1 1 GEORGIA SOUTHERN UNIVERSITY STATESBORO, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30,2009 I 4. -.--= - I orgia Dep-w't js A-:and - 4 . .. Russell W.Elinto! State Auditor GEORGIA SOUTHERN UNIVERSITY - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS 1 BASIC FINANCIAL STATEMENTS EXHIBITS A STATEMENT OF NET ASSETS 2 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 3 C STATEMENT OF CASH FLOWS 4 D NOTES TO THE FINANCIAL STATEMENTS 7 SUPPLEMENTARY INFORMATION SCHEDULES 1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 3 2 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT WON-GAAP BASIS) BUDGET FUND 33 3 STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET (NON-GAAP BASIS) BUDGET FUND 34 4 RECONCILIATION OF SALARIES AND TRAVEL 3 7 GEORGIA SOUTHERN UNIVERSITY - TABLE OF CONTENTS - SECTION I1 AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION I11 CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENOTF AUDITSAND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 December 2 1,2009 Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia and Honorable Bruce F. Grube, President Georgia Southern University INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Ladies and Gentlemen: We have audited the accompanying basic financial statements (Exhibits A through D) of Georgia Southern University, an organizational unit of the State of Georgia, as of and for the year ended June 30,2009. These financial statements are the responsibility of the University's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of University's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1, the financial statements of Georgia Southern University are intended to present the financial position and changes in financial position and cash flows of only that portion of the business-type activities ofthe State of Georgia that is attributable to the transactions of Georgia Southern University. They do not purport to, and do not, present fairly the financial position and changes in financial position and cash flows of the State of Georgia, in conformity with accounting principles generally accepted in the United States of America. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Georgia Southern University as of June 30, 2009, and its changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Management's Discussion and Analysis is not a part of the basic financial statements but is required supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of this required supplementary information. However, we did not audit this information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Georgia Southern University taken as a whole. The accompanying supplementary information (Schedules 1through 4) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Respecthlly submitted, ~ u l s e lWl . Hinton, CPA, CGFM State Auditor E Q U I R E D SUPPLEMENTARY INFORMATION GEORGIA SOUTHERN UNIVERSITY Management's Discussion and Analysis Introduction Georgia Southern University is the largest and most comprehensive center of higher education in the southern half of Georgia. A residential campus of more than 17,500 students, Georgia Southern is one of the top universities of choice in Georgia for new freshman; every state and 86 nations are represented in the student body. The University's hallmark is a superior undergraduate experience emphasizing academic distinction, excellent teaching, and student success in its eight Colleges: Liberal Arts and Social Sciences, Business Administration, Education, Health and Human Sciences, Jack N. Averitt College of Graduate Studies, Allen E. Paulson College of Science and Technology, College of Information Technology and Jiann-Ping Hsu College of Public Health. Students Faculty (Headcount) Students (FTE) Fiscal Year 2009 Fiscal Year 2008 Fiscal Year 2007 786 17,764 755 16,84 1 719 16,425 16,136 15,396 14,962 Overview of the Financial Statements and Financial Analysis Georgia Southern University is proud to present its financial statements for fiscal year 2009. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. This discussion and analysis of the University's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2009 and fiscal year 2008. Statement of Net Assets The Statement of Net Assets presents the assets, liabilities, and net assets of the University as of the end of the fiscal year. The Statement of Net Assets is a point of time financial statement. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a fiscal snapshot of Georgia Southern University. The Statement of Net Assets presents end-ofyear data concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements. From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors. Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the institution's equity in property, plant and equipment owned by the institution. The next asset category is restricted net assets, which is divided into two categories, nonexpendable and expendable. The corpus of nonexpendable restricted resources is only available for investment purposes. Expendable restricted net assets are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted net assets are available to the institution for any lawhl purpose of the institution. Statement of Net Assets, Condensed June 30,2009 June 30,2008 Assets Current Assets Capital Assets, Net Other Assets Total Assets $ 437,460,960 $ 394,910.517 Liabilities Current Liabilities Noncurrent Liabilities Total Liabilities $ 153,582,172 $ 139,430,913 Net Assets Invested in Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Unrestricted $ 258,520,020 2,465,s 14 3,453,215 19,439,739 $ 224,O19,863 2,465,8 14 3,396,413 25,597,5 14 Total Net Assets $ 283.878.788 $ 255,479.604 The total assets of the institution increased $42,550,443. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $44,969,524 in the category of Capital Assets, Net. The balance of the increase is mainly in receivable categories. The total liabilities for the year increased by $14,151,259. The combination of the increase in total assets of $42,550,443 and the increase in total liabilities of $14,15 1,259 yields an increase in total net assets of $28,399,184. The increase in total net assets is primarily in the category of Invested in Capital Assets, Net of Debt, in the amount of $34,500,157. Statement of Revenues, Expenses and Changes in Net Assets Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received by the institution, both operating and nonoperating, and the expenses paid by the institution, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the institution. Generally speaking operating revenues are received for providing goods and services to the various customers and constituencies of the institution. 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 institution. 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 institution without the Legislature directly receiving commensurate goods and services for those revenues. Statement of Revenues, Expenses and Changes in Net Assets, Condensed June 30,2009 June 30.2008 Operating Revenues Operating Expenses Operating Loss $ - 112,240,418 $ -89,905,339 Nonoperating Revenues and Expenses 103,557,805 86,909,877 Income (Loss) Before Other Revenues, Expenses, Gains or Losses $ -8,682,613 $ -2,995,462 Other Revenues, Expenses, Gains or Losses 30,778,032 9,464,077 Increase (Decrease) in Net Assets $ 22,095.419 $ 6,468,615 Net Assets at Beginning of Year, as Originally Reported $ 255,479,604 $ 249,O 10,989 Restatement 6,303,765 Net Assets at Beginning of Year, Restated $ 261,783.369 $ 249,010,989 Net Assets at End of Year $ 283,878,788 $ 255,479,604 The Statement of Revenues, Expenses and Changes in Net Assets reflects a positive year with an increase in the net assets at the end of the year. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are as follows: Revenue By Source For The Years Ended June 30,2009 and June 30,2008 June 30,2009 June 30,2008 Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Auxiliary Other Total Operating Revenue Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other Total Nonoperating Revenue Capital Grants and Gifts State Other Total Capital Grants and Gifts Total Revenues Expenses (By Functional Classification) For The Years Ended June 30,2009 and June 30,2008 June 30,2009 June 30,2008 Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises Total Operating Expenses $ 234,830,352 $ 2 15,326,268 Nonoperating Expenses Interest Expense (Capital Assets) . 6.330,504 5,616,163 Total Expenses Operating revenues decreased by $2,830,995 in fiscal year 2009. Tuition and Fees increased by 16% and Auxiliary revenues by 9% primarily due to increases in enrollment and headcount resulting from improved retention rates. Those increases were offset by a 72% decrease in Grants and Contracts Operating revenues due to reclassifying Financial Aid revenue as Nonoperating, per Federal reporting requirements. Nonoperating revenues increased by $17,362,269 for the year primarily due to the reclassification of Financial Aid revenue from Operating to Nonoperating. Prior year total was reduced due to the Nonoperating loss which resulted from the demolition of three residence halls to make room for the new Centennial Place residence hall, which opened in August of 2009. Capital Gifts from the State totaled $29,119,915 during fiscal year 2009. Of this amount, $24,853,741 was hnding from the Georgia State Financing and Investment Commission (GSFIC) for the Henderson Library project. The balance was funding for the new Center for Art and Theatre and the Foy Building renovation project. Statement of Cash Fkz ws The final statement presented by the Georgia Southern University is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets. Cash Flows for the Years Ended June 30,2009 and June 30,2008, Condensed June 30,2009 June 30,2008 Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities $ -94,292,747 109,562,353 -22,O 18,142 2,654,277 $ -73,287,153 94,3 18,554 -23,957,610 -62,848 Net Change in Cash Cash, Beginning of Year Cash, End of Year $ 24,811,224 $ 28,905,483 Capital Assets The University had several significant capital asset additions for fiscal year 2009. Two large renovation projects, Henderson Library and Foy Building, were completed during this fiscal year and the newly constructed Center for Art and Theatre opened its doors. Additionally, the University acquired several pieces of land adjacent to the campus and also entered into a capital lease on Campus Courtyard, a formerly privately-owned apartment complex. Several other smaller capital improvements to campus buildings and infrastructure were completed during the year. For additional information concerning Capital Assets, see Notes 1, 6, 8 and 10 in the Notes to the Financial Statements. Long- Term Liabilities Georgia Southern University had Long-Term Liabilities of $132,530,352 of which $6,610,118 was reflected as current liability at June 30, 2009. For additional information concerning Long-Term Liabilities, see Notes 1 and 8 in the Notes to the Financial Statements. Economic Outlook University students, faculty and staff have all been impacted by the national economic downturn. Significant budget reductions will place a strain on resources available to provide instruction and support services to students, faculty and staff during 2010. Record student enrollment for the Fall 2009 semester will allow the institution to redirect tuition funds to instructional and support areas impacted by budget reductions. Careful management and monitoring of expenditures allow the institution to direct available funds to core mission initiatives and provide economic stability during this period of economic down turn. Bruce F. Grube, President Georgia Southern University vii BASIC FINANCIAL STATEMENTS GEORGIA SOUTHERN UNIVERSITY STATEMENT OF NET ASSETS JUNE 30,2009 ASSETS Current Assets Cash and Cash Equivalents Short-Term lnvestments Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Inventories (Note 4) Prepaid Items Total Current Assets Noncurrent Assets Short-Term Investments Investments Notes Receivable Capital Assets, Net (Note 6) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deposits Deferred Revenue (Note 7) Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences Notes and Loans Payable Total Current Liabilities Noncurrent Liabilities Lease Purchase Obligations Compensated Absences Notes and Loans Payable Total Noncurrent Liabilit~es Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Nonexpendable Expendable Unrestricted Total Net Assets The notes to the financial statements are an integral part of this statement. -2- EXHIBIT "A" GEORGIA SOUTHERN UNIVERSITY STATEMENT OF REVENUES, EXPENSESAND CHANGES IN NET ASSETS YEAR ENDED JUNE 30,2009 OPERATING REVENUES Student Tuition and Fees Less: Scholarship Allowances Grants and Contracts Federal State Other Sales and Services of Educational Departments Rents and Royalties Auxiliary Enterprises Residence Halls Bookstore Food Services Parkingflransportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Deprec~ation Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) State Appropriations Federal Stimulus Stabilization Grants and Contracts Federal Gifts Interest and Other Investment Income lnterest Expense Other Nonoperating Revenues Net Nonoperating Revenues lncorne (Loss) Before Other Revenues, Expenses, Gains, or Losses Capital Grants and Gifts State Other Total Other Revenues. Expenses. Gains or Losses Increase (Decrease) in Net Assets - Net Assets Beginning of Year (Restated) Net Assets - End of Year The notes to the financial statements are an integral part of this statement. - 3 - EXHIBIT " B GEORGIA SOUTHERN UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30,2009 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 Loans Issued to Students and Employees Collection of Loans to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parking/Transportation Health Services IntercollegiateAthletics Other Organizations Other Receipts (Payments) Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Net Cash Flows Provided (Used) by Noncapital FinancingActivities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Proceeds from Sale of Capital Assets Purchases of Capital Assets Principal Paid on Capital Debt and Leases lnterest Paid on Capital Debt and Leases Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTINGACTIVITIES Proceeds from Sales and Maturities of Investments lnterest 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 EXHIBIT "C" GEORGIA SOUTHERN UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30,2009 RECONCILIATIONOF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating lncome (Loss) Adjustments to Reconcile Operating Income to Net Cash Provided (Used) by Operat~ngActivities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Inventories Prepaid Items Notes Receivable Accounts Payable Deferred Revenue Other Liabilities Compensated Absences Net Cash Provided (Used) by Operating Activities NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of Investments Recognized as a Component of lnterest lncome Change in Accrued lnterest Payable Affecting lnterest Paid Gifl of Capital Assets Reducing Proceeds of Capital Grants and Gifts EXHIBIT "C" The notes to the financial statements are an integral part of this statement. -5- (This page left intentionally blank) GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "DM NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Georgia Southern University serves the state and national communities by providing its students with academic instruction that advances fbndamental knowledge, and by disseminating knowledge to the people of Georgia and throughout the country. REPORTING ENTITY Georgia Southern University is one of thirty-five (35) 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 accompanying financial statements reflect the operations of Georgia Southern University as a separate reporting entity. The Board of Regents has constitutional authority to govern, control and manage the University System of Georgia. This authority includes but is not limited to the power to designate management, the ability to significantly influence operations, the authority to control institutions' budgets, the power to determine allotments of State funds to member institutions and the authority to prescribe accounting systems and administrative policies for member institutions. Georgia Southern University does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Georgia Southern University is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards. Legally separate, tax exempt organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential component units of the State. See Note 17 for additional information. FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion andAnalysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia implemented GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the University was also required to adopt GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entitywide perspective of the University's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the find group perspective previously required. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL STATEMENT PRESENTATION Generally Accepted Accounting Principles (GAAP) requires that the reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year. Due to the lack of materiality, Institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the predominant activity takes place. BASIS OF ACCOUNTING For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the preceding paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-University transactions have been eliminated. The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University has elected to not apply FASB pronouncements issued after the applicable date. CASH AND CASH EQUIVALENTS Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. SHORT-TERM INVESTMENTS Short-Term Investments consist of investments of 90 days - 13 months. This would include certificates of deposits or other time restricted investments with original maturities of six months or more when purchased. Funds are not readily available and there is a penalty for early withdrawal. INVESTMENTS Investments consist of a Life Insurance Policy - Cash Surrender Value. The value is adjusted yearly to increase to actual value. ACCOUNTS RECEIVABLE Accounts receivable consists of tuition and fees charged to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Georgia. 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's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts. GEORGIA SOUTHERN UNIVERSlTY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES Consumable supplies are carried at the lower of cost or market on the first-in, first-out ("FIFO") basis. Resale Inventories for Food Services are valued at cost using the average-cost basis. Resale Inventories for Bookstore and other services are valued at cost using the first-in, first-out ("FIFO") basis. NONCURRENT SHORT-TERM INVESTMENTS Investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets. PREPAID ITEMS Payments made to vendors and local government organizations for services that will benefit periods beyond June 30, 2009, are recorded as prepaid items. CAPITAL ASSETS Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. For equipment, the University's capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000 and/or significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements. To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFlC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged. For projects managed by GSFIC, the GSFIC retains construction in progress on its books throughout the construction period and transfers the entire project to the University when complete. For projects managed by the University, the University retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2009, GSFIC transferred capital additions valued at $24,853,741 to Georgia Southern University. DEPOSITS Deposits represent good faith deposits from students to reserve housing assignments in a University residence hall. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DEFERRED REVENUES Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received fi-omgrant and contract sponsors that have not yet been earned. COMPENSATED ABSENCES Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as compensated absences in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statements of Revenues, Expenses, and Changes in Net Assets. Georgia Southern University had accrued liability for compensated absences in the amount of $4,847,232 as of July 1, 2008. For fiscal year 2009, $3,770,978 was earned in compensated absences and employees were paid $3,780,279, for a net decrease of $9,301. The ending balance as of June 30,2009 in accrued liability for compensated absences was $4,837,93 1. 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 h n d s that are classified as noncurrent assets. NET ASSETS The University's net assets are classified as follows: Invested in capital assets, net of related debt: This represents the University's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. The term "debt obligations" as used in this definition does not include debt of the GSFIC as discussed previously in Note 1 - Capital Assets section. Restricted net assets - nonexpendable: Nonexpendable restricted net assets consist of endowment and similar type k n d s in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. The University may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 44-15-7 of Annotated Code of Georgia. Restricted net assets - expendable: Restricted expendable net assets include resources in which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS Expendable Restricted Net Assets include the following: Restricted - E & G and Other Organized Activities Federal Loans Institutional Loans Total Restricted Expendable $ 3,453,215 Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) of $68,246.94. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the Office of Treasury and Fiscal Services. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. Unrestricted Net Assets includes the following items which are quasi-restricted by management. R & R Reserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted Total Unrestricted Net Assets $ 19,439,739 When an expense is incurred that can be paid using either restricted or unrestricted resources, the University's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources. INCOME TAXES Georgia Southern University, as a political subdivision of the State of Georgia, is excluded fiom Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended. CLASSIFICATION OF REVENUES The University has classified its revenues as either operating or nonoperating revenues in the Statement of Revenues, Expenses and Changes in Net Assets according to the following criteria: GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CLASSIFICATION OF REVENUES Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) sales and services of auxiliary enterprises, net of scholarship allowances, (3) Federal, state and local grants and contracts, and (4) interest on institutional student loans. Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nunexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income. SCHOLARSHIP ALLOWANCES Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net Assets, Scholarship allowances are the difference between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or third parties making payments on the students' behalf. Certain governmental grants, such as Pel1 grants, and other Federal, state or nongovernmental programs are recorded as either operating or nonoperating revenues in the University's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded contra revenue for scholarship allowances. Auxiliary Intercollegiate Athletics revenue of $7,125,790 is reported net of discounts and allowances of $1,270,556. RESTATEMENT OF BUILDINGS, ACCUMULATED DEPRECIATION AND NET ASSETS During fiscal year 2009, the University determined that Paulsen Stadium, a fiscal year 2005 addition, was not recorded on the Capital Assets records. To correctly reflect carrying values: 1. The beginning balance for Building will be restated and increased by $7,004,183. 2. The beginning balance for accumulated depreciation on Building will be restated and increased by $700,418. Note 6 reflects these changes in the Beginning Balance column. This change is in accordance with generally accepted accounting principles. 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's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University) cannot be placed in a depository paying interest longer than ten days without the GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS 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 h l l y 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 hrnishing the required depository protection for all units of the University System of Georgia. At June 30, 2009, the carrying value of deposits was $31,492,462 and the bank balance was $33,736,047. Of the University's deposits, $32,486,047 were uninsured. Of these uninsured deposits, $750,000 were collateralized with securities held by the pledging financial institution's trust department or agent and $31,736,047 were collateralized with securities held by the pledging financial institution, by its trust department or agency, but not in the University's name. INVESTMENTS Georgia Southern University 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 each institution 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. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT 'ID" NOTE 2: DEPOSITS AND INVESTMENTS INVESTMENTS The University's investments as of June 30, 2009 are presented below. The University held an investment in a life insurance policy as noted below. All other h n d s are held in either demand or time deposits as described in the Deposit section of Note 2 above. All investments are presented by investment type. Other Investments Life Insurance Policy Cash Surrender Value NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2009: Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal Financial Assistance Other Less Allowance for Doubtful Accounts Net Accounts Receivable $ 8,972,538 NOTE 4: INVENTORIES Inventories consisted of the following at June 30,2009: Bookstore Food Services Physical Plant Other Total $ 2,795,100 NOTE 5: NOTES/LOANS RECEIVABLE The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2009. The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. As the University determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans are written off and assigned to the U. S. Department of Education. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 6: CAPITAL ASSETS Following are the changes in capital assets for the year ended June 30,2009: Capital Assets, Not Being Depreciated: Land Capitalized Collections Construction Work-In-Progress Total Capital Assets Not Being Depreciated Capital Assets, Being Depreciated: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections Total Assets Being Depreciated Less: Accumulated Depreciation: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Capital Assets, Net Beginning Balance July 1,2008 (Restated) Additions Reductions NOTE 7: DEFERRED REVENUE Deferred revenue consisted of the following at June 30,2009: Prepaid Tuition and Fees Other Deferred Revenue Totals NOTE 8: LONG-TERM LIABILITIES Long-term liability activity for the year ended June 30,2009 was as follows: Ending Balance June 30,2009 GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 8: LONG-TERM LIABILITIES Leases Lease Obligations Other Liabilities Compensated Absences Notes and Loans Total Total Long-Term Obligations Beginning Balance July 1.2008 Additions Reductions Ending Balance June 30,2009 Current Portion $ 115,014,956 $ 14.076,709 $ 3,522.314 $ 125,569,351 $ 3,769,245 $ 4,847,232 2,208,098 $ 7,055.330 $ 122,070.286 $ 3,770,978 $ 3.770.978 $ 17847d87 $ 3,780,279 85,028 $ 3.865.307 $ 7387.621 $ 4,837,931 2,123,070 $ 6,961,001 $ 132530352 $ 2,751,104 89.769 $ 2,840.873 $ 6,6101118 NOTES AND LOANS PAYABLE Included in total long-term liabilities is a $3,000,000 note payable with the University System of Georgia. The note was originally payable to Georgia Education Authority issued in October 1991 for the purpose of financing construction of a student resident hall through U. S. Department of Education Academic Housing Facility Loan Program. In 2008, the University System of Georgia paid off the debt to Georgia Education Authority. Georgia Southern University continues to render payments according to the original amortization schedule to the University System of Georgia. The note carries an interest rate of 5.50% and is due semiannually through the year 2025. The outstanding balance at June 30, 2009 is $2,123,070. Annual maturities are as follows: Year Ending June 30: 20 10 201 1 2012 20 13 2014 2015 through 20 19 2020 through 2024 2025 Principal Interest Total NOTE 9: SIGNIFICANT COMMITMENTS The University had significant unearned, outstanding, cons.truction or renovation contracts executed in the amount of $5,991,543 for renovations to Hendricks Hall and the Water Reuse Project as of June 30, 2009. This amount is not reflected in the accompanying basic financial statements. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 10: LEASE OBLIGATIONS Georgia Southern University 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 fi-om monthly to annually and have terms expiring in various years between 2010 and 2038. Expenditures for fiscal year 2009 were $9,732,526 of which $6,210,212 represented interest. Interest expense included $431,830 of accrued interest which was added to the lease principal. Total principal paid on capital leases was $3,522,314 for the fiscal year ended June 30, 2009. Interest rates range from 3.77 percent to 7.84 percent. The following is a summary of the carrying values of assets held under capital lease at June 30,2009: Land Buildings Equipment Total Assets Held Under Capital Lease Certain capital leases provide for renewal and/or purchase options. Generally purchase options at bargain prices of one dollar are exercisable at the expiration of the lease terms. Georgia Southern University had a capital lease with related entities in the current fiscal year. In October 2002, Georgia Southern University entered into a capital lease of $42,668,051 at 4.89 percent with the Georgia Southern University Housing Foundation, Inc., an affiliated organization whereby the University leases Buildings (Southern Courtyard and Southern Pines) for a twenty-eight year period that began September 2003 and expires October 203 1. The outstanding liability at June 30,2009 for this capital leases was $37,377,125. Georgia Southern University had a capital lease with related entities in the current fiscal year. In July 2005, Georgia Southern University entered into a capital lease of $2,230,350 at 4.94 percent with the Georgia Southern University Housing Foundation, Inc., an affiliated organization whereby the University leases a Facility (Clements Baseball Stadium) for a twenty-four year period that began August 2005 and expires July 2029. The outstanding liability at June 30, 2009, for this capital lease was $2,020,098. Georgia Southern University had a capital lease with related entities in the current fiscal year. In July 2005, Georgia Southern University entered into a capital lease of $694,056 at 4.94 percent with the Georgia Southern University Housing Foundation, Inc., an affiliated organization whereby the University leases a facility (Athletic Training Center) for a twenty-four year period that began August 2005 and expires July 2029. The outstanding liability at June 30, 2009, for this capital lease was $628,557. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 10: LEASE OBLIGATIONS CAPITAL LEASES Georgia Southern University had a capital lease with related entities in the current fiscal year, In July 2005, Georgia Southern University entered into a capital lease of $1,677,441 at 4.94 percent with the Georgia Southern University Housing Foundation, Inc., an affiliated organization whereby the University leases a facility (Soccer Stadium) for a twenty-four year period that began August 2005 and expires July 2029. The outstanding liability at June 30, 2009 for this capital lease was $1,5 17,929. Georgia Southern University had a capital lease with related entities in the current fiscal year. In July 2005, Georgia Southern University entered into a capital lease of $30,179,998 at 4.94 percent with the Georgia Southern University Housing Foundation, Inc., an affiliated organization whereby the University leases Buildings (Eagle Village) for a twenty-five year period that began August 2005 and expires July 2030. The outstanding liability at June 30,2009, for this capital lease was $27,428,109. Georgia Southern University had a capital lease with related entities in the current fiscal year. In August 2006, Georgia Southern University entered into a capital lease of $40,264,057 at 4.73 percent with the Georgia Southern University Housing Foundation, Inc., an affiliated organization whereby the University leases Buildings (Recreational Activities Complex-RAC) for a twenty-five year period that began August 2006 and expires July 203 1. The outstanding liability at June 30,2009, for this capital lease was $39,498,521. Georgia Southern University had a capital lease with related entities in the current fiscal year. In July 2008, Georgia Southern University entered into a capital lease of $13,360,301 at 5.256 percent with the Georgia Southern University Housing Foundation, Inc., an affiliated organization whereby the University leases Buildings and Land (University Villas) for a thirty year period that began August 2008 and expires June 2038. The outstanding liability at June 30, 2009, for this capital lease was $13,792,131. This lease includes $431,830 of capitalized interest. Georgia Southern University had a capital lease with SunTrust Bank in the current fiscal year. In August 2008, Georgia Southern University entered into a capital equipment lease of $3,409,806 at 3.77% with SunTrust Bank, to purchase its voice over internet protocol (VOIP) campus fiber and telephone system for a 5 year period that began August 2008 and expires July 2013. The outstanding liability at June 30, 2009 for this capital lease was $2,905,826. Georgia Southern University also has various capital leases for equipment with an outstanding balance at June 30,2009, in the amount of $401,055. OPERATING LEASES Georgia Southern University's noncancellable operating leases having remaining terms of more than one year expire in fiscal year 2010. Certain operating leases provide for renewal options for GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 10: LEASE OBLIGATIONS OPERATING LEASES periods fkom one to three years at their fair rental value at the time of renewal. 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. Examples of property under operating leases are office space, copiers and other small business equipment. In 2008, Georgia Southern University entered into a real property operating lease with an unrelated party for office space at College Plaza Unit #4 for monthly rental payments of $9,232. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $1 10,784 in the current year. In 2008, Georgia Southern University entered into a real property operating lease with an unrelated party for office space at Georgia Avenue Building #8 10 for monthly rental payments of $1,000. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $12,000 in the current year. In 2008, Georgia Southern University entered into a real property operating lease with an unrelated party for storage space at the Costume Shop for monthly rental payments of $2,500. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $30,000 in the current year. In 2008, Georgia Southern University entered into a real property operating lease with an unrelated party for office space in Building #7 at the Skidaway Institute of Oceanography for monthly rental payments of $875. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $10,500 in the current year. In 2008, Georgia Southern University entered into a real property operating lease with an unrelated party for storage space in the former Winn-Dixie building for monthly rental payments of $20,370. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $244,440 in the current year. In 2009, Georgia Southern University entered into a real property operating lease with an unrelated party for office space in the Market District Center for monthly rental payments of $1,323. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $15,876 in the current year. In 2009, Georgia Southern University entered into a real property operating lease with an unrelated party for office space in the Harvey House for monthly rental payments of $3,500. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $42,000 in the current year. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 10: LEASE OBLIGATIONS OPERATING LEASES In 2009, Georgia Southern University entered into a real property operating lease with an unrelated party for Atlanta office space for monthly rental payments of $3,200. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $38,400 in the current year. In 2009, Georgia Southern University entered into a real property operating lease with a related party for the Holiday Lanes property for monthly rental payments of $5,000. Under this agreement, the University paid $50,000 in the current year. In 2009, Georgia Southern University entered into a real property operating lease with a related party for the Legends property for monthly rental payments of $5,000. Under this agreement, the University paid $30,000 in the current year. In 2009, Georgia Southern University entered into a real property operating lease with a related party for the Apex property for monthly rental payments of $2,187. Under this agreement, the University paid $10,935 in the current year. In 2009, Georgia Southern University entered into a real property operating lease with a related party for Lodge, Village and Cambridge Apartments for monthly rental payments of $5,000. Under this agreement, the University paid $20,000 in the current year. 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 30,2009, were as follows: GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 10: LEASE OBLIGATIONS FUTURE COMMITMENTS Real Propertv and Equipment Capital Operating Leases Leases Year Ending June 30: 2010 201 1 2012 2013 2014 2015 - 2019 2020 - 2024 2025 - 2029 2030 - 2034 2035 - 2038 Total Minimum Lease Payments $ 205,575,016 $ 259,560 Less: Interest 80,005,665 Principal Outstanding $ 125.569.351 Georgia Southern University's fiscal year 2009 expense for rental of real property and equipment under operating leases was $6 14,935 NOTE 11: SIGNIFICANT CONTINGENT LIABILITIES In 2009, there is not an official agreement between the Georgia Southern University Housing Foundation, Inc., and Georgia Southern University, but the University has entered into a capital lease that will begin in 2010 for the cost of new construction of the Centennial Place. NOTE 12: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description Georgia Southern University participates in the Teachers Retirement System of Georgia (TRS), a cost-sharing multiple-employer defined benefit pension plan established by the Georgia General Assembly. TRS provides retirement allowances and other benefits for plan participants. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the TRS offices or from the Georgia Department of Audits and Accounts. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 12: RETIREMENT PLANS Funding Policy Employees of Georgia Southern University who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Georgia Southern University 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 2009, 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 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description Georgia Southern University participates in the Employees' Retirement System of Georgia (ERS), a single-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 ERS Board of Trustees created the Supplemental Retirement Benefit Plan (SRBP) effective January 1, 1998. The SRBP was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415. The benefit structure of ERS is established by the Board of Trustees under statutory guidelines. Unless the employee elects otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. Members hired on or after July 1, 1982 but prior to January 1, 2009 are "new plan" members subject to the modified plan provisions. Effective January 1, 2009, newly hired State employees, as well as rehired State employees who did not maintain eligibility for the "old" or "new" plan, are members of the Georgia State Employees' Pension and Savings Plan (GSEPS). ERS members hired prior to January 1,2009 also have the option to change their membership to the GSEPS plan. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "Dl' NOTE 12: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description Under the old plan, new plan, and GSEPS, a member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60 or 30 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60. Retirement benefits paid to members are based upon a formula adopted by the Board of Trustees for such purpose. The formula considers the monthly average of the member's highest 24 consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Post-retirement cost-of-living adjustments may be made to members' benefits provided the members were hired prior to July 1, 2009. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension, at reduced rates, to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS. Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political subdivisions, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The University's payroll for the year ended June 30, 2009, for employees covered by ERS was $334,252. The University's total payroll for all employees was $112,518,520. Member contribution rates are set by law. Member contributions under the old plan are 4% of annual compensation up to $4,200 plus 6% of annual compensation in excess of $4,200. Under the old plan, the University pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these University contributions are included in the members' accounts for refbnd purposes and are used in the computation of the members' earnable compensation for the purpose of computing retirement benefits. Member contributions under the new plan and GSEPS are 1.25% of annual compensation. The University is required to contribute at a specified percentage of active member payroll established by the Board of Trustees determined annually in accordance with actuarial valuation and minimum hnding standards as provided by law. These University contributions are not at any time refundable to the member or hisher beneficiary. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 12: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Funding Policy Fiscal Year Percentage Contributed Required Contribution Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2009 financial report, which may be obtained through ERS. REGENTS RETIREMENT PLAN Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 472 1-1 et.seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts. Funding Policy Georgia Southern University 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 2009, the employer contribution was 8.15% for the first six months and 9.24% for the last six months of the participating employee's earnable compensation. Employees contribute 5% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times. Georgia Southern University and the covered employees made the required contributions of $4,049,753 (8.15% or 9.24%) and $2,323,854 (5%), respectively. AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 12: RETIREMENT PLANS GEORGIA DEFINED CONTRIBUTION PLAN Plan Description Georgia Southern University participates in the Georgia Defined Contribution Plan (GDCP) which is a single-employer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia. Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $3,500 credited to hisher account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to hisker account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute. Contributions Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member. Total contributions made by employees during fiscal year 2009 amounted to $375,669 which represents 7.5% of covered payroll. These contributions met the requirements of the plan. The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices. NOTE 13: RISK MANAGEMENT The University System of Georgia offers its employees and retirees access to two different selfinsured healthcare plan options - a PPOIPPO Consumer healthcare plan, and an indemnity healthcare plan. Georgia Southern University and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these two plans are considered to be a self-sustaining risk fund. Both self- GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 13: RISK MANAGEMENT insured healthcare plan options provide a maximum lifetime benefit of $2,000,000 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of Wellpoint, to serve as the claims administrator for the two self-insured healthcare plan products. In addition to the two different self-insured healthcare plan options offered to the employees of the University System of Georgia, a fUlly insured HSA/High Deductible PPO healthcare plan and two filly insured HMO healthcare plan options are also offered to System employees. 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. Georgia Southern University, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment. A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund. NOTE 14: CONTINGENCIES Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in rehnds to the grantor agency for any expenditures that are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Georgia Southern University expects such amounts, if any, to be immaterial to its overall financial position. Litigation, claims and assessments filed against Georgia Southern University (an organizational unit of the Board of Regents of the University System of Georgia), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30,2009. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 15: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 203-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or 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, andlor, 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 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. For the 2008 and 2009 plan years, the employer rate was between 70-75% of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%. As of June 30, 2009, there were 690 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2009, Georgia Southern University recognized as incurred $2,881,320 of expenditures, which was net of $1,640,334 of participant contributions. NOTE 16: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS The University's operating expenses by functional classification for fiscal year 2009 are shown below: GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 16: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS Natural Classification Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Instruction $ 48,717,856 9,962,08 1 14,047,264 11,351 812,051 255,306 23,906 5,559,028 976,897 $. 8Q36534Q Functional Classification Research Public Service Academic Support Student Services $ 4,019 10,548,913 2,559,004 10,408 134,089 192,766 555,301 4,224,020 258.494 $ 18,487,014 Natural Classification Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and ~ellowshi~s Utilities Supplies and Other Services Depreciation Total Operating Expenses Institutional Support Functional Classification Plant Operations and Scholarships Auxiliary Maintenance and Fellowships Enterurises Total Operating Expenses NOTE 17: AFFILIATED ORGANIZATIONS In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, the Georgia Southern University Foundation, Inc., Georgia Southern University Housing Foundation, Inc., Southern Boosters, Inc., and Georgia Southern University Research and Service Foundation, Inc. are legally separate, tax exempt organizations whose activities primarily support Georgia Southern University. The State Accounting Office has determined component units of the State of Georgia, as required by GASB Statement No. 39, should be assessed in relation to their significance to the State of Georgia. Therefore, the financial statements of these affiliated organizations are not included in these financial statements. Copies of the financial statement for the affiliated organizations may be obtained from Georgia Southern University. GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2009 EXHIBIT "D" NOTE 17: AFFILIATED ORGANIZATIONS Georgia Southern University Housing Foundation, Inc., has been determined significant to the State of Georgia for the year ended June 30, 2009, and as such, is reported as a discretely presented component unit in the Comprehensive Annual Financial Report of the State of Georgia (CAFR). The significant discretely presented component unit issues separate audited financial statements that can be obtained from the Board of Regents of the University System of Georgia. (This page left intentionally blank) SUPPLEMENTARY INFORMATION GEORGIA SOUTHERN UNIVERSITY BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30,2009 ASSETS Cash and Cash Equivalents Accounts Receivable Federal FinancialAssistance Other Prepaid Expenditures lnventories Total Assets LIABILITIESAND FUND EQUITY Liabilities Salaries Payable Encumbrances Payable Accounts Payable Deferred Revenue Funds Held for Others Total Liabilities Fund Balances Resewed Departmental Sales and Services Indirect Cost Recoveries Technology Fees RestrictedISponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over lnventories Unreserved Surplus Total Fund Balances Total Liabilitiesand Fund Balances SCHEDULE "1" Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. GEORGIA SOUTHERN UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30,2009 SCHEDULE "2" REVENUES State Appropriation State General Funds Federal Funds Other Funds Total Revenues CARRY-OVER FROM PRIOR YEARS Transfers from Reserved Fund Balance Total Funds Available EXPENDITURES Georgia Eminent Scholar Endowment Trust Funds Special Funding Initiative Research Consortium Teaching Total Expenditures Excess of Funds Available over Expenditures FUND BALANCE JULY 1 Reserved Unreserved ADJUSTMENTS Prior Year PayableslExpenditures Unreserved Fund Balance (Surplus) Returned - to Board of Regents University System Office Year Ended June 30,2008 Nonmandatory Transfers Prior Year Reserved Fund Balance Included in Funds Available FUND BALANCE JUNE 30 BUDGET ACTUAL - VARIANCE FAVORABLE (UNFAVORABLE) SUMMARY OF FUND BALANCE Reserved Departmental Sales and Services Indirect Cost Recoveries Technology Fees RestrictedlSponsored Funds UncollectibleAccounts Receivable Tuition Carry-Over Inventories Total Reserved Unreserved Surplus Total Fund Balance Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. GEORGIA SOUTHERN UNIVERSITY STATEMENTOF PROGRAMREVENUES AND EXPENDITURESBY FUNDING SOURCE COMPAREDTO BUDGET (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30.2009 Georgia Eminent Scholar Endowment Trust Fund State Appropriation State General Funds Special Funding Initiative State Appropriation State General Funds Orig~nal Appropriation Final Budget Current Year Revenues Funds Available Compared to Budget Prior Year Carryover Total Funds Available Vanance Positive (Negative) $ 1.000.000.00 $ 1.OM).000.00 $ 1,000,00000 $ 0.00 $ 1.000.000.00 $ 0 00 Research Consortium State Appmprlation State General Funds Teaching State Appropnat~on State General Funds Federal Funds Amerlcan Recovery and RelnvestrnentAct of 2009 Federal Slabilitation Funds Other Funds Total Teachlng B 97,928.789 00 $ 85,665,029.00 t 85,665,029 00 $ 0.00 $ 85,665.029.00 $ 0.00 0 00 82,854,795.00 860.882.00 99,045,42800 880.882.00 97,160,528.79 0.00 3,502,622.33 880,882 00 100,663.151.12 0.00 1,617,723.12 $ 180.783.584.00 $ 185.591.33900. $ 183,706.439.79 $ 3.502.622.33 $ 187.209.062.12 $ 1,617,723.12 Grand Totals - A l l Programs 0 182,912,571.00 $ 187,564.625.00 $ 185.679.72579 $ 3,502,62233 $ 189,182.348.12 $ 1,617,723.12 Actual amounts were prepared on a prescribed basls of accounting that demonstrates mmpl~ancew~thbudqetaw statutes and reaulatlonsof the Stateof Georwa, which is a cornprehenslvebasis of accounting other than generally accepted accounting principles. ExpendituresCompared to Budget Varlance Positive Actual (Nepatlve) Actual Funds Available Overl(Under) Expenditures Prior Period Adjustments Other Adiustments Program Fund Balances Transfers Program Fund Balances Reserve Surplus Total Fund Balance Unexpendable Reserves Uncollect~bleAsccounts Receivable Inventores 91,965 18 94.000.00 (This page left intentionally blank) GEORGIA SOUTHERN UNIVERSITY RECONCILIATIONOF SALARIES AND TRAVEL YEAR ENDED JUNE 30,2009 SCHEDULE "4" Totals per Annual Supplement Accruals June 30,2009 June 30,2008 Compensated Absences June 30,2009 June 30,2008 Prepaids June 30,2009 June 30,2008 Adjustments Shared Services on Jointly Staffed Personnel College of Coastal Georgia Brock, Cathy Taylor, Brenda Student Assistants East Georgia College Marsh, Robert Georgia State University Toal, Ross Skidaway Institute of Oceanography Alexander, Clark University of West Georgia Anderson, Jon Unidentified Variance SALARIES $ 112,405,944 $ TRAVEL 1,885,552 SECTION I1 AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS GEORGIA SOUTHERN UNIVERSITY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30,2009 PRIOR YEAR FTNANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION I11 CURRENT YEAR FINDINGS AND QUESTIONED COSTS GEORGIA SOUTHERN UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30,2009 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS ACCOUNTING CONTROLS (OVERALL) GENERAL LEDGER Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-539-09-0 1 Condition: The accounting procedures of the University were insufficient to provide adequate documentation for Accounts Receivable and Accounts Payable; and were insufficient to ensure that Short-term Investments, Accounts Receivable, Accounts Payable, Deposits Held for Other Organizations and Capital Assets were properly recorded. Criteria: NCGA Statement 1, paragraph 1 , prescribes that an accounting system (1) present fairly and fully disclose funds of the governmental unit in accordance with generally accepted accounting principles and (2) demonstrate compliance with finance related legal and contractual provisions. Additional administrative requirements contained in the University System of Georgia, Board of Regents' Business Procedures Manual require that the general ledger be reconciled to subsidiary records as a routine matter with any variances noted and resolved in a timely manner. Questioned Cost: N/A Information: The following deficiencies were noted: 1. Short Term Investments were not properly recorded on the general ledger resulting in an understatement of $103,899. 2. A total of $5,891,852 recorded as Accounts Receivable and Deposits Held for Other Organizations for scholarships and loans was determined to be invalid. An audit adjustment was proposed and made to correct these errors. 3. No subsidiary records were provided to support Other Accounts Receivable totaling $20,266. 4. No subsidiary records were provided to support Other Accounts Payable totaling $70,539. 5. The University recorded a Capital Gift of $7,004,183 donated in a prior year as current year Other Nonoperating Revenue rather than as a Restatement of Beginning Net Assets. In addition, the associated accumulated depreciation of $875,523 was not recorded. Audit adjustments were proposed and made to properly reflect a restatement of net assets and record the associated accumulated depreciation. GEORGIA SOUTHERN UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED J U N E 30,2009 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS ACCOUNTING CONTROLS (OVERALL) GENERAL LEDGER Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-539-09-0I Cause: The University's management failed to implement satisfactory controls to ensure that account balances were accurate, adequately documented and properly recorded in the accounting records. Effect: Without satisfactory accounting controls and procedures in place, the University could place itself in a position where potential misappropriation of assets could occur. In addition, the lack of controls and procedures could impact reporting of its financial position and results of operations. Recommendation: The University should review the accounting controls and procedures currently in place, identify weaknesses, and design and implement procedures necessary to strengthen controls over these accounting functions. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.