization is considered a potential component unit of the State of Georgia in accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units. Therefore, the financial statements of this affiliated organization are not included in these financial statements. Copies of the financial statements for the affiliated organization may be obtained from Georgia Military College. - 15 - (This page left intentionally blank) SUPPLEMENTARY INFORMATION - 17 - (This page left intentionally blank) GEORGIA MILITARY COLLEGE RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2008 SCHEDULE "1" Totals per Annual Supplement Accruals June 30, 2008 June 30, 2007 Compensated Absences June 30, 2008 June 30, 2007 Adjustments: College Work Study Unidentified Variance SALARIES $ 16,312,798 $ TRAVEL 290,400 573,772 -539,296 336,139 -258,329 -95,600 171 $ 16,329,655 $===2=9=0,=4=00= - 19 - SECTION II 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, 2008 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-590-07-01 Previously Reported Corrective Action Implemented PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION III FINDINGS, QUESTIONED COSTS AND OTHER ITEMS GEORGIA MILITARY COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2008 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. OTHER ITEMS (NOTED FOR MANAGEMENT'S CONSIDERATION) GEORGIA MILITARY COLLEGE TRAVEL CARDS Georgia Military College does not have adequate procedures in place to ensure that the policies related to the VISA travel credit cards are followed. The College's policy for the travel credit cards states that they are "to be utilized for travel and entertainment related expenses" and "use is limited to official GMC business travel and entertainment". The policy also states that "each corporate credit card has a pre-set maximum monthly spending limit, which may not be exceeded under any circumstances". An examination ofcredit card transactions revealed five transactions that were for purchases unrelated to travel or entertainment, and one of the five transactions was also over the single purchase limit for the card user. Management should strengthen procedures to ensure that all policies related to the Georgia Military College travel credit cards are followed. INVESTMENTS Georgia Military College did not correctly report the Endowment Investment Portfolio on the Financial Statements. It was noted that the entire Investment Portfolio was reported as cash, when, in actuality, the majority of this account consisted of investments in certificates of deposit and securities, which should have been reported as Investments. An adjustment was made to the Financial Statements to reclassify $80,000.00 from Cash to Short-Term Investments and $837,927.28 from Cash to Long-Term Investments. In the future, management should ensure that the investments of this Endowment Portfolio are correctly classified for reporting purposes.