STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS I SKIDAWAY INSTITUTE OF OCEANOGRAPHY SAVANNAH, GEORGIA REPORT ON REVIEW OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Russell W. Hinton State Auditor SKIDAWAY INSTITUTE OF OCEANOGRAPHY - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS EXHIBITS A STATEMENT OF NET ASSETS 3 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 4 C STATEMENT OF CASH FLOWS 5 D NOTES TO THE FINANCIAL STATEMENTS 6 SUPPLEMENTARY INFORMATION SCHEDULES SCHEDULES OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GAAP BASIS) 1 RESIDENT INSTRUCTION 21 2 OTHER ORGANIZED ACTIVITIES 22 3 RECONCILIATION OF SALARIES AND TRAVEL 23 SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SKIDAWAY INSTITUTE OF OCEANOGRAPHY - TABLE OF CONTENTS - SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 December 9, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia and Honorable James G. Sanders, Director Skidaway Institute of Oceanography INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Ladies and Gentlemen: We have reviewed the accompanying basic financial statements (Exhibits A through D) ofSkidaway Institute of Oceanography, an organizational unit ofthe State ofGeorgia, as ofand for the year ended June 30, 2004, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation ofthe management ofSkidaway Institute ofOceanography. A review consists principally of inquiries oflnstitute personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opm10n. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1, the Institute adopted the provisions of the Governmental Accounting Standards Board, Statement Number 39, Determining Whether Certain Organizations are Component Units during the year ended June 30, 2004. 04ARL-67 Management's Discussion and Analysis is not a required part ofthe basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally ofinquiries of management regarding the methods of measurement and presentation of this supplementary information, and we are not aware of any material modifications that should be made thereto. Our review was made for the purpose of expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. The accompanying supplementary information (Schedules 1 through 3) is presented for additional analysis purposes. Such information has been subjected to the inquiries and analytical procedures applied in the review ofthe financial statements, and we are not aware of any material modifications that should be made to such data. Respectfully submitted, RWH:as 04ARL-67 Russell W. Hinton State Auditor REQUIRED SUPPLEMENTARY INFORMATION SKIDAWAY INSTITUTE OF OCEANOGRAPHY Management's Discussion and Analysis Introduction Skidaway Institute of Oceanography is a unique, multidisciplinary institute, within the University System of Georgia, dedicated to furthering our understanding of marine and environmental sciences. Located sixteen miles southeast of the city of Savannah on the north end of Skidaway Island, the Institute offers easy access to the barrier islands, estuaries, and continental shelf of the southeastern U. S. as well as the open ocean. The Institute conducts leading edge research on marine and coastal systems, trains tomorrow's marine scientists, serves as a gateway to marine environments and integrates Institute System marine programs. It is committed to excellence in research and education and to the communication of our understanding of marine systems. The goal of the Institute is to create a more knowledgeable citizen capable of appreciating coastal natural environments and the conditions required to sustain them while capitalizing on coastal economic opportunities. Overview ofthe Financial Statements and Financial Analysis Skidaway Institute of Oceanography is proud to present its financial statements for fiscal year 2004. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and, the Statement of Cash Flows. This discussion and analysis of the Institute's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2003 and fiscal year 2004. Statement ofNet Assets The Statement of Net Assets presents the assets, liabilities, and net assets of the Institute 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 the Skidaway Institute of Oceanography. The Statement of Net Assets presents end-of-year data concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements. From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors. Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into two 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 final category is unrestricted net assets. Unrestricted net assets are available to the institution for any lawful purpose of the institution. - 1- Statement of Net Assets, Condensed June 30, 2004 June 30, 2003 Assets Current Assets Capital Assets, Net $ 984,631.55 5,626,347.62 $ 1,425,244.04 5,685,926.35 Total Assets $ 6,610,979.17 $ 7,111,170.39 Liabilities Current Liabilities Noncurrent Liabilities $ 923,402.57 430,749.71 $ 1,661,977.62 563,594.05 Total Liabilities $ 1,354,152.28 $ 2,225,571.67 Net Assets Invested in Capital Assets, Net of Debt Unrestricted $ 5,263,327.48 -6,500.59 $ 5,242,055.40 -356,456.68 Total Net Assets $ 5!256!826.89 $ 4!885!598. 72 The total assets of the institution decreased by $500,191.22. A review of the Statement of Net Assets will reveal that the decrease was partially due to a decrease of $59,578.73 of investment in plant, net of accumulated depreciation. This decrease was adjustments posted related to the implementation of GASB Statement No. 34 standards. Total liabilities for the year decreased by $871,419.39. The primary cause for the decrease was in deferred revenue. New policies and procedures were implemented to increase control of the timing of grant funds. The combination of the decrease in total assets of $500,191.22 and the decrease in total liabilities of $871,419.39 yields an increase in total net assets of $371,228.17. 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. - 11 - Statement of Revenues, Expenses and Changes in Net Assets, Condensed June 30, 2004 June 30, 2003 Operating Revenues Operating Expenses $ 6,285,181.97 8,051,333.17 $ 5,352,125.81 7,868,216.58 Operating Loss $ -1,766,151.20 $ -2,516,090.77 Nonoperating Revenues and Expenses 2,137,379.37 1,901,282.58 Increase (Decrease) in Net Assets $ 371,228.17 $ -614,808.19 Net Assets at Beginning of Year, as Originally Reported $ 4,885,598.72 $ 5,438,540.92 Prior Period Adjustment 61,865.99 Net Assets at Beginning of Year Restated $ 4,885,598.72 $ 5,500,406.91 Net Assets at End of Year $ 5,256,826.89 $ 4,885,598.72 Operating Revenues increased $933,056.16 due largely to increased funding from sources other than State Appropriations. Revenue By Source For The Years Ended June 30, 2004 and June 30, 2003 June 30, 2004 June 30, 2003 Operating Revenue Grants and Contracts Rents and Royalties Auxiliary Other $ 5,846,646.26 164,093.00 45,087.90 229,354.81 $ 4,878,532.46 164,500.00 46,871.39 262,221.96 Total Operating Revenue $ 6,285,181.97 $ 5,352,125.81 Nonoperating Revenue State Appropriations Gifts Investment Income Other $ 2,019,704.62 169,344.36 4,657.14 -25,770.88 $ 1,957,051.01 138,648.00 -158,144.40 Total Nonoperating Revenue $ 2,167,935.24 $ 1,937,554.61 Total Revenues $ 8.453.117.21 $ 7.289,680.42 - 111 - Expenses (By Functional Classification) For The Years Ended June 30, 2004 and June 30, 2003 June 30, 2004 June 30, 2003 Operating Expenses Instruction Research Academic Support Institutional Support Plant Operations and Maintenance Auxiliary Enterprises $ 359,629.95 4,600,702.32 977,607.01 947,146.35 1,136,826.89 29,420.65 $ 226,681.67 4,739,857.73 853,183.85 951,512.73 1,069,702.93 27,277.67 Total Operating Expenses $ 8,051,333.17 $ 7,868,216.58 Nonoperating Expenses Interest Expense (Capital Assets) 30,555.87 36,272.03 Total Expenses $ 8!081!889.04 $ 71904A88.61 The Salary and Fringe Benefits category decreased by $103,091.68. The decrease is in response to the decrease in State Appropriations, leaving several vacant positions for fiscal year 2004. Utilities increased by $28,944.42 during the past year, due in part to increased operations related to the RV Savannah and aging infrastructure issues. Supplies and Other Services increased $266,083.19. The increase was due to three primary factors, increases in insurance premiums, repairs and maintenance costs associated with an aging infrastructure and vehicle fleet, and increased purchases of supplies and materials related to research grants. Expendable nonoperating revenues from state appropriations decreased by $80,699.01. The reduction of state appropriations system-wide, due to a sluggish economy, has created a challenge for all institutions of the University System of Georgia and thus, for the Skidaway Institute of Oceanography. In addition, funding related to prior period deficits was provided in the amount of $143,352.62; the net result was an increase in state appropriations of $62,653.61 over the prior year. Statement ofCash Flows The final statement presented by the Skidaway Institute of Oceanography 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. - lV - Cash Flows for the Years Ended June 30, 2004 and June 30, 2003, Condensed June 30, 2004 June 30, 2003 Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities $ -1,648,698.42 2,267,457.72 -590,643.35 4,657.14 $ -1,462,169.18 1,878,311.26 -426,371.52 Net Change in Cash Cash, Beginning of Year $ 32,773.09 64,302.32 $ -10,229.44 74,531.76 Cash, End of Year $=====97-,0=7=5==.4~1 $ 64,302.32 Capital Assets The Institute had no significant capital asset additions for facilities in fiscal year 2004. For additional information concerning Capital Assets, see Notes 1, 4, 6 and 7 in the Notes to the Financial Statements. Long-Term Debt Skidaway Institute of Oceanography had a total Long-Term Debt of $714,291.04 of which $283,541.33 was reflected as current liability at June 30, 2004. For additional information concerning Long-Term Debt see Notes 1 and 6 in the Notes to the Financial Statements. Economic Outlook The Institute 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 Institute's overall financial position is strong. The Institute was able to generate a modest increase in revenue despite a sluggish economy. The Institute anticipates the current fiscal year will be much like last and will maintain a close watch over resources to maintain the Institute's ability to react to unknown internal and external issues. James G. Sanders, Director Skidaway Institute of Oceanography -v- BASIC FINANCIAL STATEMENTS - 1- SKIDAWAY INSTITUTE OF OCEANOGRAPHY STATEMENT OF NET ASSETS JUNE 30. 2004 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable Federal Financial Assistance Other Prepaid Items Total Current Assets Noncurrent Assets Capital Assets, Net (See Note 4) Total Assets LIABILITIES Current Liabilities Accounts Payable Deferred Revenue Capital Leases Compensated Absences Total Current Liabilities Noncurrent Liabilities Capital Leases Compensated Absences Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Unrestricted Total Net Assets EXHIBIT"A" $ 97,075.41 480,471.81 402,059.53 5,024.80 $ 984,631.55 5,626,347.62 $ 6,610,979.17 $ 199,164.61 440,696.63 87,001.85 196,539.48 $ 923,402.57 $ 276,018.29 154,731.42 $ 430,749.71 $ 1,354,152.28 $ 5,263,327.48 -6,500.59 $ 5,256,826.89 See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement. -3- SKIDAWAY INSTITUTE OF OCEANOGRAPHY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30 2004 EXHIBIT "B" OPERATING REVENUES Grants and Contracts Federal State Nongovernmental Rents and Royalties Auxiliary Enterprises Residence Halls Food Services Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Salaries Faculty Staff Employee Benefits Travel Utilities Supplies and Other Services Depreciation Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) State Appropriations Gifts Interest and Other Investment Income Interest Expense (Capital Assets) Other Nonoperating Revenues Net Nonoperating Revenues Increase (Decrease) in Net Assets Net Assets - Beginning of Year Net Assets - End of Year $ 5,512,238.02 247,801.26 86,606.98 164,093.00 39,127.00 5,960.90 229,354.81 $ 6,285,181.97 $ 1,139,809.40 2,419,226.29 918,677.90 175,898.65 272,379.31 2,612,297.10 513,044.52 $ 8,051,333.17 $ -1,766,151.20 $ 2,019,704.62 169,344.36 4,657.14 -30,555.87 -25,770.88 $ 2,137,379.37 $ 371,228.17 4,885,598.72 $ 5,256,826.89 See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement. -4- SKIDAWAY INSTITUTE OF OCEANOGRAPHY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30. 2004 CASH FLOWS FROM OPERATING ACTIVITIES Grants and Contracts Payments to Suppliers Payments to Employees Auxiliary Enterprise Charges: Residence Halls Food Services Other Receipts (Payments) Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Gifts and Grants Received for Other than Capital Purposes Net Cash Flows Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of Capital Assets Principal Paid on Capital Debt and Lease Interest Paid on Capital Debt and Lease Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments Net Increase (Decrease) in Cash Cash and Cash Equivalents - Beginning of Year Cash and Cash Equivalents - End of Year RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating Income (Loss) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable Prepaid Items Accounts Payable Deferred Revenue Compensated Absences Net Cash Provided (Used) by Operating Activities See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement. -5- EXHIBIT"C" $ 5,321,337.66 -3, 780,088.35 -3,583,560.87 39,127.00 5,960.90 348,525.24 $ -1,648,698.42 $ 2,019,704.62 247,753.10 $ 2,267,457.72 $ -479,236.67 -80,850.81 -30,555.87 $ -590,643.35 $ 4,657.14 $ 32,773.09 64,302.32 $ 97 075.41 $ -1,766,151.20 513,044.52 374,602.59 20,374.25 199,164.61 -944,833.76 -44,899.43 $ -1,648,698.42 SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Skidaway Institute of Oceanography serves the state, national and international communities by providing research and academic instruction that advances the fundamental knowledge of oceanography. REPORTING ENTITY Skidaway Institute of Oceanography, a unit of the University System of Georgia (an organizational unit of the State of Georgia), conducts oceanographic research that is coordinated with other marine research activities of the University of Georgia. The accompanying financial statements reflect the operations of Skidaway Institute of Oceanography 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. Skidaway Institute of Oceanography does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Skidaway Institute of Oceanography is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards. The Board of Regents of the University System of Georgia (and thus Skidaway Institute of Oceanography) is required to implement GASB Statement No. 39 Determining Whether Certain Organizations are Component Units - an amendment of Statement No. 14, for fiscal year 2004. This statement requires the inclusion of the financial statements for foundations and affiliated organizations that qualify as component units of the institution. For fiscal year 2004, Skidaway Institute of Oceanography does not have any foundations or affiliated organizations that qualify as component units. FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia implemented GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the Institute also adopted GASB Statements No. 34 and No. 35 as amended by -6 - SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL STATEMENT PRESENTATION GASB Statements No. 37 and No. 38. The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the Institute's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fund group perspective previously required. BASIS OF ACCOUNTING For financial reporting purposes, the Institute is considered a special-purpose government engaged only in business-type activities. Accordingly, the Institute'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-Institute transactions have been eliminated. The Institute has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The Institute has elected to not apply FASB pronouncements issued after the applicable date. CASH AND CASH EQUIVALENTS Cash and Cash Equivalents consist of petty cash and demand deposits in authorized financial institutions. ACCOUNTS RECEIVABLE Accounts receivable consists of auxiliary enterprise services provided to faculty and staff, the majority of each residing in the State of Georgia. Accounts receivable also include amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the Institute's grants and contracts. No provision has been made for an allowance for doubtful accounts. PREPAID ITEMS Prepaid items are payments made to vendors in advance of the receipt of goods and services that will benefit periods subsequent to the balance sheet date. 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 Institute's capitalization policy includes all items with a unit cost of $5,000.00 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000.00 and significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was -7- SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CAPITAL ASSETS incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements. To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged. Effective July 1, 2001, the GSFIC retains construction in progress on their books throughout the construction period and transfers the entire project to Skidaway Institute of Oceanography when complete. For the year ended June 30, 2004, GSFIC did not transfer any capital additions to Skidaway Institute of Oceanography. DEFERRED REVENUES Deferred revenues include amounts received from grant and contract sponsors that have not yet been earned. COMPENSATED ABSENCES Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as accrued vacation payable in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statements of Revenues, Expenses and Changes in Net Assets. Skidaway Institute of Oceanography had accrued liability for compensated absences in the amount of $396,170.33 as of July 1, 2003. For fiscal year 2004, $177,791.19 was earned in compensated absences and employees were paid $222,690.62, for a net decrease of $44,899.43. The ending balance as of June 30, 2004 in accrued liability for compensated absences was $351,270.90. Compensated absences include a current liability of $196,539.48. NONCURRENT LIABILITIES Noncurrent liabilities include (1) liabilities that will not be paid within the next fiscal year; (2) capital lease obligations with contractual maturities greater than one year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets. NET ASSETS The Institute's net assets are classified as follows: -8- SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS Invested in capital assets, net of related debt: This represents the Institute'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. 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 Institute, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) which must be refunded to the Board of Regents of the University System of Georgia - Administrative Central Office for remittance to the Office of Treasury and Fiscal Services. At June 30, 2004, there was no surplus balance to be refunded. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. Unrestricted Net Assets includes the following items which are quasi-restricted by management. June 30, 2004 R& R Reserve Reserve for Encumbrances Other Unrestricted $ 31,084.55 55,786.47 -93,371.61 Total Unrestricted Net Assets $==-6=,-50=0=.5"'=9 When an expense is incurred that can be paid using either restricted or unrestricted resources, the Institute's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources. INCOME TAXES Skidaway Institute of Oceanography, as a political subdivision of the State of Georgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended. CLASSIFICATION OF REVENUES The Institute has classified its revenues as either operating or nonoperating revenues in the Statement of Revenues, Expenses and Changes in Net Assets according to the following criteria: -9- SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CLASSIFICATION OF REVENUES Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) sales and services of auxiliary enterprises, and (2) most Federal, state and local grants and contracts and Federal appropriations. 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. NOTE 2: CASH AND CASH EQUIVALENTS AND OTHER DEPOSITS STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds belonging to the State of Georgia (and thus Skidaway Institute of Oceanography) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59: 1. Bonds, bill, certificates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia. 2. Bonds, bills, certificates of indebtedness, notes, or other obligations of the counties or municipalities of the State of Georgia. 3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose. 4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia. 5. Bonds, bills, certificates of indebtedness, notes, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest, or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, The Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. 6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation. - 10 - SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 2: CASH AND CASH EQUIVALENTS AND OTHER DEPOSITS STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES As authorized in the Official Code of Georgia Annotated Section 50-17-53, the State Depository Board has adopted policies which allow agencies of the State of Georgia (and thus Skidaway Institute of Oceanography), the option of exempting demand deposits from the collateral requirements. The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia. CATEGORIZATION OF DEPOSITS Cash deposits are categorized by risk as follows: Category 1 - Amounts covered by depository insurance or collateralized with securities (at fair value) held by the entity or by its agent in the entity's name. Category 2 - Amounts collateralized with securities (at fair value) held by the pledging financial institution's trust department or agent in the entity's name. Category 3 - Amounts collateralized with securities (at fair value) held by the pledging financial institution, or by its trust department or agent but not in the entity's name, and amounts uncollateralized. At June 30, 2004, the Institute's cash deposits were as follows: Carrying Amount Bank Balances Cash Deposits $ 96,075 41 $ 443,286.81 $ NOTE 3: ACCOUNTS RECEIVABLE Risk Categories 2 3 0.00 $.===0-.0-0 $ 443,286.81 Accounts receivable consisted of the following at June 30, 2004. Federal, State and Private Funds Other $ 824,923.32 57,608.02 Total Accounts Receivable $ 882,531.34 NOTE 4: CAPITAL ASSETS Following are the changes in capital assets for the year ended June 30, 2004: - 11 - SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 4: CAPITAL ASSETS Beginning Balance July 1, 2003 Additions Reductions Ending Balance June 30, 2004 Capital Assets, Not Being Depreciated: Land $ 449,460.00 $ 449,460.00 Capital Assets, Being Depreciated: Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections $ 4,525,125.35 335,818.00 4,015,363.23 $ 594,986.38 170,748.16 478,901.76 $ 334.91 165,387.21 $ 4,525,125.35 335,818.00 4,328,877.78 594,986.38 171,083.07 Total Assets Being Depreciated $ 9,642,041.12 $ 479,236.67 $ 165,387.21 $ 9,955,890.58 Less: Accumulated Depreciation: Buildings and Building Improvements $ 1,574,102.78 $ Facilities and Other Improvements 117,727.70 Equipment 2,441,579.49 Capital Leases 118,997.28 Library Collections 153,167.52 196,941.69 14,891.53 232,251.45 $ 64,456.85 4,503.00 139,616.33 $ 1,771,044.47 132,619.23 2,534,214.61 183,454.13 157,670.52 Total Accumulated Depreciation $ 4,405,574.77 $ 513,044.52 $ 139,616.33 $ 4,779,002.96 Total Capital Assets, Being Depreciated, Net $ 5,236,466.35 $ -33,807.85 $ 25,770.88 $ 5,176,887.62 Capital Assets, Net $ 5,685,926.35 $ -33 807 85 $ 25 770 88 $ 5 626.347.62 NOTE 5: DEFERRED REVENUE Deferred revenue consisted of the following at June 30, 2004. Research $ 440,696.63 NOTE 6: LONG-TERM LIABILITIES Long-Term liability activity for the year ended June 30, 2004 was as follows: Beginning Balance July I, 2003 Additions Reductions Ending Balance June 30, 2004 Current Portion Leases Lease Obligations $ 443,870.95 $ 80,850.81 $ 363,020.14 $ 87,001.85 Other Liabilities Compensated Absences 396,170.33 $ 177,791.19 222,690.62 351,270.90 196,539.48 Total Long-Term Obligations $ 840 041 28 $ 177,79] 19 $ 303 541 43 $ 714 291 04 $ 283,541.33 - 12 - SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 7: LEASE OBLIGATIONS Skidaway Institute of Oceanography is obligated under a capital lease for the acquisition of equipment. CAPITAL LEASES The capital lease is payable in quarterly installments and has a term expiring in 2008. Expenses for fiscal year 2004 were $111,406.68 of which $30,555.87 represented interest and $80,850.81 represented principal. The interest rate range is 8 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2004: Equipment $ 594,986.38 The capital lease provides for renewal options. Future commitments for capital leases having remaining terms in excess of one year as of June 30, 2004, were as follows: Year Ending June 30: 2005 2006 2007 2008 Total Minimum Lease Payments Less: Interest Principal Outstanding Capital Leases $ 111,406.68 111,406.68 111,406.69 88,019.07 $ 422,239.12 59,218.98 $ 363,020.14 NOTE 8: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description Skidaway Institute of Oceanography participates in the Teachers Retirement System of Georgia (TRS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances and other benefits for - 13 - SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 8: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description teachers of the State of Georgia. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the TRS offices or the Georgia Department of Audits and Accounts. Funding Policy Employees of Skidaway Institute of Oceanography who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Skidaway Institute of Oceanography makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2004, the employer contribution rate was 9.24% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year Percentage Contributed Required Contribution 2004 2003 2002 100% 100% 100% $ 221,851.53 $ 245,897.98 $ 222,843.72 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. Funding Policy Skidaway Institute of Oceanography makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State Statute and as advised by their independent actuary. The - 14 - SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 8: RETIREMENT PLANS REGENTS RETIREMENT PLAN Funding Policy employer contributes 10.03% of the participating employee's earnable compensation. Employees contribute 5% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times. Skidaway Institute of Oceanography and the covered employees made the required contributions of $76,916.61 (10.03%) and $38,343.44 (5%), respectively. AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices. NOTE 9: 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. Skidaway Institute of Oceanography and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these two plans are considered to be a self-sustaining risk fund. Both selfinsured healthcare plan options provide a maximum lifetime benefit of $2,000,000.00 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WellPoint, to serve as the claims administrator for the two self-insured healthcare plan products. In addition to the two different self-insured healthcare plan options offered to the employees of the University System of Georgia, two fully insured HMO healthcare plan options are also offered to System employees. The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. Skidaway Institute of Oceanography, as an organizational unit of the Board of Regents of the University System of - 15 - SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 9: RISK MANAGEMENT Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment. A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund. NOTE 10: CONTINGENCIES Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures which are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Skidaway Institute of Oceanography expects such amounts, if any, to be immaterial to its overall financial position. Litigation, claims and assessments filed against Skidaway Institute of Oceanography (an organizational unit of the Board of Regents of the University System of Georgia), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2004. NOTE 11: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 203-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia are on a pay as you go basis to finance the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000.00 for basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee. - 16 - SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 11: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS As of June 30, 2004, there were 25 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2004, Skidaway Institute of Oceanography recognized as incurred $83,753.25 of expenses, which was net of $34,113.84 of participant contributions. NOTE 12: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS The Institute's operating expenses by functional classification are shown below: Statement of Operating Expenses - Natural vs Functional Classifications For the Fiscal Year Ended June 30, 2004 Functional Classification Natural Classification Instruction Research Academic Su1mort Institutional Su1mort Salaries Faculty Staff Employee Benefits Travel Utilities Supplies and Other Services Depreciation $ 38,138.72 $ 951,109.66 $ 1,211.06 $ 149,349.96 -44,016.00 1,147,299.38 442,961.47 427,436.06 12,683.44 437,872.82 105,164.97 236,492.87 141,664.02 17,010.46 16,647.37 27,577.31 2,666.67 352,823.79 1,828,460.62 66,718.51 323,829.92 84,762.46 117,220.09 Total Operating Expenses $ 352 622 25 $ 4 6QQ ZQ2 32 $ 977 607.Ql $ 241146 35 Natural Classification Salaries Faculty Staff Employee Benefits Travel Utilities Supplies and Other Services Depreciation Total Operating Expenses Functional Classification Plant Operations and Auxiliary Maintenance Entemrises Total Operating Ex!!enses $ 444,530.35 $ 126,216.56 576.80 234,361.48 330,609.70 532.00 $ I 136 826 82 $ 1,015.03 247.24 7,773.85 $ 1,139,809.40 2,419,226.29 918,677.90 175,898.65 272,379.31 12,176.77 8 207.76 29420.65 2,612,297.10 513,044.52 $ 8Q5J :m 11 - 17 - SUPPLEMENTARY INFORMATION - 19 - SKIDAWAY INSTITUTE OF OCEANOGRAPHY SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GAAP BASIS) RESIDENT INSTRUCTION YEAR ENDED JUNE 30, 2004 SCHEDULE "1" REVENUES State Appropriations BUDGET ACTUAL (1) VARIANCEFAVORABLE (UNFAVORABLE) _____ $ 184,644.00 $ 184,644.00 $ .....0:.....0.:..0..:.. EXPENDITURES Personal Services: Education, General and Departmental Services Operating Expenses: Education, General and Departmental Services $ 0.00 $ 99,715.74 $ 184,644.00 84,928.26 -99,715.74 99,715.74 _____ $ 184,644.00 $ 184,644.00 $ __0:;_...0:...0.:.. Excess of Revenues over Expenditures $ 0.00 $=====~0;;,;,;;,00~ (1) Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. - 21 - SKIDAWAY INSTITUTE OF OCEANOGRAPHY SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GAAP BASIS) OTHER ORGANIZED ACTIVITIES YEAR ENDED JUNE 30. 2004 SCHEDULE "2" REVENUES State Appropriations Other Revenues Retained BUDGET ACTUAL (1) VARIANCEFAVORABLE (UNFAVORABLE) $ 1,691,708.00 $ 1,691,708.00 $ 6,924,928.00 6,244,751.21 0.00 -680,176.79 $ 8,616,636.00 $ 7,936,459.21 $ _ _ _-.:.68:.:0:.!.,1:..:.7.:.6:.:..7.:..9 EXPENDITURES Personal Services: Education, General and Departmental Services Sponsored Operations Operating Expenses: Education, General and Departmental Services Sponsored Operations $ 2,170,316.00 $ 2,142,199.36 $ 1,776,989.00 2,279,435.65 819,331.00 3,850,000.00 1,099,104.63 2,306,917.76 28,116.64 -502,446.65 -279,773.63 1,543,082.24 $ 8,616,636.00 $ 7,827,657.40 $ _ ___;_78:.:8:.,_;,9:..:.7..:.8:..:.6.:..0 Excess of Revenues over Expenditures =====-======= $ 108,801.81 $ 108,801.81 (1) Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. - 22 - SKIDAWAY INSTITUTE OF OCEANOGRAPHY RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2004 SCHEDULE 311 11 Totals per Annual Supplement Compensated Absences June 30, 2004 June 30, 2003 Adjustments Shared Services on Jointly Staffed Personnel Armstrong Atlantic State University Holliman, Patricia Georgia Southern University Alexander, Clark SALARIES $ 3,643,549.35 $ TRAVEL 175,898.65 326,308.31 -368,017.03 1,211.06 -44,016.00 $ 3,559,035.69 $ ==-17=5=,8=98=.6=5= See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. - 23 - SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SKIDAWAY INSTITUTE OF OCEANOGRAPHY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-593-02-02 FS-593-02-03 FS-593-03-01 Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS SKIDAWAY INSTITUTE OF OCEANOGRAPHY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.