Kennesaw State University, Kennesaw, Georgia, annual financial report for the fiscal year ended June 30, 2014 including independent auditor's reports

2014 Annual Financial Report
FOR THE FISC AL YEAR ENDED JUNE 30, 2014 (INCLUDING INDEPENDENT AUDITOR'S REPORT)

KENNESAW STATE UNIVERSITY - TABLE OF CONTENTS -

SECTION I
FINANCIAL
INDEPENDENT AUDITOR'S REPORT
REQUIRED SUPPLEMENTARY INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
BASIC FINANCIAL STATEMENTS
EXHIBITS
A STATEMENT OF NET POSITION
B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
C STATEMENT OF CASH FLOWS
D NOTES TO THE FINANCIAL STATEMENTS
SUPPLEMENTARY INFORMATION
SCHEDULES
1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT
(NON-GAAP BASIS) BUDGET FUND 3 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET
BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND
4 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND
5 RECONCILIATION OF BUDGET TO GAAP 6 RECONCILIATION OF SALARIES AND TRAVEL

Page
i
2 3 5 7
34 35 36 38 40 41

KENNESAW STATE UNIVERSITY - TABLE OF CONTENTS -
SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
September 30, 2014

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable Daniel S. Papp, President Kennesaw State University
INDEPENDENT AUDITOR'S REPORT
Ladies and Gentlemen:
Report on the Financial Statements
We have audited the accompanying basic financial statements (Exhibits A through D) of Kennesaw State University, a unit of the University System of Georgia, which is an organizational unit of the State of Georgia, as of and for the year ended June 30, 2014.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether

14ARL-62

due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to Kennesaw State University's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Kennesaw State University's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of Kennesaw State University as of June 30, 2014, and the respective changes in financial position and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 1, the financial statements of Kennesaw State University are intended to present the financial position and changes in financial position and cash flows of only that portion of the business-type activities of the State of Georgia that is attributable to the transactions of Kennesaw State University. They do not purport to, and do not, present fairly the financial position of the State of Georgia as of June 30, 2014, the changes in its financial position or its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
As described in Note 1 to the financial statements, in 2014, Kennesaw State University adopted new accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages i through vi be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquires of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
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Other Information
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Kennesaw State University. The accompanying supplementary information (Schedules 1 through 6) is presented for purposes of additional analysis and is not a required part of the basic financial statements.
The accompanying supplementary information (Schedules 1 through 6) is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting or other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Other Reporting Required by Governm ent Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated September 30, 2014, on our consideration of Kennesaw State University's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Kennesaw State University's internal control over financial reporting and compliance.
Respectfully,

GSG:as 14ARL-62

Greg S. Griffin State Auditor

REQUIRED SUPPLEMENTARY INFORMATION

KENNESAW STATE UNIVERSITY
Management's Discussion and Analysis

Introduction

Kennesaw State University is one of the 31 State-supported institutions of higher education of the University System of Georgia. The University, located in Kennesaw, Georgia, was founded in 1963 and is known for its entrepreneurial spirit and sense of community. Kennesaw State University

(KSU) is nationally recognized for its first-year and international programs and offers outstanding academic instruction in such diverse fields as business administration, nursing, and education. The University offers more than 90 undergraduate and graduate degrees, including a growing doctoral program, in a wide variety of subjects. KSU's unique blend of academic excellence, a vibrant student life, world-class facilities, and the broad range of available educational opportunities attracts a highly

qualified faculty and a student body of more than 24,000 students each year. The Institution continues to grow, as shown by the following numbers:

Students

Students

Faculty

(Headcount)

(FTE)

Fiscal Year 2014 Fiscal Year 2013 Fiscal Year 2012

888

24,629

22,980

854

24,604

22,017

884

24,175

21,644

In November 2013, the Board of Regents of the University System of Georgia announced the consolidation of Kennesaw State University and Southern Polytechnic State University. The consolidated institution, to be named Kennesaw State University, is estimated to enroll more than 30,000 students. Approval by the Southern Association of Colleges & Schools Commission on Colleges and by the Board of Regents of the University System of Georgia will be required to finalize the consolidation. The official combination of the two universities is expected to become final in January, 2015.

Overview of the Financial Statements and Financial Analysis
Kennesaw State University is pleased to present its financial statements for fiscal year 2014. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Position; the Statement of Revenues, Expenses and Changes in Net Position; and the Statement of Cash Flows. This discussion and analysis of the University's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2014 and fiscal year 2013.

Statement of Net Position
The Statement of Net Position presents the assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position of the University as of the end of the fiscal year. The Statement of Net Position is a point-in-time financial statement. The Statement of Net Position presents a fiscal snapshot of Kennesaw State University. The Statement of Net Position presents end-of-year data concerning assets (current and noncurrent) plus deferred outflows, and liabilities (current and noncurrent) plus deferred inflows, and net position (assets plus deferred outflows minus liabilities plus deferred inflows). The differences between current and noncurrent assets are discussed in the Notes to the Financial Statements.
From the data presented, readers of the Statement of Net Position are able to determine the assets available to continue the operations of the institution and how much the institution owes vendors.

i

Finally, the Statement of Net Position provides a picture of the net position (assets plus deferred outflows minus liabilities plus deferred inflows) and their availability for expenditure by the institution. Net position is divided into three major categories. The first category, net investment in capital assets, provides the institution's equity in property, plant and equipment owned by the institution. The next category is restricted, which is divided into two categories, nonexpendable and expendable.
The corpus of nonexpendable, restricted resources is available only for investment purposes. Expendable restricted resources are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted. Unrestricted resources are available to the institution for any lawful purpose.

Statement of Net Position, Condensed

June 30, 2014

June 30, 2013

Assets Current Assets Capital Assets, Net Other Assets

$ 68,858,155 466,965,485 2,658,564

$ 67,530,707 477,199,638 1,103,700

Total Assets

$ 538,482,204

$ 545,834,045

Liabilities Current Liabilities Noncurrent Liabilities

$ 32,352,512 197,387,115

$ 31,476,875 202,342,185

Total Liabilities

$ 229,739,627

$ 233,819,060

Deferred Inflows of Resources

$ 74,302,295

$ 77,884,484

Net Position Net Investment in Capital Assets Restricted Nonexpendable Expendable Unrestricted

$ 192,906,560
561,914 614,842 40,356,966

$ 194,923,797
514,662 384,882 38,307,160

Total Net Position

$ 234,440,282

$ 234,130,501

Total assets decreased by $7,351,841, primarily due to a decrease of $10,234,153 in the category of Capital Assets, Net. Capital Assets, Net decreased because Depreciation for the fiscal year was significantly higher than new Capital Assets placed in service. This decrease was somewhat offset by increases in Current Assets and Other Assets. The net consumption of Capital Assets follows the institutional philosophy of using available resources to acquire and improve all areas of the University to better serve the instruction, research and public service missions of the Institution.

ii

Total Liabilities and Deferred Inflows of Resources decreased for the year by $7,661,622. The combination of the decrease in Total Assets and the decrease in Total Liabilities and Deferred Inflows of Resources yields resulted in a modest increase in Net Position of $309,781. The increase in Net Position is supported by an increase in both Restricted ($277,212) and Unrestricted Net Position ($2,049,806), which offset the decrease in Net Investment in Capital Assets of $2,017,237.

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

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

June 30, 2014

June 30, 2013

Operating Revenues Operating Expenses

$ 196,817,554 319,069,164

$ 187,837,476 309,003,067

Operating Loss

$ -122,251,610

$ -121,165,591

Nonoperating Revenues and Expenses

118,684,245

116,832,884

Loss Before Other Revenues, Expenses, Gains or Losses

$ -3,567,365

$ -4,332,707

Other Revenues, Expenses, Gains or Losses

3,877,146

20,144,535

Increase in Net Position

$

309,781

$ 15,811,828

Net Position at Beginning of Year

234,130,501

218,318,673

Net Position at End of Year

$ 234,440,282

$ 234,130,501

The Statement of Revenues, Expenses and Changes in Net Position reflects a positive year, which is evidenced by an increase in Net Position at the end of the year. Some highlights of the information presented on this statement are as follows:

iii

Revenue by Source For the Years Ended June 30, 2014 and June 30, 2013

June 30, 2014

June 30, 2013

Operating Revenue

Tuition and Fees

$

Grants and Contracts

Sales and Services of Educational Departments

Auxiliary

Other

128,408,766 3,161,677 9,435,622
53,884,958 1,926,531

$ 122,535,115 6,787,922 8,921,239
48,185,688 1,407,512

Total Operating Revenue

$ 196,817,554

$ 187,837,476

Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other

$ 82,371,326 46,523,245 1,282,229 399,639

$ 75,897,167 48,341,125 508,260 323,721 3,573,868

Total Nonoperating Revenue

$ 130,576,439

$ 128,644,141

Capital Grants and Gifts State Other

$

108,378

3,768,768

$ 20,037,198 107,337

Total Capital Grants and Gifts

$

3,877,146

$ 20,144,535

Total Revenues

$ 331,271,139

$ 336,626,152

Expenses (By Functional Classification) For the Years Ended June 30, 2014 and June 30, 2013

June 30, 2014

June 30, 2013

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

$ 114,402,047 1,224,505 4,664,260
35,407,496 24,303,725 33,601,412 31,593,989 18,703,943 55,167,787

$ 115,425,560 1,653,531 7,907,353
31,715,802 25,039,680 30,311,051 29,644,595 19,008,531 48,296,964

Total Operating Expenses

$ 319,069,164

$ 309,003,067

Nonoperating Expenses Interest Expense (Capital Assets) Other

$ 11,859,160 33,034

$ 11,811,257

Total Nonoperating Expenses

$ 11,892,194

$ 11,811,257

Total Expenses

$ 330,961,358
iv

$ 320,814,324

Operating Revenues increased by $8,980,078 in fiscal year 2014. An increase in Tuition rates of 2.5%, higher Distance Learning and Out-of-State Tuition revenues, plus an increase in Auxiliary revenues (due to the Student Athletic Fee increase, a component of Auxiliary) offset a significant drop ($3,626,245) in the area of Grants and Contracts.
The Auxiliary Revenue increase of $5,699,270 is mostly a result of growth in Student Athletic Fees (up $4,604,735) plus a sharp increase in Food Service income (up $1,277,973); other Auxiliary units were flat to slightly down for the year.
Nonoperating Revenues increased $1,932,298 for the year primarily due to a $6,474,159 increase in State Appropriations offset by a decrease in Other Revenue. The decrease in Other Revenue was related to revenue recognized as part of service concession agreements with Kennesaw State University Foundation, Inc. in the amount of $3,582,189. This service concession agreement revenue is related to the University taking ownership of dormitories at the end of the agreements. This revenue was reported as Other Nonoperating revenue in fiscal year 2013. Since the revenue is related to the receipt of capital assets, the University chose to report the revenue as Capital Gifts and Grants in fiscal year 2014.
Capital Gifts and Grants declined sharply $16,267,389 from fiscal year 2013. Last year, KSU received a $19,000,000 gift from the GSFIC for the construction of a Science Lab addition. The University did not receive a major GSFIC gift in fiscal year 2014.
Overall, Total Revenues at KSU were lower by $5,355,013.
On the cost side of the ledger, KSU's Total Expenses increased by $10,147,034. The Compensation and Employee Benefits expense increased by $4,045,053, primarily in Faculty Salary (reflecting an additional 34 Full-Time faculty members) and overall Employee Benefits. Auxiliary Enterprises Expenses were also up significantly ($6,870,823); this was slightly higher than the increase in Auxiliary Revenues of $5,699,270. Academic Support, Institutional Support, and Plant Operations and Maintenance were also higher in fiscal year 2014, contributing to the overall increase in the University's Total Expenses.
Statement of Cash Flows
The final statement presented by the Kennesaw State University is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the Operating Income or Loss reflected on the Statement of Revenues, Expenses and Changes in Net Position.
v

Cash Flows for the Years Ended June 30, 2014 and June 30, 2013, Condensed

June 30, 2014

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

$

-102,326,622

130,500,365

-26,471,274

324,621

Net Change in Cash Cash, Beginning of Year

$

2,027,090

51,739,349

Cash, End of Year

$

53,766,439

June 30, 2013

$

-101,224,463

125,480,312

-26,972,225

265,933

$

-2,450,443

54,189,792

$

51,739,349

Capital Assets
The University placed one significant capital asset into service in fiscal year 2014 when the Bernard A. Zuckerman Museum of Art opened in March, 2014. The museum was completed at a cost of $3,487,081. Several much smaller projects, mostly renovations of parts of existing buildings, were also completed in fiscal year 2014.
For additional information concerning Capital Assets, see Notes 1, 6, 8, and 10 in the Notes to the Financial Statements.
Long-Term Liabilities
Kennesaw State University had Long-Term Liabilities (primarily consisting of Lease Purchase Obligations on Capital Assets) of $207,768,266 of which $10,385,186 was reflected as Current Liabilities at June 30, 2014.
For additional information concerning Long-Term Liabilities, see Notes 1 and 8 in the Notes to the Financial Statements.
Economic Outlook
Kennesaw State University is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on KSU's financial position or results of operations during this fiscal year, beyond those unknown variations having a global effect on virtually all types of business operations. The University's overall financial position is strong. In fiscal year 2014, we focused on lowering our Student-to-Faculty ratio by adding additional highly-qualified faculty members and by implementing best-practice teaching strategies for student-centered learning in each college as ways to drive excellence in higher education. Additionally, of course, we launched a campus-wide program to map out and coordinate plans to consolidate with Southern Polytechnic State University. Even with this new and critical work going on, the University was able to generate a modest increase in Net Position in fiscal year 2014. The University anticipates the current fiscal year will be much like last, and we will maintain a close watch over resources to maintain the University's ability to react to unknown internal and external issues.

Dr. Daniel S. Papp President Kennesaw State University
vi

BASIC FINANCIAL STATEMENTS - 1 -

KENNESAW STATE UNIVERSITY STATEMENT OF NET POSITION
JUNE 30, 2014
ASSETS
Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Receivables - Federal Financial Assistance Receivables - Other Due from Affiliated Organizations Inventories (Note 4) Prepaid Items
Total Current Assets
Noncurrent Assets Short-Term Investments Investments (Externally Restricted) Due from USO - Capital Liability Reserve Fund Notes Receivable, Net Capital Assets, Net (Note 6)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deposits Unearned Revenue (Including Tuition and Fees) (Note 7) Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences Due to Affiliated Organizations
Total Current Liabilities
Noncurrent Liabilities Lease Purchase Obligations Unearned Revenue (Including Tuition and Fees) (Note 7) Compensated Absences
Total Noncurrent Liabilities
Total Liabilities
DEFERRED INFLOWS OF RESOURCES
Deferred Service Concession Agreement Receipts
NET POSITION
Net Investment in Capital Assets Restricted for:
Nonexpendable Expendable Unrestricted
Total Net Position
The notes to the financial statements are an integral part of this statement. - 2 -

EXHIBIT "A"
$ 53,766,439 5,880,666 4,028,270 1,383,901 2,460,019 1,338,860
68,858,155
28,926 709,136 1,482,586 437,916 466,965,485 469,624,049 538,482,204
7,532,556 463,300 309,478 15,000
11,286,121 1,993,380 5,017,390 5,367,796 367,491
32,352,512
194,739,240 4,035
2,643,840 197,387,115 229,739,627
74,302,295
192,906,560 561,914 614,842
40,356,966
$ 234,440,282

KENNESAW STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
YEAR ENDED JUNE 30, 2014
OPERATING REVENUES
Student Tuition and Fees (Net of Allowance for Doubtful Accounts) Less: Scholarship Allowances
Grants and Contracts Federal State Other
Sales and Services of Educational Departments Rents and Royalties Auxiliary Enterprises
Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Loss
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal Federal Stimulus State Other Gifts Investment Income (Endowments, Auxiliary and Other) Interest Expense (Capital Assets) Other Nonoperating Revenues (Expenses)
Net Nonoperating Revenues
Loss Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts State Other
Total Other Revenues, Expenses, Gains or Losses
Increase in Net Position
Net Position - Beginning of Year
Net Position - End of Year
The notes to the financial statements are an integral part of this statement.
- 3 -

EXHIBIT "B"
$ 158,859,718 -30,450,952
2,002,152 737,464 422,061
9,435,622 267,421
4,137,887 11,418,050 14,547,054
8,395,153 2,691,804 12,247,856
447,154 1,659,110
196,817,554
66,508,459 86,114,387 41,983,438
491,714 2,718,304 22,939,453 6,195,341 71,589,436 20,528,632
319,069,164
-122,251,610
82,371,326
42,525,236 78,213 22,993
3,896,803 1,282,229
399,639 -11,859,160
-33,034
118,684,245
-3,567,365
108,378 3,768,768
3,877,146
309,781
234,130,501
$ 234,440,282

KENNESAW STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts (Exchange) Sales and Services Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Loans Collected from Students Loans Issued to Students Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Receipts (Payments)
Net Cash Used by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes
Net Cash Flows Provided by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Purchases of Capital Assets Principal Paid on Capital Debt and Leases Interest Paid on Capital Debt and Leases
Net Cash Used by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments Interest on Investments
Net Cash Provided by Investing Activities
Net Increase in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year

EXHIBIT "C"

$ 129,281,155 4,594,989 9,435,621
-124,134,663 -152,660,005
-22,939,453 158,170 -155429
4,174,285 11,229,594 14,015,385
7,825,305 2,665,862 12,775,832
558,009 848,721
-102,326,622
82,371,326 330,206
47,798,833
130,500,365
108,378 -10,085,766
-4,634,726 -11,859,160
-26,471,274
-40,583 365,204
324,621
2,027,090
51,739,349

$

53,766,439

- 4 -

KENNESAW STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2014
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Operating Income (loss) to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, Net Inventories Prepaid Items Notes Receivable, Net Accounts Payable Unearned Revenue (Including Tuition and Fees) Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Change in Fair Value of Investments Recognized as a Component of Interest Income Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts GASB 60 Gifts and Grants Received (See Service Concession Agreements in Note 1 of the Notes to the Financial Statements.)

EXHIBIT "C"

$ -122,251,610
20,528,632
-730,260 83,679
-139,946 6,325
-421,853 405,161
87,667 105,583
$ -102,326,622

$

34,435

$

186,579

$

3,582,189

The notes to the financial statements are an integral part of this statement. - 5 -

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Note 1. Summary of Significant Accounting Policies
Nature of Operations
Kennesaw State University serves the local, state, national, and international communities by providing its students with academic instruction that advances fundamental knowledge and practical skills, and by inspiring inquiry and disseminating knowledge to the people of Georgia, the United States, and beyond.
Reporting Entity
Kennesaw State University (KSU) is one of thirty-one (31) State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of Kennesaw State University as a separate reporting entity.
The Board of Regents has constitutional authority to govern, control, and manage the University System of Georgia. This authority includes but is not limited to the power to designate management, the ability to significantly influence operations, the authority to control institutions' budgets, the power to determine allotments of State funds to member institutions, and the authority to prescribe accounting systems and administrative policies for member institutions. Kennesaw State University does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, KSU is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and
Financial Reporting Standards.
Legally separate, tax exempt Affiliated Organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential Component Units of the State. See Note 16 for additional information.
On November 12, 2013, based on the Chancellor's recommendation, the Board of Regents voted to consolidate two institutions of the University System of Georgia to enhance and improve educational offerings and student success. Pending The Southern Association of Colleges and Schools Commission on Colleges (SACSCOC) approval, it is anticipated that in January, 2015, Kennesaw State University will merge with Southern Polytechnic State University. The new university will be called Kennesaw State University.
Financial Statement Presentation
The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the University's assets, deferred outflow of resources, liabilities, deferred inflows of resources, net position, revenues, expenses, changes in net position and cash flows.
Basis of Accounting
For financial reporting purposes, KSU is considered a special-purpose government engaged only in business-type activities. Accordingly, the University's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-University transactions have been eliminated.
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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

New Accounting Pronouncements
In fiscal year 2014, the University adopted the Governmental Accounting Standards Board (GASB) Statement No. 65, Items Previously Reported as Assets and Liabilities. The provisions of this Statement clarify the use of deferred inflows of resources and deferred outflows of resources. Certain items, including those items which were previously reported as assets and liabilities, will now be reported as outflows of resources or inflows of resources. As a result of this implementation, the University changed the classification of certain assets to deferred outflows of resources and liabilities to deferred inflows of resources. As of June 30, 2014, the University had $74,302,295 in deferred inflows of resources and no deferred outflows of resources.
In fiscal year 2014, the University adopted Governmental Accounting Standards Board (GASB) Statement No. 66, Technical Corrections - 2012, an amendment to GASB Statements No. 10 and No. 62. The objective of this Statement is to resolve conflicting guidance by amending GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues and GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in PreNovember 30, 1989 FASB and AICPA Pronouncements. GASB Statement No. 10 was amended by removing the provision that limited fund based reporting of an entity's risk and financing activities to certain funds. GASB Statement No. 62 was amended by modifying guidance on (1) operating lease payments that vary from a straight-line basis, (2) purchases of a loan or a group of loans, and (3) recognition of servicing fees on mortgage loans that are sold when the stated service fee rate differs from a current (normal) servicing fee rate. The adoption of this Statement did not have a significant impact on the University's financial statements.
In fiscal year 2014, the University adopted Governmental Accounting Standards Board (GASB) Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. This Statement establishes accounting and reporting requirements for state and local governments that extend or receive financial guarantees that are nonexchange transactions. The adoption of this statement did not have a significant impact on the University's financial statements.
In fiscal year 2015, the University will adopt Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions. The provisions of this Statement establish accounting and financial reporting standards for pensions that are provided to the employees of state and local governmental employers through pension plans that are administered through trusts. Implementation of this Statement will require the University to record a liability for its proportionate share of the Net Pension Liability of pension plans in which it participates. Actuarial estimates are currently being made to determine the University's liability, the effects of which are believed to be material.
Cash and Cash Equivalents
Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, plus cash management pools that have the general characteristics of demand deposit accounts. This includes the State Investment Pool and the Board of Regents Short-Term Investment Pool.
Short-Term Investments
Short-Term Investments consist of investments of 90 days - 13 months, which includes certificates of deposits or other time-restricted investments with original maturities of six months or more when purchased. Funds are not readily available and there is often a penalty for early withdrawal.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Investments
Investments include financial instruments with terms in excess of 13 months, certain other securities for the production of revenue, land, and other real estate held as investments by endowments. The University accounts for its investments at fair value. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Position. The Board of Regents Legal Fund is included under Investments.
Accounts Receivable
Accounts receivable consists of tuition and fees charged to students and auxiliary enterprise services provided to students, faculty and staff, the majority of who reside in the State of Georgia. Accounts receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
Inventories
Resale Inventories are valued at cost using the "first-in, first-out" (FIFO) basis.
Noncurrent Investments
Investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Position.
Capital Assets
Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. For equipment, KSU's capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000 and/or significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation, which also includes amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, and copyrights, as well as software, is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values generally are 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
To fully understand plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. These bonds constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit, and taxing power of the State are pledged.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

For projects managed by GSFIC, GSFIC retains construction-in-progress on its books throughout the construction period and transfers the entire project to the University when complete. For projects managed by the University, KSU retains construction-in-progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2014, GSFIC did not transfer any capital additions to Kennesaw State University.
Due from USO - Capital Liability Reserve Fund
In fiscal year 2014, the Board of Regents established a Capital Liability Reserve Fund (Fund) to protect the fiscal integrity of the University System of Georgia (USG), to maintain the strongest possible credit ratings associated with Public Private Venture (PPV) projects, and to ensure that the Board of Regents can effectively support its long-term capital lease obligations. The Fund is financed by all USG institutions participating in the PPV program. The Fund serves as a pooled reserve managed by the Board of Regents. The Fund shall only be used to address significant shortfalls and only insofar as a requesting USG institution is unable to make the required PPV capital lease payment to the designated cooperative organization. The Fund will continue as long as the Board of Regents has rental obligations under the PPV program. The Fund will continue as long as the Board of Regents has rental obligations under the PPV program and at the conclusion of the program, funds will be returned to the University. KSU's contribution to the fund as of June 30, 2014 was $ 1,482,586.
Deposits
Deposits represent a vendor payment that is required per contractual agreement.
Unearned Revenue
Unearned Revenue includes amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Unearned Revenue also includes amounts received from grant and contract sponsors that have not yet been earned.
Compensated Absences
Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as compensated absences in the Statement of Net Position, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Position.
Noncurrent Liabilities
Noncurrent liabilities include (1) liabilities that will not be paid within the next fiscal year; (2) capital lease obligations with contractual maturities greater than one year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets.
Service Concession Agreements
Service Concession Agreements are arrangements between a government (transferor, one of our institutions) and a third party (operator) in which all of the following criteria are met:
a. The institution transfers to the operator the right and obligation to provide public services through the use and operation of a capital asset in exchange for significant consideration. Significant consideration could be in the form of up-front payments, installment payments, a new facility, or improvements to existing facility.
b. The operator collects and is compensated by fees from third parties. - 10 -

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

c. The institution has the ability to modify or approve what services the operator is required to provide, to whom services are provided, and prices or rates that can be charged for those services.
d. The institution is entitled to significant residual interest in the service utility of the asset at the end of the arrangement.
At June 30, 2014, Kennesaw State University was participating in three Service Concession Agreements:
1. In August 2001, KSU entered into an agreement with Kennesaw State University Foundation, Inc. (KSUF) whereby KSUF will operate and collect revenues for housing operations from students. KSUF is required to operate the dormitory ("University Place") in accordance with a contractual agreement between the parties. Under the terms of the agreement, the University received no funds upfront from KSUF, but will take full ownership of the dormitory at the end of the operating agreement (June, 2031).
2. In August 2003, KSU entered into an agreement with Kennesaw State University Foundation, Inc. (KSUF) whereby KSUF will operate and collect revenues for housing operations from students. KSUF is required to operate the dormitory ("University Village") in accordance with a contractual agreement between the parties. Under the terms of the agreement, the University received no funds upfront from KSUF, but will take full ownership of the dormitory at the end of the operating agreement (June, 2034).
3. In August 2007, KSU entered into an agreement with Kennesaw State University Foundation, Inc. (KSUF) whereby KSUF will operate and collect revenues for housing operations from students. KSUF is required to operate the dormitory ("University Suites") in accordance with a contractual agreement between the parties. Under the terms of the agreement the University received no funds upfront from KSUF, but will take full ownership of the dormitory at the end of the operating agreement (June, 2037).
At June 30, 2014, KSU reports the three dormitories as Capital Assets with a net carrying value of $74,302,295. For fiscal year 2014, KSU reported a remaining Deferred Inflow of Resources of $74,302,295 and amortized revenue of $3,582,189. Finally, as part of the contractual agreement, KSUF is responsible for insuring each of the three dormitories and for providing maintenance services. As such, the University has no reportable future obligation for these services.
Net Position
The University's net position is classified as follows:
Net Investment in Capital Assets: This represents the University's total investment in capital assets, net of outstanding debt obligations, deferred outflows of resources and deferred inflows of resources related to those capital assets. To the extent debt has been incurred or deferred inflows of resources have been received but not yet expended for capital assets, such amounts are not included as a component of the net investment in capital assets. The term "debt obligations" as used in this definition does not include debt of the GSFIC as discussed previously in Note 1 - Capital Assets section.
Restricted - nonexpendable: includes endowment and similar type funds, in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may be either expended or added to principal. The Institution may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 44-15-7 of Annotated Code of Georgia.
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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Restricted - expendable: includes resources in which the University is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties.
Expendable Restricted Assets include the following at June 30, 2014:

Restricted - E&G and Other Organized Activities Federal Loans Institutional Loans

$

96,276

436,983

81,583

Total Restricted Expendable

$

614,842

Restricted - expendable - Capital Projects: This represents resources for which the University is legally or contractually obligated to spend resources for capital projects in accordance with restrictions imposed by external third parties.

Unrestricted: Unrestricted represents resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus). Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the Office of the State Treasurer. At June 30, 2014, there was a surplus balance of $41,179.77 to be refunded. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff.

Unrestricted resources include the following items which are quasi-restricted by management at June 30, 2014:

R & R Reserve Reserve for Encumbrances Capital Liability Reserve Fund Other Unrestricted

$

7,683,448

16,156,983

1,482,586

15,033,949

Total Unrestricted Net Position

$

40,356,966

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

Income Taxes

Kennesaw State University, as a political subdivision of the State of Georgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended.

Classification of Revenues and Expenses

The Statement of Revenues, Expenses and Changes in Net Position classify fiscal year activity as operating and nonoperating according to the following criteria:

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Operating revenue includes activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) certain Federal, state and local grants and contracts, and (3) sales and services.
Nonoperating revenue includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenue by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.
Operating expenses includes activities that have the characteristics of exchange transactions.
Nonoperating expense includes activities that have the characteristics of nonexchange transactions, such as capital financing costs and costs related to investment activity.
Scholarship Allowances
Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net Position. Scholarship allowances are the difference between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or third parties making payments on the students' behalf.
Certain governmental grants, such as Pell grants, and other Federal, State or nongovernmental programs are recorded as either operating or nonoperating revenues in the University's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, KSU has recorded contra revenue for scholarship allowances.
Note 2. Deposits and Investments
Deposits
The custodial credit risk for deposits is the risk that in the event of a bank failure, the University's deposits may not be recovered. Funds belonging to KSU (and thus, the State of Georgia) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.
2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.
3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.
4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

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

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

At June 30, 2014, the carrying value of KSU's deposits was $16,810,206 and the bank balance was $16,839,131. All of the deposits are fully insured or collateralized in the University's name. The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.

The KSU Foundation holds a small amount of KSU funds in investment accounts. At June 30, 2014, KSUF held $12,864 in an insured bank account. KSUF also temporarily held $10,112 in cash, which was insured by the Securities Investor Protection Corporation (SIPC). Finally, the Coles College of Business has a small brokerage account that was made possible through a donation to the college. The funds are used to teach the principles of investing to students by making actual investments. At June 30, 2014, this brokerage account held $5,950 in cash, which was insured by the SIPC. These balances are reported as Noncurrent Short-Term Investments on the Statement of Net Position.

Investments
KSU maintains an investment policy which fosters sound and prudent judgment in the management of assets to ensure safety of capital consistent with the fiduciary responsibility each institution has to the citizens of Georgia and which conforms to Board of Regents investment policy. All investments are consistent with donor intent, Board of Regents policy, and applicable Federal and state laws.
The University's investments as of June 30, 2014 are presented below. All investments are presented by investment type and debt securities are presented by maturity.

Investments at June 30, 2014

Investment Type

Fair Value

Less Than 3 months

Investment Maturity

4 - 12 Months

1 - 5 Years

6 - 10 years

More than 10 years

Mutual Bond Fund

$

112,860 $

1,856 $

5,570 $

65,827 $

37,540 $

2,067

Other Investments Equity Mutual Funds - Domestic Equity Mutual Funds - International Equity Securities - Domestic Real Estate Fund Other Equity Securities

185,135 78,097
152,673 26,847 25,392

Investment Pools Board of Regents Short-Term Fund Legal Fund

36,882,733 128,132

Total Investments

$ 37,591,869

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

The Board of Regents Investment Pool is not registered with the Securities and Exchange Commission as an investment company. The fair value of investments is determined daily. The pool does not issue shares. Each participant is allocated a pro rata share of each investment at fair value along with a pro rata share of the interest that it earns. Participation in the Board of Regents Investment Pool is voluntary. The Board of Regents Investment Pool is not rated. Additional information on the Board of Regents Investment Pool is disclosed in the audited Financial Statements of the Board of Regents of the University System of Georgia - System Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at http://www.audits.ga.gov.
Interest Rate Risk
Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University does not have a formal policy for managing interest rate risk.
The Effective Duration of the Short-Term Fund is 0.55 years. Of the University's total investment of $36,882,733 in the Short-Term Fund, $3,502,347 is invested in debt securities.
The Effective Duration of the Legal Fund is 3.20 years. Of KSU's total investment of $128,132 in the Legal Fund, $3,922 is invested in debt securities.
Custodial Credit Risk
Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the University will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. KSU does not have a formal policy for managing custodial credit risk for investments.
At June 30, 2014, all of the University's applicable investments were insured by the SIPC against financial loss due to failure of the third-party investment companies that hold the investments in Kennesaw State University's or KSU Foundation's name.
Credit Quality Risk
Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University does not have a formal policy for managing credit quality risk.
The investments subject to credit quality risk as of June 30, 2014 are shown below:

Credit Quality Risk

Fair Value

AA

A

BBB

Unrated

Related Debt Investments Mutual Funds - Bonds $

112,860 $

35,464 $

33,171 $

26,802 $

17,423

Concentration of Credit Risk

Concentration of credit risk is the risk of loss attributed to the magnitude of any entity's investment in a single issuer. The University does not have a formal policy for managing concentration of credit risk. Investments (other than obligations of U.S. government agencies explicitly guaranteed by the U. S. government) in any one issuer in a concentration of greater than 5% of total investments held is generally deemed to be a credit risk. At June 30, 2014, KSU did not have any investments which would constitute a credit risk under this criterion.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Foreign Currency Risk
Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit. The University does not have a formal policy for managing exposure to foreign currency risk.
At June 30, 2014, KSU held $13,417 in international equity investments (all in Canadian and British entities). These make up a portion of the $158,623 that has been donated to KSU students in the Coles College of Business for instruction purposes. These international investments represent less than 0.04% of the Institution's total investments and are not believed to pose a significant financial risk to Kennesaw State University.

Note 3. Accounts Receivable Accounts receivable consisted of the following at June 30, 2014:

Student Tuition and Fees

$

Auxiliary Enterprises and Other Operating Activities

Federal Financial Assistance

Georgia State Financing and Investment Commission

Due from Affiliated Organizations

Other

958,592 1,474,781 5,880,666
332,502 1,383,901 3,068,551

Accounts Receivable Before Allowances

13,098,993

Less Allowance for Doubtful Accounts

1,806,156

Net Accounts Receivable

$

Note 4. Inventories

Inventories consisted of the following at June 30, 2014:

11,292,837

Bookstore

$

2,460,019

Note 5. Notes/ Loans Receivable

The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2014. The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. As KSU determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans are written off and assigned to the U.S. Department of Education. KSU determines an allowance for uncollectible loans, which, in management's opinion, is sufficient to absorb loans that will ultimately be written off. For fiscal year ended June 30, 2014, the allowance for uncollectible loans was determined to be $0.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Note 6. Capital Assets Following are the changes in capital assets for the year ended June 30, 2014:

Beginning Balance July 1, 2013

Additions

Reductions

Ending Balance June 30, 2014

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

$

25,844,320

3,628,201

5,256,292 $

4,425,412 $

$ 7,573,865

25,844,320 3,628,201 2,107,839

Total Capital Assets, Not Being Depreciated

34,728,813

4,425,412

7,573,865

31,580,360

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

6,622,147 340,996,325
5,371,607 24,726,841 205,351,438 20,351,425
5,334,744

6,959,581
6,310,223
190,951 16,354

916,510 62,156

6,622,147 347,955,906
5,371,607 30,120,554 205,351,438 20,480,220
5,351,098

Total Assets Being Depreciated

608,754,527

13,477,109

978,666

621,252,970

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

1,965,878 85,489,650
2,986,078 16,197,229 39,862,694 18,924,449
857,724

256,947 8,906,033
185,779 2,907,963 7,749,598
389,873 132,439

882,333 62,156

2,222,825 94,395,683
3,171,857 18,222,859 47,612,292 19,252,166
990,163

Total Accumulated Depreciation

166,283,702

20,528,632

944,489

185,867,845

Total Capital Assets, Being Depreciated, Net

442,470,825

-7,051,523

34,177

435,385,125

Capital Assets, Net

$

477,199,638 $

-2,626,111 $

7,608,042 $

466,965,485

Note 7. Unearned Revenue (Including Tuition and Fees) Unearned Revenue (Including Tuitions and Fees) consisted of the following at June 30, 2014:

Prepaid Tuition and Fees Other Unearned Revenue

$

9,296,034

1,994,122

Total Unearned Revenue

$ 11,290,156

All current Unearned Revenue totaled $11,286,121 at June 30, 2014; $4,035 was classified as noncurrent.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Note 8. Long-Term Liabilities Long-Term liability activity for the year ended June 30, 2014 was as follows:

Beginning Balance July 1, 2013

Additions

Reductions

Ending Balance June 30, 2014

Current Portion

Leases Lease Obligations

$ 204,391,356

$ 4,634,726 $ 199,756,630 $ 5,017,390

Other Liabilities Compensated Absences

7,906,052 $ 5,838,289

5,732,705

8,011,636

5,367,796

Total Long-Term Obligations $ 212,297,408 $ 5,838,289 $ 10,367,431 $ 207,768,266 $ 10,385,186
Note 9. Significant Commitments
The University had certain obligations outstanding related to construction or renovation contracts in the amount of $193,707 as of June 30, 2014; this is all construction projects that will be paid out to contractors when the contractors' obligations are fully satisfied. This amount is not reflected in the accompanying basic financial statements.
In May, 2014, Kennesaw State University announced that it was working to complete the acquisition of the former BrandsMart USA location, which is at the edge of the current KSU campus. The purchase will include 17 acres of land, an existing 113,000 square foot building, and 722 parking spots. Projects proposed for the repurposed building include a new student health center, additional laboratory space, space for the new marching band, and critically needed storage. The initial acquisition, for approximately $12,500,000, was made by the Kennesaw State University Foundation, Inc. (KSUF). KSU signed a two-month rental agreement for May and June 2014 with the new owner, KSUF, for use of the facility; KSU paid $41,667 each month. It is the intention of the University and KSUF to enter into a one-year lease agreement to be effective July 1, 2014. The lease agreement will have four one-year renewals at the same terms and at the same monthly rental/lease rate. The University fully expects to purchase the entire facility from KSUF during fiscal year 2015, in part by using $9,900,000 from the sale of state bonds and by using $2,600,000 of other available infrastructure expansion funding. When that is accomplished, the lease agreement and the commitment to make payments to the KSU Foundation will no longer apply.
Note 10. Lease Obligations
Kennesaw State University is obligated under capital leases for the acquisition of real property (land, buildings, office facilities, and student housing facilities) and is also obligated under several operating leases for the use of real property and equipment.
CAPITAL LEASES
Capital leases are leases that involve large financial commitments and are for terms covering multiple years. These leases are generally payable in installments ranging from monthly to annually. Certain capital leases provide for renewal and/or purchase options. Ownership of the leased property often transfers to the lessee at the end of the lease term, sometimes with no additional cost or at a bargain price (such as one dollar).

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Capital leasing expenditures for fiscal year 2014 were $18,251,990, of which $11,859,160 represented interest, $1,758,104 was for executory costs, and $4,634,726 went to the repayment of principal. Interest rates range from 2.0 percent to 9.14 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2014:

Description

Gross Amount (+)

Accumulated Depreciation
(-)

Net Position Held Under Capital Lease at June 30, 2014
(=)

Outstanding Balances per Lease Schedules at June 30, 2014

Land - (PPV) Equipment Buildings - (PPV Only) Facilities and Improvements - (PPV Only)

$ 21,694,066 129,610 $
167,590,361 37,631,467

$ 67,984 43,480,110 4,064,198

21,694,066 $ 61,626
124,110,251 33,567,269

22,747,293 66,556
136,566,344 40,376,437

Total Assets Held Under Capital Lease at June 30, 2014

$ 227,045,504 $ 47,612,292 $ 179,433,212 $ 199,756,630

KSU is a party to seventeen capital leases at June 30, 2014 that have terms expiring in various years between 2016 and 2041. Some of these leases actually consist of multiple leases for additional space in a facility that was added after the original lease or for improvements made to the leased facility. All but one of these capital leases is with the Kennesaw State University Foundation, Inc. (KSUF), a discretely presented component unit of the State of Georgia.

In August 2002, the University entered into a capital lease of $3,965,768 at 9.14 percent with KSUF whereby the University leases nine houses located on Campus Loop Road for a twenty-five year period that expires in April 2027. Improvements were made to the property bringing the value of the lease to $4,420,132. Tuition revenues are used to make lease payments on these houses. The outstanding liability on this capital lease at June 30, 2014 was $3,015,425.

In May 2002, KSU entered into a capital lease of $21,016,938 at 4.7 percent with KSUF whereby the University leases two parking decks (the East Deck and the West Deck) for a twenty-four year period that expires in July 2026. In August 2003, the lease payments increased because additional space was added to one of the decks, bring the value of the lease to $24,093,887. Student Parking Fees and related revenues are used to service the lease payments on these facilities. The decks are constructed on land owned by the University and leased to the KSU Foundation for $1 annually for a period of twenty-five years commencing in June 2001. At the expiration of the ground lease and capital lease, ownership of the parking decks passes to the University. The outstanding liability on this capital lease at June 30, 2014 was $15,084,204.

In January 2004, KSU entered into a capital lease of $2,718,028 at 5.5 percent with KSUF whereby the University leases a portion of a building in the Chastain Pointe complex for a twenty-five year period that expires in June 2029. The University has the right of first refusal to lease additional space in the Chastain Pointe complex. Should the cumulative value of the rent payments equal the value of the Foundation's financing instrument and all additional rent under the terms of the agreement, Kennesaw State University Foundation, Inc. will gift the property to the University. In December 2004, the University entered into a capital lease at 5.5 percent for additional space in the complex, bringing the gross value of the lease to $3,378,929. In February 2007, the University substituted space and added additional space in a capital lease at 5.5 percent, bringing the value of the lease to $4,326,537. In September 2007, the University entered into a capital lease at

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

5.5 percent for additional space in the complex, bringing the gross value of the lease to $6,232,158; the outstanding amount owed on the Chastain Pointe leases at June 30, 2008 was $5,841,323. In May 2010 and June 2010, the University entered into capital leases at 5.5 percent for additional space in the complex, bringing the value of the lease to $8,615,209; at the end of fiscal year 2010. In December 2010, the University entered into a capital lease at 5.5 percent for more space in the complex, bringing the value of the lease to $8,872,893. In July 2011 and June 2012, KSU entered into additional capital leases at 5.5 percent for additional space in the complex, bringing the gross value of the lease to $11,672,763. The outstanding liability at June 30, 2014, on these capital leases was $8,519,833. Tuition revenues are used to make lease payments for space at Chastain Pointe.
In February 2004, KSU entered into a capital lease of $200,000 at 2.0 percent with KSUF whereby the University leases a house (the Smiley House) for a fifteen year period that expires in January 2019. Tuition revenues are used to pay these lease payments. The outstanding liability on this capital lease at June 30, 2014 was $67,584.
In September 2004, KSU entered into a capital lease of $14,323,134 at 5.79 percent with KSUF whereby the University leases a parking deck (the North Deck) for a twenty-five year period that expires in August 2029. The deck is constructed on land owned by the University and leased to the KSU Foundation for $197,600 annually for a period of twenty-five years commencing in September 2004. Student Parking Fees and related revenues are used to service the lease payments on this facility. At the expiration of the ground lease and capital lease, ownership of the parking deck transfers to the University. The outstanding liability on this capital lease at June 30, 2014 was $10,889,124.
In April 2006, KSU entered into a capital lease of $4,015,944 at 8.22 percent with KSUF whereby the University leases a portion of an office building (Town Point) for a twenty-four year period that expires in June 2030. The University is obligated to lease additional space in the building as it becomes available. At the expiration of the lease, ownership of the building transfers to the University. In September 2006, the University entered into a capital lease at 8.22 percent for additional space in the complex, bringing the value of the lease to $4,157,971. In July 2007, January 2008, April 2008, and May 2008, the University entered into additional capital leases at 8.22 percent for additional space in the complex, bringing the value of the lease to $7,955,987. In December 2009 and February 2010, the University entered into additional capital leases at 8.22 percent for additional space in the complex, bringing the value of the lease to $8,599,056. In October 2010, January 2011, and May 2011, the University entered into additional capital leases at 8.22 percent for more space in the complex, bringing the value of the lease to $9,845,565. In January 2012, the University entered into an additional capital lease at 8.22 percent for additional space in the complex, and improvements were made to the property bringing the value of the lease to $12,068,921. The University now leases all of the space in the office building. Tuition funds are used to pay the lease payments on this building. The outstanding liability at June 30, 2014, on these capital leases is $10,221,813.
In April 2006, KSU entered into a capital lease of $1,814,402 at 5.07 percent with KSUF whereby the University leases 7.242 acres of unimproved land for a twenty-four year period that expires in June 2030. The land is adjacent to the Town Point building, and the space was originally intended for another educational facility. It is currently being used as a parking lot. Tuition funds are used to pay these lease payments. At the expiration of the lease, ownership of the land transfers to the University. The outstanding liability on this capital lease at June 30, 2014 was $1,417,537.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

In November 2006, KSU entered into a capital lease of $1,041,207 at 5.38 percent with KSUF whereby the University leases classroom space in a multi-purpose building (Village Center Classroom) for a twenty-three year period that expires in June 2030. The building is constructed on land owned by the University and leased to the KSU Foundation for $10 annually for a period of twenty-five years commencing in June 2004. Tuition funds are used to pay for this classroom lease. At the expiration of the ground lease and capital lease, ownership of the building transfers to the University. The outstanding liability on this capital lease at June 30, 2014 was $793,397.
In July 2007, KSU entered into a capital lease of $11,493,855 at 7.09 percent with KSUF whereby the University leases a portion of a building (KSU Center) for office and classroom space for a twelve year period that expires in June 2019. Tuition revenues are used to make these lease payments. The outstanding liability on this capital lease at June 30, 2014 was $5,948,650.
In August 2008, KSU entered into a capital lease of $32,625,518 at 5.94 percent with KSUF whereby the University leases a parking deck (the Central Deck) for a thirty year period that expires in June 2038. The deck is constructed on land owned by the University and leased to the KSU Foundation for $10 annually for a period of thirty years commencing in August 2008. Student Parking Fees and related revenues are used to service the lease payments on this facility. At the expiration of the ground lease and capital lease, ownership of the parking deck transfers to the University. The outstanding liability on this capital lease at June 30, 2014 was $30,169,758.
In November 2008, KSU entered into a capital lease of $1,637,679 at 9.0 percent with KSUF whereby the University leases a classroom building (the Bowen Building / Student Athlete Success Services) for a thirty-one year period that expires in June 2039. Student Athletic Fees are used to pay this lease, and the asset is treated as a nonrevenue educational facility. At the expiration of the lease, ownership of the building transfers to the University. The outstanding liability on this capital lease at June 30, 2014 was $1,552,035.
In November 2008, KSU entered into a capital lease of $18,535,311 at 6.95 percent with KSUF that became effective in August 2009, whereby the University leases a dining hall facility (The Commons) for a thirty year period that expires in June 2039. The dining hall is constructed on land owned by the University and leased to the KSU Foundation for $10 annually for a thirty year period commencing in August 2009. Student Meal Plans and other meal purchases provide the funds to service this lease. At the expiration of the ground lease and capital lease, ownership of the dining hall transfers to the University. The outstanding liability on this capital lease at June 30, 2014 was $17,787,136. The Debt Ratio for the dining hall facility for fiscal year 2013 was 1.16.
In January 2010, KSU entered into a capital lease of $242,257 at 6.04 percent with KSUF whereby the University leases a house (the Cox Family House) for a thirty year period that expires in December 2039. General Auxiliary revenues are used to make payments on this lease. At the expiration of the lease, ownership of the house transfers to the University. The outstanding liability on this capital lease at June 30, 2014 was $226,319.
In July 2010, KSU entered into a capital lease of $685,028 at 5.26 percent with KSUF whereby the University leases space in a multi-purpose building (Village Center Clinic) for a twenty-six year period that expires in June 2036. Improvements were made to the property in 2011 in the amount of $260,603, increasing the value of the capital lease to $945,631. Student Health Fees provide the funding to pay this lease. The building is constructed on land owned by the University and leased to the KSU Foundation for $10 annually, commencing in June 2004. The original ground lease was for a twenty-five year period; this was extended by an additional 5 years and 8 months by an Amendment to the Ground Lease, effective as of June 1, 2010. The ground lease now expires in

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

June, 2036, at the same time as the lease for the space in the building. At the expiration of the ground lease and capital lease, ownership of the building transfers to the University. The outstanding liability on this capital lease at June 30, 2014 was $627,352. Because this project is used as a nonrevenue administrative building, the Debt Ratio is deemed to be 1.0.
In July 2010, KSU entered into a capital lease of $58,918,976 at 5.50 percent with KSUF whereby the University leases a sports stadium, recreation fields, and a recreation facility for a thirty year period that expires in June 2040. Student Recreation Fees generate the revenue required to fund the lease on this facility. At the expiration of the lease, ownership of the stadium, fields, and recreation facility transfers to the University. The outstanding liability on this capital lease at June 30, 2014 was $61,706,193.
In August 2011, KSU entered into a capital lease of $31,449,755 at 5.13 percent with KSUF, to be effective beginning August 2012 whereby the University leases a student housing facility (the Austin Residential Complex) for a twenty-nine year period that expires in June 2041. Student housing rentals support the payments on this lease. The student housing facility is constructed on land owned by the University and leased to the KSU Foundation for $10 annually for a thirty year period commencing in August 2011. At the expiration of the ground lease and the capital lease, ownership of the student housing facility transfers to the University. The outstanding liability on this capital lease at June 30, 2014 was $31,663,714.
Kennesaw State University also has one capital lease with an unrelated party. In November 2011, KSU entered into a capital lease of $129,610 at 7.54 percent whereby the University leases an Expresso Book Machine/Copier for a five year period that expires in October 2016. Revenues from the use of this machine are used to service the lease payments. The outstanding liability on this capital lease at June 30, 2014 was $66,556. The Expresso Book Machine/Copier is operated by the KSU Bookstore auxiliary, and Bookstore revenues, including those generated by the machine, are used to pay the lease obligations.
OPERATING LEASES
Operating leases are agreements that are normally short-term in nature and allow for the use of an asset, but do not convey rights of ownership of the asset. Generally, any lease that is not classified as a capital lease is an operating lease. Certain operating leases provide for renewal options for periods from one to three years at their fair rental value at the time of renewal. When any State of Georgia agency is involved in an operating lease, the agreement is cancellable if the State does not provide adequate funding, but that is usually considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are often payable on a monthly basis. Examples of property under operating leases are copiers, other small business equipment, and very short-term rentals of commercial space.
At June 30, 2014, Kennesaw State University was not a party to any noncancellable operating lease.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

FUTURE COMMITMENTS
Future commitments for capital leases (which are shown here and on the Statement of Net Position include other installment purchase agreements) as of June 30, 2014, were as follows:
Real Property and
Equipment Capital Leases

Year Ending June 30: 2015 2016 2017 2018 2019 2020 - 2024 2025 - 2029 2030 - 2034 2035 - 2039 2040 - 2041

$

18,384,438

18,499,111

18,609,199

18,730,884

18,856,419

89,298,779

86,534,400

62,669,854

58,047,592

10,201,065

Total Minimum Lease Payments

399,831,741

Less: Interest Less: Executory Costs (if paid)

162,607,395 37,467,716

Principal Outstanding

$

199,756,630

Kennesaw State University's fiscal year 2014 expense for rental of real property and equipment under operating leases was $87,971.

Note 11. Retirement Plans
Kennesaw State University participates in various retirement plans administered by the State of Georgia under two major retirement systems: Employees' Retirement System of Georgia (ERS System) and Teachers Retirement System of Georgia. These two systems issue separate publicly available financial reports that include the applicable financial statements and required supplementary information. The reports may be obtained from the respective system offices. The significant retirement plans that the University participates in are described below. More detailed information can be found in the plan agreements and related legislation. Each plan, including benefit and contribution provisions, was established and can be amended by State law.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Employees' Retirement System of Georgia
The ERS System is comprised of individual retirement systems and plans covering substantially all employees of the State of Georgia except for teachers and other employees covered by the Teachers Retirement System of Georgia. One of the ERS System plans, the Employees' Retirement System of Georgia (ERS), is a cost-sharing multiple-employer defined benefit pension plan that was established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees and has the powers and privileges of a corporation. ERS acts pursuant to statutory direction and guidelines, which may be amended prospectively for new hires but for existing members and beneficiaries may be amended in some aspects only subject to potential application of certain constitutional restraints against impairment of contract.
On November 20, 1997, the Board created the Supplemental Retirement Benefit Plan (SRBP-ERS) of ERS. SRBP-ERS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of the SRBP-ERS is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC Section 415. Beginning January 1, 1998, all members and retired former members in ERS are eligible to participate in the SRBP-ERS whenever their benefits under ERS exceed the limitation on benefits imposed by IRC Section 415.
The benefit structure of ERS is established by the Board of Trustees under statutory guidelines. Unless the employee elects otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. Members hired on or after July 1, 1982 but prior to January 1, 2009 are "new plan" members subject to the modified plan provisions. Effective January 1, 2009, newly hired State employees, as well as rehired State employees who did not maintain eligibility for the "old" or "new" plan, are members of the Georgia State Employees' Pension and Savings Plan (GSEPS). ERS members hired prior to January 1, 2009 also have the option to change their membership to the GSEPS plan.
Under the old plan, new plan, and GSEPS, a member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60 or 30 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60.
Retirement benefits paid to members are based upon a formula adopted by the Board of Trustees for such purpose. The formula considers the monthly average of the member's highest 24 consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Post-retirement cost-of-living adjustments may be made to members' benefits provided the members were hired prior to July 1, 2009. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension, at reduced rates, to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS.
Member contribution rates are set by law. Member contributions under the old plan are 4% of annual compensation up to $4,200, plus 6% of annual compensation in excess of $4,200. Under the old plan, Kennesaw State University pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these KSU contributions are included in the members' accounts for refund purposes and are used in the computation of the members' earnable compensation for

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

the purpose of computing retirement benefits. Member contributions under the new plan and GSEPS are 1.25% of annual compensation. The University is required to contribute at a specified percentage of active member payroll established by the Board of Trustees determined annually in accordance with actuarial valuation and minimum funding standards as provided by law. These contributions under the new plan are not at any time refundable to the member or his/her beneficiary.
Employer contributions required for fiscal year 2014 were based on the June 30, 2011 actuarial valuation as follows:

Old Plan* New Plan GSEPS

18.46% 18.46% 15.18%

* 13.71% exclusive of contributions paid by the employer on behalf of old plan members

Members become vested after 10 years of service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions; the member forfeits all rights to retirement benefits.

Teachers Retirement System of Georgia

The Teachers Retirement System of Georgia (TRS) is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS.
On October 25, 1996, the Board created the Supplemental Retirement Benefit Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1, 1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits.

TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.
Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 30 years of service. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 10 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2014 were 6.00% of annual salary. Employer contributions required for fiscal year 2014 were 12.28% of annual salary as required by the June 30, 2011 actuarial valuation.
The following table summarizes the Kennesaw State University contributions by defined benefit plan for the years ending June 30, 2014, June 30, 2013, and June 30, 2012:

Fiscal Year

ERS

Required

Percentage

Contribution

Contributed

TRS

Required

Percentage

Contribution

Contributed

2014

$

2013

$

2012

$

Regents Retirement Plan

31,307 19,792 21,502

100% 100% 100%

$ 8,326,308 $ 7,772,709 $ 6,932,081

100% 100% 100%

Plan Description

The Regents Retirement Plan, a single-employer defined contribution plan (also known as the "Optional Retirement Plan", or ORP), is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 47-21-1 et. seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who is eligible to participate in the ORP. An "eligible university system employee" is a faculty member or an exempt full- and partial-benefit eligible employee, as designated by the regulations of the Board of Regents.

Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from three approved vendors (VALIC, Fidelity, and TIAA-CREF) or may make alternate investment decisions, depending on what the respective vendors offer within their plans, for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan by the employee and the University plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts or alternate investment arrangements.

Funding Policy
Kennesaw State University makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2014, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 6.00% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.
During fiscal year 2014, Kennesaw State University and the covered employees made the required contributions of $5,984,422 (9.24%) and $3,885,860 (6.00%), respectively.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

VALIC, Fidelity, and TIAA-CREF each have separately issued financial reports which may be obtained through their respective corporate offices.
Georgia Defined Contribution Plan
Plan Description
Kennesaw State University also participates in the Georgia Defined Contribution Plan (GDCP) which is a single-employer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia.
Benefits
A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $3,500 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.
Contributions
Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member.
Total contributions made by employees during fiscal year 2014 amounted to $583,350 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.
Note 12. Risk Management
The University System of Georgia offers its employees and retirees access to four different healthcare plan options. For the University System of Georgia's Plan Year 2014, the following healthcare plan options were available:
BlueChoice HMO Health Savings Account (HSA) Open Access POS Open Access Point-of-Service (POS) Kaiser Permanente HMO

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Kennesaw State University and participating employees and retirees pay premiums to the healthcare plan options to access benefits coverage. The respective health plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with the self-insured plans, including the HSA Open Access POS, the Open Access POS, and the BlueChoice HMO. The reserves for these plans are considered to be a self-sustaining risk fund. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia to serve as the claims administrator for the self-insured healthcare plans. In addition to the self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HMO healthcare plan option is also offered to System employees through Kaiser Permanente.
The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. Kennesaw State University, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.
A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund.
Note 13. Contingencies
Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditure disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although the University expects such amounts, if any, to be immaterial to its overall financial position.
Litigation, claims and assessments filed against Kennesaw State University, if any, are generally considered to be actions against the State of Georgia, as KSU is an organizational unit of the Board of Regents of the University System of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2014.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Note 14. Post-Employment Benefits Other Than Pension Benefits
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 20-3-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.
The Board of Regents Retiree Health Benefit Plan is a single-employer, defined benefit plan. Financial statements and required supplementary information for the Plan are included in the publicly available Consolidated Annual Financial Report of the University System of Georgia. The University pays the employer portion of health insurance for its eligible retirees based on rates that are established annually by the Board of Regents for the upcoming plan year. For the 2014 plan year, the employer rate was between 70-75% of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%.
As of June 30, 2014, there were 383 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2014, Kennesaw State University recognized as incurred $1,842,722 of expenditures, which was net of $733,435 of participant contributions.

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KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Note 15. Natural Classifications with Functional Classifications The University's operating expenses by functional classification for fiscal year 2014 are shown below:

Functional Classification

Natural Classification

Instruction

Research

Public Service

Academic Support

Student Services

Salaries

Faculty

$

Staff

Employee Benefits

Other Personal Services

Travel

Scholarships and Fellowships

Utilities

Supplies and Other Services

Depreciation

64,121,041 $ 19,869,987 19,799,647
111,047 1,430,462 1,118,718
394,450 6,899,888
656,807

215,443 $ 367,273 108,112
30,171 8,810 293
398,583 95,820

382,989 $ 2,012,353
702,523 3,843
114,862 7,550
39,497 1,399,531
1,112

1,318,170 $ 19,481,053
5,237,601 5,000
393,530 400
248,351 7,114,649 1,608,742

148,524 12,164,901
3,464,967 19,801
340,896 775,005 190,341 5,718,052 1,481,238

Total Operating Expenses

$ 114,402,047 $

1,224,505 $

4,664,260 $

35,407,496 $

24,303,725

Natural Classification

Institutional Support

Functional Classification

Plant Operations

Scholarships

and

and

Maintenance

Fellowships

Auxiliary Enterprises

Total Operating Expenses

Salaries

Faculty

$

Staff

Employee Benefits

Other Personal Services

Travel

Scholarships and Fellowships

Utilities

Supplies and Other Services

Depreciation

279,719 14,796,284 $
7,508,228 188,122 255,585 168,644 234,126
9,242,327 928,377

7,484,709 2,538,981
-76,791 56,387
$ 4,576,355 9,883,555 7,130,793

$ 18,703,943

42,573 $ 9,937,827 2,623,379
240,692 96,411
2,156,383 511,928
30,932,851 8,625,743

66,508,459 86,114,387 41,983,438
491,714 2,718,304 22,939,453 6,195,341 71,589,436 20,528,632

Total Operating Expenses

$

33,601,412 $

31,593,989 $

18,703,943 $

55,167,787 $ 319,069,164

Note 16. Affiliated Organizations

The Kennesaw State University Foundation, Inc. (KSUF), Kennesaw State University Real Estate Foundation, Inc., Kennesaw State University Research and Service Foundation, Inc., and Kennesaw State University Athletic Association, Inc. are legally separate, tax exempt organizations whose activities primarily support Kennesaw State University. These affiliated organizations are considered potential component units of the State of Georgia in accordance with GASB Statement No. 61, The Financial Reporting Entity: Omnibus - an amendment of GASB Statements No. 14 and No. 34, and GASB Statement No. 39, Determining Whether Certain Organizations are Component Units. Therefore, the financial statements of these affiliated organizations are not included in Kennesaw State University's financial statements. Copies of the financial statements for these affiliated organizations may be obtained from Kennesaw State University.

- 30 -

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2014

EXHIBIT "D"

Kennesaw State University Foundation, Inc. has been determined to be significant to the State of Georgia for the year ended June 30, 2014, and as such, is reported as a discretely presented component unit in the Comprehensive Annual Financial Report of the State of Georgia (CAFR). KSUF issues separate audited financial statements that can be obtained from Kennesaw State University.
Kennesaw State University Real Estate Foundation, Inc., Kennesaw State University Research and Service Foundation, Inc., and Kennesaw State University Athletic Association, Inc. have been determined to not to be significant to the State of Georgia for the fiscal year ended June 30, 2014, and therefore, the financial statements of these affiliated organizations are not included in the Comprehensive Annual Financial Report (CAFR) of the State of Georgia. Copies of their financial statements may be obtained from Kennesaw State University.

- 31 -

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SUPPLEMENTARY INFORMATION - 33 -

KENNESAW STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS)
BUDGET FUND JUNE 30, 2014
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable
Federal Financial Assistance Other Prepaid Expenditures Other Assets
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Unearned Revenue
Total Liabilities
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

$

31,408,823.85

90,842.88

2,908,307.79 2,972,657.27
354,795.31 28,327.80

$

37,763,754.90

$

445,204.24

15,284,049.00

1,376,969.20

8,089,866.58

25,196,089.02

5,279,456.56 1,665,826.49
308,911.02 183,005.41 1,608,933.45 3,480,353.18
41,179.77
12,567,665.88

$

37,763,754.90

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 34 -

KENNESAW STATE UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)
BUDGET FUND YEAR ENDED JUNE 30, 2014

SCHEDULE "2"

REVENUES
State Appropriation State General Funds
Other Funds
Total Revenues
ADJUSTMENTS AND PROGRAM TRANSFERS
CARRY-OVER FROM PRIOR YEARS
Transfers from Reserved Fund Balance
Total Funds Available
EXPENDITURES
Research Consortium Special Funding Initiative Teaching
Total Expenditures
Excess of Funds Available over Expenditures
FUND BALANCE JULY 1
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Prior Year Receivables/Revenues Unreserved Fund Balance (Surplus) Returned
to Board of Regents - University System Office Year Ended June 30, 2013
Early Return of Surplus in Fiscal Year 2014 Prior Year Reserved Fund Balance Included in Funds Available
FUND BALANCE JUNE 30

BUDGET

ACTUAL

VARIANCE FAVORABLE (UNFAVORABLE)

$

82,429,443.00 $

82,429,443.00 $

0.00

215,516,397.00

200,463,563.68

-15,052,833.32

297,945,840.00

282,893,006.68

-15,052,833.32

0.00

653,292.00

653,292.00

0.00 297,945,840.00

10,252,432.52 293,798,731.20

10,252,432.52 -4,147,108.80

207,896.00 101,000.00 297,636,944.00

297,945,840.00

$

0.00

207,896.00 63,664.29
281,786,505.83
282,058,066.12
11,740,665.08 $

0.00 37,335.71 15,850,438.17
15,887,773.88
11,740,665.08

11,569,025.28 52,636.12

3,844.06 -487,954.76

-52,636.12

-5,481.26 -10,252,432.52

$

12,567,665.88

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

$

5,279,456.56

1,665,826.49

308,911.02

183,005.41

1,608,933.45

3,480,353.18

12,526,486.11

41,179.77

$

12,567,665.88

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 35 -

KENNESAW STATE UNIVERSITY STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2014

Research Consortium State Appropriation State General Funds
Special Funding Initiative State Appropriation State General Funds
Teaching State Appropriation State General Funds Other Funds
Total Teaching
Total Operating Activity

Original Appropriation

Amended Appropriation

Final Budget

Current Year Revenues

$

207,896.00 $

207,896.00 $

207,896.00 $

207,896.00

101,000.00

101,000.00

101,000.00

101,000.00

81,945,547.00 189,247,910.00
271,193,457.00

82,120,547.00 216,503,899.00
298,624,446.00

82,120,547.00 215,516,397.00
297,636,944.00

82,120,547.00 200,463,563.68
282,584,110.68

$

271,502,353.00 $ 298,933,342.00 $

297,945,840.00 $ 282,893,006.68

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 36 -

SCHEDULE "3"

Funds Available Compared to Budget

Prior Year

Adjustments and

Total

Carry-Over

Program Transfers

Funds Available

Variance Positive (Negative)

Expenditures Compared to Budget

Variance

Actual

Positive (Negative)

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

$

0.00 $

0.00 $

207,896.00 $

0.00 $

207,896.00 $

0.00 $

0.00

0.00

0.00

101,000.00

0.00

63,664.29

37,335.71

37,335.71

0.00 10,252,432.52
10,252,432.52

0.00 653,292.00
653,292.00

82,120,547.00 211,369,288.20
293,489,835.20

0.00 -4,147,108.80
-4,147,108.80

82,115,065.74 199,671,440.09
281,786,505.83

5,481.26 15,844,956.91
15,850,438.17

5,481.26 11,697,848.11
11,703,329.37

$ 10,252,432.52 $

653,292.00 $ 293,798,731.20 $

-4,147,108.80 $ 282,058,066.12 $ 15,887,773.88 $

11,740,665.08

- 37 -

KENNESAW STATE UNIVERSITY STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2014

Research Consortium State Appropriation State General Funds
Special Funding Initiative State Appropriation State General Funds
Teaching State Appropriation State General Funds Other Funds
Total Teaching
Total Operating Activity
Prior Year Reserves Not Available for Expenditure Uncollectible Accounts Receivable

Beginning Fund Balance/(Deficit)
July 1

Fund Balance Carried Over from
Prior Period as Funds Available

Return of Fiscal Year 2013
Surplus

Prior Period Adjustments

$

0.00 $

0.00 $

0.00 $

0.00

52,636.12

0.00

-52,636.12

0.00

0.00 10,252,432.52
10,252,432.52
10,305,068.64

0.00 -10,252,432.52
-10,252,432.52
-10,252,432.52

0.00 0.00
0.00
-52,636.12

561.11 -484,671.81
-484,110.70
-484,110.70

1,316,592.76

0.00

0.00

0.00

Budget Unit Totals

$

11,621,661.40 $

-10,252,432.52 $

-52,636.12 $

-484,110.70

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework.
- 38 -

SCHEDULE "4"

Other Adjustments

Early Return Fiscal Year 2014
Surplus

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

Ending Fund Balance/(Deficit)
June 30

Analysis of Ending Fund Balance

Reserved

Surplus/(Deficit)

Total

$

0.00 $

0.00 $

0.00 $

0.00 $

0.00 $

0.00 $

0.00

0.00

0.00

37,335.71

37,335.71

0.00

37,335.71

37,335.71

0.00 -292,340.69
-292,340.69
-292,340.69

-5,481.26 0.00
-5,481.26
-5,481.26

5,481.26 11,697,848.11
11,703,329.37
11,740,665.08

561.11 10,920,835.61
10,921,396.72
10,958,732.43

0.00 10,917,552.66
10,917,552.66
10,917,552.66

561.11 3,282.95
3,844.06
41,179.77

561.11 10,920,835.61
10,921,396.72
10,958,732.43

292,340.69

$

0.00 $

0.00

0.00

1,608,933.45

1,608,933.45

0.00

1,608,933.45

-5,481.26 $

11,740,665.08 $ 12,567,665.88 $ 12,526,486.11 $

41,179.77 $ 12,567,665.88

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

$ 5,279,456.56 1,665,826.49 308,911.02 183,005.41 1,608,933.45 3,480,353.18
$
$ 12,526,486.11 $

$ 5,279,456.56 1,665,826.49 308,911.02 183,005.41 1,608,933.45 3,480,353.18

41,179.77

41,179.77

41,179.77 $ 12,567,665.88

- 39 -

KENNESAW STATE UNIVERSITY RECONCILIATION OF BUDGET TO GAAP
YEAR ENDED JUNE 30, 2014

Presented below is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Position of business-type activities, as reported on Exhibit A.
Total Fund Balances - Budget Fund - Non-GAAP Basis (Schedule "1")
Amounts reported for Business-Type Activities in the Statement of Net Position are different because:
Capital Assets used in Business-Type Activities are not reported in the Budget Fund.
Uncollectible accounts receivable are reported as an asset and reserved fund balance in the Budget Fund and as a contra-asset account on the Statement of Net Position.
Funds placed on deposit with the Georgia State Financing and Investment Commission for use in capital outlay projects are reported as an outlay in the Budget Fund, but are included as a prepaid item on the Statement of Net Position.
Funds placed on deposit with the Kennesaw State University Foundation for for the property in Italy.
Changes in the Fair Market Value of Investments are recognized on the Statement of Net Position, but are not reported in the Budget Fund.
Agency Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Agency Fund Activity
Auxiliary Enterprises Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Auxiliary Enterprises Fund Activity
Endowment Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Endowment Fund Activity
Loan Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Loan Fund Activity
Student Activities Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Student Activity Fund Activity
The budgetary basis of accounting implemented by the State of Georgia recognizes expenditures when encumbered. The following adjustments were made to eliminate this activity for reporting on the Statement of Net Position. Payables reported in the Budget Fund that are based on encumbrances are eliminated for GAAP reporting. Payables for goods and services provided in the current fiscal year reported in the Budget Fund as encumbrances payable are reported as accounts payable for GAAP reporting. Reimbursement from grantors reported as revenues in the Budget Fund that are for expenditures based on encumbrances are deferred for GAAP reporting. Total Net Effect of Encumbrance Activity
Certain Liabilities are not due and payable in the current period and therefore are not reported as liabilities in the Budget Fund. Capital Leases Payable Compensated Absences Payable Contracts Payable Unearned Revenue (Including Tuition and Fees) Noncurrent Total Liabilities
Deferred inflows of resources are not reported as a component unit of the Budget Fund.
Rounding

Net Position of Business-Type Activities (Exhibit "A")

The supplementary information presented on Schedules 1, 2, 3 and 4 was prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a special purpose framework. The information was derived from, and relates directly to, the same information used to prepare the financial statements. However, the budgetary statutes and regulations of the State of Georgia require reporting of certain information that is not in accordance with generally accepted accounting principles. Presented on this schedule is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Position of business-type activities, as reported on Exhibit A.

- 40 -

SCHEDULE "5"

$ 12,567,665.88

466,965,485.00

-1,608,933.45

$

6,359,654.25

-6,359,654.25

$

9,442,369.02

-3,268,883.27

$

494,609.92

0.00

$

517,217.25

0.00

$ 18,910,784.56 -967,815.46

55,006.55 56,437.36 -93,493.39
0.00 6,173,485.75
494,609.92 517,217.25 17,942,969.10

$ 15,284,048.99
-1,149,455.05 -380,689.58

13,753,904.36

$ -199,756,630.00 -8,011,636.00 -309,478.00 -4,035.00

-208,081,779.00 -74,302,295.00 1.67

$ 234,440,282.00

KENNESAW STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2014
Totals per Annual Supplement
Accruals June 30, 2014 June 30, 2013
Compensated Absences June 30, 2014 June 30, 2013
Adjustments Shared Services on Jointly Staffed Personnel Armstrong Atlantic State University Barnette, Jane Atlanta Metropolitan College Richardson, Norma Board of Regents Joyce, Teresa Keleher, Michael Noble, Linda Rugg, Edwin Dalton State College Barton, Kristin Helms, Marilyn Fort Valley State University Grimes, Jamie Georgia Highlands College Haverkos, Brenda Miles, Nicoly Woods, Johnny Georgia Institute of Technology Grindel, Patricia Lewis, Gary Shipton, Erik Georgia Perimeter College Hammiller, Meghan Negrelli, Kathryn Georgia Southern University Li, Mingxuan Georgia State University Donaldson, Justin Floyd, Michael Hedeen, Timothy Lands, LeeAnn Wolfe, Amanda Gordon College Bobo, Charles Savannah State University Hair, Joseph Rutherford, Brian Southern Polytechnic State University Jones, Jason McGree, Mary Ellen North, Sarah University of North Georgia Steiner, Hillary University of West Georgia Rollins, Minna
On-Behalf from Kennesaw State University Foundation For Deferred Compensation Plan Papp, Daniel
Rounding
- 41 -

SCHEDULE "6"

SALARIES

TRAVEL

$ 152,933,401.85 $ 2,718,304.33

463,300.13 -390,481.35

7,442,299.34 -7,344,219.54

-584.45
10,967.66
-119,189.96 -6,000.00
-240,378.91 -19,250.00
3,000.00 6,315.05
-3,229.50
-42,719.94 -2,870.80 -3,198.28
-5,786.06 -3,298.08 5,167.20
2,906.55 -467.56
-226.07
2,583.60 2,260.65 -4,091.15 -1,168.90 -3,597.90
10,818.84
-3,506.70 -1,753.35
-3,444.80 32,210.89 -3,506.70
-599.65
1,184.00

-90,000.00 -0.11

-0.33

$ 152,622,846.00 $ 2,718,304.00

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
September 30, 2014

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable Daniel S. Papp, President Kennesaw State University
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the basic financial statements of Kennesaw State University as of and for the year ended June 30, 2014, and have issued our report thereon dated September 30, 2014.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered Kennesaw State University's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Kennesaw State University's internal control. Accordingly, we do not express an opinion on the effectiveness of Kennesaw State University's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material

2014YB-10

weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Kennesaw State University's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
We noted a certain matter that we have reported to management of Kennesaw State University in a separate letter dated September 30, 2014.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Respectfully submitted,

GSG:as 2014YB-10

Greg S. Griffin State Auditor

SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS

KENNESAW STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2014
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.