STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS I MIDDLE GEORGIA COLLEGE COCHRAN, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2008 Russell W. Hinton State Auditor MIDDLE GEORGIA COLLEGE - TABLE OF CONTENTS - Page 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 EXHIBITS A STATEMENT OF NET ASSETS 2 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 3 C STATEMENT OF CASH FLOWS 4 D NOTES TO THE FINANCIAL STATEMENTS 6 SUPPLEMENTARY INFORMATION SCHEDULES 1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 29 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND 31 3 STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET (NON-GAAP BASIS) BUDGET FUND 32 4 RECONCILIATION OF SALARIES AND TRAVEL 35 SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 January 23, 2009 Honorable Sonny Perdue, Governor Members ofthe General Assembly of Georgia Members ofthe Board of Regents ofthe University System of Georgia and Honorable W. Michael Stoy, President Middle Georgia College 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 Middle Georgia College, an organizational unit of the State of Georgia, as of and for the year ended June 30, 2008. These financial statements are the responsibility of the Middle Georgia College'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 ofAmerica. 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1, the financial statements of Middle Georgia College 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 Middle Georgia College. They do not purport to, and do not, present fairly the financial position and changes in financial position and cash flows ofthe State ofGeorgia, in conformity with accounting principles generally accepted in the United States of America. 08ARL-62 In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Middle Georgia College as of June 30, 2008, 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 required part ofthe basic financial statements but is required supplementary information required by accounting principles generally accepted in the United States ofAmerica. We have applied certain limited procedures, which consisted principally ofinquiries ofmanagement regarding the methods ofmeasurement and presentation ofthis 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 Middle Georgia College taken as a whole. The accompanying supplementary information (Schedules 1 through 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, :S:::!~,~-;f~ State Auditor RWH:as 08ARL-62 REQUIRED SUPPLEMENTARY INFORMATION MIDDLE GEORGIA COLLEGE Management's Discussion and Analysis Introduction Middle Georgia College is one of the 35 institutions of higher education of the University System of Georgia. The College, located in Cochran, Georgia, was founded in 1884 and is dedicated to providing a caring, dynamic, learning-centered, and technologically advanced environment of excellence. As a comprehensive and residential institution, the College pursues innovative opportunities to provide services to its traditional and nontraditional students primarily from rural areas of south central Georgia and will maintain a recognized legacy of affordable higher education and community support services of the highest quality. The main campus in Cochran serves both commuting and residential students. The Dublin Center serves commuting students from the middle Georgia Area. The Georgia Aviation campus in Eastman offers several aviation technical certificates and Associate of Applied Science degrees. The College provides the best educational environment possible for the development of its students and serves the needs of its community. These facilities meet the associate-degree and targeted baccalaureate degree level program needs throughout the regional service area. The state College provides access to higher education and undergraduate degrees that will address the economic development needs of Georgia's heartland, and, in limited cases, the economic development of the state at large. Popular programs include Aviation, Business Administration, Education, Nursing, Engineering, and the Georgia Academy of Mathematics, Engineering and Science. The institution's continued growth and excellence in academic instruction are reflected in the numbers throughout this report. Faculty Students (Headcount) Students (FTE) FY2008 FY2007 FY2006 133 3,444 2,951 96 3,051 2,576 81 2,677 2,274 Overview ofthe Financial Statements and Financial Analysis Middle Georgia College is proud to present its financial statements for fiscal year 2008. 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 2008 and fiscal year 2007. Statement ofNet 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 - I- fiscal snapshot of Middle Georgia College. 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 Financial Statements. 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 two categories, nonexpendable and expendable. 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 ofNet Assets, Condensed June 30. 2008 June 30. 2007 Assets Current Assets Capital Assets, Net Other Assets $ 9,354,363 96,286,628 1,089.320 $ 6,397,232 57,097,523 1,228.619 Total Assets $ 106.730.311 $ 64,723.374 Liabilities Current Liabilities Noncurrent Liabilities $ 4,310,931 26,669.669 $ 2,480,639 11,106.249 Total Liabilities $ 30,980.600 $ 13,586.888 Net Assets Invested in Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Unrestricted $ 70,014,811 28,007 1,192,740 4,514.153 $ 46,320,667 2,608 1,331,253 3,481.958 Total Net Assets $ 7511491711 $ 511136.486 The total assets of the institution increased by $42,006,937. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $39,189,105 in the category of Capital Assets, Net. The balance of the increase is mainly in receivable categories. - 11 - The total liabilities for the year increased by $17,393,712. The combination of the increase in total assets of $42,006,937 and the increase in total liabilities of $17,393,712 yields an increase in total net assets of $24,613,225. The increase in total net assets is primarily in the category of Invested in Capital Assets, Net of Debt, in the amount of $23,694, 144. Statement ofRevenues, Expenses and Changes in Net Assets 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, 2008 June 30. 2007 Operating Revenues Operating Expenses $ 19,369,420 38,041,563 $ 14,865,467 25,634,682 Operating Loss $ -18,672,143 $ -10,769,215 Nonoperating Revenues and Expenses 17,267.054 12,098.473 Income (Loss) Before Other Revenues, Expenses, Gains or Losses $ -1,405,089 $ 1,329,258 Other Revenues, Expenses, Gains or Losses 8,618,888 15,044,787 Special Item 17,399.426 Increase (Decrease) in Net Assets $ 24,613,225 $ 16,374,045 Net Assets at Beginning of Year 51.136,486 34,762.441 Net Assets at End of Year $ 7517491711 $ 5 L136,486 The Statement of Revenues, Expenses and Changes in Net Assets reflects a positive year with an increase in the 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: - iii - Revenue By Source For The Years Ended June 30, 2008 and June 30, 2007 Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Rents and Royalties Auxiliary Other Total Operating Revenue Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other Total Nonoperating Revenue Capital Grants and Gifts State Other Total Capital Grants and Gifts Total Revenues June 30, 2008 $ 4,003,072 5,632,232 236,143 11,294 9,403,921 82,758 $ 19,369,420 $ 18,164,477 7,408 355,786 116,682 -112,666 $ 18,531,687 $ 5,238,077 3,380,811 $ 8,618,888 $ 46,512,925 June 30, 2007 $ 2,809,253 4,483,709 40,162 5,668 7,416,887 109,788 $ 14,865,467 $ 12,067,735 44,815 117,417 352,857 -15,021 $ 12,567,803 $ 15,042,307 2,480 $ 15,044,787 $ 42_478,057 - IV - Expenses (By Functional Classification) For The Years Ended June 30, 2008 and June 30, 2007 June 30, 2008 June 30, 2007 Operating Expenses Instruction Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises Unallocated Expenses $ 13,249,801 2,636,681 2,867,141 3,306,306 5,824,902 2,221,533 7,935,199 $ 7,445,839 1,833,350 2,361,101 2,504,497 2,539,200 1,690,240 7,265,546 -5 091 Total Operating Expenses $ 38,041,563 $ 25,634,682 Nonoperating Expenses Interest Expense (Capital Assets) 1,264,633 469,330 Total Expenses $ 39,306,196 $ 26,104,012 Operating revenues increased by $4,503,953 in fiscal 2008. Tuition and Fees included a 42% increase, revenues also increased for Grants and Contracts, Sales and Services, and Auxiliary while Other Revenues decreased $27,030. The Auxiliary revenue increase of $1,987,034 is consistent with the increase in the residential student population. Nonoperating revenues increased by $5,963,884 for the year primarily due to an increase of $6,096,742 in State Appropriations. This large increase was due primarily to the merger of the Georgia Aviation and Technical College into Middle Georgia College at July 1, 2007. The compensation and employee benefits category increased by $4,801,691 and primarily affected the Instruction, Institutional Support and Plant Operations categories. The increase reflects the addition of the faculty and staff from Georgia Aviation and Technical College, merit increases and an increased cost of health insurance for the employees of the institution. Utilities increased by $430,286 during the past year. Some of this increase was relative to the addition of the Georgia Aviation Campus and also to the increased utility rates which affected the Plant Operations and Maintenance category. Statement ofCash Flows The final statement presented by the Middle Georgia College 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 -v- 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 for the Years Ended June 30, 2008 and June 30, 2007, Condensed June 30, 2008 June 30, 2007 Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities $ -14,905,765 18,564,756 -1,294,718 265,184 $ -9,005,810 12,520,981 -1,872,735 233,344 Net Change in Cash Cash, Beginning of Year $ 2,629,457 4,670,026 $ 1,875,780 2,794,246 Cash, End of Year $ 7,299,483 $ 4,670.026 Capital Assets The addition of the Georgia Aviation and Technical College provided an increase in net capital assets of $17,109,795. The College also added $14,872,104 in capital leases for two dorms which were financed through the MGC Real Estate Foundation, LLC. Welch Hall was completed in fiscal year 2008 at a value of $1,993,700. After a fire in 2005, which resulted in a nearly complete loss, Browning Hall was reopened in fiscal year 2008. The final building was completed at a cost of $5,525,045, including $2,380,811 of noncash additions which were covered by the contractor's insurance. For additional information concerning Capital Assets, see Notes 1, 6, 8, 9, and 10 in the Notes to the Financial Statements. Long-Term Liabilities Middle Georgia College had Long-Term Liabilities of $27,073,299 of which $403,630 was reflected as current liability at June 30, 2008. For additional information concerning Long-Term Liabilities, see Notes 1 and 8 in the Notes to the Financial Statements. - Vl - Economic Outlook The College is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the 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 College's overall financial position is strong. Due to the State of Georgia's current economic conditions, the College expects flat state appropriations in fiscal year 2009 but anticipates increased tuition and fee revenues relative to increased enrollments. Dr. W. Michael Stoy, President Middle Georgia College -vu - BASIC FINANCIAL STATEMENTS -I- MIDDLE GEORGIA COLLEGE STATEMENT OF NET ASSETS JUNE 30, 2008 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Inventories (Note 4) Prepaid Items Other Assets Total Current Assets Noncurrent Assets Noncurrent Cash Investments Notes Receivable, Net Capital Assets, Net (Note 6) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deposits Deferred Revenue (Note 7) Other Liabilities Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences Total Current Liabilities Noncurrent Liabilities Lease Purchase Obligations Compensated Absences Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Nonexpendable Expendable Unrestricted Total Net Assets The notes to the financial statements are an integral part of this statement. -2- EXHIBIT"A" $ 7,280,303 337,697 760,805 908,016 12,998 54 544 $ 9,354,363 $ 19,180 948,570 121,570 96,286,628 $ 97,375,948 $ 106,730,311 $ 426,002 267,050 1,014,471 372,711 1,659,842 5,528 161,697 -6,230 409,860 $ 4,310,931 $ 26,278,047 391,622 $ 26,669,669 $ 30,980,600 $ 70,014,811 28,007 1,192,740 4 514 153 $ 75 749 711 MIDDLE GEORGIA COLLEGE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 2008 OPERATING REVENUES Student Tuition and Fees 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 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 Income (Loss) NONOPERATING REVENUES !EXPENSES} State Appropriations Grants and Contracts State Gifts Interest and Other Investment Income Interest Expense Other Nonoperating Revenues Net Nonoperating Revenues Income (Loss) Before Other Revenues, Expenses, Gains, or Losses Capital Grants and Gifts State Other Total Other Revenues, Expenses, Gains or Losses Special Item (Note 16) Increase (Decrease) in Net Assets Net Assets - Beginning of Year Net Assets - End of Year The notes to the financial statements are an integral part of this statement. -3- EXHIBIT"B" $ 7,621,280 -3,618,208 5,569,629 35,587 27,016 236,143 11,294 3,775,799 2,073,160 2,764,008 58,003 450,036 282,915 82758 $ 19,369,420 $ 6,593,600 7,272,710 4,260,353 606,720 225,240 2,390,021 1,870,301 12,256,635 2,565,983 $ 38,041,563 $ -18,672,143 $ 18,164,477 7,408 355,786 116,682 -1,264,633 -112,666 $ 17,267,054 $ -1,405,089 $ 5,238,077 3,380,811 $ 8,618,888 $ 17,399,426 $ 24,613,225 51,136,486 $ 75 749 711 MIDDLE GEORGIA COLLEGE STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2008 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 Collection of Loans to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Health Services Intercollegiate Athletics Other Organizations Other Receipts (Payments) Net Cash Provided (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 (Used) 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 Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments Purchase of Investments Earnings on Investments Net Cash Provided (Used) by Investing Activities Net Increase (Decrease) in Cash Cash and Cash Equivalents - Beginning of Year Cash and Cash Equivalents - End of Year EXHIBIT"C" $ 4,186,045 5,765,879 236,143 -19,101,020 -13,528,488 -2,390,021 8,380 3,824,328 1,805,715 3,575,334 58,462 442,116 285,002 -73,640 $ -141905,765 $ 18,164,477 -252,546 652,825 $ 18,564,756 $ 4,271,187 -4,924,129 -1,015 -640 761 $ -1,294z718 $ 1,176,360 -1,148,882 237,706 $ 265,184 $ 2,629,457 4,670,026 $ 7,299,483 -4- MIDDLE GEORGIA COLLEGE STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2008 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating Income (Loss) Adjustments to Reconcile Operating Income to Net Cash Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, Net Inventories Other Assets Prepaid Items Notes Receivable, Net Accounts Payable Deferred Revenue Other Liabilities Compensated Absences Net Cash Provided (Used) by Operating Activities NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of Investments Recognized as a Component of Interest Income Special Item - Georgia Aviation Technical College Transfer Change in Accrued Interest Payable Affecting Interest Paid Gift Reducing Proceeds of Gifts and Grants Received for Other Than Capital Purposes Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts EXHIBIT"C" $ -18,672,143 2,565,983 -27,507 -283,002 -35,392 649 8,380 525,851 844,716 4,483 162,217 $ -14,905,765 $ 14,872,104 $ -121,024 $ 17,399,426 $ -623,872 $ -15,180 $ -4,347,701 The notes to the financial statements are an integral part of this statement. -5- MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The mission of Middle Georgia College is to provide an accessible, comprehensive learning and cultural environment for its students and community. REPORTING ENTITY Middle Georgia College 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 Middle Georgia College 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. Middle Georgia College does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Middle Georgia College 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 organizations whose act1v1t1es 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 17 for additional information. FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia implemented GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the College was also required to adopt GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. 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, cash flows, and replaces the fund group perspective previously required. 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. -6- MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 and demand deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the Board of Regents Short-Term Investment Pool. INVESTMENTS The College accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. 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 Balanced Income 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. INVENTORIES Consumable supplies are carried at the lower of cost or market on the first-in, first-out ("FIFO") basis. Resale Inventories are valued at cost using the average-cost basis. 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. -7 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 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 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 College 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. 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, 2008, GSFIC did not transfer any capital additions to Middle Georgia College. DEPOSITS Deposits represent good faith deposits from students to reserve housing assignments in a College residence hall. 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. Middle Georgia College had accrued liability for -8- MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT"D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES COMPENSATED ABSENCES compensated absences in the amount of $639,265 as of July 1, 2007. For fiscal year 2008, $568,724 was earned in compensated absences and employees were paid $406,507, for a net increase of $162,217. The ending balance as of June 30, 2008 in accrued liability for compensated absences was $801,482. NONCURRENT LIABILITIES Noncurrent liabilities include liabilities that will not be paid within the next fiscal year; and capital lease obligations with contractual maturities greater than one year. NET ASSETS The College's net assets are classified as follows: Invested in capital assets, 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 GSFIC as discussed previously in Note 1 - Capital Assets section. Restricted 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. Restricted net assets - 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 Term Endowments Quasi-Endowments $ 83,442 176,135 4,993 578,928 349,242 Total Restricted Expendable $ 1,192.740 -9- MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS Unrestricted net assets: 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 $89,134.14. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, College 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. Unrestricted Net Assets includes the following items which are quasi-restricted by management. June 30. 2008 R & R Reserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted $ 1,856,645 4,684,055 5,040 -2.031.587 Total Unrestricted Net Assets $ 4,514.153 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 Middle Georgia College, 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 The College has classified its revenues as either operating or nonoperating revenues in the Statement of Revenues, Expenses and Changes in Net Assets according to the following criteria: Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) sales and services of auxiliary enterprises, net of scholarship allowances, (3) most Federal, state and local grants and contracts and Federal appropriations, and (4) interest on institutional student loans. - 10 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CLASSIFICATION OF REVENUES Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues 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. 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. Auxiliary Residential revenue of $3,775,799 is reported net of discounts and allowances of $178,725. NOTE 2: DEPOSITS AND INVESTMENTS 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. - 11 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS 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 University System of Georgia. At June 30, 2008, the carrying value of deposits was $6,483,235 and the bank balance was $6,892,310. Of the College's deposits, $6,750,315 were uninsured. Of these uninsured deposits, $0 were collateralized with securities held by the financial institution's trust department or agent in the College's name, $5,895,622 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the College's name and $854,693 were uncollateralized. INVESTMENTS Middle Georgia College 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, 2008 are presented below. All investments are presented by investment type. Other Investments Equity Mutual Funds Equity Securities - Domestic Investment Pools Board of Regents Short-Term Fund Balanced Income Fund Total Investments Fair Value $ 223,913 579,595 808,798 145,062 $ 1,757.368 - 12 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 2: DEPOSITS AND INVESTMENTS INVESTMENTS 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 Administrative Central 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.state.ga.us/internet/searchRpts.html. 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 College does not have a formal policy for managing interest rate risk. The Weighted Average Maturity of the Short-Term Fund is 1.99 years. Of the College's total investment of $808,798 in the Short-Term Fund, $805,563 is invested in debt securities. The Weighted Average Maturity of the Balanced Income Fund is 7.84 years. Of the College's total investment of $145,062 in the Balanced Income Fund, $93,275 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. At June 30, 2008, none of the College's investments were subject to Custodial Credit Risk disclosure. Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The College does not have a formal policy for managing credit quality risk. 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 does not have a formal policy for managing concentration of credit risk. The College has 14.2% of its investments in Coca-Cola stock with fair market value of$249,504. This stock is part of the Harris Endowment and was donated to the College in 1966. - 13 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2008: Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal Financial Assistance GSFIC Other $ 34,577 332,528 337,697 13,061 450,374 Less Allowance for Doubtful Accounts $ 1,168,237 69,735 Net Accounts Receivable $ 1,098,502 NOTE 4: INVENTORIES Inventories consisted of the following at June 30, 2008: Bookstore Physical Plant $ 903,615 4 401 Total NOTE 5: NOTES/LOANS RECEIVABLE $====9-08-,0==1="=6 The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2008. 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, 2008 the allowance for uncollectible loans was approximately $0. NOTE 6: CAPITAL ASSETS Following are the changes in capital assets for the year ended June 30, 2008: - 14 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 6: CAPITAL ASSETS Beginning Balance Jul):'. I, 2007 Special Item Transfer Additions Reductions Ending Balance June 30, 2008 Capital Assets, Not Being Depreciated: Land $ Construction Work-in-Progress 2,233,395 $ 5, I 17,859 25,994 $ 5,718 10,239,626 $ $ 9,358,795 2,265,107 5,998,690 Total Capital Assets Not Being Depreciated $ 7,351,254 $ 25,994 $ 10,245,344 $ 9,358,795 $ 8,263,797 Capital Assets, Being Depreciated: Infrastructure $ Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections 8,281,528 $ 46,095,906 3,565,710 2,614,556 10,349,924 2,412,773 279,920 17,736,331 $ 4,507,279 8,533,333 $ 162,875 174,307 14,872,104 128,795 $ 669,915 31,532 33,499 13,368 8,561,448 71,695,655 3,697,053 7,262,643 25,222,028 2,528,200 Total Assets Being Depreciated $ 73,320,397 $ 22,523,530 $ 23,871,414 $ 748 314 $ I 18,967,027 Less: Accumulated Depreciation Infrastructure $ Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections 462,780 $ 16,917,330 2,054,998 1,788,387 283,325 2,067,308 279,920 $ 2,151,725 3,008,084 351,819 1,212,958 $ 74,620 85,076 775,206 66,304 $ 564,695 24,080 33,501 13 368 1,094,519 19,717,318 2,105,538 4,848,046 1,058,531 2,120,244 Total Accumulated Depreciation $ 23,574,128 $ 5,439,729 $ 2,565,983 $ 635,644 $ 30,944,196 Total Capital Assets, Being Depreciated, Net $ 49,746,269 $ 17,083,801 $ 21,305,431 $ 112,670 $ 88,022,831 Capital Assets, Net $ 57,097.523 $ 17 )09 795 $ 3) 550.775 $ 9 47) 465 $ 96.286.628 NOTE 7: DEFERRED REVENUE Deferred revenue consisted of the following at June 30, 2008: Prepaid Tuition and Fees Other Deferred Revenue $ 244,939 1,414,903 Totals $ 1,659,842 NOTE 8: LONG-TERM LIABILITIES Long-term liability activity for the year ended June 30, 2008 was as follows: - 15 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 8: LONG-TERM LIABILITIES Leases Lease Obligations Other Liabilities Compensated Absences Total Long-Term Liabilities Balance Julx I, 2007 Additions Reductions Balance June 30, 2008 Current Portion $ 10,776,856 $ 15,495,976 $ 1,015 $ 26,271,817 $ -6,230 639 265 568 724 $ I l,416.J2J $ 16,064.700 $ 406 507 801 482 407.522 $ 27,073.299 $ 409 860 403.630 NOTE9: SIGNIFICANT COMMITMENTS The College had significant unearned, outstanding, construction or renovation contracts executed in the amount of $700,705 as of June 30, 2008. This amount is not reflected in the accompanying basic financial statements. The College has executed a capital operating lease with MOC Real Estate Foundation II, LLC which will begin August 2008. The College's lease obligation related to this lease is $13,660,611. NOTE 10: LEASE OBLIGATIONS Middle Georgia College is obligated under various operating leases for the use of equipment, and also is obligated under capital leases for the acquisition of real property. CAPITAL LEASES The College has capital leases for student residential facilities and office equipment which are payable in monthly installments and expire in 2036. Interest expense for fiscal year 2008 was $1,264,633 with accrued interest of $623,872 added to the lease principal and interest paid of $640,761. The interest rate is 4.856 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2008: Buildings Facilities and Other Improvements Equipment $ 22,969,666 208,250 985,582 Total Assets Held Under Capital Lease $ 24,163,498 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. Middle Georgia College entered into three residential facilities thirty year capital leases at 4.856% interest with MOC Real Estate Foundation, LLC, a related entity, in November 2005. One facility was occupied in August 2006 and the remaining two facilities became operational in July 2007. The total outstanding liability, including accrued interest, was $26,258,632 at June 30, 2008. - 16 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 10: LEASE OBLIGATIONS CAPITAL LEASES Middle Georgia College also has capital leases for equipment with an outstanding balance at June 30, 2008 in the amount of $13,185. OPERATING LEASES Middle Georgia College's noncancellable operating lease has a remaining term of one year and expires in fiscal year 2009. 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 in excess of one year as of June 30, 2008, were as follows: Year Ending June 30: 2009 2010 2011 2012 2013 2014 through 2018 2019 through 2023 2024 through 2028 2029 through 2033 2034 through 2036 Real Property and Equipment Capital Leases Operating Leases $ 1,274,567 $ 1,313,456 1,351,677 1,393,336 1,426,229 7,777,515 9,026,366 10,479,285 10,997,754 6,613,678 6,864 Total Minimum Lease Payments Less: Interest $ 51,653,863 25,382,046 $===6-,8==6'="4 Principal Outstanding $ 26,271,817 Middle Georgia College's fiscal year 2008 expense for rental of real property and equipment under operating leases was $6,864. NOTE 11: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description Middle Georgia College participates in the Teachers Retirement System of Georgia (TRS), a cost-sharing multiple-employer defined benefit pension plan established by the Georgia General - 17 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 11: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description 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 Middle Georgia College who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Middle Georgia College 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 2008, the employer contribution rate was 9.28% 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 2008 2007 2006 100% 100% 100% $ 897,742 $ 655,271 $ 631,254 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description Middle Georgia College 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. All other members are "new plan" members subject to the modified plan provisions. Under both the old plan and new plan, members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of I0 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. - 18 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 11: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description 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. Postretirement 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 ofERS. 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, 2008, for employees covered by ERS was $63,022. The College's total payroll for all employees was $13,866,310. For the year ended June 30, 2008 under the old plan, member contributions consist of 6.5% of annual compensation minus $7.00. Of these member contributions, the employee pays the first 1.5% and the College pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.5% 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, 2008, 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: - 19 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 11: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Funding Policy Fiscal Year Percentage Contributed Required Contribution 2008 2007 2006 100% 100% 100% $ 6,561 $ 0 $ 0 Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2008 financial report, which may be obtained through ERS. 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. 4721-1 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 College 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 Middle Georgia College 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 2008, the employer contribution was 8.13% for the first six months and 8.15% for the last six months of the participating employee's eamable compensation. Employees contribute 5% of their eamable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times. Middle Georgia College and the covered employees made the required contributions of $186,557 (8.13% or 8.15%) and $114,595 (5%), respectively. AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices. - 20 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 11: RETIREMENT PLANS GEORGIA DEFINED CONTRIBUTION PLAN Plan Description Middle Georgia College 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 1s 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 2008 amounted to $44,227 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 two different selfinsured healthcare plan options - a PPO/PPO Consumer healthcare plan, and an indemnity healthcare plan. Middle Georgia College and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured 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 - 21 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 12: RISK MANAGEMENT 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. 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. Middle Georgia College, 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 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 Middle Georgia College expects such amounts, if any, to be immaterial to its overall financial position. Litigation, claims and assessments filed against Middle Georgia College (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, 2008. - 22 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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 203-31, 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 2007 and 2008 plan years, the employer rate was approximately 75% of the total health insurance cost for eligible retirees and the retiree rate was approximately 25%. As of June 30, 2008, there were 120 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2008, Middle Georgia College recognized as incurred $633,588 of expenditures, which included $179,566 of participant contributions. - 23 - MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 15: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS The College's operating expenses by functional classification for fiscal year 2008 are shown below: Natural Classification Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Instruction Functional Classification Academic Support Student Services Institutional Support $ 6,543,600 $ 1,362,881 1,877,821 218,051 71,710 46,384 1,381,281 1,748,073 $ )3 249 80} $ 50,000 1,054,092 $ 340,600 100,245 30,412 19,165 748,512 293,655 2 636 68} $ 1,301,284 $ 354,232 11,142 67,656 12,800 17,443 1,063,867 38 717 2 867 }4} $ 1,529,665 1,049,544 75,115 31,890 82,107 515,707 22,278 3 306 306 Natural Classification Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Plant Operations and Maintenance Functional Classification Scholarships and Fellowships Auxiliary Enterprises Total Operating Expenses $ 1,450,219 497,324 -452,323 5,252 $ 6,593,600 $ 574,569 7,272,710 140,832 4,260,353 654,490 606,720 18,320 225,240 $ 2,221,533 1,394,659 155,688 310,543 2,390,021 1,870,301 2,914,557 15 214 5,632,711 448 046 12,256,635 2,565,983 $ 5 824 902 $ 2 22} 533 $ 7 935 }99 $ 38 04} 563 NOTE 16: SPECIAL ITEM As of July 1, 2007, Georgia Aviation Technical College (GAVTC) merged with Middle Georgia College. It is now the Georgia Aviation campus of Middle Georgia College. As a result of this merger, GAVTC assets and liabilities as of July 1, 2007 transferred to Middle Georgia College. The net transfer of $17,339,426 is reported as a Special Item on the Statement of Revenues, Expenses and Changes in Net Assets and the Statement of Cash Flows. See Note 6 Capital Assets for additional information. NOTE 17: AFFILIATED ORGANIZATIONS In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment of GASB Statement No. 14, The Reporting Entity, which became effective for the year ended June 30, 2004, Middle Georgia College Foundation, Inc., the MGC Real Estate Foundation, LLC, and the MGC Real Estate Foundation II, LLC have been - 24- MIDDLE GEORGIA COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 EXHIBIT "D" NOTE 17: AFFILIATED ORGANIZATIONS determined to be legally separate, tax exempt organizations whose activities primarily support Middle Georgia College, a unit of the University System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office has determined Component Units of the State of Georgia, as required by GASB Statement No. 39, should be assessed in their relation to their significance to the State of Georgia. Accordingly, Middle Georgia College has not included financial activity for Middle Georgia College Foundation, Inc., the MGC Real Estate Foundation, LLC, and the MGC Real Estate Foundation II, LLC in these financial statements. - 25 - (This page left intentionally blank) SUPPLEMENTARY INFORMATION - 27 - (This page left intentionally blank) MIDDLE GEORGIA COLLEGE BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30, 2008 ASSETS Cash and Cash Equivalents Investments Accounts Receivable Federal Financial Assistance Other Prepaid Expenditures Inventories Total Assets LIABILITIES AND FUND EQUITY Liabilities Salaries Payable Accounts Payable Encumbrances Payable Deferred Revenue Other Liabilities Total Liabilities Fund Balances Reserved Departmental Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Inventories Unreserved Surplus Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "1" $ 3,549,841.75 31,611.56 337,697.13 2,218,785.64 12,998.24 4,401.37 $ ====6=,1=5=5=,3=3=5=.6=9= $ 255,367.41 162,836.98 4,575,226.59 175,855.24 5,528.15 $ 5,174,814.37 $ 229,238.49 33,053.03 354,657.59 83,442.19 31,955.49 154,000.00 5,040.39 89,134.14 $ 980,521.32 $ ====6,=15=5=,3=3=5.=69= 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 comprehensive basis of accounting other than generally accepted accounting principles. - 29 - (This page left intentionally blank) MIDDLE GEORGIA COLLEGE SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2008 SCHEDULE "2" REVENUES State Appropriation State General Funds Other Funds Total Revenues CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance Total Funds Available EXPENDITURES 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 Other Adjustments Unreserved Fund Balance (Surplus) Returned to Board of Regents - University System Office Year Ended June 30, 2007 Prior Year Reserved Fund Balance Included in Funds Available FUND BALANCE JUNE 30 SUMMARY OF FUND BALANCE Reserved Departmental Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Inventories Total Reserved Unreserved Surplus Total Fund Balance BUDGET ACTUAL VARIANCEFAVORABLE (UNFAVORABLE) $ 18,241,937.00 $ 18,241,937.00 $ 14,458,529.00 23,236,350.49 $ 32,700,466.00 $ 41,478,287.49 $ 0.00 8,777,821.49 8,777,821.49 0.00 237,819.72 $ 32,700,466.00 $ 41 716107.21 $ 237,819.72 9,015,641.21 $ 523,725.00 $ 520,943.49 $ 2,781.51 32,176,741.00 40479417.87 -8,302,676.87 $ 32,700,466.00 $ 41,000,361.36 $ -8,299,895.36 $ 0.00 $ 715,745.85 $ 715i745.85 271,770.14 33,209.40 -62,746.10 26,591.10 266,980.05 -33,209.40 -237,819.72 $ 980,521.32 $ 229,238.49 33,053.03 354,657.59 83,442.19 31,955.49 154,000.00 5040.39 $ 891,387.18 89134.14 $ 980,521.32 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 comprehensive basis of accounting other than generally accepted accounting principles. - 31 - MIDDLE GEORGIA COLLEGE STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET (NON-GMP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2008 Special Funding Initiatives State Appropriation State General Funds Original Appropriation Final Budget Current Year Revenues Funds Available Comeared to Budget Prior Year Carry-Over Total Funds Available Variance Positive (Negative) $ 523 725.00 $ 523 725.00 $ 523 725.00 $ 0.00 $ 523 725.00 $ 0.00 Teaching State Appropriation State General Funds Other Funds Total Teaching 17,932,219.00 $ 11 744 028.00 29 676 247.00 $ 17,718,212.00 $ 14 458 529.00 32176741.00 $ 17,718,212.00 $ 23 236 350.49 40 954 562.49 $ 0.00 $ 237 819.72 237 819.72 $ 17,718,212.00 $ 23 474 170.21 0.00 9 015 641.21 41 192 382.21 $ _ __,9,.,0"'1"'5"'54"'1._.2._1"" Grand Totals - All Programs 30,199,972.00 $ 32,700,466.00 $ 41,478,287.49 $ 237,819.72 $ 41,716,107.21 $ ===9,.,,0._1.5.,_.64,.,1..,.2,.1._ Actual amounts were prepared on a prescribed basis of accounting that demonstrates compllance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. -32- SCHEDULE "3" Ex(!!!ndltures Comeared to Budget Variance Positive Actual (Negative) Actual Funds Available Over/(Under) Expenditures Prior Period Adjustments Other Adjustments Program Fund Balances Transfers Program Fund Balances Reserve Surplus Total Fund Balance $ 520943.49 $ 2781.51 $ 2781.51 $ 0.00 $ 0.00 $ 2 781.51 $ ~ $ 0.00 $ 2,781.51 $ 2 781.51 $ 17,723,000.22 $ -4,788.22 $ 22,756,417.65 -8 297,888.65 $ 40 479,417.87 $ -8,302 676.87 $ -4,788.22 $ 26,591.10 $ 64,549.75 $ 88,352.63 $ 0.00 $ 0.00 $ 86,352.63 $ 717,752.56 -62 746.10 199,384.84 854,391.30 __QJ!Q_ 854 391.30 0.00 712 964.34 $ -36,155.00 $ 263 934.59 $ 940 743.93 $ ~ $ 854 391.30 $ 88,352.63 $ 88,352.63 854,391.30 940,743.93 $ 41,000,361.36 $ -8,299,895.36 $ 715,745.85 $ -36,155.00 $ 263,934.59 $ 943,525.44 $ ~ $ 854,391.30 $ 89,134.14 $ 943,525.44 Unexpendable Reserves Uncollectible Accounts Receivable Inventories 31,955.49 5,040.39 $ 980 521.32 -33- (This page left intentionally blank) MIDDLE GEORGIA COLLEGE RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2008 SCHEDULE "4" Totals per Annual Supplement Accruals June 30, 2008 June 30, 2007 Compensated Absences June 30, 2008 June 30, 2007 Adjustments July 1, 2008 Bi-Weekly Payroll Expensed in Fiscal Year 2007 Shared Services on Jointly Staffed Personnel Georgia College and State University Nolte-Viau, Pamela Logan, WilliamP. Ubah, Charles Georgia Southwestern State University Bryan, Eugenia Logan, William P. Sullivan, Troy V. SALARIES $ 13,647,375.00 $ TRAVEL 225,240.00 267,050.00 -76,728.00 744,526.00 -593,836.00 -102,361.00 -5,921.00 -4,000.00 4,200.00 3,229.00 -8,881.00 -8,343.00 $ 13,866,310.00 $==22=5=,2=4=0.=00= - 35 - SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS MIDDLE GEORGIA COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CONTROL DEFICIENCIES The auditor is required to communicate to management and those charged with governance control deficiencies identified during the course of the financial statement audit that, in the auditor's judgment, constitute significant deficiencies or material weakness. A control deficiency exists when the design or operation ofa control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affect the Middle Georgia College's ability to initiate, authorize, record, process, or report financial data reliability in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement ofthe Middle Georgia College's financial statements that is more than inconsequential will not be prevented or detected by the Middle Georgia College's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement ofthe financial statements will not be prevented or detected by the Middle Georgia College's internal control. Any identified deficiencies in internal controls that we did not consider to be significant deficiencies and/or material weaknesses have been communicated to management and those charged with governance within a separate management letter dated January 23, 2009. Internal control deficiencies identified during the course ofthis engagement that were considered to be significant deficiencies and/or material weaknesses are presented below: Expenditures/Liabilities/Disbursements Employee Compensation General Ledger Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-584-08-01 Condition: The accounting procedures of the College were insufficient to provide for adequate controls over (1) Expenditures/Liabilities/Disbursements; (2) Employee Compensation and (3) General Ledger. Criteria: The College's management is responsible for designing and maintaining internal controls to provide reasonable assurance that financial activity is properly documented, processed and reported. - 1- MIDDLE GEORGIA COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS Expenditures/Liabilities/Disbursements Employee Compensation General Ledger Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-584-08-01 Questioned Cost: NIA Information: The following weaknesses/deficiencies were noted: Expenditures/Liabilities/Disbursements Ofthe 39 purchase order transactions reviewed during the course ofthe audit, two (2) did not contain an approved purchase order or requisition. Employee Compensation While conducting tests of controls over employee compensation, the auditors noted that internal controls were not sufficient to ensure that the compensated absences balances reported within the financial system reports agreed with annual leave supporting documentation. General Ledger Journal entries were not reviewed by someone independent of the General Ledger posting function for the majority of fiscal year 2008. Effect: Without satisfactory accounting procedures and controls in place, the College placed itself in a position where potential misappropriation of assets could occur. The lack ofcontrols could impact reporting ofthe College's financial position and results of operations. In addition, there are some areas for which journal entry approval would provide for better separation ofduties for the particular account balance/transaction class. Cause: Management failed to implement adequate controls and procedures to ensure that: (1) expenditures were properly approved prior to purchase; (2) compensated absences were properly maintained and reported and (3) all journal entries were reviewed and approved. Recommendation: The College should review the accounting procedures in place and design and implement procedures relative to the above control categories to strengthen the internal controls over the accounting functions. -2- MIDDLE GEORGIA COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2008 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No findings were reported. -3 -