-, ( ,_ ' C--A A0o0 ,RI KA-~ ;;!.col-;;loo.._ , STATE OF GEORGIA DEPARTMENT OF A.UDITS AND ACCOUNTS ' ' J ' \ '' ' ',' , I / ' I l '' \ KENNESAW S,TATE UNIVERSITY ,r . KENNESAW. GEORGIA 0 ' ' ,, '- REPORT ON REVIEW ,OF THE FINANCIAL STATEMENTS 'FOR THE FISCAL 'YEAR ENDED JUf'JE 30, 2002 \ 'I , I ' ' I : Russell W. Hinton State Auditor , ' 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 Page 3 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 l1,,,t1 I W. 1111',TOI', S fATF AUOITQn 14:J..1 Uu 2174 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 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 - 13 - 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 - 14 - 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 - 15 - - - - - - - - - - - - - - - - - - - - - -- - -- 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 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-