Kennesaw State University, Kennesaw, Georgia, report on review of the financial statements for the fiscal year ended June 30, 2002

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, STATE OF GEORGIA

DEPARTMENT OF A.UDITS AND ACCOUNTS ' '

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KENNESAW S,TATE UNIVERSITY

,r . KENNESAW. GEORGIA

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REPORT ON REVIEW

,OF THE FINANCIAL STATEMENTS

'FOR THE FISCAL 'YEAR ENDED JUf'JE 30, 2002

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Russell W. Hinton State Auditor
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KENNESAW STATE UNNERSITY -TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC l'JNANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENTS DISCUSSION AND ANALYSIS

BASIC FINANCIAL STATEMENTS

EXHIBITS

A STATEMENT OF NET ASSETS

B STAITMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

C STATEMENT OF CASH FLOWS

D NOTES TO THE FINANCIAL STATEMENl S

SUPPLEMENTARY INFORMATION

SCHEDULES

SCHEDULESOFREVENUESANDEXPENDTI1JRESCOMPARED1O

BUDGET - (NON-GAAP BASIS)

I

RESIDENT INSTRUCTION

2

LOTTERY FOR EDUCATION

3 RECONCILIATION OF SALARIES AND TRAVEL

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11
12
13 14
31 32 33

SECTION TI AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

KFNNESAW STATE UNNERSITY -TABLE OF CONTENTS-
SECTION ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

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DEPARTMENT OF AUDITS AND ACCOUNTS
~54 W.i-.hmg:1on <;;trcct ~ V,,.' Su11c 214 Atl,rn1:1, Gcorg1,1 ~lnW-X41KI
January 3I, 2003

Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the Umvers1ty System of Georgia
and Honorable Betty L Siegel, President Kennesaw State University
INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC FINANCIAL STATEMENTS A1'.'D SUPPLEMENTARY INFORMATION
Ladies and Gentlemen
We have reviewed the accompanying basic financial statements (Exh1b1ts A through D) ofKennesaw State Umverslly, an organ1zat10nal umt of the State of Georgia, as of and for the year ended June 30, 2002, in accordance with Statements on Standards for Accounting and Review Services issued by the Amencan Institute of Certified Pubhc Accountants All information included in these financial statements 1s the representation of the management of Kennesaw State University
A review consists pnnc1pally ofinqumes ofUmvers1ty personnel and analytical procedures applied to financial data It 1s substantially less in scope than an audit in accordance with auditing standards generally accepted in the Umted States of Amenca, the ob3ective of which 1s the express10n of an opin10n regarding the financial statements taken as a whole Accordingly, we do not express such an opin10n
Based on our review, with the except10n of the matter discussed in the fourth paragraph, we arc not aware of any matenal modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting pnnc1plcs generally accepted in the Umte<l States of Amenca
As descnbed m Note I to the financial statements, the University did not recogmzc June 30, 2001, encumbrances as expenses in the June 30, 2002, basic financial statements To conform to generally accepted accounting pnnc1plcs, encumbrances should be recogmzed as expenses and hab1hlles in the penod that goods and services are received 1be effects on the basic financial statements of this departure from generally accepted accounting pnnc1ples were not reasonably determinable
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As descnbed m Note I, Kennesaw State Umvers1ty adopted the prov1s1ons of Governmental Accountmg Standards Board (GASB) Statement No 35, Basic Fmancral Statements - and Management's Discussion and Analysis - for Public Colleges and Universll1es, as amended by GASB Statement No. 37, Basic Financial Statements-and Management's Discussion and Analysis for State and Local Governments, and GASB Statement No 38, Certain Fmancral Statements Note Disclosures, as of July I, 2001, to implement a new financial reportmg model
Management's D1scuss10n and Analysis 1s not a required part ofthe basic financial statements but 1s supplementary mformat1on required by the GASB We have apphed certam hm1ted procedures, which consisted pnnc1pally ofmqumes ofmanagement regardmg the methods ofmeasurement and prcsentallon of this supplementary mformat1on, and we are not aware of any matenal mod1ficat1ons that should be made thereto
Our review was made for the purpose of expressmg limited assurance that there are no matenal mod1ficat1ons that should be made to the financial statements m order for them to be m conformity with accountmg pnnc1ples generally accepted m the Umted States of Amenca The accompanymg supplementary mformation (Schedules I through 3) 1s presented for add11Ional analysis purposes Such mformallon has been subjected to the mqumes and analytical procedures apphed m the review of the financial statements, and we are not aware ofany matenal mod1ficallons that should be made to such data
R"'Po,fully~bm,~ ~

RWH as 02ARL-67

Hmton Stat Auditor

Rr.QUIRE:D SUPPLEMENTARY INFORMATION -I-

Kennesaw State University
Management's Discussion and Analysis

Introduction

Kennesaw State Umvers1ty 1s one of the 34 institutions of the Umvers1ty System of Georgia The Umvers1ty, located in Kennesaw, Georgia, was founded in 1963 and 1s rccogmzed as a highly valued resource for the region's educational, economic, social and cultural advancement. The Umvers1ty offers baccalaureate and masters degrees in a wide vanety of subjects. ThlS wide range of educational opporturutles attracts a lughly qualified faculty and a student body ofmore than I3,000 students each year The institution continues to grow as shown by the companson numbers that follow

Faculty

Students

FY2002 FY2001 FY2000

389

13,951

375

13,373

371

13,158

Overview ofthe Financial Statements and Financial Analysis

Kennesaw State Umvers1ty 1s proud to present its financial statements for fiscal year 2002 The emphasis of d1scuss10ns about these statements will be on current year data There are three financial statements presented the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets; and, the Statement of Cash Flows This d1scuss1on and analysis of the Umvcrs1ty's financial statements provides an overview of its financial activities for the year Kennesaw State Umvers1ty has elected to not restate pnor pcnods for purposes of providing the comparative data for this Management's D1scuss10n and Analysis. However, in future years, when pnor pcnod informat10n 1s available, a comparative analysis will be presented

Statement ofNet Assets

The Statement of Net Assets presents the assets, hab1ht1es, and net assets ofthe Umvers1ty as of the end of the fiscal year. The Statement of Net Assets 1s a point of time financial statement The purpose ofthe Statement of Net Assets 1s to present to the readers ofthe financial statements a fiscal snapshot of Kennesaw State Umvers1ty The Statement of Net Assets presents end-of-year data concerning Assets (current and non-current), L1ab1htles (current and non-current), and Net Assets (assets minus hab1ht1es) The difference between current and non-current assets Will be discussed in the notes to the financial statements

From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operat10ns ofthe institution They are also able to determine how much the institution owes vendors, investors and lending institutions.

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Finally, the Statement ofNet Assets provides a picture ofthe net assets (assets minus hab1httes) and their availab1hty for expenditure by the mst1tutton Net assets are d1v1dcd mto three maJor categones The first category, invested m capital assets, net ofdebt, proVJdes the institution's equity m property, plant and equipment owned by the mstttut10n The next asset category 1s rcstncted net assets, which 1s d1v1dcd into two categoncs, nonexpendable and expendable The corpus of noncxpendable restnctcd resources 1s only available for investment purposes Expendable restnctcd net assets are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external ent1t1es that have placed time or purpose restnct10ns on the use of the assets The final category 1s unrestncted net assets Unrestncted assets are available to the instttuhon for any lawful purpose of the mstttut1on

Statement of Net Assets, Condensed (thousands of dollars)

Assets Current Assets Capital Assets, Net Other Assets

S 36,534 73,382 1,206

Total Assets

S111,122

Liabilities Current L1ab1httes Non-Current Ltab1ht1es

$ 22,245 1,525

Total Liabilities

$ 23,770

Net Assets Invested m Capital Assets, Net of Debt Rcstncted - Nonexpendable Rcstncted - Expendable Unrestnctcd

$ 73,382 388 471
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Total Net Assets

$ ~7,J~~

Statement ofRel'enues, Expenses and Changes in Net Assets

Changes m total net assets as presented on the Statement of Net Assets are based on the act1v1ty presented m the Statement of Revenues, Expenses and Changes in Net Assets The purpose of the statement 1s to present the revenues received by the ms!Itut10n, both operatmg and nonoperatmg, and the expenses paid by the mslltut10n, operating and nonoperating, and any other revenues. expenses, gams and losses received or spent by the mst1tu!Ion Generally speakmg operatmg revenues arc rcce1ve-0 for providing goods and services to the various customers and constituencies of the mst1tut10n Operatmg expenses are those expenses paid to acquire or produce the goods and services provided m return for the operatmg revenues, and to carry out the m1ss10n of the mst1tuhon Nonopcrattng revenues are revenues received for which goods and services arc not provided For

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example state appropnatlons are nonoperatmg because they are provided by the Legislature to the mstltutlon without the Legislature directly rece1vmg commensurate goods and services for those revenues

Statement of Revenues, Expenses and Changes m Net Assets, Condensed (thousands of dollars)

Operatmg Revenues Operatmg Expenses

$ 48,602 107 949

Operatmg Loss

$ -59,347

Nonopcratmg Revenues and Expenses

61,954

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

$ 2,607

Other Revenues, Expenses, Garns or Losses

4 390

Increase m Net Assets

S 6 997

Net Assets at Begmnmg of Year, as Ongmally Reported

$152,320

Cumulative Effect of Changes m Accountmg Pnnc1ple

-71,965

Net Assets at Begmrung of Year Restated

$ 80,355

Net Assets at End of Year

The Statement of Revenues, Expenses and Changes m Net Assets reflects a pos11Ive year with an mcrease m the net assets at the end of the year Some h1ghhghts ofthe mfonnat10n presented on the Statement of Revenues, Expenses and Changes m Net Assets are as follows

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Revenue By Source (thousands of dollars) For The Year Ended June 30, 2002

Operatmg Revenue Tmt1on and Fees Grants and Contracts Sales and Services of Educahonal Departments Aux1hary Other
Total Operatmg Revenue
Nonoperatmg Revenue State Appropnatlons Investment Income Other
Total Nonoperatmg Revenue
Total Revenues

$ 26,350 5,414 5,540 10,320 978
$ 48,602
$ 56,467 786
4 701
$ 61,954
$110.556

Expenses (thousands of dollars) For The Year Ended June 30, 2002

Operatmg Expenses Instruction Research Pubhc Service Academic Support Student Services lnst1tut1onal Support Plant Operat10ns and Mamtenance Scholarslups and Fellowships Aux1hary Enterpnses Unallocated Depreciation

$ 46,332 11
4,448 12,490 6,662 16,023 10,233
214 7,309 4,227

Total Expenses

$)07.949

Statement ofCash Flows

The final statement presented by Kennesaw State Umvers1ty 1s the Statement of Cash Flows The Statement of Cash Flows presents detailed mformatlon about the cash activity of the mstltutlon dunng the year. The statement 1s divided mto five parts The first part deals with operatmg cash

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flows and shows the net cash used by the operatmg acliv11ies of the ms11tut10n The second seclion reflects cash flows from non-capital finanemg act1v1t1es This section reflects the cash received and spent for nonoperatmg, non-mvesling, and non-capital finanemg purposes The thud seclion reflects the cash flows from mvesling acl!VIl!es and shows the purchases, proceeds, and mterest received from mvestmg act1v1t1es The fourth section deals with cash flows from capital and related financmg ac!Iv1!Ies This section deals with the cash used for the acqms1t10n and construct10n of capital and related items. The fifth sect10n reconciles the net cash used to the operatmg mcome or loss reflected on the Statement of Revenues, Expenses and Changes m Net Assets.

Cash Flows for the Year Ended June 30, 2002, Condensed (thousands of dollars)

Cash Provided (Used) By Operatmg Act1v11les Non-Capital Fmancmg Act1v11les Investmg Act1v1t1es Capital and Related Fmancmg Act1v1t1es

$ -62,674 63,622 767 -2,002

Net Change m Cash Cash, Begmnmg of Year

$ -287 16,917

Cash, End of Year Capital Assets

$ 16.630

The Clendenm Bu1ldmg was completed and opened on June 30, 2002 The Georgia State Fmancmg and Investment Comm1ss10n (GSFIC) funded $4,390,000 for this project S1gruficant upgrades were made to the HVAC m the Social Science Bmldmg Projected fundmg by GSFIC for fiscal year 2003 for a major capital project, the Classroom Convocation Center, will be approximately $20,425,000

For add1t1onal mformallon concemmg Capital Assets, see Notes I and 6 m the notes to the financial statements

Economic Outlook

The Umvers1ty 1s not aware of any currently known facts, dec1S1ons, or cond1uons that are expected to have a s1gmficant effect on the financial pos1Uon or results of operalions dunng this fiscal year beyond those unknown vanauons havmg a global effect on virtually all types ofbusmess operations The Umvers1ty's overall financial pos1t1on 1s strong The Umvers1ty anticipates the current fiscal year WIii be much hke last and will mamtam a close watch over resources to mamtam the Umvers1ty's ab1hty to react to unknown mtemal and external issues

Betty L Siegel, President Kennesaw State Umvers1ty

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BASIC FINANCIAL Sl Al EMENTS
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KENNESAW STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30 2002
ASSETS
Current Assets Cash and Cash Equivalents Short-Tern, Investments Accounts Receivable, Net Federal Fmanc,al Assistance Other 'Prepaid Items lnventones
Total Current Assets
Noncurrent Assets Investments Notes Receivable, Net Capital Assets, Net (See Nole 6J
Total Noncurrent Assets
Total Assets
LIABILITIES
Current L1ab1lrt1es Salanes Payable Payroll Wrthholdmgs Accounts Payable Deferred Revenue Funds Held for Others Compensated Absences
Total Current l.Jab1hbes
Noncurrent Llab1hbes Compensated Absences
Total l.Jab1lrtles
NET ASSETS
Invested in Capital Assets Net of Related Debi Restncted for
Nonexpendable Expendable Unrestncted
Total Net Assets
See Independent Accountant's Combined Report on Review of Bas,c FmanCllll Statements and Supplementary lnfom,abon
The notes to the financial statements are an integral part of this statement
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EXHIBIT"A"

$ 16,629,774 93 3,809,745 71
691,042 77 14,263 991 43
153,212 15 986,502 32
$ 36,534 269 31

s

782,061 84

423,394 52

73 38192504

$ 74 587 381 40

$ 111 121 650 71

s

229 899 64

651,599 34

1,345,11068

17,067,894 28

1,255,091 74

1 695 184 47

$ 22,244,780 15

152471502 $ 23,769,495 17

$ 73,381,925 04
388,324 68 471,157 21 1311074861

$ 87,352,155 54

KENNESAW STATE UNM;RSITY STATEMENT OF REVENUES EXPENSES ANP CHANGES IN NET ASSETS
YEAR ENPEP JUNE 30 2002
OPERATING REVENUES
Student Turuon al'ld Fees Less Scholarship Allowances
Granta and Contracts Federal
Rents and Royaltle.s Sales and Services of Educabonal Departments Auxiliary Enterprises
Residence Halls Bookstore Food ServlC&S Parku,g/Transportabon tntercoDegiate Athlebcs Other Organizabons Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salano,
Faculty Staff Employee Benefits Travel Schoiarsh1ps and Fellowahlps Ubllbea Supplies end Other Ser\Jices Depreciation
Total Operating Expenses
Operamg Income (Loss)
NONQPERATING REVENUES (EXPENSES)
State Appropnations Grants and Contracts
Federal State Local Nongovernmental
G,fts
Interest and Other lnveslment Income Other Nonoperatmg Revenues
Net Nonoperabng Revenues
Income Be1ore Other Revenues, Expenses Gains or Losses
Capttal Grants and Gifts Stale
lncrease/(Deaeaee) in Net Assets
Net Assets Nel Assets - Beginning of Year, as Oog111alty Reported Cumulabve Effect of Changes In Accounting Pnnciple
Net Asaets Beginning of Year Restated
Net Aaaets - End of Year
See Independent Accountant a Combined Report on Review of Baalc Flnanaa1 Statements and Supplementary Information
The notes to tha financial statements are an integral part of this statement

EXHIBIT "B"

s 33 382 835 82
-7,033,545 00
5,413,n4 16 5 500 00
5,540 469 45
630 291 06 5186 594 10
203 129 48 2 096 146 12 2,199,684 45
10197411 972 863 73
s 46 601 737 48

s 26 219 816 22
33 035 526 10 13 674 902 77
1,076,561 02 444 916 50
2,349,591 10 24 921 274 30
4 226 603 40
s 107 949 195 41
s -59 347 457 93

s 56,467,454 50

1 864 807 24 1 572 438 44
434 647 67 95511198
100 00 78621957 -146 507 34
s 61 El54 472 06

$

2 607 014 13

4 390 000 00

$

6 9g7 014 13

s 152 319 689 07
71 964 547 66
s 80 355 141 41

$ 87 352 155 54

KENNESAW STATE UNJYERSrTY STATEMENT OF CASH FLOWS YEAR ENPEP JUNE 30 2002
CASH FLOWS FROM OPERATING ACTMTIES Tuition and Fees Grants and Contracts Sales alld Services or Educabonet Departments
Payments to Suppliers
Payments to Employees Payments for Scholarships and F&nowshlp,
Loans ls.sued to Students and Employees Collecbon of Loans to Students 1nd Employees Aux1iary Enterprise Charges
Residence Halls Bookstore Food Services Par1'.rn;/Transportabon Intercollegiate Athlebcs Other Organlzatons Other Receipts (Payments)
Net Cash Provided (Used) by Operating Acttvl!JH
CASH FLOWS FROM NONCAPITAL FINANCING ACTMTIES State Appropnabons Agency Funds Transacbons Gifts and Grants Recetved for Other than Caprtal Purposes Other Nonoperatmg Receipts
Net Cash FIOws Provided (Uaed) by Noncaprtal Financing Activrties
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of Caprtal A5seta
CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments
Net lncreasel(Decraase) in Cash
Cash and Cash Equivalents - Jul\e 30, 2001 Less Short-Tenn Investments
Cash and Cash Equivalents - Begrnmng of Year
Cash and Cash Equ1vatenta - End of Year
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Operabng Income (Loss)
Adjustment, k> Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operal:Jng ActNrbes Deprecetlon Change m A.5,ets and llabllrbes Accounts Recetvables Net lnventones Prepaid Items Notes Receivables Net Accounts Payable Salanes Payab1e Deferred Revenue Compensated Absences
Net Cash Provided (Used) by Operating Acbvltles
See Independent Accountant's Combined Report on Review or Basic Financtal Statements and Supplementary Informal.Jon
The notes to the financial statements are en Integral part or this statement
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EXHIBIT ~C"

$ 35,351,502 38 541377416 5,540,469 45
-47 552 512 61 -61,375 463 56
-444 918 50 1,078,21311 1,080,680 73
530 291 08 5 188,594 10
203,129 48 2 098,146 12 2,199,684 45
10197411 -9 929 514 10
$ -62 674 375 84

$ 56 467,454 50 1,051,683 07 6 103 226 27 -25 00
$ 63 622 338 84

$ -2 001 856 84

$

786 784 84

$

-287 109 00

$ 20,706,642 93 -3 789 759 00

$ 18 916 883 g3

$ 18 629 774 93

$ -59,347 457 93
4 226,603 40
-12 631 707 88 -192172 19 25 811 98 2,467 62
-5 350 461 90 -19 374 21
10 712 660 12 -100 745 03
$ 82 874 375 84

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 2002

EXHIBIT "D"

NOTE I SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS Kennesaw State Umvers1ty serves the state, and national comrnumtles by prov1dmg its students with academic mstruction that advances fundamental knowledge, and by d1ssemmatmg knowledge to the people of Georgia and throughout the country
REPORTING ENTITY Kennesaw State Umvers1ty 1s one of thirty-four (34) State supported member mstltut1ons ofh1gher educat10n m Georgia which comprise the Umvers1ty System ofGeorgia, an orgaruzatlonal umt ofthe State of Georgia The accompanymg financial statements reflect the operations of Kennesaw State Umvers1ty as a separate reportmg entity.
The Board of Regents has constitutional authonty to govern, control and manage the Umvers1ty System ofGeorgia This authonty mcludes but 1s not hm1ted to the power to designate management, the ab1hty to s1gn1ficantly mfluence operations, the authonty to control mst1tut10ns' budgets, the power to determme allotments of State funds to member mst1tulions and the authonty to prescnbe accountmg systems and adm1mstrat1ve pohc1es for member mstltutlons Kennesaw State Umvers1ty docs not have authonty to retam unexpended State appropnations (surplus) for any given fiscal year Accordmgly, Kennesaw State Uruvers1ty 1s considered an orgaruzational urut ofthe Board ofRegents of the Umvers1ty System of Georgia reportmg entity for financial reportmg purposes because of the s1gmficance of1ts legal, operat10nal, and financial relat1onslups with the Board of Regents as defined m Section 2100 of the Governmental Accounting Standards Board (GASB) Cod1ficat1on of Governmental Accountmg and Fmanc1al Reportmg Standards
FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No 34, Basic Financial Statements and Afanagement D1scusswn and Analysisfor State and Local Governments This was followed m November 1999 by GASB Statement No 35, Basic Financial Statements and Management's D1scuss1on and Analysis for Pub!zc Colleges and Umvers1t1es The State of Georgia 1s reqwred to implement GASB Statement No. 34 as of and for the year ended June 30, 2002 As an organ1zat10nal umt of the State of Georgia, the Umvers1ty 1s also reqmred to adopt GASB Statements No 34 and No 35 as amended by GASB Statements No 37 and No 38 The financial statement presentation reqmred by GASB Statements No 34 and No 35 as amended by GASB Statements No 37 and No 38 provides a comprehensive, entity-wide perspective of the Umvers1ty's assets, hab1ht1es, net assets, revenues, expenses, changes m net assets, cash flows, and replaces the fund group perspective prev10usly required
The Umvers1ty has elected to not restate its 2001 financial statements to conform with the new financial statement presentation, therefore comparative financial mformat1on will not be presented for fiscal year 2002. S1gmfieant accountmg changes made m order to comply with the new reqmrements mclude (1) adoption of depreciation on capital assets, and (2) rccognlllon of compensated absences. Generally Accepted Accountmg Pnnc1ples (GAAP) reqmres that the
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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 2002

EXHIBIT "D"

NOTE I SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year Due to the lack ofmatenahty, Inst1tut10ns ofthe Umvers1ty System ofGeorgia will contmue to report summer revenues and expenses in the year in which the predominate actJVIty takes place
At June 30, 2001, encumbrances (contractual obhgahons for goods and services not received at fiscal year end) were recorded as expenditures by the Umvers1ty instead ofreservahons offund balance as required by generally accepted accountmg pnnc1ples. For fiscal year 2002, the Umvers1ty changed Its method ofrecording encumbrances such that encumbrances at June 30, 2002 were not recorded as expenses This change 1s in accordance with generally accepted accounting pnnc1ples
No adJustments however, have been made on the financial statements to restate the fund balance at July I, 2001 for the June 30, 2001 encumbrances recorded as expenditures in fiscal year 2001 The net effect of the above accounting treatment resulted in an understatement of expenses on the accompanying financial statements for pnor year encumbrances wluch should have been reflected as expenses in the penod when goods and services were received
BASIS OF ACCOUNTING For financial reporting purposes, the Umvers1ty 1s considered a special-purpose government engaged only in business-type act1v1hes Accordingly, the Umvers1ty's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the preceding paragraphs Under the accrual basis, revenues are recogmzed when earned, and expenses are recorded when an obhgahon has been incurred All s1gmficant intraumvers1ty transactions have been ehminated
The Umvers1ty has the option to apply all Financial Accounting Standards Board (FASS) pronouncements ISsued after November 30, 1989, unless FASS conflicts with GASS The Umverslly has elected to not apply FASB pronouncements issued after the applicable date
RESTATEMENT OF NET ASSETS - BEGINNING OF YEAR As a result of the adopuon of GASB Statement No 34, the Umvers1ty was also reqmred to make certain changes in accounting pnnc1ples, specifically (I) adoption ofdepreciation on capital assets, and (2) recording of compensated absences GASS Statement No 34 reqmres certain summer semester revenues be recogmzed between fiscal years rather than the fiscal year m which the semester was predominantly conducted The Umvers1ty System ofGeorgia has chosen to continue to record summer revenue m the year m which the semester was predominantly conducted Net assets at July I, 2001 were reduced by $71,964,547.66 for the cumulative effect of these changes
CASH AND CASH EQUIVALENTS/SHORT-TERM INVESTMENTS Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits m authonzed financial mst1tut1ons, and cash management pools that have the general charactenstlcs of demand deposit accounts
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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 2002

EXHIBIT "D"

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS The Umvers1ty accounts for its mvestments at fair value m accordance with GASB Statement No 31, Accounllng and Financial Reponingfor Certain Investments andfor External Jnvesrment Pools Changes m unrealized gam (loss) on the carrymg value ofmvestments are reported as a component ofmvestment mcome m the statements of revenues, expenses, and changes m net assets
ACCOUNTS RECEIVABLE Accounts receivable consists oftmt10n and fee charges to students and aux1hary enterpnse sel"Vlces provided to students, faculty and staff, the maJonty of each res1dmg m the State of Georgia Accounts receivable also mclude amounts due from the Federal governrnent, state and local governrnents, or pnvate sources, m connection with reimbursement ofallowable expenditures made pursuant to the Umvers1ty's grant and contracts Accounts receivable are recorded net of estimated uncollectlble amounts
INVENTORIES Resale Inventones are valued at cost usmg the weighted average method
NON-CURRENT CASH AND INVESTMENTS Cash and mvestments that are externally restncted and cannot be used to pay current hab1ht1es are classified as non-current assets m the statements of net assets
CAPITAL ASSETS Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation m the case ofgifts For equipment, the Umvers1ty's cap1tahzatlon pohey mcludes all Items with a umt cost of $5,000 00 or more, and an estimated useful hfe of greater than one year Renovat10ns to buildmgs, mfrastructure, and land improvements that exceed $100,000 00 and s1gmficantly mcreasc the value or extend the useful hfe of the structure are cap1tal1zcd Routme repairs and maintenance are charged to operatmg expense m the year m which the expense was mcurred Depreciat10n 1s computed usmg the stra1ght-lme method over the estimated useful hves of the assets, generally 40 to 60 years for bmldmgs, 20 to 25 years for mfrastructure and land improvements, 10 years for hbrary books, and 3 to 7 years for equipment
To obtam the total picture of plant add11lons m the Umvers1ty System, II 1s necessary to look at the act1v1t1es ofthe Georgia State Fmancmg and Investment Comm1ss1on (GSFIC)- an organization that 1s external to the System GSFIC issues bonds for and on behalfofthe State ofGeorgia, pursuant to powers granted to 1t m the Constitution ofthe State of Georgia and the Act creatmg the GSFIC The bonds so issued constitute direct and general obhgallons of the State of Georgia, to the payment of which the full faith, credit and taxmg power of the State are pledged

- 16 -

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002

EXHIBIT "D"

NOTE I SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CAPITAL ASSETS Effective July 1, 2001, the GSFIC retams construction ID progress on their books throughout the construction penod and transfers the entire project to Kennesaw State Umvers1ty when complete For the year ended June 30, 2002, GSFIC transferred capital add1t10ns valued at $4,390,000 00 to Kennesaw State Uruvcrs1ty.
DEFERRED REVENUES Deferred revenues mclude amounts received for tmt1on and fees and certam aux1hary actlVJtles pnor to the end ofthe fiscal year but related to the subsequent accountmg penod Deferred revenues also mclude amounts received from grant and contract sponsors that have not yet been earned
COMPENSATED ABSENCES Employee vacation pay 1s accrued at year-end for financial statement purposes The hab1hty and expense mcurred are recorded at year-end as accrued vacation payable m the Statement of Net Assets, and as a component of compensat10n and benefit expense m the Statements of Revenues, Expenses, and Changes m Net Assets Kennesaw State Uruvers1ty had accrued hab1hty for compensated absences ID the amount of$3,320,644.52 as of July 1, 2001 For Fiscal Year 2002, $1,594.439.44 was earned m compensated absences and employees were paid $1,695,184 47, for a net decrease of$100,745 03
NON-CURRENT LIABILITIES Non-current hab1hhes mclude (1) hab1ht1es that will not be paid w1thm the next fiscal year, and (2) other hab1hhcs that, although payable w1thm one year. are to be paid from funds that are classified as non-current assets
NET ASSETS The Uruvers1ty's net assets are classified as follows
Invested m capital assets, net ofrelated debt This represents the Uruvers1ty's total 1Dvestment m capital assets, net of outstandmg debt obhgat1ons related to those capital assets To the extent debt has been mcurred but not yet expended for capital assets, such amounts are not mcluded as a component ofmvested ID capital assets, net ofrelated debt (The term "debt obligations" as used m this dcfiruhon does not mclude debt of the GSFIC as discussed above)
Restr1c1ed net assets - nonexpendable Nonexpendable restncted net assets consist of endowment and s1m1lar type funds ID which donors or other outside sources have stipulated, as a cond1t10n of the gift IDStrument. that the pnnc1pal 1s to be mamta1Dcd mv1olate and m perpetuity, and invested for the purpose of producmg present and future mcome, which may either be expended or added to pnnc1pal. The Umvers1ty may accumulate as much ofthe aI!Ilual net 1Dcome of an ms1ttut1onal fund as 1s prudent under the standard estabhshed by Code Seclton 44-15-7 ofAnnotated Code ofGeorgia

- 17 -

KENNESAW STATE UNNERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 2002

EXHIBIT "D"

NOTE I: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NET ASSETS Restricted net assets - expendable Restricted expendable net assets mclude resources m which the Urnvers1ty 1s legally or contractually obhgated to spend resources in accordance with restncllons imposed by external third parties
Unrestricted net assets Unrestncted net assets represent resources denved from student tuition and fees, state appropnatlons, and sales and services of educational departments and aux1hary enterpnses These resources are used for transactions relating to the educational and general operations of the Urnvcrs1ty, and may be used at the d1screhon of the governing board to meet current expenses for those purposes, except for unexpended state appropnallons (surplus) of $169,930 25 Unexpended state appropnat10ns must be refunded to the Board of Regents of the Umvers1ty System of Georgia - Adm1rnstrat1ve Central Office for remittance to the Office of Treasury and Fiscal Services These resources also mclude aux1hary enterpnses, which arc substantially self-supporting ac1Iv1t1es that provide seTVJces for students, faculty and staff
When an expense 1s mcurred that can be paid using either restricted or unrestncted resources, the Umvers1ty's policy 1s to first apply the expense towards unrestricted resources, and then towards restncted resources
INCOME TAXES Kennesaw State Urnvcrs1ty, as a pohllcal subd1v1s10n of the State of Georgia, 1s excluded from Federal mcome taxes under Section 115(1) of the Internal Revenue Code, as amended
CLASSIFICATION OF REVENUES The Umvers1ty has classified its revenues as either operating or non-operating revenues in the Statement of Revenues, E,penses, and Changes m Net Assets according to the fol10\~1ng cntcna
Operating revenues Operating revenues include act1v1tles that have the charactcnst1cs ofexchange transactions. such as (I) student tuition and fees, net ofscholarship allowances, (2) sales and services of aux1hary enterpnses, (3) most Federal, state and local grants and contracts and Federal appropnat1ons, and (4) interest on 1nslltutlonal student loans
Non-operating revenues Non-operating revenues include act1v1hes that have the charactenshcs of non-exchange transactions. such as gifts and contnbut10ns, and other revenue sources that arc defined as non-operating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Enhlles 11zat Use Proprietary Fund Accountmg, and GASB No 34, such as state appropnahons and investment income
SCHOLARSHIP ALLOWANCES Student tuition and fee revenues, and certain other revenues from students. are reported at gross with a contra revenue account of scholarship allowances m the Statement of Revenues, Expenses and Changes in Net Assets Scholarslup allowances are the difference between the stated charge for
- 18 -

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002

EXHIBIT "D"

NOTE I SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SCHOLARSHIP ALLOWANCES goods and services proVJded by the Umvers1ty, and the amount that 1s paid by students and/or third parties makmg payments on the students' behalf Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs, are recorded as either operatmg or nonoperatmg revenues m the Umvers1ty's financial statements To the extent that revenues from such programs arc used to satisfy tuition and fees and other student charges, the Umvers1ty has recorded contra revenue for scholarship allowances
NOTE 2 CASH AND CASH EQUIVALENTS, OTHER DEPOSITS, AND INVESTMENTS
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds belongmg to the State ofGeorgia (and thus Kennesaw State Umverslty) cannot be placed ma depository paymg mterest longer than ten days without the depository prov1dmg a surety bond to the State In heu of a surety bond, the depository may pledge as collateral any one or more of the followmg secuntles as enumerated m the Official Code of Georgia Annotated Sect10n 50-17-59
1. Bonds, b111, cert1 ficates ofmdebtedness, notes, or other drrect obhgatlons ofthe Umted States or of the State of Georgia
2 Bonds, bills, certificates of mdebtcdncss, notes, or other obhgatlons of the counties or mumc1paht1es of the State of Georgia
3 Bonds of any pubhe authonty created by the laws of the State of Georgia, prov1dmg that the statute that created the authonty authonzcd the use of the bonds for this purpose
4 Industnal revenue bonds and bonds of development authontlcs created by the laws of the State of Georgia
5 Bonds, bills, certificates of mdebtedness, notes, or other obhgatlons of a subs1d1ary corporation of the Umted States government, which are fully !,'llllflll1teed by the Umted States government both as to pnnc1pal and mterest, or debt obhgat10ns 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 Assoc1at1on
6 Guarantee or msurance ofaccounts provided by the Federal Deposit Insurance Corporat10n
As authorized m the Official Code of Georgia Annotated Section 50-17-53, the State Depository Board has adopted pohc1cs which allow agencies of the State of Georgia (and thus Kennesaw State Umvers1ty), the option of exemptmg demand deposits from the collateral requuements

- 19 -

KENNESAW STATE UNNERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 2002

EXHIBIT "D"

NOTE 2: CASH AND CASH EOUNALENTS. OTHER DEPOSITS, AND INVESTMENTS

STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES The Treasurer ofthe Board ofRegents 1s responsible for all deta!ls relatwe to funushmg the reqmred depository protection for all umts of the Umvers1ty System of Georgia.

CATEGORIZATION OF DEPOSITS The Umvers1ty's cash deposits are categonzed by nsk as follows:

Category I - Amounts covered by depository msurance or collaterahzed with secuntles (at fair value) held by the Umvers1ty or by Its agent m the Umvers1ty's name

Category 2 - Amounts collaterahzed with securities (at fair value) held by the pledging financial mstltutlon's trust department or agent m the Umvers1ty's name

Category 3 - Amounts collaterahzed With secuntles (at fair value) held by the pledging financial mstltut10n, or by its trust department or agent but not m the Umvers1ty's name, and amounts uncollaterahzed

Cash Deposits as of June 30, 2002 are as follows.

Cash Depos11.s

Carrymg
Amount

Bank Bal,mccs

Risi,. C'..atcgones

S,L(j~7 714,93 s20 8"'0 706 21 s 100 000 oo s_ _,...co.,.,po,,, s20.720 706 91

CATEGORIZATION OF INVESTMENTS The Umvers1ty's mvestments are categorized as to credit nsk w1thm the three categones descnbed below

Category 1 - Insured or registered, or secunt1es held by the Umvers1ty or its agent m the Umvers1ty's name

Category 2 - Unmsured and unregistered, with secunt1es held by the counter party's trust department or agent m the Umvers1ty's name

Category 3 - Unmsurcd and unregistered, with secuntles held by the counter party, or by Its trust department or agent, but not m the Umvers1ty's name

At June 30, 2002, the Umvers1ty's investments consisted of the folloWing

- 20 -

KENNESAW STATE UNNERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 2002

EXHIBIT "D"

NOTE 2 CASH AND CASH EOUNALENTS. OTHER DEPOSITS. AND INVESTMENTS

CATEGORIZATION OF INVESTMENTS

Risk Categones

Type of Investments

2

1

Cmymg Amount

U S Government Sccunt1cs

$

0 00 $~-~0=.0=Q $ 699 635~ $ 699,635 82

Investments Not SubJcct to Catcgonzatlons Boani of Regents
Legal Fund Short-Tenn Fund Investment Portfolm Accounts Mutual Funds

1,057,400 65 2,752,345 06
82,426 02

Total Investments

SJ.W_,807.55

Funds mvested man mvestrnent pool managed by another governmental entity are not reqmred to be categonzed since the Umvers1ty did not own any specific, 1denttfiable mvestmcnt secunt1es of the pool.

NOTE 3 ACCOUNTS RECEIVABLE

Accounts receivable consisted of the followmg at June 30, 2002

Student Tmt10n and Fees Aux1hary Enterpnses and Other Operatmg Act1v1ttes Federal, State, and Pnvate Funds Other

$ 2,229,705 11 59,469 19
1,423,263 09 11.405.522 78

$15,1 I 7,960 17

Less Allowance for Doubtful Accounts

162.925 97

Net Accounts Receivable

$ I4 95i,034,20

NOTE 4 INVENTORIES

Inventones consisted of the followmg at June 30, 2002

Bookstore

$ 986,502.32

NOTE 5 NOTES/LOANS RECETVABLE

Notes/Loans receivable at June 30, 2002, pnmanly consist ofstudent loans made through the Federal Perkms Loan Program (the Program) The Program provides for cancellation of a loan -at rates of 10% to 30% per year up to a maximum of I00% 1fthe part1c1pant complies with certam prov1s1ons

- 2I -

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002

EXHIBIT "D"

NOTE 5: NOTES/LOANS RECEIVABLE

The Federal government reimburses the Umvers1ty for amounts cancelled under these proV1s1ons As the Umvers1ty determmes that loans are uncollecuble and not ehg1ble for reimbursement by the Federal government, the loans are wntten off and assigned to the U S Department of Education

NOTE 6 CAPITAL ASSETS

The balance at July I, 2001 was adjusted for accountmg changes reqmred m 1mplementmg GASB Statements 34 and 35 as disclosed m Note 1 Followmg are the changes m capital assets for the year ended June 30, 2002

Adjusted Balance iYIX I, 2001

i1,dd1t1ons

B,educt10n

8Jlancc June 30, 2QQi

C.:1p1tJI Assets, Not Dcmg Depreciated

Land

s J JQJ,820 ~7

$ J,J02,820 7

CJpltdl Assets, I3cmg Depreciated Infrastructure Bu1ldmg and Butldmg Improvements Fac1hues .md Other Improvements
Equipment Library Collccuons
Capnahzed Collections

s 1,819,221 00
78,420,520 74 $ 2,017,935 00 I0,592,595 00 14,700,197 00
~16,400 QQ

4,979,963 92
530,748 83 $ 881,144 09

s 1,819,221 00
83,400,484 66 2,017,935 00
1.582,45 I 29 9,540,892 54 14,855 00 15,566,486 09 616 41Xl Oil

sIQB I66,82~ 74 $ 6,391,~~6 ~4 $ 1,597 306 ~2 SI 12,961 412 J9

Less Accumulated Dcprcciauon
Infrastructure

s 758,008 75 $

Buildings and Butldmg Improvements 19,467,781 17

fac1h11es and Other Improvements

1,554,035 I3

Equipment

8,564,445 41

Library Collect,ons

9,513,610 00

CdpltahLI Collcct1ons

;!4H3Q 21

72,768 84 2,1)40,694 08
103,393 49 998,218 98 $ 996,118 00
1~,410 01

$ 830,777 59 21 508,475 25 1,657 428 62
1,435,943 95 8,126,720 44 14,855 00 10,494,873 00 2{cl !MQ ,~

$ 40,106,51021 $ 4,226,60J 1Q s 1,450,798 9~ $ 4J,882,J 15 12

Total Capua! Assets, Bcmg Dcprec1ated,

Net

S 26 QQ0,358 07 s 2,165,253 44 s

C.:1p1tal Assets, Net

s 11 l4l,178.94 s ., 165 2i3,41 s

I~~ ~Q7 34 S 1QQ72,104 17
14.!i. ,07_34 S 13 38 I 925,04

NOTE7 DEFERRED REVENUE

Deferred revenue consisted of the followmg at June 30, 2002

Prepaid Tuition and Fees Other Deferred Revenue

$16,303,976 68 763,917 60

Totals

$17,067,894 28

- 22 -

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 2002

EXHIBIT "D"

NOTE 8 LONG-TERM LIABILITIES

Long-term hab1hty actlVlty for the year ended June 30, 2002, was as follows.

Compensated Absences

Balance
Jy)y I 200)
S 3320 644 Sl

Add1t10ns S 1.594,439 44

Rcduct1ons S.,,l.622.184,41

Balance June 30, 2002
S 3,212.82942

Current pon19n
S I 695 )84 47

NOTE 9 RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA

Plan Description Kennesaw State Umvers1ty part1c1pates m the Teachers Retirement System ofGeorgia (TRS), a costshanng multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of prov1dmg rellrement allowances and other benefits for teachers of the State of Georgia TRS provides service retirement, d1sab1hty retirement, and survivor's benefits for its members m accordance with State statute The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtamed from the Georgia Department of Audits and Accounts

Funding Policy Employees of the Umvers1ty who are covered by TRS are reqmred by State statute to contnbute 5% ofthe1r gross earmngs to TRS The Umvers1ty makes monthly employer contnbullons to TRS at rates adopted by the TRS Board of Trustees m accordance with State statute and as advised by their mdependent actuary For fiscal year 2002, the employer contnbullon rate was 9 24% for covered employees Employer contnbutlons for the current fiscal year and the precedmg two fiscal years are as follows

Fiscal Year

Percentage Contnbuted

Reqmred Contnbut1on

2002 2001 2000

100% 100% 100%

$ 3,173,892 98 $ 3,912,925 67 $ 3,829,973 21

REGENTS RETIREMENT PLAN

Plan Description The Regents Retirement Plan, a smgle-employcr defined contnbullon plan, 1s an optional retirement plan established and admnustered by the Board of Regents of the Umvers1ty System of Georgia, under which 11 may purchase annmty contracts for the purpose of prov1dmg retirement and death

- 23 -

KENNESAW STATE UNNERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002

EXHIBIT "D"

NOTE 9 RETIREMENT PLANS
REGENTS RETIREMENT PLAN
Plan Description benefits for ehg1ble faculty and pnnc1pal adrmmstrators. Benefits depend solely on amounts contnbuted to the plan plus mvestment earnmgs Benefits are payable to part1c1patmg employees or theu benefic1ll11es m accordance with the terms of the annmty contracts
Funding Policy Member contnbuhon reqmrcments are estabhshed by the Board of Trustees of the Teachers
Retirement System Employer contnbutmns are estabhshed by statute and may be amended only by
the General Assembly of the State ofGeorgia The employer contnbutes 9 62% of the parllc1patmg employee's earnable compensation Employees contnbute 5% of their earnable compensahon Amounts attnbutable to all plan contnbuhons are fully vested and non-forfe1table at all hmes
The Umvers1ty and the covered employees made the requued contnbutlons of $1,728,363 01 (9 62%) and $898,358 24 (5%), respectively
GEORGIA DEFINED CONTRIBUTION PLAN
Plan Description Kennesaw State Umvers1typart1c1pates m the Georgia Defined Contnbut1on Plan (GDCP) wluch 1s a smgle-employer defined contnbutlon plan estabhshed by the General Assembly of Georgia for the purpose of prov1dmg retirement coverage for State employees who are temporary, seasonal, and parttime and are not members of a pubhc rehrement or pension system GDCP 1s adm1mstered by the Board of Trustees of the Employees' Rehrement System of Georgia.
Benefits A member may retue and elect to receive penodJ.c payments after attamment ofage 65. The payment w1II be based upon mortahty tables and mterest assumptions to be adopted by the Board ofTrustees If a member has less than$ 3,500 00 credited to his/her account, the Board ofTrustees has the ophon ofrequmng a lump sum d1stnbuhon to the member m heu ofmakmg penod1c payments Upon the death of a member, a lump sum d1stnbuhon equalmg the amount credited to his/her account will be paid to the member's designated beneficiary Benefit prov\Slons are estabhshed by State statute
Contributions and Vesting Member contnbuhons arc seven and one-halfpercent (7.5%) of gross salary There are no employer contnbut:lons Contnbutlon rates are estabhshed by State statute. Eammgs are credited to each member's account m a manner estabhshcd by the Board of Trustees Upon termmatmn of employment, the amount of the member's account 1s refundable upon request by the member
Total contnbutlons made by employees dunng fiscal year 2002 amounted to $348,960 71 which represents 7 5% of covered payroll These contnbullons met the reqmrements of the plan
- 24-

KENNESAW STATE UNNERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002

EXHIBIT "D"

NOTE IO RISK MANAGEMENT
Kennesaw State Umvers1ty 1s a part1c1pant in the Board of Regents of the Umvers1ty System of Georgia Health Benefits Plan, which 1s a self-insurance program of health and dental benefits for employees and retirees of the Umvers1ty System of Georgia The Umvers1ty and part1c1patmg employees and retirees pay premiums to the Health Benefits Plan for this health msurance coverage The Health Benefits Plan 1s mcluded m the financial statements of the Board of Regents of the Umvers1ty System of Georgia -Adm1rustrallve Central Office All umts ofthe Umvers1ty System of Georgia share the nsk of loss for clrums of the Health Benefits Plan The Health Benefits Plan 1s considered a sclf-susta1rung nsk fund that provides health coverage for Its members up to a maximum lifetime benefit of $2,000,000 00 per person and dental coverage up to an annual maximum of $1,000.00 per person The Board of Regents has contracted with Blue Cross Blue Shield ofGeorgia to process clrums m accordance with the Health Benefits Plan as cstabhshed by the Board of Regents
The Department of Admm1strallve Services (DOAS) has the respons1b1lity for the State of Georgia of makmg and earrymg out dec1s1ons that will m1mm1ze the adverse effects of accidental losses that mvolve State government assets The State beheves 11 1s more econom1cal to manage its nsks mtemally and set aside assets for cl rum settlement Accordmgly, DOAS processes clrums for nsk of loss to which the State 1s exposed, mcludmg general liability, property and casualty, workers' compensahon, unemployment compensahon, and law enforcement officers' mdemmficallon L1m1ted amounts of commercial msurancc are purchased applicable to property, employee and automobile liability, fidelity and certam other nsks. The Umvers1ty, as an organ1zahonal umt of the Board of Regents of the Umvers1ty System of Georgia, 1s part of the State of Georgia reporting enhty, and as such, 1s covered by the State of Georgia nsk management program adm1rustercd by DOAS Premiums for the nsk management program arc charged to the various state organ1zallons by DOAS to provide claims serv1cmg and clrums payment
A self-msured program of professional liability for its employees was established by the Board of Regents of the Umvers1ty System of Georgia under powers authonzed by the Official Code of Georgia Annotated Sect10n 45-9-1 The program msures the employees to the extent that they are not immune from hab1hty against personal hab1hty for damages ansmg out of the performance of their duhes or many way connected therewith The program 1s admm1stered by DOAS as a SelfInsurance Fund
NOTE 11 COJ\'TINGENCIES
Amounts received or receivable from grantor agencies arc subject to audit and adjustment by grantor agencies This could result m refunds to the grantor agency for any expenditures which are disallowed under grant terms The amount ofexpenditures which may be disallowed by the grantor cannot be determined at this time although the Umvers1ty expects such amounts, 1f any, to be 1mmaten11l to its overall financial pos11lon

- 25 -

KE!'<'NESAW SfATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002

EXHIBIT "D"

]';OTE 11 C'ONTINGENClES
L11Igat1on, claims and assessments filed agamst Kennesaw State Uni\ ers1ty(an organ1zal1onal uml of the Board of Regents of the Umvers1ty System of Georgia). 1fany, arc generally considered to be act10ns agamsl the Stale of Georgia Accordmgly, s1gmficant h11gat1on, claims and assessments pendmg agamst the State of Georgia are disclosed m the State of Georgia Comprchcns1vc Annual Fmancial Report for the fiscal year ended June 30, 2002
NOTE 12 POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Sect10n 20-331, the Board of Regents ofthe Umversily System of Georgia has estahhshed group health and hfc msurance programs for regular employees of the Umverslly System ofGeorgia It 1s the pohey ofthe Board of Regents to pemnt employees of the Umverslly System of Georgia ehg1b\e for retirement or Iha\ become pem1anently and totally disabled to contmue as members of the group health and hfc insurance programb Employees who arc ehg1h\c for retirement or d1sab1hty under the entena established by the Teachers Rel1remenl System of Georgia and who have at leas\ ten years ofserv1ee with the Umvers1ty System of Georgw are ehg1blc for these post-employment health and hfc msurancc benefits OrgamLat1onal umts of the Board of Regents of the Umvers1ty System of Georgia pay the employer portion for group msurancc for affected md1v1duals
As ofJune 30, 2002, there were 141 employees who had rel!red or were,d1sahlcd that were recc1vmg these post-employment health and life msurance benefits For the year ended June 30, 2002, Kennesaw Stale Umvers1ty recogmzed as mcurred $419,809 68 of expenses, which was net of S152,376 92 of paruc1p::mt contnbut1ons

- 26 -

KENNESAW STATE UNNERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 2002

EXHIBIT "D"

NOTE 13: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS

The Umvers1ty's operatmg expenses by functional class1ficahon are shown below

Statement of Oper.ltmg Expenses - Natural vs t-unct1onal Class1ficahons !--or the FLSCal Year Ended June 30, 2002

runctional Oass1ficauon

Naniral Classficauon

lnstructJon

llestarcb

Pubhc
Service

Acadcnuc
Suppon

Student
Semw

lnst1tut1on,:tl
Sunnort

~illanes faculty Staff
Employee Bcnclits lravcl <icholarsh1ps and
Fclk>wsh1ps Ubhllcs Supplies and Other
SCT'VICL"S
l>cprec1at1on
Tot>I Op=tmg Expenses

S 26,647,098 90 6,705,378 43 6,866,748 38 556,051 75
76,639 47 319,298 22
s 5,100,303 17

s 687,177 48
1,835,260 77
451,838 74
112,205 96

s 811,90584 6,868,409 53 1,534,934 44 128,433 78

s

80000 $ 72,814 00

4,461,867 Sb

8,356,600 OS

977,913 68

2,721,507 15

52,594 3h

163,983 77

1,200 00 33,939 73

169,818 74

1,016 67 105 758 27

152,020 48 166,006 31

11,31099

1,326,780 73

2,976,559 69

1,061,892 59

4,389,664 55

S,S6.J31 SI }2 s 11..l.J0.22 S:::448 409 41 S l2 490 062 02 S.,,,P.661 &41 41 SJh.022 67h31

Natural c1ass1fica1Jon
o:;alanes Faculty Slaff
Employee Bt..-nt..fits rravcl ~holarsh1ps and
rc..nowsh1ps Ut1hocs Supphe. and Other
'ierv1ces Deprec1atmn
Iotal Operatmg Expenses

Plant
Operat.tons and
Mamtenancc

tum:11!:!Dil Cl~Slfi!.iU20

Scholm;h1ps
and b::llowshms

Au:uhary
Entcmuscs

Un:i.llocatt.d [}t.prcc1auon

Total Opcr.,Ung
[X.OL"flSCS

s 3,434,29141 755,940 65 9,864 30

s 1,)73,654 05
366,019 73
53,427 10

s 214,041 RR
I.SIO 119 BS

44,649 98

S 28.219,816 22
JJ,0l5,.S28 10 1),674,902 77
1,076,561 02
444,QIR 50 2.349,.591 10

4,523,358 98

5,471,403 60
s 4,226,6()1 40

24,921,274 30 4 226 603 40

= $10,Pl 575 12 $ ~=~1 s ZJ!~I~=~ s ~,~ ,dlJ ~Q SJ!JZ 2.12 It,)~ ~I

- 27 -

SUPPLEMENTARY INFORMATION - 29 -

KENNESAW STATE UNIVERSITY SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO
BUDGET - CNON-GAAP BASIS) RESIDENT INSTRUCTION
YEAR ENDED JUNE 30 2002

SCHEDULE "1"

REVENUES
State Appropnabons Other Revenues Retained

BUDGET

ACTUAL (1)

VARIANCEFAVORABLE (UNFAVORABLE)

$ 57,267,061 00 $ 56,267,061 00 $

60 736 743 00

48,132,18815

-1,000,000 00 -12,604,554 85

$ 118 003 804 00 $ 104,399,249 15 $ _ _-""13"",604'-'-'-"'5"'54-'-"8=-5

EXPENDITURES
Personal Services Education, General and Departmental Services Sponsored Operabons
Operating Expenses Educabon, General and Departmental Services Sponsored Operations
Capital OUUay Speaal Funding Initiative Research Consortium

$ 69,269,403 00 $ 69,720,883 45 $

3,064,495 00

2,600,149 68

22,629,825 00 19,631,136 00
1,631,256 00 1,352,346 00
42534300

22,365,593 45 7,400,116 99 2,896,290 78 308,550 89 348 55948

-451 480 45 464,345 32
264,231 55 12,231,019 01 -1,265,034 78
1,043 79511 76 7B352

Excess of Revenues over Expenditures

s 11810031804 oo s 105.640.14412 $ _ _1"'2"'.36=3"".6"'5=-9-"28=-

$

s___ -1 12401895 57

-,_1.;24_.0....,B95.a;.5,,7.,

( 1) Actual amounts were prepared on a prescnbed baSJs of accounbng that demonstrates compliance wrth budgetary statutes and regulabons of the State of Georgia which 1s a comprehenSJve bas,s of accounting other than generally accepted accounting pnncples

See accompanying notes and Independent Accountanfs Combined Report on Review of Baste Financial Statements and Supplementary Information
- 31 -

KENNESAW STATE UNIVERSIJY
SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - fNON-GAAP BASIS! LOTTERY FOR EDUCATION YEAR ENDED JUNE 30. 2002

SCHEDULE "2"

REVENUES
State Appropnabons
EXPENDITURES
Equ!pment. Technology and ConstruclJon Trust Fund
Sp8Clal Funding lnrtiabves

BUDGET

ACTUAL(1)

VARIANCEFAVORABLE (UNFAVORABLE)

$

373 080 00 $

373 080 00 $ - - - - - -00-0

$

274,048 00 $

99,032 00

260,424 08 $ 85 001 28

13,623 92
14 030 72

$

373 080 00 $

345.425 36 $ _ _ _ _2_7~,6_54_64_

Excess of Revenues over Expenditures

$

s_ _ 21 654 64

-,_21.,e""54'"'""'54'"'"

(1) Actual amounts were prepared on a prescnbed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, 'M'l1ch 1s a comprehensive baS1s of accounting other than generally accepted accounting pnnciples

See accompanymg notes and Independent Accountant's Combined Report on Review of Baste Fmanaal Statements and Supplementary lnfonnabon
-32-

KENNESAW STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30. 2002

SCHEDULE "3"

Totals per Annual Supplement

Accruals June 30, 2002 June 30. 2001

Compensated Absences June 30, 2002 June 30, 2001

AdJustments

Shared Services on Jointly Staffed Personnel

Dalton State College

Bowen,

Charles

Pnce,

Chnsty

Floyd State College Pergrem, Dara

Georgia Southern UnNersrty

Chan,

Tak

Georgia State Umversrty Schulzke, Kurl

Southern Polytechmc State Umversrty Dennison, Wayne

Umversrty of Georgia

Bullock, Charles

Dreehn,

Enn

Kreshel, Peggy

Valdosta State UnNersrty

Hall,

Sheila

McGahee, Mimi

Pnce,

Cathenne

Umdent1fied Vanance

SALARIES

TRAVEL

$ 61.340.402 00 $ 1.075.637 33

229.899 64 -249,273 85

2,991,081 74 -3,084,667 46

4,000 00 60000
1,750 00
306 00
538 25
-16,147 50
20000 1,385 17
100 00
50000 500 00 50000 33 670 33

92369

$ 61,255,344 32 $ 1,076,561 02

See accompanying notes and Independent Accountant's Combined Reporl on Review of Basic Financial Statements and Supplementary Information
- 33 -

SECTION IT AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

KENNESAW STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

543-96-01

Prev10usiy Reported Corrective Action Implemented

SECTION lil CURRENT YEAR FINDINGS AND QUESTIONED COSTS

KENNESAW STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2002
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
ACCOUNTING CONTROLS (OVERALL) Inadequate General Controls Finding Control Number FS-543-02-01
Dunng fiscal year 2002, the Board of Regents ofthe Umvcrs1ty System ofGeorgia converted uruts of the Umvers1ty System from the College University Financial Accounting (CUFA) legacy system to the new Georg1aF/RST System (Financial, Informatton and Reporting Systems for Tomorrow) In May of 2002, Kennesaw State Umvers1ty placed this accounting system into producuon
The management of Kennesaw State Umvers1ty 1s responsible for 1mplcmentmg procedures to establish and maintain adequate control over the operauon, ulihzat10n, and integnty of their data processed with the Georg1aFJRST System We encountered problems with the financial data presented by the Umvers1ty The Umvers1ty's failure to establish and adhere to a final closing for the year ended June 30, 2002, created a situation where data presented for review was incomplete Extensive review procedures were necessary to determine the vahd1ty of the information provided
To reduce the nsk ofreporting incomplete information, the Umvers1ty should work with the Board of Regents Central Office to develop procedures that will result in complete reporting of all financial data in a more efficient and timely manner
GENERAL LEDGER lnadequac1es m Control Over Subs1d1ary Ledgers Finding Control Number FS-543-02-02
Our examination included a review of the procedures ulihzed by Kennesaw State Umvers1ty in recording transactions to the vanous modules compnsing the GeorgiaFJRSTaccounting system Our testing revealed that, at June 30, 2002, the Umvers1ty's general ledger module did not balance with the subs1d1ary modules This cond1t10n was pnmanly due to errors in posting subs1d1ary records dunng the conversion from the old College Umvers1ty Financial Accounting (CUFA) legacy accounting system to the new Georg1aF/RSTaccounting system and due to transacttons being posted to the general ledger module rather than the appropnate subs1d1ary modules The Umvcrs1ty did not provide a rcconc1hallon of the general ledger balances to the subsidiary records which resulted in extensive work by the auditors to identify reconc1hng Items at June 30, 2002
Management's failure to ensure that subs1d1ary records are reconciled with the general ledger causes internal reports to management, generated from the subsidiary modules, to be inaccurate and misleading This condition can lead to erroneous dec1s1ons by the University's management and result in inaccurate reporting of financial information
- 1-

KENNESAW STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30. 2002 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS GENERAL LEDGER Inadcquac1cs m Control Over Subs1d1ary Ledgers Fmdmg Control Number FS-543-02-02 To ensure accurate and timely rcportmg of financial mformat1on from subs1d1ary records, the Umvers1ty should post transactions correctly to the subs1d1ary ledgers rather than as Journal entries m the general ledger The Umvers1ty should develop mtemal accountmg controls and procedures to ensure that rcconc1hat1ons of subs1d1ary ledgers and the general ledger are performed on a regular basis
-2-