Skidaway Institute of Oceanography, Savannah, Georgia, report on audit of the financial statements for fiscal year ended June 30, 2011

SKIDAWAY INSTITUTE
OF OCEANOGRAPHY
SAVANNAH, GEORGIA

REPORT ON AUDIT

OF THE FINANCIAZl STATEMENTS

FOR THE FISCAL YEAR ENDED

. 'I.

JUNE 30,2011

Georgia Department of Audits and Accounts

SKIDAWAY INSTITUTE OF OCEANOGRAPHY - 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

EXH IBlTS

A STATEMENTOFNETASSETS

B STATEMENT OF REVENUES, EXPENSESAND CHANGES IN NET ASSETS

C STATEMENT OF CASH FLOWS

D NOTES TO THE FINANCIAL STATEMENTS

SUPPLEMENTARY INFORMATION

SCHEDULES

1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND

18

2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT

(NON-GAAP BASIS) BUDGET FUND

19

3 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET

BY PROGRAM AND FUNDING SOURCE

(NON-GAAP BASIS) BUDGET FUND

20

4 STATEMENT OF CHANGES TO FUND BALANCE

BY PROGRAM AND FUNDING SOURCE

(NON-GAAP BASIS) BUDGET FUND

2 2

5 RECONCILIATION OF SALARIES AND TRAVEL

2 5

SKIDAWAY INSTITUTE OF OCEANOGRAPHY
- TABLE OF CONTENTS -
SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGSAND QUESTIONEDCOSTS

SECTION I FINANCIAL

Russell W. Hinton
STATE AUDITOR
(404) 666.2174

DEPARTMENOTF AUDITSAND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
October 20, 2 0 1 1

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable James Sanders, Director Skidaway lnstitute of Oceanography
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 Skidaway lnstitute of Oceanography, a unit of the University System of Georgia, which is an organizational unit of the State of Georgia as of and for the year ended June 30, 2011. These financial statements are the responsibility of the Skidaway lnstitute of Oceanography's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Institute's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1,the financial statements of Skidaway lnstitute of Oceanography 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 Skidaway lnstitute of Oceanography. They do not purport to, and do not, present fairly the financial position and changes in financial position and cash flows of the State of Georgia, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Skidaway lnstitute of Oceanography as of June 30, 2011, and the respective changes in financial position and cash flows, thereof, for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Management's Discussion and Analysis is not a required part of the 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 of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit this information and express no opinion on it.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Skidaway lnstitute of Oceanography taken as a whole. The accompanying supplementary information (Schedules 1through 5) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it.
Respectfully submitted,
~ u k e lWl . Hinton, CPA, CGFM State Auditor

REQUIREDSUPPLEMENTARY INFORMATION

SKIDAWAY INSTITUTE OF OCEANOGRAPHY
Management's Discussion and Analysis
Introduction
The Skidaway lnstitute 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 lnstitute offers easy access to the barrier islands, estuaries, and continental shelf of the southeastern U. S. as well as the open ocean. The lnstitute conducts leading edge research on marine and coastal systems, trains tomorrow's marine scientists, serves as a gateway to marine environments and integrates University 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 lnstitute 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 of the Financial Statemenis and Financial Analysis
Skidaway lnstitute of Oceanography is proud to present its financial statements for fiscal year 2011. 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 2011and fiscal year 2010.
Statement of Net Assek
The Statement of Net Assets presents the assets, liabilities, and net assets of the lnstitute 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 Skidaway lnstitute of Oceanography.The Statement of Net Assets presents end-ofyear data concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements.
From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors.
Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, provides the institution's equity in property, plant and equipment owned by the institution. The next asset category is restricted net assets, expendable. Expendable restricted net assets are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted net assets are available to the institution for any lawful purpose of the institution.

Statement of Net Assets, Condensed

Assets: Current Assets Capital Assets, Net

June 30,2011

June 30,2020

Total Assets

Liabilities: Current Liabilities Noncurrent Liabilities

Total Liabilities

Net Assets: Invested in Capital Assets Restricted - Expendable Unrestricted
Total Net Assets

The total assets of the institution decreased by $(456,214). A review of the Statement of Net Assets will reveal that the decrease was primarily due to a decrease of $(300,346) in the category of Capital Assets, Net. The consumption of assets follows the Institute's philosophy to use available resources to acquire and improve all areas of the Institute to better serve the research and public service missions of the Institute.
The total liabilities for the year increased by $31,663. The combination of the decrease in total assets of $(456,214) and the increase in total liabilities of $31,663 yields a decrease in total net assets of $(487,877). The decrease in total net assets is primarily in the category of Unrestricted Net Assets, in the amount of $(192,901).
Statement of Revenues, 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 30.2011

June 30.2010

Operating Revenues Operating Expenses

Operating Loss Nonoperating Revenues and Expenses Income (Loss) Before other Revenues, Expenses, Gains or Losses Other Revenues, Expenses, Gains or Losses Increase (Decrease) in Net Assets Net Assets at Beginning of Year
Net Assets at End of Year

$ (3,694,440) 3,056.196
$ (638,244) 150,367
$ (487,877) 11,277,993
$ 10,790,116

The Statement of Revenues, Expenses and Changes in Net Assets reflect a slight downturn in the year with a decrease in the net assets at the end of the year. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are as follows:

Revenue by Source For the Years Ended June 30,2011 and June 30,2010

Operating Revenue Grants and Contracts Sales and Services Auxiliary Other
Total Operating Revenue
Nonoperating Revenue State Appropriations Grants and Contracts Gifts Interest lncome Other
Total Nonoperating Revenue
Capital Gifts and Grants State
Total Revenues

June 3 0 , 2 0 1 1

June 30,2010

Expenses (By Functional Classification) For the Years Ended June 3 0 , 2 0 1 1and June 30,2010

Operating Expenses Research Academic Support InstitutionalSupport Plant Operations and Maintenance Auxiliary Enterprises

June 30,2011
$ 3,784,525 1,498,910 1,005,218 1,529,170 65,660

June 30,2010
$ 3,305,326 907,339
1,048,959 1,422,001
55,582

Total Operating Expenses
Nonoperating Expenses Interest Expense (CapitalAssets) Total Expenses

$ 7,883,483 $ 7,883,483

$ 6,739,207
3,636 $ 6,742,843

Operating revenues increased by $627,977 in fiscal year 2011. Revenues increased in Grants and Contracts, Auxiliary and Other categories.
The Auxiliary revenue increase of $11,536 is a result of the increase in sponsored funding, bringing more visiting scientists and graduate students to the campus.
Nonoperating revenues decreased by $(10,684) for the year primarily due to an decrease in State Appropriations.
The compensation and employee benefits category increased by $318,594 and primarily affected the category. The increase reflects the addition of two faculty members, and one research coordinator, and an increased cost of health insurance for the employees of the institution.
Utilities increased by $21,617 during the past year. The increase was primarily associated with the increased electricity costs that were experienced in fiscal year 2 0 1 1 and affected the Plant Operations and Maintenance category.
Statement of Cash 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.

Cash Flows for the Years Ended June 3 0 , 2 0 1 1 and 2010, Condensed

Cash Provided (used) By: Operating Activities Non-capital Financing Activities Capital and Related FinancingActivities Investing Activities

June 30,2011
$ (3,288,351) 3,058,764 (276,918) 682

June 30,2010
$ (2,524.889) 3,075,105 (376,419) (183)

Net Change in Cash Cash, Beginningof Year

Cash, End of Year

Capital Asset3
The lnstitute had no significant capital asset additions for facilities in fiscal year 2011.
For additional information concerning Capital Assets, see Notes 1and 4 in the Notes to the Financial Statements.
Long- Term Liabilities
Skidaway lnstitute of Oceanography had Long-Term Liabilities of $317,603 of which $238,570 was reflected as a current liability at June 30, 2011.
For additional information concerning Long-Term Liabilities, see Notes 1and 6 in the Notes to the Financial Statements.
Economic Outlook
The lnstitute 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. Even with a relatively flat funded year, the lnstitute only sustained a slight decrease in Net Assets. The lnstitute 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.
Dr. James G. Sanders, Director Skidaway lnstitute of Oceanography

BASIC FINANCIAL STATEMENTS

SKIDAWAY INSTITUTE OF OCEANOGRAPHY STATEMENT OF NET ASETS JUNE 3 0 , 2 0 1 1
ASSETS
Current Assets Cash and Cash Equivalents Accounts Receivable (Note 3) Receivables- Federal FinancialAssistance Receivables- Other
Total Current Assets
Noncurrent Assets Capital Assets. Net (Note 4)
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Deferred Revenue (Note 5) Compensated Absences
Total Current Liabilities
Noncurrent Liabilities Compensated Absences
Total Liabilities
NET ASSETS
Invested in Capital Assets Restricted for:
Expendable Unrestricted
Total Net Assets

EXHIBIT "A"

The notes to the financial statements are an integral part of this statement. -2-

SKIDAWAY INSTITUTE OF OCEANOGRAPHY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
FOR THE YEAR ENDEDJUNE 30,2011
OPERATING REVENUES
Grants and Contracts Federal State Other
Rents and Royalties Auxiliary Enterprises
Residence Halls Other Organizations Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benef~ts Other PersonalServices Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating lncome (LOSS)
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal Gifts Interest lncome Other Nonoperating Revenues
Net Nonoperating Revenues
Income (Loss) Before Other Revenues. Expenses, Gains, or Losses
Capital Grants and Gifts State
Increase(Decrease) in Net Assets
Net Assets - Beginningof Year
Net Assets - End of Year
The notes to the financial statements are an integral part of this statement.
- 3-

EXHIBIT "B"

SKIDAWAY INSTITUTE OF OCEANOGRAPHY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,2011
CASH FLOWS FROM OPERATING ACTIVITIES Grants and Contracts (Exchange) Paymentsto Suppliers Paymentsto Employees Paymentsfor Scholarships and Feilowsh~ps Auxiliary Enterprise Charges: Residence Halls Other Organizations Other Receipts (Payments) Net Cash Provided (Used) by OperatingActivities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Gifts and Grants Received for Other than Capital Purposes Net Cash Flows Provided (Used) by Noncapitai FinancingActivities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Purchasesof Capital Assets Net Cash Provlded(Used) by Capital and Related FinancingActivities
CASH FLOWS FROM INVESTING ACTIVITIES Interest Net Increase (Decrease)in Cash
Cash and Cash Equivalents- Beginning of Year
Cash and Cash Equivalents- End of Year
RECONCILIATIONOF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating lncome (Loss) Adjustments to ReconcileOperating Income (LOSSt)o Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable Accounts Payable Deferred Revenue Compensated Absences
Net Cash Provided (Used) by Operating Activities
The notes to the financial statements are an integral part of this statement.
- 4

SKIDAWAY IN!3TlUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011

EXHIBIT "D"

Note 1.Summary of SignificantAccounting Policies
Nature of Operations The Skidaway lnstitute of Oceanography serves the state, national and international communities by providing research and instruction that advances fundamental knowledge and by disseminating that knowledge to the people of Georgia and throughout the country.
Reporting Entity The Skidaway lnstitute of Oceanography is a unique, multidisciplinary lnstitute within the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of Skidaway lnstitute 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 lnstitute of Oceanography does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Skidaway lnstitute 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 GovernmentalAccounting and Financial Re~ortingS; tandards.
Legally separate, tax exempt organizations whose activities primarily support member colleges of postsecondary education in Georgia which comprise the University System of Georgia (an organizational unit of the State of Georgia), are considered potential component units of the State. See Note (12) for additional information.
Financial Statement Presentation 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 and cash flows.
Basis of Accounting For financial reporting purposes, the lnstitute 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 lnstitute has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The lnstitute 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.

SKIDAWAY INSTITUTE OF OCEANOGRAPHY
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2011

EXHIBIT "D"

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 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 Institute's grants and contracts.
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 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000 and/or significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation, which also includes amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, and copyrights, as well as software is computed using the straight-line method over the estimated useful lives of the assets, generally 4 0 to 6 0 years for buildings, 2 0 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 Financingand 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 GSFlC retains construction in progress on its books throughout the construction period and transfers the entire project to the lnstitute when complete. For projects managed by the Institute, the lnstitute retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2011, GSFIC did not transfer any capital additions to Skidaway lnstitute of Oceanography.
Deferred Revenues 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 Statement of Revenues, Expenses and Changes in Net Assets. Skidaway lnstitute of Oceanography had accrued liability for compensated absences in the amount of $313,933 as of July 1, 2010. For fiscal year 2011, $235,113 was earned in compensated absences and employees were paid $231,443 for a net increase of $3,670. The ending balance as of June 30, 2 0 1 1 in accrued liability for compensated absences was $317,603.
Noncurrent Liabilities Noncurrent liabilities include liabilities that will not be paid within the next fiscal year.
Net Assets The Institute's net assets are classified as follows:

SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011

EXHIBIT "D"

Investedin capitalassets:This represents the Institute's total investment in capital assets.
- Restricted net assets expendable: Restricted expendable net assets include resources in which the
lnstitute 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

$

5,370

Unrestrided net assets: Unrestricted net assets represent resources derived from 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). At June 30, 2011, there was no surplus balance to be refunded. Unexpendedstate appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the Office of the State Treasurer. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for faculty and staff.

Unrestricted Net Assets includes the following item which is quasi-restricted by management.

Total Unrestricted Net Assets - Other

$ 137,234

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 and Expenses
The Statement of Revenues, Expenses and Changes in Net Assets classify fiscal year activity as operating and nonoperating according to the following criteria:
Operating Revenues: Operating revenue includes activities that have the characteristics of exchange transactions, such as (1)certain Federal, state and local grants and contracts, and (2) sales and services.
Nonoperating Revenues: Nonoperating revenue includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenue by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and GovernmentalEntitles That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.
Operating Expenses Operating expense includes activities that have the characteristics of exchange transactions.
Nonoperating Bpenses: Nonoperating expense includes activities that have the characteristics of nonexchange transactions, such as capital financing costs and costs related to investment activity.

SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011

EXHIBIT "DM

Note 2. Deposit%
Deposits The custodial credit risk for deposits is the risk that in the event of a bank failure, the Institute's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the Institute) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:

1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.

2.

Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or

municipalities of the State of Georgia.

3.

Bonds of any public authority created by the laws of the State of Georgia, providing that the

statute that created the authority authorized the use of the bonds for this purpose.

4.

Industrial revenue bonds and bonds of development authorities created by the laws of the

State of Georgia.

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, 2011, the carrying value of deposits was $121,418 and the bank balance was $211,157. Of the Institute's deposits, $211,157 were uninsured. Of these uninsured deposits, $211,157 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the Institute's name.

Note 3. Accounts Receivable Accounts receivable consisted of the following at June 30, 2011:

Auxiliary Enterprises and Other Operating Activities

$

Federal Financial Assistance

Other

2,595 510,873 236,766

Total Accounts Receivable

$

750,234

SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011

EXHIBrT "D"

Note 4. Capita/Arne&
Followingare the changes in capital assets for the year ended June 30,2011:

Capital Assets, Not Being Depreciated:
Land

Wnning Balances
July 1,2010

Additions

Reductions

Ending Balance
June 30,2011

$ 449,460 $

- $

- $

449,460

Capital Assets,Being Depreciated/Amortized:
l nfrastructure Buildingand Buildinglmprovemts Facilitiesand Other Improvements Equipment Capital Leases Library Collections
Total Assets Being Depreciated/Amrtized

$ 1017,252 9,890,762 604,524 5,731335 $ 185,333 136,859
$ 17,566,m $

419,285 $ 8,000
427,285 $

$
222,265 222,265 $

2017,252 9,890,762
604,524 5,928,355
185,333 144,859
17,771,085

Less: Accumulated Depreciation/Amortimtion lnftastnrcture Buildin@ Facilitiesand Other Improvements
Equipment Capital Leases Library Collections

$ $ 2792,828
280,118
3,852,658
19,563
122,500

24,414 232243 26,889 438,597 $
3,238

$ 219,015

24,414 3,024,071
307,007
4,072,240 19,563 125,738

Total Accumulated Depreciation/Mmtization $ 7,067,667 $ 724,381 $ 219,015 $
Total Capital Assets, Being Depreciated/Amortized, Net

7,573,033

Capital Assets, Net

N o t e 5. DeferredRevenue Deferred revenue consisted of the following a t June 30,2011:

Research

$

280.374

SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO M E FINANCIAL STATEMENTS JUNE 30, 2011

EXHIBIT "D"

Note 6. Long-Term Liabilities Long-Term liability activity for the year ended June 30, 2 0 1 1 was as follows:

Wnnirg Balance JulY&m Addions

Muctions

mrg Balance Jule?iQ2011

OUler Liabilities

Cinmt Partion

Note 7. Retirement Plans
Skidaway Institute of Oceanography participates in various retirement plans administered by the State of Georgia under two major retirement systems: Employees' Retirement System of Georgia (ERS System) and Teachers Retirement System of Georgia. These two systems issue separate publicly available financial reports that include the applicable financial statements and required supplementary information. The reports may be obtained from the respective system offices. The significant retirement plans that Skidaway Institute of Oceanography participates in are described below. More detailed information can be found in the plan agreements and related legislation. Each plan, including benefit and contribution provisions, was established and can be amended by State law.
Teachers Retirement System of Georgia
The Teachers Retirement System of Georgia (TRS) is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS.
On October 25, 1996, the Board created the Supplemental Retirement Benefit Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1,1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits.
TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.
Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 30 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available.

SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011

EXHIBIT "D"

TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 1 0 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2 0 1 1 were 5.53% of annual salary. Employer contributions required for fiscal year 2 0 1 1 were 10.28% of annual salary as required by the June 30, 2008 actuarial valuation.

The following table summarizes the Skidaway lnstitute of Oceanography contributions by defined benefit plan for the years ending June 30,2011, June 2010, and June 2009 (dollars in thousands):

Fiscal Year

TRS Required Contribution

Percentage Contributed

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. 47-21-1 et.seq. and 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 TIM-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 lnstitute 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. For fiscal year 2011, the employer contribution was 9.24% for 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 lnstitute of Oceanography and the covered employees made the required contributions of $83,431 (9.24%) and $45,147 (5%),respectively.
AIG-VALIC, American Century, Fidelity, and TIM-CREF have separately issued financial reports which may be obtained through their respective corporate offices.

SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011

EXHIBIT "D"

Georgia Defined Contribution Plan
Plan Description Skidaway lnstitute of Oceanography 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.
Total contributions made by employees during fiscal year 2011 amounted to $1,491 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 8, Risk Management
The University System of Georgia offers its employees and retirees access to three different selfinsured healthcare plan options. A PPO/PPO Consumer healthcare plan was offered for the entire reporting period, and effective 01/01/2011, a HSA/High Deductible PPO and a HMO are also offered on a self-insured basis. The HSA/High Deductible PPO and HMO were previously insured through Blue Cross Blue Shield of Georgia. Skidaway lnstitute 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 plans are considered to be a self-sustaining risk fund. 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 self-insured healthcare plan products. In addition to the self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HMO healthcare plan option is also offered to System employees through Kaiser.
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

SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011

EXHIBIT "D"

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 lnstitute of Oceanography, 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 UniversitySystem 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 9. 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 disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined a t this time although Skidaway lnstitute of Oceanography expects such amounts, if any, to be immaterial to its overall financial position.
Litigation, claims and assessments filed against Skidaway lnstitute 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 30,2011.
Note 10. Post-Employment Benefiis Other Than Pension Sene*
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 20-3-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.
The Board of Regents Retiree Health Benefit Plan is a single employer defined benefit plan. Financial statements and required supplementary information for the Plan are included in the publicly available Consolidated Annual Financial Report of the University System of Georgia. The College pays the employer portion of health insurance for its eligible retirees based on rates that are established annually by the Board of Regents for the upcoming plan year. For the 2010 and 2 0 1 1 plan years, the employer rate was between 70-75% of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%.

SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011

EXHIBIT "D"

As of June 30, 2011, there were 2 6 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2011, Skidaway Institute of Oceanography recognized as incurred $145,752 of expenditures, which was net of $67,551 of participant contributions.
Note 11. Natural Classifications with Functional Classifiwtions
The Institute's operating expenses by functional classification for fiscal year 2 0 1 1 are shown below:

Functional Classification Fiscal Year 2 0 1 1

Natural Classification

Research

Academic Support

Institutional Support

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

Total Expenses

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

Functional Classification

FiscalYear 2 0 1 1

Plant

Operations

Auxiliary

& Maintenance Enter~rises

Total Exoenses

SKIDAWAY INSTITUTE OF OCEANOGRAPHY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011

EXHIBIT "D"

Note 12. AIYi/iated Organizations
In accordance with GASB Statement No. 39, Determining Whether Certain Organliations are Component Units, an amendment of GASB Statement No. 14, The Reporting Entity which became effective for the year ended June 30, 2004, Skidaway Marine Science Foundation is a legally separate tax exempt organization whose activities primarily support Skidaway lnstitute of Oceanography, a unit of the lnstitute System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office determined Component Units of the State of Georgia, as required by GASB Statement No. 39 should not be assessed in relation to their significance to Skidaway lnstitute of Oceanography, but instead based on their significance to the State of Georgia. Accordingly, Skidaway Marine Science Foundation has not been determined as being significant to the State of Georgia for the year ended June 30, 2011, and as such, is not reported as a discretely presented component unit in the Comprehensive Annual Financial Report of the State of Georgia (CAFR). Significant discretely presented component units issue separate audited financial statements that can be obtained from Skidaway lnstitute of Oceanography.

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SUPPLEMENTARY INFORMATION

SKIDAWAY INSTITUTE OF OCEANOGRAPHY BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30,2011
ASSETS Cash and Cash Equivalents Accounts Receivable
Federal Financial Assistance Other
Total Assets
LIABILITIESAND FUND EOUIT/ Liabilities
Encumbrances Payable Accounts Payable Deferred Revenue
Total Liabilities Fund Balances
Resewed Indirect Cost Recoveries Restricted/Sponsored Funds Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetarystatutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
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SKIDAWAY INSTITUTEOF OCEANOGRAPHY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)
BUDGET FUND FOR THE FISCALYEAR ENDEDJUNE 30,2011

REVENUES State Appropriation State General Funds Other Funds Total Revenues
ADJUSTMENTS AND PROGRAM TRANSFERS CARRY-OVER FROM PRIOR YEARS
Prior Year Carry-Over Total Funds Available
FXPENDITURES Skidaway Institute of Oceanography Teaching Total Expenditures Excess of Funds Available over Expenditures
FUND BALANCE JULY 1 Reserved Unrese~ed
ADJUSTMENTS Unreserved Fund Balance (Surplus) Returned
to Board of Regents- University System Office
Year Ended June 30.2010 Prior Year ReSeNed Fund Balance Included in FundsAvailable FUND BALANCEJUNE 3 0
SUMMARY OF FUND BALANCE Reserved Indirect Cost Recoveries Restricted/Sponsored Funds
Total Fund Balance

BUDGET

ACTUAL

SCHEDULE "2"
VARIANCE FAVORABLE (UNFAVORABLE)

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.

SKDAWAY INSTITUTE OF OCEANOGRAPHY STATEMENT OF FUNDS AVAllABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE
(NON-GAAPBASIS) BUDGET FUND YEAR ENDEDJUNE 30.2011

Skidaway Institute of Oceanography State Appropriation State General Funds Federal Funds Other Funds
Total Skidaway Institute of Oceanography
Teaching State Appropriation State General Funds Other Funds
Total Teaching
Total Operating Activity

Original Appropriation

Amended Appropriation

Final Budget

Current Year Revenues

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 comprehenslve bas~sof accounting other than generally accepted accounting principles.

SCHEDULE " 3

Funds Available Compared to Budget

Prior Year

Adjustments and

Total

Carry-Over

Program Transfers Funds Available

Variance Positive (Negative)

Expenditures Compared to Budget

Actual

Variance Positive (Negative)

Excess (Def~c~ency) of Funds Ava~lable
Over/(Under) Expenditures

SKIDAWAY INSTITUTE OF OCEANOGRAPHY STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE
(NON-GMPBASIS) BUDGET FUND YEAR ENDEDJUNE 30,2011

Skidaway Institute of Oceanography State Appropriation State General Funds Federal Funds Other Funds
Total Skidaway Institute of Oceanography
Teaching State Appropriation State General Funds Other Funds
Total Teaching

Beginning Fund Balance/(Deficit)
July 1

Fund Balance Carried Over from
Prior Period as Funds Available

Return of Fiscal Year 2 0 1 1
Surplus

Prior Period Adjustments

Budget Unit Totals

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance wlth budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.

SCHEDULE "4"

Other Adjustments

Early Return F~scaYl ear 2012
Surplus

Excess (Deficiency) of Funds Available
Over/(Under) Expenditures

Endlng Fund Balance/(Deticit)
June 30

Analysis of Ending Fund Balance

Reserved

Surplus/(Deficit)

Total

Summary of Ending Fund Balance Reserved
Indirect Cost Recoveries Restricted/Swnsored Funds Unreserved surplus
Total Ending Fund Balance -June 3 0

$

246.457.18

5,370.84

$

$

251,828.02 $

0.00 0.00 $

0.00 251.828.02

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SKIDAWAY INSTITUTE OF OCEANOGRAPHY RECONCILIATIONOF SALARIESAND TRAVEL
YEAR ENDED JUNE 30,2011

Totals per Annual Supplement

Compensated Absences June 30,2011 June 30.2010

Adjustments

Shared Services on Jointly Staffed Personnel

Georgia Southern University

Alexander,

Clark

SALARIES

SCHEDULE "5" TRAVEL

SECTION II CURRENT YEAR FINDINGSAND QUESTIONED COSTS

SKIDAWAY INSTITUTE OF OCEANOGRAPHY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 3 0 , 2 0 1 1

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

COMMUNICATION OF INTERNAL CONTROL DEFICIENCIES

The auditor is required to communicate to management and those charged with governance control deficiencies identified during the course of the financial statement audit that, in the auditor's judgment, constitute significant deficiencies or material weakness.

A deficiency in internal controls exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the Skidaway lnstitute of Oceanography's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Any identified deficiencies in internal controls that we did not consider to be significant deficiencies and/or material weaknesses have been communicated to management and those charged with governance within a separate management letter dated October 20, 2011. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below:

EXPENDlTURES/LIABILITIES/DISBURSEMENTS Inadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-593-11-01

Condition:

Accounting procedures of the Institute were insufficient to provide for adequate control over expenditures/liabiIities/disbursements.

Criteria:

An adequate system of internal controls dictates that key accounting functions related to requisitions, approval, custody, record keeping and authorization be properly separated.

Questioned Cost:

N/A

Information:

The following weaknesses/deficiencies were noted related to the purchasing process:

Formal requisitions were not utilized. The purchase order creation function, purchase order approval function, receipt of goods function, check preparation function and custody of the signature stamp were not separated. The check preparation function was not separated from the journal entry function; however,journal entries were approved by another individual as a compensating control.
Vouchers packages did not contain evidence of approval. Many purchase orders did not contain evidence of approval.

SKIDAWAY INSTITUTE OF OCEANOGRAPHY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 3 0 , 2 0 1 1

FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS

EXPENDlTURES/LIABI LlTlES/DISBURSEMENTS lnadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-593-11-01

The following weaknesses/deficiencies were noted related to the travel reimbursement process:

Some trips were not formally preapproved with an appropriate signature on the "Request for Authority to Travel at School Expense"form.
Some on-line travel expense reports were submitted under one user access name and approved under another user access name although both user access names belonged to the same employee. Some of the on-line travel expense reports were not approved by another employee as required.

Cause:

The Institute's management failed to ensure that internal controls related to the purchasing and travel reimbursement processes were established, implemented and functioning.

Effect:

Without satisfactory accounting controls and procedures in place, the lnstitute could place itself in a position where the potential misappropriation of assets could occur.

Recommendation:

The lnstitute should establish control procedures related to the purchasing process to ensure that the key accounting functions of custody, record keeping and authorization are separated and/or utilize oversight for these incompatible activities. The lnstitute should also establish approval procedures related to travel reimbursements. In addition, management should monitor controls to provide reasonable assurance that transactions are processed according to established policies.

BUDGET PREPARATION/EXECUTION GENERAL LEDGER lnadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-593-11-02

Condition:

Through our examination, it was determined that the Institute failed to
properly maintain budgetary financial activity on the accounting records by program and fund source that complies with the Prioritized Program Based Budgeting requirements of the Appropriations Act as approved by the Georgia General Assembly.

Criteria:

Management is responsible for establishing, maintaining and monitoring internal controls, the purpose of which is to ensure the fair presentation of the budget basis financial statements provided for inclusion in the State of Georgia Budgetary Compliance Report. The lnstitute must demonstrate their compliance by reporting revenues and expenditure by fund source within program as compared to their budget.
-2-

SKIDAWAY INSTITUTE OF OCEANOGRAPHY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30.2011

FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS

BUDGET PREPARATION/EXECUTION GENERAL LEDGER lnadequate Accounting Procedures Significant Deficiency Finding Control Number: FS-593-11-02

Questioned Cost:

N/A

Information:

A review of the budget basis financial statements revealed that the accounting records were not maintained in accordance with the legal level of budgetary control.

Cause:

These deficiencies were the result of budgetary activity not being properly maintained by separate identifying source codes/funding sources and a lack of controls over the preparation of the budgetary basis financial statements.

Effect:

Due to the lack of proper identification of budgetary activity, the auditor was unable to determine the validity of the budget basis statements.

Recommendation:

The lnstitute should contact the Board of Regents regarding establishing identifying source codes and/or funding sources for all of the budgetary activity. The Institute should also establish formal policies and procedures to ensure that amounts posted to the budgetary basis statements are accurate and properly documented.

FlNANClAL REPORTING lnadequate Controls over Financial Reporting Material Weakness Finding Control Number: FS-593-11-03

Condition:

The Institute's accounting procedures were insufficient to provide for adequate controls over the financial statements preparation process.

Criteria:

A system of internal control over financial reporting does not stop at the general ledger. Management is responsible for implementing a system of internal control over the preparation of financial statements prepared in accordance with generally accepted accounting principles (GAAP). Additionally, the lnstitute is required to annually submit GAAP basis financial statements for inclusion in the State of Georgia's Comprehensive Annual Financial Report (CAFR) and the State of Georgia's Single Audit Report.

Questioned Cost:

N/A

Information:

During the audit, the following deficiencies were noted in the Institute's GAAP basis financial statements:
1. Expenditures and Beginning Net Assets were both understated by $1,014,833. Beginning Net Assets did not tie to the prior year's final financial statement's ending Net Assets. An audit adjustment was proposed and posted to correct this material error.

SKIDAWAY INSTITUTE OF OCEANOGRAPHY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 3 0 , 2 0 1 1

FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS
FINANCIAL REPORTING Inadequate Controls over Financial Reporting Material Weakness Finding Control Number: FS-593-11-03

2. The Cash Flow Statement required adjustments to properly reflect Payments to Suppliers and beginning Cash.

3. Several errors were noted in the Notes to the Financial Statements requiring adjustment.
4. Management's Discussion and Analysis required adjustment to agree to the Financial Statements.

Cause:

The Institute's management failed to adequately review the year-end financial statements to ensure that the statements as presented for audit were accurate.

Effect:

Material misstatements were included in the financial statements presented for audit. In addition, the lack of controls and monitoring could impact the reporting of the Institute's financial position and results of operations.

Recommendation:

The Institute should review the accounting controls and procedures currently in place, identify weaknesses, and design and implement procedures necessary to strengthen controls over the preparation of the financial statements.

FEDERALAWARD FINDINGSAND OUESTIONED COSTS

No matters were reported.