GORDON STATE COLLEGE
BARNESVILLE, GEORGIA
REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2012
Georgia Department of Audits and Accounts Greg S. Griffin State Auditor

GORDON STATE COLLEGE - TABLE OF CONTENTS -
SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS EXHIBITS A STATEMENT OF NET ASSETS B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS C STATEMENT OF CASH FLOWS D NOTES TO THE FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION SCHEDULES 1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND 3 STATEMENT OF 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 BUDGET TO GAAP RECONCILIATION 6 RECONCILIATION OF SALARIES AND TRAVEL
SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

Page
i
2 3 5 6
24 25 26 28 30 31

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 12, 2012

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 Max Burns, President Gordon State College
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying basic financial statements (Exhibits A through D) of Gordon State College, 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, 2012. These financial statements are the responsibility of the Gordon State College's management. Our responsibility is to express an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Gordon State College's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In accordance with section 50-6-1(c) of the Official Code of Georgia Annotated, Greg S. Griffin was appointed State Auditor on July 1, 2012. During the year under review, Mr. Griffin served as the State Accounting Officer. As the State Accounting Officer, Mr. Griffin was responsible for the State's accounting and financial reporting practices.
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of Gordon State College as of June 30, 2012, 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.

12ARL-62

As discussed in Note 1, the financial statements of Gordon State College 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 Gordon State College. They do not purport to, and do not, present fairly the financial position of the State of Georgia as of June 30, 2012, 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.
Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages i through vi 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 consists 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.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Gordon State College taken as a whole. 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. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting or other records used to prepare the financial statements or to the 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.
Respectfully,

GSG:as 12ARL-62

Greg S. Griffin State Auditor

REQUIRED SUPPLEMENTARY INFORMATION

GORDON STATE COLLEGE
Management's Discussion and Analysis

Introduction
Gordon State College is one of the 35 institutions of higher education of the University System of Georgia. The College, located in Barnesville, Georgia, was founded in 1852 and has become known for its quality instructional programs. The College began as a military college and after several transformations joined the USG in 1972 as an associate level institution with a distinctive legacy of excellence in scholarship and service. Gordon State College was considered a two-year residential college from 1972 until May 2006 when the Board of Regents approved a change in the Colleges' mission to become a State College. With this change, Gordon State College can now offer bachelor's degrees. The institution continues to grow as shown by the comparison numbers that follow.

Faculty

Students (Headcount)

Students (FTE)

Fiscal Year 2012 Fiscal Year 2011 Fiscal Year 2010

115

4,664

124

5,009

117

4,545

Overview of the Financial Statements and Financial Analysis

4,151 4,528 4,088

Gordon State College is proud to present its financial statements for fiscal year 2012. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. This discussion and analysis of the College's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2012 and fiscal year 2011.
Statement of Net Assets

The Statement of Net Assets presents the assets, liabilities, and net assets of the College as of the end of the fiscal year. The Statement of Net Assets is a point of time financial statement. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a fiscal snapshot of Gordon State College. The Statement of Net Assets presents end-of-year data concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements.

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

Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into two major categories. The first category, invested in capital assets, net of debt, provides the institution's equity in property, plant and equipment owned by the institution. The final category is unrestricted net assets. Unrestricted net assets are available to the institution for any lawful purpose of the institution.

i

Statement of Net Assets, Condensed

June 30, 2012

June 30, 2011

Assets Current Assets Capital Assets, Net

$ 14,087,426 75,721,371

$ 14,819,616 74,286,602

Total Assets

$ 89,808,797

$ 89,106,218

Liabilities Current Liabilities Noncurrent Liabilities

$

3,368,601

32,622,380

$

3,871,293

33,152,317

Total Liabilities

$ 35,990,981

$ 37,023,610

Net Assets Invested in Capital Assets, Net of Debt Unrestricted

$ 42,735,729 11,082,087

$ 40,817,170 11,265,438

Total Net Assets

$ 53,817,816

$ 52,082,608

The total assets increased by $702,579. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase in capital assets related to GSFIC building additions, and a decrease of $732,190 in the category of Current Assets. The consumption of assets follows the institutional philosophy to use available resources to acquire and improve all areas of the institution to better serve the instruction, research and public service missions of the institution.

The total liabilities decreased for the year by $1,032,629. The combination of the increase in total assets of $702,579 and the decrease in total liabilities of $1,032,629 yields an increase in total net assets of $1,735,208. The increase in total net assets is primarily in the category of Invested in Capital Assets, Net of Debt, in the amount of $1,918,559.
Statement of Revenues, Expenses and Changes in Net Assets

Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received by the institution, both operating and nonoperating, and the expenses paid by the institution, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the institution. Generally speaking operating revenues are received for providing goods and services to the various customers and constituencies of the institution. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the institution. Nonoperating revenues are revenues received for which goods and services are not provided. For example state appropriations are nonoperating because they are provided by the Legislature to the institution without the Legislature directly receiving commensurate goods and services for those revenues.

ii

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

June 30, 2012

June 30, 2011

Operating Revenues Operating Expenses

$ 18,327,241 39,435,339

$ 18,223,569 41,139,082

Operating Loss

$ -21,108,098

$ -22,915,513

Nonoperating Revenues and Expenses

21,374,836

24,452,685

Income (Loss) Before Other Revenues,

Expenses, Gains or Losses

$

266,738

$ 1,537,172

Other Revenues, Expenses, Gains or Losses

1,427,130

12,792,043

Increase (Decrease) in Net Assets

$ 1,693,868

$ 14,329,215

Net Assets at Beginning of Year, as Originally Reported

$ 52,082,608

$ 37,753,393

Prior Year Adjustments

41,340

Net Assets at Beginning of Year, Restated $ 52,123,948

$ 37,753,393

Net Assets at End of Year

$ 53,817,816

$ 52,082,608

The Statement of Revenues, Expenses and Changes in Net Assets reflect a positive year with an increase in the net assets at the end of the year. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are as follows:

iii

Revenue by Source For the Years Ended June 30, 2012 and June 30, 2011

June 30, 2012

June 30, 2011

Operating Revenue

Tuition and Fees

$

Grants and Contracts

Sales and Services of Educational Departments

Auxiliary

Other

7,302,266 10,292 49,133
10,793,828 171,722

$ 5,506,730 833,866 53,738
11,384,646 444,589

Total Operating Revenue

$ 18,327,241

$ 18,223,569

Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other

$ 10,130,649 12,433,736 246,947 146,007 430

$ 10,669,464 14,521,970 715,999 150,007

Total Nonoperating Revenue

$ 22,957,769

$ 26,057,440

Capital Grants and Gifts State

$ 1,427,130

$ 12,792,043

Total Revenues

$ 42,712,140

$ 57,073,052

Expenses (By Functional Classification) For the Years Ended June 30, 2012 and June 30, 2011

June 30, 2012

June 30, 2011

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

$ 12,616,979 1,639,282 2,141,660 4,210,446 4,266,313 5,476,810 9,083,849

$ 12,371,515 1,701,775 2,362,708 3,092,095 5,096,655 7,350,282 9,164,052

Total Operating Expenses

$ 39,435,339

$ 41,139,082

Nonoperating Expenses Interest Expense (Capital Assets)

1,582,933

1,604,755

Total Expenses

$ 41,018,272

$ 42,743,837

iv

Operating revenues increased by $103,672 in fiscal year 2012. Although Tuition and Fees increased, revenues decreased in Grants and Contracts, Auxiliary and Other categories.
The Auxiliary revenue decrease of $590,818 is a result of 7% decrease of student enrollment for fiscal year 2012.
Nonoperating revenues decreased by $3,099,671 for the year primarily due to a decrease of Federal Pell Grants.
The compensation and employee benefits category increased by $741,599 and primarily affected the Instruction, Institutional Support and Plant Operations and Maintenance categories. The increase reflects additions for staffing needs and an increased cost of health insurance for the employees of the institution.
Utilities increased by $152,459 during the past year. The increase was primarily associated with the increased electricity costs as experienced by a majority of the region.
Statement of Cash Flows
The final statement presented by the Gordon State College is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets.
Cash Flows for the Years Ended June 30, 2012, and 2011, Condensed

June 30, 2012

June 30, 2011

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

$

-18,416,750

22,684,523

-4,653,153

146,007

$

-20,131,272

25,315,240

-4,526,558

150,007

Net Change in Cash Cash, Beginning of Year

$

-239,373

12,457,165

$

807,417

11,649,748

Cash, End of Year Capital Assets

$

12,217,792

$

12,457,165

The College had two significant capital asset additions for buildings and facilities in fiscal year 2012. The renovations of both Smith Hall and the Student Center were completed and were placed into service at the end of the academic year.

For additional information concerning Capital Assets, see Notes 1, 5, 8, and 9 in the Notes to the Financial Statements.

v

Long-Term Liabilities Gordon State College had Long-Term Liabilities of $33,568,902, which $946,522 was reflected as current liability at June 30, 2012. For additional information concerning Long-Term Liabilities, see Notes 1 and 7 in the Notes to the Financial Statements. Economic Outlook The College is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. The College's overall financial position is strong. Even with a relatively flat funded year, the College was able to generate a modest increase in Net Assets. The College anticipates the current fiscal year will be much like last and will maintain a close watch over resources to maintain the College's ability to react to unknown internal and external issues. Dr. Max Burns, President Gordon State College
vi

BASIC FINANCIAL STATEMENTS - 1 -

GORDON STATE COLLEGE STATEMENT OF NET ASSETS
JUNE 30, 2012
ASSETS
Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Receivables - Federal Financial Assistance Receivables - Other Inventories (Note 4) Prepaid Items
Total Current Assets
Noncurrent Assets Capital Assets, Net (Note 5)
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Deposits Deferred Revenue (Note 6) Other Liabilities Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences
Total Current Liabilities
Noncurrent Liabilities Lease Purchase Obligations Compensated Absences
Total Noncurrent Liabilities
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Unrestricted
Total Net Assets
The notes to the financial statements are an integral part of this statement.
- 2 -

EXHIBIT "A"

$

12,217,792

75,557 1,337,238
438,329 18,510

$

14,087,426

75,721,371

$

89,808,797

$

1,240,710

63,259

172,500

405,774

55,438

484,398

538,707

407,815

$

3,368,601

$

32,446,935

175,445

$

32,622,380

$

35,990,981

$

42,735,729

11,082,087

$

53,817,816

GORDON STATE COLLEGE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30, 2012
OPERATING REVENUES
Student Tuition and Fees (Net of Allowance for Doubtful Accounts) Less: Scholarship Allowances
Grants and Contracts Federal State
Sales and Services Rents and Royalties Auxiliary Enterprises
Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal Federal Stimulus Gifts Investment Income (Endowments, Auxiliary and Other) Interest Expense (Capital Assets) Other Nonoperating Revenues
Net Nonoperating Revenues
Income Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts State
Increase (Decrease) in Net Assets
Net Assets - Beginning of Year, Restated
Net Assets - End of Year
The notes to the financial statements are an integral part of this statement.
- 3 -

EXHIBIT "B"

$

14,028,243

-6,725,977

4,792 5,500 49,133 82,021

4,837,704 2,601,166 2,157,888
144,896 102,988 718,536 230,650
89,701

$

18,327,241

$

8,928,765

6,617,990

4,271,376

195,597

5,792,819

1,667,223

9,341,438

2,620,131

$

39,435,339

$

-21,108,098

$

10,130,649

12,126,751 306,985 246,947 146,007
-1,582,933 430

$

21,374,836

$

266,738

1,427,130

$

1,693,868

52,123,948

$

53,817,816

(This page left intentionally blank)

GORDON STATE COLLEGE STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2012
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 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 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
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Operating Income (loss) to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, Net Inventories Prepaid Items Accounts Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Gift Reducing Proceeds of Gifts and Grants Received for Other Than Capital Purposes Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts
The notes to the financial statements are an integral part of this statement.
- 5 -

EXHIBIT "C"

$

6,991,414

10,292

49,133

-15,132,747

-15,274,160

-5,792,819

4,712,948 2,560,012 2,154,711
141,463 95,211
674,631 232,952 160,209

$

-18,416,750

$

10,130,649

-786,778

13,340,652

$

22,684,523

$

-2,586,430

-483,790

-1,582,933

$

-4,653,153

$

146,007

$

-239,373

12,457,165

$

12,217,792

$

-21,108,098

2,620,131
513,517 -16,104
-4,593 528,327 -1,011,755
41,707 20,118

$

-18,416,750

$

246,947

$

1,427,130

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Note 1: Summary of Significant Accounting Policies
Nature of Operations Gordon State College serves the state and national communities by providing its students with academic instruction that advances fundamental knowledge, and by disseminating knowledge to the people of Georgia and throughout the country.
Reporting Entity Gordon State College is one of thirty-five (35) State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of Gordon State College 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. Gordon State College does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Gordon State College 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 15 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 College's assets, liabilities, net assets, revenues, expenses, changes in net assets and cash flows.
Change in Application of Accounting Principle During fiscal year 2012, Gordon State College changed its method of accounting for summer school revenues and expenses to more accurately reflect periodic results of operations between fiscal years. Beginning net assets were not restated due to lack of materiality and time and effort considerations. Therefore, the effects of the change are prospectively applied reflecting a net increase of revenues over expenses of $159,846 in fiscal year 2012.
Generally Accepted Accounting Principles (GAAP) require that the reporting of summer school revenues and expenses be between fiscal years rather than one fiscal year. For fiscal year 2012, the calculation used to determine this split was based on a hybrid method utilizing the academic calendar of days taught, as well as credit hours. For consistency and transparency, this will be the basis used for this calculation by Gordon State College.

- 6 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Basis of Accounting For financial reporting purposes, the College is considered a special-purpose government engaged only in business-type activities. Accordingly, the College's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the preceding paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-College transactions have been eliminated.
The College has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The College has elected to not apply FASB pronouncements issued after the applicable date.
Cash and Cash Equivalents Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the State Investment Pool and the Board of Regents Short-Term Investment Pool.
Accounts Receivable Accounts receivable consists of tuition and fees charged to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Georgia. Accounts receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the College'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 are valued at cost using the "first in, first out" (FIFO) basis.
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 College's capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000 and/or significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation, which also includes amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, and copyrights, as well as software is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) an organization that is external to the System. 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. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged.

- 7 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

For projects managed by GSFIC, the GSFIC retains construction in progress on its books throughout the construction period and transfers the entire project to the College when complete. For projects managed by the College, the College retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2012, GSFIC transferred capital additions totaling $1,427,130 to Gordon State College.
Deposits Deposits represent good faith deposits from students to reserve housing assignments in a College residence hall.
Deferred Revenues Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned.
Compensated Absences Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as compensated absences in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Assets. Gordon State College had accrued liability for compensated absences in the amount of $563,143 as of July 1, 2011. For fiscal year 2012, $478,035 was earned in compensated absences and employees were paid $457,918, for a net increase of $20,117. The ending balance as of June 30, 2012, in accrued liability for compensated absences was $583,260.
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 Assets The College's net assets are classified as follows:
Invested in capital assets, net of related debt: This represents the College's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. 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.
Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the College, 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 $9,115.07. 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.

- 8 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Unrestricted Net Assets includes the following items which are quasi-restricted by management.

R & R Reserve Reserve for Encumbrances Other Unrestricted

$

3,120,686

1,938,893

6,022,508

Total Unrestricted Net Assets

$

11,082,087

When an expense is incurred that can be paid using either restricted or unrestricted resources, the College's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources.

Income Taxes Gordon State College, 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 Assets classify fiscal year activity as operating and nonoperating according to the following criteria:

Operating Revenues: Operating revenue includes activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) certain Federal, state and local grants and contracts, and (3) sales and services.

Nonoperating Revenues: Nonoperating revenue includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenue by GASB No. 9, Reporting Cash Flows of Proprietary and 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 Expenses: Nonoperating expense includes activities that have the characteristics of nonexchange transactions, such as capital financing costs and costs related to investment activity.

Scholarship Allowances Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net Assets. Scholarship allowances are the difference between the stated charge for goods and services provided by the College, 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 College's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the College has recorded contra revenue for scholarship allowances.

- 9 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Restatement of Prior Year Net Assets For fiscal year 2012, the College made a prior period adjustment due to an error or omission. The result is an increase in Net Assets at July 1, 2011, of $41,340. This change is in accordance with generally accepted accounting principles.

Net Assets, July 1, 2011, as Previously Reported Increase Equipment Beginning Balance

$

52,082,608

41,340

Net Assets, July 1, 2011, as Restated Note 2: Deposits and Investments

$

52,123,948

Deposits The custodial credit risk for deposits is the risk that in the event of a bank failure, the College's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the College) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:

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

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

3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.

4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.

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

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

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, 2012, the carrying value of deposits was $5,138,850 and the bank balance was $5,222,167. Of the College's deposits, $4,972,167 were uninsured. Of these uninsured deposits, $4,972,167 were collateralized with securities held by the financial institution's trust department or agent in the College's name.

- 10 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Investments At June 30, 2012, the carrying value of the College's investments were $7,076,492, which is materially the same as fair value. These investments were comprised entirely of funds invested in the Board of Regents Short-Term Fund as follows:

Investment Pools Board of Regents Short-Term Fund

$

7,076,492

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.

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 College does not have a formal policy for managing interest rate risk.

The Effective Duration of the Short-Term Fund is 0.48 years. Of the College's total investment of $7,076,492 in the Short-Term Fund, $6,488,507 is invested in debt securities.

Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The College does not have a formal policy for managing credit quality risk.

Note 3: Accounts Receivable

Accounts receivable consisted of the following at June 30, 2012:

Student Tuition and Fees

$

Auxiliary Enterprises and Other Operating Activities

Federal Financial Assistance

Due from Affiliated Organizations

Other

102,263 210,318
75,557 330
1,181,987

Less Allowance for Doubtful Accounts

$

1,570,455

157,660

Net Accounts Receivable

$

Note 4: Inventories

Inventories consisted of the following at June 30, 2012:

1,412,795

Bookstore

$

438,329

- 11 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Note 5: Capital Assets Following are the changes in capital assets for the year ended June 30, 2012:

Beginning Balance July 1, 2011 (Restated)

Additions

Reductions

Ending Balance June 30, 2012

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

$

2,281,843

$

2,281,843

456,622 $

2,206,702 $

2,663,324

0

Total Capital Assets, Not Being Depreciated $

2,738,465 $

2,206,702 $

2,663,324 $

2,281,843

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

$

1,400,297

50,890,820 $

1,256,008

5,237,345

35,277,503

2,510,403

4,090,454 335,731 $ 43,997

$
41,768 2,744

1,400,297 54,981,274
1,256,008 5,531,308 35,277,503 2,551,656

Total Assets Being Depreciated

$

96,572,376 $

4,470,182 $

44,512 $ 100,998,046

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

$

676,343 $

12,541,051

549,927

3,491,526

5,605,630

2,118,422

50,412 830,949
39,677 337,289 $ 1,285,165
76,639

$
41,768 2,744

726,755 13,372,000
589,604 3,787,047 6,890,795 2,192,317

Total Accumulated Depreciation

$

24,982,899 $

2,620,131 $

44,512 $

27,558,518

Total Capital Assets, Being Depreciated, Net $

71,589,477 $

1,850,051 $

0$

73,439,528

Capital Assets, Net

$

74,327,942 $

4,056,753 $

2,663,324 $

75,721,371

- 12 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Note 6: Deferred Revenue Deferred revenue consisted of the following at June 30, 2012:

Prepaid Tuition and Fees Other Deferred Revenue

$

368,982

36,792

Total Deferred Revenue Note 7: Long-Term Liabilities

$

405,774

Long-Term liability activity for the year ended June 30, 2012, was as follows:

Beginning Balance July 1, 2011

Additions

Reductions

Ending Balance June 30, 2012

Current Portion

Leases Lease Obligations

$ 33,469,432

$

483,790 $ 32,985,642 $

538,707

Other Liabilities Compensated Absences

563,143 $

478,035

457,918

583,260

407,815

Total Long-Term Obligations

$ 34,032,575 $

Note 8: Significant Commitments

478,035 $

941,708 $ 33,568,902 $

946,522

The College had no significant unearned, outstanding, construction or renovation contracts executed that are not reflected in the accompanying basic financial statements.

Note 9: Lease Obligations

Gordon State College 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 2031 and 2038. Expenditures for fiscal year 2012 were

$2,066,723 of which $1,582,933 represented interest paid. Total principal paid on capital leases

was $483,790 for the fiscal year ended June 30, 2012. Interest rates range from 4.708 percent to 4.830 percent. The following is a summary of the carrying values of assets held under capital lease

at June 30, 2012:

Outstanding

Net Assets Held

Balances

Under Capital

per Lease

Accumulated

Lease at

Schedules at

Description

Gross Amount

Depreciation

June 30, 2012

June 30, 2012

(+)

(-)

(=)

Buildings

$

35,277,503 $

6,890,795 $ 28,386,708 $ 32,985,642

- 13 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

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.
Gordon State College had two capital leases with related entities in the current fiscal year. In August 2005, Gordon State College entered into a capital lease of $16,387,313 at 4.83 percent with the Gordon State College Properties Foundation, LLC a discretely presented component unit, whereby the College leases a building for a twenty-five year period that began August 2005 and expires June 2031. In August 1, 2008, Gordon State College entered into a capital lease of $18,890,190 at 4.708 percent with the Gordon State College Properties Foundation II, LLC, whereby the College leases a building for a thirty year period that began August 2009 and expires May 2038. The outstanding liability at June 30, 2012, on these capital leases is $13,907,053 and $19,078,589, respectively.
FUTURE COMMITMENTS
Future commitments for capital leases (which here and on the Statement of Net Assets include other installment purchase agreements) having remaining terms in excess of one year as of June 30, 2012, were as follows:

Real Property and
Equipment Capital Leases

Year Ending June 30: 2013 2014 2015 2016 2017 2018 - 2022 2023 - 2027 2028 - 2032 2033 - 2037 2038

$

2,097,399

2,126,706

2,156,673

2,186,111

2,218,553

11,485,884

12,407,494

11,251,499

8,874,880

1,937,738

Total Minimum Lease Payments

$ 56,742,937

Less: Interest

23,757,295

Principal Outstanding
Note 10: Retirement Plans

$ 32,985,642

Gordon State College 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

- 14 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

retirement plans that Gordon State College 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 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.

- 15 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

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, Gordon State College pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these Gordon State College 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. Gordon State College 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 Gordon State College contributions are not at any time refundable to the member or his/her beneficiary.
Employer contributions required for fiscal year 2012 were based on the June 30, 2009 actuarial valuation follows:

Old Plan* New Plan GSEPS

11.63% 11.63%
7.42%

* 6.88% 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.
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

- 16 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

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. 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, 2012, were 5.53% of annual salary. Employer contributions required for fiscal year 2012 were 10.28% of annual salary as required by the June 30, 2009 actuarial valuation.
The following table summarizes the Gordon State College contributions by defined benefit plan for the years ending June 30, 2012, June 30, 2011, and June 30, 2010 (dollars in thousands):

Fiscal Year

ERS

Required

Percentage

Contribution

Contributed

TRS

Required

Percentage

Contribution

Contributed

2012

$

2011

$

2010

$

Regents Retirement Plan

4,609 9,799 13,747

100% $ 100% $ 100% $

965,465 903,932 799,100

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 Gordon State College 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 2012, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 5% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.

Gordon State College and the covered employees made the required contributions of $356,571 (9.24%) and $192,950 (5%), respectively.

- 17 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.
Georgia Defined Contribution Plan
Plan Description Gordon State College participates in the Georgia Defined Contribution Plan (GDCP) which is a singleemployer 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 2012 amounted to $64,186 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.
Note 11: Risk Management
The University System of Georgia offers its employees and retirees access to three different selfinsured healthcare plan options. Effective January 1, 2012, The Blue Cross Blue Shield of Georgia PPO and HDHP plan names were changed to BCBS Open Access PPO and HAS/HDHP Open Access POS, respectively; both plans will use the Blue Cross Blue Shield Open Access POS network. Also effective January 1, 2012, the Consumer Choice Option was eliminated and the Blue Cross Blue Shield of Georgia HMO and the Kaiser Permanente HMO were frozen for new enrollment for active employees only; the Senior Advantage Plan 65+ remained open for new enrollment.
Gordon State College and participating employees and retirees pay premiums to either of the selfinsured 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

- 18 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Georgia, a wholly owned subsidiary of WellPoint, to serve as the claims administrator for the selfinsured 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.
The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. Gordon State College, 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 12: Contingencies
Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditure disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Gordon State College expects such amounts, if any, to be immaterial to its overall financial position.
Litigation, claims and assessments filed against Gordon State College (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, 2012.
Note 13: 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 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.

- 19 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

The Board of Regents Retiree Health Benefit Plan is a single employer defined benefit plan. Financial statements and required supplementary information for the Plan are included in the publicly available Consolidated Annual Financial Report of the University System of Georgia. The 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 2012 plan year, the employer rate was between 70-75% of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%.
As of June 30, 2012, there were 47 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2012, Gordon State College recognized as incurred $242,432 of expenditures, which was net of $96,547 of participant contributions.
Note 14: Natural Classifications with Functional Classifications
The College's operating expenses by functional classification for fiscal year 2012 are shown below:

Functional Classification

Natural Classification

Instruction

Academic Support

Student Services

Institutional Support

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

$

8,543,116 $

365,275 $

409 $

6,000

855,236

612,612

1,301,428

1,246,937

2,215,919

251,242

360,068

682,416

57,717

20,491

47,096

37,390

5,900

27,998

5,804

11,091

27,681

741,668

267,804

408,378

1,374,420

175,325

116,054

7,290

835,602

Total Operating Expenses

$

12,616,979 $ 1,639,282 $

2,141,660 $ 4,210,446

Natural Classification

Plant Operations and
Maintenance

Functional Classification

Scholarships

and

Auxiliary

Fellowships

Enterprises

Total Operating Expenses

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

$

13,965 $ 8,928,765

$

1,605,481

996,296

6,617,990

485,818

275,913

4,271,376

8,101

24,802

195,597

$ 5,476,810

310,109

5,792,819

1,047,071

547,578

1,667,223

1,035,813

5,513,355

9,341,438

84,029

1,401,831

2,620,131

Total Operating Expenses

$

4,266,313 $ 5,476,810 $

9,083,849 $ 39,435,339

- 20 -

GORDON STATE COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "D"

Note 15: Affiliated Organizations
In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment of GASB Statement No. 14, The Reporting Entity which became effective for the year ended June 30, 2004, Gordon State College Foundation, Gordon State College Properties Foundation, LLC, and Gordon State College Properties Foundation II, LLC are legally separate tax exempt organizations whose activities primarily support Gordon State College, a unit of the University System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office determined Component Units of the State of Georgia, as required by GASB Statement No. 39 should not be assessed in relation to their significance to Gordon State College, but instead based on their significance to the State of Georgia.
Therefore, the financial statements of these affiliated organizations are not included in these financial statements. Copies of the financial statements for the affiliated organizations may be obtained from Gordon State College.

- 21 -

(This page left intentionally blank)

SUPPLEMENTARY INFORMATION - 23 -

GORDON STATE COLLEGE BALANCE SHEET (NON-GAAP BASIS)
BUDGET FUND JUNE 30, 2012
ASSETS
Cash and Cash Equivalents Accounts Receivable
Federal Financial Assistance Other Prepaid Expenditures
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Deferred Revenue Other Liabilities
Total Liabilities
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Uncollectible Accounts Receivable Tuition Carry-Over Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

$

2,943,631.66

75,556.64 255,267.63
14,033.48

$

3,288,489.41

$

46,140.79

1,708,909.96

430,675.18

342,260.59

61,577.84

$

2,589,564.36

$

115,975.49

17,332.00

203,978.96

66,576.74

285,946.79

9,115.07

$

698,925.05

$

3,288,489.41

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 24 -

GORDON STATE COLLEGE SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)
BUDGET FUND YEAR ENDED JUNE 30, 2012

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, 2011
Prior Year Reserved Fund Balance Included in Funds Available
FUND BALANCE JUNE 30

BUDGET

ACTUAL

VARIANCE FAVORABLE (UNFAVORABLE)

$

10,142,602.00 $

10,142,602.00 $

26,960,725.00

26,123,863.03

$

37,103,327.00 $

36,266,465.03 $

0.00

189,067.00

0.00 -836,861.97
-836,861.97
189,067.00

0.00

808,214.14

$

37,103,327.00 $

37,263,746.17 $

808,214.14 160,419.17

$

37,103,327.00 $

36,619,396.43 $

$

0.00 $

644,349.74 $

483,930.57 644,349.74

862,290.81 11,952.60

498.64

-11,952.60 -808,214.14

$

698,925.05

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

$

115,975.49

17,332.00

203,978.96

66,576.74

285,946.79

$

689,809.98

9,115.07

Total Fund Balance

$

698,925.05

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 25 -

GORDON STATE COLLEGE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2012

Teaching State Appropriation State General Funds Other Funds
Total Teaching

Original Appropriation

Amended Appropriation

Final Budget

Current Year Revenues

$ 10,349,594.00 $ 10,349,594.00 $ 10,142,602.00 $ 10,142,602.00

28,134,425.00

28,134,425.00

26,960,725.00

26,123,863.03

$ 38,484,019.00 $ 38,484,019.00 $ 37,103,327.00 $ 36,266,465.03

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 26 -

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 $

808,214.14

3,881.49 $ 10,146,483.49 $ 185,185.51 27,117,262.68

3,881.49 $ 10,146,483.49 $ 156,537.68 26,472,912.94

-3,881.49 $ 487,812.06

0.00 644,349.74

$ 808,214.14 $

189,067.00 $ 37,263,746.17 $

160,419.17 $ 36,619,396.43 $

483,930.57 $

644,349.74

- 27 -

GORDON STATE COLLEGE STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2012

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

Beginning Fund Balance/(Deficit)
July 1

Fund Balance Carried Over from
Prior Period as Funds Available

Return of Fiscal Year 2011
Surplus

Prior Period Adjustments

$

11,952.60 $

808,214.14

$

820,166.74 $

0.00 $ -808,214.14
-808,214.14 $

-11,952.60 $ 0.00

8,846.53 -8,347.89

-11,952.60 $

498.64

54,076.67

0.00

0.00

0.00

Budget Unit Totals

$

874,243.41 $

-808,214.14 $

-11,952.60 $

498.64

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 28 -

SCHEDULE "4"

Other Adjustments

Early Return Fiscal Year 2012
Surplus

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

Ending Fund Balance/(Deficit)
June 30

Analysis of Ending Fund Balance

Reserved

Surplus/(Deficit)

Total

$

0.00 $

-12,500.07

$ -12,500.07 $

12,500.07

$

0.00 $

0.00 $ 0.00
0.00 $

0.00 $ 644,349.74
644,349.74 $

8,846.53 $

0.00 $

623,501.78 623,233.24

632,348.31 $ 623,233.24 $

8,846.53 $ 268.54
9,115.07 $

8,846.53 623,501.78
632,348.31

0.00

0.00

66,576.74

66,576.74

0.00

66,576.74

0.00 $

644,349.74 $

698,925.05 $ 689,809.98 $

9,115.07 $ 698,925.05

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

$ 115,975.49 17,332.00
203,978.96 66,576.74
285,946.79
$
$ 689,809.98 $

$
9,115.07 9,115.07 $

115,975.49 17,332.00
203,978.96 66,576.74
285,946.79
9,115.07
698,925.05

- 29 -

GORDON STATE COLLEGE BUDGET TO GAAP RECONCILIATION
JUNE 30, 2012
Total Fund Balances - Budget Fund - Non-GAAP Basis (Schedule "1")
Amounts reported for Business-Type Activities in the Statement of Net Assets 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 Assets.
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
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 Assets. Payables reported in the Budget Fund that are based on encumbrances are eliminated 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. Capital Leases Payable Compensated Absences Payable Total Liabilities
Net Assets of Business-Type Activities (Exhibit "A")

SCHEDULE "5"

$

698,925.05

75,721,371.00

$ 1,183,589.70 -1,183,589.70

$ 9,698,950.90 -343,764.50

$

146,646.47

-14,071.14

-66,576.74 0.00
9,355,186.40 132,575.33

$ 1,708,909.96 -163,673.00

1,545,236.96

$ -32,985,642.00 -583,260.00

-33,568,902.00

$ 53,817,816.00

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 comprehensive basis of accounting other than generally accepted accounting principles. 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 Assets of business-type activities, as reported on Exhibit A.
- 30 -

GORDON STATE COLLEGE RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2012

SCHEDULE "6"

Totals per Annual Supplement
Accruals June 30, 2012 June 30, 2011
Compensated Absences June 30, 2012 June 30, 2011
Adjustments Shared Services on Jointly Staffed Personnel Atlanta Metropolitan State College Banks, S. Fuller, G. Perry-Stewart, M. Fort Valley State University Burell, B. Georgia College and State University Blick, J. Georgia Perimeter College Broome, D. Kennesaw State University Buchanan, T. Jackson, A. University of Georgia Calhoun, R. Johnson, B. Board of Regents' Central Office Nickel, S.
Unidentified Variance

SALARIES

$

15,652,123 $

TRAVEL 199,138

63,259 -46,592

541,811 -523,124

-2,400 -1,817
-969
-6,351
-4,521
-10,500
-2,400 -2,400
-10,000 -16,000
-94,000
10,636

$

15,546,755 $

-3,541 195,597

- 31 -

SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS

GORDON STATE COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

COMMUNICATION OF INTERNAL CONTROL DEFICIENCIES

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

A deficiency in internal 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 misstatements on a timely basis. A deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively.

A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of Gordon State College'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.

Any identified deficiencies in internal controls that we did not consider to be significant deficiencies and/or material weaknesses have been communicated to management and those charged with governance within a separate management letter dated November 12, 2012. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below:

ACCOUNTING CONTROLS (OVERALL) Logical Access Monitoring Inadequate Separation of Duties Significant Deficiency Finding Control Number: FS-576-12-01

Condition:

The College did not maintain adequate separation of duties involving key accounting functions and financial accounting systems.

Criteria:

Internal control is a process affected by an entity's board of directors, management and other personnel designed to provide reasonable assurance regarding the achievement of objectives in the following categories: (a) reliability of financial reporting, (b) effectiveness and efficiency of operations, and (c) compliance with applicable laws and regulations.

Management of the College is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are properly processed and reported. Separation of duties involving key accounting functions, both manual and automated, is the basis for achieving an adequate system of internal control.

- 1 -

GORDON STATE COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

ACCOUNTING CONTROLS (OVERALL) Logical Access Monitoring Inadequate Separation of Duties Significant Deficiency Finding Control Number: FS-576-12-01

Questioned Cost:

N/A

Information:

The following deficiencies were noted: 1. Users were noted with access to financial applications that was not required for their job role/responsibilities. 2. Separation of duties exceptions were identified in several key financial processes including journal entries, cash maintenance, auxiliary-bookstore, purchasing and P-cards.

Cause: Effect: Recommendation:

The College did not adequately separate the functions of initiating, authorizing, and recording transactions, and reconciliations. Compensating controls were either not adequately designed or not operating effectively. Additionally, the College did not limit financial accounting system application access to restrict conflicting job responsibilities. The College did not ensure that access to financial systems was appropriate based on job responsibility.
A lack of monitoring processes or recertification of access may potentially allow inappropriate access to financial systems to go undetected. Without satisfactory accounting policies and procedures requiring separation of duties and governing financial system access, the College could place itself in a position where potential misappropriation of assets, fraud, errors and/or irregularities could occur. In addition, the lack of controls could impact reporting of the College's financial position and results of operations.
Management should review the established internal control structure and revise or implement controls to ensure that proper separation of duties exists. Application access controls in the accounting information systems should complement the system of internal control by limiting an employee's access to only the accounting functions necessary for the performance of the employee's duties. In the case when management determines separation of duties is not cost beneficial, management should implement compensating controls that assist in assuring that financial transactions are properly processed and reported. A periodic review of financial system access should be implemented by management to determine that access continues to be appropriate based on job responsibility. Evidence of the review process should be maintained for a period of 18 months.

- 2 -

GORDON STATE COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINANCIAL REPORTING Inadequate Controls over Financial Statement Preparation Process Material Weakness Finding Control Number: FS-576-12-02

Condition:

The College's accounting procedures were insufficient to provide for adequate controls over the financial statement preparation process.

Criteria:

A system of internal control over financial reporting does not stop at the general ledger. Management is responsible for implementing a system of internal control over the preparation of financial statements prepared in accordance with generally accepted accounting principles (GAAP). Additionally, the College is required to annually submit GAAP basis financial statements for inclusion in the State of Georgia's Comprehensive Annual Financial Report (CAFR) and the State of Georgia's Single Audit Report.

Questioned Cost:

N/A

Information:

During the audit, the following deficiencies were noted in the College's GAAP basis financial statements:
1. The entity did not properly report Georgia State Financing and Investment Commission managed project J-139 on its financial records, resulting in an understatement of Capital Grants and Gifts State and an understatement of Buildings of $1,427,130. A material audit adjustment was proposed and accepted to correct the error.
2. Both Accounts Receivable and Accounts Payable were overstated by $241,907 due to an error made with the year end journal entry posted to reclassify debit accounts payable as accounts receivable.
3. Significant reclassification adjustments were proposed and posted to the Statement of Cash Flows.

Cause:

The College's management failed to adequately review the year-end financial statements to ensure that the statements as presented for audit were accurate and properly supported by underlying accounting records.

Effect:

Significant and material misstatements were included in the financial statements presented for audit. In addition, the lack of controls and monitoring could impact the reporting of the College's financial position and results of operations.

Recommendation:

The College should review the accounting controls and procedures currently in place, identify weaknesses, and design and implement procedures necessary to strengthen controls over the preparation of the financial statements.

- 3 -

GORDON STATE COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

SPECIAL TESTS AND PROVISIONS Deficiencies Over the Title IV Refund Process Significant Deficiency U. S. Department of Education Student Financial Assistance Cluster Program Finding Control Number: FA-576-12-01

Condition:

The Student Financial Assistance Office (SFA) failed to ensure unearned Title IV funds were returned in a timely manner.

Criteria:

Provisions included in 34 CFR 668 provide general provisions for administering Student Financial Assistance programs. 34 CFR 668.22(j)(1) states that "An institution must return the amount of Title IV funds...as soon as possible but no later than 45 days after the date of the institution's determination that the student withdrew."

Questioned Cost:

N/A

Information:

Five students were identified in a sample of seventeen students that withdrew from the College that received Federal awards during the year whose refunds were not processed timely.

Cause:

These deficiencies were the result of management's failure to properly process student financial assistance refunds in accordance with Federal regulations.

Effect:

The Student Financial Assistance Office did not return unearned funds in a timely manner.

Recommendation:

The College should develop and implement procedures to ensure that student financial assistance refunds are properly calculated and that unearned funds are correctly returned to the appropriate accounts in a timely manner in accordance with the Higher Education Amendments 1998, Public Law 105-244. The College should also contact the U. S. Department of Education regarding resolution of this finding

SPECIAL TESTS AND PROVISIONS Exit Counseling not Conducted Significant Deficiency U. S. Department of Education Student Financial Assistance Cluster Program Finding Control Number: FA-576-12-02

Condition:

The Student Financial Assistance office failed to ensure exit counseling took place and was properly documented.

- 4 -

GORDON STATE COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

SPECIAL TESTS AND PROVISIONS Exit Counseling not Conducted Significant Deficiency U. S. Department of Education Student Financial Assistance Cluster Program Finding Control Number: FA-576-12-02

Criteria:

Federal regulation (34 CFR 685.304) requires institutions to conduct exit counseling with each Direct Loan borrower shortly before the student ceases at least half-time study at the institution. Documentation of the required counseling should be maintained in the student's financial assistance file.

Questioned Cost:

N/A

Information:

A sample of twenty-five financial assistance files revealed that two Direct Loan recipients' files that did not contain the required exit counseling documentation.

Cause:

The College's Student Financial Assistance Office had not maintained exit counseling documentation for all students that withdrew from school without the school's prior knowledge.

Effect:

The College was not in compliance with Federal regulations concerning the exit counseling shortly before the student borrower ceases at least half-time time study at the institution.

Recommendation:

The College should implement the necessary controls to ensure that each recipient receives the required counseling and that this counseling is documented in the student's file. Additionally, the College should develop and implement a monitoring process to ensure that controls are properly implemented.

- 5 -