STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS I SAVANNAH STATE UNIVERSITY SA VANNAH, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2007 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 2 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 3 C STATEMENT OF CASH FLOWS 4 D NOTES TO THE FINANCIAL STATEMENTS 6 SUPPLEMENTARY INFORMATION SCHEDULES 1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 24 2 BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND 25 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 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 December 18, 2007 Honorable Sonny Perdue, Governor Members ofthe General Assembly of Georgia Members of the Board of Regents of the University System of Georgia and Honorable Earl G. Yarbrough, Sr., 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, 2007. 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 ofSavannah 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. 07ARL-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, 2007, 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 ofAmerica. 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 I through 3) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Respectfully submitted, ~w4.k. Russell W. Hinton, CPA, CGFM State Auditor RWH:as 07ARL-62 REQUIRED SUPPLEMENTARY INFORMATION SAVANNAH STATE UNIVERSITY Management's Discussion and Analysis Introduction Savannah State University is one of the 35 institutions of higher education 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 primarily an 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 leads to baccalaureate and master's degrees. This wide range of educational opportunities attracts a highly qualified faculty and a student body of more than 3,000 students each year. The institution continues to grow as shown by the comparison numbers that follow. Students Faculty (Headcount) Students {FTE) FY2007 FY2006 FY2005 134 3,241 118 3,091 123 2,800 3,065 2,853 2,564 Overview ofthe Financial Statements and Financial Analysis Savannah State University is proud to present its financial statements for fiscal year 2007. 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 2007 and fiscal year 2006. 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. -I- Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the institution's equity in property, plant and equipment owned by the institution. The next asset category is restricted net assets, which is divided into two categories, nonexpendable and expendable. The corpus of nonexpendable restricted resources is only available for investment purposes. Expendable restricted net assets are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted net assets are available to the institution for any lawful purpose of the institution. Statement ofNet Assets, Condensed June 30. 2007 June 30, 2006 Assets Current Assets Capital Assets, Net Other Assets $ 8,584,873 52,722,785 3,417.316 $ 7,528,388 50,705,415 3,150,016 Total Assets $ 64,724.974 $ 61,383,819 Liabilities Current Liabilities Noncurrent Liabilities $ 2,521,155 668.199 $ 3,165,535 674.671 Total Liabilities $ 3,189,354 $ 3,840.206 Net Assets Invested in Capital Assets, Net of Debt Restricted- Nonexpendable Restricted - Expendable Unrestricted $ 52,722,785 2,305,790 1,261,120 5,245.925 $ 50,705,415 1,034,603 1,184,490 4,619.105 Total Net Assets $ 61,535,620 $ 5:Z1543li13 The total assets of the institution increased by $3,341,155. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $2,017,370 in the category of Capital Assets, Net. The total liabilities for the year decreased by $650,852. The combination of the increase in total assets of $3,341,155 and the decrease in total liabilities of $650,852 yields an increase in total net assets of $3,992,007. The increase in total net assets is primarily in the category of Invested in Capital Assets, Net of Debt, in the amount of $2,017,370. - 11 - Statement ofRevenues, Expenses and Changes in Net Assets Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received by the institution, both operating and nonoperating, and the expenses paid by the institution, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the institution. Generally speaking operating revenues are received for providing goods and services to the various customers and constituencies of the institution. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the institution. Nonoperating revenues are revenues received for which goods and services are not provided. For example state appropriations are nonoperating because they are provided by the Legislature to the institution without the Legislature directly receiving commensurate goods and services for those revenues. Statement of Revenues, Expenses and Changes in Net Assets, Condensed June 30, 2007 June 30, 2006 Operating Revenues Operating Expenses $ 28,811,878 47,275,338 $ 27,042,961 45,560,682 Operating Loss $ -18,463,460 $ -18,517,721 Nonoperating Revenues and Expenses 18,928,239 19,543,706 Income (Loss) Before Other Revenues, Expenses, Gains or Losses $ 464,779 $ 1,025,985 Other Revenues, Expenses, Gains or Losses 3,527,228 1,775,031 Increase (Decrease) in Net Assets $ 3,992,007 $ 2,801,016 Net Assets at Beginning of Year 57,543,613 54,742,597 Net Assets at End of Year $ 61,535,620 $ 57,543,613 The Statement of Revenues, Expenses and Changes in Net Assets reflect a positive year with an increase in the net assets at the end of the year of $3,992,007. This represents an increase of $1,190,991 over fiscal year 2006. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are as follows: - 111 - Revenue By Source For The Years Ended June 30, 2007 and June 30, 2006 June 30, 2007 June 30. 2006 Operating Revenue Tuition and Fees Grants and Contracts Sales and Services Auxiliary Other $ 5,744,016 14,498,032 90,243 8,323,924 155,663 $ 4,339,387 14,110,218 118,193 8,387,811 87,352 Total Operating Revenue $ 28,811.878 $ 27,042.961 Nonoperating Revenue State Appropriations Gifts Investment Income Other $ 17,906,362 493,243 530,524 -1 890 $ 17,413,552 806,871 154,809 1,168.474 Total Nonoperating Revenue $ 18.928.239 $ 19,543.706 Capital Grants and Gifts State $ 3,527,228 $ 1,775.031 Total Revenues $ 51,267.345 $ 48,361,698 Expenses (By Functional Classification) For The Years Ended June 30, 2007 and June 30, 2006 June 30. 2007 June 30. 2006 Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises Unallocated Expenses $ 13,817,068 1,221,386 2,131,159 4,710,079 2,887,394 7,721,673 4,279,048 1,945,002 7,479,364 1,083.165 $ 12,807,464 1,454,994 2,182,564 4,680,972 2,815,833 6,648,195 5,344,945 933,898 5,704,494 2,987.323 Total Expenses $ 47,275.338 $ 45,560.682 - iv - Operating revenues increased by $1,768,917 in fiscal year 2007. Although Tuition and Fees included a 4% increase, revenues decreased in Sales and Services and Auxiliary categories. The Auxiliary revenue decreased by $63,887 in fiscal year 2007. This decrease is associated with a decrease in revenues earned in Residence Halls for fiscal year 2007. Nonoperating revenues decreased by $615,467 in fiscal year 2007. Although State Appropriations included an increase of$492,810 revenues decreased in the Other category. The compensation and employee benefits category increased by $1,310,858. The increase reflects an increased cost of health insurance for the employees of the Institution. Utilities decreased by $31,082 during the past year. The decrease was primarily associated with the efficiency in gas and water usage at the University during fiscal year 2007. 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 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, 2007 and 2006, Condensed June 30. 2007 June 30. 2006 Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities $ -16,666,913 18,264,497 -365,474 324,020 $ -15,662,225 18,316,374 -980,525 161.614 Net Change in Cash Cash, Beginning of Year $ 1,556,130 3.178.679 $ 1,835,238 1,343.441 Cash, End of Year $ 4,734.809 $ 3,178.679 -v- Capital Assets The University capitalized building improvements for two facilities in fiscal year 2007. The Wiley Wilcox renovation was completed and the facility was reopened for use. Additionally the Drew Griffith Science Building expansion was completed and placed in service during the fiscal year. The costs of these projects were funded by the Georgia State Financing and Investment Commission (GSFIC). Projected funding by GSFIC for fiscal year 2008 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 Liabilities Savannah State University had Long-Term Liabilities of $1,213,388 of which $545,189 was reflected as current liability at June 30, 2007. For additional information concerning Long-Term Liabilities, see Notes 1 and 8 in the Notes to the Financial Statements. Economic Outlook The University is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. The University's overall financial position is strong. Even with a relatively flat funded year, the University was able to generate a modest increase in Net Assets. The University anticipates the current fiscal year will be much like last and will maintain a close watch over resources to maintain the University's ability to react to unknown internal and external issues. Earl G. Yarbrough, Sr., Ph.D, President Savannah State University - VI - BASIC FINANCIAL STATEMENTS -I- SAVANNAH STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30, 2007 ASSETS Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Inventories (Note 4) Prepaid Items Total Current Assets Noncurrent Assets Noncurrent Cash Short-Term Investments Investments Notes Receivable, Net Capital Assets, Net (Note 6) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts Payable Salaries Payable Deposits Deferred Revenue (Note 7) Deposits Held for Other Organizations Compensated Absences 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. -2- EXHIBIT"A" $ 4,499,964 408,276 1,500,747 2,110,618 45,511 19 757 $ 8,584,873 $ 234,845 1,254,211 1,109,390 818,870 52,722,785 $ 56,140,101 $ 64,724,974 $ 525,803 104,147 153,026 338,235 854,755 545,189 $ 2,521,155 668,199 $ 3,189,354 $ 52,722,785 2,305,790 1,261,120 5,245,925 $ 61,535,620 SAVANNAH STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 2007 EXHIBIT"B" OPERATING REVENUES Student Tuition and Fees Less: Scholarship Allowances Grants and Contracts Federal State Other Sales and Services Rents and Royalties Auxiliary Enterprises Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES /EXPENSES) State Appropriations Gifts Interest and Other Investment Income Other Nonoperating Revenues (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. -3- $ 11,210,313 -5,466,297 13,757,058 170,067 570,907 90,243 20,878 2,294,867 111,260 3,286,383 15,128 431,838 2,151,211 33,237 134,785 $ 28,811,878 $ 8,061,985 12,373,132 6,008,024 289,508 591,528 3,526,391 2,710,378 11,296,406 2,417,986 $ 47,275,338 $ -18,463,460 $ 17,906,362 493,243 530,524 -1 890 $ 18,928,239 $ 464,779 3,527,228 $ 3,992,007 57,543,613 $ =====6=1,=53=5=,6=2=0 SAVANNAH STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2007 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services 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 (Disbursements) Net Cash Flows Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Purchases of Capital Assets 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 - Beginning of Year Cash and Cash Equivalents - End of Year EXHIBIT"C" $ 6,499,192 14,197,229 90,243 -21,397,877 -20,546,743 -3,526,391 -123,580 102,436 1,586,564 110,453 3,937,372 15,328 429,731 2,375,842 49,902 -466 614 $ -16,666,913 $ 17,906,362 -133,218 493,243 -1 890 $ 18,264,497 $ 3,361,531 -3,727,005 $ -365 474 $ 388,396 530,524 -594 900 $ 324,020 $ 1,556,130 3,178,679 $ ==4='=73=4=,8=0=9 -4 - SAVANNAH STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2007 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating Income (Loss) Adjustments to Reconcile Operating Income to Net Cash Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Inventories Other Assets Prepaid Items Notes Receivable, Net Accounts Payable Deferred Revenue Other Liabilities Compensated Absences Net Cash Provided (Used) by Operating Activities NONCASH ACTIVITY Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts EXHIBIT"C" $ -18,463,460 2,417,986 320,673 -2, 107 -310,033 5,788 -6,726 -325,712 -80,379 -226,869 3926 $ -16,666,913 $ ===.,..16..,,5=,6=9=7 The notes to the financial statements are an integral part of this statement. -5- SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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-five (35) State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of 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. Legally separate, tax exempt organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential component units of the State. See Note 16 for additional information. FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia implemented GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the University was also required to adopt GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entitywide 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. -6- SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL STATEMENT PRESENTATION Generally Accepted Accounting Principles (GAAP) requires that the reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year. Due to the lack of materiality, Institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the predominant activity takes place. 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. 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 Statement of Revenues, Expenses and Changes in Net Assets. The Board of Regents Balanced Income Fund is included under Investments. -7- SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTS RECEIVABLE Accounts receivable consists of tuition and fees charged to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Georgia. Accounts receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University's grant 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 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000 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. For projects managed by GSFIC, the GSFIC retains construction in progress on its books throughout the construction period and transfers the entire project to the University when complete. For projects managed by the University, the University retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2007, GSFIC transferred capital additions valued at $165,697 to Savannah State University. -8- SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DEPOSITS Deposits represent good faith deposits from students to reserve housing assignments m a University residence hall. DEFERRED REVENUES Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned. COMPENSATED ABSENCES Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as compensated absences in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statements of Revenues, Expenses and Changes in Net Assets. Savannah State University had accrued liability for compensated absences in the amount of $1,209,462 as of July 1, 2006. For fiscal year 2007, $851,936 was earned in compensated absences and employees were paid $848,010, for a net increase of$3,926. The ending balance as of June 30, 2007, in accrued liability for compensated absences was $1,213,388. NONCURRENT LIABILITIES Noncurrent liabilities include liabilities that will not be paid within the next fiscal year. 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 44-15-7 of Annotated Code of Georgia. -9- SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS 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: Restricted - E & G and Other Organized Activities Federal Loans Institutional Loans Term Endowments $ 71,384 874,028 22,225 293.483 Total Restricted Expendable $ 1,261,120 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 $369,564.64. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the Office of Treasury and Fiscal Services. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. Unrestricted Net Assets includes the following items which are quasi-restricted by management. R&RReserve Reserve for Encumbrances Other Unrestricted $ 1,745,813 2,359,915 1,140,197 Total Unrestricted Net Assets $ 5,245.925 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. - 10 - SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CLASSIFICATION OF REVENUES The University has classified its revenues as either operating or non-operating revenues in the Statement of Revenues, Expenses and Changes in Net Assets according to the following criteria: Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) sales and services of auxiliary enterprises, net of scholarship allowances, (3) most Federal, state and local grants and contracts, and (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: DEPOSITS AND INVESTMENTS DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the University's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the 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, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia. 2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia. - 11 - SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "D" NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS 3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose. 4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia. 5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association. 6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation. The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia. At June 30, 2007, the carrying value of deposits was $6,395,919 and the bank balance was $7,401,519. Of the University's deposits, $6,987,331 were uninsured. Of these uninsured deposits, $1,068,972 were collateralized with securities held by the financial institution's trust department or agent in the University's name, $5,918,359 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the University's name. INVESTMENTS At June 30, 2007, the carrying value of the University's investments was $1,109,390, which is materially the same as fair value. These investments were comprised entirely of funds invested in the Board of Regents investment pools as follows: Investment Pools Board of Regents Balanced Income Fund $ 1,109,390 The Board of Regents Investment Pool is not registered with the Securities and Exchange Commission as an investment company. The fair value of investments is determined daily. The pool does not issue shares. Each participant is allocated a pro rata share of each investment at fair value along with a pro rata share of the interest that it earns. Participation in the Board of Regents Investment Pool is voluntary. The Board of Regents Investment Pool is not rated. - 12 - SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"D" NOTE 2: DEPOSITS AND INVESTMENTS INVESTMENTS Additional information on the Board of Regents Investment Pool is disclosed in the audited Financial Statements of the Board of Regents of the University System of Georgia - University System Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at http://www.audits.state.ga.us/intemet/ searchRpts.html. The Weighted Average Maturity of the Balanced Income Fund is 9.35 years. Of the University's total investment of $1,109,390 in the Balance Income Fund, $669,628 is invested in debt securities. Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University does not have a formal policy for managing interest rate risk. NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2007: Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal Financial Assistance Other $ 558,687 433,233 1,500,747 1,868,341 Less Allowance for Doubtful Accounts $ 4,361,008 749,643 Net Accounts Receivable $ 3,611,365 NOTE 4: INVENTORIES Inventories consisted of the following at June 30, 2007: Physical Plant Other $ 45,088 423 Total $==4-5-,5~1~1 - 13 - SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"D" NOTE 5: NOTES/LOANS RECEIVABLE The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2007. 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. The University has provided an allowance for uncollectible loans, which, in management's opinion, is sufficient to absorb loans that will ultimately be written off. NOTE 6: CAPITAL ASSETS Following are the changes in capital assets for the year ended June 30, 2007: Beginning Balance Jul~ I, 2006 Additions Reductions Ending Balance June 30, 2007 Capital Assets, Not Being Depreciated: Land $ 575,975 $ Construction Work-In-Progress 0 $ 444 189 0 $ 575,975 444 189 Total Capital Assets Not Being Depreciated $ 575,975 $ 444,189 $ 0 $ 1,020,164 Capital Assets, Being Depreciated: Building and Building Improvements Facilities and Other Improvements Equipment Library Collections Capitalized Collections $ 65,675,569 $ 3,301,152 2,520,259 7,206,873 633,324 $ 6,762,706 246,923 55,285 99,915 190,670 $ 68,976,721 2,520,259 7,740,282 6,818,959 55,285 Total Assets Being Depreciated $ 82,220,692 $ 4,181,399 $ 290,585 $ 86,111,506 Less: Accumulated Depreciation: Building and Building Improvements Facilities and Other Improvements Equipment Library Collections Capitalized Collections $ 20,929,618 $ 1,495,259 1,269,924 98,919 4,721,353 621,545 $ 5,163,337 200,881 7,020 1,382 94,539 5,971 -157 $ 22,424,877 1,368,843 5,248,359 5,358,247 8 559 Total Accumulated Depreciation $ 32,091,252 $ 2,417,986 $ 100,353 $ 34,408,885 Total Capital Assets, Being Depreciated, Net $ 50,129,440 $ 1,763,413 $ 190,232 $ 51,702,621 Capital Assets, Net $ S0,Z0S,41S $ 2,201,602 $ 120,232 $ S2,122,18S - 14 - SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"D" NOTE 7: DEFERRED REVENUE Deferred revenue consisted of the following at June 30, 2007. Other Deferred Revenue NOTE 8: LONG-TERM LIABILITIES Long-term liability activity for the year ended June 30, 2007 was as follows: Other Liabilities Compensated Absences Beginning Balance July 1, 2006 Additions Reductions Ending Balance June 30, 2007 Current Portion $ 1,202,~62 $ 851,236 $ 848,010 $ 1,213,388 $ 5~5,182 NOTE 9: SIGNIFICANT COMMITMENTS The University did not have unearned, outstanding, construction or renovation contracts at June 30, 2007. NOTE 10: LEASE OBLIGATIONS Savannah State University had no expense for rental of real property and equipment under operating leases in fiscal year 2007. NOTE 11: 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 Georgia General Assembly. TRS provides retirement allowances and other benefits for plan participants. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the TRS offices or from the Georgia Department of Audits and Accounts. Funding Policy Employees of 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 2007, the employer contribution rate was 9.28% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: - 15 - SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"D" NOTE 11: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Funding Policy Fiscal Year 2007 2006 2005 Percentage Contributed 100% 100% 100% Required Contribution $ 1,244,360 $ 1,147,046 $ 1,138,813 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description Savannah State University participates in the Employees' Retirement System of Georgia (ERS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia. The benefit structure of ERS is defined by State statute and was significantly modified on July 1, 1982. Unless elected otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. All other members are "new plan" members subject to the modified plan provisions. Under both the old plan and new plan, members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60. Additionally, there are certain provisions allowing for retirement after 25 years of service regardless of age. Retirement benefits paid to members are based upon a formula which considers the monthly average of the member's highest twenty-four consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension at reduced rates to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS. In addition, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan (SRBP) effective January I, 1998. The SRBP was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415. The ERS issues a financial report each fiscal year, which may be obtained through ERS. - 16 - SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "D" NOTE 11: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political subdivisions, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The University's payroll for the year ended June 30, 2007, for employees covered by ERS was $32,500. The University's total payroll for all employees was $20,435,117. For the year ended June 30, 2007, under the old plan, member contributions consist of 6.5% of annual compensation minus $7.00. Of these member contributions, the employee pays the first 1.5% and the University pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.5% of annual compensation paid by employee. The University also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation for both old and new plans. For the year ended June 30, 2007, the ERS employer contribution rate for the University amounted to 10.41% of covered payroll and included the amounts contributed on behalf of the employees under the old plan referred to above. Employer contributions are also made on amounts paid for accumulated leave to retiring employees. Total contributions to the plan made during fiscal year 2007 amounted to $3,870, of which $3,383 was made by the University and $487 was made by employees. These contributions met the requirements of the plan. Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2007 financial report, which may be obtained through ERS. REGENTS RETIREMENT PLAN Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 4721-1 et.seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts. - 17 - SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "D" NOTE 11: RETIREMENT PLANS REGENTS RETIREMENT PLAN 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. For fiscal year 2007, the employer contribution was 9.66% for the first six months and 8.13% for the last six months of the participating employee's eamable compensation. Employees contribute 5% of their eamable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times. Savannah State University and the covered employees made the required contributions of $484,154 (9.66% or 8.13%) and $250,598 (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 of the Employees' Retirement System of Georgia. Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $3,500 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute. Contributions Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member. - 18 - SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT"D" NOTE 11: RETIREMENT PLANS GEORGIA DEFINED CONTRIBUTION PLAN Contributions Total contributions made by employees during fiscal year 2007 amounted to $37,323 which represents 7.5% of covered payroll. These contributions met the requirements of the plan. The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices. NOTE 12: RISK MANAGEMENT The University System of Georgia offers its employees and retirees access to two different selfinsured healthcare plan options - a PPO/PPO Consumer healthcare plan, and an indemnity healthcare plan. 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 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 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 - 19 - SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "D" NOTE 12: RISK MANAGEMENT Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund. NOTE 13: CONTINGENCIES Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures that are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although 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, 2007. NOTE 14: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 203-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee. As of June 30, 2007, there were 181 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2007, Savannah State University recognized as incurred $840,377 of expenditures, which was net of $350,454 of participant contributions. -20- SAVANNAH STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 EXHIBIT "D" NOTE 15: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS The University's operating expenses by functional classification for fiscal year 2007 are shown below: Natural Classification Salaries Faculty Staff Employee Benefits Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Instruction Research Functional Classification Public Service Academic Sui:mort Student Services Institutional Surmort $ 7,796,459 1,700,820 2,323,659 72,892 465,124 76,363 1,279,667 102 084 $ 13 817.068 $ 134,351 137,616 55,575 32,616 309,752 4,233 490,681 56,562 $ 1 221 386 $ 86,264 1,028,354 221,013 31,191 166,750 19,869 575,144 2 574 $ 2131159 $ 32,411 2,360,377 572,101 141,492 34,046 46,901 1,203,922 318 829 $ 4 710 079 $ 12,500 1,569,116 424,898 71,590 28,945 28,862 739,326 12 157 $ 2 887 394 $ 3,215,651 1,714,909 289,508 130,695 57,795 2,119,674 193 441 $ 7 721 673 Natural Classification Salaries Faculty Staff Employee Benefits Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Plant Operations and Maintenance Functional Classification Scholarships and FellowshiQs Auxiliary Entemrises Unallocated ExQenses Total Operating ExQenses $ 1,155,358 389,724 -245,327 6,033 2,335,892 563,436 73 932 $ 4 279 048 $ 1,945,002 $ I 945 002 $ 1,205,840 306,145 245,327 105,019 576,772 140,463 4,324,556 575,242 $ 7 479 364 $ 1,083,165 $ I 083 165 $ 8,061,985 12,373,132 6,008,024 289,508 591,528 3,526,391 2,710,378 11,296,406 2,417,986 $ 47 275 338 NOTE 16: AFFILIATED ORGANIZATIONS In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment of GASB Statement No. 14, The Reporting Entity, which became effective for the year ended June 30, 2004, Savannah State University Foundation and Savannah State University Student Athletic Fund Association have been determined to be legally separate, tax exempt organizations whose activities primarily support Savannah State University, a unit of the University System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office has determined Component Units of the State of Georgia, as required by GASB Statement No. 39, should be assessed in relation to their significance to the State of Georgia. Accordingly, Savannah State University has not included financial activity for Savannah State University Foundation and Savannah State University Student Athletic Fund Association in these financial statements. - 21 - (This page left intentionally blank) SUPPLEMENTARY INFORMATION - 23 - SAVANNAH STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30, 2007 ASSETS Cash and Cash Equivalents Accounts Receivable Federal Financial Assistance Other Prepaid Items Inventories Total Assets LIABILITIES AND FUND EQUITY Liabilities Accounts Payable Other Liabilities Total Liabilities Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Unreserved Surplus Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "1" $ 934,388.88 1,476,056.85 2,113,677.53 19,535.69 45,510.66 $ =====4,=58=9=1, =6=9.=61= $ 2,647,685.27 -177,325.76 $ 2,470,359.51 $ 16,442.98 818,702.41 346,953.67 71,383.72 495,762.68 369,564.64 $ 2,118,810.10 $ =====4,=58=9=1, =69==61= 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. -24 - SAVANNAH STATE UNIVERSITY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2007 SCHEDULE "2" REVENUES State Appropriation State General Funds Federal Funds Other Funds Total Revenues EXPENDITURES Public Service/Special Funding Initiatives Teaching Total Expenditures Excess of Funds Available over Expenditures FUND BALANCE JULY 1 Reserved ADJUSTMENTS Prior Year Payables/Expenditures Prior Year Receivables/Revenues FUND BALANCE JUNE 30 BUDGET ACTUAL VARIANCEFAVORABLE (UNFAVORABLE) $ 17,906,362.00 $ 17,906,362.00 $ 13,193,132.00 14,197,982.32 12,401,569.00 15788914.11 $ 43,501,063.00 $ 47,893,258.43 $ 0.00 1,004,850.32 3 387 345.11 4 392 195.43 $ 457,768.00 $ 457,451.06 $ 43,043,295.00 46,809,292.06 316.94 -3 765 997.06 $ 43,501,063.00 $ $ 0.00 $ 626,515.31 $ ======62=6:!:5=1=5.=31= 1,227,043.40 346,428.41 -81 177.02 $ 2,118,810.10 SUMMARY OF FUND BALANCE Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Total Reserved Unreserved Surplus $ 16,442.98 818,702.41 346,953.67 71,383.72 495,762.68 $ 1,749,245.46 369 564.64 Total Fund Balance $ 2,118,810.10 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. - 25 - (This page left intentionally blank) SAVANNAH STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2007 SCHEDULE "3" Totals per Annual Supplement Accruals June 30, 2007 June 30, 2006 Compensated Absences June 30, 2007 June 30, 2006 Adjustments Shared Services on Jointly Staffed Personnel Armstrong Atlantic State University German, Millie Richardson, Joseph Sajwan, Kenneth Accounts Receivables Established for Salary Overpayments SALARIES $ 20,602,751 $ TRAVEL 591,528 104,147 -240,547 1,127,161 -1,123,513 -1,316 -20,244 -8, 166 -5156 $ 20,435,117 $ ===59=1=,5=2=8 - 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, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-548-05-01 FS-548-05-02 FS-548-06-01 FS-548-06-02 FS-548-06-03 FS-548-06-04 FS-548-06-05 FS-548-06-06 FS-548-06-07 FS-548-06-08 FS-548-06-09 Previously Reported Corrective Action Implemented Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Unresolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented Partially Resolved - See Corrective Action/Responses Previously Reported Corrective Action Implemented CORRECTIVE ACTION/RESPONSES CASH AND CASH EQUIVALENTS REVENUES/RECEIVABLES/RECEIPTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequate Accounting Controls Finding Control Number: FS-548-06-01 The finding is partially resolved. The planned corrective action implemented only partially corrected the deficiencies. The University will implement policies and procedures during fiscal year 2008 to address the unresolved deficiencies. REVENUES/RECEIVABLES/RECEIPTS Inadequate Control Procedures for Collection of Tuition and Fees Finding Control Number: FS-548-06-04 The finding is not corrected. The planned corrective action that was implemented did not correct the deficiency. New policies and procedures will be implemented for fiscal year 2008. REVENUES/RECEIVABLES/RECEIPTS Inadequate Control Procedures Finding Control Number: FS-548-06-06 The finding is partially resolved. The planned corrective action implemented only partially corrected the deficiencies. The University will implement policies and procedures during fiscal year 2008 to address the unresolved deficiencies. - 1- SAVANNAH STATE UNIVERSITY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS Deficiencies in Accounting Procedures Finding Control Number: FS-548-06-08 The finding is partially resolved. The planned corrective action implemented only partially corrected the deficiencies. The University will implement policies and procedures during fiscal year 2008 that will address the unresolved deficiencies. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FA-548-06-01 FA-548-06-02 F A-548-06-03 FA-548-06-04 FA-548-06-05 Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES ELIGIBILITY Inadequate Satisfactory Academic Progress Procedures Student Financial Aid Cluster Program Finding Control Number: FA-548-06-01 The University is waiting on a response from the U.S. Department ofEducation regarding resolution of this finding. ELIGIBILITY Inadequate Control Procedures for Determining Enrollment Status Student Financial Aid Cluster Program Finding Control Number: FA-548-06-02 The University is waiting on a response from the U. S. Department ofEducation regarding resolution of this finding. -2- SAVANNAH STATE UNIVERSITY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES ELIGIBILITY Overpayment of Student Financial Aid Student Financial Aid Cluster Program Questioned Costs: $16,611.00 Finding Control Number: FA-548-06-03 The University is waiting on a response from the U.S. Department ofEducation regarding resolution of this finding. SPECIAL TESTS AND PROVISIONS Inadequate Control Procedures over Unofficial Withdrawals Student Financial Aid Cluster Program Finding Control Number: FA-548-06-04 The University is waiting on a response from the U.S. Department ofEducation regarding resolution of this finding. SPECIAL TESTS AND PROVISIONS Deficiencies in Student Financial Aid Refund Process Student Financial Aid Cluster Program Finding Control Number: FA-548-06-05 The University is waiting on a response from the U. S. Department ofEducation regarding resolution of this finding. -3- SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS ACCOUNTING CONTROLS (OVERALL) Inadequate General Controls Significant Deficiency Finding Control Number: FS-548-07-01 Condition: Through our examination of Savannah State University it was determined that the financial information maintained in the University's financial accounting system is not adequately protected, thus creating a potential for misstatement of the basic financial statements. Criteria: The University's management is responsible for designing and maintaining internal controls that reasonably mitigate the risk of loss, manipulation, or corruption of data due to internal or external threats. Questioned Cost: NIA Information: Based on information revealed by audit procedures, it was determined that financial information could be lost due to threats in the form ofunauthorized access, disaster, and/or failure of back-ups. Cause: Management's risk assessment or lack thereof failed to identify risk to financial data. Management further failed to implement an adequate control structure to mitigate the impact ofvulnerabilities to the financial information. Effect: Without satisfactory controls in place, losses, changes or misuses of data could occur and possibly not be detected, resulting in a misstatement of the financial statements. Recommendation: Management should perform a complete risk assessment to identify internal and external threats that could cause loss, manipulation, or corruption ofdata maintained in the financial information system. Policies and procedures should be developed and implemented to address the weaknesses identified in the risk assessment. - 1- SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS BUDGET PREPARATION/EXECUTION GENERAL LEDGER Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-548-07-02 Condition: Through our examination of the University's Annual Financial Report and budgetary basis financial statements, it was determined that the financial statements were inaccurate and employees and/or management lacked adequate guidance/training to reasonably ensure that these financial statements are fairly presented. Criteria: Management is responsible for establishing and maintaining internal controls, including monitoring ongoing activities; for ensuring employees or management are proficient in their assigned functions; for selection and application of accounting principles; and for the fair presentation of the financial statements in conformity with generally accepted accounting principles. Questioned Cost: Information: NIA Based on information revealed by audit procedures, employees and/or management have insufficient training and/or knowledge to adequately perform their assigned functions. A review ofthe budget basis financial statements revealed the following: 1) Inadequate documentation was provided to support four adjusting journal entries. Upon further review, it was discovered that the entries were incorrect and should not have been recorded. Correcting entries were proposed by the auditor and made to correct financial statements. 2) The University failed to properly reconcile Fund Balance, July 1, 2006 to amounts reported on Schedule "1" in the prior year audit report. Adjustments were proposed by the auditor and made to correct errors identified. 3) The University inadvertently requested and received reimbursement from GSFIC twice. Management was unaware that the journal entry to record the receipt of funds was made incorrectly resulting in Accounts Receivable being understated by$ 102,750. An adjustment was proposed by the auditor and made to reclassify the amount to Accounts Payable. -2 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS BUDGET PREPARATION/EXECUTION GENERAL LEDGER Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-548-07-02 A review of the University's Statement of Revenues, Expenses and Changes in Net Assets revealed that Investment Income was overstated in the amount of$284,470.80 due to the erroneous inclusion ofcurrent year contributions, deductions, and adjustments to endowment funds. For the year under review, the following deficiencies were noted on the University's Statement of Cash Flows: 1) No documentation was available to support the purchases of capital assets reported as Cash Flows from Capital and Related Financing Activities. 2) No documentation was provided for the change in Other Assets of $310,033 on the Reconciliation of Operating Loss to Net Cash Provided (Used) by Operating Activities. 3) The University failed to properly report the change in the fair value of investments in the amount of $48,895 as noncash activity. Cause: These deficiencies were the result of a lack of internal controls over the preparation of the basic financial statements and budgetary basis financial statements. In addition, the University failed to ensure that personnel in key accounting functions were adequately trained and proficient. Effect: A lack of adequate accounting controls and procedures, coupled with ineffective or insufficient training ofpersonnel, could place the University in a situation where incorrect reporting of financial position could occur. Recommendation: The University should establish policies and procedures to ensure that personnel responsible for the accounting and reporting functions are adequately trained and proficient in preparing the entity's financial statements. -3- SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS Inadequate Accounting Controls Significant Deficiency Finding Control Number: FS-548-07-03 Condition: The accounting procedures ofthe University were insufficient to provide for adequate controls over Cash and Cash Equivalents. Criteria: An adequate system of internal controls dictate that bank reconciliations be performed on a monthly basis, and include the following: (1) adequate supporting documentation, (2) reconciling items correctly identified by description, (3) adjustments which are needed are identified and made in a timely manner, and 4) evidence of an effective supervisory review and approval function. Questioned Cost: NIA Information: A review ofthe bank reconciliations for the Operating and Payroll accounts revealed the following: 1) Bank reconciliations were not performed in a timely manner. The bank reconciliations for July 2006 through February 2007 were not completed until March 2007. The University contracted with a CPA firm to complete all bank reconciliations for the Operating and Payroll accounts for the year under review. 2) The University failed to post receipts and disbursement in a timely manner to the financial records for items that had cleared the bank. Reconciling items were carried on the bank reconciliation for an unreasonable amount of time. 3) An unidentified variance of$15,250.00 was noted on the December 2006 reconciliation for the Operating account and an unidentified variance of $31,297.56 was noted on the February 2007 reconciliation of the Payroll account. Cause: University's management failed to implement satisfactory controls to ensure that bank reconciliations were performed on a monthly basis and reconciling items were properly identified and corrected within a reasonable amount of time. -4 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CASH AND CASH EQUIVALENTS Inadequate Accounting Controls Significant Deficiency Finding Control Number: FS-548-07-03 Effect: Recommendation: 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. Management should monitor accounting controls and procedures currently in place, identify weaknesses and implement procedures to strengthen the internal controls over the bank reconciliation process. REVENUES/RECEIVABLES/RECEIPTS Inadequate Control Procedures for Collection of Tuition and Fees Significant Deficiency Finding Control Number: FS-548-07-04 Condition: Internal control procedures were insufficient to provide for adequate collection of tuition and fees. This deficiency was previously reported in finding FS-548-06-04 from fiscal year ended June 30, 2006. Criteria: The Board of Regents Policy Manual Section 704.03 states "All tuition and fees are due and payable upon registration. Exceptions to the time of payment are as follows: 1) An institution may defer tuition and fees up to the amount authorized for a specific academic term for students whose fees are guaranteed and will be paid by an outside agency under a documented agreement with the institution. 2) An institution may defer tuition and fees up to the amount of the aid granted for a specified academic term for students who have an institution administered loan or scholarship in process. 3) An institution may defer tuition and fees up to the limit stated in the certificate or other document for a specified academic term for foreign students who have a certificate or other acceptable documented evidence that payment will be made after a statement of charges from the student has been present for payment". Questioned Cost: NIA -5- SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS Inadequate Control Procedures for Collection of Tuition and Fees Significant Deficiency Finding Control Number: FS-548-07-04 Information: A test of 10 students accounts receivable under one year old revealed 7 instances in which Savannah State University did not comply with the Board of Regents Policy Manual for collecting tuition and fees. It was determined that out of the $35,972.93 accounts receivable tested, $27,132.93 were not supported by approved student financial aid. Additional testing of 10 accounts receivable over one year old revealed that all 10 accounts receivable totaling $88,009.97 were not supported by financial aid or any other method of payment. Inadequate collection procedures contributed to the reserve for uncollectible student accounts receivable balance, on the budget statements increasing from $290,678.34 in the prior year to $495,762.68 at fiscal year ended June 30, 2007. In addition, the University wrote off$ I02, 144.58 ofaccounts receivable considered to be uncollectible during fiscal year 2007. The University also made a GAAP journal entry to increase Allowance for Doubtful Accounts by $534,628.68. 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 in accordance with the Board of Regents Policy Manual. 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. In addition, the University continued to establish accounts receivable that are not likely to be collected. Recommendation: The University should follow billing and collection guidelines as set forth in the Board ofRegents' Business Procedures Manual. Furthermore, no student should be granted a deferment without having approved financial aid. -6- SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS GENERAL LEDGER Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-548-07-05 Condition: The accounting procedures ofthe University were insufficient to provide for adequate controls over Revenues/Receivables/Receipts and the General Ledger. Criteria: The University's management is responsible for designing and maintaining internal controls that provide reasonable assurance that receipts are properly documented, processed and reported within its accounting records. Questioned Cost: NIA Information: Our examination and testing for the year under review revealed the following: 1) The Accounts Receivable on the Annual Financial Report were understated by $102,750.00. The University inadvertently requested and received reimbursement from GSFIC twice. 2) Based on a review of thirty journal entries, recording the receipt of State and Federal funds, three instances were noted where the University failed to post receipts for two Restricted Fund grants to the financial records in a timely manner. 3) Based on a review of the daily receipt files, three checks were held for an extensive period of time before remittance to the Cashier's office for deposit. Cause: University's management failed to implement satisfactory controls to: ( 1) ensure revenues, receivables and receipts were properly documented and recorded in the accounting records in a timely manner and (2) ensure amounts posted to the general ledger were accurate. Effect: Failure to implement satisfactory accounting controls and procedures could cause information generated from the general ledger to be inaccurate or misleading which could impact the University's reporting of its financial position and results of operations. -7- SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS REVENUES/RECEIVABLES/RECEIPTS GENERAL LEDGER Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-548-07-05 Recommendation: The University should review the accounting controls and procedures currently in place, identify weaknesses and design and implement procedures necessary to ensure correct reporting ofRevenues, Receivables and Receipts. EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-548-07-06 Condition: The accounting procedures for the University were not adequate to ensure that activity ofaccounts payable and prepaid items were properly maintained on the accounting records. In addition, for budgetary reporting purposes, invalid encumbrances were reported as payables. Criteria: The University's management is responsible for designing and maintaining internal controls that provide reasonable assurance that transactions are properly approved, documented, processed and reported. Questioned Cost: NIA Information: Our examination and testing for the year under review revealed the following: 1) For budgetary purposes, encumbrances tested of $224,677.30 were deemed invalid. The invalid encumbrances included amounts that were previously paid, items that were never ordered, or encumbrances for which supporting documentation could not be provided by the University. 2) A complete and accurate listing of accounts payable could not be obtained for housing deposits and the medical spending account. The listings contained positive and negative amounts. Students whose room deposits were refunded or forfeited were included and account balances for former employees with spending accounts were never cleared. -8- SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS GENERAL LEDGER Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-548-07-06 3) Prepaid items for travel and telecommunication charges were not cleared in a timely manner and/or in accordance with institutional policy. The University failed to recognize expenditures for travel that was completed and telecommunication services that were used. 4) The reconciliation of prepaid postage was performed incorrectly, resulting in the University inadvertently expensing $58,965.28 of prepaid postage. Cause: The University failed to implement satisfactory controls to: (1) ensure that accounts payable, prepaid items, and encumbrances were properly documented and recorded in the accounting records, (2) ensure that accounts were monitored and cleared in a timely manner, and (3) ensure that amounts posted to the general ledger were accurate. Effect: Failure to implement satisfactory accounting controls and procedures could cause information generated from the general ledger to be inaccurate or misleading which could impact the University's reporting of its financial position and results of operations. Recommendation: The University should review the accounting controls and procedures currently in place, identify weaknesses and design and implement procedures necessary to ensure correct reporting of expenditures and liabilities for GAAP basis and budgetary basis purposes. CAPITAL ASSETS Inadequate Capital Asset Records Significant Deficiency - Material Weakness Finding Control Number: FS-548-07-07 Condition: Accounting procedures of the University were insufficient to provide adequate control over Capital Assets. Criteria: The University should maintain capital asset records in accordance with capitalization guidelines and instructions provided in Chapter 7 ofthe Board of Regents' Business Procedures Manual. -9- SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Inadequate Capital Asset Records Significant Deficiency - Material Weakness Finding Control Number: FS-548-07-07 Questioned Cost: NIA Information: The following weaknesses/deficiencies were noted relating to Capital Assets: 1) The University's Capital Asset Management Module was not reconciled to the Capital Ledger. There was an unidentified variance of $143,753.69 for Equipment. 2) Assets listed on the capital assets inventory records were not identified by decal number or the dates of acquisition. 3) A sample of forty-four (44) equipment items revealed the following: (a) One asset valued at $38,054.00 with a description of "Other Equipment" could not be located. Further research by the University revealed that this was actually a 22 foot Boston Whaler boat that was incorrectly recorded in the Capital Asset Module twice. (b) Two assets selected from the listing totaling $21,659.60 were missing and could not be located. (c) Two assets totaling $26,235.00 were traded-in butthe University failed to remove them from the Capital Asset Module. (d) Eight assets tested were not properly decaled. Four of these assets were new items. Cause: University's management failed to implement appropriate internal controls and procedures necessary to properly record, maintain and track capital assets. Effect: By failing to accurately record and track capital assets, the College could place itself in a position where potential misappropriation of assets could occur and impact reporting ofits financial position and results of operations. - IO - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Inadequate Capital Asset Records Significant Deficiency - Material Weakness Finding Control Number: FS-548-07-07 Recommendation: The University should establish appropriate procedures and controls to ensure that reconciliations are performed for the Capital Assets Module and the related subsidiary records. In addition, policies and procedures should be established to ensure that an accurate physical inventory of equipment is performed and that all capital assets listed on the capital assets inventory records can be identified by decal number, description and location. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ELIGIBILITY Inadequate Satisfactory Academic Progress Procedures Significant Deficiency Student Financial Aid Cluster Program Finding Control Number: FA-548-07-01 Condition: The Student Financial Aid (SFA) Office improperly applied satisfactory academic progress standards to SFA aid recipients. The University has not included in its written satisfactory academic progress academic policy the handling ofcourse repetitions. This is a repeat finding (FA-548-06-01) from fiscal year ended June 30, 2006. Criteria: Provisions included in 34 CFR 668 provide general provisions for administering Student Financial Aid (SFA) programs. Questioned Cost: NIA Information: An examination of the University's procedures revealed that satisfactory academic progress standards were evaluated on students enrolled for Spring semester only. The University's policy also allows for course repetitions where only the highest grade is counted. However, the University failed to include the method of handling course repetitions in its written policy. Cause: The University did not properly monitor satisfactory academic progress as required by the Federal guidelines. - 11 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ELIGIBILITY Inadequate Satisfactory Academic Progress Procedures Significant Deficiency Student Financial Aid Cluster Program Finding Control Number: FA-548-07-01 Effect: Students not enrolled for Spring semester failed to be evaluated for satisfactory academic progress standards and were awarded SFA funds even though they were not eligible. The University's written policy did not meet Federal guidelines. Recommendation: Procedures should be implemented to ensure satisfactory academic progress is performed for all SFA students enrolled in any semester during the academic year under review. The University should contact the U.S. Department of Education regarding the resolution of this finding. ELIGIBILITY Inadequate Control Procedures for Determining Enrollment Status Significant Deficiency Student Financial Aid Cluster Program Finding Control Number: FA-548-07-02 Condition: The University did not have adequate procedures in place to determine a student's enrollment status prior to disbursing Federal financial aid. In addition, procedures were not in place to determine if a student's award should be recalculated due to a change in enrollment status. This is a repeat finding (FA-548-06-02) from fiscal year ended June 30, 2006. 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 the William D. Ford Direct Student Loan Program and Federal Pell Grant Program, respectively. Questioned Cost: NIA - 12 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ELIGIBILITY Inadequate Control Procedures for Determining Enrollment Status Significant Deficiency Student Financial Aid Cluster Program Finding Control Number: FA-548-07-02 Information: For Fall 2006, the procedures utilized to determine a student's enrollment status prior to disbursing Federal financial aid were inadequate. The University's grading policy requires instructors to report those students who never attend class to the Registrar's office. However, the enrollment hours utilized in disbursing student financial aid was determined prior to the reporting deadline for instructors noted above. In addition, once the instructors identified students on the class roster that had never attended, the University did not reevaluate to determine if Federal financial aid was adequately distributed. Cause: The Registrar's Office did not have effective procedures in place to determine a student's enrollment status prior to the disbursement of financial aid. Effect: The Student Financial Aid Office disbursed funds without regard to enrollment status. The SFA Office has failed to implement procedures to identify Pell recipients who drop below half time status. Recommendation: The University should review internal controls in place and implement procedures to properly monitor and update a student's enrollment status. Recalculations should be performed, if necessary, prior to disbursement of financial aid. The University should also contact the U. S. Department of Education regarding the resolution of this finding. ELIGIBILITY Overpayment of Student Financial Aid Significant Deficiency Student Financial Aid Cluster Program Finding Control Number: FA-548-07-03 Condition: The Student Financial Aid (SFA) Office improperly determined the eligibility status of students receiving financial aid. This is a repeat finding (FA-548-06-03) from fiscal year ended June 30, 2006. - 13 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ELIGIBILITY Overpayment of Student Financial Aid Significant Deficiency Student Financial Aid Cluster Program Finding Control Number: FA-548-07-03 Criteria: Provisions included in 34 CFR 668 provide general requirements for administering Student Financial Aid (SFA) programs, 34 CFR 685 provides eligibility and other related program requirements that are specific to the Federal Direct Student Loan program, and 34 CFR 690 provides eligibility and other related program requirements specific to the Federal Pell Grant Award Program. Questioned Cost: Questioned Costs of $8,510.50 were identified for students who received student financial aid in excess of their eligible need. The projection of Questioned Costs was $913,145.79 for students who received student financial aid in excess of their eligible need. Information: A sample offorty financial aid files was selected to determine iffinancial aid was properly calculated and disbursed to eligible students. The items sampled contained financial aid disbursements of $224,942.80 out of a population of $26,496,067.00. The following deficiencies were noted: 1) Two students were not in compliance with the University's published satisfactory academic progress policies. Federal regulations (34 CFR 668.32 and 668.34) state that a student must maintain satisfactory academic progress to be eligible to receive financial assistance under the Title IV programs. The University's policy states that students are required to earn a minimum number of hours each academic year depending upon their enrollment status. The two students failed to meet the quantitative requirements ofsatisfactory academic progress and this noncompliance resulted in SFA over disbursements of $8,510.50. 2) The University allowed two students to enroll and remain in school without approved financial aid. The University has incurred an accounts receivable of $2,710.00 for these students which is not in accordance with Board of Regents policy. This deficiency did not result in an SFA overpayment. - 14 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS ELIGIBILITY Overpayment of Student Financial Aid Significant Deficiency Student Financial Aid Cluster Program Finding Control Number: FA-548-07-03 3) The University failed to charge one student tuition and fees for Fall 2006. As a result, the student's account reflected a credit balance of $1,758.34. This credit was then applied as payment for charges assessed for Spring 2007. Due to this error, the student was erroneously issued a refund of $699.02. The student owes the University $1,513.66. This deficiency did not result in an SFA overpayment. Cause: SFA Office had not performed a risk assessment ofits procedures to identify areas subject to nonconformity with eligibility requirements, and thus there were insufficient controls in place to assure that SFA funds were awarded to eligible students. In addition, the University failed to follow billing and collection guidelines as set forth in the Board of Regents' Business Procedures Manual. Effect: SFA office was not in compliance with Federal regulations concerning the awarding of SFA funds to students. For two students, a total of $8,510.50 was disbursed in excess oftheir eligibility. Also, the University has incurred student accounts receivable which are not in accordance with Board of Regents policy. Recommendation: The University should perform a risk assessment of its procedures to assure that a proper eligibility determination of a student's financial aid is made in line with regulations. Where vulnerable, the University should develop and/or modify its policies and procedures to ensure that correct amounts are awarded to students in conformity with financial need requirements. Additionally, the University should develop and implement a monitoring process to ensure that controls are properly implemented. The University should also contact the U.S. Department of Education regarding resolution of this finding. - 15 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Inadequate Control Procedures over Unofficial Withdrawals Significant Deficiency Student Financial Aid Cluster Program Finding Control Number: FA-548-07-04 Condition: The internal control procedures to determine whether a student completed the academic period or unofficially withdrew were inadequate. This is a repeat finding (FA-548-06-04) from fiscal year ended June 30, 2006. Criteria: Provisions included 34 CFR 668 provide general provisions for administering Student Financial Aid (SFA) programs. Questioned Cost: NIA Information: The University failed to perform refund calculations for students who unofficially withdrew in accordance with the University's grading policy. Based on the grading policy, a student with all IW grades denotes an unofficial withdrawal. For the year under review, the Bursar's office did not calculate a refund for students with all IW grades. Cause: These conditions occurred because the University did not follow its established procedures for unofficial withdrawals. Effect: The University has not properly calculated a refund for students who unofficially withdrew. Unearned Title IV funds are not being returned as required. Recommendation: The University should establish appropriate controls to ensure that the procedures in place are utilized and properly applied to determine whether a SFA recipient who began attendance during a semester completed the academic period or unofficially withdrew. The University should also contact the U.S. Department of Education regarding the resolution of this finding. - 16 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Deficiencies in Student Financial Aid Refund Process Significant Deficiency Student Financial Aid Cluster Program Finding Control Number: FA-548-07-05 Condition: The Student Financial Aid office failed to properly perform the refund process and to ensure that unearned Title IV funds were returned in a timely manner. This is a repeat finding (FA-548-06-05) from fiscal year ended June 30, 2006. Criteria: Provisions included in 34 CFR 668 provide general requirements 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: $3,289.00 Information: Eighteen students that received Federal financial aid and officially withdrew from the University were randomly selected to determine if refunds were calculated and returned in the correct amount to the proper funding agency and/or student. Our examination revealed the following deficiencies: 1) 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. 2) The University applied the second disbursement ofSFA funds to four students' accounts in error after receiving notification oftheir official withdrawal. The University applied the disbursement to the outstanding balance on the students' account and remaining amounts, if any, were refunded to the student. The University failed to "drop" the students from their classes in the student information system (BANNER) before the refund was disbursed. None of the Title IV funds, totaling $3,289.00 were returned. - 17 - SAVANNAH STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2007 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS SPECIAL TESTS AND PROVISIONS Deficiencies in Student Financial Aid Refund Process Significant Deficiency Student Financial Aid Cluster Program Finding Control Number: FA-548-07-05 3) The University failed to properly calculate a withdrawal refund for one student who received an institutional basketball scholarship of $2,355.00. The entire scholarship was removed from the students account, resulting in an accounts receivable of $1,105.09. The University failed to consider and prorate the portion of the scholarship earned by the student in either the refund calculation or the establishing of the student accounts receivable. Cause: These deficiencies were the result of management's failure to properly process student financial aid refunds in accordance with Federal regulations. Effect: The SFA Office refunded SFA funds to students incorrectly and unearned funds were not returned in a timely manner. 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. The University should also contact the U.S. Department of Education regarding resolution of this finding. - 18 -