Audit report, Herty Foundation, year ended June 30, 1994

I ,GP f}l,800
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STATE OF GEORGIA DEPARTMENT OF AUDITS
254 WASHINGTON STREET ATLANTA. GEORGIA 30334

AUDIT REPORT HERTY FOUNDATION
YEAR ENDED JUNE 30, 1994

HERTY FOUNDATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

EXHIBITS

FINANCIAL STATEMENTS

A BALANCESHEET

PROPRIETARY FUND TYPE - ENTERPRISE FUND

2

B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN

FUND EQUITY

PROPRIETARY FUND TYPE - ENTERPRISE FUND

3

C STATEMENT OF CASH FLOWS

PROPRIETARY FUND TYPE - ENTERPRISE FUND

4

D NOTES TO THE FINANCIAL STATEMENTS

5

SUPPLEMENTARY INFORMATION

SCHEDULES

1 CASH AND CASH EQUIVALENTS

14

2 INVESTMENTS

15

3 SCHEDULE OF PROPERTY AND ACCUMULATED DEPRECIATION

16

4 SCHEDULE OF OTHER OPERATING EXPENSES

17

5 SCHEDULE OF PER DIEM AND FEES

18

SECTIONII FINDINGS AND IMPROPER OR QUESTIONED COSTS SCHEDULE OF FINDINGS AND IMPROPER OR QUESTIONED COSTS

SECTION I FINANCIAL

CLAUDE L. VICKERS STATE AUDITOR (404) 656-2174
TAX RATIO (404) 656-0494

~.epa:rfm.enf nf J\.uhifs
254 WASHINGTON STREET, S. W. ROOM 214
~tlanta, ~eorght 30334-8400
January 23, 1995

FINANCIAL AUDITS (404) 656-2180
PROGRAM AUDITS (404) 656-2006

Honorable Zell Miller, Governor Members of the General Assembly of Georgia Members of the Board ofTrustees
and Honorable Michael J. Kocurek, Director Herty Foundation
INDEPENDENT AUDITOR'S COMBINED REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying financial statements (Exhibits A through D) ofthe Herty Foundation as ofand for the year ended June 30, 1994. These financial statements are the responsibility of the Foundation's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the.financial statements. An audit also includes 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 our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Herty Foundation as of June 30, 1994, and the results ofits operations and cash flows ofits Enterprise Fund for the year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplementary information (Schedules 1 through 5) is presented for purposes of additional analysis and is not a required part of the financial statements of the Herty Foundation. Such information has

94ARL-1X

been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole.
Respectfully submitted,
~~
Claude L. Vickers State Auditor
CLV:gp 94ARL-IX

FINANCIAL STATEMENTS -I-

HERTY FOUNDATION BALANCE SHEET
PROPRIETARY FUND TYPE - ENTERPRISE FUND JUNE 30, 1994

EXHIBIT "A"

ASSETS
Cash and Cash Equivalents (See Schedule)
Investments (See Schedule)
Accounts Receivable Contracts - Board of Regents of the University System of Georgia Customer Accounts Interest Receivable Other
Prepaid Items Georgia Ports Authority Other
Inventories Materials Work in Process
Other Assets Note Receivable
Fixed Assets Buildings Less: Accumulated Depreciation
Improvements Other Than Buildings Less: Accumulated Depreciation
Equipment Less: Accumulated Depreciation
Total Assets

$ 651,546.44 1,108,314.85

$ 62,507.24 661,993.58_ 6,902.87 146.33
-------------
$ 55,080.00 8,379.00
-------------
$ 180,831.00 490.73
-------------

731,550.02 63,459.00 181,321.73 82,094.42

$ 5,994,668.00

1,411,766.00 $ 4,582,902.00

-------------

$ 377,342.00

342,490.00

34,852.00

-------------

$15,050,342.66

4,335,825.00 10,714,517.66

------------- -------------

15,332,271.66
-------------

$18,150,558.12
=============

Liabilities Accrued Salaries Accounts Payable Client Deposits Client Research Credits Compensated Absences Payable Interest Payable Payroll Withholdings Notes Payable
Fund Equity Contributed Capital State of Georgia Retained Earnings Unreserved

LIABILITIES AND FUND EQUITY

$ 28,377.85 336,156.25 1,117.73 219,100.00 14,760.56 8,961.49 707.19
2,406,166.18$ 3,015,347.25
$11,718,735.81
3,416,475.06 15,135,210.87

Total Liabilities and Fund Equity
The notes to the financial statements are an integral part of this statement. - 2-

$18,150,558.12

HERTY FOUNDATION STATEMENT OF REVENUES. EXPENSES AND CHANGES IN FUND EQUITY
PROPRIETARY FUND TYPE - ENTERPRISE FUND
YEAR ENDED JUNE 30, 1994

EXHIBIT "B"

OPERATING REVENUES
Earnings from Research Other Operating Revenues
OPERATING EXPENSES
Personal Services Salaries and Wages Employer's Contributions for: F.I.C.A. Retirement Group Insurance Unemployment Compensation Insurance Workers' Compensation Insurance
Regular Operating Expenses Motor Vehicle Expenses Supplies and Materials Repairs and Maintenance Utilities Rents (Other than Real Estate) Insurance and Bonding Interest Expense Other Operating Expenses (See Schedule)
Travel Real Estate Rentals Telecommunications Per Diem and Fees (See Schedule) Depreciation
Operating Income
NONOPERATING REVENUES
Interest Earned Reimbursement for Administrative Expenses Sale of Scrap
Net Income
FUND EQUITY - JULY 1, 1993
Contributed Capital State of Georgia

$ 4,197,5B8.63 48,111.63 $ 4,245,700.26

$1,644,196.95
126,692.69 71,929.02 260,992.B3 11,305.32 15,460.01 $ 2,130,576.82
$ 2,775.70 372,940.09 166,729.76 413,068.18 4,039.23 28,856.99 29.63 123,597.33 1,112,036.91
13,747.75
4,200.00
18,521.64
31,016.27
702,923.00 4,013,022.39
$ 232,677.87

$ 52,721.76 25,000.00 243.85

77,965.61

$ 310,643.48

14,405,831.58

418,735.81

FUND EQUITY - JUNE 30, 1994

$15,135,210.87
=============

The notes to the financial statements are an integral part of this statement. - 3-

HERTY FOUNDATION STATEMENT OF CASH FLOWS PROPRIETARY FUND TYPE - ENTERPRISE FUND YEAR ENDED JUNE 30, 1994
CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers Cash Paid to Vendors and Employees Other Operating Revenues Net Cash Provided by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Proceeds from Sale of Scrap Materials Reimbursement for Administrative Expenses Net Cash Provided by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and Construction of Fixed Assets Funds Received from the State of Georgia for Capital Expansion and Improvements Proceeds from Loans for Capital Expansion and Improvements Principal Paid on Loans for Capital Expansion and Improvements Net Cash Used by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments Proceeds from Mortgage Note Purchase of Investments Net Cash Provided by Investing Activities Net Increase in Cash and Cash Equivalents
CASH AND CASH EQUIVALENTS - JULY 1
CASH AND CASH EQUIVALENTS - JUNE 30
RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Operating Income Adjustments to Reconcile Operating Loss to Net Cash
Provided by Operating Activities: Depreciation Changes in Assets and Liabilities Increase in Accounts Receivable Decrease in Prepaid Items Decrease in Inventories Increase in Accrued Salaries, Compensated Absences Payable and Payroll Withholdings Increase in Client Deposits and Research Credits Decrease in Accounts Payable Total Adjustments
Net Cash Provided by Operating Activities
The notes to the financial statements are an integral part of this statement.
- 4-

EXHIBIT "C"

$ 4,045,569.36 -3,247,879.27 48,111.63
$ 845,801.72

$

243.85

25,000.00

$ 25,243.85

$ -958,016.66 356,228.57 173,500.00 -87,944.29
$ -516,232.38

$ 55,806.84 3,701.48
-49.866.06

$

9.642.26

$ 364,455.45

287,090.99

$ 6511546.44

$ 232.677.87
$ 702,923.00 -152,019.27 1,960.30 52,945.66 8,799.30 44,217.73 -45.702.87
$ 613,123.85
$ 845.801.72

HERTY FOUNDATION NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXIIlBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY The Berty Foundation is a nonprofit corporation created by an Act of the General Assembly of Georgia approved February 16, 1938, as a body politic and corporate and generally clothed with all the rights, powers and privileges incidental to corporations. The Board of Trustees is composed of five (5) trustees appointed by the Governor. The basic purpose ofthe Foundation is to conduct research and development of natural and synthetic fibrous materials to serve the pulp, paper, allied and nonwoven industries. Based upon the statutory authority ofthe State of Georgia to appoint the governing board of the Foundation, the Berty Foundation is considered to be a related organization of the State of Georgia for financial reporting purposes.
FUND ACCOUNTING FUND INCLUDED IN THE FINANCIAL STATEMENTS
The Berty Foundation uses a Proprietary Fund Type - Enterprise Fund to report on its financial position and the results ofits operations. The Proprietary Fund Type - Enterprise Fund is used to account for operations that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges.
BASIS OF ACCOUNTING MEASUREMENT FOCUS
The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Proprietary funds should be accounted for on a flow of economic resources measurement focus, in which all assets and all liabilities are included on the balance sheet. Operating statements of these funds present increases, (i.e., revenues) and decreases (i.e., expenses) in net total assets.
PROPRIETARY FUND TYPE ENTERPRISE FUND
The Berty Foundation maintains its Enterprise Fund on the accrual basis of accounting. Under this method of accounting, revenues are recognized when earned and expenses are recognized at the time liabilities are incurred.
BUDGET The Foundation has no budget requirements from any governing authority. Internal operating budgets are prepared and amended as necessary by the administration of the Foundation. These budgets are not formally integrated into the accounting system and budget comparisons are not presented in this report.
ASSETS, LIABILITIES AND FUND EQUITY CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents include currency on hand, demand deposits with banks and other financial institutions and money market accounts that have the general characteristics of dem~d deposit accounts in that the Foundation may deposit additional cash at any time and also effectively may withdraw cash at any time without prior notice or penalty. The aforementioned definitions were applied for the preparation of the Statement of Cash Flows.
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HERTY FOUNDATION NOTES TO THE FINANCIAL STATEl\,ffiNTS
JUNE 30, 1994

EXEilBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ASSETS, LIABILITIES AND FUND EQUITY INVESTMENTS
Investments are defined as those financial instruments with terms of three months or more from the date of purchase and certain other securities held for the production of revenue. Investments are stated at cost.
PREPAID EXPENSES Payments made that will benefit periods beyond June 30, 1994, are recorded as prepaid items.
INVENTORIES The standard cost method was maintained in costing the inventories of the work in process. All other inventories are valued at the lower of cost (first-in, first-out method) or market.
NOTE RECEIVABLE On November 16, 1987, the HertyFoundation made a loan of$97,150.00 to its Director, Michael J. Kocurek, to be used for the purchase of a personal residence. This demand note is payable in equal semi-monthly installments of$327.70, including interest at 5.75%, to a maturity date of June 25, 2008. The note is secured by a first security interest in real property. As ofJune 30, 1994, the remaining balance on this note excluding interest was $82,094.42.
FIXED ASSETS All purchased fixed assets are valued at cost where historical records are available and at an estimated historical cost where no historical records exist. Interest expense from borrowing for capital improvements is capitalized from the time ofthe borrowing until the completion ofthe project.
Depreciation ofall exhaustible fixed assets used by the Enterprise Fund are charged as an expense against their operations. Accumulated depreciation is reported on the Balance Sheet. Depreciation is computed over the estimated useful life ofthe property using the straight-line method.
CLIENT RESEARCH CREDITS The Herty Foundation provides research credits to certain companies based on their donation of capital assets for use in research and development related to the Foundation's statutory authority. The Foundation places certain restrictions on how the research credits are to be used and the length oftime the credits are available.
FUND EQUITY Contributed capital is recorded for funds received from the State of Georgia for capital improvements.
REVENUES AND EXPENSES COMPENSATED ABSENCES
Compensated absences represent obligations of the Foundation relating to employees' rights to receive compensation for future absences based upon services already rendered. This obligation relates only to vesting

-6-

BERTY FOUNDATION NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXHIBIT "D"

NOTE I: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUES AND EXPENSES COMPENSATED ABSENCES
accumulating annual leave in which payment is probable and can be reasonably estimated. The Foundation's policy is to record the cost of vacation leave when such benefits are earned and the cost of sick leave when such benefits are paid. See Note 8.

NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

CATEGORIZATION OF DEPOSITS For purposes of analysis of custodial credit risk, cash deposits consist of all bank balances which include demand deposits and/or interest bearing accounts. These bank balances are categorized below in order to provide information about the extent to which such deposits are exposed to custodial credit risk.

Category I - Amounts covered by depository insurance or collateralized with securities (at market value) held by the Foundation or by its agent in the Foundation's name.

Category 2 - Amounts collateralized with securities (at market value) held by the financial institution's trust department or agent in the Foundation's name.

Category 3 - Amounts collateralized with securities (at market value) held by the financial institution or by its trust department or agent, but not in the Foundation's name, and amounts uncollateralized.

Canying Amount

Bank Balance

Risk Categories

2

3

Cash Deposits

S 651 446.44 S 707.2&4 25 S 495 215 94 S 122 620 79 S 89 447 52

CATEGORIZATION OF INVESTMENTS For purposes of analysis of custodial credit risk, investmer:its consist of U. S. Government securities. Investments are stated at cost and are summarized and classified as to custodial credit risk within the categories described below:
Category I - Insured or registered, or securities held by the Foundation or its agent in the Foundation's name.
Category 2 - Uninsured or unregistered, with securities held by the counterparty's trust department or agent in the Foundation's name.
Category 3 - Uninsured or unregistered, with securities held by the counterparty, or by its trust department or agent but not in the Foundation's name.

-7-

HERTY FOUNDATION NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXlilBIT "D"

NOTE 2: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

CATEGORIZATION OF INVESTMENTS

Type ofInvestment U. S. Government Securities

Risk Categories

2

3

Carrying Amount

Market Value

S===ooo= S l lQ83148S S==,,..ooo= S l lQ83148S S l lQ8S7193"

NOTE 3: OPERATING LEASES

The Foundation's plant site is under an operating lease with the Georgia Ports Authority expiring in the year 2007. The lease, dated August 5, 1957, with a term of fifty years, was prepaid on that date. Real estate rentals expense amounted to $4,200.00 for the year ended June 30, 1994. Future amounts to be amortized are as follows:

Year Ending June 30
1995 1996 1997 1998 1999 and Subsequent
Total Future Minimum Commitments
NOTE 4: TRANSACTIONS WITH THE STATE OF GEORGIA

Amount
$ 4,200.00 4,200.00 4,200.00 4,200.00
38,280.00
$ 55,080.00

CONTRACTS WITH BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA On November 9, 1988, the General Assembly of the State of Georgia authorized the issuance of general obligation bonds ofthe State ofGeorgia in the principal amount of$3,200,000.00 for the purpose of financing for the Board ofRegents ofthe University System ofGeorgia the purchase and installation of a new pulping machine and the modemiz.ation ofa paper machine with associated improvements. On October 26, 1990, the General Assembly of the State of Georgia authorized the issu~ce of general obligation bonds ofthe State ofGeorgia in the principal amount of$3,900,000.00 for the purpose of financing for the Board ofRegents of the University System of Georgia the purchase and installation of a new nonwovens paper machine with associated improvements. Since the Herty Foundation has the facilities, staff, and expertise, the Board of Regents designated the Foundation as its agent to receive and apply the bond proceeds for those purposes. The Foundation uses the pulping machine system and the paper machine to conduct research and experimentation with respect to natural and synthetic fibers and other material of all types. Any research revenues derived from the operation of this machinery is considered to be the property of the Foundation.

As a condition ofthis arrangement, the Foundation conveyed and assigned to the Board ofRegents an estate for fifteen years on its 36-inch Fourdrinier Pilot Paper Machine, and other property necessary for the completion ofthe project. Also, the machines were acquired in the name ofthe Board of Regents. Since, the

-8-

BERTY FOUNDATION NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXIIlBIT "D"

NOTE 4: TRANSACTIONS WITH THE STATE OF GEORGIA
CONTRACTS WITH BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA revenue derived from the operation ofthis machinery is the property of the Foundation, the machinery will be accounted for as ifit were acquired in the Foundation's name.
The cost ofthe assets acquired with funds from the contract, included in the Fixed Assets - Equipment account at June 30, 1994, is $7,100,000.00. The cost ofthe assets acquired is recorded as contributed capital through the State of Georgia.
On July 6, 1993, the General Assembly of the State of Georgia authorized the issuance ofgeneral obligation bonds of the State of Georgia in the principal amount of $3,200,000.00 for the purpose offinancing for the Board ofRegents of the University System of Georgia the expansion ofHerty Foundation's laboratory and research facilities. Since the Herty Foundation has the facilities, staff, and expertise, the Board ofRegents designated the Foundation as its agent to receive and apply the bond proceeds for those purposes. The Foundation shall use the laboratory facilities and equipment for the conduct of research and experimentation with respect to pulpwood and natural and synthetic fibers and other materials of all types. Any research revenues derived from the use ofthe laboratory facilities will be the property ofthe Foundation.
As a condition of this agreement, the Foundation conveyed and assigned to the Board ofRegents an estate for fifteen years on all fixtures and equipment necessary for the completion of the project.
The cost ofthe assets acquired, $418,735.81 in fiscal year 1994, is included in Fixed Assets at June 30, 1994, and is recorded as contributed capital through the State of Georgia.
CONTRACT WITH GEORGIA DEPARTMENT OF COMMUNITY AFFAIRS In the year ended June 30, 1990, an appropriation of $4,200,000.00 was made through the Georgia Department of Community Affairs to provide funds for the expansion ofHerty Foundation's pilot plant and testing laboratory. The cost ofthe assets acquired with funds from the contract, included in the Fixed Assets at June 30, 1994, is $4,200,000.00. The cost ofthe assets acquired is recorded as contributed capital through the State of Georgia.
NOTE 5: LONG-TERM DEBT
BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA On December 11, 1991, the General Assembly of the State of Georgia authorized the issuance of general obligation bonds of the State in the principal amount of $1,900,000.00 for the purpose of financing for the Board ofRegents of the University System of Georgia the rebuilding ofthe paper and fourdrinier machines previously granted to the Board ofRegents by the Agreement dated October 26, 1990. The Board ofRegents designated the Foundation as its agent to receive and apply the bond proceeds for these purposes. The Foundation agreed to repay the proceeds of the general obligation bonds to the Board of Regents of the University System of Georgia over a period of20 years with interest at 6.20%.

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HERTY FOUNDATION NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXHIBIT "D"

NOTE 5: LONG-TERM DEBT

TERMNOTE On June 30, 1992, the Herty Foundation entered into a term note with Trust Company Bank of Savannah, N.A., in the principal amount of $750,000.00 for the purpose of completing the High Speed Fourdrinier Project. The term note was established as a line of credit payable over a period of 15 years with interest at prune.

The changes in long-term debt during the fiscal year ended June 30, 1994, were as follows:

Balance July 1, 1993
Additions Amounts Received
Deductions Principal Retired
Balance June 30, 1994
(1) Excludes Interest

Total $ 2,320,610.47

Board of Regents (I) $1,795,610.47

Trust ComFany Banko
Savannah (I) $ 525,000.00

173,500.00

173,500.00

87,944.29

57,086.02

30,858.27

$2,406 166,18 $1,738,524.45 $ 667,641.73

At June 30, 1994, principal payments due by fiscal year are as follows:

Pa~entsDue in iscal Year Ending June 30
1995 1996 1997 1998 Thereafter
NOTE 6: RETIREMENT PLAN

Total Debt
$ 89,535.48 95,452.67 101,764.30 108,496.85
2,010,916.88
$2,406,166.18

Board of Regents
$ 60,617.12 64,366.64 68,348.10 72,575.83
1,472,616.76
$ L738,524.45

Trust ComFany Banko Savannah
$ 28,918.36 31,086.03 33,416.20 35,921.02 538,300.12
$ 667,641,73

BERTY FOUNDATION EMPLOYEE MONEY PURCHASE PENSION PLAN AND TRUST (HFEMPPPT) HFEMPPPT PLAN DESCRIPTION Substantially all employees are covered by the Herty Foundation Employee Money Purchase Pension Plan and Trust (HFEMPPPT), which is a defined contribution pension plan. HFEMPPPT provides service retirement and survivors' benefits for its members. A member is eligible for full service retirement benefits after attainment of age 65. A member applying for retirement who has not attained the normal retirement age

- 10 -

HERTY FOUNDATION NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXHIBIT "D"

NOTE 6: RETIREMENT PLAN

BERTY FOUNDATION EMPLOYEE MONEY PURCHASE PENSION PLAN AND TRUST (HFEMPPPT) HFEMPPPT PLAN DESCRIPTION receives benefits according to the member's vested interest. The nonnal retirement pension is payable monthly in the fonn ofan annuity for the life ofthe participant. Options are available for distribution of the member's monthly pension to a designated beneficiary on the member's death.

Members become fully vested after 6 years of service. If a member terminates with less than six years of service, the participant's vested interest is determined in accordance with the following schedule:

Years of Service
5 4 3 2 Less than2

Vesting Percentage
80% 60% 40/c, 20% 0%

The Foundation's payroll for employees covered by HFEMPPPT for the year ended June 30, 1994 was $1,438,580.40; total payroll was $1,644,196.95.

HFEMPPPT CONTRIBUTIONS REQUIRED AND MADE Effective January 1, 1984, ~he Herty Foundation approved to make monthly employer contributions equal to 5% of covered compensation to an Employer Contribution Account for each participant. Employees of the Herty Foundation who are covered by HFEMPPPT are not required to contribute to the plan.

Total contributions made during fiscal year 1994 amounted to $71,929.02, of which all was made by the Foundation and no amounts were made as voluntary contributions by employees. These contributions represented 5.00% of covered payroll.

HFEMPPPT FUNDING STATUS AND PROGRESS The amount ofthe total pension benefit assets is based on contributions and investment income earned by the plan. The total pension benefit assets ofHFEMPPPT as of June 30, 1994, was $909,314.14.

HFEMPPPT RELATED-PARTY INVESTMENTS During the fiscal year 1994 and as of June 30, 1994, the HFEMPPPT held no securities issued by the Foundation or other related parties.

NOTE7: MAJORCLIENT

The Foundation derives a substantial portion of its operating revenues from three clients. During fiscal year 1994, revenues from these clients aggregated 76% of total operating revenues. At June 30, 1994, amounts due from these clients included in accounts receivable were $547,338.38.

- 11 -

HERTY FOUNDATION NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1994

EXIIlBIT "D"

NOTE 8: LEAVE POLICIES
Full-time employees earn vacation leave ranging from 10 days after one year of employment, to 25 days each year depending upon the employees' length of continuous employment with the Foundation. Full-time employees with less than one year's service accumulate 1 day of vacation for each 5.2 calendar weeks of service. Vacation earned in one fiscal year is taken the following fiscal year. The vacation scheduling period for any length of service begins July 1 and extends through June 30, of the following year. Unused leave is
forfeited ifnot taken during the scheduling period unless directed by the Foundation to postpone the vacation
to the following year.
All full-time employees that have been employed more than 90 continuous days are covered by the Foundation's sick leave policy. Employees earn 10 days for medical absence in a fiscal year with a maximum accumulation of 90 days. Sick leave does not vest with the employee and unused accumulated sick leave is forfeited upon retirement or termination of employment.
NOTE 9: CONTINGENCIES
PENDING LITTGATION The Herty Foundation is a defendant in a lawsuit filed by individuals claiming injuries from exposure to asbestos products allegedly contained in products manufactured by the Foundation. As of the date of this report, we are unable to determine the extent ofliability, if any, in this matter.
NOTE 10: BONDING INFORMATION
All employees of the Herty Foundation are bonded. under a Public Employees Blanket Bond written by Employers Insurance of Wausau, their Bond No. 1450-00-110723, on which the premium was paid to October 1, 1994. Under this agreement the Public Employee Dishonesty Coverage insures the Herty Foundation to a maximum ofSl,000,000.00 against loss sustained through fraudulent or dishonest acts by its employees. The Faithful Performance ofDuty Coverage insures the Foundation to a maximum of $100,000.00 against loss sustained froni failure ofits employees to perform faithfully their duties or to account properly for all monies and property received by virtue oftheir position or employment.
All employees of the Herty Foundation are also bonded under a Commercial Crime Policy written by the United States Fire Insurance Company, their Policy No. 626 011675 2, on which the premium was paid to October 1, 1994. Under this additional public employee dishonesty coverage, the policy insures the Foundation to a maximum of$4,000,000.00 against loss sustained through fraudulent or dishonest acts by its employees.

- 12 -

SUPPLEMENTARY INFORMATION - 13 -

HERTY FOUNDATION CASH AND CASH EQUIVALENTS
JUNE 30, 1994

SCHEDULE "l"

NONINTEREST BEARING ACCOUNT
Trust Company Bank of Savannah, Savannah, Georgia
INTEREST BEARING ACCOUNTS
Bank South, N.A., Atlanta, Georgia
Money Market Account (2.60%)
NationsBank of Georgia, N.A., Savannah, Georgia
N.O.W. Accounts (4.19%)
NationsSecurities, Savannah, Georgia
Money Market Account (3.40%)
Trust Company Bank of Savannah, Savannah, Georgia
Honey Market Account (2.68%)
OTHER
Cash on Hand Petty Cash

$ 88,259.70

$ 98,653.21 79,528.11 96,562.73
285,835.35 560,579.40

$

100.00

2,607.34

2,707.34

$ 651,546.44
=============

See notes to the financial statements.

- 14 -

HERTY FOUNDATION INVESTMENTS
JUNE 30 1 1994

SCHEDULE "2"

INVESTMENT TYPE
---------------
u. s. Treasury Bi 11 s
NationsSecurities, Atlanta, Georgia
No. 912794R89
Trust Company Bank of Savannah, Savannah, Georgia
No. 912794R89 No. 912833FA3 No. 912833FA3

PURCHASE DATE
--------

MATURITY DATE
--------

AMOUNT

May 6, 1994

May 4, 1995

$ 190,360.00

May 18, 1994 May 18, 1994 May 20, 1994

May 4, 1995 May 15, 1995 May 15, 1995

61,966.67
603,485.58
252,502.60
-------------

$1,108,314.85

See notes to the financial statements.

- 15 -

HERTY FOUNDATION SCHEDULE OF PROPERTY AND ACCUMULATED DEPRECIATION
YEAR ENDED JUNE 30. 1994

SCHEDULE "3"

PROPERTY
Buildings
Improvements Other Than Buildings Leasehold Improvements and Pollution Control
Equipment Furniture and Fixtures Laboratory Maintenance Material Handling Motor Vehicle Plant
Total Equipment

BALANCE JULY 1, 1993

ADDITIONS

BALANCE RETIREMENTS JUNE 30, 1994

$5,877,763.00$ 116,905.00

$ 5,994,668.00

$ 368,886.00 $

8,456.00

------------- -------------

$ 377,342.00
-------------

$ 315,334.00 $ 7,809.00 $ 10,445.00 $ 312,698.00

740,387.00

710.00

741,097.00

53,230.00

4,837.00

58,067.00

87,059.00

87,059.00

22,009.00

22,009.00

13,133,477.44

695,935.22

13,829,412.66

------------- ------------- ------------- -------------

$14,351,496.44 $ 709,291.22 $ 10,445.00 $15,050,342.66
------------- ------------- ------------- -------------

Total Property

$20,598,145.44$ 834,652.22 $ 10,445.00 $21,422,352.66
============= ============= ============= =============

ACCUMULATED DEPRECIATION
Buildings
Improvements Other Than Buildings Leasehold Improvements and Pollution Control
Equipment Furniture and Fixtures Laboratory Maintenance Materi a1 Handling Motor Vehicle Plant
Total Equipment

$1,207,989.00$ 203,777.00

$ 1,411,766.00

$ 323,322.00 $ 19,168.00
------------- -------------

$ 342,490.00
-------------

$ 289,608.00 $ 12,407.00 $ 10,445.00 $ 291,570.00

401,908.00

59,156.00

461,064.00

44,678.00

4,544.00

49,222.00

76,042.00

3,276.00

79,318.00

22,009.00

22,009.00

3,032,047.00 400,595.00

3,432,642.00

------------- ------------- ------------- -------------

$ 3,866,292.00 $ 479,978.00 $ 10,445.00 $ 4,335,825.00
------------- ------------- ------------- -------------

Total Accumulated Depreciation See notes to the financial statements.

$5,397,603.00$ 702,923.00 $ 10,445.00$ 6,090,081.00
============= ============= ============= =============
- 16 -

HERTY FOUNDATION SCHEDULE OF OTHER OPERATING EXPENSES
YEAR ENDED JUNE 30 1 1994
REGULAR OPERATING EXPENSES
Bank Service Charges Board of Trustees' Expenses Continuing Education Contributions Freight Herty Events Inventory Write-Off Labor Burden and Overhead Miscellaneous Overtime Meals Recruitment Sales Promotion and Public Relations Security Services Small Tools Subscriptions and Dues Taxes and Licenses Temporary Services Uniforms
Less: Expense Recovery from Labor Burden and Overhead Billed to Customer Projects

See notes to the financial statements.

- 17 -

SCHEDULE "4"

$

395.86

278.44

88.00

200.00

32,739.49

6,511.63

2,161.14

1,282,689.72

351. 81

4,821.05

1,313.34

19,971.41

13,758.96

6,340.21

3,822.07

1,354.50

23,474.86

12,260.23
-------------
$1,412,532.72

-1,288,935.39

$ 123,597.33

HERTY FOUNDATION SCHEDULE OF PER DIEM AND FEES
YEAR ENDED JUNE 30. 1994

SCHEDULE "5"

Accounting Services Hancock, Askew and Company
Consultants John R. Starr, Incorporated Software Alternative
Physical Examinations of Employees Health Awareness Enterprises Lifeline Medical Center St. Joseph's Health Center

$ 13,875.00

$ 15,001.27 150.00

15,151.27

$

1,880.00

70.00

40.00

1,990.00

$ 31,016.27
=============

See notes to the financial statements.

- 18 -

SECTION II FINDINGS AND IMPROPER OR QUESTIONED COSTS

HERTY FOUNDATION SCHEDULE OF FINDINGS AND IMPROPER OR QUESTIONED COSTS
YEAR ENDED JUNE 30, 1994

STATUS OF PRIOR YEAR FINDING

The status ofthe finding disclosed in the review report for the year ended June 30, 1993, is summarized below:

Audit Control Number

Status ofFinding

909-93-01

See Audit Control Number 909-94-01

PRIOR YEAR/CURRENT YEAR

ACCOUNTING CONTROLS (OVERALL) Inadequate Separation ofDuties Financial Statements Audit Control Number 909-94-01

The review report for the year ended June 30, 1993, stated that the Foundation did not provide for adequate separation of duties in the perfonnance ofaccounting functions and related procedures for the Enterprise Fund. For the year under review, our audit noted no improvement regarding adequate separation of employee duties for the following control categories:

( 1) Cash and Cash Equivalents

(5) Employee Compensation

(2) Investments

(6) General Ledger

(3) Revenues/Receivables/Receipts

(4) Expenses/Liabilitie~ Disbursements

The Foundation should review the accounting procedures in place, design procedures which would enhance

segregation of duties relative to the above control categories, and implement those procedures to strengthen

the internal controls over the accounting function.