Southern Polytechnic State University, Marietta, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2012

SOUTHERN POLYTECHNIC STATE UNIVERSITY
MARIETTA, GEORGIA
REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2012
Georgia Department of Audits and Accounts Greg S. Griffin State Auditor

SOUTHERN POLYTECHNIC STATE UNIVERSITY - TABLE OF CONTENTS -
SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS EXHIBITS A STATEMENT OF NET ASSETS B STATEMENT OF REVENUES, EXPENSES AND 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 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND 3 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND 4 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND 5 BUDGET TO GAAP RECONCILIATION 6 RECONCILIATION OF SALARIES AND TRAVEL
SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

Page
i
2 3 4 7
26 27 28 30 32 33

SECTION I FINANCIAL

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
March 8, 2013

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 Lisa A. Rossbacher, President Southern Polytechnic State University
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying basic financial statements (Exhibits A through D) of Southern Polytechnic State University, 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, 2012. These financial statements are the responsibility of the Southern Polytechnic State University's management. Our responsibility is to express an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, 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 Southern Polytechnic State University'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.
In accordance with section 50-6-1(c) of the Official Code of Georgia Annotated, Greg S. Griffin was appointed State Auditor on July 1, 2012. During the year under review, Mr. Griffin served as the State Accounting Officer. As the State Accounting Officer, Mr. Griffin was responsible for the State's accounting and financial reporting practices.
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of Southern Polytechnic State University as of June 30, 2012, 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.
12ARL-62

As discussed in Note 1, the financial statements of Southern Polytechnic State University are intended to present the financial position and changes in financial position and cash flows of only that portion of the business-type activities of the State of Georgia that is attributable to the transactions of Southern Polytechnic State University. They do not purport to, and do not, present fairly the financial position of the State of Georgia as of June 30, 2012, the changes in its financial position or its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages i through vi be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consists of inquires of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Southern Polytechnic State University taken as a whole. The accompanying supplementary information (Schedules 1 through 6) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting or other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Respectfully,

GSG:as 12ARL-62

Greg S. Griffin State Auditor

REQUIRED SUPPLEMENTARY INFORMATION

SOUTHERN POLYTECHNIC STATE UNIVERSITY
Management's Discussion and Analysis

Introduction
Southern Polytechnic State University is one of the 35 institutions of higher education of the University System of Georgia. The University, located in Marietta, Georgia, was founded in 1948 as a two-year division of Georgia Institute of Technology. The University became accredited as a four-year college in 1970, and was one of the first colleges in the nation to offer the Bachelor of Engineering Technology degree. In the summer of 1980, Southern Polytechnic State University became the 14th senior college and the 33rd independent unit of the University System of Georgia. The campus currently encompasses approximately 198 acres and contains 46 buildings.
Southern Polytechnic State University offers baccalaureate and master's degrees that contain a balance of technical, professional, and liberal arts courses with an emphasis on relevant, application-oriented teaching. The University's unique mission attracts a highly qualified faculty and student body that has had the fourth highest SAT average amongst System institutions. The University continues to grow as shown by the comparison numbers below:

Faculty

Students (Headcount)

Students (FTE)

Fiscal Year 2012 Fiscal Year 2011 Fiscal Year 2010

214

5,799

220

5,514

178

5,183

Overview of the Financial Statements and Financial Analysis

5,065 4,814 4,533

Southern Polytechnic State University is proud to present its financial statements for fiscal year 2012. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. This discussion and analysis of the University's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2012 and fiscal year 2011.
Statement of Net Assets

The Statement of Net Assets presents the assets, liabilities, and net assets of the University as of the end of the fiscal year. The Statement of Net Assets is a point of time financial statement. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a fiscal snapshot of Southern Polytechnic State University. The Statement of Net Assets presents endof-year data concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements.

From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors.

i

Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the institution's equity in property, plant and equipment owned by the institution. The next asset category is restricted net assets, which is divided into two categories, nonexpendable and expendable. The corpus of nonexpendable restricted resources is only available for investment purposes. Expendable restricted net assets are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted net assets are available to the institution for any lawful purpose of the institution.
Statement of Net Assets, Condensed

June 30, 2012

June 30, 2011

Assets Current Assets Capital Assets, Net Other Assets

$ 16,362,869 177,383,781 3,369,365

$ 17,342,362 178,540,064 3,397,392

Total Assets

$ 197,116,015

$ 199,279,818

Liabilities Current Liabilities Noncurrent Liabilities

$

9,272,484

87,734,060

$ 11,824,815 89,505,680

Total Liabilities

$ 97,006,544

$ 101,330,495

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

$ 88,375,933 1,437,397 1,827,359 8,468,782

$ 87,932,812 1,437,397 1,809,689 6,769,425

Total Net Assets

$ 100,109,471

$ 97,949,323

The total assets decreased by $2,163,803. A review of the Statement of Net Assets will reveal that the decrease was primarily due to a decrease of $2,117,324 in the category of Prepaid Items. The balance of the decrease is mainly in current assets category. The consumption of assets follows the institutional philosophy to use available resources to acquire and improve all areas of the institution to better serve the instruction, research and public service missions of the institution.
The total liabilities decreased for the year by $4,323,951. The combination of the decrease in total assets of $2,163,803 and the decrease in total liabilities of $4,323,951 yields an increase in total net assets of $2,160,148. The increase in total net assets is primarily in the category of unrestricted net assets, in the amount of $1,699,357.

ii

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, 2012

June 30, 2011

Operating Revenues Operating Expenses

$ 45,750,105 74,495,692

$ 42,294,838 72,305,687

Operating Loss

$ -28,745,587

$ -30,010,849

Nonoperating Revenues and Expenses

25,319,919

26,884,692

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

$ -3,425,668

$ -3,126,157

Other Revenues, Expenses, Gains or Losses

2,796,847

36,245,101

Increase (Decrease) in Net Assets

$

-628,821

$ 33,118,944

Net Assets at Beginning of Year, as Originally Reported

$ 97,949,323

$ 64,830,379

Prior Year Adjustments

2,788,969

Net Assets at Beginning of Year, Restated

$ 100,738,292

$ 64,830,379

Net Assets at End of Year

$ 100,109,471

$ 97,949,323

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

iii

Revenue by Source For the Years Ended June 30, 2012 and June 30, 2011

June 30, 2012

June 30, 2011

Operating Revenue

Tuition and Fees

$

Grants and Contracts

Sales and Services of Educational Departments

Auxiliary

Other

28,723,247 1,414,455 618,586
14,569,559 424,258

$ 26,320,329 976,120
1,228,391 13,543,542
226,456

Total Operating Revenue
Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other

$ 45,750,105
$ 19,023,434 9,585,876 1,037,953 264,902 363,621

$ 42,294,838
$ 20,256,974 9,776,228 297,396 648,260 878,072

Total Nonoperating Revenue
Capital Grants and Gifts State
Total Revenues

$ 30,275,786
$ 2,796,847 $ 78,822,738

$ 31,856,930
$ 36,245,101 $ 110,396,869

Expenses (By Functional Classification) For the Years Ended June 30, 2012 and June 30, 2011

June 30, 2012

June 30, 2011

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

$ 24,102,171 655,184 220,598
7,120,757 4,170,951 10,380,624 10,948,257 5,260,319 11,636,831

$ 20,279,868 399,784 232,280
6,789,785 4,314,517 9,000,496 12,469,570 9,778,538 9,040,849

Total Operating Expenses

$ 74,495,692

$ 72,305,687

Nonoperating Expenses Interest Expense (Capital Assets)
Total Expenses

4,955,867 $ 79,451,559

4,972,238 $ 77,277,925

iv

Operating revenues increased by $3,455,267 in fiscal year 2012. Although Tuition and Fees included a 9% increase, revenues decreased in the Sales and Services category.
The Auxiliary revenue increase of $1,026,017 is a result of an increase in student fee revenue in support of new housing and dining facilities. The net effect to the campus is that the students actually have more on-campus residential life availability.
Nonoperating revenues decreased by $1,581,144 for the year primarily due to a decrease of $1,233,540 in State Appropriations.
The compensation and employee benefits category increased by $3,463,065 and primarily affected the Instruction, Research and Academic Support categories. The increase reflects an increased cost of health insurance for the employees of the institution.
Utilities decreased by $242,728 during the past year. The decrease was primarily associated with the warmer than normal winter months.
Statement of Cash Flows
The final statement presented by the Southern Polytechnic State University is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets.
Cash Flows for the Years Ended June 30, 2012 and 2011, Condensed

June 30, 2012

June 30, 2011

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

$

-24,067,771

30,123,623

-9,611,613

290,004

$

-27,029,384

30,566,831

-6,502,216

210,420

Net Change in Cash Cash, Beginning of Year

$

-3,265,757

12,371,861

$

-2,754,349

15,126,210

Cash, End of Year

$

9,106,104

$

12,371,861

Capital Assets
For additional information concerning Capital Assets, see Notes 1, 5 and 8 in the Notes to the Financial Statements.

v

Long-Term Liabilities Southern Polytechnic State University had Long-Term Liabilities of $90,451,112 of which $2,717,052 was reflected as a current liability at June 30, 2012. For additional information concerning Long-Term Liabilities, see Notes 1 and 7 in the Notes to the Financial Statements. Economic Outlook The University is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. The University's overall financial position is strong. Even with a relatively flat funded year, the University was able to generate a modest increase in Net Assets. The University anticipates the current fiscal year will be much like last and will maintain a close watch over resources to maintain the University's ability to react to unknown internal and external issues. Dr. Lisa A. Rossbacher, President Southern Polytechnic State University
vi

BASIC FINANCIAL STATEMENTS - 1 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30, 2012
ASSETS
Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Due From Affiliated Organizations Prepaid Items
Total Current Assets
Noncurrent Assets Investments (Externally Restricted) Investments Notes Receivable Capital Assets, Net (Note 5)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deposits Deferred Revenue (Note 6) Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences
Total Current Liabilities
Noncurrent Liabilities Lease Purchase Obligations Compensated Absences
Total Noncurrent Liabilities
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Nonexpendable Expendable Unrestricted
Total Net Assets
The notes to the basic financial statements are an integral part of this statement. - 2 -

EXHIBIT "A"

$

9,106,104

293,375 3,933,608 2,937,485
92,297

$ 16,362,869

$

3,167,286

36,847

165,232

$ 177,383,781

$ 180,753,146

$ 197,116,015

$

1,495,363

319,521

152,095

-17,380

3,908,931

696,902

1,720,478

996,574

$

9,272,484

$ 87,287,370 446,690
$ 87,734,060
$ 97,006,544

$ 88,375,933
1,437,397 1,827,359 8,468,782

$ 100,109,471

SOUTHERN POLYTECHNIC STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30, 2012
OPERATING REVENUES
Student Tuition and Fees Less: Scholarship Allowances
Grants and Contracts Federal State Other
Sales and Services of Educational Departments Auxiliary Enterprises
Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal Federal - Stimulus State Gifts Interest and Other Investment Income Interest Expense Other Nonoperating Revenues/Expenses
Net Nonoperating Revenues (Expenses)
Income (Loss) Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts State
Increase (Decrease) in Net Assets
Net Assets - Beginning of Year, Restated
Net Assets - End of Year
The notes to the basic financial statements are an integral part of this statement. - 3 -

EXHIBIT "B"

$

35,193,294

-6,470,047

1,056,743 318,217 39,495 618,586

8,129,442 114,459
2,454,075 1,873,638
302,314 1,426,786
268,845 424,258

$

45,750,105

$

17,590,612

15,727,294

9,435,250

155,072

441,938

5,631,208

2,702,683

15,552,322

7,259,313

$

74,495,692

$

-28,745,587

$

19,023,434

9,100,682 271,788 213,406
1,037,953 264,902
-4,955,867 363,621

$

25,319,919

$

-3,425,668

2,796,847

$

-628,821

100,738,292

$ 100,109,471

SOUTHERN POLYTECHNIC STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Loans Issued to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Receipts (Payments)
Net Cash Provided (Used) by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes
Net Cash Flows Provided (Used) by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Gifts and Grants Received Purchases of Capital Assets Principal Paid on Capital Debt and Leases Interest Paid on Capital Debt and Leases
Net Cash Provided (Used) by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sale of Maturities of Investments Interest on Investments
Net Cash Provided (Used) by Investing Activities
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year

EXHIBIT "C"

$

28,807,120

531,178

618,586

-28,704,630

-33,064,129

-5,631,208

2,923

5,922,668 118,668
2,492,647 1,694,151
263,480 1,246,666
324,789 1,309,320

$

-24,067,771

$

19,023,434

207,240

10,892,949

$

30,123,623

$

80,947

-3,137,289

-1,645,537

-4,909,734

$

-9,611,613

$

25,102

264,902

$

290,004

$

-3,265,757

12,371,861

$

9,106,104

- 4 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2012
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Operating Income to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable Prepaid Items Notes Receivable Accounts Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Change in Accrued Interest Payable Affecting Interest Paid Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts

EXHIBIT "C"

$

-28,745,587

7,259,313
-3,859,763 1,058,092
2,923 -159,197 192,980 201,834
-18,366

$

-24,067,771

$

-46,133

$

2,715,900

The notes to the basic financial statements are an integral part of this statement. - 5 -

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

Note 1. Summary of Significant Accounting Policies
Nature of Operations Southern Polytechnic State University serves the state and national communities by providing its students with academic instruction that advances fundamental knowledge, and by disseminating knowledge to the people of Georgia and throughout the country.
Reporting Entity Southern Polytechnic State University is one of thirty-five (35) State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of Southern Polytechnic State University as a separate reporting entity.
The Board of Regents has constitutional authority to govern, control and manage the University System of Georgia. This authority includes but is not limited to the power to designate management, the ability to significantly influence operations, the authority to control institutions' budgets, the power to determine allotments of State funds to member institutions and the authority to prescribe accounting systems and administrative policies for member institutions. Southern Polytechnic State University does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Southern Polytechnic State University is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards.
Legally separate, tax exempt Affiliated Organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential Component Units of the State. See Note 16 for additional information.
Financial Statement Presentation The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the University's assets, liabilities, net assets, revenues, expenses, changes in net assets and cash flows.
Change in Application of Accounting Principle During fiscal year 2012, Southern Polytechnic State University changed its method of accounting for summer school revenues and expenses to more accurately reflect periodic results of operations between fiscal years. The effects of the change resulted in a net decrease of revenues over expenses of $2.2 million for current year activity. Prior period net assets have been restated by $2,245,144 to properly reflect the effect of this change on beginning balances.
Generally Accepted Accounting Principles (GAAP) requires that the reporting of summer school revenues and expenses be between fiscal years rather than one fiscal year. For fiscal year 2012, the calculation used to determine this split was based on the academic calendar of days taught. For consistency and transparency, this will be the basis used for this calculation by Southern Polytechnic State University.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

Basis of Accounting For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the preceding paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intraUniversity transactions have been eliminated.
The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University has elected to not apply FASB pronouncements issued after the applicable date.
Cash and Cash Equivalents Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the State Investment Pool and the Board of Regents Short-Term Investment Pool.
Short-Term Investments Short-Term Investments consist of investments of 90 days - 13 months. This would include certificates of deposits or other time restricted investments with original maturities of six months or more when purchased. Funds are not readily available and there is a penalty for early withdrawal.
Investments Investments include financial instruments with terms in excess of 13 months, certain other securities for the production of revenue, land, and other real estate held as investments by endowments. The University accounts for its investments at fair value. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Assets. The Board of Regents Legal Fund, the Board of Regents Balanced Income Fund, the Board of Regents Total Return Fund, the Board of Regents Diversified Fund, and the Georgia Extended Asset Pool are included under Investments.
Accounts Receivable Accounts receivable consists of tuition and fees charged to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Georgia. Accounts receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
Noncurrent Cash and Investments Cash and investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets.
Capital Assets Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. For equipment, the University's capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000 and/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

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

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 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged.
For projects managed by GSFIC, the GSFIC retains construction in progress on its books throughout the construction period and transfers the entire project to the University when complete. For projects managed by the University, the University retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2012, GSFIC transferred capital additions valued at $2,715,900 to Southern Polytechnic State University.
Deposits Deposits represent good faith deposits from students to reserve housing assignments in a University residence hall.
Deferred Revenues Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned.
Compensated Absences Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as compensated absences in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Assets. Southern Polytechnic State University had accrued liability for compensated absences in the amount of $1,461,630 as of July 1, 2011. For fiscal year 2012, $1,053,518 was earned in compensated absences and employees were paid $1,071,884 for a net decrease of $18,366. The ending balance as of June 30, 2012, in accrued liability for compensated absences was $1,443,264.
Noncurrent Liabilities Noncurrent liabilities include (1) liabilities that will not be paid within the next fiscal year; (2) capital lease obligations with contractual maturities greater than one year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets.
Net Assets The University's net assets are classified as follows:
Invested in capital assets, net of related debt: This represents the University's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

component of invested in capital assets, net of related debt. The term "debt obligations" as used in this definition does not include debt of the GSFIC as discussed previously in Note 1 - Capital Assets section.
Restricted net assets - nonexpendable: Nonexpendable restricted net assets consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. The University may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 44-15-7 of Annotated Code of Georgia.
Restricted net assets - expendable: Restricted expendable net assets include resources in which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties.

Expendable Restricted Net Assets include the following:

Restricted - E&G and Other Organized Activities Federal Loans Institutional Loans Quasi-Endowments

$

1,655,042

1,756

144,619

25,942

Total Restricted Expendable

$

1,827,359

Restricted net assets - expendable - Capital Projects: This represents resources for which the University is legally or contractually obligated to spend resources for capital projects in accordance with restrictions imposed by external third parties.

Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) of $402,338.03. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the Office of the State Treasurer. 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.

Reserve for Encumbrances Other Unrestricted

$

6,612,966

1,855,816

Total Unrestricted Net Assets

$

8,468,782

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

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

Income Taxes Southern Polytechnic State University, as a political subdivision of the State of Georgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended.
Classification of Revenues 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) student tuition and fees, net of scholarship allowances, (2) certain Federal, state and local grants and contracts, and (3) 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 Governmental Entities 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 Expenses: Nonoperating expense includes activities that have the characteristics of nonexchange transactions, such as capital financing costs and costs related to investment activity.
Scholarship Allowances Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net Assets. Scholarship allowances are the difference between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or third parties making payments on the students' behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs are recorded as either operating or nonoperating revenues in the University's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded contra revenue for scholarship allowances.
Restatement of Prior Year Net Assets For fiscal year 2012, the University made a variety of prior year adjustments due to various errors or omissions, which require restatement of net assets. The result is an increase in Net Assets at July 1, 2011, of $2,788,969. These changes are in accordance with generally accepted accounting principles.

Net Assets, July 1, 2011, as Previously Reported

$

97,949,323

Adjust the Reporting of Summer School Revenues Between Fiscal Years (See Note 1)

2,245,144

Housing Profits Sent to the Foundation in Error

543,825

Net Assets, July 1, 2011, as Restated

$

100,738,292

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

Note 2. Deposits and Investments
Deposits The custodial credit risk for deposits is the risk that in the event of a bank failure, the University's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.
2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.
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, 2012, the carrying value of deposits was $7,499,957 and the bank balance was $7,785,385. Of the University's deposits, $7,785,385 was uninsured. Of these uninsured deposits, $7,785,385 was collateralized with securities held by the financial institution, by its trust department or agency, but not in the University's name.
Investments Southern Polytechnic State University maintains an investment policy which fosters sound and prudent judgment in the management of assets to ensure safety of capital consistent with the fiduciary responsibility each institution has to the citizens of Georgia and which conforms to Board of Regents investment policy. All investments are consistent with donor intent, Board of Regents policy, and applicable Federal and state laws.
The University's investments as of June 30, 2012, are presented below. All investments are presented by investment type and debt securities are presented by maturity.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

Other Investments Equity Securities - Domestic

$

10,904

Investment Pools Board of Regents Short-Term Fund Balanced Income Fund Total Return Fund

1,600,507 1,027,113 2,106,546

Total Investments

$

4,745,070

The Board of Regents Investment Pool is not registered with the Securities and Exchange Commission as an investment company. The fair value of investments is determined daily. The pool does not issue shares. Each participant is allocated a pro rata share of each investment at fair value along with a pro rata share of the interest that it earns. Participation in the Board of Regents Investment Pool is voluntary. The Board of Regents Investment Pool is not rated. Additional information on the Board of Regents Investment Pool is disclosed in the audited Financial Statements of the Board of Regents of the University System of Georgia - System Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at http://www.audits.ga.gov.

Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University does not have a formal policy for managing interest rate risk.

The Effective Duration of the Short-Term Fund is .48 years. Of the University total investment of $1,600,507 in the Short-Term Fund, $1,467,521 is invested in debt securities.

The Effective Duration of the Total Return Fund is 2.93 years. Of the University total investment of $2,106,546 in the Total Return Fund, $645,762 is invested in debt securities.

The Effective Duration of the Balanced Income Fund is 2.79 years. Of the University total investment of $1,027,113 in the Balanced Income Fund, $622,174 is invested in debt securities.

Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the University will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

Note 3. Accounts Receivable Accounts receivable consisted of the following at June 30, 2012:

Student Tuition and Fees

$

Auxiliary Enterprises and Other Operating Activities

Federal Financial Assistance

Due from Affiliated Organizations

Other

2,147,806 1,911,157
293,375 2,937,485 3,368,355

Less Allowance for Doubtful Accounts

$

10,658,178

3,493,710

Net Accounts Receivable Note 4. Notes/Loans Receivable

$

7,164,468

The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2012. The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. As the University determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans are written off and assigned to the U. S. Department of Education. The University has provided an allowance for uncollectible loans, which, in management's opinion, is sufficient to absorb loans that will ultimately be written off.

At June 30, 2012, the University did not have a balance in the allowance for uncollectible notes receivable.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

Note 5. Capital Assets

Following are the changes in capital assets for the year ended June 30, 2012:

Beginning Balance July 1, 2011

Additions

Reductions

Ending Balance June 30, 2012

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

$

1,700,397

$

6,443,552 $

1,492,595

0$

1,700,397

7,936,147

Total Capital Assets, Not Being Depreciated $

8,143,949 $

1,492,595 $

0$

9,636,544

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

$

1,823,654

95,346,869 $

343,319

11,905,947

95,116,873

7,077,437

30,500

1,469,611 2,860,997 $
211,783

$
42,251 90,891

1,823,654 96,816,480
343,319 14,724,693 95,116,873
7,198,329 30,500

Total Assets Being Depreciated
Less: Accumulated Depreciation: Infrastructure Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections Capitalized Collections

$ 211,644,599 $

4,542,391 $

$

1,079,752 $

21,723,672

250,695

7,102,885

5,328,270

5,745,625

17,585

70,938 2,691,970
-1,297 1,416,778 $ 2,819,739
260,422 763

133,142 $ 216,053,848

$
110,295 90,891

1,150,690 24,415,642
249,398 8,409,368 8,148,009 5,915,156
18,348

Total Accumulated Depreciation

$

41,248,484 $

7,259,313 $

201,186 $

48,306,611

Total Capital Assets, Being Depreciated, Net $ 170,396,115 $

-2,716,922 $

-68,044 $ 167,747,237

Capital Assets, Net

$ 178,540,064 $

-1,224,327 $

-68,044 $ 177,383,781

Note 6. Deferred Revenue Deferred revenue consisted of the following at June 30, 2012:

Prepaid Tuition and Fees Other Deferred Revenue

$

2,779,270

1,129,661

Total Deferred Revenue

$

3,908,931

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

Note 7. Long-Term Liabilities Long-Term liability activity for the year ended June 30, 2012 was as follows:

Beginning Balance July 1, 2011

Additions

Reductions

Ending Balance June 30, 2012

Current Portion

Leases Lease Obligations

$ 90,607,252 $

46,133 $ 1,645,537 $ 89,007,848 $ 1,720,478

Other Liabilities Compensated Absences

1,461,630

1,053,518

1,071,884

1,443,264

996,574

Total Long-Term Obligations

$ 92,068,882 $

Note 8. Lease Obligations

1,099,651 $

2,717,421 $ 90,451,112 $

2,717,052

Southern Polytechnic State University is obligated under various operating leases for the use of real property (land, buildings, and office facilities) and equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of real property.

CAPITAL LEASES

Capital leases are generally payable in installments ranging from monthly to annually and have

terms expiring in various years between 2012 and 2040. Expenditures for fiscal year 2012 were

$7.0 million of which $4.9 million represented interest and $434,079 represented executory costs.

Total principal paid on capital leases was $1.6 million for the fiscal year ended June 30, 2012.

Interest rates range from 5.50 percent to 6.07 percent. The following is a summary of the carrying

values of assets held under capital lease at June 30, 2012:

Outstanding

Net Assets Held

Balances

Under Capital

per Lease

Accumulated

Lease at

Schedules at

Description

Gross Amount

Depreciation

June 30, 2012

June 30, 2012

(+)

(-)

(=)

Buildings

$

95,116,873 $

8,148,009 $ 86,968,864 $ 89,007,848

In July 2005, Southern Polytechnic State University entered into a capital lease of $11,643,862 at 5 percent with the Southern Polytechnic State University Foundation, Inc., a discretely presented component unit, whereby the University leases the University Common Housing building for a twentytwo year period that began July 2005 and expires June 2027. The outstanding balance at June 30, 2012, on this capital lease was $9,206,796.

In July 2005, Southern Polytechnic State University also entered into a capital lease of $22,148,456 at 5 percent with the Southern Polytechnic State University Foundation, Inc., whereby the University leases the University Courtyard Housing, the Norton Hall and Howell Hall student housing buildings for a twenty-four year period that began July 2005 and expires June 2029. The University at its option may terminate the lease and purchase the Foundation's interest for the unamortized principal balance and the payment of $1. The outstanding balance at June 30, 2012, on this capital lease was $18,143,477.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

In August 2009 Southern Polytechnic State University also entered into a capital lease of $18,261,734 at 6.07 percent with the Georgia Higher Education Facilities Authority, whereby the University leases a parking deck for a thirty year period that begins July 2010 and expires June 2040. The outstanding balance at June 30, 2012, on this capital lease was $18,351,291.
In July 2010 Southern Polytechnic State University also entered into a capital lease of $43,062,821 at 5.558 percent with the Georgia Higher Education Facilities Authority, whereby the University leases the Hornet Village, Special Interest student housing, and the student dining buildings for a twenty-nine year period that begins July 2010 and expires June 2039. The outstanding balance at June 30, 2012 on this capital lease was $43,306,284.
FUTURE COMMITMENTS
Future commitments for capital leases (which here and on the Statement of Net Assets include other installment purchase agreements) having remaining terms in excess of one year as of June 30, 2012, were as follows:
Real Property and
Equipment Capital Leases

Year Ending June 30: 2013 2014 2015 2016 2017 2018 - 2022 2023 - 2027 2028 - 2032 2033 - 2037 2038 - 2040

$

6,879,393

7,067,560

7,123,329

7,182,931

7,243,035

37,151,961

38,724,143

29,238,985

26,111,913

10,608,014

Total Minimum Lease Payments

$ 177,331,264

Less: Interest Less: Executory Costs (if paid)

75,055,802 13,267,614

Principal Outstanding

$ 89,007,848

Southern Polytechnic State University had no expense for rental of real property and equipment under operating leases in fiscal year 2012.

Note 9. Retirement Plans

Southern Polytechnic State University participates in a retirement plan administered by the State of Georgia under the Teachers Retirement System of Georgia. The system issues separate publicly available financial reports that include the applicable financial statements and required

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

supplementary information. The reports may be obtained from the system office. More detailed information can be found in the plan agreements and related legislation. The 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.
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 10 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, 2012, were 5.53% of annual salary. Employer contributions required for fiscal year 2012 were 10.28% of annual salary as required by the June 30, 2009, actuarial valuation.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

The following table summarizes the Southern Polytechnic State University contributions by defined benefit plan for the years ending June 30, 2012, June 30, 2011, and June 30, 2010 (dollars in thousands):

TRS

Required

Percent

Fiscal Year

Contribution

Contributed

2012 2011 2010

$

1,507,432

$

1,417,703

$

1,272,593

100% 100% 100%

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 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 Southern Polytechnic State University makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2012, 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.

Southern Polytechnic State University and the covered employees made the required contributions of $1,308,800 (9.24%) and $708,226 (5%), respectively.

AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.

Georgia Defined Contribution Plan

Plan Description Southern Polytechnic State University participates in the Georgia Defined Contribution Plan (GDCP) which is a single-employer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

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 2012 amounted to $68,682 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.
Note 10. Risk Management
The University System of Georgia offers its employees and retirees access to three different selfinsured healthcare plan options. Effective January 1, 2012, The Blue Cross Blue Shield of Georgia PPO and HDHP plan names were changed to BCBS Open Access PPO and HAS/HDHP Open Access POS, respectively; both plans will use the Blue Cross Blue Shield Open Access POS network. Also effective January 1, 2012, the Consumer Choice Option was eliminated and the Blue Cross Blue Shield of Georgia HMO and the Kaiser Permanente HMO were frozen for new enrollment for active employees only; the Senior Advantage Plan 65+ remained open for new enrollment.
Southern Polytechnic State University and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective selfinsured 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 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. Southern Polytechnic State University, as an organizational

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.
A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund.
Note 11. Contingencies
Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditure disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Southern Polytechnic State University expects such amounts, if any, to be immaterial to its overall financial position.
Litigation, claims and assessments filed against Southern Polytechnic State University (an organizational unit of the Board of Regents of the University System of Georgia), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2012.
Note 12. Post-Employment Benefits Other Than Pension Benefits
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 University 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 2012 plan year, the employer rate was between 70-75% of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%.
As of June 30, 2012, there were 194 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2012, Southern Polytechnic State University recognized as incurred $1,001,998 of expenditures, which was net of $457,595 of participant contributions.
- 21 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

Note 13. Natural Classifications with Functional Classifications The University's operating expenses by functional classification for fiscal year 2012 are shown below:

Functional Classification

Natural Classification

Instruction

Research

Public Service

Academic Support

Student Services

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

$ 15,373,233 $ 1,974,941 4,376,645
136,117
56,347 1,553,037
631,851

119,279 $ 120,154
31,809
13,885 138,445
191,378 40,234

3,000 $ 155,870
56,189

1,989,916 2,930,104 $ 1,125,423

2,391,871 566,743

3,693
380 1,466

99,226 6,114
19,568 779,443 170,963

55,596
17,092 1,119,476
20,173

Total Operating Expenses

$ 24,102,171 $

655,184 $

220,598 $ 7,120,757 $ 4,170,951

Natural Classification

Institutional Support

Functional Classification

Plant Operations Scholarships

and

and

Auxiliary

Maintenance

Fellowships Enterprises

Total Operating Expenses

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

$ 105,184 4,459,020 $ 2,181,034 36,988 70,996 8,400 24,422 3,272,617 221,963

2,181,797 $ 712,059 -126,046 3,763
2,036,720 2,775,264 3,364,700

537 $ 118,084 5,141,134
564

$ 1,513,000
385,348 126,046
58,662 337,115 548,534 5,860,163 2,807,963

17,590,612 15,727,294
9,435,250 155,072 441,938
5,631,208 2,702,683 15,552,322 7,259,313

Total Operating Expenses

$ 10,380,624 $

10,948,257 $ 5,260,319 $ 11,636,831 $ 74,495,692

- 22 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012

EXHIBIT "D"

Note 14. Affiliated Organizations
In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment of GASB Statement No. 14, The Reporting Entity which became effective for the year ended June 30, 2004, Southern Polytechnic State University Foundation and Southern Polytechnic State University Applied Research Foundation, are legally separate tax exempt organizations whose activities primarily support Southern Polytechnic State University, a unit of the University 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 Southern Polytechnic State University, but instead based on their significance to the State of Georgia.
Therefore, the financial statements of this affiliated organization are not included in these financial statements. Copies of the financial statements for the affiliated organization may be obtained from Southern Polytechnic State University.

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SUPPLEMENTARY INFORMATION - 25 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30, 2012
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable
Federal Financial Assistance Other
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Deferred Revenue
Total Liabilities
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Excess State Appropriations to be Remitted in Fiscal Year 2013 Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

$

7,512,975.68

59,570.26

293,374.64 4,617,917.23

$

12,483,837.81

$

332,004.66

6,322,360.44

329,587.80

3,228,039.71

$

10,211,992.61

$

22,916.42

181,350.26

289,534.66

-49,782.01

1,351,588.53

73,899.31

402,338.03

$

2,271,845.20

$

12,483,837.81

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statues and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 26 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)
BUDGET FUND YEAR ENDED JUNE 30, 2012

SCHEDULE "2"

REVENUES
State Appropriation State General Funds
Other Funds
Total Revenues
ADJUSTMENTS AND PROGRAMS TRANSFERS
CARRY-OVER FROM PRIOR YEARS
Transfers from Reserved Fund Balance
Total Funds Available
EXPENDITURES
Teaching
Excess of Funds Available over Expenditures
FUND BALANCE JULY 1
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Unreserved Fund Balance (Surplus) Returned
to Board of Regents - University System Office Year Ended June 30, 2011
Prior Year Reserved Fund Balance Included in Funds Available
FUND BALANCE JUNE 30

BUDGET

ACTUAL

VARIANCE FAVORABLE (UNFAVORABLE)

$ 19,124,425.00 $ 19,124,425.00 $

0.00

61,739,113.00

47,822,464.04

-13,916,648.96

$ 80,863,538.00 $ 66,946,889.04 $ -13,916,648.96

0.00

0.00

0.00

0.00

1,224,260.50

1,224,260.50

$ 80,863,538.00 $ 68,171,149.54 $ -12,692,388.46

$ 80,863,538.00 $ 67,836,475.61 $ 13,027,062.39

$

0.00 $

334,673.93 $

334,673.93

2,575,849.03 100,990.72

585,582.74
-100,990.72 -1,224,260.50 $ 2,271,845.20

SUMMARY OF FUND BALANCE
Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Excess State Appropriations to be Remitted in Fiscal Year 2013
Total Reserved
Unreserved Surplus

$

22,916.42

181,350.26

289,534.66

-49,782.01

1,351,588.53

73,899.31

$ 1,869,507.17

402,338.03

Total Fund Balance
Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statues and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 27 -

$ 2,271,845.20

SOUTHERN POLYTECHNIC STATE UNIVERSITY STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2012

Teaching State Appropriation State General Funds Other Funds
Total Teaching

Original Appropriation

Amended Appropriation

Final Budget

Current Year Revenues

$

19,514,719.00 $ 19,514,719.00 $ 19,124,425.00 $

40,475,640.00

40,475,640.00

61,739,113.00

19,124,425.00 47,822,464.04

$

59,990,359.00 $ 59,990,359.00 $ 80,863,538.00 $

66,946,889.04

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statues and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 28 -

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

Variance

Actual

Positive (Negative)

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

$

0.00 $

1,224,260.50

0.00 $ 19,124,425.00 $ 0.00 49,046,724.54

0.00 $ 19,124,425.00 $ -12,692,388.46 48,712,050.61

0.00 $ 13,027,062.39

0.00 334,673.93

$ 1,224,260.50 $

0.00 $ 68,171,149.54 $ -12,692,388.46 $ 67,836,475.61 $

13,027,062.39 $

334,673.93

- 29 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE
(NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2012

Teaching State Appropriation State General Funds Other Funds
Total Teaching
Prior Year Reserves Not Available for Expenditure Uncollectible Accounts Receivable

Beginning Fund Balance/(Deficit)
July 1

Fund Balance Carried Over from
Prior Period as Funds Available

Return of Fiscal Year 2011
Surplus

Prior Period Adjustments

$

100,990.72 $

1,224,260.50

$ 1,325,251.22 $

0.00 $ -1,224,260.50
-1,224,260.50 $

-100,990.72 $ 0.00
-100,990.72 $

0.00 585,582.74
585,582.74

1,351,588.53

0.00

0.00

0.00

Budget Unit Totals

$ 2,676,839.75 $

-1,224,260.50 $

-100,990.72 $

585,582.74

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statues and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 30 -

SCHEDULE "4"

Other Adjustments

Early Return Fiscal Year 2012
Surplus

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

Ending Fund Balance/(Deficit)
June 30

Analysis of Ending Fund Balance

Reserved

Surplus/(Deficit)

Total

$

0.00 $

0.00

$

0.00 $

0.00

$

0.00 $

0.00 $ 0.00
0.00 $

0.00 $ 334,673.93
334,673.93 $

0.00 $ 920,256.67
920,256.67 $

0.00 $ 517,918.64
517,918.64 $

0.00 $ 402,338.03
402,338.03 $

0.00 920,256.67
920,256.67

0.00 0.00 $

0.00

1,351,588.53

1,351,588.53

0.00

1,351,588.53

334,673.93 $

2,271,845.20 $ 1,869,507.17 $

402,338.03 $ 2,271,845.20

Summary of Ending Fund Balance Reserved
Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Excess State Appropriations to be Remitted
in Fiscal Year 2013 Unreserved
Surplus
Total Ending Fund Balance - June 30

$

22,916.42

181,350.26

289,534.66

-49,782.01

1,351,588.53

73,899.31

$

$ 1,869,507.17 $

$

22,916.42

181,350.26

289,534.66

-49,782.01

1,351,588.53

73,899.31

402,338.03

402,338.03

402,338.03 $ 2,271,845.20

- 31 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY BUDGET TO GAAP RECONCILIATION JUNE 30, 2012
Total Fund Balances - Budget Fund - Non-GAAP Basis (Schedule "1")
Amounts reported for Business-Type Activities in the Statement of Net Assets are different because:
Capital Assets used in Business-Type Activities are not reported in the Budget Fund.
Uncollectible accounts receivable are reported as an asset and reserved fund balance in the Budget Fund and as a contra-asset account on the Statement of Net Assets.
Changes in the Fair Market Value of Investments are recognized on the Statement of Net Assets, but are not reported in the Budget Fund.
Agency Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Agency Fund Activity
Auxiliary Enterprises Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Auxiliary Enterprises Fund Activity
Endowment Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Endowment Fund Activity
Loan Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Loan Fund Activity
Student Activities Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Student Activity Fund Activity
The budgetary basis of accounting implemented by the State of Georgia recognizes expenditures when encumbered. The following adjustments were made to eliminate this activity for reporting on the Statement of Net Assets. Payables reported in the Budget Fund that are based on encumbrances are eliminated for GAAP reporting. Reimbursement from grantors reported as revenues in the Budget Fund that are for expenditures based on encumbrances are deferred for GAAP reporting. Total Net Effect of Encumbrance Activity
Certain Liabilities are not due and payable in the current period and therefore are not reported as liabilities in the Budget Fund. Capital Leases Payable Compensated Absences Payable Contracts Payable Total Liabilities
Rounding
Net Assets of Business-Type Activities (Exhibit "A")
The supplementary information presented on Schedules 1, 2, 3, and 4 was 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. The information was derived from, and relates directly to, the same information used to prepare the financial statements. However, the budgetary statutes and regulations of the State of Georgia require reporting of certain information that is not in accordance with generally accepted accounting principles. Presented on this schedule is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Assets of business-type activities, as reported on Exhibit A.
- 32 -

SCHEDULE "5"

$ 2,271,845.20

177,383,781.00

-1,351,588.53

1,691,594.66

$

1,674,035

-1,674,035

0.00

$ 4,227,311.57 -726,732.57

3,500,579.00

$ 1,463,339.85 0.00

1,463,339.85

$

146,374.38

0.00

146,374.38

$

306,553.88

-121,940.18

184,613.70

$ 6,322,360.44 -900,221.57

5,422,138.87

-89,007,848.00 -1,443,264.00 -152,095.32

-90,603,207.32 0.19

$ 100,109,471.00

SOUTHERN POLYTECHNIC STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2012

SCHEDULE "6"

Totals per Annual Supplement
Accruals June 30, 2012 June 30, 2011
Compensated Absences June 30, 2012 June 30, 2011
Adjustments Lagerstrom, Albert Vitty, Jennie Zhang, Chi
Shared Services on Jointly Staffed Personnel Georgia Gwinnett College Snavely, Vanessa Georgia Highlands College Morris, Douglas Smith, Eric Franklin, Cedric Georgia Institute of Technology Choi, Seungkeun Dawn, Debasis Kim, Yoon Duk Georgia State University King, Kimberly Kennesaw State University Stickel, George
Rounding

SALARIES $ 33,220,092.64 $

TRAVEL 441,938.29

319,520.74 -221,909.24

1,340,700.67 -1,357,761.26

-1,125.00 -87.50
3,000.00

750.00
-2,050.00 -3,000.00 -6,330.50
15,750.00 9,000.00 4,500.00
355.08
-3,500.00
0.37

-0.29

$ 33,317,906.00 $

441,938.00

- 33 -

SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS

SOUTHERN POLYTECHNIC STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

COMMUNICATION OF INTERNAL CONTROL DEFICIENCIES

The auditor is required to communicate to management and those charged with governance deficiencies in internal control 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 control 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 misstatements on a timely basis. A deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively.

A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of Southern Polytechnic State University's financial statements will not be prevented, or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or a 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 March 8, 2013. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below:

CAPITAL ASSETS Inadequate Controls Material Weakness Finding Control Number: FS-550-12-01

Condition:

Accounting procedures of the University were insufficient to provide adequate controls over Capital Assets.

Criteria:

The University should maintain capital asset records in accordance with capitalization guidelines and Instructions provided in Chapter 7 of the Board of Regents' Business Procedures Manual.

Questioned Cost:

N/A

Information:

The following deficiencies were noted relating to Capital Assets:

1. The University made manual entries to the financial statements to record Georgia State Financing and Investment Commission capital asset activity, however detailed listings of these additions were not provided to the auditor. Buildings were adjusted by $1,469,612 and Equipment was adjusted by $1,246,289.

- 1 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

2. An unknown variance was noted between the current year additions and current year deletions for Equipment in the amount of $26,989.

3. Assets totaling $69,128 reported as Equipment did not meet the capitalization threshold according to the University's Capital Asset Policy.

4. Two assets were not depreciated correctly, resulting in a net overstatement of depreciation expense of $497,476.

a. One building was depreciated for only eleven months during the fiscal year which resulted in depreciation expense being understated by $120,769.
b. One building is currently being depreciated with an estimated useful life of thirty years. According to the University's capital asset policy, the useful life should be sixty years. The effect of this error in the current fiscal year is an overstatement of depreciation expense of $618,245.

Cause:

The University's management failed to implement appropriate internal controls and procedures necessary to properly record, maintain, and monitor capital assets.

Effect:

Failure to accurately record, maintain and monitor capital assets could result in potential misappropriation of assets and misrepresentation of the University's financial position and results of operations could occur.

Recommendation:

The University should establish appropriate procedures and controls to ensure that adjustments are made in a timely manner to the Capital Assets Module and the related subsidiary records to ensure proper reporting by category in the future. In addition, controls should be implemented to ensure that depreciation expense is properly recorded.

FINANCIAL REPORTING Inadequate Controls Material Weakness Finding Control Number: FS-550-12-02

Condition:

The University's accounting procedures were insufficient to provide for adequate controls over the financial statement 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 University 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.

- 2 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Questioned Cost:

N/A

Information:

During the audit the following deficiencies were noted in the University's GAAP basis financial statements.
1. The University did not restate their beginning net assets for a change in its method of reporting Summer Tuition and Fees and associated expenses. Adjustments to Tuition and Fees in the amount of ($3,304,376), Salaries and Benefits expenses of $1,059,232 and the net change to beginning net assets of ($2,245,144) were proposed and accepted to correct the error.
2. Activity between the University and Foundation was not reported properly. Funds due to the University and held by the Foundation at June 30, 2012, were reported as an Investment instead of as Accounts Receivable. A reclassification entry of $1,808,625 was proposed and accepted to correct the error
3. During the fiscal year, it was determined that past Housing Revenues were improperly distributed to the University's Foundation. The University performed an analysis and recouped the funds from the Foundation. The recoup of funds associated with prior periods totaled $543,825, which were recorded as revenue in the current fiscal year. An adjustment to auxiliary enterprises revenue and beginning net assets was proposed and accepted to correct the error.
4. Various errors were noted for correction by the auditors in the Notes to the Financial Statements related to Note 2: Deposits and Investments and Note 8: Lease Obligations.
5. Entries made during the fiscal year to record the activity of an investment account resulted in the investment being reported on the Statement of Net Assets as both an Investment and also within Cash and Cash Equivalents. This resulted in an overstatement of assets of $59,570.
6. Accounts Payable in the amount of $1,277,121 could not be documented by the University.

Cause:

The University's management failed to adequately review the year-end financial statements to ensure that the statements as presented for audit were accurate and properly supported by underlying accounting records.

Effect:

Significant and 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 University's financial position and results of operations.

Recommendation:

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

- 3 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.
- 4 -