Georgia Southern University, Statesboro, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2013

GEORGIA SOUTHERN UNIVERSITY
STATESBORO, GEORGIA
REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2013
Georgia Department of Audits and Accounts Greg S. Griffin State Auditor

GEORGIA SOUTHERN UNIVERSITY - TABLE OF CONTENTS -

SECTION I
FINANCIAL
INDEPENDENT AUDITOR'S REPORT
REQUIRED SUPPLEMENTARY INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
BASIC FINANCIAL STATEMENTS
EXHIBITS
A STATEMENT OF NET POSITION
B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
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 FUNDS AVAILABLE AND EXPENDITURES COMPARED TO
BUDGET BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND
4 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND
5 RECONCILIATION OF BUDGET TO GAAP 6 RECONCILIATION OF SALARIES AND TRAVEL

Page
i
2 3 4 6
32 33 34 36 38 39

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

GEORGIA SOUTHERN UNIVERSITY - TABLE OF CONTENTS -
SECTION III FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS AND MANAGEMENT'S CORRECTIVE ACTION PLAN

SECTION I FINANCIAL

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
November 21, 2013

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable Brooks A. Keel, President Georgia Southern University

INDEPENDENT AUDITOR'S REPORT
Ladies and Gentlemen:
Report on the Financial Statements
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, 2013.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to Georgia Southern University's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
13ARL-62

the purpose of expressing an opinion on the effectiveness of Georgia Southern University's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of Georgia Southern University as of June 30, 2013, and the respective changes in financial position and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
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 of the State of Georgia as of June 30, 2013, the changes in its financial position or its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
As described in Note 1 to the financial statements, in 2013, Georgia Southern University adopted new accounting guidance, GASB Statement No. 63, Reporting Deferred Outflows, Deferred Inflows, and Net Position. Our opinion is not modified with respect to this matter.
As discussed in Note 1 to the financial statements, the prior period financial statements have been restated to record the effect of the merger of Herty Advanced Materials Center and to correct a misstatement. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages i through vii be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquires of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
13ARL-62

Other Information
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Georgia Southern University. The accompanying supplementary information (Schedules 1 through 6) is presented for purposes of additional analysis and is not a required part of the basic financial statements.
The accompanying supplementary information (Schedules 1 through 6) is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting or other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated November 21, 2013, on our consideration of Georgia Southern University's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Georgia Southern University's internal control over financial reporting and compliance.
Respectfully,

GSG:as 13ARL-62

Greg S. Griffin State Auditor

REQUIRED SUPPLEMENTARY INFORMATION

GEORGIA SOUTHERN UNIVERSITY
Management's Discussion and Analysis

Introduction
Georgia Southern University, a Carnegie Doctoral/Research University founded in 1906, offers more than 120 degree programs serving more than 20,000 students. Through eight colleges, the University offers bachelor's, master's and doctoral degree programs built on more than a century of academic achievement. The University, which is a unit of the University System of Georgia, is one of the Top 10 most popular universities in the nation according to U. S. News & World Report for the third year in a row. Georgia Southern is recognized for its student-centered approach to education. The institution continues to grow as shown by the comparison numbers that follow.

Faculty

Students (Headcount)

Students (FTE)

Fiscal Year 2013 Fiscal Year 2012 Fiscal Year 2011

844

20,574

823

20,212

783

19,691

Overview of the Financial Statements and Financial Analysis

18,706 18,429 17,994

Georgia Southern University is pleased to present its financial statements for fiscal year 2013. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Position; the Statement of Revenues, Expenses and Changes in Net Position; and the Statement of Cash Flows. This discussion and analysis of the University's financial statements provide an overview of its financial activities for the year. Comparative data is provided for fiscal year 2013 and fiscal year 2012.

Statement of Net Position The Statement of Net Position presents the assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position of the University as of the end of the fiscal year. The Statement of Net Position is a point-of-time financial statement. The Statement of Net Position presents a fiscal snapshot of Georgia Southern University. The Statement of Net Position presents end-of-year data concerning assets (current and noncurrent) deferred outflows of resources, liabilities, deferred inflows of resources, (current and noncurrent), and net position (assets plus deferred outflows of resources minus liabilities plus deferred inflows of resources). The differences between current and noncurrent assets are discussed in the Notes to the Financial Statements.

From the data presented, readers of the Statement of Net Position are able to determine the assets available to continue the operations of the institution and how much the institution owes vendors.

Finally, the Statement of Net Position provides a picture of the net position (assets plus deferred outflows of resources minus liabilities plus deferred inflows of resources) and their availability for expenditure by the institution. Net position is divided into three major categories. The first category, net investment in capital assets, provides the institution's equity in property, plant and equipment owned by the institution. The next category is restricted, which is divided into two categories, nonexpendable and expendable.

i

The corpus of nonexpendable, restricted resources is available only for investment purposes. Expendable, restricted resources 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. Unrestricted resources are available to the institution for any lawful purpose.
Statement of Net Position, Condensed

June 30, 2013

June 30, 2012

Assets Current Assets Capital Assets, Net Other Assets

$ 58,102,738 506,804,821 13,180,379

$ 59,500,468 435,291,595 10,084,837

Total Assets

$ 578,087,938

$ 504,876,900

Liabilities Current Liabilities Noncurrent Liabilities

$ 27,376,599 197,586,716

$ 26,927,862 167,271,743

Total Liabilities

$ 224,963,315

$ 194,199,605

Net Position Net Investment in Capital Assets Restricted Nonexpendable Expendable Unrestricted

$ 305,636,637
2,465,814 8,997,442 36,024,730

$ 264,256,740
2,465,814 3,204,780 40,749,961

Total Net Position

$ 353,124,623

$ 310,677,295

Total assets increased by $73,211,038, which was primarily due to an increase of $71,513,226 in the category of Capital Assets, Net and a decrease in Cash and Prepaid Items.

Total liabilities increased for the year by $30,763,710. The combination of the increase in total assets of $73,211,038 and the increase in total liabilities of $30,763,710 yields an increase in net position of $42,447,328. The increase in net position is primarily in the category of Net Investment in Capital Assets, in the amount of $41,379,897.
Statement of Revenues, Expenses and Changes in Net Position

Changes in total net position as presented on the Statement of Net Position are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Position. The purpose of the statement is to present the revenues received by the 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, 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.

ii

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

June 30, 2013

June 30, 2012

Operating Revenues Operating Expenses

$ 206,143,433 308,534,580

$ 185,636,157 283,298,124

Operating Loss

$ -102,391,147

$ -97,661,967

Nonoperating Revenues and Expenses

100,044,423

98,576,015

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

$ -2,346,724

$

914,048

Other Revenues, Expenses, Gains or Losses

35,029,403

11,329

Increase (Decrease) in Net Position

$ 32,682,679

$

925,377

Net Position at Beginning of Year, as Originally Reported

$ 310,677,295

$ 309,751,918

Adjustments, as Shown in Note 1

9,764,649

Net Position at Beginning of Year, Restated $ 320,441,944

$ 309,751,918

Net Position at End of Year

$ 353,124,623

$ 310,677,295

The Statement of Revenues, Expenses and Changes in Net Position reflect a positive year, which is represented by an increase in net position at the end of the year. Some highlights of the information presented on this statement are as follows:

iii

Revenue by Source For the Years Ended June 30, 2013 and June 30, 2012

June 30, 2013

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

$ 106,587,178 16,442,179 3,915,043 76,767,433 2,431,600

Total Operating Revenue

$ 206,143,433

Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other

$ 76,019,111 30,386,136 4,865,815 416,808 -560,240

Total Nonoperating Revenue
Capital Grants and Gifts State Other

$ 111,127,630
$ 34,999,403 30,000

Total Capital Grants and Gifts

$ 35,029,403

Total Revenues

$ 352,300,466

Expenses (By Functional Classification) For the Years Ended June 30, 2013 and June 30, 2012
June 30, 2013

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

$ 100,637,322 15,228,730 1,674,956 22,209,719 23,291,664 26,984,118 33,394,204 10,319,122 74,794,745

Total Operating Expenses
Nonoperating Expenses Interest Expense (Capital Assets)
Total Expenses

$ 308,534,580
11,083,207 $ 319,617,787
iv

June 30, 2012

$ 102,164,506 6,913,433 3,496,425
71,188,917 1,872,876
$ 185,636,157

$ 72,809,060 30,658,197 3,835,465 262,137 -264,223
$ 107,300,636

$

9,329

2,000

$

11,329

$ 292,948,122

June 30, 2012
$ 95,494,374 4,356,108 1,815,378
20,176,967 25,741,202 23,944,819 35,825,492 11,152,208 64,791,576
$ 283,298,124
8,724,621
$ 292,022,745

Operating revenues increased by $20,507,276 in fiscal year 2013. Tuition and Fees revenue increased by 4%, revenues also increased in Grants and Contracts, Auxiliary and Other categories.
The Auxiliary revenue increase of $5,578,516 is a result of the changing environment of residential life on the University's campus. Residence Halls revenue increased $5,185,446 partly due to Freedom's Landing commencing operations in fiscal year 2013. Fees increased approximately 2.5% and enrollment increased slightly.
Nonoperating revenues increased $3,826,994 for the year primarily due to an increase of $3,210,051 in State Appropriations.
The compensation and employee benefits category increased by $14,193,744 and primarily affected the Instruction, Research, and Academic Support areas. The increase reflects the addition of 21 faculty members and increases in employee health insurance cost for the institution. The merging of Herty Advanced Materials Development Center with Georgia Southern University resulted in an employee cost increase of $3.6 million. Benefit cost increases are typical of the ever increasing cost of providing health benefits to faculty and staff.
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 Position.
Cash Flows for the Years Ended June 30, 2013 and 2012, Condensed

June 30, 2013

June 30, 2012

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

$

-78,991,148

111,492,206

-35,047,969

-446,839

$

-64,787,686

107,468,103

-32,867,523

4,782,791

Net Change in Cash Cash, Beginning of Year (Restated)

$

-2,993,750

46,072,607

$

14,595,685

30,387,695

Cash, End of Year

$

43,078,857

$

44,983,380

v

Capital Assets The University has several significant capital asset additions for buildings in fiscal year 2013. At the beginning of fiscal year 2013, the University opened a new residence hall as a public-private venture with the GSU Housing Foundation, Inc. in the amount of $34.6 million. The former residence hall, Campus Club, was renovated becoming Freedom's Landing. During fiscal year 2013, the University also completed a major renovation of Brannen Hall, a former residence hall in the amount of $5.9 million. The newly renovated building is used for Faculty and Academic Support offices. The new Biological Science Center was fully funded by Georgia State Financing and Investment Commission (GSFIC) in the amount of $34.7 million. In addition, the University had a land capital asset addition of $4 million by purchasing the Brannen/Tillman Property (Phase II), which consisted of 104.2 acres located in Bulloch County. The University's capital balances now reflect the merging of Herty Advanced Materials Development Center with Georgia Southern University for the amount of about $6 million. 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 $207,072,605 of which $9,485,889 was reflected as current liability at June 30, 2013. For additional information concerning Long-Term Liabilities, see Notes 1 and 8 in the Notes to the Financial Statements. Economic Outlook Other than the transfer of the Herty Advanced Materials Development Center to Georgia Southern University as discussed below, Georgia Southern University is not aware of any currently known facts, decisions or conditions that are expected to have a significant impact on the financial position or results of operations during this fiscal year. Student enrollment growth shows signs of slowing down compared to previous years; however, impact on the financial position or operations of the University will be minimal due to aggressive enrollment management initiatives and conservative management of tuition and fee revenue budgets.
vi

As mentioned above, during 2013 the Georgia General Assembly enacted Senate Bill 396, which transferred management of the Herty Advanced Materials Development Center to Georgia Southern University as a unit of the University System of Georgia. The Herty Center was previously managed by the Georgia Department of Natural Resources and Georgia Economic Development Authority and will continue to conduct research, development and commercialization with respect to natural and synthetic organic and inorganic materials to accelerate economic development in the state of Georgia. The State of Georgia and Georgia Southern's expectation is that the Herty Center's impact on the economy of Georgia will be further enhanced by partnering with the educational and research resources available through Georgia Southern. Dr. Brooks A. Keel, President Georgia Southern University
vii

BASIC FINANCIAL STATEMENTS - 1 -

ASSETS
Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Receivables - Federal Financial Assistance Receivables - Other Due from Affiliated Organizations Inventories (Note 4) Prepaid Items
Total Current Assets
Noncurrent Assets Noncurrent Cash Investments (Externally Restricted) Due from Affiliated Organizations Investments Notes Receivable, Net Capital Assets, Net (Note 6)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deposits Unearned Revenue (Note 7) Other Liabilities Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences Due to Affiliated Organizations Notes and Loans Payable
Total Current Liabilities
Noncurrent Liabilities Lease Purchase Obligations Compensated Absences Notes and Loans Payable
Total Noncurrent Liabilities
Total Liabilities
NET POSITION
Net Investment in Capital Assets Restricted for:
Nonexpendable Expendable Unrestricted
Total Net Position

GEORGIA SOUTHERN UNIVERSITY STATEMENT OF NET POSITION JUNE 30, 2013

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

EXHIBIT "A"

$ 42,933,440
3,490,148 7,152,496 1,913,759 2,461,540
151,355
$ 58,102,738

$

145,417

5,535,952

4,909,400

10,445

2,579,165

506,804,821

$ 519,985,200

$ 578,087,938

$

6,124,368

528,129

1,003,590

1,375

8,483,606

4,040

1,739,264

5,247,475

4,126,887

6,338

111,527

$ 27,376,599

$ 194,187,878 1,777,534 1,621,304
$ 197,586,716
$ 224,963,315

$ 305,636,637
2,465,814 8,997,442 36,024,730

$ 353,124,623

GEORGIA SOUTHERN UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
YEAR ENDED JUNE 30, 2013
OPERATING REVENUES
Student Tuition and Fees (Net of Allowance for Doubtful Accounts) Less: Scholarship Allowances
Grants and Contracts Federal Federal Stimulus State Other
Sales and Services Rents and Royalties Auxiliary Enterprises
Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics 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 Depreciation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal Gifts Investment Income (Endowments, Auxiliary and Other) Interest Expense (Capital Assets) Other Nonoperating Expenses
Net Nonoperating Revenues
Income (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 Position
Net Position - Beginning of Year, Restated
Net Position - End of Year
The notes to the financial statements are an integral part of this statement.
- 3 -

EXHIBIT "B"

$

133,725,016

-27,137,838

5,431,580 157,336 310,635
10,542,628 3,915,043 146,562

28,633,293 11,392,450 18,706,224
4,316,191 4,310,991 9,408,284 2,285,038

$

206,143,433

$

59,103,052

80,911,180

42,073,608

631,366

2,702,205

14,830,180

10,293,223

75,675,650

22,314,116

$

308,534,580

$ -102,391,147

$

76,019,111

30,386,136 4,865,815 416,808
-11,083,207 -560,240

$

100,044,423

$

-2,346,724

$

34,999,403

30,000

$

35,029,403

$

32,682,679

320,441,944

$

353,124,623

GEORGIA SOUTHERN UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts (Exchange) Sales and Services 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 Intercollegiate Athletics 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 Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Purchases of Capital Assets Principal Paid on Capital Debt and Leases Interest Paid on Capital Debt and Leases
Net Cash Provided (Used) by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments Purchase of Investments
Net Cash Provided (Used) by Investing Activities
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - Beginning of Year, as Originally Reported
Adjustment for Merger of Herty Advanced Materials Development Center
Cash and Cash Equivalents - Beginning of Year, Restated
Cash and Cash Equivalents - End of Year

EXHIBIT "C"

$ 106,421,284 15,951,021 3,915,043
-130,721,464 -139,806,050
-14,830,180 -559,470 634,582

28,300,752 11,914,172 19,838,127
4,280,218 4,257,219 8,973,381
136,958 2,303,259

$

-78,991,148

$

76,019,111

183,450

35,289,645

$ 111,492,206

$

237,529

-19,248,982

-4,953,309

-11,083,207

$

-35,047,969

$

301,157

-747,996

$

-446,839

$

-2,993,750

$

44,983,380

1,089,227

$

46,072,607

$

43,078,857

- 4 -

GEORGIA SOUTHERN UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2013
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Operating Income (loss) to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, Net Inventories Prepaid Items Notes Receivable, Net Accounts Payable Unearned 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 Interest Income Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts

EXHIBIT "C"

$ -102,391,147
22,314,116
-274,161 116,141 1,605,450
75,112 -1,816,145
972,610 -100,228 507,104

$

-78,991,148

$

35,086,638

$

115,651

$

-34,791,874

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

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Note 1. Summary of Significant Accounting Policies
Nature of Operations Georgia Southern University serves the region, 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.
The financial operations of the Herty Advanced Materials Development Center were consolidated into the financial statements of Georgia Southern University for the year ended June 30, 2013. The Herty Center, previously a unit of the Georgia Department of Economic Development, expands the research and economic development opportunities for the University. Partnering with the University, the Herty Center is able to further enhance economic development in the region as well as the State of Georgia.
Reporting Entity Georgia Southern University is one of thirty-one (31) 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 Affiliated 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, deferred outflows of resources, liabilities, deferred inflows of resources, net position, revenues, expenses, changes in net position and cash flows.
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. 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.

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

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. This includes the State Investment Pool and the Board of Regents Short-Term Investment Pool.
Short-Term Investments Short-Term Investments consist of investments of 90 days - 13 months, which includes 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 include financial instruments with terms in excess of 13 months, certain other securities for the production of revenue, land, and other real estate held as investments by endowments. The University accounts for its investments at fair value. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Position. The Board of Regents Diversified Fund and the Board of Regents Short-Term Fund are included under Investments.
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 whom reside 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.
Inventories Consumable supplies are carried at the lower of cost or market on the first-in, first-out ("FIFO") basis. Resale Inventories for Bookstore and other services are valued at cost using the first-in, first-out ("FIFO") basis. Resale Inventories for Food Services are valued at cost using the average-cost basis.
Noncurrent Cash and Investments 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 Position.
Prepaid Items Payments made to vendors and local government organizations for services that will benefit periods beyond June 30, 2013, 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, which also includes amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, and copyrights, as well as software, is

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values generally are 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
To fully understand plant additions in the University System, 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. GSFIC 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. These bonds 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, 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, 2013, GSFIC transferred capital additions valued at $34,791,874 to Georgia Southern University.
Deposits Deposits represent good faith deposits from students to reserve housing assignments in a University residence hall.
Unearned Revenues Unearned 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. Unearned 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 Position, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Position. Georgia Southern University had accrued liability for compensated absences in the amount of $5,397,317 as of July 1, 2012. For fiscal year 2013, $4,359,747 was earned in compensated absences and employees were paid $3,852,643, for a net increase of $507,104. The ending balance as of June 30, 2013 in accrued liability for compensated absences was $5,904,421.
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.
Net Position The University's net position is classified as follows:
Net Investment in Capital Assets: 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 the net investment in capital assets. The term "debt obligations" as used in this definition does not include debt of the GSFIC as discussed previously in Note 1 - Capital Assets section.

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Restricted - nonexpendable includes endowment and similar type funds, in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may be either expended or added to principal. 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 - Expendable includes resources in which the University is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties.

Expendable Restricted include the following:

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

$

6,208,629

2,735,095

53,718

Total Restricted Expendable

$

8,997,442

Unrestricted: Unrestricted represents 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 $185,134.52. 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 the State Treasurer. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff.

Unrestricted resources include the following items which are quasi-restricted by management:

R & R Reserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted

$

9,790,359

26,129,336

63,000

42,035

Total Unrestricted Net Position

$

36,024,730

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 Revenues and Expenses

The Statement of Revenues, Expenses and Changes in Net Position classify fiscal year activity as operating and nonoperating according to the following criteria:

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

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 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 Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.
Operating Expenses: Operating expense includes activities that have the characteristics of exchange transactions.
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 Position. 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 $9,408,284 is reported net of discounts and allowances of $1,298,003.

Restatement of Prior Year Net Position

Georgia Southern University has a restatement of prior year net position that increases beginning net position by $9,764,649. The restatement to net position is mainly the effect of merging Herty Advanced Materials Center into Georgia Southern University for an increase of $10,861,224. In addition, a prior year fixed asset correction was made to the RAC Facility for a net asset decrease of $1,087,058 and an adjustment to the Cone Endowment resulted in $9,517 reduction in net position. The RAC Facility adjustment is due to the write-down of the acquisition value of the RAC asset since it was incorrectly capitalized in fiscal year 2007. The Cone Endowment adjustment is the result of the overstatement of fiscal year 2012 income and cash due to receipting a July 2012 Suntrust payment in fiscal year 2012. See summary below.

Net Position, July 1, 2012, as Previously Reported Herty Advanced Materials Center Acquisition Fixed Asset Correction (RAC Facility) Cone Endowment Adjustment

$ 310,677,295

$

10,861,224

-1,087,058

-9,517

9,764,649

Net Position, July 1, 2012, as Restated

$ 320,441,944

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

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:
1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.
2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.
3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.
4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.
5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association.
6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.
The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.
At June 30, 2013, the carrying value of deposits was $38,172,334 and the bank balance was $40,624,251. Of the University's deposits, $40,172,158 was uninsured. Of these uninsured deposits, $40,056,538 was collateralized with securities held by the financial institution, by its trust department or agency, but not in the University's name and $115,620 was uncollateralized.
Investments
At June 30, 2013, the carrying value of the University's investments was $10,272,880, which is materially the same as fair value.
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.

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

The University's investments as of June 30, 2013 are presented below. All investments are presented by investment type and debt securities are presented by maturity.

Investment Type

Fair Value

Investment Maturity

4-12 Months

1 - 5 Years

Debt Securities U. S. Treasuries U. S. Agencies Implicitly Guaranteed Corporate Debt

$

818,907

640,517 1,489,577 $

$ 169,155

818,907
640,517 1,320,422

Other Investments Cash Equivalent Money Market Life Insurance Value

$

2,949,001 $

235,622 10,445

169,155 $

2,779,846

Investment Pools Board of Regents Short-Term Fund Diversified Fund

4,490,861 2,586,951

Total Investments

$

10,272,880

The Board of Regents Investment Pool is not registered with the Securities and Exchange Commission as an investment company. The fair value of investments is determined daily. The pool does not issue shares. Each participant is allocated a pro rata share of each investment at fair value along with a pro rata share of the interest that it earns. Participation in the Board of Regents Investment Pool is voluntary. The Board of Regents Investment Pool is not rated. Additional information on the Board of Regents Investment Pool is disclosed in the audited Financial Statements of the Board of Regents of the University System of Georgia - System Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at http://www.audits.ga.gov.

Georgia Southern University Herty Advanced Materials Development Center maintains an operating reserve in the form of an investment account with Wells Fargo Bank. The account is managed to achieve an investment income objective which emphasizes growth of current income through holdings of fixed income investment with no emphasis on potential capital appreciation through other investments. Specifically, the account is made up of Government Bonds and U. S. Treasuries of $1,459,424, Corporate Bonds of $1,489,577, and Money Markets funds of $235,622 as of June 30, 2013.

Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University does not have a formal policy for managing interest rate risk.

The Effective Duration of the Short-Term Fund is 0.56 years. Of the University's total investment of $4,490,861 in the Short-Term Fund, $3,939,788 is invested in debt securities.

The Effective Duration of the Diversified Fund is 5.43 years. Of the University's total investment of $2,586,951 in the Diversified Fund, $827,824 is invested in debt securities.

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

The Effective Duration of the Herty Center Bond Investment is 4 months - 5 years. Of the University's total investment of $2,949,001 is invested in debt securities.
Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the University will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The University does not have a formal policy for managing custodial credit risk for investments.
At June 30, 2013, $2,949,001 of the Herty Center Bond Investments were uninsured and held by the investment's counterparty in the University's name.
Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The Herty Center Bond Investment is rated by Standard and Poor's as shown below. The University does not have a formal policy for managing credit quality risk.
The investments subject to credit quality risk are reflected below:

Credit Quality Risk

Fair Value

AAA

AA

A

BBB

Related Debt Investments

U. S. Agencies

$

Corporate Debt

640,517 1,489,577 $

$ 91,151

640,517 190,469 $

828,834 $

379,123

$

2,130,094 $

91,151 $

830,986 $

828,834 $

379,123

Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The University does not have a formal policy for managing concentration of credit risk.
Note 3. Accounts Receivable

Accounts receivable consisted of the following at June 30, 2013:

Student Tuition and Fees

$

Auxiliary Enterprises and Other Operating Activities

Federal Financial Assistance

Georgia State Financing and Investment Commission

Due from Affiliated Organizations

Other

497,393 1,893,143 3,490,148
486,629 1,913,759 4,540,059

Less Allowance for Doubtful Accounts

$

12,821,131

264,728

Net Accounts Receivable

$

12,556,403

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Note 4. Inventories

Inventories consisted of the following at June 30, 2013:

Bookstore Food Services Other

$

1,832,951

426,944

201,645

Total Inventories Note 5. Notes/Loans Receivable

$

2,461,540

The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2013. 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.

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Note 6. Capital Assets Following are the changes in capital assets for the year ended June 30, 2013:

Beginning Balance July 1, 2012 (Restated)

Additions

Reductions

Ending Balance June 30, 2013

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

$

14,870,655 $

490,880

7,134,318

4,004,502 8,218,075 $

$ 6,198,755

18,875,157 490,880
9,153,638

Total Capital Assets, Not Being Depreciated $

22,495,853 $

12,222,577 $

6,198,755 $

28,519,675

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

$

17,758,611

344,734,173 $

7,006,673

45,931,605

192,473,072

43,845,865

41,023,285 $
5,267,136 35,086,638
2,088,403

$ 2,391,064
1,018,256 1,417,292
15,020

17,758,611 383,366,394
7,006,673 50,180,485 226,142,418 45,919,248

Total Assets Being Depreciated

$

651,749,999 $

83,465,462 $

4,841,632 $

730,373,829

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

$

12,691,049 $

110,677,584

1,212,339

33,509,227

39,221,004

35,661,011

188,942 7,996,302 $
298,887 3,514,735 8,772,137 1,543,113

$ 1,892,924
1,025,283 264,420 15,020

12,879,991 116,780,962
1,511,226 35,998,679 47,728,721 37,189,104

Total Accumulated Depreciation

$

232,972,214 $

22,314,116 $

3,197,647 $

252,088,683

Total Capital Assets, Being Depreciated, Net $

418,777,785 $

61,151,346 $

1,643,985 $

478,285,146

Capital Assets, Net

$

441,273,638 $

73,373,923 $

7,842,740 $

506,804,821

Note 7. Unearned Revenue

Unearned revenue consisted of the following at June 30, 2013:

Prepaid Tuition and Fees Other Unearned Revenue

$

7,366,571

1,117,035

Total Unearned Revenue

$

8,483,606

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Note 8. Long-Term Liabilities Long-Term liability activity for the year ended June 30, 2013 was as follows:

Beginning Balance July 1, 2012

Additions

Reductions

Ending Balance June 30, 2013

Current Portion

Leases Lease Obligations

$ 169,196,386 $ 35,086,638 $ 4,847,671 $ 199,435,353 $ 5,247,475

Other Liabilities Compensated Absences $ Notes and Loans

5,397,317 $ 1,838,469

4,359,747 $

3,852,643 $ 105,638

5,904,421 $ 1,732,831

4,126,887 111,527

Total

$ 7,235,786 $ 4,359,747 $ 3,958,281 $ 7,637,252 $ 4,238,414

Total Long-Term Obligations $ 176,432,172 $ 39,446,385 $ 8,805,952 $ 207,072,605 $ 9,485,889

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 University System 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 semiannually through the year 2025. The outstanding balance at June 30, 2013 is $1,732,831. Annual maturities are as follows:

Total Principal

Interest

Total Payments

2014 2015 2016 2017 2018 2019 - 2023 2024 - 2025

$

111,527 $

93,793 $

205,320

117,745

87,575

205,320

124,310

81,010

205,320

131,241

74,079

205,320

138,559

66,761

205,320

817,661

208,940

1,026,601

291,788

16,192

307,980

$

1,732,831 $

628,350 $ 2,361,181

Note 9. Significant Commitments
The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $11,760,507 as of June 30, 2013, for renovations to Sanford Hall and University Park Recreation Complex, and construction of the new Shooting Sports Education Center and Well House. This amount is not reflected in the accompanying basic financial statements.

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

In fiscal year 2013, the Georgia Southern University Foundation, Inc. began construction on a new student dining facility to replace Landrum Dining Center, and renovation of Lakeside Dining Facility. Beginning August 1, 2014, the University will enter into a capital lease to operate the facilities. The University's total lease payment over the life of the lease will be $51,048,812. The University is also obligated for required repair and replacement costs of $4,600,795 over the life of the lease.

At the May 2013 University Board of Regents meeting a Public, Private Venture between the Georgia Southern Athletic Foundation, Inc. and the University System of Georgia was approved. The project was approved to be funded from sale of bonds to expand Paulsen Stadium seating/concession area and construct a Football Operation Facility located within Paulsen Stadium. Construction costs in the amount of $10,000,000 per project were approved. Construction is estimated to be completed in early fiscal year 2015. At that time the University will enter into a capital lease agreement to operate the two facilities.
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 2014 and 2041. Expenditures for fiscal year 2013 were $16,319,413 of which $10,983,524 represented interest. Interest expense included $488,217 of accrued interest which was added to the lease principal. Total principal paid on capital leases was $5,335,889 for the fiscal year ended June 30, 2013. Interest rates range from 3.77 percent to 29.88 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2013:

Description

Gross Amount (+)

Accumulated Depreciation
(-)

Net Position Held Under Capital Lease at June 30, 2013
(=)

Outstanding Balances per Lease Schedules at June 30, 2013

Land - (PPV Only) Infrastructure Equipment Buildings - (PPV Only)

$

12,024,271

3,409,806 $

962,345

209,745,996

$ 3,352,976
289,940 44,085,805

12,024,271 56,830 $
672,405 165,660,191

63,877 617,459 198,754,017

Total Assets Held Under Capital Lease at June 30, 2013

$ 226,142,418 $

47,728,721 $

178,413,697 $

199,435,353

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

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

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, 2013 for this capital leases was $32,924,152.
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, 2013, for this capital lease was $1,760,910.
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, 2013, for this capital lease was $547,811.
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, 2013 for this capital lease was $1,323,730.
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, 2013, for this capital lease was $23,993,257.
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, 2013, for this capital lease was $35,029,904.
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, 2013, for this capital lease was $13,385,741.
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, 2013, for this capital lease was $54,700,356.
- 18 -

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Georgia Southern University had a capital lease with related entities in the current fiscal year. In July 2012, Georgia Southern University entered into a capital lease of $34,599,940 at 7.456 percent with the Georgia Southern University Housing Foundation, Inc., an affiliated organization whereby the University leases Buildings and Land (Campus Club - Freedom's Landing) for a thirty year period that began July 2012 and expires June 2041. The outstanding liability at June 30, 2013, for this capital lease was $35,088,156.
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, 2013 for this capital lease was $63,877.
Georgia Southern University also has various capital leases for equipment with an outstanding balance at June 30, 2013 in the amount of $617,459.
OPERATING LEASES
Georgia Southern University's noncancellable operating leases having remaining terms of more than one year expire in fiscal year 2014. Certain operating leases provide for renewal options for periods from one to five 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 2012, 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.
In 2012, 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 2012, Georgia Southern University entered into a real property operating lease with an unrelated party for office space at College Plaza Unit #4 (GSU Building #814) for monthly rental payments of $9,232 until January 2013. Beginning in February 2013 the monthly rental payment increased to $10,400. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $116,624 in the current year.
In 2012, 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 2012, 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.

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

In 2012, Georgia Southern University entered into a real property operating lease with an unrelated party for office space for the City Campus, for monthly rental payments of $3,000. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $36,000 in the current year.
In 2012, Georgia Southern University entered into a real property operating lease with an unrelated party for Dining Facility space for monthly rental payments of $71,155. The agreement contains a renewal option on a year-to-year basis. Under this agreement, the University paid $853,860 in the current year.
In 2007, Georgia Southern University Herty Advanced Materials Development Center entered into a real property lease with the Georgia Ports Authority for land, at the site of the Herty facility, located at 110 Brampton Road, Savannah, Georgia. The lease has a 20 year term and terminates July 27, 2027. The rental payment for the current year was $1,284. Subsequent years rent increases 5 percent annually, through the term of the lease.
FUTURE COMMITMENTS
Future commitments for capital leases (which here and on the Statement of Net Position include other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2013, were as follows:

Real Property and Equipment

Capital

Operating

Leases

Leases

Year Ending June 30: 2014 2015 2016 2017 2018 2019 - 2023 2024 - 2028 2029 - 2033 2034 - 2038 2039 - 2041

$

16,007,845 $

313,679

15,966,434

15,979,737

16,022,342

15,954,773

79,788,567

79,871,909

59,306,375

40,028,146

13,221,101

Total Minimum Lease Payments

$

352,147,229 $

313,679

Less: Interest

152,711,876

Principal Outstanding

$

199,435,353

Georgia Southern University's fiscal year 2013 expense for rental of real property and equipment under operating leases was $1,088,144.

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Note 11. Retirement Plans
Georgia Southern University participates in various retirement plans administered by the State of Georgia under two major retirement systems: Employees' Retirement System of Georgia (ERS System) and Teachers Retirement System of Georgia. These two systems issue separate publicly available financial reports that include the applicable financial statements and required supplementary information. The reports may be obtained from the respective system offices. The significant retirement plans that Georgia Southern University participates in are described below. More detailed information can be found in the plan agreements and related legislation. Each plan, including benefit and contribution provisions, was established and can be amended by State law.
Employees' Retirement System of Georgia
The ERS System is comprised of individual retirement systems and plans covering substantially all employees of the State of Georgia except for teachers and other employees covered by the Teachers Retirement System of Georgia. One of the ERS System plans, the Employees' Retirement System of Georgia (ERS), is a cost-sharing multiple-employer defined benefit pension plan that was established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees and has the powers and privileges of a corporation. ERS acts pursuant to statutory direction and guidelines, which may be amended prospectively for new hires but for existing members and beneficiaries may be amended in some aspects only subject to potential application of certain constitutional restraints against impairment of contract.
On November 20, 1997, the Board created the Supplemental Retirement Benefit Plan (SRBP-ERS) of ERS. SRBP-ERS 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 the SRBP-ERS is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC Section 415. Beginning January 1, 1998, all members and retired former members in ERS are eligible to participate in the SRBP-ERS whenever their benefits under ERS exceed the limitation on benefits imposed by IRC Section 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 irrevocably change their membership to the GSEPS plan.
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

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

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.

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, Georgia Southern University pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these Georgia Southern University contributions are included in the members' accounts for refund 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. Georgia Southern 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 funding standards as provided by law. These Georgia Southern University contributions are not at any time refundable to the member or his/her beneficiary.

Employer contributions required for fiscal year 2013 were based on the June 30, 2010 actuarial valuation as follows:

Old Plan* New Plan GSEPS

14.90% 14.90% 11.54%

*10.15% exclusive of contributions paid by the employer on behalf of old plan members

Members become vested after 10 years of service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions; the member forfeits all rights to retirement benefits.

Teachers Retirement System of Georgia

The Teachers Retirement System of Georgia (TRS) is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS.

On October 25, 1996, the Board created the Supplemental Retirement Benefit Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1, 1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits.

TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 30 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Options are available for distribution of the member's monthly pension, at a reduced rate, to a designated beneficiary on the member's death. Death, disability and spousal benefits are also available.
TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 10 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2013 were 6.00% of annual salary. Employer contributions required for fiscal year 2013 were 11.41% of annual salary as required by the June 30, 2010 actuarial valuation.
The following table summarizes the Georgia Southern University contributions by defined benefit plan for the years ending June 30, 2013, June 30, 2012, and June 30, 2011 (dollars in thousands):

Fiscal Year

ERS

Required

Percentage

Contribution

Contributed

TRS

Required

Percentage

Contribution

Contributed

2013

$

2012

$

2011

$

Regents Retirement Plan

30,247 26,844 26,056

100% 100% 100%

$ 6,684,079 $ 5,748,680 $ 5,470,825

100% 100% 100%

Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 47-21-1 et.seq. and administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or 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 2013, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 6% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Georgia Southern University and the covered employees made the required contributions of $5,400,755 (9.24%) and $3,210,728 (6%), respectively.
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 2013 amounted to $329,389 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.
Georgia Southern University Herty Advanced Materials Development Center - Standardized Money Purchase Plan (Retirement)
Plan Description Herty Advanced Materials Development Center provides a retirement benefit administered through Ascensus utilizing American Funds to all of its employees. Employees become eligible on July 1st or January 1st following one year and 1000 hours of service. The plan is 100% employer funded and has a 6 year graded vesting schedule as follows: 20% at 2 years of service, 40% at 3 years of service, 60% at 4 years of service, 80% at 5 years of service and 100% at 6 years of service. Employees may direct the investments in their account within the American Funds plans. Any unvested amounts accumulated in a terminated employee account, is forfeited by the employee and distributed to the current participating employee's accounts.

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GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Benefits A member may elect to receive payment of his/her vested account balance at any time following termination. Upon the death of a member, a lump sum distribution or periodic payments equaling the amount credited to his/her account will be paid to the member's designated beneficiary.
Contributions Employer contributions are made at each bi-weekly pay period and are credited to each participating employee's account based on 5% of their gross wages. Employee contributions are not permitted. Herty's contributions to the plan for fiscal year 2013 was $110,564 with a plan balance of $2,127,390. There are 65 participants.
During fiscal year 2014 Herty employees will convert to one of the standard Georgia Southern University retirement plans.
Note 12. Risk Management
The University System of Georgia offers its employees and retirees access to four different selfinsured healthcare plan options. For the University System of Georgia's Plan Year 2013, the following health care options were available:
Blue Choice HMO plan (Blue Cross Blue Shield) HAS Open Access POS plan (Blue Cross Blue Shield) Open Access POS plan Kaiser Permanente HMO 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 plans are considered to be a self-sustaining risk fund. 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 self-insured healthcare plan products. In addition to the self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HMO healthcare plan option is also offered to System employees through Kaiser.
Georgia Southern University Herty Advanced Materials Development Center offers a health care insurance benefit to all of its employees following 90 days of service. This includes major medical and dental for the employee and his/her dependents provided they are not cover by another group insurance. An HMO and PPO for medical through Blue Cross and Blue Shield of Georgia and dental through MetLife are available. Premiums are paid through payroll deductions at 20% with 80% paid by Herty. A life insurance policy through Lincoln National Life is provided to all employees at 1.5 times base pay. Short and long-term disability are also provided by Herty through MetLife. Herty does not provide post-employment insurance. During fiscal year 2014 Herty employees will convert to one of the standard Georgia Southern University retirement plans.
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
- 25 -

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

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 expenditure 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, 2013.
Herty is a defendant in a number of lawsuits which were filed in the State of Delaware beginning in 1982 and continuing through 2009 involving claims by employees, former employees, spouses of former employees and children of former employees of Haveg Industries, Inc. for money damages for alleged pulmonary diseases or death incurred as a result of alleged exposure to asbestos at the Haveg plant in Deleware. Herty is one of the co-defendants in these suits. These suits usually seek damages jointly or severally against each defendant to compensate the Plaintiffs for injuries allegedly suffered, punitive damages, cost of attorney fees and interest. Cigna Insurance Company has acknowledged coverage of these claims and has paid several settlements. The Georgia Department of Law has advised that, based on their consultation with litigation counsel retained by CIGNA, they were unable to estimate a range of potential losses at this time, but it is likely that Herty has some exposure in these cases.
Note 14. Post-Employment Benefits Other Than Pension Benefits
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 20-3-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer

- 26 -

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.
The Board of Regents Retiree Health Benefit Plan is a single-employer, defined benefit plan. Financial statements and required supplementary information for the Plan are included in the publicly available Consolidated Annual Financial Report of the University System of Georgia. The College 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 2013 plan year, the employer rate was between 70-85% of the total health insurance cost for eligible retirees and the retiree rate was between 15-30%.
As of June 30, 2013, there were 754 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2013, Georgia Southern University recognized as incurred $3,585,707 of expenditures, which was net of $1,730,040 of participant contributions.

- 27 -

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Note 15. Natural Classifications with Functional Classifications The University's operating expenses by functional classification for fiscal year 2013 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

$ 55,280,682 $ 12,814,498 17,989,700 94,248 1,063,583 432,290 57,818 10,724,830 2,179,673

2,076,961 $ 4,242,408 1,514,390
292,653 32,879
1,119,886 4,825,277 1,124,276

135,593 $ 724,738 224,979
8,715 28,605 124,005
7,987 416,041
4,293

1,564,863 $ 10,870,734
3,326,497 4,968
342,552 82,600 54,070
4,245,682 1,717,753

10,629 12,717,141
3,096,775 19,077
252,534 297,785 751,098 5,883,997 262,628

Total Operating Expenses

$ 100,637,322 $

15,228,730 $ 1,674,956 $ 22,209,719 $ 23,291,664

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

$

46,279 $

11,657,779

8,329,990

517,627

213,294

-4,500

93,783

5,916,948

212,918

-12,480 10,559,871
3,643,133 -429,257 31,396 $
5,245,949 5,821,980 8,533,612

$ 10,319,122

525 $ 17,324,011
3,948,144 415,988 477,588
3,545,999 2,962,632 37,840,895 8,278,963

59,103,052 80,911,180 42,073,608
631,366 2,702,205 14,830,180 10,293,223 75,675,650 22,314,116

Total Operating Expenses

$ 26,984,118 $

33,394,204 $ 10,319,122 $ 74,794,745 $ 308,534,580

Note 16. Affiliated Organizations
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. These affiliated organizations are considered potential component units of the State of Georgia in accordance with GASB Statement No. 61, The Financial Reporting Entity: Omnibus - an amendment of GASB Statements No. 14 and No. 34, and GASB Statement No. 39, Determining Whether Certain Organizations are Component Units.

- 28 -

GEORGIA SOUTHERN UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2013

EXHIBIT "D"

Therefore, the financial statements of the affiliated organization are not included in these financial statements. Copies of the financial statements for the affiliated organization 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, 2013, 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 affiliated organization issues separate audited financial statements that can be obtained from Georgia Southern University.

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SUPPLEMENTARY INFORMATION - 31 -

GEORGIA SOUTHERN UNIVERSITY BALANCE SHEET (NON-GAAP BASIS)
BUDGET FUND JUNE 30, 2013
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable
Federal Financial Assistance Other Prepaid Expenditures Inventories
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Unearned Revenue
Total Liabilities
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Inventories Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

$

31,165,990.00

3,079,029.30

2,138,517.49 6,245,698.71
150,359.59 179,852.13

$

42,959,447.22

$

331,892.41

19,841,155.28

359,496.67

6,278,276.62

$

26,810,820.98

$

5,014,207.96

1,996,472.62

5,102.33

6,061,659.60

113,072.10

2,709,977.11

63,000.00

185,134.52

$

16,148,626.24

$

42,959,447.22

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 32 -

GEORGIA SOUTHERN UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)
BUDGET FUND YEAR ENDED JUNE 30, 2013

SCHEDULE "2"

REVENUES
State Appropriation State General Funds
Other Funds
Total Revenues
ADJUSTMENTS AND PROGRAM TRANSFERS
CARRY-OVER FROM PRIOR YEARS
Transfers from Reserved Fund Balance
Total Funds Available
EXPENDITURES
Teaching
Excess of Funds Available over Expenditures
FUND BALANCE JULY 1
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Unreserved Fund Balance (Surplus) Returned
to Board of Regents - University System Office Year Ended June 30, 2012
Prior Year Reserved Fund Balance Included in Funds Available FUND BALANCE JUNE 30

BUDGET

ACTUAL

VARIANCE FAVORABLE (UNFAVORABLE)

$

76,205,063.00 $

76,205,063.00 $

0.00

192,215,291.00

180,790,626.09

-11,424,664.91

$ 268,420,354.00 $ 256,995,689.09 $ -11,424,664.91

0.00

1,014,809.00

1,014,809.00

0.00

8,931,829.28

$ 268,420,354.00 $ 266,942,327.37 $

8,931,829.28 -1,478,026.63

$ 268,420,354.00 $ 251,071,164.62 $ 17,349,189.38

$

0.00 $ 15,871,162.75 $ 15,871,162.75

9,108,215.45 185,952.50

101,077.32

-185,952.50 -8,931,829.28

$

16,148,626.24

SUMMARY OF FUND BALANCE
Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Inventories
Total Reserved
Unreserved Surplus

$

5,014,207.96

1,996,472.62

5,102.33

6,061,659.60

113,072.10

2,709,977.11

63,000.00

$

15,963,491.72

185,134.52

Total Fund Balance

$

16,148,626.24

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 33 -

GEORGIA SOUTHERN UNIVERSITY STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2013

Teaching State Appropriation State General Funds Other Funds
Total Teaching

Original Appropriation

Amended Appropriation

Final Budget

Current Year Revenues

$

79,894,135.00 $

79,894,135.00 $

76,205,063.00 $ 76,205,063.00

150,385,687.00

150,385,687.00

192,215,291.00

180,790,626.09

$

230,279,822.00 $

230,279,822.00 $

268,420,354.00 $ 256,995,689.09

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 34 -

SCHEDULE "3"

Funds Available Compared to Budget

Prior Year

Adjustments and

Total

Carry-Over

Program Transfers

Funds Available

Variance Positive (Negative)

Expenditures Compared to Budget

Variance

Actual

Positive (Negative)

Excess (Deficiency) of Funds Available
Over/(Under) Expenditures

$

0.00 $

8,931,829.28

0.00 $ 76,205,063.00 $

1,014,809.00

190,737,264.37

0.00 $ 76,153,488.77 $

-1,478,026.63

174,917,675.85

51,574.23 $ 17,297,615.15

51,574.23 15,819,588.52

$ 8,931,829.28 $

1,014,809.00 $ 266,942,327.37 $

-1,478,026.63 $ 251,071,164.62 $

17,349,189.38 $

15,871,162.75

- 35 -

GEORGIA SOUTHERN UNIVERSITY STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2013

Teaching State Appropriation State General Funds Other Funds
Total Teaching
Prior Year Reserves Not Available for Expenditure Inventories Uncollectible Accounts Receivable

Beginning Fund Balance/(Deficit)
July 1

Fund Balance Carried Over from
Prior Period as Funds Available

Return of Fiscal Year 2012
Surplus

Prior Period Adjustments

$

29,281.21 $

9,088,500.57

$ 9,117,781.78 $

0.00 $ -8,931,829.28
-8,931,829.28 $

-29,281.21 $ 83,743.31

-156,671.29

17,334.01

-185,952.50 $ 101,077.32

93,000.00 83,386.17

0.00 0.00

0.00 0.00

0.00 0.00

Budget Unit Totals

$ 9,294,167.95 $

-8,931,829.28 $

-185,952.50 $ 101,077.32

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 36 -

SCHEDULE "4"

Other Adjustments

Early Return Fiscal Year 2013
Surplus

Excess (Deficiency) of Funds Available
Over/(Under) Expenditures

Ending Fund Balance/(Deficit)
June 30

Analysis of Ending Fund Balance

Reserved

Surplus/(Deficit)

Total

$ 30,000.00 $ -29,685.93

$

314.07 $

0.00 $ 0.00
0.00 $

51,574.23 $ 15,819,588.52

165,317.54 $

0.00 $

15,807,236.60

15,787,419.62

15,871,162.75 $ 15,972,554.14 $ 15,787,419.62 $

165,317.54 $

165,317.54

19,816.98

15,807,236.60

185,134.52 $ 15,972,554.14

-30,000.00 29,685.93

0.00 0.00

0.00 0.00

63,000.00 113,072.10

63,000.00 113,072.10

0.00 0.00

63,000.00 113,072.10

$

0.00 $

0.00 $

15,871,162.75 $ 16,148,626.24 $ 15,963,491.72 $

185,134.52 $ 16,148,626.24

Summary of Ending Fund Balance Reserved
Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Inventories Unreserved Surplus
Total Ending Fund Balance - June 30

$ 5,014,207.96 1,996,472.62 5,102.33 6,061,659.60 113,072.10 2,709,977.11 63,000.00
$
$ 15,963,491.72 $

$ 5,014,207.96 1,996,472.62 5,102.33 6,061,659.60 113,072.10 2,709,977.11 63,000.00

185,134.52

185,134.52

185,134.52 $ 16,148,626.24

- 37 -

GEORGIA SOUTHERN UNIVERSITY RECONCILIATION OF BUDGET TO GAAP
YEAR ENDED JUNE 30, 2013

SCHEDULE "5"

Presented below is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Position of business-type activities, as reported on Exhibit A.
Total Fund Balances - Budget Fund - Non-GAAP Basis (Schedule "1")
Amounts reported for Business-Type Activities in the Statement of Net Position are different because:
Capital Assets used in Business-Type Activities are not reported in the Budget Fund.
Uncollectible accounts receivable are reported as an asset and reserved fund balance in the Budget Fund and as a contra-asset account on the Statement of Net Position.
Changes in the Fair Market Value of Investments are recognized on the Statement of Net Position, but are not reported in the Budget Fund.

$

16,148,626.24

506,804,820.65 -113,072.10 115,828.79

Agency Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Agency Fund Activity
Auxiliary Enterprises Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Auxiliary Enterprises Fund Activity
Endowment Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Endowment Fund Activity
Loan Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Loan Fund Activity
Student Activities Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Student Activity Fund Activity
The budgetary basis of accounting implemented by the State of Georgia recognizes expenditures when encumbered. The following adjustments were made to eliminate this activity for reporting on the Statement of Net Position. Payables reported in the Budget Fund that are based on encumbrances are eliminated for GAAP reporting. Prepaid items reported in the Budget Fund that are based on encumbrances are eliminated for GAAP reporting. Payables for goods and services provided in the current fiscal year reported in the Budget Fund as encumbrances payable are reported as accounts payable for GAAP reporting. Reimbursement from grantors reported as revenues in the Budget Fund that are for expenditures based on encumbrances are deferred for GAAP reporting. Total Net Effect of Encumbrance Activity
Certain Liabilities are not due and payable in the current period and therefore are not reported as liabilities in the Budget Fund. Accounts Payable Capital Leases Payable Compensated Absences Payable Contracts Payable Due From Component Units Due To Component Units Total Liabilities

$

6,061,507.50

-6,061,507.50

$

6,072,457.79

-3,731,945.84

$

2,465,814.06

0.00

$

2,788,812.61

0.00

$

8,480,231.83

-239,153.69

0.00 2,340,511.95 2,465,814.06 2,788,812.61 8,241,078.14

$

19,841,155.28

-5,199.06

-685,251.11 -4,365,870.89

14,784,834.22

$

-926,089.45

-199,435,352.63

-5,904,421.17

-1,003,589.59

6,823,159.59

-6,338.31

-200,452,631.56

Net Position of Business-Type Activities (Exhibit "A")

$ 353,124,623.00

The supplementary information presented on Schedules 1, 2, 3 and 4 was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework. The information was derived from, and relates directly to, the same information used to prepare the financial statements. However, the budgetary statutes and regulations of the State of Georgia require reporting of certain information that is not in accordance with generally accepted accounting principles. Presented on this schedule is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Position of business-type activities, as reported on Exhibit A.
- 38 -

GEORGIA SOUTHERN UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2013

SCHEDULE "6"

Totals per Annual Supplement
Accruals June 30, 2013 June 30, 2012
Compensated Absences June 30, 2013 June 30, 2012
Adjustments Shared Services on Jointly Staffed Personnel Armstrong Atlantic State University Bergin, James McCarthy, Michael Sturz, Bradley Columbus State University Gossai, Hemchand Darton State College Bretti, Anthony East Georgia College Greer, Kania Kyzer, Krystin Schmidt, Jaclyn Song, Francois Georgia College and State University Acelo, Johnathan Elisha, Larisa Elisha, Steven Gnam, Adrian Greenstein, Robyn Marshall, Elaine Mercier, Richard Georgia State University Szymanski, Robert Herty Advanced Materials Quirino, Rafael Middle Georgia College Brown, Terri Skidaway Institute of Oceanography Alexander, Clark University of West Georgia Chibbaro, Julia Defoor, Leanne Valdosta State University Martin, Johnathan

SALARIES $ 139,871,262 $

TRAVEL 2,709,653

528,129 -888,426

15,117 -22,565

5,484,832 -5,013,764

-2,650 17,755 -3,500
-1,000
-5,250
-2,565 6,087
-520 -12,480
-213 -400 -400 -300 -375 -2,000 -900
-7,000
-8,452
-15,000
59,856
3,000 10,656
-2,150

$ 140,014,232 $

2,702,205

- 39 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
November 21, 2013

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable Brooks A. Keel, President Georgia Southern University
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the basic financial statements of Georgia Southern University as of and for the year ended June 30, 2013, and have issued our report thereon dated November 21, 2013.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered Georgia Southern University's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Georgia Southern University's internal control. Accordingly, we do not express an opinion on the effectiveness of Georgia Southern University's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

2013YB-10

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Georgia Southern University's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
We noted a certain matter that we have reported to management of Georgia Southern University in a separate letter dated November 21, 2013.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Respectfully submitted,

GSG:as 2013YB-10

Greg S. Griffin State Auditor

SECTION III FINDINGS AND QUESTIONED COSTS

GEORGIA SOUTHERN UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS AND MANAGEMENT'S CORRECTIVE ACTION PLAN
YEAR ENDED JUNE 30, 2013
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.