Savannah State University, Savannah, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2004

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, 2004
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

1 SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO

BUDGET - (NON-GAAP BASIS)

RESIDENT INSTRUCTION

25

2 RECONCILIATION OF SALARIES AND TRAVEL

26

3 RECONCILIATION OF PER DIEM AND FEES

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
December 17, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members ofthe Board of Regents ofthe 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, 2004. 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 ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1, the financial statements of 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 ofGeorgia, in conformity with accounting principles generally accepted in the United States of America.

04ARL-62

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Savannah State University as ofJune 30, 2004, 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.
As discussed in Note 1, the University adopted the provisions of the Governmental Accounting Standards Board, Statement Number 39, Determining Whether Certain Organizations are Component Units during the year ended June 30, 2004.
Management's Discussion and Analysis is not a required part ofthe basic financial statements but is required supplementary information required by accounting principles generally accepted in the United States ofAmerica. We have applied certain limited procedures, which consisted principally ofinquiries ofmanagement regarding the methods ofmeasurement and presentation ofthis required supplementary information. However, we did not audit this information and express no opinion on it.
Our audit was conducted for the purpose offorming an opinion on the basic financial statements of Savannah State University taken as a whole. The accompanying supplementary information (Schedules 1 through 3) is presented for purposes ofadditional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Respectfully submitted,

RWH:as 04ARL-62

State Auditor

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 Science 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 more than 2,500 students each year. The institution continues to grow as shown by the comparison numbers that follows:

Faculty

Students

FY2004 FY2003 FY2002

124

2,504

122

2,071

135

1,831

Overview ofthe Financial Statements and Financial Analysis

Savannah State University is proud to present its financial statements for fiscal year 2004. 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 2003 and fiscal year 2004.

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, 2004

June 30, 2003

Assets Current Assets Capital Assets, Net Other Assets

$ 4,931,716.54 51,017,320.00 2,230,169.50

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

Total Assets

$ 58,179,206.04 $44,088,731.04

Liabilities Current Liabilities Noncurrent Liabilities

$ 2,367,973.97 599,272.51

$ 2,085,902.05 547,373.78

Total Liabilities

$ 2,967,246.48 $ 2,633,275.83

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

$51,017,320.00 963,849.67
1,116,098.30 2,114,691.59

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

Total Net Assets

$ 55!2111959.56 $ 41A55A55.21

The total assets of the institution increased by $14,090,475.00. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $13,513,278.76 of investment in plant, net of accumulated depreciation. 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.

Total liabilities for the year increased by $333,970.65. The combination of the increase in total assets of $14,090,475.00 and the increase in total liabilities of $333,970.65 yields an increase in total net assets of $13,756,504.35. The increase in total net assets is primarily in the category of invested in capital assets, net of debt in the amount of $13,513,278.76.

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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 earned by the institution, both operating and nonoperating, and the expenses incurred by the institution, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the institution. Generally speaking operating revenues are received for providing goods and services to the various customers and constituencies of the institution. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the institution. Nonoperating revenues are revenues received for which goods and services are not provided. For example state appropriations are nonoperating because they are provided by the Legislature to the institution without the Legislature directly receiving commensurate goods and services for those revenues.

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

June 30. 2004

June 30. 2003

Operating Revenues Operating Expenses

$ 23,908,691.35 41.874.940.16

$21,934,879.15 40.942.070.54

Operating Loss

$-17,966,248.81

$-19,007,191.39

Nonoperating Revenues and Expenses

16.800.822.88

19.626.403 .14

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

$ -1,165,425.93

$ 619,211.75

Other Revenues, Expenses, Gains or Losses

14.921,930.28

3,545,360.53

Increase (Decrease) in Net Assets

$ 13.756.504.35 $ 4. 164,572.28

Net Assets at Beginning of Year, as Originally Reported

$41,455,455.21

$ 35,411,363.62

Prior Period Adjustment

1.879.519.31

Net Assets at Beginning of Year Restated

$ 41.455.455.21

$ 37.290.882.93

Net Assets at End of Year

$55,211,959.56 $ 41A55,455.21

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, 2004 and June 30, 2003

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

June 30, 2004

June 30, 2003

$ 3,362,988.89 13,653,097.47
9,245.00 6,737,618.12
145,741.87
$ 23,908,691.35

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

$ 16,366,717.63
1,165,030.73 47,028.82 186,209.66
$17,764,986.84

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

$ 14,921,930.28 $ 56!595!608.47

$ 3,545,360.53 $ 452106!642.82

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Expenses (By Functional Classification) For The Years Ended June 30, 2004 and June 30, 2003

June 30, 2004

June 30, 2003

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

$ 12,585,565.85 1,368,649.69 2,693,970.17 4,053,734.37 2,428,187.75 6,182,602.23 4,114,224.30 1,767,594.85 6,680,410.95

$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

Total Operating Expenses

$41,874,940.16 $ 40,942,070.54

Nonoperating Expenses Other

964,163.96

Total Expenses

$ 42!839!104.12 $ 40!942!070.54

Grants and contracts increased by $1,654,610.11. The compensation and employee benefits category increased by $9,412.46. The increase reflects an increased cost of health insurance for the employees of the institution. Utilities increased by $440,004.81 during the past year. The increase was primarily associated with the increased natural gas costs that were experienced in the winter of fiscal year 2004.

Under nonoperating revenues (expenses) state appropriations decreased by $747,422.24. The reduction of state appropriations system-wide, due to a sluggish economy, has created a challenge for all institutions of the University System of Georgia and, thus, for Savannah State University. We are hopeful that the economy is now on an upward trend.

Statement of Cash 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 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.

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Cash Flows for the Years Ended June 30, 2004 and June 30, 2003, Condensed

June 30, 2004

June 30, 2003

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

$-16,599,419.87 16,747,225.58 -482,865.09 11,142.14

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

Net Change in Cash Cash, Beginning of Year

$ -323,917.24 576,171.36

$ -1,440,471.79 2,016,643.15

Cash, End of Year

$ 252,254.12 $ 576,171.36

Capital Assets

The University had one significant capital asset addition for facilities in fiscal year 2004. Construction of the Freshman Living and Learning Center was completed and placed into service early in fiscal year 2004. The $14,976,352.71 for this project, which includes noncapitalized costs of $763,782.41, was funded by the Georgia State Financing and Investment Commission (GSFIC). Other renovations funded by the GSFIC included $373,467.42 for major renovations and improvements. Projected funding by GSFIC for fiscal year 2005 will be approximately the same.

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 $1,146,494.19 of which $547,221.68 was reflected as current liability at June 30, 2004.

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

Economic Outlook

The University is aware of decisions or conditions that are expected to have a significant effect on the financial position or results of operations. Decreases in the level of State support, student tuition and fee increases, and energy and health insurance cost increases will have a significant adverse impact on the University's ability to expand programs, undertake new initiatives, and meet its core mission and ongoing operational needs.

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Additionally, the need to continue to address priority needs such as requirements for deferred maintenance, new technology, public safety, and student development is a large challenge facing the University in years to come. Various committees and individuals are assessing the University's performance toward identified goals, use of energy resources and ways to achieve greater efficiencies and reduce expenses in an effort to assist in meeting those future challenges. Carlton E. Brown, President Savannah State University
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BASIC FINANCIAL STATEMENTS - 1-

SAVANNAH STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30, 2004
ASSETS
Current Assets 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 Cash Overdraft 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"

$

411,098.86

2,710,438.95 1,683,382.78
69,881.54 56 914.41

$ 4,931,716.54

$

273,463.05

62,178.73

1,058,950.88

835,576.84

51,017,320.00

$ 53,247,489.50

$ 58,179,206.04

$

21,208.93

177,503.84

335,462.61

560,915.82

577,851.09

547,221.68

147,810.00

$ 2,367,973.97

599,272.51 $ 2,967,246.48

$ 51,017,320.00
963,849.67 1,116,098.30 2,114,691.59

$ 55,211,959.56

SAVANNAH STATE UNIVERSITY STATEMENT OF REVENUES. EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30. 2004

EXHIBIT"B"

OPERATING REVENUES
Student Tuition and Fees Less: Scholarship Allowances
Grants and Contracts Federal State 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 Gifts Interest and Other Investment Income Other Nonoperating Revenues Other Nonoperating Expenses
Net Nonoperating Revenues
Income (Loss) Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts State
Increase (Decrease) in Net Assets
Net Assets - Beginning of Year
Net Assets - End of Year
The notes to the financial statements are an integral part of this statement.
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$

7,790,004.38

-4,427,015.49

12,867,607.11 161,450.00 624,040.36 16,843.30 9,245.00

1,648,215.19 240,581.32
2,479,433.78 130,958.32 370,901.02
1,823,708.35 43,820.14 128,898.57

$ 23,908,691.35

$

7,595,566.59

10,953,070.38

5,169,615.76

400,556.22

3,404,790.84

2,377,937.80

10,098,978.27

1,874,424.30

$ 41,874,940.16

$ -17,966,248.81

$ 16,366,717.63 1,165,030.73 47,028.82 186,209.66 -964, 163.96
$ 16,800,822.88
$ -1,165,425.93
14,921,930.28
$ 13,756,504.35
$ 41,455,455.21

$ 55,211,959.56

SAVANNAH STATE UNIVERSITY STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30. 2004
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 Parkingrrransportation 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 Purchases of Capital Assets
CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments Purchase of Investments
Net Cash Provided (Used) by Investing Activities
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year

EXHIBIT"C"

$ 3,402,551.75 12,367,116.24 9,245.00 -17,558,093.08 -18,483,333.76 -3,404, 790.84 -73,332.00 187,948.88
1,733,974.86 316,983.61
2,479,433.78 130,958.32 370,901.02
1,823,708.35 43,820.14 53,487.86
$ -16,599,419.87

$ 16,366,717.63 -107,763.63 200,866.77 287,404.81
$ 16,747,225.58

$

-482,865.09

$

41,910.70

-30,768.56

$

11142.14

$

-323,917.24

576,171.36

$ ===25=2=,2=5=4=.1=2

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SAVANNAH STATE UNIVERSITY STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30. 2004
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 Receivable, Net Inventories Prepaid Items Notes Receivable Accounts Payable Salaries Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY NONCAPITAL FINANCING, CAPITAL AND RELATED FINANCING TRANSACTIONS AND INVESTING ACTIVITIES Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts Change in Fair Market Value of Investments Recognized as a Component of Interest Income

EXHIBIT"C"

$ -17,966,248.81
1,874,424.30
-1,328,610.01 600,807.51 -61,337.46 114,616.88 -49,555.46 5,242.96 62,184.59 89,915.00 59140.63
$ -16,599,419.87

$ -14,921,930.28

$

5118.12

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

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 2004

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.
The Board of Regents of the University System of Georgia (and thus Savannah State University) is required to implement GASB Statement No. 39 Determining Whether Certain Organizations are Component Units - an amendment of Statement No. 14, for fiscal year 2004. This statement requires the inclusion of the financial statements for foundations and affiliated organizations that qualify as component units of the institution. For fiscal year 2004, Savannah State University does not have any foundations or affiliated organizations that qualify as component units.
FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia implemented GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the University also adopted GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the University's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fund group perspective previously required.
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SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION GAAP requires that the reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year. Due to the lack of materiality, Institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the predominate activity takes place.
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 accounting, except as noted in the preceding paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-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.
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 Balanced Income 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, 2004

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 grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
INVENTORIES Consumable supplies are carried at the lower of cost or market on the first-in, first-out ("FIFO") basis.
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 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State 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.
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, 2004, GSFIC transferred capital additions valued at $14,212,570.30 to Savannah State University.
DEFERRED REVENUES Deferred revenues include amounts received from grant and contract sponsors that have not yet been earned.

- 10 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 $1,087,353.56 as of July 1, 2003. For fiscal year 2004, $792,688.20 was earned in compensated absences and employees were paid $733,547.57, for a net increase of $59,140.63. The ending balance as of June 30, 2004 in accrued liability for compensated absences was $1,146,494.19. Compensated absences include a current liability of $547,221.68.
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, 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.
Expendable Restricted Net Assets include the following:

- 11 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NET ASSETS

June 30, 2004

Federal Loans Institutional Loans Term Endowments
Total Restricted Expendable

$ 851,532.25 21,774.79
242,791.26
$ 1. 116,098.30

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 $238,982.77. 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, 2004

R& RReserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted

$ 959,115.76 604,128.62 56,760.81 494,686.40

Total Unrestricted Net Assets

$ 2,114,691.59

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, 2004

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.
4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.
- 13 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

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

STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES 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 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 entity or by its agent in the entity's name.

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

At June 30, 2004, the University's cash deposits were as follows:

Cash Deposits

Carrying Amount

Bank Balances

Risk Categories

2

3

$ 448.95615$ 2,714567]6 $ 123.30524$ 37327759$ 221798433

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.

- 14 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

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

CATEGORIZATION OF INVESTMENTS Investments Not Subject to Categorizations: Board of Regents Short-Term Fund Balanced Income Fund

$ 275,198.36 1,058,950.88

Total Investments

$ 1,334,149.24

NOTE 3: ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at June 30, 2004.

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

$ 663,557.91 186,968.61
2,996,433.52 605,576.85

Less Allowance for Doubtful Accounts

$ 4,452,536.89 58,715.16

Net Accounts Receivable

$ 4,393,821.73

NOTE 4: INVENTORIES

Inventories consisted of the following at June 30, 2004.

Central Stores Physical Plant

$

3,579.75

53,334.66

Total

$ 56,914.41

NOTE 5: NOTES/LOANS RECEIVABLE

Notes/Loans receivable consisted of the following at June 30, 2004:

Perkins Loans Institutional Loans

$ 810,335.97 25,240.87

Total Notes/Loans Receivable

$ 835,576.84

- 15 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 5: NOTES/LOANS RECEIVABLE

The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2004. The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. As 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, 2004:

Beginning Balance July 1, 2003

Additions

Reductions

Ending Balance June 30, 2004

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

$ 575,975.16 2,167,169.20

$ 575,975.16

$ 2,167,169.20

0.00

Total Capital Assets Not Being Depreciated

$ 2,743,144.36

$ 2,167,169.20 $ 575,975.16

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

$46,126,297.31 $17,081,119.70

2,520,259.00

5,933,609.39

236,934.41 $

5,913,055.43

253,910.46

55,285.00

141,520.27 13,048.00

$ 63,207,417.01 2,520,259.00 6,029,023.53 6,153,917.89 55,285.00

Total Assets Being Depreciated

$ 60,548,506.13 $ 17,571,964.57 $ 154,568.27 $ 77,965,902.43

Less: Accumulated Depreciation:

Buildings and Building Improvements $ 17,072,221.18 $ 1,054,279.52

Facilities and Other Improvements

932,193.16

106,108.61

Equipment

3,492,539.62

451,338.05 $

Library Collections

4,287,625.90

261,316.00

Capitalized Collections

3,029.39

1,382.12

$18,126,500.70 1,038,301.77
124,427.96 3,819,449.71 13,048.00 4,535,893.90 4,411.51

Total Accumulated Depreciation

$25,787,609.25 $ 1,874,424.30 $ 137,475.96 $ 27,524,557.59

Total Capital Assets, Being Depreciated,

Net

$ 34,760,896.88 $ 15,697,540.27 $

17,092.31 $ 50,441,344.84

Capital Assets, Net

$ 37.504 041 24 $ 15 697 540 27 $ 2,184,261.51 $ 51.017.320.00

NOTE 7: DEFERRED REVENUE

Deferred revenue consisted of the following at June 30, 2004.

Other Deferred Revenue

$ 560,915.82

NOTE 8: LONG-TERM LIABILITIES

Long-Term liability activity for the year ended June 30, 2004 was as follows:

- 16 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 8: LONG-TERM LIABILITIES

Other Liabilities Compensated Absences

Beginning Balance July 1, 2003

Additions

Reductions

Ending Balance June 30, 2004

Current Portion

$ l,08:Z,353.56 $ :Z22 688.20 $ 733,54:Z 5:Z $ 1 146 424 12 $ 54:Z 221.68

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 TRS offices or 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 2004, 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

2004 2003 2002

100% 100% 100%

$ 1,157,294.27 $ 1,169,740.65 $ 1,112,152.15

REGENTS RETIREMENT PLAN

Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 4721-1 et. seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by

- 17 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 9: RETIREMENT PLANS
REGENTS RETIREMENT PLAN
Plan Description the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts.
Funding Policy 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 10.03% of the participating employee's earnable compensation. Employees contribute 5% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.
Savannah State University and the covered employees made the required contributions of $435,578.18 (10.03%) and $216,885.48 (5%), respectively.
AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.
GEORGIA DEFINED CONTRIBUTION PLAN
Plan Description 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 ofthe 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, 2004

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 2004 amounted to $25,858.95 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.
NOTE 10: RISK MANAGEMENT
The University System of Georgia offers its employees and retirees access to two different selfinsured healthcare plan options - a PPO/PPO Consumer healthcare plan, and an indemnity healthcare plan. Savannah State University and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these two plans are considered to be a self-sustaining risk fund. Both selfinsured healthcare plan options provide a maximum lifetime benefit of $2,000,000.00 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WellPoint, to serve as the claims administrator for the two self-insured healthcare plan products. In addition to the two different self-insured healthcare plan options offered to the employees of the University System of Georgia, two fully insured HMO healthcare plan options are also offered to System employees.
The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. Savannah State University, as an organizational unit of the Board of Regents of the University System of

- 19 -

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 10: RISK MANAGEMENT
Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.
A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund.
NOTE 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, 2004.
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 are on a pay as you go basis to finance the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000.00 for basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.

-20-

SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 12: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS

As of June 30, 2004, there were 180 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2004, Savannah State University recognized as incurred $653,070.96 of expenses, which was net of $254,425.69 of participant contributions.

NOTE 13: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS

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

Statement ofOperating Expenses - Natural vs Functional Classifications For the Fiscal Year Ended June 30, 2004

Functional Classification

Natural Classification

Instruction

Research

Public Service

Academic Su1mort

Student Services

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

$ 7,187,727.04 $ 1,064,679.91 2,077,774.87
49,368.60
35,709.25 96,265.69
581,442.22 1,492,598.27

267,331.14 162,832.30 81,741.28
36,374.87
311,093.37 3,965.01
483,351.89 21,959.83

$ 57,280.46 1,262,560.29 244,636.49
41,511.71
221,810.62 23,084.41
843,086.19

$ 68,646.95 2,073,946.26 520,062.81
80,721.96
75,528.42
938,098.02 296,729.95

$ 10,581.00 1,340,349.06 348,208.91
35,578.83
14,725.51 34,532.48
636,937.82 7 274.14

Total Operating Expenses

$ 12 585 565 85 $ I 368 649 69 $ 2 693 970 )7 $ 4053 73437 $ 2 428 187 75

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

Institutional Suimort

Functional Classification

Plant

Operations and Scholarships

Auxiliary

Maintenance and Fellowshil!S Entemrises

Total Operating Exl!enses

$ 4,000.00 2,804,622.08 1,294,503.53
136,777.53

$ 1,358,954.67 409,917.17
-246,691. 72 1,577.93

$ 7,595,566.59

$ 885,125.81 10,953,070.38

192,770.70 5,169,615.76

246,691.72

0.00

18,644.79

400,556.22

467,403.78 66,012.37

$ 1,766,594.85 1,810,445.63

587,453.46 268,103.79

3,404,790.84 2,377,937.80

1,378,275.97 31,006.97

764,790.24 15,230.38

1,000.00

4,471,995.92 10,098,978.27 9,624.76 1,874,424.30

$ 6 182 602 23 $ 411422430 $ l 767 594 85 $ 6 680 410 95 $41874940 )6

- 21 -

SUPPLEMENTARY INFORMATION - 23 -

SAVANNAH STATE UNIVERSITY SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO
BUDGET - (NON-GAAP BASIS} RESIDENT INSTRUCTION
YEAR ENDED JUNE 30. 2004

SCHEDULE "1"

REVENUES
State Appropriations Other Revenues Retained

BUDGET

ACTUAL (1)

VARIANCEFAVORABLE (UNFAVORABLE)

$ 16,369,087.00 $ 16,369,087.00 $

26,663,794.00

21,497,637.47

0.00 -5,166,156.53

$ 43,032,881.00 $ 37,866,724.47 $ _ _ _-5~,1_6~6,_15_6_.5_3

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

$ 18,656,745.00 $ 18,811,981.71 $

2,065,892.00

3,023,617.20

4,685,850.00 16,610,316.00
1,014,078.00

4,353,077.07 10,291,777.82
1,032,244.78

-155,236.71 -957,725.20
332,772.93 6,318,538.18
-18166.78

$ 43,032,881.00 $ 37,512,698.58 $ _ _ _5~,5_20~,_18_2_.4_2

Excess of Revenues over Expenditures

$

354,025.89 $ ====3=54=,0=2=5=.8==9

(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 RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30. 2004

SCHEDULE "2"

Totals per Annual Supplement
Accruals June 30, 2004 June 30, 2003
Compensated Absences June 30, 2004 June 30, 2003

SALARIES $ 18,488,456.13 $

TRAVEL 399,636.60

177,503.84 -172,260.88

919.62

1,065,020.15 -1,010,082.27

$ 18,548,636.97 $ ======40=0:!:,5=5=6.=22=

See notes to the financial statements.

- 26-

SAVANNAH STATE UNIVERSITY RECONCILIATION OF PER DIEM AND FEES
YEAR ENDED JUNE 30. 2004

SCHEDULE "3"

Totals per Annual Supplement
Adjustment Peter Hand Association

FEE
AMOUNT

EXPENSE
AMOUNT

$

215,274.16 $

32,695.39 $

TOTAL 247,969.55

4,999.50

4,999.50

$

220,273.66 $

32,695.39 $ =====25=2=,9=6=9.=05=

See notes to the financial statements.

- 27 -

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, 2004

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-548-98-02 FS-548-01-02 FS-548-02-02 FS-548-02-04 FS-548-02-05 FS-548-02-08 FS-548-03-01 FS-548-03-02 FS-548-03-03 FS-548-03-04 FS-548-03-05 FS-548-03-06 FS-548-03-07

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

CORRECTIVE ACTION/RESPONSES

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

The University will develop the following procedure to ensure that out-of-state fee waivers are within the allowable limits.

Procedure: Develop a program that extracts the information from Banner based on waiver codes rather than rate codes and certify that each student is enrolled and paid for the semester. Second, develop an electronic process that removes each waiver code from each student each semester. Third, establish each enrollment period the exact number of waivers that are available.

- 1-

SAVANNAH STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTION/RESPONSES
REVENUES/RECEIVABLES/RECEIPTS Students Accounts Receivable Not Supported by Financial Aid Finding Control Number: FS-548-03-02
The University worked diligently during the year under review to carry out its action plan outlined in the Corrective Action Plan for Fiscal Year 2003. A comprehensive review of accounts receivable was performed. In this analysis, invalid receivables were identified and written off, non-student accounts receivable were reclassified to other accounts and valid receivables were written off or transferred to a collection agency. For the valid receivables not transferred to a collection agency, the University internal collection efforts included sending bills to students each semester.
The University was unable to write-off a significant amount of receivables deemed to be uncollectible because of insufficient surplus.
Additional measures taken to ensure that the University is in compliance with the Board of Regents Policy regarding deferments are outlined below:
For those students in which their classes have been dropped after the drop/add period for non-payment of funds, the University has implemented a policy that written approval must be provided by the Financial Aid Office and/or the Bursar's Office before a student's classes are reinstated.
The University created a Deferment Listing to identify students for the current term and their approved deadlines assigned by the Vice President for Academic Affairs. This listing is reviewed during the semester to determine ifthe student has met the deadline. Ifnot, the student is contacted to make prompt payment. If satisfactory payment arrangements are not met, the student's classes are subsequently dropped for non-payment.
GENERAL LEDGER Agency Fund Deficits and Lack of Purpose Statements Finding Control Number: FS-548-03-06
The University has determined that the questioned agency accounts are uncollectible. The University performed the appropriate due diligence to collect the deficit balances; however, the due diligence efforts were unsuccessful. The questioned agency accounts are old and the University no longer has any business activity with the respective entities.
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SAVANNAH STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CORRECTIVE ACTION/RESPONSES

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

In fiscal year 2005, the University will seek guidance from the Board ofRegents regarding resolution of those accounts that have a deficit balance of $3,000.00 or less.

The University currently has policies and procedures in place to ensure that agency funds are received prior to disbursements.

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

The adjustments to the capitals ledger were completed in November 2004.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FA-548-01-07 FA-548-02-01 FA-548-02-02 FA-548-02-03 FA-548-02-05 FA-548-03-01 FA-548-03-02 FA-548-03-03

Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented

-3-

SAVANNAH STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004
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
Federal Pell Grant Program: The University completed its reconciliation and submitted its findings to the U. S. Department ofEducation. The result was a refund ofcash in the amount of$62,342.65 for the 97-98 aid year. This leaves a balance of $60,870.25 in this account. The University will request guidance from the Board of Regents on how to write off this remaining balance which will not be collected.
Federal Direct Student Loan Program: The University has tried relentlessly to retrieve information for years under review. However, the necessary documentation to complete the reconciliation process is no longer available. We requested the 732 Reports from the Loan Origination Center, but were informed that those years have already been closed out and the information is no longer available. In addition, the software utilized by the University (EDExpress) is no longer available to retrieve the electronic files. Without these resources, the reconciliation cannot be performed. The University will request guidance from the Board ofRegents on how to resolve this matter.
Policies and procedures have been developed and implemented to ensure that the University only disburses funds upon proper authorization.
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.
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SAVANNAH STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004
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. 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 During the current year under review, the University established procedures to ensure that student financial aid awards and refunds are properly calculated. Those procedures included creating a worksheet to ensure Title IV funds are calculated accurately and funds are returned or refunded. This instance occurred during the time when the regular staff person that calculates the refunds was on sick leave. Going forward, the University will ensure additional staff is trained on performing Title IV calculations. The University is waiting on a reply from the U. S. Department ofEducation regarding the questioned cost of $3,618.05.
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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, 2004

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS Failure to Monitor Out-of-State Tuition Fee Waivers Finding Control Number: FS-548-04-01

Condition:

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

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".

Questioned Cost: NIA

Information:

Waivers for out-of-state tuition granted by the University exceeded the amount allowable per Board of Regents policy by $310,336.96.

Cause:

Management did not comply with the Board of Regents policy.

Effect:

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

REVENUES/RECEIVABLES/RECEIPTS Students Accounts Receivable Not Supported by Financial Aid Finding Control Number: FS-548-04-02

Condition:

At June 30, 2004, Savannah State University had $673,550.20 in student accounts receivable which were over one year old and not supported by approved financial aid.

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.

Questioned Cost: NIA

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

REVENUES/RECEIVABLES/RECEIPTS Students Accounts Receivable Not Supported by Financial Aid Finding Control Number: FS-548-04-02

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.

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.

Recommendation:

The University should follow billing and collection guidelines for student accounts receivable as established in the Board of Regents' Business Procedures Manual. Also, no student should be granted a deferment without having approved financial aid.

EXPENDITURES/LIABILITIES/DISBURSEMENTS Deficit Cash Balances Finding Control Number: FS-548-04-03

Condition:

At June 30, 2004, the University had five restricted funds that had deficit cash balances totaling $207,518.53. These deficits were not supported by valid accounts receivable.

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).

Questioned Cost: NIA

Cause:

These deficits occurred because management failed to ensure funds were available prior to disbursement.

Effect:

The University disbursed funds in excess of availability.

-2-

SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS Deficit Cash Balances Finding Control Number: FS-548-04-03

Recommendation:

The University should implement procedures to ensure that funds are available prior to disbursement. The University should take appropriate action to secure funding for these deficit cash balances.

GENERAL LEDGER Deficiencies in Accounting Procedures Finding Control Number: FS-548-04-04

Condition:

The University failed to have adequate accounting policies and procedures in place to ensure that Georgia State Financing and Investment Commission (GSFIC) transactions were recorded in accordance with Board of Regents policies; that GSFIC reimbursement requests were filed timely; that accounts receivable and accounts payable records were appropriately maintained; and that travel advances were cleared properly.

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).

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) The University did not record non-capitalized expenses and related gift revenues for invoices submitted directly to GSFIC for payment as directed by the Board of Regents in a memo dated June 9, 2004. An audit adjustment of $200,381.55 was made to correctly report GSFIC activity.

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SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Deficiencies in Accounting Procedures Finding Control Number: FS-548-04-04

2) The University did not request reimbursement from GSFIC for University expenditures on reimbursable construction projects. The University has not submitted a reimbursement request to GSFIC since fiscal year 2003.

3) A complete listing ofAccounts Receivable - Other could not be obtained for the Resident Instruction Fund and the Auxiliary Enterprises Fund.

4) Travel advances were not cleared in a timely manner and/or in accordance with institutional policy.

5) A complete listing ofaccounts payable could not be obtained for housing deposits and flexible spending accounts.

Cause:

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

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. The University's failure to properly request reimbursements from GSFIC on reimbursable construction projects could cause the University's Unexpended Plant fund to have a significant operating cash deficit.

Recommendation:

The University should review current accounting policies and procedures, identify weaknesses, and implement procedures to ensure that GSFIC transactions are properly recorded, and that GSFIC reimbursement requests are made in a timely manner. Also, a complete listing ofaccounts receivable and accounts payable should be maintained, and travel advances should be cleared timely and in accordance with institutional policy.

-4 -

SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Agency Fund Deficits Finding Control Number: FS-548-04-05

Condition:

At June 30, 2004, the University had nine agency funds that had deficit balances totaling $333,438.56. Three additional agency funds which had prior year deficits totaling $6,827.12 were funded in the current fiscal year by moving funds from the Resident Instruction and Restricted Funds.

Criteria:

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

Questioned Cost: NIA

Cause:

These deficiencies were the result ofthe University disbursing funds prior to or in excess of the receipt of funds.

Effect:

The University disbursed funds in excess of receipts. Also, the University inappropriately used institutional resources to fund three of the agency fund deficits.

Recommendation:

The University should implement procedures to ensure that all funds are received prior to disbursement. The University should seek reimbursement for the deficit balances from the organizations involved.

GENERAL LEDGER Failure to Correctly Maintain Payroll Agency Funds Finding Control Number: FS-548-04-06

Condition:

University's management failed to correctly maintain Agency funds established for payroll withholdings and related employer contributions.

-5-

SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

GENERAL LEDGER Failure to Correctly Maintain Payroll Agency Funds Finding Control Number: FS-548-04-06

Criteria:

According to Section 1 ofthe Board ofRegents Business Procedures Manual, "The status ofeach agency fund should be reviewed periodically, at least once a year, for the purpose of making necessary adjustments and properly disposing of unused balances. Inactive balances should not be carried forward indefinitely from year to year, but should be disposed of in accordance with the agency agreement".

Questioned Cost: NIA

Information:

The following weaknesses/deficiencies relating to payroll activity agency accounts were noted.

1) Variances existed between monthly receipts and disbursements for many of the payroll activity agency accounts. Management failed to perform monthly reconciliations and to identify variances.

2) The employee payroll deduction accounts had a net deficit of $23,916.98.

3) The employer liability accounts had a net balance of $85,549.34 for which management could not provide adequate supporting documentation.

Cause:

These deficiencies were the result of the management's failure to properly monitor and reconcile the payroll activity agency accounts.

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 of controls could result in payroll withholdings and related employer contributions being improperly remitted.

Recommendation:

Management should implement policies and procedures to ensure that payroll withholdings and the related employer contributions are properly recorded in the appropriate agency accounts; that disbursements are correctly charged to these accounts; and that monthly reconciliations are performed.

-6-

SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Inadequate Capital Assets Records Finding Control Number: FS-548-04-07

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.

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.

Questioned Cost: NIA

Information:

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

1) The University recorded a building addition for a completed project at the total amount confirmed by GSFIC. This included amounts for equipment and furniture; infrastructure; and facilities and other improvements which did not meet capitalization thresholds. An audit adjustment of$763,782.70 was made to reduce the value ofthe building and report this amount as noncapital expense. In addition, this new building was added to the Capital Asset Ledger by on-line journal entry. The building should have been entered into the Asset Management module in order for depreciation expense to properly calculate.

2) In fiscal year 2004, the University recorded capitalized costs of $401,874.00 on the Hill Hall project which were paid by the Board of Regents directly to a third party contractor on behalf of the University. According to documentation obtained from the Board of Regents, the total capital costs actually paid by the Board of Regents was $709,359.98. An audit adjustmentof$307,485.98 was made to correctly reflect this activity. In addition, upon completion of the Hill Hall project, the prior year Construction in Progress activity was not properly transferred in the Asset Management Module. An audit adjustment of $2,167,169.20 was made to correctly report the capital asset activity.

-7-

SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CAPITAL ASSETS Inadequate Capital Assets Records Finding Control Number: FS-548-04-07

3) Seven current year additions to capital assets were tested to ensure that the capitalized cost reported on the capital asset listing obtained from the Asset Management Module was supported by proper documentation. Of the seven additions tested, four were incorrectly capitalized. Two items capitalized did not include the cost of shipping, handling, or freight. Another two items capitalized included the cost ofseparately identifiable maintenance agreements. Per the Capital Asset Guide for the University System of Georgia, costs of this nature should not be capitalized.

4) During fiscal year 2003, the University had restated accumulated depreciation to reflect residual values for Library Collections and Capitalized Collections. Per the Capital Asset Guide for the University System of Georgia, these asset types normally should not have residual values. Current year audit adjustments of $404,740.51 for Library Collections and $302.96 for Capitalized Collections were made to correctly report accumulated depreciation.

Cause:

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

Effect:

Without satisfactory accounting controls and procedures in place, capital acquisitions and depreciation expense could be recorded on the Asset Management Module in amounts not consistent with provisions ofthe Capital Asset Guide for the University System of Georgia.

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

1) Purchases and/or gifts 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.

-8-

SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

SPECIAL TESTS AND PROVISIONS Deficiencies in Student Financial Aid Refund Process Student Financial Aid Cluster Program Questioned Cost: $729.31 Finding Control Number: FA-548-04-01

Condition:

The SFA office was not properly performing the refund process.

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.

Questioned Cost:

The University refunded the incorrect amount of Title IV funds for one student resulting in questioned cost of$729.31. 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.

Information:

Ten 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 $25,648.50 out ofa population of$18,623,648.33. Our examination revealed the following deficiencies:

1) One student refund was 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 three students.

3) The University refunded the incorrect amount of Title IV funds for one student resulting in a questioned cost of $729.31.

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

Cause:

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

-9-

SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

SPECIAL TESTS AND PROVISIONS Deficiencies in Student Financial Aid Refund Process Student Financial Aid Cluster Program Questioned Cost: $729.31 Finding Control Number: FA-548-04-01

Effect:

SFA office refunded SFA funds to a student incorrectly.

Recommendation:

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