Georgia Southern University, Statesboro, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2010

GEORGIA SOUTHERN
I UNIVERSITY STATESBORO, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30,2010
GeorgiaIEepartm~ot f
,,ilY1'Audits andAccounts
Russell W.Hinton
State Auditor

GEORGIA SOUTHERN UNIVERSITY - TABLE OF CONTENTS -
SECTION I
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS
BASIC FINANCIAL STATEMENTS EXHIBITS
A STATEMENTOFNETASSETS B STATEMENT OF REVENUES, EXPENSESAND CHANGES IN NET ASSETS C STATEMENT OF CASH FLOWS D NOTES TO THE FINANCIAL STATEMENTS
SUPPLEMENTARY INFORMATION SCHEDULES
1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT
(NON-GAAP BASIS) BUDGET FUND 3 STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING
SOURCE COMPARED TO BUDGET (NON-GAAP BASIS) BUDGET FUND
4 RECONCILIATION OF SALARIES AND TRAVEL
SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

GEORGIA SOUTHERN UNIVERSITY - TABLE OF CONTENTS -
SECTION Ill 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 1-1 56 Atlanta, Georgia 30334-8400
January 5 , 2 0 1 1

Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the UniversitySystem of Georgia
and Honorable Brooks A. Keel, 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, a unit of the University System of Georgia, which is an organizational unit of the State of Georgia, as of and for the year ended June 30, 2010. 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 of the 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, 2010, 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.
. Respectfully submitted, .
dell W. Hinton, CPA, CGFM
State Auditor

REQUIRED SUPPLEMENTARY INFORMATION

GEORGIA SOUTHERN UNIVERSITY
Management's Discussion and Analysis

Introduction
Georgia Southern University is one of the 35 institutions of higher education of the UniversitySystem of Georgia. It is the largest and most comprehensive center of higher education in the southern half of Georgia. During the 2009-2010 academic year, Georgia Southern continued to see record increases in student interest, applications, and enrollment. The University celebrated its largest enrollment with a fall 2009 student population of 19,086 students. Georgia Southern's freshman class once again achieved an average SAT score of more than 1100 and the University once again recorded an all-time record student retention rate of 82%. In addition, the University's graduate population continued to grow reaching a new all-time high enrollment as well.

Faculty

Students (Headcount)

Students (FTE)

Fiscal Year 2010 Fiscal Year 2009 Fiscal Year 2008

Overview of the Financial Statements and Financial Analysis
Georgia Southern University is proud to present its financial statements for fiscal year 2010. 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 2 0 1 0 and fiscal year 2009.

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-of-year 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 lawful purpose of the institution.

Statement of Net Assets, Condensed

June 30,2010

June 30,2009

Assets Current Assets Capital Assets, Net Other Assets

Total Assets
Liabilities Current Liabilities Noncurrent Liabilities
Total Liabilities

N et Assets Invested in Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Unrestricted
Total Net Assets

$ 255,444,309 2,465,814 3,465,787
35,686,887

$ 258,520,020 2,465,814 3,453,215
19,439,739

The total assets of the institution increased by $70,269,949. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $49,916,935 in the category of Capital Assets, Net. The balance of the increase is mainly in cash.
The total liabilities for the year increased by $57,085,940. The combination of the increase in total assets of $70,269,949 and the increase in total liabilities of $57,085,940 yields an increase in total net assets of $13,184,009. The increase in total net assets is primarily in the category of Unrestricted Net Assets in the amount of $16,247,148.
Statement of Revenues, Expenses and Changesin 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 t o 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 30,2010

June 30.2009

Operating Revenues Operating Expenses

Operating Loss

$ -97,427,200

Nonoperating Revenues and Expenses

106,578,256

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

$ 9,151,056

Other Revenues, Expenses, Gains or Losses

4,032,953

Increase (Decrease)in Net Assets

$ 13,184,009

Net Assets at Beginning of Year, as Originally Reported

$ 283,878,788

Prior Year Adjustments

Net Assets at Beginning of Year, Restated

Net Assets at End of Year

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 30,2010 and June 30,2009

June 30,2010

Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Auxiliary Other

Total OperatingRevenue

Nonoperating Revenue State Appropriations Federal Stimulus - Stabilization Funds Grants and Contracts Gifts Investment Income Other

Total Nonoperating Revenue

Capital Grants and Gifts State Other

Total Capital Grants and Gifts

Total Revenues

$ 270,898,234

Expenses (By Functional Classification) For the Years Ended June 30,2010 and June 30,2009

June 30.2010

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

Total OperatingExpenses

Nonoperating Expenses Interest Expense (Capital Assets)

Total Expenses

June 3 0 , 2 0 0 9 June 30,2009

Operating revenues increased by $28,796,205 in fiscal year 2010. Tuition and Fees increased 23.7% due to enrollment growth and rate increases. All other categories of operating revenue increased as well.

The Auxiliary revenue increase of $11,792,379 primarily resulted from revenue increases in residence life and food services. Increased revenues resulted from continued enrollment growth and the opening of additional residence hall space in fall 2009.

Nonoperating revenues increased by $5,590,833 for the year despite a decrease of $17,978,432 in State Appropriations. The net increase primarily resulted from increases in Federal Stimulus Stabilization Funds revenues of $13,348,816 and Grants and Contracts revenues of $11,336,280.

Statement of Cash Flows
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 30,2010, and June 30,2009, Condensed

June 30,2010

June 30,2009

Cash Provided (Used) By: Operating Activities Noncapital FinancingActivities Capital and Related FinancingActivities InvestingActivities

$ -76,592,098 109,146,995 -20,477,512 523,178

$ -94,292,747 109,562,353 -22,018,142 2,654,277

Net Change in Cash Cash, Beginningof Year
Cash, End of Year

Capita/ Assets
In fall 2009, the University opened our newest residence hall as a public-private venture with the GSU Housing Foundation, Inc. Centennial Place is a 1,000 bed residence hall with related amenities such as classroom space, computer labs and retail spaces designed to meet the needs of students living on campus. The goal of the $13,360,301 facility is to create a campus based learning community in which students can enhance their classroom learning experience with added opportunities for out of class learning as well.

Georgia Southern University also completed major renovation of Hendricks Hall, a former residence hall. The renovated facility houses the recently developed Jiann-Ping Hsu College of Public Health. $4,328,794 for this project was funded by the Georgia State Financing and Investment Commission (GSFIC). $2,474,538 in University funds were added to the project for a total cost of $6,803,332. The facility is scheduled for completion and occupation in July 2010.
For additional information concerning Capital Assets, see Notes 1,6, 8, 9 and 10 in the Notes to the Financial Statements.
Long- Term Liabilities
Georgia Southern University had Long-Term Liabilities of $185,854,048 of which $8,347,183 was reflected as current liability at June 30, 2010.
For additional information concerning Long-Term Liabilities, see Notes 1and 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 have placed a strain on resources available to provide instruction and support services to students, faculty and staff this year. Continued enrollment growth has limited the impact of 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.
Dr. Brooks Keel, President Georgia Southern University

BASIC FINANCIAL STATEMENTS

GEORGIASOUTHERN UNIVERSITY STATEMENT OF NET ASSETS JUNE 30,2010
Current Assets Cash and Cash Equivalents Sholt-Term Investments Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Inventories (Note 4) P r e ~ a i dItems
Total Current Assets
Noncurrent Assets Noncurrent Cash Short-Term lnvestments lnvestments Notes Receivable Capital Assets. Net (Note 6)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salar~esPayable Contracts Payable Deposits Deferred Revenue (Note 7) Other Liabilities 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 Liabilities
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

GEORGIA SOUTHERN UNIVERSIW STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30,2010
OPERATING REVENUES
Student Tuition and Fees Less: Scholarship Allowances
Grants and Contracts Federal Federal Stimulus State Other
Sales and S e ~ i c e sof Educational Departments Rents and Royalties Auxiliary Enterprises
Residence Halls Bookstore Food Setvlces Parking/Transportatlon Health Services lntercolleglate Athletics Other Organizations Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Faculty Staff Employee Beneflts Other Personal Services Travel Scholarsh~psand Fellowships Utilities Supplies and Other Services DeDreciation
Total Operating Expenses
Operating lncome (Loss)
NONOPERATING REVENUES (EXPENSES1
State Appropriations Federal Stlmulus - Stabilizat~onFunds Grants and Contracts
Federal Gifts Interest and Other Investment lncome Interest Expense Other Nonoperatlng Revenues
Net NonoperatlngRevenues
lncome (Loss) Before Other Revenues, Expenses, Galns, or Losses
Capital Grants and G ~ f t s State Other
Total Other Revenues. Expenses, Ga~nsor Losses
Increase (Decrease) in Net Assets
Net Assets - Begnnlngof Year
Net Assets - End of Year
The notes to the financial statements are an integral pan of this statement.
- 3

GEORGIA SOUTHERN UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30,2010
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Paymentsto Suppliers Paymentsto Employees Paymentsfor Scholarships and Fellowships Loans Issuedto Students and Employees Collection of Loansto Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Sewices Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Receipts
Net Cash Provided (Used) by OperatingActivities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations
Federal Stimulus - Stabilization Funds
Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes
Net Cash Flows Provided (Used) by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Proceeds from Sale of Capital Assets Purchasesof Capital Assets Pr~ncipaPl aid on Capital Debt and Leases Interest Paid on Capital Debt and Leases
Net Cash Provided (Used) by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of lnvestments Interest on Investments
Net Cash Provided (Used) by Investing Activities
Net Increase(Decrease) in Cash
Cash and Cash Equ~valents- Beginningof Year
Cash and Cash Eauivalents- End of Year

EXHIBIT" C

GEORGIA SOUTHERN UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30,2010
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to ReconcileOperatingIncome to Net Cash
Provided (Used) by OperatingActivities 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 OperatingActivitres
NONCASH ACTIVITY Fixed Assets Acquired by Incurring Cap~taLl ease Obligat~ons Change in Fair Value of Investments Recognizedas a Component of Interest Income Change in Accrued lnterest PayableAffecting lnterest Paid Gift of Capital Assets ReducingProceedsof Capital Grants and Gifts

EXHIBIT "C"

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

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GEORGIA SOUTHERN UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "DM

Note 1. Summary of Signifiwnt Accounting Policies
Nature of Operations Georgia Southern University 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 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 accompanyingfinancial 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 16 for additional information.
Financial Statement Presentation The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the University's assets, liabilities, net assets, revenues, expenses, changes in net assets and cash flows.
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.
New Accounting Pronouncements In fiscal year 2010, Georgia Southern University adopted the Governmental Accounting and Standards Board (GASB) Statement No. 51, Accounting and Reportng for Intangible Assets. The provisions of this Statement generally required retroactive reporting for intangible assets acquired after June 30, 1980, with the exception of those intangible assets that have indefinite useful lives and those that are considered internally generated.
In addition, Georgia Southern University adopted GASB Statement No. 53, Accounting and Financial Rewrting for Derivative Instruments. The provisions of this Statement impacts disclosure regarding derivative instruments entered into by the state and local governments. Derivative disclosures, if any, will be identified in Note 2.

GEORGIA SOUTHERN UNIVERSIW NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

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 intraUniversity 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 lnvestments Short-Term lnvestments consist of investments of 90 days - 1 3 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.
lnvestments lnvestments consist of the Cash Surrender Value of a Life Insurance Policy donated to the Georgia Southern University Golf team. The value is adjusted yearly to increase to the actual value as of June 30.
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.
lnventories Consumable supplies are carried at the lower of cost or market on the first-in, first-out ("FIFO") basis. Resale lnventories for Food Services are valued at cost using the average-cost basis. Resale lnventories for Bookstore and other services are valued at cost using the first-in, first-out ("FIFO") basis.
Noncurrent Cash and Short-Term lnvestments Cash and 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 t o vendors and local government organizations for services that will benefit periods beyond June 30, 2010, are recorded as prepaid items.

GEORGIA SOUTHERN UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010
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, which also includes amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, and copyrights, as well as software is computed using the straight-line method over the estimated useful lives of the assets, generally 4 0 to 6 0 years for buildings, 2 0 to 25 years for infrastructure and land improvements, 1 0 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 Financingand Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted t o 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, 2010, GSFIC did not transfer any capital additions to Georgia Southern University.
Deposits Deposits represent good faith deposits from students to reserve housing assignments in a University residence hall.
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 from grant 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 Statement of Revenues, Expenses and Changes in Net Assets. Georgia Southern University had accrued liability for compensated absences in the amount of $4,837,931 as of July 1, 2009. For fiscal year 2010, $3,673,185 was earned in compensated absences and employees were paid $3,342,135, for a net increase of $331,050. The ending balance as of June 30, 2010, in accrued liability for compensated absences was $5,168,981.
Noncurrent Liabilities Noncurrent liabilities include (1)liabilities that will not be paid within the next fiscal year; (2) capital lease obligations with contractual maturities greater than one year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets.

GEORGIA SOUTHERN UNIVERSIlY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

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 t o 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 GSFlC as discussed previously in Note 1- Capital Assets section.

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 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.

Expendable Restricted Net Assets include the following:

Restricted - E&G and Other Organized Activities $ Federal Loans Institutional Loans

268,348 3,146,296
51,143

Total Restricted Expendable

$

3,465,787

Unrestricted net asseb: 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 $45,968.40. 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 selfsupporting 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 Reservefor Encurnbrances Reserve for Inventory Other Unrestricted

Total Unrestricted Net Assets

$

35.686.887

GEORGIA SOUTHERN UNIVERSIlY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

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 from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended.
Classification of Revenuesand Expenses The Statement of Revenues, Expenses and Changes in Net Assets classify fiscal year activity as operating and nonoperating according to the following criteria:
Operating Revenues Operating revenue includes activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2)certain Federal, state and local grants and contracts, and (3) sales and services.
Nonoperating Revenues Nonoperating revenue includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenue by GASB No. 9, Reporting Cash Flows of Proprietary and Nunexpendable TrustFunds and GovernmentalEntities mat Use Propriettary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.
Operating Expenses: Operating expense includes activities that have the characteristics of exchange transactions.
Nonoperating Expenses Nonoperating expense includes activities that have the characteristics of nonexchange transactions, such as capital financing costs and costs related to investment activity.
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 Pell 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 $7,980,539 is reported net of discounts and allowances of $1,430,665.
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 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:

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "Dl1

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 MortgageAssociation.

6. Guarantee or insurance of accounts provided by the Federal Deposit lnsurance Corporation.

The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.

At June 30, 2010, the carrying value of deposits was $44,113,265 and the bank balance was $46,666,943. Of the University's deposits, $45,666,943 were uninsured. Of these uninsured deposits, $45,666,943 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the University's name.

lnvestments 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.

As of June 30, 2010, the University held an investment in a life insurance policy as noted below. All other funds 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 lnvestments Life lnsurance Value Cash Surrender Value

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

Note 3. AccounB Receivable Accounts receivable consisted of the following at June 30, 2010:

Student Tuition and Fees Auxiliary Enterprisesand Other OperatingActivities Federal Financial Assistance Other

$ 452,010 6,127,809 4,405,031 5,685,436

EXHIBIT "D"

Less Allowance for DoubtfulAccounts
Net Accounts Receivable
Note 4. Inventories
Inventories consisted of the following at June 30, 2010:
Bookstore Food Services Physical Plant Other
Total
Note 5. Notes/Lwns Receivable
The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2010. 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 UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Note 6. Capital Asseb Following are the changes in capital assets for the year ended June 30,2010:

Beginning Balance July 1, 2009

Additions

Reductions

Ending Balance June 30, 2010

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

$

9,147,401 $

23,200

490,880

7,832,996

7,131,363 $

5,387,669

490,880 9,576,690

Total Capital Assets, Not Being Depreciated $

17,471,277 $

7,154,563 $

5,387,669 $

19,238,171

Capital Assets, Being Depreciated: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections

$

16,209,839 $

317,958,317

4,613,534

21,565,302

136,251,033

37,982,183

1,215,498 4,153,271 $ 1,277,124 2,520,040 56,299,537 1,915,513

$ 1,452,079
1,080,859 187,023 33.905

17,425,337 320,659,509
5,890,658 23,004,483 192,363.547 39,863,791

Total Assets Being Depreciated

$

534,580,208 $

67,380,983 $

2,753,866 $

599,207.325

Less: Accumulated Depreciation: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections

$

11,609,087 $

87,895.843

784.755

16,755,276

17,207.277

31,586.806

345,207 8,399,956 $
165,297 1,834,249 6,734,884 1,316,281

$ 1,118,044
990,200 176,649
33,905

11,954,294 95,177.755
950,052 17,599,325 23,765,512 32,869,182

Total Accumulated Depreciation

$

165,839,044 $

18,795,874 $

2,318,798 $

182,316,120

Total Capital Assets, Being Depreciated, Net $

368,741,164 $

48,585,109 $

435,068 $

416,891,205

Capital Assets, Net

Note 7. Deferred Revenue Deferred revenue consisted of the following at June 30, 2010:

Prepaid Tuition and Fees Other Deferred Revenue

Totals

$ 15,904,809

GEORGIA SOUTHERN UNIVERSIlY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBlT "D"

Note 8. 1ong-TermLiabilities Long-Term liability activity for the year ended June 30, 2010, was as follows:

Beginning Balance July 1,2009

Additions

Reductions

Ending Balance June 30,2010

Current Portion

Leases Lease Obligations

$ 125,569,351 $ 56,938,521 $ 3,856,106 $ 178,651,766 $ 4,677,194

Other Liabilities Compensated Absences $ Notes and Loans Payable

4,837,931 $ 2,123,070

3,673,185 $

3,342,135 $ 89,769

5,168,981 $ 3,575,215

2,033,301

94.774

Total Total Long-Term Obligations $ 132,530,352 $ 60,611,706 $ 7,288,010$ 185,854,048 $ 8,347,183

NOTES AND LOANS PAYABLE

Included in total Long-Term liabilities is a $3,000,000 note payable that was originally payable to

Georgia Education Authority (University), (GEA(U)). In July 2007, GEA(U) met and resolved to no

longer conduct business as a state authority and dispose of all its assets and liabilities. As a result

of that decision, a Note Receivable that was payable from Georgia Southern University was

transferred by Resolution from GEA(U)to the UniversitySystem Office (USO) of the University System

of Georgia. Georgia Southern University continues to render payments according to the original amortization schedule to the USO. The note carries an interest rate of 5.50% and is due semi-

annually through the year 2025. The outstanding balance at June 30, 2010 is $2,033,301. Annual

maturities are as follows:

Principal

Interest

Total

Year EndingJune 30 2011 2012 2013 2014 2015 2016 through 2020 2021 through 2025

$

94,774$ 110,546 $ 205,320

100,058

105,262

205,320

105,637

99,683

205,320

111,527

93,793

205,320

117,745

87,575

205,320

694,836

331,764 1,026,600

808,724

115,217

923,941

Note 9. Significant Commitmenis
The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $9,157,134 for renovations to the Williams Center and construction of new Physical Plant and Biological Sciences buildings as of June 30, 2010. This amount is not reflected in the accompanying basic financial statements.

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

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 from monthly to annually and have terms expiring in various years between 2 0 1 1 and 2039. Expenditures for fiscal year 2010 were $12,639,738 of which $8,783,632 represented interest. lnterest expense included $638,984 of accrued interest which was added to the lease principal. Total principal paid on capital leases was $3,856,106 for the fiscal year ended June 30, 2010. lnterest rates range from 3.85 percent to 37.99 percent. The following is a summary of the carrying values of assets held under capital lease at June 30,2010:
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 2031. The outstanding liability at June 30, 2010, for this capital leases was $36,344,000.
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, 2010, for this capital lease was $1,960,366.
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 a t 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, 2010, for this capital lease was $609,942.
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, 2010, for this capital lease was $1,473,207.

GEORGIA SOUTHERN UNIVERSrPl NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "DM

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, 2010, for this capital lease was $26,614,889.
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 2031. The outstanding liability at June 30, 2010, for this capital lease was $38,458,057.
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, 2010, for this capital lease was $13,839,556. This lease includes $47,425 of capitalized interest.
Georgia Southern University had a capital lease with related entities in the current fiscal year. In July 2009, Georgia Southern University entered into a capital lease of $56,096,073 at 5.256 percent with the Georgia Southern University Housing Foundation, Inc., an affiliated organization whereby the University leases Buildings and Land (Centennial Place) for a thirty year period that began August 2009 and expires June 2039. The outstanding liability at June 30, 2010, for this capital lease was $56,687,632. This lease includes $591,559 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 percent 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, 2010, for this capital lease was $2,234,937.
Georgia Southern University also has various capital leases for equipment with an outstanding balance at June 30,2010, in the amount of $429,180.
OPERATING LEASES Georgia Southern University's noncancellable operating leases having remaining terms of more than one year expire in fiscal year 2011. Certain 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 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 2009, Georgia Southern University entered into a real property operating lease with an unrelated party for Atlanta office space for monthly rental payments. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $44,267 in the current year.
In 2009, Georgia Southern University entered into a real property operating lease with an unrelated party for office space at Georgia Avenue Building #810 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.

GEORGIA SOUTHERN UNIVERSrPl NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

In 2009, 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 2009, 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 $110,784 in the current year.
In 2009, 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 $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.
In 2010, 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 2010, 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 $31,500 in the current year. Due to the property being purchased there were only nine payments paid during the current fiscal 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 30,2010, were as follows:

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

Real Pro~ertvandEaui~ment

Capital

Operating

Leases

Leases

Year EndingJune 30: 2011 2012 2013 2014 2015 2016 - 2020 2021 - 2025 2026 - 2030 2031 - 2035 2036 - 2039
Total Minimum Lease Payments

$ 307,775,378 $

201,618

Less: Interest Principal Outstanding

Georgia Southern University's fiscal year 2010 expense for rental of real property and equipment under operating leases was $285,890.
Note 11. Retirement Plans
Teachers Retirement System of Georgia
Plan Description Georgia Southern University participates in the Teachers Retirement System of Georgia (TRS),a costsharing 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.
Funding Policy Employees of Georgia Southern University who are covered by TRS are required by State statute t o contribute 5.25% 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 2010, the employer contribution rate was 9.74% for covered employees. Employer contributions for the current fiscal year and the precedingtwo fiscal years are as follows:

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

Fiscal Year

Percentage Contributed

Required Contribution

EXHIBIT "D"

Employees' Retirement System of Georgia
Plan Description Georgia Southern University 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. Employees hired on or after July 1,1982, but prior to January 1,2009, are "new plan" members subject to the modified plan provisions. Effective January 1,2009, newly hired State employees, as well as rehired State employees who did not maintain eligibility for the "old" or "new" plan, are members of the Georgia State Employees' Pension and Savings Plan (GSEPS). ERS members hired prior to January 1,2009, also have the option to change their membership to the GSEPS plan.
Under 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 1 0 years of creditable service and attainment of age 60. Additionally, there are certain provisions allowing for retirement after 2 5 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. Post-retirement 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 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 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 University's payroll for the year ended June 30, 2010, for employees covered by ERS was $297,311. The University'stotal payroll for all employees was $114,003,105.

GEORGIA SOUTHERN UNIVERSIlY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

For the year ended June 30, 2010, under the old plan, member contributions consist of 4% of annual compensation up to $4,200 plus 6%of annual compensation in excess of $4,200. Of these member contributions, the employee pays the first 1.25% and the University pays the remainder on behalf of the employee.

Under the new plan, member contributions consist solely of 1.25% of annual compensation paid by employee. The University 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, 2010, the ERS employer contribution rate for the University 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.
Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contr~bution

Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2010, 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. 47-21-1 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 2010, the employer contribution was 9.24% for 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
$4,451,650 (9.24%) and $2,408,393 (5%),respectively.

GEORGIA SOUTHERN UNIVERSrPl NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBlT "D"

AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.
Georgia Defined Contribution Plan
Plan Description 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 his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.
Contributions Member contributions are seven and one-half percent (7.5%)of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member.
Total contributions made by employees during fiscal year 2010 amounted to $365,959 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.
Note 12, Risk Management
The University System of Georgia offers its employees and retirees access to two different selfinsured healthcare plan options - a PPO/PPO 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-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 HSWHigh Deductible PPO healthcare plan and two fully insured HMO healthcare plan options are also offered to System employees.

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

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 13. Contingencies
Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any 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, 2010.
Note 14. Post-Employment Benefits Other Than Pension BenelSts
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 20-3-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.

GEORGIA SOUTHERN UNIVERSIW NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBrr "D"

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 2009 and 2010 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, 2010, there were 646 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2010, Georgia Southern University recognized as incurred $2,803,486 of expenditures, which was net of $1,408,266 of participant contributions.

Note 15. Natural Classifiwtions with Functional C/assifications The University's operating expenses by functional classification for fiscal year 2010 are shown below:
Functional Classification

Natural Classification

Instruction

Research

Public Service

Academic Support

Student Services

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

Total Operating Expenses

$ 83,306,769 $ 2,978,202 $ 2,160,057 $ 17,468,858 $ 19,085,737

Natural Classification

Institutional Support

Functional Classification

Plant Operations Scholarships

and

and

Auxiliary

Maintenance

Fellowships

Enterprises

Total Operating Expenses

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

$ 22,116,108 $ 32,349,192 $ 12,559,960 $ 56,788,456 $ 248.813339

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Note 16. AlW/iated 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., Georgia Southern University Athletics Foundation, 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 statements for these affiliated organizations may be obtained from Georgia Southern University.
Georgia Southern University Housing Foundation, Inc., has been determined significant to the State of Georgia for the year ended June 30, 2010, 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.

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SUPPLEMENTARY INFORMATION

GEORGIA SOUTHERN UNIVERSITY BALANCE SHEET (NON-GAAP BASIS)
BUDGET FUND JUNE 30,2010
ASSETS Cash and Cash Equivalents Investments Accounts Receivable
Federal Financial Assistance Other Prepaid Expenditures Inventories
Total Assets
LIABILITIESAND FUND EOUIW Liabilities
Accrued Payroll Encumbrance Payable Accounts Payable Deferred Revenue
Total Liabilities Fund Balances
Resewed Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Inventories Tuition Carry-Over
Unreserved Surplus Total Fund Balances
Total Liabilities and Fund Balances
Actual amounts were preparedon 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.

SCHEDULE "1"

GEORGIA SOUTHERN UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NONGMP BASIS)
BUDGET FUND YEAR ENDEDJUNE 30,2010

REVENUES
State Appropriation State General Funds
Federal Funds Other Funds
Total Revenues
CARRY-OVER FROM PRIOR YEAR
Transfer from Reserved Fund Balance
Total Funds Available
EXPENDITURES
Teaching
Excess of FundsAvailable over Expenditures
FUND BALANCE JULY I
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Prior Year Receivables/Revenues Unreserved Fund Balance (Surplus) Returned
to Board of Regents- UniversitySystem Office Year Ended June 30.2009
Early RemiRanceof Surplus Current Year Non-Mandatory Transfers Prior Year Reserved Fund Balance Included in Funds Available
FUND BALANCE JUNE 30

BUDGET

SUMMARY OF FUND BALANCE
Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restr~cted/SponsoredFunds Uncollectible Accounts Receivable Inventories Tuition Carry-Over
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 comprehens~vebasis of accounting other than generally accepted accounting principles.

ACTUAL

SCHEDULE "2"
VARIANCE FAVORABLE (UNFAVORABLE)

GEORGIA SOUTHERN UNIVERSITY STATEMENT OF PROGRAM REVENUES AND EXPENDITURESBY FUNDING SOURCE COMPAREDTO BUOGFl
(NONGMP BASIS) BUDGEl FUND YEAR ENDED J U N E 3 0 . 2 0 1 0

Teachlng SIaIe Approprlauon State General Funds Federal Funds Amencan Recovery and Renvestment Act of 2 0 0 9 Federal Stab~l~zat~Founas Other Funds

Onanal Ap~roprlatlon

Flnal Budget

Current Year Revenues

Funds Available Compared t o Budget

Prior Year Carry-Over

Total Funds Available

Varlance msltlve (Negative)

T m l Teachlng

Actual amounts were prepred on a prescr~Dedbasls of acoountlngmat demonstrales compl~ancs~ 4 t hbudgetary statutes ana regulauans of the State of Georgia whlch 1%a comprehens~vebasas of aocountlngother than generally acwpted accounungprlnclples

Expend~turesComparedto Budget

Variance

Posltlve

mual

(Negat~ve)

Actual FundsAvallabie
Over/(Under) Expenditures

Prlor Perlod Adjustments

Mer Adjustments

Esrly Remittance of Surplus

Program Fund
Balances

Transfers

Program Fund Balances

Reserve

Surplus

Tml Fund Balance

Unexpendable Rws%wws Uncollect~bieb u n 6 Receivable lnvenmrles

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GEORGIA SOUTHERN UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDEDJUNE 30,2010

SCHEDULE " 4

Totals per Annual Supplement

Accruals June 30,2010 June 30,2009

Compensated Absences June 30,2010 June 30.2009

Prepaid Items June 30,2010 June 30,2009

Adjustments

Shared Services on Jointly Staffed Personnel

Coastal Georgia Community College

Brock,

Cathy

Dudek,

Jennifer Dawn

Ellis.

Crystal Dawn

Johns,

Kevin B.

Taylor,

Brenda

Kennesaw State University

Roberts,

Galy

North Georgia College and State University

Davis.

Harrison

Skidaway Institute of Oceanography

Alexander. Clark

Universityof Georgia

Holland,

Melissa

Looper,

Diane

Universityof West Georgia

Chibbard, Julia

Hodges,

Charles Dr.

Valdosta State University

Caldwell,

Charmaine

Cunningham, Teodi

Unidentified Variance

SALARIES

TRAVEL

SECTION II 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 ENDEDJUNE 30,2010

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS

FINDING CONTROL NUMBER

AUDITEE'S RES PONS E/STATUS

SEE AUDITOR'S COMMENTS

FS-539-09-0 1

Further Action Not Warranted

CORRECTIVE ACTION/RESPONSES

ACCOUNTING CONTROLS (OVERALL) GENERAL LEDGER Inadequate Accounting Procedures Finding Control Number: FS-539-09-01

Georgia Southern University is working with the Board of Regents Office of Information and Instructional Technology to resolve this matter.

AUDITOR'S COMMENTS

(1)Findings/internal control deficiencies of this nature, that are not deemed significant deficiencies or material weaknesses and do not require reporting in the audit report in accordance with Statements on Auditing Standards (SAS) 115 or GovernmentalAuditing Standards(Yel1ow Book), will be communicated in a management letter.

PRIOR YEAR FEDERAL AWARD FINDINGS AND OUESTIONED COSTS

No matters were reported.

SECTION Ill CURRENT YEAR FINDINGS AND QUESTIONEDCOSTS

GEORGIA SOUTHERN UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30,2010

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

COMMUNICATION OF INTERNAL CONTROL DEFICIENCIES

The auditor is required to communicate to management and those charged with governance control deficiencies identified during the course of the financial statement audit that, in the auditor's judgment, constitute significant deficiencies or material weakness.

A deficiency in internal controls exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the Georgia Southern University's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Any identified deficiencies in internal controls that we did not consider to be significant deficiencies and/or material weaknesses have been communicated to management and those charged with governance within a separate management letter dated January 5, 2011. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below:

CAPITAL ASSETS Inadequate Capital Assets Records Significant Deficiency Finding Control Number: FS-539-10-01

Condition:

Accounting procedures of the University were insufficient to provide adequate control over Capital Assets.

Criteria:

The University should maintain capital assets records in accordance with capitalization guidelines and Instructions provided in Chapter 7 of the Board of Regents' Business Procedures Manual.

Questioned Cost:

N/A

Information:

The following deficiencies were noted relating to Capital Assets:

1. One asset in the amount of $313,300.00 was incorrectly classified as Buildings and Building Improvements rather than Facilities and Other Improvements.

2. One asset in the amount of $2,662,618.00 was excluded from the Asset Management subsidiary ledger at Cost. Additionally, Depreciation Expense and Accumulated Depreciation are understated by $59,909.00.

GEORGIA SOUTHERN UNIVERSITY SCHEDULE OF FINDINGSAND QUESTIONEDCOSTS
YEAR ENDED JUNE 30.2010

FINANCIAL STATEMENT FINDINGSAND QUESTIONED COSTS

CAPITAL ASSETS Inadequate Capital Assets Records Significant Deficiency Finding Control Number: FS-539-10-01

3. One asset was erroneously depreciating for two years although the asset has been removed from the Asset Management Module. Depreciation Expense is overstated by $1,088,224.00 and Accumulated Depreciation is overstated by $2,176,448.00.

4. Out of a review of twenty additional items, five appear to be depreciating incorrectly. Auditor recalculated depreciation based on asset cost and useful lives which revealed an overstatement of $18,723.00.

Cause:

University's management failed to implement appropriate internal controls and procedures necessary to properly record, maintain and track capital assets.

Effect:

By failing to accurately record and track capital assets, the University could place itself in a position where potential misappropriation of assets could occur and impact reporting of its financial position and results of operations.

Recommendation:

The University should establish appropriate procedures and controls to ensure that reconciliations are performed for the Capital Assets Module and the related subsidiary records. In addition, policies and procedures should be implemented to ensure that depreciation expense is properly recorded.

FEDERAL AWARD FINDINGS AND OUESTIONED COSTS

No matters were reported.