GORDON STATE COLLEGE BARNESVILLE, GEORGIA MANAGEMENT REPORT FOR FISCAL YEAR ENDED JUNE 30, 2016 A Member Institution of the University System of Georgia GORDON STATE COLLEGE - TABLE OF CONTENTS - SECTION I FINANCIAL LETTER OF TRANSMITTAL SELECTED FINANCIAL INFORMATION EXHIBITS A STATEMENT OF NET POSITION - (GAAP BASIS) B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION (GAAP BASIS) C STATEMENT OF CASH FLOWS - (GAAP BASIS) D SELECTED FINANCIAL NOTES SUPPLEMENTARY INFORMATION SCHEDULES 1 BALANCE SHEET - (STATUTORY BASIS) BUDGET FUND 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (STATUTORY BASIS) BUDGET FUND 3 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND 4 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND Page 2 3 4 5 25 26 28 30 SECTION II ENTITY'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION III FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS (This page left intentionally blank) SECTION I FINANCIAL (This page left intentionally blank) 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 4, 2016 Kristina A Turner DIRECTOR (404) 656-2174 Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the State Board of Regents of the University System of Georgia and Dr. Max Burns, President Gordon State College Ladies and Gentlemen: This Management Report contains information pertinent to the Gordon State College's compliance with the requirements of the Southern Association of Colleges and Schools Commission on Colleges (COC) Core Requirement 2.11.1 (Financial resources) as of and for the year ended June 30, 2016. Included in this report is a section on findings and other items for any matters that came to our attention during our engagement. The other information contained in this report is the representation of management. Accordingly, we do not express an opinion or any form of assurance on it. Additionally, we have performed certain procedures at Gordon State College to support our audits of the basic financial statements of the State of Georgia presented in the State of Georgia Comprehensive Annual Financial Report and the issuance of a State of Georgia Single Audit Report pursuant to the Single Audit Act Amendments, as of and for the year ended June 30, 2016. This report is intended solely for the information and use of the management of Gordon State College, members of the Board of Regents of the University System of Georgia and the Southern Association of Colleges and Schools - Commission on Colleges and is not intended to be and should not be used by anyone other than these specified parties. Respectfully, GSG:es Greg S. Griffin State Auditor (This page left intentionally blank) SELECTED FINANCIAL INFORMATION - 1 - GORDON STATE COLLEGE STATEMENT OF NET POSITION - (GAAP BASIS) JUNE 30, 2016 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable, Net Receivables - Federal Financial Assistance Receivables - Other Due from Affiliated Organizations Inventories Prepaid Items Total Current Assets Noncurrent Assets Due from USO - Capital Liability Reserve Fund Capital Assets, Net Total Noncurrent Assets Total Assets Deferred Outflows of Resources Deferred Loss on Debt Refunding LIABILITIES Current Liabilities Accounts Payable Salaries Payable Contracts Payable Retainages Payable Deposits Advances (Including Tuition and Fees) Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences Total Current Liabilities Noncurrent Liabilities Lease Purchase Obligations Compensated Absences Net Pension Liability Total Noncurrent Liabilities Total Liabilities Deferred Inflows of Resources Deferred Gain on Defined Benefit Pension Plan Deferred Grants Received in Advance of Timing Total Deferred Inflows of Resources NET POSITION Net Investment in Capital Assets Unrestricted Total Net Position - 2 - EXHIBIT "A" $ 11,934,530 155,101 456,307 9,880 330,251 138,956 13,025,025 355,149 86,827,847 87,182,996 100,208,021 1,484,252 988,432 102,963 4,355 63,148 259,125 289,573 456,646 993,274 436,234 3,593,750 41,703,329 275,371 14,405,781 56,384,481 59,978,231 1,782,470 922,186 2,704,656 44,063,741 -5,054,355 $ 39,009,386 GORDON STATE COLLEGE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION - (GAAP BASIS) YEAR ENDED JUNE 30, 2016 EXHIBIT "B" OPERATING REVENUES Student Tuition and Fees (Net) Grants and Contracts Federal State Other 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 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 Revenues (Expenses) Net Nonoperating Revenues Loss Before Other Revenues, Expenses, Gains, or Losses Capital Grants and Gifts State Other Total Other Revenues, Expenses, Gains or Losses, and Special Item Increase in Net Position Net Position - Beginning of Year Net Position - End of Year $ 6,625,364 98,622 121,183 8,400 132,541 42,713 5,473,003 2,115,468 2,724,765 104,436 69,899 569,369 62,071 172,417 18,320,251 8,888,249 7,004,577 4,531,438 110 199,094 4,022,748 1,889,033 9,853,194 3,020,163 39,408,606 -21,088,355 11,980,705 10,216,461 75,950 36,870 -2,088,994 244,303 20,465,295 -623,060 4,463,546 150,000 4,613,546 3,990,486 35,018,900 $ 39,009,386 - 3 - GORDON STATE COLLEGE STATEMENT OF CASH FLOWS - (GAAP BASIS) YEAR ENDED JUNE 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES Payments from Customers Grants and Contracts (Exchange) Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Other Receipts (Payments) Net Cash Used by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Other Noncapital Financing Receipts Net Cash Flows Provided 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 Used by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Investment Income Net Increase in Cash Cash and Cash Equivalents - Beginning of Year Cash and Cash Equivalents - End of Year EXHIBIT "C" $ 18,155,566 524,186 -16,810,242 -16,059,839 -4,022,749 -195 -18,213,273 11,980,705 -197,760 10,287,849 278,401 22,349,195 4,463,546 -4,203,143 -914,582 -2,088,994 -2,743,173 36,870 1,429,619 10,504,911 $ 11,934,530 - 4 - GORDON STATE COLLEGE STATEMENT OF CASH FLOWS - (GAAP BASIS) YEAR ENDED JUNE 30, 2016 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH USED BY OPERATING ACTIVITIES: Operating Income (Loss) Adjustments to Reconcile Operating Income (Loss) to Net Cash Used by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, Net Inventories Prepaid Items Accounts Payable Salaries Payable Deposits Advances (Including Tuition and Fees) Funds Held for Others Compensated Absences Net Pension Liability Change in Deferred Inflows/Outflows of Resources: Deferred Inflows of Resources Deferred Outflows of Resources Net Cash Used by Operating Activities NONCASH ACTIVITY Loss on Disposal of Capital Assets Adjustments to Capital Asset Beginning Balance Ran Through Current Year Activity Accrual of Capital Asset Related Payables Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts EXHIBIT "C" $ -21,088,355 3,020,163 564,752 118,104 -25,919 73,889 27,149 32,500 -257,657 -196 4,931 2,463,758 -2,374,098 -772,294 $ -18,213,273 $ 226,653 $ 342,556 $ -67,503 $ 150,000 - 5 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY As defined by Official Code of Georgia Annotated (O.C.G.A) 20-3-50, Gordon State College (the Institution) is part of the University System of Georgia (USG), an organizational unit of the State of Georgia (the State) under the governance of the Board of Regents (Board). The Board has constitutional authority to govern, control and manage the USG. The Board is composed of 19 members, one member from each congressional district in the State and five additional members from the state-at-large, appointed by the Governor and confirmed by the Senate. Members of the Board serve a seven year term and members may be reappointed to subsequent terms by a sitting governor. The Institution does not have the right to sue/be sued without recourse to the State. The Institution's property is the property of the State and subject to all the limitations and restrictions imposed upon other property of the State by the Constitution and laws of the State. In addition, the Institution is not legally separate from the State. Accordingly, the Institution is included within the State's basic financial statements as part of the primary government as defined in section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards. The accompanying basic financial statements are intended to supplement the State's Comprehensive Annual Financial Report (CAFR) by presenting the financial position and changes in financial position and cash flows of only that portion of the business-type activities of the State that is attributable to the transactions of the Institution. They do not purport to, and do not, present fairly the financial position of the State as of June 30, 2016, 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. The accompanying basic financial statements should be read in conjunction with the State's CAFR. The State's CAFR as of and for the year ended June 30, 2016 has not been issued as of the release of this report. The most recent State of Georgia CAFR can be obtained through the State Accounting Office, 200 Piedmont Avenue, Suite 1604 (West Tower), Atlanta, Georgia 30334 or found at https://sao.georgia.gov/comprehensive-annual-financial-reports. BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PREPARATION 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 Institution's assets, deferred outflows, liabilities, deferred inflows, net position, revenues, expenses, changes in net position and cash flows. The Institution's business-type activities 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. Grants and similar items are recognized as revenues in the fiscal year in which eligibility requirements imposed by the provider have been met. All significant intra-Institution transactions have been eliminated. - 6 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" NEW ACCOUNTING PRONOUNCEMENTS For fiscal year 2016, the Institution adopted Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The adoption of this Statement does not have a significant impact on the Institution's financial statements. For fiscal year 2016, the Institution adopted GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That are not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. The adoption of this Statement does not have a significant impact on the Institution's financial statements. For fiscal year 2016, the Institution adopted GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to identify--in the context of the current governmental financial reporting environment--the hierarchy of GAAP. The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non-authoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The adoption of this Statement does not have a significant impact on the Institution's financial statements. For fiscal year 2016, the Institution adopted GASB Statement No. 79, Certain External Investment Pools and Pool Participants. This Statement addresses accounting and financial reporting for certain external investment pools and pool participants. The adoption of this Statement does not have a significant impact on the Institution's financial statements. DUE FROM USO - CAPITAL LIABILITY RESERVE FUND The Capital Liability Reserve Fund (Fund) was established by the Board of Regents to protect the fiscal integrity of the USG to maintain the strongest possible credit ratings associated with Public Private Venture (PPV) projects and to ensure that the Board of Regents can effectively support its long-term capital lease obligations. The Fund is financed by all USG institutions participating in the PPV program. The Fund serves as a pooled reserve that is managed by the University System Office. The Fund shall only be used to address significant shortfalls and only insofar as a requesting USG institution is unable to make the required PPV capital lease payment to the designated cooperative organization. The Fund will continue as long as the USG has rental obligations under the PPV program. At the conclusion of the Institution's participation in the program, funds will be returned to the Institution. The balance included on the Institution's Statement of Net Position represents the Institution's contribution to the Fund. - 7 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" NET POSITION The Institution's net position is classified as follows: Net Investment in Capital Assets: This represents the Institution's total investment in capital assets, net of accumulated amortization/depreciation and reduced by outstanding debt obligations related to those capital assets. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction or improvement of capital assets or related debt are included in Net Investment in Capital Assets. If there are significant unspent related debt proceeds or deferred inflows of resources at the end of the reporting period, the portion of the debt or deferred inflows of resources attributable to the unspent amount are not included in Net Investment in Capital Assets. Restricted non-expendable 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. For Institution-controlled, donorrestricted endowments, the by-laws of the Board of Regents of the University System of Georgia permits each individual Institution to use prudent judgment in the spending of current realized and unrealized endowment appreciation. Donor-restricted endowment appreciation is periodically transferred to restricted-expendable accounts for expenditure as specified by the purpose of the endowment. The Institution maintains pertinent information related to each endowment fund including donor; amount and date of donation; restrictions by the source of limitations; limitations on investments, etc. Restricted - expendable includes resources in which the Institution is legally or contractually obligated to spend resources in accordance with restrictions by external third parties. 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 Institution, and may be used at the discretion of the Institution to meet current expenses for those purposes, except for unexpended state appropriations (surplus) in the amount of $0.00. Unexpended state appropriations must be refunded to the Office of the State Treasurer. Unrestricted Net Position also includes resources specifically designated by management, such as: Auxiliary Enterprises Operations These resources are used for the continued operation of auxiliary enterprise activities, which are substantially self-supporting business operations conducted on campuses that provide services to students, faculty, and staff. Auxiliary Enterprises Renewals and Replacement (R&R) Reserve These resources can be used for renewals and replacement of capitalizable assets related to auxiliary services. This R&R reserve can also be used for major renovations and rehabilitations auxiliary projects that do not meet the capitalization threshold. - 8 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" SCHOLARSHIP ALLOWANCES Scholarship allowances are the differences between the stated charge for goods and services provided by the Institution, 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 non-governmental programs are recorded as either operating or non-operating revenues in the Institution's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the Institution has recorded contra revenue for scholarship allowances. Sponsored and Unsponsored Scholarship Allowances totaled $6,327,140 for the year ending June 30, 2016. NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the Institution's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the Institution) 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, 2016, the carrying value of deposits was $7,202,448 and the bank balance was $7,552,085. Of the Institution's deposits, $7,302,085 were uninsured. Of these uninsured deposits, $7,302,085 were collateralized with securities held by the financial institution's trust department or agent in the Institution's name. - 9 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" INVESTMENTS At June 30, 2016, the carrying value of the Institution's investments was $4,730,023, which is materially the same as fair value. These investments were comprised entirely of funds invested in the Board of Regents investment pool as follows: Investment Type Investment Pool Board of Regents Short-Term Fund Value $ 4,730,023 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 and Accounts Education Audit Division or on their web site at http://www.audits.ga.gov. NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2016: Student Tuition and Fees $ Auxiliary Enterprises and Other Operating Activities Federal Financial Assistance Georgia State Financing and Investment Commission Due from Affiliated Organizations Due from Other USG Institutions Other 59,017 359,417 155,101 14,936 9,880 355,149 310,352 Less Allowance for Doubtful Accounts 1,263,852 287,415 Net Accounts Receivable $ 976,437 - 10 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" NOTE 4: CAPITAL ASSETS Following are the changes in capital assets for the year ended June 30, 2016: Beginning Balance July 1, 2015 Capital Leases Recategorization Additions Reductions Ending Balance June 30, 2016 Capital Assets, Not Being Depreciated: Land Construction Work-In-Progress $ 2,281,843 231,152 $ $ 2,281,843 0$ 0 $ 231,152 0 Total Capital Assets, Not Being Depreciated Capital Assets, Being Depreciated: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections Capitalized Collections Total Assets Being Depreciated 2,512,995 1,400,297 58,270,212 2,626,262 6,863,345 47,379,538 2,620,139 239,140 119,398,933 0 0 231,152 2,281,843 47,379,538 4,596,839 -47,379,538 0 202,765 21,500 23,250 4,844,354 1,463,000 743,599 129,174 2,335,773 1,400,297 108,783,589 2,626,262 6,322,511 0 2,512,465 262,390 121,907,514 Less: Accumulated Depreciation: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections Capitalized Collections Total Accumulated Depreciation 877,986 17,003,392 859,187 4,537,052 10,847,140 2,325,212 498 36,450,467 10,847,140 -10,847,140 0 50,411 2,364,229 86,828 465,651 46,436 6,608 3,020,163 1,231,592 789,010 88,518 2,109,120 928,397 28,983,169 946,015 4,213,693 0 2,283,130 7,106 37,361,510 Total Capital Assets, Being Depreciated, Net 82,948,466 Capital Assets, Net $ 85,461,461 $ 0 1,824,191 226,653 84,546,004 0 $ 1,824,191 $ 457,805 $ 86,827,847 - 11 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" A comparison of depreciation expense for the last three fiscal years is as follows: Fiscal Year Depreciation Expense 2016 2015 2014 $ 3,020,163 $ 3,233,868 $ 2,969,815 NOTE 5: ADVANCES (INCLUDING TUITION AND FEES) Advances (Including Tuitions and Fees) consisted of the following at June 30, 2016: Prepaid Tuition and Fees $ 289,573 NOTE 6: LONG-TERM LIABILITIES The Institution's Long-Term Liability activity for the year ended June 30, 2016 was as follows: Leases Lease Obligations Beginning Balance July 1, 2015 Additions Reductions Ending Balance June 30, 2016 Current Portion $ 43,611,185 $ 0$ 914,582 $ 42,696,603 $ 993,274 Other Liabilities Compensated Absences Net Pension Liability 706,673 11,942,023 344,379 2,463,758 339,447 711,605 14,405,781 436,234 Total 12,648,696 2,808,137 339,447 15,117,386 436,234 Total Long-Term Obligations $ 56,259,881 $ 2,808,137 $ 1,254,029 $ 57,813,989 $ 1,429,508 - 12 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" NOTE 7: NET POSITION Changes in Net Position for the year ended June 30, 2016 are as follows: Beginning Balance July 1, 2015 Additions Reductions Ending Balance June 30, 2016 Net Investments in Capital Assets $ 41,850,276 $ 5,460,281 $ 3,246,816 $ 44,063,741 Restricted Net Position 0 10,430,881 10,430,881 0 Unrestricted Net Position -6,831,376 35,057,205 33,280,184 -5,054,355 Total Net Position $ 35,018,900 $ 50,948,367 $ 46,957,881 $ 39,009,386 The amounts within each category at June 30, 2016 were as follows: Net Position Net Investments in Capital Assets Unrestricted R & R Reserve Reserve for Encumbrances Other Unrestricted $ 44,063,741 4,693,213 879,233 -10,626,801 Total Unrestricted Total Net Position -5,054,355 $ 39,009,386 NOTE 8: LEASE OBLIGATIONS The Institution is obligated under various operating leases for the use of equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of real property. - 13 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2031 and 2043. Expenditures for fiscal year 2016 were $3,003,576 of which $2,088,994 represented interest. Total principal paid on capital leases was $914,582 for the fiscal year ended June 30, 2016. Interest rates range from 4.71 percent to 5.18 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2016: Description Buildings - (PPV Only) Gross Amount Accumulated Depreciation Net Capital Assets Held Under Capital Lease at June 30, 2016 Outstanding Balance Per Lease Schedules at June 30, 2016 (+) (-) $ 47,379,538 $ 12,535,707 $ (=) 34,843,831 $ 42,696,603 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. The following capital lease schedule lists the pertinent information for each lease including the building name, lessor, total principal amount, lease term, lease begin date, lease end date, and remaining long-term debt as of June 30, 2016. CAPITAL LEASE SCHEDULE Description Gordon Commons Gordon Village SARC Total Leases Lessor (1) Gordon College Properties Foundation, LLC $ Gordon College Properties Foundation, LLC Gordon State College Foundation Inc. Original Principal 16,387,313 18,890,190 12,102,035 $ 47,379,538 Lease Term Begin 25 Years 9/2005 30 Years 11/2008 30 Years 7/2014 Outstanding Principal Balance End at June 30, 2016 7/2030 $ 11,809,734 5/2038 6/2043 $ 18,671,547 12,215,322 42,696,603 (1) These capital leases are with related entities. OPERATING LEASES The Institution's non-cancellable operating leases having remaining terms of more than one year expire in various fiscal years from 2017 through 2021. 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. Facilities and equipment rented through operating leases are not recorded as assets on the balance sheet. Operating lease expenditures totaled $114,772 for the fiscal year ended June 30, 2016. - 14 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" FUTURE COMMITMENTS Future commitments for capital leases (which here and on the Statement of Net Position includes other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2016, were as follows: Real Property and Equipment Capital Operating Leases Leases Year Ending June 30: 2017 2018 2019 2020 2021 2022 - 2026 2027 - 2031 2032 - 2036 2037 - 2041 2042 - 2046 $ 3,055,793 $ 3,066,400 3,098,699 3,135,452 3,171,172 16,412,480 16,401,342 12,839,440 8,051,323 1,695,224 94,879 94,118 94,118 74,018 60,672 Total Minimum Lease Payments 70,927,325 $ 417,805 Less: Interest Principal Outstanding 28,230,722 $ 42,696,603 NOTE 9: RETIREMENT PLANS The Institution participates in various retirement plans administered by the State of Georgia under two major retirement systems: Teachers Retirement System of Georgia (TRS) and Employees' Retirement System of Georgia (ERS). 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 administrative offices. In addition to the retirement plans administered by TRS and ERS, USG administers the Regents Retirement Plan as an optional retirement plan. - 15 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" The significant retirement plans that the Institution 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. A. Defined Benefit Plans: Teachers Retirement System of Georgia and Employees' Retirement System of Georgia Summary of Significant Accounting Policies Pensions: For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Teachers Retirement System of Georgia (TRS) and Employees' Retirement System (ERS), additions to/deductions for TRS's and ERS's fiduciary net position have been determined on the same basis as they are reported by TRS and ERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. General Information about the Teachers Retirement System Plan description: All teachers of the Institution as defined in 47-3-60 of the Official Code of Georgia Annotated (O.C.G.A.) are provided a pension through the Teachers Retirement System of Georgia (TRS). TRS, a cost-sharing multiple-employer defined benefit pension plan, is administered by the TRS Board of Trustees (TRS Board). Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. TRS issues a publicly available financial report that can be obtained at www.trsga.com/publications. Benefits provided: TRS provides service retirement, disability retirement, and death benefits. Normal retirement benefits are determined as 2% of the average of the employee's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. An employee 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. Ten years of service is required for disability and death benefits eligibility. Disability benefits are based on the employee's creditable service and compensation up to the time of disability. Death benefits equal the amount that would be payable to the employee's beneficiary had the employee retired on the date of death. Death benefits are based on the employee's creditable service and compensation up to the date of death. Contributions: Per Title 47 of the O.C.G.A., contribution requirements of active employees and participating employers, as actuarially determined, are established and may be amended by the TRS Board. Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employees were required to contribute 6.00% of their annual pay during fiscal year 2016. The Institution's contractually required contribution rate for the year ended June 30, 2016 was 14.27% of annual Institution payroll. Institution contributions to TRS were $1,454,054 for the year ended June 30, 2016. Contributions are expected to finance any unfunded accrued liability. - 16 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" General Information about the Employees' Retirement System Plan description: ERS is a cost-sharing multiple-employer defined benefit pension plan 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. Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. ERS issues a publicly available financial report that can be obtained at www.ers.ga.gov/formspubs/formspubs. Benefits provided: The ERS Plan supports three benefit tiers: Old Plan, New Plan, and Georgia State Employees' Pension and Savings Plan (GSEPS). Employees under the old plan started membership prior to July 1, 1982 and are subject to 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 modified plan provisions. Effective January 1, 2009, new state employees and rehired state employees who did not retain membership rights under the Old or New Plans are members of GSEPS. ERS members hired prior to January 1, 2009 also have the option to irrevocably change their membership to GSEPS. Under the old plan, the 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 the monthly average of the member's highest 24 consecutive calendar months, multiplied by the number of years of creditable service, multiplied by the applicable benefit factor. Annually, postretirement cost-of-living adjustments may also 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. Contributions: Member contributions under the old plan are 4.00% of annual compensation, up to $4,200, plus 6.00% of annual compensation in excess of $4,200. Under the old plan, the state pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these state 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. The Institution's contractually required contribution rate, actuarially determined annually, for the year ended June 30, 2016 was 24.72% of annual covered payroll for old and new plan members and 21.69% for GSEPS members. The Institution's contributions to ERS totaled $9,878 for the year ended June 30, 2016. Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. - 17 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2016, the Institution reported a liability for its proportionate share of the net pension liability for TRS and ERS. The net pension liability was measured as of June 30, 2015. The total pension liability used to calculate the net pension liability was based on an actuarial valuation as of June 30, 2014. An expected total pension liability as of June 30, 2014 was determined using standard roll-forward techniques. The Institution's proportion of the net pension liability was based on contributions to TRS and ERS during the fiscal year ended June 30, 2015. At June 30 2015, the Institution's TRS proportion was 0.094152%, which was an increase of 0.000132% from its proportion measured as of June 30, 2014. At June 30, 2015, the Institution's ERS proportion was 0.001779%, which was an increase of 0.000077% from its proportion measured as of June 30, 2014. For the year ended June 30, 2016, the Institution recognized pension expense of $811,857 for TRS and $-13,753 for ERS. At June 30, 2016, the Institution reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: TRS Deferred Deferred Outflows of Inflows of Resources Resources ERS Deferred Deferred Outflows of Inflows of Resources Resources Differences between expected and actual experience $ 126,072 $ 576 Net difference between projected and actual earnings on pension plan investments 1,209,063 5,200 Changes in proportion and differences between Institution contributions and proportionate share of contributions $ 18,165 430,182 $ 2,155 11,377 Institution contributions subsequent to the measurement date 1,454,054 9,878 Total $ 1,472,219 $ 1,765,317 $ 12,033 $ 17,153 - 18 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" Institution contributions subsequent to the measurement date of $1,454,054 for TRS and $9,878 for ERS are reported as deferred outflows of resources and will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending June 30: TRS ERS 2017 2018 2019 2020 2021 $ -713,657 $ $ -713,657 $ $ -713,658 $ $ 398,957 $ $ -5,137 $ -12,642 -1,792 -2,318 1,754 Actuarial assumptions: The total pension liability as of June 30, 2015 was determined by an actuarial valuation as of June 30, 2014 using the following actuarial assumptions, applied to all periods included in the measurement: Teachers Retirement System: Inflation Salary increases Investment rate of return 3.00% 3.75 7.00%, average, including inflation 7.50%, net of pension plan investment expense, including inflation Mortality rates were based on the RP-2000 Combined Mortality Table for Males or Females set back two years for males and set back three years for females. The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period July 1, 2004 June 30, 2009. Employees' Retirement System Inflation Salary increases Investment rate of return 3.00% 5.45 9.25%, including inflation 7.50%, net of pension plan investment expense, including inflation Mortality rates were based on the RP-2000 Combined Mortality Table for the periods after service retirement, for dependent beneficiaries, and for deaths in active service, and the RP-2000 Disabled Mortality Table set back eleven years for males for the period after disability retirement. The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period July 1, 2004 June 30, 2009. - 19 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" The long-term expected rate of return on TRS and ERS pension plan investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected nominal returns, net of pension plan investment expense and the assumed rate of inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return * Fixed Income Domestic large equities Domestic mid equities Domestic small equities International developed market equities International emerging market equities 30.00% 39.70% 3.70% 1.60% 18.90% 6.10% 3.00% 6.50% 10.00% 13.00% 6.50% 11.00% 100.00% * Rates shown are net of the 3.00% assumed rate of inflation Discount rate: The discount rate used to measure the total TRS and ERS pension liability was 7.50%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that employer and State of Georgia contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the TRS and ERS pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the Institution's proportionate share of the net pension liability to changes in the discount rate: The following presents the Institution's proportionate share of the net pension liability calculated using the discount rate of 7.50%, as well as what the Institution's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50%) or 1-percentage-point higher (8.50 %) than the current rate: - 20 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" Teachers Retirement System: Institute's proportionate share of the net pension liability 1% Decrease (6.50%) Current Discount Rate (7.50%) 1% Increase (8.50%) $ 24,631,392 $ 14,333,707 $ 5,845,965 Employees' Retirement System: Institute's proportionate share of the net pension liability 1% Decrease (6.50%) Current Discount Rate (7.50%) 1% Increase (8.50%) $ 102,168 $ 72,074 $ 46,418 Pension plan fiduciary net position: Detailed information about the pension plan's fiduciary net position is available in the separately issued TRS and ERS financial reports which are publically available at www.trsga.com/publications and www.ers.ga.gov/formspubs/formspubs, respectively. A. Defined Contribution Plan: Regents Retirement Plan Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 47-21-1 et.seq. and 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 all exempt full and partial benefit eligible employees, 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 (VALIC, 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 The Institution 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 2016, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 6.00% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times. The Institution and the covered employees made the required contributions of $377,622 (9.24%) and $245,209 (6%), respectively. VALIC, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices. - 21 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" NOTE 12: RISK MANAGEMENT The USG offers its employees and retirees under the age of 65 access to four different healthcare plan options. For the USG's Plan Year 2016, the following healthcare plan options were available: BlueChoice HMO Comprehensive Care Consumer Choice HSA Kaiser Permanente HMO The Institution, participating employees and retirees pay premiums to the healthcare plan options to access benefits coverage. The respective health 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 USG share the risk of loss for claims associated with the self-insured plans; including the BlueChoice HMO, Comprehensive Care, and Consumer Choice HSA Plan. Retirees age 65 and older participate in a secondary healthcare coverage for Medicare-eligible retirees and dependents provided through a retiree healthcare exchange option. The USG makes contributions to a health reimbursement account, which can be used by the retiree to pay premiums and out-ofpocket healthcare-related expenses. 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 to serve as the claims administrator for the selfinsured healthcare plans. In addition to the self-insured healthcare plan options offered to the employees of the USG, a fully insured HMO healthcare plan is also offered to System employees. The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. The Institution, 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. - 22 - GORDON STATE COLLEGE SELECTED FINANCIAL NOTES JUNE 30, 2016 EXHIBIT "D" 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 the Institution expects such amounts, if any, to be immaterial to its overall financial position. Litigation, claims and assessments filed against the Institution (an organizational unit 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, 2016. 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 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 Institution 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. As of June 30, 2016, there were 78 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2016, the Institution recognized as incurred $336,746 of expenditures, which was net of $116,773 of participant contributions. - 23 - SUPPLEMENTARY INFORMATION - 24 - GORDON STATE COLLEGE BALANCE SHEET (STATUTORY BASIS) BUDGET FUND JUNE 30, 2016 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 Contracts Payable Funds Held for Others Total Liabilities Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Unreserved Surplus Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "1" $ 973,390.31 155,101.18 442,898.19 154,340.50 $ 1,725,730.18 $ 77,435.87 464,661.57 252,590.61 131,685.04 67,502.73 585.00 994,460.82 186,413.41 73,866.66 120,300.59 -0.43 116,684.17 234,004.96 0.00 731,269.36 $ 1,725,730.18 Statutory Basis financial information 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. - 25 - GORDON STATE COLLEGE SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (STATUTORY BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2016 SCHEDULE "2" REVENUES State Appropriation State General Funds Other Funds Total Revenues CARRY-OVER FROM PRIOR YEARS Transfers from Reserved Fund Balance Total Funds Available EXPENDITURES Research Consortium Teaching Total Expenditures Excess of Funds Available over Expenditures FUND BALANCE JULY 1 Reserved Unreserved ADJUSTMENTS Prior Year Payables/Expenditures Prior Year Receivables/Revenues Unreserved Fund Balance (Surplus) Returned to Board of Regents - University System Office Year Ended June 30, 2015 Prior Year Reserved Fund Balance Included in Funds Available FUND BALANCE JUNE 30 BUDGET ACTUAL VARIANCE FAVORABLE (UNFAVORABLE) $ 12,053,938.00 $ 12,053,938.00 $ 27,592,622.00 27,292,527.38 39,646,560.00 39,346,465.38 0.00 -300,094.62 -300,094.62 0.00 39,646,560.00 497,950.08 39,844,415.46 497,950.08 197,855.46 70,000.00 39,576,560.00 39,646,560.00 $ 0.00 70,000.00 38,917,832.26 38,987,832.26 856,583.20 $ 0.00 658,727.74 658,727.74 856,583.20 572,208.80 73,232.66 52,170.44 -251,743.00 -73,232.66 -497,950.08 $ 731,269.36 SUMMARY OF FUND BALANCE Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Total Reserved Unreserved Surplus Total Fund Balance $ 186,413.41 73,866.66 120,300.59 -0.43 116,684.17 234,004.96 731,269.36 0.00 $ 731,269.36 Statutory Basis financial information 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. - 26 - (This page left intentionally blank) GORDON STATE COLLEGE STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2016 Research Consortium State Appropriation State General Funds Teaching State Appropriation State General Funds Other Funds Total Teaching Total Operating Activity Original Appropriation Amended Appropriation Final Budget Current Year Revenues $ 70,000.00 $ 70,000.00 $ 70,000.00 $ 70,000.00 11,983,938.00 21,833,860.00 33,817,798.00 11,983,938.00 21,833,860.00 33,817,798.00 11,983,938.00 27,592,622.00 39,576,560.00 11,983,938.00 27,292,527.38 39,276,465.38 $ 33,887,798.00 $ 33,887,798.00 $ 39,646,560.00 $ 39,346,465.38 Statutory Basis financial information 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. - 28 - 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 Excess of Funds Available Over Expenditures $ 0.00 $ 0.00 $ 70,000.00 $ 0.00 $ 70,000.00 $ 0.00 $ 0.00 0.00 497,950.08 497,950.08 -7,524.86 7,524.86 0.00 11,976,413.14 27,798,002.32 39,774,415.46 -7,524.86 205,380.32 197,855.46 11,728,600.62 27,189,231.64 38,917,832.26 255,337.38 403,390.36 658,727.74 247,812.52 608,770.68 856,583.20 $ 497,950.08 $ 0.00 $ 39,844,415.46 $ 197,855.46 $ 38,987,832.26 $ 658,727.74 $ 856,583.20 - 29 - GORDON STATE COLLEGE STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (STATUTORY BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2016 Research Consortium State Appropriation State General Funds Teaching State Appropriation State General Funds Other Funds Total Teaching Total Operating Activity Prior Year Reserves Not Available for Expenditure Uncollectible Accounts Receivable Beginning Fund Balance July 1 Fund Balance Carried Over from Prior Period as Funds Available Return of Fiscal Year 2015 Surplus Prior Period Adjustments $ 0.00 $ 0.00 $ 0.00 $ 0.00 63,815.38 507,367.36 571,182.74 571,182.74 0.00 -497,950.08 -497,950.08 -497,950.08 -63,815.38 -9,417.28 -73,232.66 -73,232.66 -247,812.52 48,239.96 -199,572.56 -199,572.56 74,258.72 0.00 0.00 0.00 Budget Unit Totals $ 645,441.46 $ -497,950.08 $ -73,232.66 $ -199,572.56 Statutory Basis financial information 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. - 30 - SCHEDULE "4" Other Adjustments Early Return Fiscal Year 2016 Surplus Excess of Funds Available Over Expenditures Ending Fund Balance June 30 Analysis of Ending Fund Balance Reserved Surplus Total $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 0.00 -42,425.45 -42,425.45 -42,425.45 0.00 0.00 0.00 0.00 247,812.52 608,770.68 856,583.20 856,583.20 0.00 614,585.19 614,585.19 614,585.19 0.00 614,585.19 614,585.19 614,585.19 0.00 0.00 0.00 0.00 0.00 614,585.19 614,585.19 614,585.19 42,425.45 $ 0.00 $ 0.00 0.00 $ 0.00 116,684.17 116,684.17 856,583.20 $ 731,269.36 $ 731,269.36 $ 0.00 116,684.17 0.00 $ 731,269.36 Summary of Ending Fund Balance Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Unreserved Surplus Total Ending Fund Balance - June 30 $ 186,413.41 73,866.66 120,300.59 -0.43 116,684.17 234,004.96 $ $ 731,269.36 $ $ 0.00 0.00 $ 186,413.41 73,866.66 120,300.59 -0.43 116,684.17 234,004.96 731,269.36 - 31 - SECTION II ENTITY'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS GORDON COLLEGE ENTITY'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FS 2015-001 Inadequate Internal Controls over Capital Assets Control Category: Internal Control Impact: Compliance Impact: Capital Assets Significant Deficiency None Finding Status: Previously Reported Corrective Action Implemented PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FA 2015-001 Inadequate Control Procedures over Withdrawals Control Category: Internal Control Impact: Compliance Impact: Federal Award Agency: CFDA Number and Title: Questioned Cost: Special Tests and Provisions Significant Deficiency Nonmaterial Noncompliance U.S. Department of Education 84.SFA Student Financial Assistance Cluster $13,601.23 Finding Status: Partially Resolved The Institution is awaiting a response from the U.S. Department of Education in regards to the resolution of this finding. FA 2015-002 Failure to Comply with Federal Work-Study Earmarking Requirements Control Category: Internal Control Impact: Compliance Impact: Federal Awarding Agency: CFDA Number and Title: Questioned Cost: Matching, Level of Effort, and Earmarking Significant Deficiency Nonmaterial Noncompliance U.S. Department of Education 84.SFA Student Financial Assistance Cluster $3,064.75 Finding Status: Partially Resolved The Institution is awaiting a response from the U.S. Department of Education in regards to the resolution of this finding. SECTION III FINDINGS, QUESTIONED COSTS AND OTHER ITEMS GORDON STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2016 COMMUNICATION OF INTERNAL CONTROL DEFICIENCIES The auditor is required to communicate to management and those charged with governance control deficiencies identified during the course of the financial statement audit that, in the auditor's judgment, constitute significant deficiencies or material weakness. A deficiency in internal 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. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below: FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FS 2016-001 Deficiencies in Controls over Financial Reporting Control Category: Internal Control Impact: Compliance Impact: Accounting Controls Overall Capital Assets Expenses/Expenditures/Liabilities Financial Reporting and Disclosures Material Weakness None Description: Review of the Institution's financial statements and Schedule of Expenditures of Federal Awards revealed several errors. 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 the financial statements prepared in accordance with generally accepted accounting principles (GAAP). Additionally, the Institution is required to annually submit GAAP basis financial statements for inclusion in the State of Georgia's Comprehensive Annual Financial Report and the State of Georgia's Single Audit Report. In addition, the Institution is required to annually submit budget basis financial statements for inclusion in the State of Georgia's Budgetary Compliance Report. Condition: Our review of the Institution's GAAP basis financial statements, budget basis financial statements, Notes to the Financial Statements and Schedule of Expenditures of Federal Awards revealed several errors. Some of the items found were as follows: 1. The entity failed to reverse material Accounts Receivable and Advances, in the amount of $7,722,220, related to the Summer 2016 and Fall 2016 semesters for which nothing had been received or earned. - 1 - GORDON STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2016 2. Accounts Receivable and Capital Grants and Gifts were understated by $192,423 due to an error with a year-end entry. 3. Calculation errors with year-end entries resulted in a misstatement of Scholarship Allowances of $63,035, and a misclassification of Compensated Absences between current and noncurrent of $68,253. 4. The use of incorrect useful lives for several assets resulted in the overstatement of Depreciation Expense and Accumulated Depreciation in the amount of $59,848. 5. State Appropriations Revenues were understated on the Budget-Basis Financial Statements by $18,110.57. 6. Three invalid encumbrances were reported on the Budget-Basis Financial Statements totaling $65,416.64. 7. Various Presentation and Disclosure errors were noted, including a misclassification of Net Position Categories in Note 7 totaling $294,524, an understatement of Additions and Deletions to Compensated Absences in Note 6 totaling $204,757, and an overstatement of Other Post Employment Benefit Expenditures in Note 14 totaling $116,773. 8. Direct Loans were understated by $275,428 on the Schedule of Expenditures of Federal Awards. Cause: In discussing these issues with management, they believe that these deficiencies were the result of the loss of Institutional knowledge stemming from the changes in management and staffing during the past few years. Effect or Potential Effect: Material misstatements were included in the financial statements presented for review. In addition, the lack of controls and monitoring could impact the reporting of the Institution's financial position and results of operation. Recommendation: The Institution 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. Views of Responsible Officials and Corrective Action Plans: Management concurs with the finding noted as inadequate controls over financial reporting. The Institution will review the accounting controls and procedures currently in place. The Institution will identify weaknesses so to design and implement procedures necessary to strengthen controls over the preparation of the financial statements. All items are anticipated to be reviewed and corrected by June 30, 2017. Contact Person: Walter Green, Assistant Vice President and Controller Telephone: (678) 359-5733 Fax: (678) 359-5213 E-mail: walterg@gordonstate.edu - 2 - GORDON STATE COLLEGE SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS YEAR ENDED JUNE 30, 2016 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. OTHER ITEMS (NOTED FOR MANAGEMENT'S CONSIDERATION) Accounting Controls Overall Observation: Our review of the established internal control structure associated with significant financial applications at the Institution revealed design deficiencies in logical access, change management and IT operations controls intended to protect information from unauthorized access, manipulation, corruption, inaccurate processing and loss. The details related to these deficiencies have been provided to management of the Institution in accordance with Official Code of Georgia Annotated 50-6-9. Recommendation: Management should review and enhance their policies and procedures to ensure the integrity and accuracy of the information used within the financial statements and as part of awarding financial assistance to students. Additionally, management should ensure proper separation of duties as it relates to financial and student financial assistance processes. - 3 -