Savannah State University, Savannah, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2003

STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
I
SAVANNAH STATE UNIVERSITY
SAVANNAH, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003
Russell W. Hinton State Auditor

SAVANNAH STATE UNIVERSITY - 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

EXHIBITS

A STATEMENT OF NET ASSETS

3

B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

5

C STATEMENT OF CASH FLOWS

6

D NOTES TO THE FINANCIAL STATEMENTS

8

SUPPLEMENTARY INFORMATION

SCHEDULES

SCHEDULES OF REVENUES AND EXPENDITURES COMPARED TO

BUDGET - (NON-GAAP BASIS)

1

RESIDENT INSTRUCTION

25

2

LOTTERY FOR EDUCATION

26

3 RECONCILIATION OF SALARIES AND TRAVEL

27

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

SAVANNAH STATE UNIVERSITY - TABLE OF CONTENTS -
SECTION III 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
254 Washington Street, S.W. Suite 214 Atlanta, Georgia 30334-8400
January 14, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable Carlton E. Brown, President Savannah State University
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 Savannah State University, an organizational unit of the State of Georgia, as of and for the year ended June 30, 2003. These financial statements are the responsibility of the University'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 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 Savannah State University are intended to present the financial position and changes in financial position and cash flows of only that portion of the business-type activities of the State of Georgia that is attributable to the transactions of Savannah State University. They do not purport to, and do not, present fairly the financial position and changes in financial position and cash flows ofthe State of Georgia, in conformity with accounting principles generally accepted in the United States of America.

03ARL-61

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Savannah State University as of June 30, 2003, 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 supplementary information required by accounting principles generally accepted in the United States ofAmerica. We have applied certain limited procedures, which consisted principally ofinquiries of management regarding the methods of measurement and presentation of this 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 taken as a whole. The accompanying supplementary information (Schedules 1 through 3) is presented for purposes of additional analysis and is not a required part of the basic financial statements of Savannah State University. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, based on our audit, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Respectfully submitted,
1:)~ t<J.~ 1 RJ:n W. Hinton State Auditor
RWH:as 03ARL-61

REQUIRED SUPPLEMENTARY INFORMATION

SAVANNAH STATE UNIVERSITY
Management's Discussion and Analysis

Introduction

Savannah State University is one of the 34 institutions of the University System of Georgia. The University, located in Savannah, Georgia, was founded in 1890 as a department of the State University for the education and training of Negro students. Savannah State University now serves a diverse student population as a senior university of the University System of Georgia. The University serves a primarily African American student population, enriched by a diversity of traditional and nontraditional students from other countries, cultures, and races. The educational goal is realized through program offerings in the College of Business Administration, the College of Liberal Arts and Social Sciences, and the College of Sciences and Technology, which lead to baccalaureate and master's degrees. This wide range of educational opportunities attracts a highly qualified faculty and a student body of around 2,100 students each year. The institution continues to grow as shown by the comparison numbers that follows:

Faculty

Students

FY2003 FY2002 FY2001

122

2,071

135

1,831

116

1,688

Overview ofthe Financial Statements and Financial Analysis

Savannah State University is proud to present its financial statements for fiscal year 2003. 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 University's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2002 and fiscal year 2003.

Statement ofNet Assets

The Statement of Net Assets presents the assets, liabilities, and net assets of the University 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 Savannah State University. 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.

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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 of Net Assets, Condensed

June 30, 2003

June 30, 2002

Assets Current Assets Capital Assets, Net Other Assets

$ 4,303,571.00 37,504,041.24
2,281,118.80

$ 4,560,959.26 31,137,164.01
1,957,303.11

Total Assets

$44,088,731.04

$37,655,426.38

Liabilities Current Liabilities Noncurrent Liabilities

$ 2,085,902.05 547,373.78

$ 1,748,636.80 495,425.96

Total Liabilities

$ 2,633,275.83

$ 2,244,062.76

Net Assets Invested in Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Unrestricted

$37,504,041.24 932,495.31
1,135,039.50 1,883,879.16

$31,137,164.01 1,104,605.19 916,738.19 2,252,856.23

Total Net Assets

$41!455!455.21

$35!411!363.62

The total assets of the institution increased by $6,433,304.66. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $6,366,877.23 in capital assets, net of accumulated depreciation. See Note 1 in the Notes to the Financial Statements for additional information concerning the restatement of beginning net assets and the effect of this restatement on depreciable capital assets. The current assets category showed a decrease of $257,388.26. This decrease was the result of the University System's attempt to be consistent in the classification of investment pools. The other asset category, showed an increase during the year of $323,815.69. The consumption of assets follows the institutional philosophy to use available resources to acquire and improve all areas of the institution to better serve the instruction, research and public service missions of the institution.

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The total liabilities of the institution for the year increased by $389,213.07. The primary cause for the increase was a combination of an increase in current and noncurrent liabilities. The combination of the increase in total assets of $6,433,304.66 and the increase in total liabilities of $389,213.07 yields an increase in total net assets of $6,044,091.59. The increase in total net assets is primarily in the category of invested in capital assets, net of debt in the amount of $6,366,877.23. 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.
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Statement of Revenues, Expenses and Changes in Net Assets, Condensed

June 30, 2003

June 30, 2002

Operating Revenues Operating Expenses

$21,934,879.15 40,942,070.54

$ 12,688,299.67 39,659,108.65

Operating Loss

$-19,007,191.39 $-26,970,808.98

Nonoperating Revenues and Expenses

19,626,403.14

27,515,238.15

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

$ 619,211.75

$ 544,429.17

Other Revenues, Expenses, Gains or Losses

3,545,360.53

Increase (Decrease) in Net Assets

$ 4,164,572.28

$ 544,429.17

Net Assets at Beginning of Year, as Originally Reported

$ 35,411,363.62

$ 83,412,335.20

Cumulative Effect of Changes in Accounting Principle

-48,545,400.75

Prior Period Adjustment

1,879,519.31

Net Assets at Beginning of Year Restated

$ 37,290,882.93

$ 34,866,934.45

Net Assets at End of Year

$41,455,455.21

$ 35,411,363.62

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:

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Revenue By Source For The Years Ended June 30, 2003 and June 30, 2002

Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Auxiliary Other
Total Operating Revenue
Nonoperating Revenue State Appropriations Gifts Investment Income Grants and Contracts Other
Total Nonoperating Revenue
Capital Gifts and Grants State Capital Gifts
Total Revenues

June 30, 2003

June 30, 2002

$ 3,252,991.42 11,998,487.36
154,080.74 6,194,586.79
334,732.84
$21,934,879.15

$ 2,545,784.68 4,502,737.21
198,003.00 5,051,520.05
390,254.73
$12,688,299.67

$17,114,139.87 415,090.13 113,915.61 179.00
1,983,078.53
$19,626,403.14

$19,763,961.16 192,650.00 162,446.55
6,568,617.94 827,562.50
$27,515,238.15

$ 3,545,360.53 $45! 106!642.82

$40!203!537.82

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Expenses (By Functional Classification) For The Years Ended June 30, 2003 and June 30, 2002

June 30, 2003

June 30, 2002

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

$12,517,064.78 1,679,115.24 2,420,664.11 3,514,748.95 2,535,379.59 6,258,381.19 3,941,641.69 2,050,130.07 6,024,944.92

$10,922,761.52 1,688,707.38 2,433,390.63 3,267,020.74 2,431,362.34 5,567,049.40 4,845,685.41 1,525,359.96 5,128,188.66 1,849,582.61

Total Operating Expenses

$40,942,070.54

$39,659,108.65

Operating Revenues showed an increase of $9,246,579.48. This increase was primarily caused by increases in revenues associated with the tuition fees, net of scholarship allowances, Federal grants and contracts, and auxiliary enterprises. Revenues associated with tuition and fees increased $707,206.74 during the year. This increase reflects an increase in enrollment. For fiscal year 2003 student enrollment increased by 240 students or 13%. Federal Grants and Contracts revenue showed an increase of $6,990,193.82. Auxiliary Services revenue showed an increase of $1,143,066.74.

The compensation and employee benefits category increased by $665,738.74. The increase reflects a pay raise for the employees of the institution of approximately three percent with associated fringe benefits. The increase also reflects an increase in the cost of health insurance for the employees of the institution.

Utilities decreased by $29,091.60 during the past year. The decrease was primarily associated with a decrease in electricity costs.

Statement ofCash Flows

The final statement presented by the Savannah State University is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The

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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, 2003 and June 30, 2002, Condensed

June 30, 2003

June 30, 2002

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

$-18,316,519.06 20,093,990.80 -2, 795,649.43 -422,294.10

$-28,367,232.62 27,465,133.27 -893,465.59 152,897.01

Net Change in Cash

$ -1,440,471.79 $ -1,642,667. 93

Cash - June 30, 2002 Add: Short-Term Investment Pools

$ 1,750,495.60 266,147.55

$ 3,393,163.53

Cash, Beginning of Year

$ 2,016,643.15

$ 3,393,163.53

Cash, End of Year

$ 576,171.36 $ 1,750,495.60

Capital Assets

Savannah State University completed major renovations to the Drew Griffith Academic Building in fiscal year 2003. The $3,545,360.53 for this project was funded by the Georgia State Financing and Investment Commission (GSFIC).

For additional information concerning Capital Assets, see Notes 1 and 6 in the Notes to the Financial Statements.

Long-Term Debt

Savannah State University had a total Long-Term Debt of $1,087,353.56 of which $539,979.78 was reflected as current liability at June 30, 2003.

For additional information concerning Long-Term Debt see Notes 1 and 8 in the Notes to the Financial Statements.

Economic Outlook

During fiscal year 2003, the University, as well as most state agencies of Georgia, received notifications of reductions in state appropriations. Those reductions did occur for the University beginning in the fall semester amounting to approximately 5.86% or $963,235.00 from the

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originally approved annual budget. Subsequent reductions occurred at rates of 3%, excluding the budget for Instruction, and 2% of the total budget, resulting in additional reductions in state appropriations of $212,063.00 and $372,289.00, respectively. Given the reductions in state appropriations, the University is developing several scenarios to cut costs while preserving the ability to deliver mission-critical activities of instruction, research and public service. The University anticipates the next few fiscal years to be much like fiscal year 2003 and will maintain a close watch over resources to maintain the University's ability to react to unknown internal and external issues. Carlton E. Brown, President Savannah State University
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BASIC FINANCIAL STATEMENTS - 1-

SAVANNAH STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30. 2003
ASSETS
Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable, Net Federal Financial Assistance Other Prepaid Items Inventories
Total Current Assets
Noncurrent Assets Cash and Cash Equivalents Short-Term Investments Investments Notes Receivable Capital Assets, Net (See Note 6)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Salaries Payable Accounts Payable Deferred Revenue Funds Held for Others Compensated Absences Other Liabilities
Total Current Liabilities
Noncurrent Liabilities Compensated Absences
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.
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EXHIBIT"A"

$

330,489.21

411,098.86

1,344,167.79 1,540,053.71
20,039.51 657,721.92

$ 4,303,571.00

$

245,682.15

62,023.73

1,023,219.20

950,193.72

37,504,041.24

$ 39,785,160.04

$ 44,088,731.04

$

172,260.88

387,266.06

498,731.23

429,769.10

539,979.78

57,895.00

$ 2,085,902.05

547 373.78
$ 2,633,275.83

$ 37,504,041.24
932,495.31 1,135,039.50 1,883,879.16

$ 41,455,455.21

SAVANNAH STATE UNIVERSITY STATEMENT OF REVENUES. EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30 2003
OPERATING REVENUES
Student Tuition and Fees Less: Scholarship Allowances
Grants and Contracts Federal State Local Nongovernmental
Rents and Royalties Sales and Services of Educational Departments Auxiliary Enterprises
Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal Gifts Interest and Other Investment Income Other Nonoperating Revenues
Net Nonoperating Revenues
Income (Loss) Before Other Revenues, Expenses, Gains. or Losses
Capital Grants and Gifts State
Increase (Decrease) in Net Assets
Net Assets Net Assets - Beginning of Year. as Originally Reported Prior Period Adjustment to Reflect Residual Values on Depreciable Capital Assets
Net Assets - Beginning of Year, Restated
Net Assets - End of Year
The notes to the financial statements are an integral part of this statement.
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EXHIBIT"B"

$ 6,671,587.91 -3,418,596.49
11,492,931.03 79,852.62 75,511.02
352,692.69 56,684.01
154,080.74
966,931.78 1,306,680.91 2,072,937.09
58,587.29 343,251.60 1,412,558.33
33,639.79 275 548.83
$ 21,934,879.15

$ 7,513,924.62 10,944,027.81 5,250,887.84 390,082.75 3,555,086.28 1,937,932.99 9,586,633.64 1,763,494.61
$ 40,942,070.54
$ -19 007,191.39

$ 17,114,139.87

179.00 415,090.13 113,915.61 1,983,078.53

$ 19,626,403.14

$

619,211.75

3,545,360.53 $ 4,164,572.28

$ 35,411,363.62 1 879 519.31
$ 37,290,882.93

$ 41 455 455.21

SAVANNAH STATE UNIVERSITY STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2003
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 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 Other Nonoperating Receipts
Net Cash Flows Provided (Used) by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Sale of Capital Assets Purchases of Capital Assets
Net Cash Provided (Used) by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments Interest on Investments Purchase of Investments
Net Cash Provided (Used) by Investing Activities
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - June 30, 2002 Add: Short-Term Investments Pools
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
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EXHIBIT"C"

$

3,052,579.26

11,439,819.62

154,080.74

-17,417,230.50

-18,468,898.32

-3,555,086.28

-191,529.46

94,033.66

962,229.86 1,326,364.97 2,072,937.09
58,587.29 343,251.60 1,412,558.33
33,639.79 366,143.29

$ -18,316,519.06

$ 17,114,139.87
180,579.45 914,738.73 1,884,532.75
$ 20,093,990.80

$

641.25

-2, 796,290.68

$ -2,795,649.43

$

178,047.09

82,987.07

-683,328.26

$

-422,294.10

$ -1 440 471.79

$

1,750,495.60

266,147.55

$ 2,016,643.15

$ ===5=76;;;,,1=7=1=.3=6

SAVANNAH STATE UNIVERSITY STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2003

EXHIBIT"C"

RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivables, Net Inventories Prepaid Items Notes Receivable Accounts Payable Salaries Payable Deferred Revenue Other Liabilities Compensated Absences

$ -19,007,191.39
1,763,494.61
-813,691.94 -65,311.63 -14,862.90 -97,495.80
-178,114.72 -116,699.45 101,004.63
-1,494.17 113,843.70

Net Cash Provided (Used) by Operating Activities

$ -18,316,519.06

NONCASH ACTIVITY NONCAPITAL FINANCING, CAPITAL AND RELATED FINANCING TRANSACTIONS AND INVESTING ACTIVITIES Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts

$ -3,545,360.53

The notes to the financial statements are an integral part of this statement. -7 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS Savannah State University serves the state, and national communities by providing its students with academic instruction that advances fundamental knowledge, and by disseminating knowledge to the people of Georgia and throughout the country.
REPORTING ENTITY Savannah State University is one of thirty-four (34) 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 Savannah State University as a separate reporting entity.
The Board of Regents has constitutional authority to govern, control and manage the University System of Georgia. This authority includes but is not limited to the power to designate management, the ability to significantly influence operations, the authority to control institutions' budgets, the power to determine allotments of State funds to member institutions and the authority to prescribe accounting systems and administrative policies for member institutions. Savannah State University does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Savannah State University 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.
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 was required to implement GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the University is also required to adopt GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. The financial statement presentation required by GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38 provides a comprehensive, entity-wide perspective of the University's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fund group perspective previously required.
BASIS OF ACCOUNTING For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University's financial statements have been presented using the economic resources measurement focus and the accrual basis of
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SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-university transactions have been eliminated.
The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University has elected to not apply FASB pronouncements issued after the applicable date.
RESTATEMENT OF PRIOR YEAR NET ASSETS - BEGINNING OF YEAR In the initial year of implementation of GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities, the University failed to include residual values on its depreciable capital assets in accordance with asset capitalization policies adopted in the Capital Asset Guide for the University System of Georgia. As the result of the University's inclusion of residual values for depreciable capital assets, net assets at July 1, 2002 were increased by $1,879,519.31 for the effects on accumulated depreciation.
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 Board of Regents Short-Term Investment Pool.
SHORT-TERM INVESTMENTS Short-Term Investments consist of investments of 90 days - 13 months. This would include certificates of deposits or other time restricted investments with original maturities of six months or more when purchased. Funds are not readily available and there is a penalty for early withdrawal.
INVESTMENTS The University 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 statements 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 fee charges 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 include amounts due from the Federal government, state and

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SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University's grant and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
PREPAID ITEMS Prepaid items are payments made to vendors in advance of the receipt of goods and services that will benefit periods subsequent to the balance sheet date.
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 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.
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 University's capitalization policy includes all items with a unit cost of $5,000.00 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000.00 and 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 7 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 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.

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CAPITAL ASSETS Effective July 1, 2001, the GSFIC retains construction in progress on their books throughout the construction period and transfers the entire project to Savannah State University when complete. For the year ended June 30, 2003, GSFIC transferred capital additions valued at $3,545,360.53 to Savannah State University.
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 accrued vacation payable 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. Savannah State University had accrued liability for compensated absences in the amount of $973,509.86 as of July 1, 2002. For fiscal year 2003, $776,825.49 was earned in compensated absences and employees were paid $662,981.79, for a net increase of $113,843.70. The ending balance as of June 30, 2003 in accrued liability for compensated absences is $1,087,353.56. Compensated absences include a current liability of $539,979.78.
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.
NET ASSETS The University's net assets are classified as follows:
Invested in capital assets, net ofrelated debt: This represents the University'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,
- 11 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NET ASSETS and invested for the purpose of producing present and future income, which may either be expended or added to principal. The University may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 4415-7 of Annotated Code of Georgia.

Restricted net assets - expendable: Restricted expendable net assets include resources in which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties.

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 University, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) of $2,369.37. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia - Administrative Central 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, 2003

R& RReserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted

$ 1,044,177.58 1,519,173.29 665,569.48 -1,345,041.19

Total Unrestricted Net Assets

$ 1,883,879.16

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

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

CLASSIFICATION OF REVENUES The University 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:

- 12 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CLASSIFICATION OF REVENUES 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, (3) most Federal, state and local grants and contracts and Federal appropriations, and (4) interest on institutional student loans.
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 University, and the amount that is paid by students and/or third parties making payments on the students' behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs, are recorded as either operating or nonoperating revenues in the University's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded contra revenue for scholarship allowances.
NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds belonging to the State of Georgia (and thus Savannah State University) 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, bill, certificates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia.
2. Bonds, bills, certificates of indebtedness, notes, 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.

- 13 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS

STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES 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, or 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.

As authorized in the Official Code of Georgia Annotated Section 50-17-53, the State Depository Board has adopted policies which allow agencies of the State of Georgia (and thus Savannah State University), the option of exempting demand deposits from the collateral requirements.

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.

CATEGORIZATION OF DEPOSITS The University's cash deposits are categorized by risk as follows:

Category 1 - Amounts covered by depository insurance or collateralized with securities (at fair value) held by the University or by its agent in the University's name.

Category 2 - Amounts collateralized with securities (at fair value) held by the pledging financial institution's trust department or agent in the University's name.

Category 3 - Amounts collateralized with securities (at fair value) held by the pledging financial institution, or by its trust department or agent but not in the University's name, and amounts uncollateralized.

Cash Deposits as of June 30, 2003 are as follows:

Cash Deposits

Carrying Amount

Bank Balances

Risk Categories

2

3

$ 775,050.93 $ 2.831.229.24 $ 122,878.96 $ 373,122.59 $ 2,335 227.69

- 14 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS

CATEGORIZATION OF INVESTMENTS Savannah State University's investments are invested in an investment pool managed by another governmental entity and are not required to be categorized since the University did not own any specific, identifiable investment securities of the pool.

Investments Not Subject to Categorizations: Board of Regents
Short-Term Fund Total Return Fund

$ 272,365.82 1,023,219.20

Total Investments

$ 1,295,585.02

NOTE 3: ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at June 30, 2003.

Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal, State and Private Funds Other

$ 899,290.09 97,990.10
1,547,269.26 367,791.90

Less Allowance for Doubtful Accounts

$ 2,912,341.35 28,119.85

Net Accounts Receivable

$ 2,884,221.50

NOTE 4: INVENTORIES

Inventories consisted of the following at June 30, 2003.

Bookstore Central Stores Physical Plant

$ 604,736.38 5,377.48
47,608.06

Total

$ 657,721.92

NOTE 5: NOTES/LOANS RECEIVABLE

Notes/Loans receivable primarily consist of student loans made through the Federal Perkins Loan Program (the Program). The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The

- 15 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 5: NOTES/LOANS RECEIVABLE

Federal government reimburses the University for amounts cancelled under these provisions. As the University 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.

NOTE 6: CAPITAL ASSETS

Following are the changes in capital assets for the year ended June 30, 2003:

Beginning Balance July 1, 2002 (Restated)

Additions

Reductions

Ending Balance June 30. 2003

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

$ 575,975.16 0.00 $ 2,167,169.20

$ 575,975.16 2,167,169.20

Total Capital Assets Not Being Depreciated

$ 575,975.16 $ 2,167,169.20

$ 2,743,144.36

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

$42,572,957.00 $ 3,553,340.31

$46,126,297.31

2,520,259.00

2,520,259.00

5,550,043.97

492,767.42 $ 109,202.00 5,933,609.39

5,800,592.55

128,374.28

15,911.40 5,913,055.43

55,285.00

55,285.00

Total Assets Being Depreciated

$56,499,137.52 $ 4,174,482.01 $ 125,113.40 $60,548,506.13

Less: Accumulated Depreciation:

Buildings and Building Improvements $16,089,589.30 $ 982,631.88

Facilities and Other Improvements

826,084.56

106,108.60

Equipment

3,093,730.94

417,212.00 $

Library Collections

4,047,377.30

256,160.00

Capitalized Collections

1,647.26

1,382.13

18,403.32 15,911.40

$17,072,221.18 932,193.16
3,492,539.62 4,287,625.90
3,029.39

Total Accumulated Depreciation

$24,058,429.36 $ 1.763,494.61 $ 34,314.72 $25,787,609.25

Total Capital Assets, Being Depreciated,

Net

$32,440,708.16 $ 2,410,987.40 $ 90,798.68 $34,760,896.88

Capital Assets, Net

$33,016 683 32 $ 4 578 156.60 $ 90 798 68 $37 504 041.24

NOTE 7: DEFERRED REVENUE

Deferred revenue consists of the following at June 30, 2003.

Prepaid Tuition and Fees Other Deferred Revenue

$ 101,004.63 397,726.60

Totals

$ 498,731.23

- 16 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 8: LONG-TERM LIABILITIES

Long-Term liability activity for the year ended June 30, 2003 was as follows:

Other Liabilities Compensated Absences

Beginning
Balance
July 1. 2002

Additions

Reductions

Ending Balance June 30, 2003

Current Portion

$ 973.509.86 $ 776,825 49 $ 662 981.79 $ I 087 353.56 $ 539,979.78

NOTE 9: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA

Plan Description Savannah State University participates in the Teachers Retirement System of Georgia (TRS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances and other benefits for teachers of the State of Georgia. 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 Georgia Department of Audits and Accounts.

Funding Policy Employees of Savannah State University who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Savannah State University 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 2003, the employer contribution rate was 9.24% 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

2003 2002 2001

100% 100% 100%

$ 1,169,740.65 $ 1,112,152.15 $1,404,295.16

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.

- 17 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 9: RETIREMENT PLANS
REGENTS RETIREMENT PLAN
Plan Description Under this plan, the Board of Regents may purchase annuity contracts for the purpose of providing retirement and death benefits for eligible faculty and principal administrators. 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 Savannah State University makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State Statute and as advised by their independent actuary. The employer contributes 10.02% 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.
Savannah State University and the covered employees made the required contributions of $424,101.15 (10.02%) and $211,628.34 (5%), respectively.
GEORGIA DEFINED CONTRIBUTION PLAN
Plan Description Savannah State University 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 $ 3,500.00 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.

- 18 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 9: RETIREMENT PLANS
GEORGIA DEFINED CONTRIBUTION PLAN
Contributions and Vesting 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 2003 amounted to $37,552.67 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
NOTE 10: RISK MANAGEMENT
Savannah State University is a participant in the Board of Regents of the University System of Georgia Health Benefits Plan, which is a self-insurance program of health and dental benefits for employees and retirees of the University System of Georgia. Savannah State University and participating employees and retirees pay premiums to the Health Benefits Plan for this health insurance coverage. The Health Benefits Plan is 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 of the Health Benefits Plan. The Health Benefits Plan is considered a self-sustaining risk fund that provides health coverage for its members up to a maximum lifetime benefit of $2,000,000.00 per person and dental coverage up to an annual maximum of $1,000.00 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia to process claims in accordance with the Health Benefits Plan as established by the Board of Regents.
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. Savannah State University, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.

- 19 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 10: RISK MANAGEMENT
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 11: 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 which are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Savannah State University expects such amounts, if any, to be immaterial to its overall financial position.
Litigation, claims and assessments filed against Savannah State University (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, 2003.
NOTE 12: 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.
As of June 30, 2003, there were 169 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2003, Savannah State University recognized as incurred $594,247.34 of expenses, which was net of $233,959.99 of participant contributions.

- 20 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2003

EXHIBIT "D"

NOTE 13: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS

The University's operating expenses by functional classification are shown below:

Statement of Operating Expenses - Natural vs Functional Classifications For the Fiscal Year Ended June 30, 2003

Functional Classification

Natural Classification

Instruction

Research

Public Service

Academic Support

Student Services

Salaries Faculty Staff
Employee Benefits Travel Scholarships and
Fellowships Utilities Supplies and Other
Services Depreciation

$ 7,242,071.72 858,564.74
1,968,397.33 40,175.74
189,494.14 104,567.26
430,028.92 1,683,764.93

$ 137,482.00 430,676.17 107,828.80 68,095.69
256,41 I.SI 15,004.14
658,243.47 5 373.46

$ 44,824.50 1,189,919.27 230,065.68 33,592.38
179,712.58 17,389.24
725,160.46

$ 81,011.40 2,073,904.97 515,140.40 64,225.00
7,898.35 78,880.17
677,670.53 16,018.13

$ 5,150.00 1,367,018.52 365,150.88 34,155.97
39,300.00 39,082.43
684,141.18 l 380.61

Total Operating Expenses

$12 517 064.78 $ 1 679 115.24 $ 2 420 664.11 $ 3 514 748 95 $ 2 535 379.59

Natural Classification
Salaries Faculty Staff
Employee Benefits Travel Scholarships and
Fellowships Utilities Supplies and Other
Services Depreciation
Total Operating Expenses

Institutional Support

Functional Classification

Plant

Operations and Scholarships

Auxiliary

Maintenance and Fellowships

Enterprises

Total Operating Expenses

$ 3,000.00 2,761,474.18 1,456,942.86 108,013.44
346,565.26 61,237.95
1,498,818.13 22,329.37
$ 6258381.19

$ 1,465,204.53 147,683.50 7,809.54
1,467,692.29
832,200.67 21,051.16
$ 3 941 641 62

$ 2,050,130.07 $ 2 050 130.07

$

385.00

805,355.57

451,588.25

34,014.99

485,574.37 154,079.51

4,080,370.28 13 576.95

$ 6 Q24 94492

$ 7,513,924.62 10,952,117.95 5,242,797.70 390,082.75
3,555,086.28 1,937,932.99
9,586,633.64 1,763,494.61
$40 942 Q7Q 54

- 21 -

SUPPLEMENTARY INFORMATION - 23 -

SAVANNAH STATE UNIVERSITY SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO
BUDGET - (NON-GMP BASIS) RESIDENT INSTRUCTION
YEAR ENDED JUNE 30. 2003

SCHEDULE "1"

REVENUES
State Appropriations Other Revenues Retained

BUDGET

ACTUAL (1)

VARIANCEFAVORABLE (UNFAVORABLE)

$ 17,008,054.00 $ 17,008,054.00 $

23,692,212.00

20,641,844.07

0.00 -3,050,367.93

$ 40,700,266.00 $ 37,649,898.07 $ - - ~-3,0-50~,36-7.9-3

EXPENDITURES
Personal Services: Education, General and Departmental Services Sponsored Operations
Operating Expenses: Education, General and Departmental Services Sponsored Operations
Capital Outlay Special Funding Initiative

$ 19,472,326.00 $ 19,211,790.11 $

2,168,422.00

2,744,530.87

3,432,189.00 14,808,298.00
0.00 819,031.00

3,982,793.27 9,299,980.44 1,948,341.54
719,341.02

260,535.89 -576, 108.87
-550,604.27 5,508,317.56 -1,948,341.54
99,689.98

$ 40,700,266.00 $ 37,906,777.25 $ _ _ _2.:....,7_9.3...,.4. _8_8_.7_5

Excess of Revenues over Expenditures

$

-256,879.18 $ ====-=25=6=,8=79=.1=8

(1) 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.

See notes to the financial statements.

- 25 -

SAVANNAH STATE UNIVERSITY SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO
BUDGET - (NON-GAAP BASIS) LOTTERY FOR EDUCATION YEAR ENDED JUNE 30, 2003

SCHEDULE "2"

REVENUES State Appropriations

BUDGET

ACTUAL (1)

VARIANCEFAVORABLE (UNFAVORABLE)

$

106.522.00 $

106,522.00 $ _ _ _ _ _0._00_

EXPENDITURES
Equipment. Technology and Construction Trust Fund

$

106,522.00 $

106.522.00 $ _ _ _ _ _o_.o_o

Excess of Revenues over Expenditures

$

0.00 $ = = = = =0.= 00

(1) 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.

See notes to the financial statements.

- 26 -

SAVANNAH STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2003

SCHEDULE 311 11

Totals per Annual Supplement

Accruals June 30, 2003 June 30, 2002

Compensated Absences June 30, 2003 June 30, 2002

Adjustments

Shared Services on Jointly Staffed Personnel

Armstrong Atlantic State University

Alemayehu, Tsehai

Richardson, Joseph

Sajwan,

Kenneth

Unidentified Variance

SALARIES $ 18,484,452.45 $

TRAVEL 390,082.75

172,260.88 -288,960.33

1,010,082.27 -904,328.71

-3,015.00 -6,376.00 -7,470.00 1,306.87
$ 18,457,952.43 $ ===39=0==,0=8=2.=75=

See notes to the financial statements.

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

SAVANNAH STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-548-98-02 FS-548-00-02 FS-548-00-10 FS-548-01-01 FS-548-01-02 FS-548-01-08 FS-548-01-09 FS-548-01-10 FS-548-01-14 FS-548-01-15 FS-548-01-17 FS-548-02-01 FS-548-02-02 FS-548-02-03 FS-548-02-04 FS-548-02-05 FS-548-02-06 FS-548-02-07 FS-548-02-08

Unresolved - See Corrective Action/Responses Further Action Not Warranted Further Action Not Warranted Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses Further Action Not Warranted Previously Reported Corrective Action Implemented Further Action Not Warranted Further Action Not Warranted Previously Reported Corrective Action Implemented Further Action Not Warranted Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Further Action Not Warranted Partially Resolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

EXPENDITURES/LIABILITIES/DISBURSEMENTS Deficit Cash Balance Finding Control Number: FS-548-98-02

The University will seek internal funding sources to eliminate this deficit by June 30, 2004.

CASH AND CASH EQUIVALENTS Theft of Funds Finding Control Number: FS-548-01-02

With the reorganization ofthe Office of Student Accounts and Cashiering, the University established and implemented internal controls that will safeguard these assets. Additionally in January of 2003, the University developed and distributed to all University staff involved in the cash handling process, a Cash Operations Manual that addresses the University's stance on this issue. The University is unable to bring closure to this issue as the Georgia Bureau oflnvestigation is handling the investigation.

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SAVANNAH STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTION/RESPONSES
REVENUES/RECEIVABLES/RECEIPTS Failure to Monitor Out-of-State Tuition Fee Waivers Finding Control Number: FS-548-02-02
This exception to policy was based on a verbal understanding between the President and the Chancellor that institutions would be allowed to exceed their limits within reasonable amounts. In the future Savannah State University will request formal written authorization from the Board of Regents to exceed out-of-state tuition fee waivers.
GENERAL LEDGER Agency Fund Deficits and Lack of Purpose Statements Finding Control Number: FS-548-02-04
By definition, "agency funds account for resources held by the University as custodian or fiscal agent". The University has several agencies that provide financial assistance to students that are billed for the amount in which they are awarding the student. Although these agencies do not submit advance funds to the University, they were established as agency funds. It is the position of the University that these accounts should not be classified as agency funds. The University will seek guidance from the Board of Regents on how to account for these types of accounts. However until guidance is received, the University will implement procedures to improve the receipt of these funds.
For those true agency funds which show a deficit, the University has implemented procedures to eliminate the deficit and monitor the availability of funds. Account holders will be notified in writing of the deficit and asked to remit funds to cover the deficit balance. Staff will monitor and review agency accounts monthly to identify deficit accounts for appropriate action.
GENERAL LEDGER Deficiencies in Accounting Procedures Finding Control Number: FS-548-02-05
The University outsourced the bookstore July 7, 2003.
The University changed its "Voided Check" Policy in June 2003. The new policy, which is located in the Office of the Comptroller Accounting Policies and Procedures Manual, requires checks to be voided in a timely manner after they become stale dated, 6 months.
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SAVANNAH STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CORRECTIVE ACTION/RESPONSES

CAPITAL ASSETS Inadequate Capital Assets Records Finding Control Number: FS-548-02-08

The University reconciles the property records to the capitals ledger. The referenced capital assets variance was the result of a systematic problem. The capital ledger reports (Footnote 6, capital ledger trial balance, etc...) are returning incorrect numbers for three separate accounts. The ending balances for fiscal year 2002 are not reflected as the beginning balance for period 1 of fiscal year 2003. Therefore, the ending balances reflected by the capital ledger reports are reporting incorrect numbers. The discrepancies between the ending balance at 2002 and the beginning balance of 2003 totals the referenced variance. The University submitted a ticket to OIIT regarding the problem in late June or early July 2003. OIIT instructed the University to use queries to get final figures during the year-end closing process. To date the ticket is unresolved and classified as a non-priority ticket by OIIT.

The University was able to provide a listing of equipment, which included all of the referenced attributes for all equipment acquired since the conversion to the PeopleSoft Financial System. Detailed information related to equipment acquired prior to the conversion to PeopleSoft has been archived in the University's legacy system. The University no longer has access to this information.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-548-01-02 FA-548-01-04 FA-548-01-05 FA-548-01-06 FA-548-01-07 FA-548-02-01 FA-548-02-02 F A-548-02-03 F A-548-02-04 F A-548-02-05

Previously Reported Corrective Action Implemented Further Action Not Warranted Further Action Not Warranted Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Further Action Not Warranted Unresolved - See Corrective Action/Responses

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SAVANNAH STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTION/RESPONSES
PERIOD OF AVAILABILITY Deficit Fund Balances Student Financial Aid Cluster Program Finding Control Number: FA-548-01-07
The University is continuing the reconciliation process to identify those students that reimbursement can be requested for. The reconciliation is anticipated to be completed by June 30, 2004. Upon the completion ofthe reconciliation, the University will request from the Department of Education that it be allowed to certify the validity ofthese payments and submit reimbursement for these expenditures. In the future the University will implement procedures to ensure that funds are available to cover valid expenditures.
ACTIVITIES ALLOWED OR UNALLOWED Improper Activity Higher Education - Institutional Aid (CFDA 84.031) Questioned Cost: $7,185.07 Finding Control Number: FA-548-02-01
The University is waiting on audit resolution from the U.S. Department of Education.
ALLOWABLE COSTS/COST PRINCIPLES Deficiencies in Internal Controls Higher Education - Institutional Aid (CFDA 84.031) Finding Control Number: FA-548-02-02
The University has established a procedure to ensure the faxed invoices have not been previously paid. The procedure includes stamping the invoice with the following wording, "This is to certify that this invoice was not paid previously, that the Original Invoice has been lost, misplaced, or retained by the Vendor and that a Duplicate invoice was issued". The verification is dated and signed by the respective Accounts Payable staff person.
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SAVANNAH STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2003
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ALLOWABLE COSTS/COST PRINCIPLES Improper Expenditures Higher Education - Institutional Aid (CFDA 84.031) Questioned Cost: $1,112.00 Finding Control Number: FA-548-02-03 The University is waiting on audit resolution from the U.S. Department of Education. EQUIPMENT AND REAL PROPERTY MANAGEMENT Failure to Maintain a Property Management System Higher Education - Institutional Aid (CFDA 84.031) Finding Control Number: FA-548-02-05 The University has updated its equipment records to ensure compliance as stated in 0MB Circular A-110, Subpart c.34. The Office ofCentral Receiving and Records Management has revised the University's procedures for property and equipment management. The Title III Inventory List for years prior to conversion to PeopleSoft is being maintained on a spreadsheet. The Title III Inventory List for years after PeopleSoft conversion is being maintained in PeopleSoft. Although the University has the Inventory List, it was inadvertently not presented to the State Auditors. Upon this discovery the State Auditors would not accept the Inventory List.
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SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS

SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUESIRECEIV ABLES/RECEIPTS Failure to Monitor Out-of-State Tuition Fee Waivers Finding Control Number: FS-548-03-01

Criteria:

The Board of Regents Policy Manual, Section 704.0302 concerning fee waivers states, "the number of such waivers in effect at any time does not exceed two-percent of the equivalent full-time students enrolled at the institution in the fall semester immediately preceding the semester for which the out-of-state tuition is to be waived".

Condition:

Our examination of fee waivers for the year under review, revealed that management failed to monitor out-of-state tuition fee waivers.

Questioned Cost: NIA

Information:

Waivers for out-of-state tuition granted by the University exceeded the amount allowable per Board of Regents policy by $407,290.75.

Effect:

The University granted out-of-state tuition waivers in excess of amount allowable by Board of Regents policy.

Cause:

Management did not comply with the Board of Regents policy.

Recommendation: The University should follow established policies and procedures to ensure that out-of-state tuition fee waivers are within the allowable limits.

REVENUESIRECEIV ABLES/RECEIPTS Students Accounts Receivable Not Supported by Financial Aid Finding Control Number: FS-548-03-02

Criteria:

There is no provision in the policies ofthe Board of Regents for deferments of student accounts without the student having approved financial aid at the time of registration.

Condition:

At June 30, 2003, Savannah State University had $865,575.00 in student accounts receivable which were over one year old and not supported by approved financial aid.

Questioned Cost: NIA

Effect:

By allowing students to enroll and remain in school without approved financial aid, the University has incurred student accounts receivable which were not in accordance with Board of Regents Policy.

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS Students Accounts Receivable Not Supported by Financial Aid Finding Control Number: FS-548-03-02

Cause:

University's management failed to implement adequate policies and procedures to ensure that only students with approved financial aid would receive tuition and fee deferments.

Recommendation:

Collections of student accounts receivable should be made on at least a quarterly basis, and no student should be granted a deferment without having approved financial aid. It is recommended that the University use all appropriate means to collect student accounts receivable.

EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Employee Travel Procedures Finding Control Number: FS-548-03-03

Criteria:

The University should establish adequate internal controls to ensure that transactions associated with employee travel are processed and posted to the financial records correctly.

Condition:

For the year under review, an examination of employee travel revealed that management failed to monitor prepaid travel, charge expenses to the appropriate account, and correctly report travel information.

Questioned Cost: NIA

Information:

The following deficiencies were noted during a review of thirteen vouchers charged to employee travel.

1.) Five vouchers charged to employee travel expense should have been charged to prepaid travel. The University could not provide documentation to support one of the prepaid travel vouchers. Also, the advance for one of these vouchers was never expended. In the subsequent year this amount was shown as being refunded to the University but was posted to non-employee travel rather than employee travel. There was no documentation provided to support this reimbursement.

2.) One voucher for $2,500.00 was not for employee travel. This voucher was for student stipends. The University made a voucher payable to an employee. The employee was to cash the check and pay various students their stipend amount in cash.

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Employee Travel Procedures Finding Control Number: FS-548-03-03

3.) One voucher for employee travel was incorrectly charged to nonemployee travel.

4.) One employee received a travel advance in order to pay for his travel expenses and others who traveled with him. This resulted in the entire amount of the travel expense being associated with this one employee.

Effect:

Without satisfactory accounting controls and procedures in place, the University could incorrectly reimburse employee travel expense and incorrectly report travel information to the State Auditor for inclusion in the Salary and Travel Supplement.

Cause:

These deficiencies occurred because management failed to establish procedures to ensure that transactions associated with employee travel were appropriately posted to the financial statements. In addition, management failed to follow established guidelines and procedures for travel advances.

Recommendation:

The University should establish procedures to ensure that employee travel expenses are charged to the appropriate accounts and that travel information is correctly reported to the State Auditor. The University should follow established procedures for providing travel advances.

EMPLOYEE COMPENSATION Inadequate Payroll Procedures Finding Control Number: FS-548-03-04

Criteria:

According to the Board of Regents Summer School Employment Contract, "This {pay} rate is contingent upon a minimum of twenty-one students per course in your College or Division. Should enrollment in your course(s) fall below fifteen, you will be paid pro-rata for the courses based upon the paid head count. (Twelve students in a class, for example, would generate twelve twenty one of the full pay of the class.)" The College of Graduate Studies requires nine students per course in order to receive full pay.

Condition:

Summer employees were not paid in accordance with their Summer School Employment Contracts.

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EMPLOYEE COMPENSATION Inadequate Payroll Procedures Finding Control Number: FS-548-03-04

Questioned Cost: NIA

Information:

The University used "average" enrollment numbers to determine summer faculty compensation instead ofbasing compensation on a per course basis as stipulated in the Board of Regents Summer School Employment Contract. Per University officials, ifthe "average" enrollment in a College or Division exceeded the required minimums of twenty-one students for undergraduate courses or nine students for graduate courses, then the entire College or Division was deemed eligible to receive full compensation. University officials also stated that ifthe "average" enrollment for undergraduate courses did not exceed the minimum but the Vice President for Academic Affairs determined that the course(s) were necessary, then the faculty would still be deemed eligible to receive full compensation. The following deficiencies were noted related to summer 2003 faculty compensation based on the University's application of "average" enrollment criteria:

1.) For the College of Graduate Studies, all professors received full pay for courses taught because the "average" enrollment per course in Graduate Studies exceeded nine students.

2.) All professors for the College of Business Administration received full pay based on approval by the Vice President of Academic Affairs. This approval was based on two factors: a. The division's "average" enrollment was twenty students per course. b. Vice President of Academic Affairs determined that revenue collected for summer tuition for the College of Business Administration would be sufficient to pay full salaries for all Business professors.

Effect:

The University did not compensate summer employees correctly based upon their contracts.

Cause:

These deficiencies were the result of the University's failure to have procedures in place to ensure that summer employees were compensated according to the signed Summer School Employment Contract.

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EMPLOYEE COMPENSATION Inadequate Payroll Procedures Finding Control Number: FS-548-03-04

Recommendation:

The University should implement policies and procedures to ensure that summer employees are compensated according to their signed Summer School Employment Contracts.

GENERAL LEDGER Deficiencies in Accounting Procedures Finding Control Number: FS-548-03-05

Criteria:

NCGA Statement 1, paragraph 1, which prescribes that an accounting system (1) present fairly and fully disclose its financial position including its financial operation of its funds in accordance with generally accepted accounting principles and (2) demonstrate compliance with finance related legal and contractual provisions. Administrative requirements contained in the University System of Georgia, Board of Regents Business Manual and pertinent sections of the Official Code of Georgia Annotated (O.C.G.A).

Condition:

The University failed to have adequate accounting policies and procedures in place to ensure that vendor credits are properly applied to bookstore inventories; old outstanding checks are properly voided; accounts payable are recorded in the proper accounting period; student loan receivable records are properly maintained; and uncollectible accounts receivable are identified and recorded in accordance with Board of Regents policies.

Questioned Cost: NIA

Information:

Our examination and testing for the year under review revealed the following deficiencies in accounting for financial transactions by Savannah State University.

1.) An adjustment of $78,008.02 was necessary to correctly record bookstore inventory. Vendor issued credits were not maintained within the formal accounting records. The credits and/or refund checks were reviewed, maintained and/or receipted by bookstore personnel.
2.) Checks outstanding for more than six months were not voided in a timely manner.

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Deficiencies in Accounting Procedures Finding Control Number: FS-548-03-05

3.) A review of encumbrance documentation for the Unexpended Plant Fund revealed that three items totaling $51,829.00 were actually valid payables at June 30, 2003.
4.) An examination of subsequent period accounts payable activity revealed that there were $37,141.48 in valid payables that should have been recorded in fiscal year 2003.
5.) A complete listing of Student Loan Receivables could not be obtained.
6.) The University did not record the allowance for uncollectible accounts receivable in accordance with Board ofRegents Policy. An audit adjustment of $10,078.34 was made to correctly report the allowance.

Effect:

Without satisfactory accounting controls and procedures in place, the University could place itselfin a position where potential misappropriation of assets could occur. In addition, the lack ofcontrols could impact reporting of its financial position and results of operations.

Cause:

These conditions occurred because the University failed to have adequate accounting policies and procedures in place.

Recommendation:

The University should review current accounting policies and procedures, identify weaknesses, and implement procedures to ensure that vendor credits are maintained within the formal accounting records, checks outstanding for more than six months are voided, accounts payable are recorded in the proper period, a complete student listing of loans receivable is maintained, and the allowance for uncollectible accounts receivable is recorded in accordance with Board of Regents Policy.

GENERAL LEDGER Agency Fund Deficits and Lack of Purpose Statements Finding Control Number: FS-548-03-06

Criteria:

According to Section 1 ofthe Board ofRegents Business Procedures Manual, "Before establishing an agency account, each institution should determine that its relationship with the third party is that of custodian or fiscal agent. When this relationship has been determined, the institution should obtain, where practicable, complete information on the terms and conditions ofthe

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Agency Fund Deficits and Lack of Purpose Statements Finding Control Number: FS-548-03-06

agency relationship, the purpose ofthe funds being placed, and their ultimate disposition. Complete files should be maintained for all agreements, letters, or other documents, for guidance in the proper handling of the funds".

Condition:

At June 30, 2003, the University had twelve agency funds that had deficit balances totaling $233,701.21. In addition, the University failed to provide purpose statements for five of the individual agency funds.

Questioned Cost: NIA

Effect:

The University disbursed funds in excess of receipts. Without purpose statements, the University could disburse funds which are not in compliance with agency agreements.

Cause:

These deficiencies were the result ofthe University disbursing funds prior to or in excess of the receipt of funds and the result of management's failure to establish agency funds in accordance with Board of Regents policies and procedures.

Recommendation:

The University should implement procedures to ensure that all funds are received prior to the disbursement and new accounts are supported by required purpose statements. The University should seek reimbursement for the deficit balances from the organizations involved.

CAPITAL ASSETS Inadequate Capital Assets Records Finding Control Number: FS-548-03-07

Criteria:

Guidelines for accounting for capital assets are contained in the Capital Asset Guide for the University System of Georgia. Included in this guide are asset category definitions, capitalization thresholds, depreciation methodologies, and examples of expenditures for each class of assets. Additionally, guidelines for leasehold improvements and construction in progress have been included.

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Inadequate Capital Assets Records Finding Control Number: FS-548-03-07

Condition:

The University's procedures were insufficient to provide adequate control over the University's capital assets. The University failed to comply with capitalization and depreciation procedures as listed in the Capital Asset Guide for the University System of Georgia. The University failed to reconcile the property records to the Capital Asset Ledger.

Questioned Cost: NIA

Information:

The following weaknesses/deficiencies relating to Capital Assets were noted.

1.) During a test of equipment additions, it was noted that one equipment item purchased by the University met capitalization thresholds but was not capitalized.
2.) The University failed to capitalize amounts associated with construction in progress. An audit adjustment of $2,167,169.20 was made to record construction in progress.
3.) The University restated prior period accumulated depreciation and adjusted current year depreciation expense to reflect residual values for Library Collections and Capitalized Collections. Per the Capital Asset Guide for the University System of Georgia, these asset categories do not have residual values. Therefore, audit adjustments of$404,902.48 and $140.99 respectively were made to correctly report asset values for Library Collections and Capitalized Collections.
4.) The University did not reconcile the property records to the Capital Asset Ledger. Extensive procedures were performed in an attempt to determine the variances. Variances were identified in accumulated depreciation, equipment, and capitalized collections. Net adjustments of $449,679.37 were made to obtain per audit figures for capital assets.
5.) The University was unable to provide a listing ofequipment which included all of the following attributes: property description including serial number and decal number, source offunds used to purchase item, acquisition date and cost, reference to originating invoices and reference to physical location of the equipment item.

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Inadequate Capital Assets Records Finding Control Number: FS-548-03-07

Effect:

Without satisfactory accounting controls and procedures in place, capital purchases could be expensed and not recorded on the Asset Management module; depreciation expenses could be recorded on a basis not consistent with provisions of the Capital Asset Guide for the University System of Georgia; and capital assets could be misappropriated if a complete record of capital assets is not maintained.

Cause:

University's management failed to implement adequate policies and procedures to ensure that the University's capital assets were properly maintained.

Recommendation: The University should establish appropriate procedures and controls to ensure that:

1.) Expenses which meet capitalization thresholds are added to the Asset Management module.
2.) Assets are depreciated in accordance with guidelines contained in the Capital Asset Guide for the University System of Georgia.
3.) Property records are reconciled to the Capital Asset Ledger. 4.) Equipment records are properly maintained containing all the
required attributes.

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ALLOWABLE COSTS/COST PRINCIPLES Deficiencies in Internal Controls Higher Education - Institutional Aid (CFDA 84.031) Finding Control Number: FA-548-03-01

Criteria:

Provisions set forth in 0MB Circular A-21 Section C and J reqmre expenditures to be supported by appropriate documentation.

Condition:

The University paid vouchers without adequate supporting documentation.

Questioned Cost: NIA

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ALLOWABLE COSTS/COST PRINCIPLES Deficiencies in Internal Controls Higher Education - Institutional Aid (CFDA 84.031) Finding Control Number: FA-548-03-01

Information:

During the year under review, a sample of forty-six Title III expenditures revealed the following:

1.) One voucher could not be located. 2.) Five vouchers were paid from duplicated invoices rather than
from the original invoices.

Effect:

Without adequate documentation to support payments, the University could incorrectly pay invoices.

Cause:

These conditions were the result of management's failure to have adequate internal controls in place to ensure compliance with 0MB Circular A-21.

Recommendation:

The University should develop and implement policies and procedures to ensure that program expenditures are supported by adequate documentation. In addition, the University should develop a monitoring process to ensure that controls are being followed.

ELIGIBILITY SPECIAL TESTS AND PROVISIONS Deficiencies in Student Financial Aid Refund Process Student Financial Aid Cluster Program Questioned Cost: $3,618.05 Finding Control Number: FA-548-03-02

Criteria:

Provisions included in 34 CFR 668 provide general provisions for administering Student Financial Aid (SFA) programs. Provisions included in 34 CFR 685 and 34 CFR 690 provide eligibility and other related program requirements that are specific to William D. Ford Direct Student Loan Program and Federal Pell Grant Program, respectively.

Condition:

The SFA office was not properly performing the refund process.

Questioned Cost:

Questioned Costs of $3,618.05 were identified for officially withdrawn students. The projection ofquestioned costs could not be readily determined for students who unofficially withdrew. However, the likely questioned costs are believed to exceed $10,000.00.

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ELIGIBILITY SPECIAL TESTS AND PROVISIONS Deficiencies in Student Financial Aid Refund Process Student Financial Aid Cluster Program Questioned Cost: $3,618.05 Finding Control Number: FA-548-03-02

Information:

Twenty student financial aid refunds were selected to determine if refunds were calculated and returned in the correct amount to the proper funding agency and/or student. The items tested contained financial aid disbursements of $38,487.00 out of a population of $15,943,984.27. Our examination revealed the following deficiencies:

1.) Five student refunds were not calculated correctly. 2.) Unearned Title IV funds were not applied by the University to the
appropriate student financial aid programs within 30 days as required by the Higher Education Amendments of 1998, Public Law 105-244 for two students. 3.) University refunded incorrect amount ofTitle IV and/or HOPE funds for eight students resulting in a questioned cost of $1,518.96. 4.) University returned funds without approval for three students. 5.) Five students did not receive notification of HOPE refunds as required. 6.) Four students received financial aid after withdrawing from classes causing overaward of financial aid resulting in a questioned cost of $1,905.59. 7.) One student received an overaward of Pell resulting in a questioned cost of$193.50.

In addition, the University failed to calculate refunds for students that received all failing grades due to unofficially withdrawing from school.

Effect:

SFA office awarded and/or refunded SFA funds to students incorrectly.

Cause:

These deficiencies were the result of management's failure to properly process student financial aid awards and refunds in accordance with Federal regulations.

Recommendation:

The University should develop and implement procedures to ensure that student financial aid awards and refunds are properly calculated and that unearned funds are correctly returned to the appropriate accounts in a timely

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2003

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ELIGIBILITY SPECIAL TESTS AND PROVISIONS Deficiencies in Student Financial Aid Refund Process Student Financial Aid Cluster Program Questioned Cost: $3,618.05 Finding Control Number: FA-548-03-02

manner in accordance with the Higher Education Amendments of 1998, Public Law 105-244. University officials should also ensure that students who received failing grades for unofficially withdrawing from school are properly included in the SFA refund process. The University should contact the U.S. Department of Education regarding resolution of this finding.

EQUIPMENT AND REAL PROPERTY MANAGEMENT Failure to Maintain a Property Management System Higher Education - Institutional Aid (CFDA 84.031) Finding Control Number: FA-548-03-03

Criteria:

Provisions included in 34 CFR 74 and 0MB Circular A-110, Subpart c.34 set forth Federal requirements for equipment.

Condition:

The University failed to provide a complete Title III equipment report. Audit procedures relating to equipment could not be performed.

Questioned Cost: NIA

Effect:

Due to the lack of an appropriate inventory control system, the University is unable to adequately maintain and safeguard equipment inventory.

Cause:

During the year under review, the University failed to have adequate internal controls in place to ensure compliance with Federal equipment requirements.

Recommendation:

The University should establish policies and procedures to ensure that equipment purchases are identified by fund sources and grant award numbers, property records are maintained in accordance with Federal requirements, and physical inventories are conducted every two years. The U.S. Department of Education should review this matter to determine that appropriate policies and procedures are established by the University to adequately maintain and report Title III equipment.

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