MEDICAL COLLEGE OF GEORGIA AUGUSTA, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30,2010 - r p -I 1-7 1 b o r g i a bepartmentof Audits and Accounts I Russell W.Hintqn SQte AudiCpr ,I I .-- - - - - ... .. - -..- - . ..- -- - - - I -- MEDICAL COLLEGE OF GEORGIA - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS EXH IBlTS A STATEMENTOFNETASSETS B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 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 PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET (NON-GAAP BASIS) BUDGET FUND 4 RECONCILIATION OF SALARIES AND TRAVEL SECTION Ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENOTF AUDITSAND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 November 17,2010 Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the UniversitySystem of Georgia and Honorable Ricardo Azziz, President Medical College of Georgia INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Ladies and Gentlemen: We have audited the accompanying basic financial statements (Exhibits A through D) of Medical College of Georgia, 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, 2010. These financial statements are the responsibility of the Medical College of Georgia's management. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of College's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1,the financial statements of Medical College of Georgia are intended to present the financial position and changes in financial position and cash flows of only that portion of the business-typeactivities of the State of Georgia that is attributable to the transactions of Medical College of Georgia. They do not purport to, and do not, present fairly the financial position and changes in financial position and cash flows of the State of Georgia, in conformity with accounting principles generally accepted in the United States of America. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Medical College of Georgia as of June 30, 2010, and its changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Management's Discussion and Analysis is not a part of the basic financial statements but is required supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of this required supplementary information. However, we did not audit this information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Medical College of Georgia taken as a whole. The accompanying supplementary information (Schedules 1through 4) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Respectfully submitted, T& &A ~ u s 8 e lWl . Hinton, CPA, CGFM State Auditor REQUIRED SUPPLEMENTARY INFORMATION MEDICAL COLLEGE OF GEORGIA Management's Discussion and Analysis Introduction Medical College of Georgia (MCG), the oldest school of medicine in Georgia, was incorporated in 1828 as the Medical Academy of Georgia and is one of the 35 institutions of higher education of the University System of Georgia. The College, located in Augusta, Georgia, has become known for its world-class instructional, clinical, and research programs. The College offers more than 4 0 academic programs in allied health sciences, dentistry, graduate studies, medicine, and nursing at the baccalaureate, masters, doctoral, and professional levels. Additionally, MCG offers residency training in medical and dental specialty areas. This wide range of educational opportunities attracts a highly qualified faculty and student body. A brief historical comparison of full time faculty and student levels is shown by the comparison numbers that follow. Faculty Students (Headcount) Students (FTE) Fiscal Year 2010 Fiscal Year 2009 Fiscal Year 2008 Overview of the Financia/ Btements and FinancialAna/ysis Medical College of Georgia is proud to present its financial statements for fiscal year 2010. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. This discussion and analysis of the College's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2010 and fiscal year 2009. Statement of Net Assets The Statement of Net Assets presents the assets, liabilities, and net assets of the College as of the end of the fiscal year. The Statement of Net Assets is a point of time financial statement. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a fiscal snapshot of Medical College of Georgia. The Statement of Net Assets presents end-of-year data concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the FinancialStatements. From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors. Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the institution's equity in property, plant and equipment owned by the institution. The next asset category is restricted net assets, which is divided into three categories, nonexpendable, expendable and capital projects. The corpus of nonexpendable restricted resources is only available for investment purposes. Expendable restricted net assets 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 net assets. Unrestricted net assets are available to the institution for any lawful purpose of the institution. Statement of Net Assets, Condensed June 30,2010 June 30,2009 Assets Current Assets Capital Assets, Net Other Assets Total Assets Liabilities Current Liabilities Noncurrent Liabilities Total Liabilities Net Assets Invested in Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Restricted - Capital Projects Unrestricted $ 274,705,038 1,495,902 67,528,242 5,000,000 -11,582,372 $ 275,452,016 1,354,437 59,491,936 5,000,000 -16,681,672 Total Net Assets $ 337,146,810 $ 324,616,717 The total assets of the institution increased by $25,052,061. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $20,865,122 in the category of Other Assets. The balance of the increase is mainly in investments categories. The total liabilities for the year increased by $12,521,968. The combination of the increase in total assets of $25,052,061 and the increase in total liabilities of $12,521,968 yields an increase in total net assets of $12,530,093. The increase in total net assets is primarily in the category of Restricted Expendable in the amount of $8,036,306. Sfatement of Revenues, Expenses and Changes in Net Asset3 Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. 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 speaking 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 Assets, Condensed June 30,2010 June 30,2009 Operating Revenues Operating Expenses Operating Loss $ -169,196,735 $ -167,015,199 Nonoperating Revenues and Expenses 173,101,558 158,913,902 Income (Loss) Before Other Revenues, Expenses, Gains or Losses $ 3,904,823 $ -8,101,297 Other Revenues, Expenses, Gains or Losses 8,625,270 13,434,956 Increase (Decrease) in Net Assets $ 12,530,093 $ 5,333,659 Net Assets at Beginning of Year Net Assets at End of Year The Statement of Revenues, Expenses and Changes in Net Assets reflects a positive year with an increase in net assets at the end of the year. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are as follows: Revenue by Source For the Years Ended June 30,2010 and June 30,2009 June 30.2010 Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Auxiliary Other Total Operating Revenue Nonoperating Revenue State Appropriations Federal Stimulus - Stabilization Funds Grants and Contracts Gifts Investment Income Other Total Nonoperating Revenue Capital Grants and Gifts Federal State Other Total Capital Grants and Gifts Total Revenues Expenses (By Functional Classification) For the Years Ended June 30,2010 and June 30,2009 June 30,2010 Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises Patient Care (MCG Only) Total Operating Expenses Nonoperating Expenses Interest Expense (Capital Assets) Total Expenses June 30.2009 June 30,2009 Operating revenues increased by $7,933,663 in fiscal year 2010. Revenues increased in all but one category including a 20% increase in tuition and fees. Nonoperating revenues increased by $14,132,119 for the year primarily due to an increase of $6,965,189 in Gifts. The compensation and employee benefits category increased by $6,121,155 and primarily affected the Instruction and Research categories. The increase reflects the addition of 2 1 new faculty members for the Athens campus, institutional reorganization, promotions, tenure appointments, and market adjustments. Statement of Cash Flows The final statement presented by the Medical College of Georgia 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 Assets. Cash Flows forthe Years Ended June 30,2010 and June 30,2009, Condensed June 30,2010 June 30,2009 Cash Provided (Used) By: Operating Activities Noncapital FinancingActivities Capital and Related FinancingActivities InvestingActivities $ -131,059,171 165,951,322 -18,338,577 -2,746,296 $ -156,094,474 161,154,441 -14,520,122 -15,711,676 Net Change in Cash Cash, Beginning of Year Cash, End of Year Medical College of Georgia had capital asset additions for buildings and building improvements. Numerous projects were completed during the fiscal year totaling $8,053,602. Other on-going projects funded by the Georgia State Financing and Investment Commission (GSFIC) included $8,443,800. Projected funding by GSFIC for fiscal year 2 0 1 1 will be approximately the same. For additional information concerning Capital Assets, see Notes 1,6, 8 and 10 in the Notes to the Financial Statements. Long- Term Liabiiities Medical College of Georgia had Long-Term Liabilities of $59,218,937 of which $17,884,952 was reflected as current liability at June 30, 2010. For additional information concerning Long-Term Liabilities, see Notes 1and 8 in the Notes to the Financial Statements. Economic Outlook Along with all other institutions of the University System of Georgia, the College continues to respond to current and possible additional budget reductions mandated by the Governor's Office of Planning and Budget (OPB) in response to shortfalls in the State's revenue collections. Plans have been developed and will continue to be updated to meet these challenges. Currently, plans for 4%, 6%, and 8%reductions in State Appropriations have been submitted to the University System Office for inclusion in the consolidated system's submission of plans to the OPB. While these reductions will not be without pain, the College is confident that its core missions will continue to be met. Dr. Ricardo Azziz, President Medical College of Georgia BASIC FINANCIAL STATEMENTS MEDICAL COLLEGE OF GEORGIA STATEMENT OF NET ASSETS JUNE 30,2010 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Federal Financial Assistance Margin Allocation Funds Other Inventories (Note 4) Prepaid Items Total Current Assets Noncurrent Assets Investments (Externally Restricted) Investments Notes Receivable, Net Capital Assets, Net (Note 6) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deferred Revenue(Note 7) Deposits Held for Other Organizations Lease Purchase Obligat~ons Compensated Absences Total Current Liabilities Noncurrent Liabilities Lease Purchase Obligations Compensated Absences Total Noncurrent L ~ a b ~ l ~ t ~ e s Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restr~ctedfor: Nonexpendable Expendable Capital Projects Unrestricted (Deficit) Total Net Assets The notes to the financial statements are an integral part of this statement. - 2 - EXHIBIT " A MEDICAL COLLEGE OF GEORGIA STATEMENT OF REVENUES. EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 3 0 . 2 0 1 0 Student Tultlon and Fees Less: Scholarship Allowances Grants and Contracts Federal Federal Stimulus State Other Sales and Services of Educational Departments Rents and Royaltles Aux~liatyEnterprises Res~denceHalls Bookstore Food Services Park~ng/Transportation Health Sewices Other Organizations Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Salaries Faculty Staff Employee Beneflts Other Personal Servlces Travel Scholarships and Fellowsh~ps Utilities Supplies and Other Sewlces Depreciation Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) State Appropriations Federal Stimulus -Stabilization Funds Grants and Contracts Federal Federal Stimulus Other Glf~s Interest and Other Investment Income lnterest Ekpense Other Nonoperatlng Revenues Net Nonoperating Revenues Income Before Other Revenues, Expenses, Ga~ns,or Losses Capital Grants and Gifts State Other Total Other Revenues, Expenses, Gains or Losses Increase (Decrease) In Net Assets Net Assets - Besnnlng of Year Net Assets - End of Year The notes to the financial statements are an integral part of this statement. MEDICAL COLLEGE OF GEORGIA STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30,2010 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Loans Issued to Students and Employees Collection of Loans to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parking/Transportation Health Services Other Organizations Other Receipts (Payments) Net Cash Provided (Used) by OperatingActivities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Federal Stimulus - Stabliizatlon Funds Agency Funds Transactions Gifts and Grants Receivedfor Other than Capital Purposes Other Nonoperating Receipts Net Cash Flows Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Proceeds from Sale of Capital Assets Purchases of Capital Assets Principal Paid on Capital Debt and Leases lnterest Paid on Capital Debt and Leases Net Cash Provided(Used) by Capital and Related FinancingActivities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of lnvestments lnterest on Investments Purchase of Investments Net Cash Provided(Used) by InvestingActivities Net Increase (Decrease)in Cash Cash and Cash Equivalents- Beginningof Year Cash and Cash Equivalents- End of Year EXHIBIT "C" MEDICAL COLLEGE OF GEORGIA STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30.2010 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating lncome (Loss) Adjustments to ReconcileOperatingIncome to Net Cash Provided(Used) by OperatingActivities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Inventories Prepaid Items Notes Receivable, Net Accounts Payable Deferred Revenue Compensated Absences Net Cash Provided(Used) by OperatingActivities NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of Investments Recognized as a Componentof Interest lncome Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts The notes to the financial statements are an integral part of this statement. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL SATEMENTS JUNE 30,2010 EXHIBll "D" Note 1. Summary of SignificantAccounting Policies Nature of Operations Medical College of Georgia serves the local, state, and national communities by providing educational programs for health professionals, biomedical scientists, and educators at the undergraduate, graduate, and postgraduate levels and for lifelong learning through excellence in teaching and the total development of students in response to the health needs of the State of Georgia. The College strives t o be a leading center of excellence in research through the generation and application of biomedical knowledge and technology to human health and disease, and to play an expanding role in the transfer of technology to the health care delivery system. Reporting Entity Medical College of Georgia is one of thirty-five (35) 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 Medical College of Georgia 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. Medical College of Georgia does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Medical College of Georgia 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 GovernmentalAccounting and Financial ReportingStandards. Legally separate, tax exempt 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 1 6 for additional information. 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 College's assets, liabilities, net assets, revenues, expenses, changes in net assets, and cash flows. Generally Accepted Accounting Principles (GAAP) requires that the reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year. Due to the lack of materiality, Institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the predominant activity takes place. New Accounting Pronouncements In fiscal year 2010, Medical College of Georgia adopted the Governmental Accounting and Standards Board (GASB) Statement No. 51, Accounting and Reporting for Intangible Assets. The provisions of this Statement generally required retroactive reporting for intangible assets acquired after June 30, 1980, with the exception of those intangible assets that have indefinite useful lives and those that are considered internally generated. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "D" In addition, Medical College of Georgia adopted GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. The provisions of this Statement impacts disclosure regarding derivative instruments entered into by the state and local governments. Derivative disclosures, if any, will be identified in Note 2. Basis of Accounting For financial reporting purposes, the College is considered a special-purpose government engaged only in business-type activities. Accordingly, the College's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the preceding paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-College transactions have been eliminated. The College has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The College has elected to not apply FASB pronouncements issued after the applicable date. Cash and Cash Equivalents Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the State Investment Pool. Investments lnvestments include financial instruments with terms in excess of 1 3 months, certain other securities for the production of revenue, land, and other real estate held as investments by endowments. The College 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 Assets. The Board of Regents Total Return 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 each residing 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 College's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts. lnventories Consumable supplies are recorded on the consumption method and are valued at cost using the first-in, first-out ("FIFO")basis. Resale lnventories are valued at cost first-in, first-out method. Noncurrent Cash and Investments Cash and investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "D" 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, the College'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 4 0 to 6 0 years for buildings, 20 to 25 years for infrastructure and land improvements, 1 0 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements. To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financingand 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. The bonds so issued 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. For projects managed by GSFIC, the GSFIC retains construction in progress on its books throughout the construction period and transfers the entire project to the College when complete. For projects managed by the College, the College retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2010, GSFIC did not transfer any capital additions to Medical College of Georgia. Deferred Revenues Deferred revenues include 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. Deferred revenues also include 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 Assets, and as a component of compensation and benefit expense in the Statements of Revenues, Expenses and Changes in Net Assets. Medical College of Georgia had accrued liability for compensated absences in the amount of $30,786,923 as of July 1,2009. For fiscal year 2010, $21,453,966 was earned in compensated absences and employees were paid $19,962,847, for a net increase of $1,491,119. The ending balance as of June 30, 2010, in accrued liability for compensated absences was $32,278,042. 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. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "D" Net Assets The College's net assets are classified as follows: Invested in capitalassets, net of related debt: This represents the College's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. The term "debt obligations" as used in this definition does not include debt of the GSFlC as discussed previously in Note 1- Capital Assets section. Restritted net assets - nonexpendable: Nonexpendable restricted net assets consist of 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 either be expended or added to principal. The College 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. Restriicted net asseb - expendable: Restricted expendable net assets include resources in which the College is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. Expendable Restricted Net Assets include the following: Restricted - E&G and Other Organized Activities $ Federal Loans Institutional Loans Quasi-Endowments 55,944,334 5,407,914 1,119,817 5,056,177 Total Restricted Expendable $ 67,528,242 Restrided net assets - expendable - rnpital Projects: This represents resources for which the College is legally or contractually obligated to spend resources for capital projects in accordance with restrictions imposed by external third parties. Medical College of Georgia has $5,000,000 in Restricted Net Assets - Capital Projects. These funds are on deposit with GSFlC and will be used for the construction of the School of Dentistry. Unrestricted net assek Unrestricted net assets represent 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 College, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) of $31,768.83. 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 Treasury and Fiscal Services. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "D" Unrestricted Net Assets includes the following items which are quasi-restricted by management. R & R Reserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted Total Unrestricted Net Assets $ -11,582,372 When an expense is incurred that can be paid using either restricted or unrestricted resources, the College's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources. Income Taxes Medical College of Georgia, 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 Revenuesand Expenses The Statement of Revenues, Expenses and Changes in Net Assets classify fiscal year activity as operating and nonoperating according to the following criteria: Operating Revenues: 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 Revenues 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 TrustFunds and GovernmentalEntities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income. Operating Expenses Operating expense includes activities that have the characteristics of exchange transactions. Nonoperating Expenses 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 Assets. Scholarship allowances are the difference between the stated charge for goods and services provided by the College, 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 College's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the College has recorded contra revenue for scholarship allowances. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 EXHIBIT "D" Note 2. Deposits and I nvestments Deposits The custodial credit risk for deposits is the risk that in the event of a bank failure, the College's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the College) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59: 1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia. 2. Bonds, bills, notes, certificates of indebtedness, or other obligations of the counties or municipalities of the State of Georgia. 3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose. 4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia. 5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association. 6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation. The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the UniversitySystem of Georgia. At June 30, 2010, the carrying value of deposits was $20,502,297 and the bank balance was $34,416,901. Of the College's deposits, $34,166,901 were uninsured. Of these uninsured deposits, $7,863,541 were collateralized with securities held by the financial institution's trust department or agent in the College's name and $26,303,360 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the College's name. Investments Medical College of Georgia 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 College's investments as of June 30, 2010, are presented below. All investments are presented by investment type and debt securities are presented by maturity. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "D" InvestmentT V D ~ Fair Value Less Than 1Year lnvestment Maturity 1- 5 Years 6 - 10 years More than 10 Years Debt Securities U. S. Treasuries $ 6,147,611 $ 1,550,639 $ 1,854,103 $ 2,056,068 $ 686,801 U. S. Agencies Explicitly Guaranteed 1,786,225 1,786,225 Implicitly Guaranteed 53,113,303 4,947,418 6,919,894 4,075,415 37,170,576 Corporate Debt 5,289,866 1,863.591 2,102,218 1,324,057 Other lnvestments Equity Mutual Funds Equity Securities - Domestic Real Estate Investment Fund 8,924,054 1,996,700 1,606.009 lnvestment Pools Board of Regents Total Return Fund Office of Treasury and Fiscal Services Georgia Fund 1 6,552,079 11,675,333 Total Investments $ 97,091,180 The College does not have a formal policy addressing variable-rate securities. The College relies upon the judgment of its lnvestment Managers and the policies of the lnvestment vehicles related to Medical College of Georgia's investment assets. The Board of Regents lnvestment 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 lnvestment Pool is voluntary. The Board of Regents lnvestment Pool is not rated. Additional information on the Board of Regents lnvestment Pool is disclosed in the audited Financial Statements of the Board of Regents of the University System of Georgia - University System Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at httw://www.audits.state.g;a.us/internet/searchR~t~.htmI. The Georgia Fund 1lnvestment Pool, managed by the Office of Treasury and Fiscal Services, is not registered with the Securities and Exchange Commission as an investment company, but does operate in a manner consistent with the SEC's Rule 2a7 of the lnvestment Company Act of 1940. This investment is valued at the pool's share price, $1.00 per share. The Georgia Fund 1lnvestment Pool is an AAAm rated investment pool by Standard and Poor's. The Weighted Average Maturity of the Fund is 46 days. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 EXHIBIT "DM lnterest Rate Risk lnterest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The College's lnvestment Policy and Guidelines manages interest rate risk by recognizing that short-term loss of principal may be necessary in order to achieve longterm safety and growth of principal; and that in order to maximize income from debt instruments with maturities longer than sixty days, market values may be exposed to short-term price volatility. The Effective Duration of the Total Return Fund is 2.60 years. Of the College's total investment of $6,552,079 in the Total Return Fund, $1,228,567 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 college will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The College does not have a formal policy for managing custodial credit risk for investments. lnvestment Managers are held accountable for custodial safety. The College's lnvestment Policy and Guidelines require that managers be registered in good standing as investment advisors; and will be experienced with proven track records. At June 30, 2010, $66,337,005 of the College's applicable investments were uninsured and held by the investment's counterparty's trust department or agent in the College's name. Credit Oualitv Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The College's policy for managing credit quality risk is contained in its lnvestment Policy. All investment vehicles are designed to comply with Georgia Code 50-17-63. The investments subject to credit quality risk are reflected below: Fair Value AAA AA A Unrated Related Debt Investments U. S. Agencies $ 53,113,303 Corporate Debt 5,289,866 $ $ 53,113,303 39,465 $ 1,196,112 $ 2,225,948 1,828,341 Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The College's lnvestment Policy and Guidelines for managing concentration of credit risk requires that stocks and debt issues be diversified. The College also relies upon the concentration of credit risk policy of the individual investment vehicles related to Medical College of Georgia's investment assets. More than 5 percent of the College's investments are in the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. These investments are 40.8%and 13.9% respectively of the College's total investments. MEDICAL COLLEGE OF GEORGIA NOTES TO M E FINANCIAL STATEMENTS JUNE 30, 2010 EXHIBIT 'ID" Note 3. Accounts Receivable Accounts receivable consisted of the following at June 30, 2010: Student Tuition and Fees $ 6,724,841 Auxiliary Enterprisesand Other OperatingActivities 451,422 Federal Financial Assistance 9,181,018 Georgia State Financingand InvestmentCommission 1,558,272 Margin Allocation Funds 8,525,000 Other 25.776.489 Less Allowance for Doubtful Accounts $ 52,217,042 171,983 Net Accounts Receivable $ 52,045,059 Note 4. Inventories Inventories consisted of the following at June 30, 2010: Bookstore Other Total $ 429,518 Note 5. Notes/Loans Receivable The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2010. 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 College for amounts cancelled under these provisions. As the College 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. The College has provided an allowance for uncollectible loans, which, in management's opinion, is sufficient to absorb loans that will ultimately be written off. At June 30, 2010, the allowance for uncollectible loans was approximately $208,632. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 EXHIBIT "D" Note 6. CapitalAsseis Followingare the changes in capital assets for the year ended June 30,2010: Beginning Balance July 1,2009 Additions Reductions Ending Balance June 30,2010 Capital Assets, Not Being Depreciated: Land Construction Work-In-Progress $ 16.455.920 $ 634,413 $ 50,294 $ 16,816,094 15,193,928 10,736,992 17,040,039 21,273,030 Total Capital Assets, Not Being Depreciated $ 33,272,014$ 15,828,341$ 10,787,286$ 38,313.069 Capital Assets, Being Depreciated: Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections $ 338,994,840$ 2,339,679 75,939.540 33.910.208 19,285,860 8,053,602$ 8,246,925 63,922 1,347,279 807,055 $ 2,927,331 3,902,667 127.973 346,241.387 2,339.679 81,259.134 30,071,463 20,505.166 Total Assets Being Depreciated $ 470,470.127 $ 17,711,728$ 7,765,026$ 480,416.829 Less: Accumulated Depreciation: Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections $ 123,873,459$ 1,697,641 53,694,259 8,160,445 12,995,536 13,634,389 $ 155,062 7,521,568 1,327,303 1,006,373 542,494 $ 2,511,158 3,800,445 127.973 136,965,354 1,852,703 58.704.669 5,687,303 13,873.936 Total Accumulated Depreciation $ 200,421,MO$ 23,644.695$ 6,982.070 $ 217.083.965 Total Capital Assets, Being Depreciated, Net $ 270,048,787$ -5,932,967$ 782,956 $ 263,332,864 Capital Assets, Net Note 7. Deferred Revenue Deferred revenue consisted of the following a t June 30, 2010: Prepaid Tuition and Fees Research Other Deferred Revenue Totals $ 44,428,159 MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL QATEMENTS JUNE 30,2010 EXHIBIT "D" Note 8. Long- Term Liabilities Long-Term liability activity for the year ended June 30, 2010, was as follows: Beginning Balance July 1, 2009 Additions Reductions Ending Balance June 30,2010 Current Portion Lease Lease Obligation $ 27,868,785 $ 63,922 $ 992812 $ 26,940,895 $ 916,383 Other Liabilities Compensated Absences 30,786,923 21,453,966 19,962,847 32,278,042 16,968,569 Total Long-Term Obligations $ 58,655,708 $ 21,517,888 $ 20,954,659 $ 59,218,937 $ 17,884,952 Note 9. Significant Commitments The College had significant unearned, outstanding, construction or renovation contracts executed in the amount of $4,936,020 as of June 30, 2010. This amount is not reflected in the accompanying basic financial statements. Note 10. Lease Obligations Medical College of Georgia is obligated under various operating leases for the use of equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of equipment and the use of several floors of the Cancer Research Center building. CAPITAL LEASES Capital leases are generally payable in monthly installments and have terms expiring in various fiscal years between 2 0 1 1 and 2036. Expenditures for fiscal year 2010 were $2,877,814 of which $1,886,002 represented interest. Total principal paid on capital leases was $991,812 for the fiscal year ended June 30, 2010. Interest rates range from 1.64 percent to 12.63 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2010: Buildings Equipment Total Assets Held Under Capital Lease $ 24,384,160 Certain capital leases provide for renewal and/or purchase options. Generally purchase options at bargain prices of one dollar are exercisable at the expiration of the lease terms. Medical College of Georgia had one capital lease with an affiliated organization in the current fiscal year. In November 2004, Medical College of Georgia entered into a capital lease of $27,659,678 at 6.85 percent with the MCG-PPG Cancer Research Center, LLC, whereby the College leases the third, fourth, and fifth floors of the Cancer Research Center for a thirty-year period that began January 2006 and expires December 2035. At the end of the lease, title to the building is transferred to the College. The outstanding liability at June 30, 2010, on this capital lease is $26,228,523. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 EXHIBIT "Dm Medical College of Georgia also has various capital leases for equipment with an outstanding balance at June 30,2010, in the amount of $712,372. OPERATING LEASES Medical College of Georgia's noncancellable operating leases have remaining terms of more than one year and expire in various fiscal years from 2 0 1 1 through 2013. All agreements are cancellable if the State of Georgia does not provide adequate funding, but that is considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are generally payable on a monthly basis. Examples of property under operating leases are copiers and other small business equipment. FUTURE COMMITMENTS Future commitments for capital leases (which here and on the Statement of Net Assets include other installment purchase agreements) and for noncancellable operating leases having remaining terms of one year or more as of June 30,2010, were as follows: Real Property and Equipment Capital Operating Leases Leases Year EndingJune30: 2011 2012 2013 2014 2015 2016 - 2020 2021- 2025 2026 - 2030 2031- 2035 2036 Total Minimum Lease Payments $ 56,253,189 $ 4,227 Less: Interest 29,312,294 Principal Outstanding Medical College of Georgia's fiscal year 2010 expense for rental of equipment under operating leases was $12,478. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 Note 11. Retirement Plans Teachers Retirement System of Georgia Plan Description Medical College of Georgia participates in the Teachers Retirement System of Georgia (TRS), a costsharing multiple-employer defined benefit pension plan established by the Georgia General Assembly. TRS provides retirement allowances and other benefits for plan participants. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the TRS offices or from the Georgia Department of Audits and Accounts. Funding Policy Employees of Medical College of Georgia who are covered by TRS are required by State statute to contribute 5.25% of their regular earnings to TRS. Medical College of Georgia makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2010, the employer contribution rate was 9.74% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution Employees' Retirement System of Georgia Plan Description Medical College of Georgia participates in the Employees' Retirement System of Georgia (ERS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia. The benefit structure of ERS is defined by State statute and was significantly modified on July 1, 1982. Unless elected 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. Employees hired on or after July 1,1982, but prior to January 1,2009, are "new plan" members subject to the modified plan provisions. EffectiveJanuary 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 both the old plan and new plan, members become vested after 1 0 years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60. Additionally, there are certain provisions allowing for retirement after 25 years of service regardless of age. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "D" Retirement benefits paid to members are based upon a formula which considers the monthly average of the member's highest twenty-four 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 are also made to member's benefits. 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. In addition, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan (SRBP) effective January 1,1998. The SRBP 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 SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415. The ERS issues a financial report each fiscal year, which may be obtained through ERS. Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political subdivisions, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The College's payroll for the year ended June 30, 2010, for employees covered by ERS was $870,915. The College's total payroll for all employees was $309,051,042. For the year ended June 30, 2010, under the old plan, member contributions consist of 4% of annual compensation up to $4,200 plus 6%of annual compensation in excess of $4,200. Of these member contributions, the employee pays the first 1.25% and the College pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.25% of annual compensation paid by employee. The College also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation for both old and new plans. For the year ended June 30, 2010, the ERS employer contribution rate for the College amounted to 10.41% of covered payroll and included the amounts contributed on behalf of the employees under the old plan referred to above. Employer contributions are also made on amounts paid for accumulated leave to retiring employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2010, financial report, which may be obtained through ERS. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 Regents Retirement Plan Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 47-21-1 et.seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts. Funding Policy Medical College of Georgia 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 2010, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 5%of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times. Medical College of Georgia and the covered employees made the required contributions of $9,280,133 (9.24%) and $5,020,721 (5%), respectively. AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices. Georgia Defined Contribution Plan Plan Description Medical College of Georgia 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. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 EXHIBlT "D" Total contributions made by employees during fiscal year 2010 amounted to $356,027 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. Early Retirement Pension Plan Plan Description Medical College of Georgia Early Retirement Pension Plan (ERP) is a single-employer defined benefit pension plan administered by Bryan, Pendleton, Swats and McAllister. The plan was devised by MCG as a means of manpower reduction and was approved by the Board of Regents of the University System of Georgia (BOR) effective January 1,2000. The manpower reduction plan was designed to allow vested employees aged 55 or employees of any age with 2 5 years of creditable service to retire without penalties as applied by the Teachers Retirement System of Georgia (TRS) for early retirement. The plan would allow for all participants to retire as if they were vested and aged 6 0 or had attained 3 0 years of creditable service. No other benefits will be paid by this plan. The ERP does not issue a standalone report, however, a financial statement is maintained by the Medical College of Georgia, Controller's Division, and is available for review during normal business hours. Funding Policy The plan is to be funded by the purchase of an annuity utilizing salary savings of departed employees. The initial funding period of the annuity was 1 5 years; however, effective January 1, 2004, the remaining amortization period was extended 4 years. The fund sources that provided for an employee's salary, as of December 31, 1999, would be responsible for funding the annuity to provide the retiree benefits. There is no additional funding cost to the employee/retiree, BOR, or state of Georgia for this plan. Since this plan was not pre-funded, MCG is taking an aggressive approach to collect and deposit as much into the annuity fund in the earlier years as is possible, thereby realizing a greater return on investment. Effective January 1,2009, the period to amortize the unfunded accrued liability was extended 4 years to 1 4 years. The funding policy is reasonable and in compliance with the minimum funding requirements set forth in Code Section 47-20-10 of the Public Retirement Systems Standards Law. With this change, the plan should be fully funded by June 30, 2023. Further, since the actuarial value of assets had diverged significantly from the market value of assets, the actuarial value of assets at January 1,2009, was reestablished and set equal to the market value of assets. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 EXHIBIT "Dl1 Annual Pension Cost a n d Net Pension Obligation The ERP1sannual pension cost and net pension obligation for the current year were as follows: Total MCG Other Units Annual Required Contribution Interest on Net Pension Obligation Adjustments on Annual Required Contribution $ 13,050,409 $ 6,916,717 $ 6,133,692 -630,581 -334,208 -296,373 Annual Pension Cost $ 13,410,238 $ 7,107,426 $ 6,302,812 Contributions Made Increase (Decrease) in Net Pension Obligation $ 184,388 $ -90,444 $ 274,832 Net PensionObligation Beginningof Year -8,407,742 -7,422,819 -984,923 Net Pension Obligation End of Year $ -8,223,354 $ -7,513,263 $ -710,091 Three-Year Trend Information Fiscal Year 2008 Total Annual Pension Cost (APC) Percentageof APC Contributed Net Pension Obligation End of Year MCG Other Units FiscalYear 2009 Total Annual Pension Cost (APC) Percentage of APC Contributed Net Pension Obligation End of Year MCG Other Units FiscalYear 2010 Total Annual Pension Cost (APC) Percentageof APC Contributed Net Pension Obligation End of Year MCG Other Units MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "D" Funded Status and Funding Progress As of January 1,2010, the most recent actuarial valuation date, the plan was 28.8% funded. The actuarial accrued liability for benefits was $147,961,323, and the actuarial value of assets was $42,540,252, resulting in an unfunded actuarial accrued liability (UAAL) of $105,421,071. Schedule of Funding Progress The schedule of funding progress which follows, presents multiyear trend information about whether the actuarial value of plan assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits: Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL)Projected Unit Credit (b) Unfunded AAL (UAAL) (b-a) Funded Ratio (a/b) Annual Covered Payroll (c) UAAL as a Percentage of Covered Payroll ((b-a)/c) Actuarial Methods and Assumptions The annual required contribution for the current year was determined as part of the January 1,2009, actuarial valuation using the Entry Age Actuarial cost method. The remaining amortization period is 13 years utilizing the entry age, level dollar, closed method. The actuarial value of assets recognizes a portion of the difference between the market value of assets and the expected actuarial value of assets, based on the assumed interest rate of return. The amount recognized each year is 20% of the difference between market value and expected actuarial value. The actuarial assumptions included (a) 7.5% rate of return on investment, (b) annual inflation of 3.5%, and (c) annual cost of living increase of 3.0%. Note 12. Risk Management The University System of Georgia offers its employees and retirees access to two different selfinsured healthcare plan options - a PPO/PPO Consumer healthcare plan, and an indemnity healthcare plan. Medical College of Georgia and participating employees and retirees pay premiums t o either of the self-insured healthcare plan options to access benefits coverage. The respective selfinsured healthcare 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 these plans. The reserves for these two plans are considered to be a self-sustaining risk fund. Both self-insured healthcare plan options provide a maximum lifetime benefit of $2,000,000 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of Wellpoint, to serve as the claims administrator for the two self-insured healthcare plan products. In addition to the two different self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HSA/High Deductible PPO healthcare plan and two fully insured HMO healthcare plan options are also offered to System employees. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 EXHIBIT "D" 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. Medical College of Georgia, 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. Medical College of Georgia is responsible for asbestos abatement as a small part of the project costs for the renovation of the third floor of the Hamilton Wing in the Research and Education building, renovation of several labs in the Research and Education building, and removal of mastic material in the dental building basement. The College has recorded a liability and expense related to this pollution remediation in the amount of $763. The liability is reflected on the Statement of Net Assets in Accounts Payable and on the Statement of Revenues, Expenses and Changes in Net Assets in Supplies and Other Services. The liability is the remaining amount of project abatement costs at June 30, 2010. The College does not anticipate any significant changes to the expected remediation outlay. Pollution remediation liability activity in fiscal year 2010 was as follows: Beginning Balance July 1,2009 Additions Reductions Ending Balance June 30, 2010 Current Portion Pollution Remediation Obligations $ 53.600 $ 36,388 $ 89,225 $ 763 $ 763 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 expenditures that are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Medical College of Georgia expects such amounts, if any, to be immaterial to its overall financial position. Litigation, claims and assessments filed against Medical College of Georgia (an organizational unit of the Board of Regents of the University System of Georgia), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30,2010. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 For the year ending June 30, 2010, there is one potential contingent liability which involves a dispute with the City of Augusta over the refunding of a previously donated amount to be used for demolition and site preparation costs for the property formerly known as Gilbert Manor. The actual project cost was less than the project estimate. In addition, the College was to receive a tipping fee credit which was never applied. This potential claim may be settled for $500,000 or abandoned by the City of Augusta. If pursued, it would probably be brought as a breach of contract claim, and as such would likely not be covered by insurance. 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 College 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 2009 and 2010 plan years, 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, 2010, there were 1,398 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2010, Medical College of Georgia recognized as incurred $6,624,343 of expenditures, which was net of $3,497,923 of participant contributions. MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2010 EXHIBll "D" Note 15, Natural Classifications with Functional Classifications The College's operating expenses by functional classification for fiscal year 2010 are shown below: Functional Classification Natural Classification Instruction Research Public Service Academic Support Student Services Institutional Support Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total OperatingExpenses $ 158,082,346 $ 47,880,361 $ 96,074,337 $ 20,205.275 $ 2,906,741 $ 41,807,201 Natural Classification Plant Operations and Maintenance Functional Classification Scholarships (MCG Only) and Auxiliary Patient Fellowships Enterprises Care Total Operating Expenses Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Note 16. AMliated Organizations In accordance with GASB Statement No. 39, Determining Whether Certain Organirations are Component Units, an amendment of GASB Statement No. 14, The Reporting Entity, which became effective for the year ended June 30, 2004, MCG Health, Inc., Medical College of Georgia Foundation, Inc., Medical College of Georgia Dental Foundation, Medical College of Georgia Research Institute and Medical College of Georgia Physicians Practice Group Foundation are legally separate, tax exempt organizations whose activities primarily support Medical College of Georgia, a unit of the University System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office determined Component Units of the State of Georgia, as required by GASB MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 EXHIBIT "D" Statement No. 39, should not be assessed in relation to their significance to Medical College of Georgia, but instead based on their significance to the State of Georgia. Accordingly, Medical College of Georgia has not included financial activity for these affiliated organizations in these financial statements. MCG Health, Inc., Medical College of Georgia Foundation, Inc., and Medical College of Georgia Physicians Practice Group Foundation have been determined significant to the State of Georgia for the year ended June 30, 2010, and as such, are reported as discretely presented component units in the Comprehensive Annual Financial Report of the State of Georgia (CAFR). The significant discretely presented component units issue separate audited financial statements that can be obtained from the Board of Regents of the UniversitySystem of Georgia. (This page left intentionally blank) SUPPLEMENTARY INFORMATION MEDICAL COLLEGE OF GEORGIA BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30,2010 ASSETS Cash and Cash Equivalents Investments Accounts Receivable Federal Financial Assistance Other Margin Allocation Prepaid Expenditures lnventories Total Assets LIABILITIES AND FUND EQUITY Liabilities Salaries Payable Accounts Payable Encumbrances Payable Deferred Revenue Total Liabilities Fund Balances Resewed Departmental Sales and Services Capital Outlay Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Early Retirement Program lnventories Unreserved Surplus Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "1" Actual amounts were prepared on a prescribed basis of accountingthat demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. MEDICAL COLLEGE OF GEORGIA SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30,2010 REVENUES State Appropr~at~on State General Funds Tobacco Funds Federal Funds Federal Stimulus - Stabilization Funds Other Funds Total Revenues CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance Total Funds Available EXPENDITURES Georgia Radiation Therapy Center Research Consortium Spec~aFl und~nglnitiatlve Teachlng Total Expenditures Excessof Funds Available over Expenditures FUND BALANCE JULY 1 BUDGET ACTUAL SCHEDULE" 2 VARIANCE FAVORABLE (UNFAVORABLE) ADJUSTMENTS Prlor Year Payables/Expendltures Pr~oYr ear Receivables/Revenues UflreSe~ed Fund Balance (Surplus) Returned to Board of Regents - University System Office Year EndedJune 30,2009 Early Remlnance of Surplus In Current Fiscal Year Prior Year Reserved Fund Balance Included In Funds Available FUND BALANCE JUNE 30 SUMMARY OF FUND BALANCE Reserved Departmental Sales and Services Capital Outlay lndlrect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Rece~vable Early Retirement Program Inventories Total ReSeNed Unreserved Surplus Total Fund Balance Actual amounts were prepared on a prescribed bas~sof accountingthat demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. Gwrda Radinian Therapy Canter Other Funds Research Consortium State Appropnatlon stst* General Funds Specla1 Fund8ngln1tleuvs State Appropnat8on State General Funds Tobacco Funds MEDICAL MUEGEOFGEOROIA STATEMENTOF PROGRAM REVENUES AND EXPENDITURES BY FUNDiNG SOURCECOMPAREDTO BUDGET (NONGbAPBASIS) BUDGEI FUND YEARENDED JUNE30.2010 On@nal Appwprlauon Final Budget Current Year Revenuer Funds Available Comparedt o Budget ~ r l oyrear CarwOver Tom FundsAvallable variance P061tlve (Negative) Taschlng State Approprtstlon State General Funds Federal Funds American Recovery and Relnvestmsnt Act of 2009 Federal Stablliration Funds Other Funds Total Teach~ng Grand Totals -All Prograrna Actual amounU were praparcd on a preacrlbed b a o r of acceunungthat demonstrates compl~anoewnh budgstaryeratutss and ragulatlona of theStaie of G e o p a whlch ~ s a carnprehenstvebasls of accounungothsr than generallyaccepted accounbng pnnclples Expenditures Comparedto Budget Vanance PoslUve Actual (Negat~ve) ~nual Funds Aua8lable Over/(Under) bpendlturea Proor Perlod Adjustments Mher Adjusfments Early Rem~ttance DfSurplus Program Fund Balances Transfers Program Fund Balances Reserve Surplus Total Fund Balance Unupendable Reserves Early Rettrernent Program Uncollectlble Accounts Resc~vablc nuentones 7 4453 8 1 53 155 784 17 114 55095 (This page left intentionally blank) MEDICAL COLLEGE OF GEORGIA RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30,2010 SCHEDULE 4 Totals per Annual Supplement Accruals June 30,2010 June 30.2009 Compensated Absences June 30,2010 June 30,2009 Adjustment Shared Services on Jointly Staffed Personnel Augusta State University Barton, Barbara A. McDougald, Amanda Megan R Y C ~ ~ Y , Carol J. University of Georgia Risher, Mary Louise Unidentified Variance SALARIES TRAVEL SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS MEDICAL COLLEGE OF GEORGIA SCHEDULE OF FINDINGSAND QUESTIONED COSTS YEAR ENDED JUNE 30.2010 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND OUESTIONED COSTS No matters were reported.