Southern Polytechnic State University, Marietta, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2013

SOUTHERN POLYTECHNIC STATE UNIVERSITY
MARIETTA, GEORGIA
REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2013
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 POSITION
B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
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 RECONCILIATION OF BUDGET TO GAAP 6 RECONCILIATION OF SALARIES AND TRAVEL

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

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

SOUTHERN POLYTECHNIC STATE UNIVERSITY - TABLE OF CONTENTS -
SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
SECTION IV CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

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 7, 2014

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 REPORT
Ladies and Gentlemen:
Report on the Financial Statements
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, 2013.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to Southern Polytechnic State University's preparation and fair presentation of the financial statements in order to design 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
13ARL-62

internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
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, 2013, 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.
Emphasis of Matter
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, 2013, 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.
As described in Note 1 to the financial statements, in 2013, Southern Polytechnic State University adopted new accounting guidance, GASB Statement No. 63, Reporting Deferred Outflows, Deferred Inflows, and Net Position. Our opinion is not modified with respect to this matter.
As discussed in Note 1 to the financial statements, the prior period financial statements have been restated to correct various errors and omissions. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
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 consisted 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.
13ARL-62

Other Information
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Southern Polytechnic State University. 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.
The accompanying supplementary information (Schedules 1 through 6) is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting or other records used to prepare the basic financial statements or to the basic 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.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated March 7, 2014, on our consideration of Southern Polytechnic State University's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Southern Polytechnic State University's internal control over financial reporting and compliance.
Respectfully,

GSG:as 13ARL-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 31 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 in the University System of Georgia.

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 applicationoriented teaching. The institution continues to grow as shown by the comparison numbers that follow.

Students

Students

Faculty

(Headcount)

(FTE)

Fiscal Year 2013 Fiscal Year 2012 Fiscal Year 2011

242

6,202

214

5,799

220

5,514

Overview of the Financial Statements and Financial Analysis

5,409 5,065 4,814

Southern Polytechnic State University is pleased to present its financial statements for fiscal year 2013. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Position; the Statement of Revenues, Expenses and Changes in Net Position; 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 2013 and fiscal year 2012.

Statement of Net Position

The Statement of Net Position presents the assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position of the University as of the end of the fiscal year. The Statement of Net Position is a point-of-time financial statement. The Statement of Net Position presents a fiscal snapshot of Southern Polytechnic State University. The Statement of Net Position presents end-of-year data concerning assets (current and noncurrent) plus deferred outflows, and liabilities (current and noncurrent) plus deferred inflows, and net position (assets plus deferred outflows minus liabilities plus deferred inflows). The differences between current and noncurrent assets are discussed in the Notes to the Financial Statements.

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

Finally, the Statement of Net Position provides a picture of the net position (assets plus deferred outflows of resources minus liabilities plus deferred inflows of resources) and their availability for expenditure by the institution. Net position is divided into three major categories. The first category, net investment in capital assets, provides the institution's equity in property, plant and equipment owned by the institution. The next category is restricted, which is divided into two categories, nonexpendable and expendable.

i

The corpus of nonexpendable, restricted resources is available only for investment purposes. Expendable, restricted resources 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. Unrestricted resources are available to the institution for any lawful purpose.
Statement of Net Position, Condensed

June 30, 2013

June 30, 2012

Assets Current Assets Capital Assets, Net Other Assets

$ 14,489,215 166,282,761 3,106,557

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

Total Assets

$ 183,878,533

$ 197,116,015

Liabilities Current Liabilities Noncurrent Liabilities

$ 11,308,065 86,214,416

$

9,272,484

87,734,060

Total Liabilities

$ 97,522,481

$ 97,006,544

Net Position Net Investment in Capital Assets Restricted Nonexpendable Expendable Unrestricted

$ 78,442,020
1,365,564 1,758,703 4,789,765

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

Total Net Position

$ 86,356,052

$ 100,109,471

Total assets decreased by $13,237,482, which was primarily due to a decrease of $11,101,020 in the category of Capital Assets, Net. The decrease was primarily attributable to a correction of accumulated depreciation related to capital leases and buildings.

Total liabilities increased for the year by $515,937. The combination of the decrease in total assets of $13,237,482 and the increase in total liabilities of $515,937 yields a decrease in net position of $13,753,419. The decrease in net position is primarily in the category of Net Investment in Capital Assets, in the amount of $9,933,913. The decrease was primarily attributable to a correction of accumulated depreciation related to capital leases and buildings.

Statement of Revenues, Expenses and Changes in Net Position
Changes in total net position as presented on the Statement of Net Position are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Position. 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, 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.

ii

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 Position, Condensed

June 30, 2013

Operating Revenues Operating Expenses

$ 50,831,383 80,967,726

Operating Gain/Loss

$ -30,136,343

Nonoperating Revenues and Expenses

26,558,319

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

$ -3,578,024

Other Revenues, Expenses, Gains or Losses

586,752

Decrease in Net Position

$ -2,991,272

Net Position at Beginning of Year, as Originally Reported

$ 100,109,471

Prior Year Adjustments

-10,762,147

Net Position at Beginning of Year, Restated $ 89,347,324

Net Position at End of Year

$ 86,356,052

June 30, 2012 $ 45,750,105
74,495,692 $ -28,745,587
25,319,919

$ -3,425,668

2,796,847

$

-628,821

$ 97,949,323 2,788,969
$ 100,738,292 $ 100,109,471

The Statement of Revenues, Expenses and Changes in Net Position reflects a decrease in net position at the end of the year. This decrease is primarily attributable to a correction of accumulated depreciation related to capital leases and buildings. Some highlights of the information presented on this statement are as follows:

iii

Revenue by Source For the Years Ended June 30, 2013 and June 30, 2012

June 30, 2013

June 30, 2012

Operating Revenue

Tuition and Fees

$

Grants and Contracts

Sales and Services of Educational Departments

Auxiliary

Other

32,806,270 765,993 107,455
16,693,541 458,124

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

Total Operating Revenue

$ 50,831,383

$ 45,750,105

Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other

$ 19,276,552 10,337,577 1,237,112 160,660 408,588

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

Total Nonoperating Revenue

$ 31,420,489

$ 30,275,786

Capital Grants and Gifts State

$

762,206

$

2,796,847

Special Item - Loss on Transfer of Endowments

$

-175,454

Total Revenues

$ 82,838,624

$ 78,822,738

Expenses (By Functional Classification) For the Years Ended June 30, 2013 and June 30, 2012

June 30, 2013

June 30, 2012

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

$ 27,935,952 269,366 210,461
8,776,023 4,564,468 12,251,296 9,221,408 5,383,096 12,355,656

$ 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

Total Operating Expenses

$ 80,967,726

$ 74,495,692

Nonoperating Expenses Interest Expense (Capital Assets)
Total Expenses

4,862,170 $ 85,829,896

4,955,867 $ 79,451,559

iv

Operating revenues increased by $5,081,278 in fiscal year 2013. The increase is primarily due to an increase in enrollment accompanied by a 2.5 percent increase in tuition rates along with increased student fees.
The Auxiliary revenue increase of $2,123,982 is a result of an increase in enrollment accompanied by an increase in housing and dining fees.
Nonoperating revenues increased by $1,144,703 for the year primarily due to an increase in nonoperating Grants and Contracts, mainly attributable to Pell.
The compensation and employee benefits category increased by $1,969,526 and primarily affected the Instruction and Institutional Support categories. The increase reflects an increased cost of health insurance for employees of the institution.
Utilities cost increased by $383,843 during the past year. The increase was primarily associated with the increased electric and water rates during fiscal year 2013.

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 Position.
Cash Flows for the Years Ended June 30, 2013 and 2012, Condensed

June 30, 2013

June 30, 2012

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

$

-19,967,236

31,142,906

-10,748,774

70,930

$

-24,067,771

30,123,623

-9,611,613

290,004

Net Change in Cash Cash, Beginning of Year

$

497,826

9,106,104

$

-3,265,757

12,371,861

Cash, End of Year

$

9,603,930

$

9,106,104

Capital Assets
For additional information concerning Capital Assets, see Notes 1, 5, 7, and 9 in the Notes to the Financial Statements.

v

Long-Term Liabilities Southern Polytechnic State University had Long-Term Liabilities of $89,415,225 of which $3,200,809 was reflected as current liability at June 30, 2013. 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. 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 POSITION JUNE 30, 2013
ASSETS
Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Receivables - Federal Financial Assistance Receivables - Other Prepaid Items
Total Current Assets
Noncurrent Assets Investments Notes Receivable, Net Capital Assets, Net (Note 5)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deposits Unearned Revenue (Note 6) Due to Affiliated Organizations 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 POSITION
Net Investment in Capital Assets Restricted for:
Nonexpendable Expendable Unrestricted
Total Net Position
The notes to the financial statements are an integral part of this statement. - 2 -

EXHIBIT "A"

$

9,603,930

509,225 4,012,408
363,652

$

14,489,215

$

2,942,956

163,601

166,282,761

$ 169,389,318

$ 183,878,533

$

2,737,411

102,978

545,187

36,033

3,897,706

127,065

660,876

2,132,364

1,068,445

$

11,308,065

$

85,708,377

506,039

$

86,214,416

$

97,522,481

$

78,442,020

1,365,564 1,758,703 4,789,765

$

86,356,052

SOUTHERN POLYTECHNIC STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
YEAR ENDED JUNE 30, 2013
OPERATING REVENUES
Student Tuition and Fees (Net of Allowance for Doubtful Accounts) Less: Scholarship Allowances
Grants and Contracts Federal State Other
Sales and Services 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 State Gifts Investment Income (Endowments, Auxiliary and Other) Interest Expense (Capital Assets) Other Nonoperating Revenues
Net Nonoperating Revenues
Income (Loss) Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts State
Special Item - Loss on Transfer of Endowment
Total Other Revenues, Expenses, Gains or Losses
Increase (Decrease) in Net Position
Net Position - Beginning of Year, as Originally Reported
Prior Year Adjustments
Net Position - Beginning of Year, Restated
Net Position - End of Year
The notes to the financial statements are an integral part of this statement.
- 3 -

EXHIBIT "B"

$

39,156,654

-6,350,384

148,058 577,813
40,122 107,455

9,737,371 267,299
2,848,560 1,900,945
294,129 1,308,147
337,090 458,124

$

50,831,383

$

17,897,851

16,655,073

10,169,758

243,757

481,393

6,209,839

3,086,526

18,406,860

7,816,669

$

80,967,726

$

-30,136,343

$

19,276,552

10,287,678 49,899
1,237,112 160,660
-4,862,170 408,588

$

26,558,319

$

-3,578,024

$

762,206

-175,454

$

586,752

$

-2,991,272

$

100,109,471

-10,762,147

$

89,347,324

$

86,356,052

SOUTHERN POLYTECHNIC STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts (Exchange) Sales and Services Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Loans Issued to Students 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 Grants and Gifts 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 Sales and Maturities of Investments Interest on Investments Transfer of Endowment
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"

$

31,019,719

972,698

101,087

-32,611,139

-34,649,657

-6,209,856

23,587

12,846,384 257,628
3,037,084 1,926,216
311,316 1,340,127
436,881 1,230,689

$

-19,967,236

$

19,276,552

-36,026

11,902,380

$

31,142,906

$

762,206

-5,021,584

-1,627,226

-4,862,170

$

-10,748,774

$

261,178

-14,794

-175,454

$

70,930

$

497,826

9,106,104

$

9,603,930

- 4 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2013
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Operating Income (loss) to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, Net Prepaid Items Accounts Payable Unearned Revenue Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Change in Fair Value of Investments Recognized as a Component of Interest Income

EXHIBIT "C"

$

-30,136,343

7,816,669
2,327,495 -271,355 176,303 -11,225 131,220

$

-19,967,236

$

158,142

The notes to the 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, 2013

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-one (31) 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 position, revenues, expenses, changes in net position and cash flows.
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. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-University transactions have been eliminated.
New Accounting Pronouncements In fiscal year 2013, the University adopted the Governmental Accounting Standards Board (GASB) Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements. The provisions of this Statement establish accounting and financial reporting standards for governments who enter into Service Concession Arrangements (SCA) with other governmental or nongovernmental entities. As of June 30, 2013, the University has not entered into any arrangements that meet the qualifications to be reported as a SCA in accordance with this standard.

- 7 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

In fiscal year 2013, the University adopted the Governmental Accounting Standards Board (GASB) Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in PreNovember 30, 1989 FASB and AICPA Pronouncements. The provisions of this Statement incorporate certain accounting and financial reporting guidance into authoritative GASB literature.
In fiscal year 2013, the University adopted the Governmental Accounting Standards Board (GASB) Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position. The provisions of this Statement establish financial reporting standards for the presentation of deferred outflows of resources and deferred inflows of resources and their effects on the government's net position. The University changed its presentation of net assets to net position for fiscal year 2013. There were no other applicable reporting changes for the University.
Southern Polytechnic State University did not have any transactions to report under the new accounting pronouncements for fiscal year 2013.
Cash and Cash Equivalents Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the Board of Regents Short-Term Investment Pool.
Short-Term Investments Short-Term Investments consist of investments of 90 days - 13 months, which includes 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 Position. The Board of Regents Balanced Income Fund and the Board of Regents Total Return Fund 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 whom reside 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 Investments Investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Position.
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

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

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 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 generally are 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
To fully understand 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. These bonds 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, 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, 2013, GSFIC did not transfer any capital additions to Southern Polytechnic State University.
Deposits Deposits represent good faith deposits from students to reserve housing assignments in a University residence hall.
Unearned Revenues Unearned 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. Unearned 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 Position, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Position. Southern Polytechnic State University had accrued liability for compensated absences in the amount of $1,443,264 as of July 1, 2012. For fiscal year 2013, $1,161,649 was earned in compensated absences and employees were paid $1,030,429, for a net increase of $131,220. The ending balance as of June 30, 2013 in accrued liability for compensated absences was $1,574,484.
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.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

Net Position The University's net position is classified as follows:
Net Investment in Capital Assets: This represents the University's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of the net investment in capital assets. 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 - nonexpendable: includes 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 be either 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 - expendable: includes resources in which the University is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties.
Expendable Restricted include the following at June 30, 2013:

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

$

1,566,723

24,418

144,619

22,943

Total Restricted Expendable

$

1,758,703

Restricted - 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: Unrestricted represents 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 $146,623.14. 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 resources include the following items which are quasi-restricted by management at June 30, 2013:

R & R Reserve Reserve for Encumbrances Other Unrestricted

$

153,317

4,208,835

427,613

Total Unrestricted Net Position

$

4,789,765

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

When an expense is incurred that can be paid using either restricted or unrestricted resources, the University's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources.
Income Taxes 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 Position classify fiscal year activity as operating and nonoperating according to the following criteria:
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 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 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 Position. 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 Position For fiscal year 2013, the University made a variety of prior period adjustments due to various errors or omissions, which require restatement of net position. The result is a decrease in net position at July 1, 2012, of $10,762,147. This is due primarily to an adjustment related to depreciation of capital leases and buildings. These changes are in accordance with generally accepted accounting principles.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

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, 2013, the carrying value of deposits was $7,985,950 and the bank balance was $9,051,655. Of the University's deposits, $9,051,655 was uninsured. Of these uninsured deposits, $9,051,655 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the University's name.
Investments At June 30, 2013, the carrying value of the University's investments were $4,555,487, which is materially the same as fair value. These investments were comprised entirely of funds invested in the Board of Regents investment pool as follows:

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

$

1,612,532

882,930

2,060,025

Total Investment Pools

$

4,555,487

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

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 and Accounts - 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 .56 years. Of the University total investment of $1,612,532 in the Short-Term Fund, $1,414,658 is invested in debt securities.
The Effective Duration of the Total Return Fund is 5.10 years. Of the University total investment of $2,060,025 in the Total Return Fund, $658,405 is invested in debt securities.
The Effective Duration of the Balanced Income Fund is 5.10 years. Of the University total investment of $882,930 in the Balanced Income Fund, $548,980 is invested in debt securities.
Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University does not have a formal policy for managing credit quality risk.
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.
Note 3. Accounts Receivable
Accounts receivable consisted of the following at June 30, 2013:

Student Tuition and Fees

$

Auxiliary Enterprises and Other Operating Activities

Federal Financial Assistance

Georgia State Financing and Investment Commission

Other

2,335,093 2,009,732
509,225 1,420,321 1,412,952

Less Allowance for Doubtful Accounts

$

7,687,323

3,165,690

Net Accounts Receivable

$

4,521,633

Note 4. Notes/Loans Receivable

The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2013. 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

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

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, 2013, the University did not have a balance in the allowance for uncollectible notes receivable.
Note 5. Capital Assets
Following are the changes in capital assets for the year ended June 30, 2013:

Beginning Balance July 1, 2012 (Restated)

Reclassifications

Additions

Reductions

Ending Balance June 30, 2013

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

$

1,700,397 $

1,452,926

0$

354,448

1,067,611 $

$ 866,600

2,054,845 1,653,937

Total Capital Assets, Not Being Depreciated $

3,153,323 $

0$

1,422,059 $

866,600 $

3,708,782

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

$

4,924,793

102,933,152 $

343,319

13,478,405

95,566,892

7,198,329

30,500

$ 2,987,280
-2,987,280

180,109 864,805 1,100,250 1,805,643 $
190,211

$
658,458 8,700

5,104,902 106,785,237
1,443,569 14,625,590 92,579,612 7,379,840
30,500

Total Assets Being Depreciated

$

224,475,390 $

0$

4,141,018 $

667,158 $

227,949,250

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

$

1,460,802

27,502,262 $

299,676

8,813,428

14,086,393

5,905,736

16,627

$ 985,388
-985,388

177,293 2,145,240
17,515 1,652,307 $ 3,561,286
262,342 686

$
517,622 8,700

1,638,095 30,632,890
317,191 9,948,113 16,662,291 6,159,378
17,313

Total Accumulated Depreciation

$

58,084,924 $

0$

7,816,669 $

526,322 $

65,375,271

Total Capital Assets, Being Depreciated, Net $

166,390,466 $

0$

-3,675,651 $

140,836 $

162,573,979

Capital Assets, Net

$

169,543,789 $

0$

-2,253,592 $

1,007,436 $

166,282,761

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

Note 6. Unearned Revenue Unearned revenue consisted of the following at June 30, 2013:

Prepaid Tuition and Fees Other Unearned Revenue

$

3,876,739

20,967

Total Unearned Revenue

$

3,897,706

Note 7. Long-Term Liabilities Long-Term liability activity for the year ended June 30, 2013 was as follows:

Beginning Balance July 1, 2012

Additions

Reductions

Ending Balance June 30, 2013

Current Portion

Leases

Lease Obligations

$ 89,007,848 $

Loss on Debt Refunding

0

3,542,322 $ -3,082,203

1,627,226 $

90,922,944 $ -3,082,203

2,334,732 -202,368

Total

$ 89,007,848 $

460,119 $ 1,627,226 $ 87,840,741 $ 2,132,364

Other Liabilities Compensated Absences

1,443,264

1,161,649

1,030,429

1,574,484

1,068,445

Total Long-Term Obligations $ 90,451,112 $ 1,621,768 $ 2,657,655 $ 89,415,225 $ 3,200,809

Note 8. Significant Commitments
The University had significant unearned outstanding, construction or renovation contracts in the amount of $343,781 as of June, 30, 2013. This amount is not reflected in the accompanying basic financial statements.
Note 9. Lease Obligations
Southern Polytechnic State University is obligated under an operating lease for the use of real property (land, buildings, and office facilities), 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 2029 and 2040. Expenditures for fiscal year 2013 were $6,883,416 of which $4,862,170 represented interest and $394,020 represented executory costs. Total principal paid on capital leases was $1,627,226 for the fiscal year ended June 30, 2013. Interest rates range from 2.89 percent to 6.07 percent.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

The following is a summary of the carrying values of assets held under capital lease at June 30, 2013:

Net Position

Outstanding

Held Under

Balances per

Accumulated

Capital Lease Lease Schedules

Description

Gross Amount

Depreciation at June 30, 2013 at June 30, 2013

(+)

(-)

(=)

Buildings Buildings - (PPV Only)

$

61,774,577 $

6,151,739 $ 55,622,838 $ 61,511,337

30,805,037

10,510,552

20,294,485

29,411,607

$

92,579,614 $ 16,662,291 $ 75,917,323 $ 90,922,944

In July 2005, Southern Polytechnic State University entered into a capital lease of $11,643,862 at 5.0 percent with Southern Polytechnic State University Foundation, Inc., whereby the University leases the University Commons Housing building for a twenty-two year period. In July 2005, the University also entered into a capital lease of $22,148,456 at 5.0 percent with the Southern Polytechnic State University Foundation, Inc. whereby the University leases the University Courtyard Housing, Norton Hall, and Howell Hall student housing buildings for a twenty-four year period.

In June 2013, Southern Polytechnic State University Foundation, Inc. (Foundation) refunded the bonds related to the University Courtyard Housing, Norton Hall, and Howell Hall lease. The Foundation revised the lease agreement and passed through the economic advantages of the refund to the University. As part of this revision, the Foundation transferred Howell Hall and Norton Hall to the University. The economic gain realized from this refunding was undeterminable and the savings resulting from the refunding are as follows:

Cash Flow Requirements to Service Old Debt Less: Cash Flow Requirements of New Debt

$ 25,383,087 24,320,006

Net Gain from Refunding

$ 1,063,081

The amended lease for the University Courtyard Housing removed Norton Hall and Howell Hall student housing buildings from the lease and amended the rent schedule. The lease amendment for the University Courtyard Housing is for a sixteen year period that began June 2013 and expires June 2029. The outstanding balance at June 30, 2013 was $19,501,288.
In June 2013, Southern Polytechnic State University Foundation, Inc. (Foundation) refunded the bonds related to the University Commons Housing lease. The Foundation revised the lease agreement and passed through the economic advantages of the refund to the University. The economic gain realized from this refunding was undeterminable and the savings resulting from the refunding are as follows:

Cash Flow Requirements to Service Old Debt Less: Cash Flow Requirements of New Debt

$ 12,231,547 12,019,060

Net Gain from Refunding

$ 212,487

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

The amended lease for the University Commons Housing is for a fourteen year period that began June 2013 and expires June 2027. The outstanding balance at June 30, 2013 was $9,910,320.

In August 2009 Southern Polytechnic State University 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, 2013 on this capital lease was $18,378,770.
In July 2010 Southern Polytechnic State University also entered into a capital lease of $43,512,843 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 building for a twenty-nine year period that begins July 2010 and expires June 2039. The outstanding balance at June 30, 2013 on this capital lease was $43,132,566.

OPERATING LEASES
Southern Polytechnic State University's is a party to one noncancellable operating lease. The lease is for real property.
FUTURE COMMITMENTS
Future commitments for capital leases (which here and on the Statement of Net Position) include other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2013, were as follows:

Real Property and
Equipment Capital Leases

Year Ending June 30: 2014 2015 2016 2017 2018 2019 - 2023 2024 - 2028 2029 - 2033 2034 - 2038 2039 - 2040

$

6,983,955

6,935,946

6,992,492

7,049,449

7,105,990

36,445,985

36,912,127

27,318,944

26,221,971

5,317,369

Total Minimum Lease Payments

$

167,284,228

Less: Interest Less: Executory Costs (if paid)

66,254,085 10,107,199

Principal Outstanding

$

90,922,944

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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

Southern Polytechnic State University's fiscal year 2013 expense for rental of real property under operating leases was $122,909.
Note 10. Special Item Transfer
On December 20, 2001, Malinda J. and Gordon K. Mortin contributed a gift of stock to create an endowment funded scholarship with the University. On April 26, 2013, the Mortin family requested that the remaining proceeds in this endowment be transferred to the Southern Polytechnic State University Foundation. On, May 13, 2013, the Mortin Scholarship balance of $175,454 was transferred to the Foundation per the donor's request. This transfer is reflected as a Special Item Transfer on the Statement of Revenues, Expenses and Changes in Net Position.
Note 11. 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 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. Options are available for distribution of the member's monthly pension, at a reduced rate, to a designated beneficiary on the member's death. Death, disability and spousal benefits are also available.
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SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

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 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, 2013 were 6.00% of annual salary. Employer contributions required for fiscal year 2013 were 11.41% of annual salary as required by the June 30, 2010 actuarial valuation.

The following table summarizes the Southern Polytechnic State University contributions by defined benefit plan for the years ending June 30, 2013, June 30, 2012, and June 30, 2011 (dollars in

thousands):

TRS

Percentage

Required

Fiscal Year

Contributed

Contribution

2013 2012 2011

100%

$

1,752,527

100%

$

1,507,432

100%

$

1,417,703

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 2013, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 6% 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 $1,379,878 (9.24%) and $823,198 (6%), respectively.

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

- 19 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

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.
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 2013 amounted to $41,646 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.
Note 12. Risk Management
The University System of Georgia offers its employees and retirees access to four different selfinsured healthcare plan options. For the University System of Georgia's Plan Year 2013, the following health care options were available:
Blue Choice HMO plan (Blue Cross Blue Shield) HSA Open Access POS plan (Blue Cross Blue Shield) Open Access POS plan Kaiser Permanente HMO plan
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.

- 20 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

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 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 13. Contingencies
Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any 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, 2013.
Note 14. 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
- 21 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

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 2013 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, 2013, there were 201 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2013, Southern Polytechnic State University recognized as incurred $1,034,802 of expenditures, which was net of $474,743 of participant contributions.
Note 15. Natural Classifications with Functional Classifications
The University's operating expenses by functional classification for fiscal year 2013 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

$ 16,986,422 $ 1,903,004 4,944,819 166,602 129,880 263,160 55,548 2,576,628 909,889

42,222 2,747 $ 5,473
7,781 43,220
57,154 110,769

$ 151,575
52,130 5,877
879

613,927 3,243,540 $
886,189 24,226
140,536 500
36,571 1,282,297 2,548,237

2,527,058 671,288
40,715 58,407 13,324 1,234,835 18,841

Total Operating Expenses

$ 27,935,952 $

269,366 $ 210,461 $

8,776,023 $ 4,564,468

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

$

255,280

4,935,139 $

2,405,445

52,929

106,946

90,387

56,412

4,059,623

289,135

2,194,884

$

756,495

4,425 $
1,968,604 3,271,895 1,025,105

5,383,096

$ 1,697,126
447,919
45,233 371,069 956,067 5,923,549 2,914,693

17,897,851 16,655,073 10,169,758
243,757 481,393 6,209,839 3,086,526 18,406,860 7,816,669

Total Operating Expenses

$ 12,251,296 $

9,221,408 $ 5,383,096 $ 12,355,656 $ 80,967,726

- 22 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

EXHIBIT "D"

Note 16. Affiliated Organizations
The Southern Polytechnic State University Foundation, Inc. and Southern Polytechnic Applied Research Corporation are legally separate, tax exempt organizations whose activities primarily support Southern Polytechnic State University. These affiliated organizations are considered potential component units of the State of Georgia in accordance with GASB Statement No. 61, The Financial Reporting Entity: Omnibus - an amendment of GASB Statements No. 14 and No. 34, and GASB Statement No. 39, Determining Whether Certain Organizations are Component Units. Therefore, the financial statements of the affiliated organizations are not included in these financial statements. Copies of the financial statements for the affiliated organization may be obtained from Southern Polytechnic State University.

- 23 -

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SUPPLEMENTARY INFORMATION - 25 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30, 2013
ASSETS
Cash and Cash Equivalents Accounts Receivable
Federal Financial Assistance Other Prepaid Expenditures
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Unearned Revenue
Total Liabilities
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Unreserved Deficit Surplus
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

$

4,222,981.01

509,224.68 3,556,183.06
-10,024.56

$

8,278,364.19

$

100,568.21

4,061,198.20

403,801.85

2,937,794.18

$

7,503,362.44

$

-145,013.46

228,255.15

537,114.09

28,387.39

1,522,267.83

-1,542,632.39 146,623.14

$

775,001.75

$

8,278,364.19

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 special purpose framework.
- 26 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)
BUDGET FUND YEAR ENDED JUNE 30, 2013

SCHEDULE "2"

REVENUES
State Appropriation State General Funds
Other Funds
Total Revenues
ADJUSTMENTS AND PROGRAM 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
Unreserved Fund Balance (Surplus) Returned to Board of Regents - University System Office Year Ended June 30, 2012
Prior Year Reserved Fund Balance Included in Funds Available
FUND BALANCE JUNE 30
SUMMARY OF FUND BALANCE
Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable
Total Reserved
Unreserved Deficit Surplus
Total Unreserved
Total Fund Balance

BUDGET

ACTUAL

VARIANCE FAVORABLE (UNFAVORABLE)

$ 19,678,891.00 $ 54,607,312.00
$ 74,286,203.00 $
0.00

19,678,891.00 $ 48,890,946.54
68,569,837.54 $
269,120.00

0.00 -5,716,365.46
-5,716,365.46
269,120.00

0.00 $ 74,286,203.00 $

517,918.64 69,356,876.18 $

517,918.64 -4,929,326.82

$ 74,286,203.00 $

$

0.00 $

69,933,462.96 $ -576,586.78 $

4,352,740.04 -576,586.78

1,869,507.17 402,338.03

-402,338.03 -517,918.64

$

775,001.75

$

-145,013.46

228,255.15

537,114.09

28,387.39

1,522,267.83

$

2,171,011.00

$

-1,542,632.39

146,623.14

$

-1,396,009.25

$

775,001.75

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 special purpose framework.
- 27 -

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, 2013

Teaching State Appropriation State General Funds Other Funds
Total Teaching

Original Appropriation

Amended Appropriation

Final Budget

Current Year Revenues

$

20,650,470.00 $

20,650,470.00 $

19,678,891.00 $ 19,678,891.00

44,893,042.00

44,893,042.00

54,607,312.00

48,890,946.54

$

65,543,512.00 $

65,543,512.00 $

74,286,203.00 $ 68,569,837.54

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 special purpose framework.
- 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 $

517,918.64

$ 517,918.64 $

0.00 $ 269,120.00
269,120.00 $

19,678,891.00 $ 49,677,985.18
69,356,876.18 $

0.00 $ -4,929,326.82
-4,929,326.82 $

19,678,891.00 $ 50,254,571.96
69,933,462.96 $

0.00 $ 4,352,740.04
4,352,740.04 $

0.00 -576,586.78
-576,586.78

- 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, 2013

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 2012
Surplus

Prior Period Adjustments

$

0.00 $

0.00 $

0.00 $

920,256.67

-517,918.64

-402,338.03

$

920,256.67 $

-517,918.64 $

-402,338.03 $

0.00 0.00
0.00

1,351,588.53

0.00

0.00

0.00

Budget Unit Totals

$

2,271,845.20 $

-517,918.64 $

-402,338.03 $

0.00

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 special purpose framework.
- 30 -

SCHEDULE "4"

Other Adjustments

Early Return Fiscal Year 2013
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 $

-170,679.30

$

-170,679.30 $

0.00 $ 0.00
0.00 $

0.00 $ -576,586.78
-576,586.78 $

0.00 $ -747,266.08
-747,266.08 $

0.00 $ 648,743.17

0.00 $ -1,396,009.25

648,743.17 $ -1,396,009.25 $

0.00 -747,266.08
-747,266.08

170,679.30

$

0.00 $

0.00 0.00 $

0.00

1,522,267.83

1,522,267.83

0.00

1,522,267.83

-576,586.78 $

775,001.75 $ 2,171,011.00 $ -1,396,009.25 $

775,001.75

Summary of Ending Fund Balance Reserved
Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Unreserved Deficit Surplus
Total Ending Fund Balance - June 30

$ -145,013.46 228,255.15 537,114.09 28,387.39
1,522,267.83

$

-145,013.46

228,255.15

537,114.09

28,387.39

1,522,267.83

$ -1,542,632.39 146,623.14

-1,542,632.39 146,623.14

$ 2,171,011.00 $ -1,396,009.25 $

775,001.75

- 31 -

SOUTHERN POLYTECHNIC STATE UNIVERSITY RECONCILIATION OF BUDGET TO GAAP YEAR ENDED JUNE 30, 2013
Presented below is a reconciliation of the fund balance of the Budget Fund, as reported on Schedule 1, to Net Position of business-type activities, as reported on Exhibit A.
Total Fund Balances - Budget Fund - Non-GAAP Basis (Schedule "1")
Amounts reported for Business-Type Activities in the Statement of Net Position 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 Position.
Certain obligations are reported as accounts payable on the Statement of Net Position but are not recognized as expenditures in the Budget Fund.
Certain services are reported as prepaid items on the Statement of Net Position but are reported as expenditures in the Budget Fund.
Changes in the Fair Market Value of Investments are recognized on the Statement of Net Position, 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
Remaining Auxiliary Enterprises Fund activities not previously adjusted and are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Auxiliary Enterprises Fund Activity
Loan Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Loan Fund Activity
Remaining Student Activity Fund activities not previously adjusted and are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Student Activity Fund Activity
Endowment Fund activities are not reported as a component of the Budget Fund. Assets Liabilities Total Net Effect of Endowment 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 Position. Payables reported in the Budget Fund that are based on encumbrances are eliminated for GAAP reporting. Payables for goods and services provided in the current fiscal year reported in the Budget Fund as encumbrances payable are reported as accounts payable 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
Net Position 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 special purpose framework. 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 Position of business-type activities, as reported on Exhibit A.
- 32 -

SCHEDULE "5"

$

775,001.75

166,282,761.00

$

1,461,382.29

-1,461,382.29

-1,522,267.83 -419,056.10 231,351.67
1,509,584.56
0.00

$

5,905,283.20

-1,740,418.81

$

169,037.88

0.00

4,164,864.39 169,037.88

$

234,301.66

-129,177.39

$

1,388,506.66

0.00

105,124.27 1,388,506.66

$

4,061,198.20

-400,990.46 -28,652.24

3,631,555.50

$

-87,840,741.00

-1,574,484.00

-545,186.75

-89,960,411.75

$

86,356,052.00

SOUTHERN POLYTECHNIC STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2013

SCHEDULE "6"

Totals per Annual Supplement
Accruals June 30, 2013 June 30, 2012
Compensated Absences June 30, 2013 June 30, 2012
Adjustments Prior Year Correction Rogers, Vitty
Reimbursement from the University of West Georgia Cook, David Knight, Cynthia
Shared Services on Jointly Staffed Personnel Albany State Carrow, Erwin Georgia Gwinnet College Schmidt, Andrew Georgia Institute of Technology Choi, Seong Salman, Muhammad Shah, Brichaya Sirirojvisuth, Apinut Georgia Perimeter College Smith, Eric
Unidentified Variance

SALARIES $ 34,397,412.97 $

TRAVEL 481,977.15

102,978.00 -97,611.82

1,462,595.57 -1,340,700.67

-38.74 -87.50

-234.26 -430.86

10,765.00
1,614.75
9,000.00 -2,500.00 7,250.00 4,500.00
-2,200.00
-53.39

81.00

$ 34,552,924.17 $

481,393.03

- 33 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

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 7, 2014

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 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the basic financial statements of Southern Polytechnic State University as of and for the year ended June 30, 2013, and have issued our report thereon dated March 7, 2014.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered Southern Polytechnic State University's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Southern Polytechnic State University's internal control. Accordingly, we do not express an opinion on the effectiveness of Southern Polytechnic State University's internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying Schedule of Findings and Questioned Costs, we identified certain deficiencies in internal control that we consider to be material weaknesses.
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 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 entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiencies described in the accompanying Schedule of Findings and Questioned Costs as items FS-550-13-01, FS-550-13-02, and FS-550-13-03, to be material weaknesses.
2013YB-42

Compliance and Other Matters
As part of obtaining reasonable assurance about whether Southern Polytechnic State University's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
We noted certain matters that we have reported to management of Southern Polytechnic State University in a separate letter dated March 7, 2014.
Southern Polytechnic State University's Response to Findings
Southern Polytechnic State University's response to the findings identified in our audit is described in the accompanying Schedule of Management's Responses. Southern Polytechnic State University's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Respectfully submitted,

GSG:as 2013YB-42

Greg S. Griffin State Auditor

SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SOUTHERN POLYTECHNIC STATE UNIVERSITY AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2013

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-550-12-01 FS-550-12-02

Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses

CORRECTIVE ACTION/RESPONSES

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

The specific items noted as a part of this finding have been corrected. The redefined position of capital account was filled on June 3, 2013. This position will review and reconcile all capital asset accounts on a monthly basis. Likewise, these reconciliations will be reviewed and approved each month by the Controller and Chief Business Officer. Documentation for each reconciliation will be kept in a central repository so it is available for review by auditors or others at any time.

As a result of the timing of the audit exit conference and the hire date of the new staff person the University expects the impact of this corrective action to be fully implemented during fiscal year 2014.

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

The University agrees with this finding. As a result of the fiscal year 2012 audit, Southern Polytechnic State University has designed and implemented monthly reconciliations for all balance sheet accounts. These reconciliations will be reviewed and approved monthly by the Controller and Chief Business Officer. Based on the recommendations from the Department of Audits and Accounts, Southern Polytechnic State University has created a new accounting position responsible for reporting and compliance. This reporting and compliance position was filled on June 3, 2013. The University expects all of the issues noted to be resolved during fiscal year 2014 and the impact of the additional position to be fully realized during fiscal year 2014.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

SECTION IV CURRENT YEAR FINDINGS AND QUESTIONED COSTS

SOUTHERN POLYTECHNIC STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS AND MANAGEMENT'S CORRECTIVE ACTION PLAN
YEAR ENDED JUNE 30, 2013

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FS-550-13-01 Deficiencies in Controls over Capital Assets

Control Category: Internal Control Impact:

Capital Assets Material Weakness

Description:

This is a repeat finding (FS-550-12-01) from fiscal year ended June 30, 2012. Capital asset activity recorded by the University contained significant and material errors and omissions.

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.

Condition:

The following deficiencies were noted during our initial review of capital assets. After these deficiencies were brought to the attention of management, an analysis of capital assets was performed by the University. This analysis resulted in adjustments to capital assets totaling a net decrease of $5,034,807.

1. The capital asset listing contained items tagged as missing or disposed. An annual physical inventory was begun but not completed prior to the fiscal year end to determine the status of these items and whether they should be removed from the financial statements.

2. An analysis of construction projects was not maintained which resulted in significant unrecorded Construction Work-in-Progress, Buildings, and Infrastructure related to construction projects.

3. An unsupported journal entry was posted to the financial statements to tie the amount of capital assets reported on the Statement of Net Position to the Notes to the Financial Statements

4. Significant errors were noted in attempts to correct prior period errors related to buildings and assets held under capital leases.

5. The recording of a property acquisition during the fiscal year did not allocate to Land the portion related to the land's value.

Questioned Cost:

N/A

Cause:

The University's previous financial management did not implement internal controls and procedures to adequately account for, 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.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS AND MANAGEMENT'S CORRECTIVE ACTION PLAN
YEAR ENDED JUNE 30, 2013

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Recommendation:

The University should establish appropriate procedures and controls to ensure that capital asset activity is properly recorded in the financial statements.

Views of Responsible Officials and Corrective Action Plans:

We concur with this finding. We will take or have taken the following actions to address the specific deficiencies noted:

The University will conduct an annual inventory of all assets and a year-end journal entry will be posted to remove any missing assets from the financial statements. Procedures are currently being designed to implement the inventory for fiscal year 2014.

Construction Work-in-Progress is now being analyzed and reviewed on a monthly basis to determine whether projects should be capitalized. Each project is identified in PeopleSoft by a project ID in order to better track expenditures and maintain projects on an individualized discrete basis.

The Controller reviews all journal entries to ensure proper supporting documentation is attached and that the entry is appropriate.

Fiscal Affairs is now reconciling capital assets on a monthly basis, instead of quarterly, to ensure that all assets are accounted for appropriately. In addition, the Controller reviews all capital transactions, such as acquisitions, deletions, and transfers.

Contact Person: Telephone: Email:

Julie Peterson, Controller (678) 915-3282 jpeters4@spsu.edu

FS-550-13-02 Deficiencies in Controls over Financial Reporting

Control Category: Internal Control Impact:

Financial Reporting Material Weakness

Description:

This is a repeat finding (FS-550-12-02) from fiscal year ended June 30, 2012. The original financial statements as presented for audit contained significant and material errors and omissions.

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.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS AND MANAGEMENT'S CORRECTIVE ACTION PLAN
YEAR ENDED JUNE 30, 2013

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Condition:

The following deficiencies were noted in the University's GAAP basis financial statements.

1. Accounts payable were understated for expenses that occurred before the end of the fiscal year, but paid in the subsequent period. The University analyzed this activity and posted correcting entries accruing additional accounts payable of $1,874,859.

2. Tuition and Fee collections related to summer semesters were not correctly allocated between fiscal years. The University analyzed this activity and posted correcting entries reducing student accounts receivable by $13,201,806; deferred revenue by $8,671,412; tuition and fee revenue by $3,058,685; and auxiliary revenue by $1,471,709.

3. An error was made in the recording of activity related to a capital lease refinance. The loss related to the refinance of $3,082,203 was fully recognized as a reduction of interest expense rather than being deferred and amortized over the life of the shorter of the old liability or the new liability. An adjustment was posted to the financial statements to correct this error.

Questioned Cost:

N/A

Cause:

The University's previous financial management did not implement internal controls and procedures to adequately review the year-end financial statements to ensure 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:

Although the University's new management provided revised financial statements that were a significant improvement, the University should continue to 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.

Views of Responsible Officials and Corrective Action Plans:

We concur with this finding. We will take or have taken the following actions to address the specific deficiencies noted:

Fiscal Affairs will review all invoices prior to the fiscal year-end close and post an accrual entry for any expenses that are related to the current fiscal year in order to properly reflect liabilities.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS AND MANAGEMENT'S CORRECTIVE ACTION PLAN
YEAR ENDED JUNE 30, 2013

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

The allocation of summer tuition and fee revenue between fiscal years will be performed in Banner via the appropriate detail code. At year-end the Controller will review deferred revenue and student receivable balances to ensure the allocation is appropriate.

The University has hired a new Chief Business Officer and a new Controller who are implementing internal controls to avoid any reoccurrences. These two individuals are CPAs, long-time USG employees and well versed in the proper application of generally accepted accounting principles. The Controller will review all year-end journal entries to ensure proper supporting documentation is attached and that the entry is appropriate. In addition, Fiscal Affairs has updated their year-end calendar and year-end staff assignments to ensure that all year-end tasks are assigned to staff with the appropriate skill level. The updated year-end calendar will also ensure a more timely year-end close, and preparation of the financial statements, which will allow more time to review the statement for accuracy.

Contact Person: Telephone: Email:

Julie Peterson, Controller (678) 915-3282 jpeters4@spsu.edu

FS-550-13-03 Deficiencies in Controls over Budgetary Reporting

Control Category: Internal Control Impact:

Financial Reporting Material Weakness

Description:

The original budgetary statements as presented contained significant and material errors and omissions.

Criteria:

Management is responsible for establishing, maintaining and monitoring procedures, 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.

Condition:

The following deficiencies were noted in the University's original budgetary basis financial statements. Revised budget statements have been provided by the University correcting the errors noted.

1. Numerous account balances were not supported by the underlying information contained in the financial accounting system.

2. Several budget statement entries were not supported by underlying documentation.

3. As noted above in FS-550-13-02, Tuition and Fee collections related to summer semesters were not correctly allocated between fiscal years. This error resulted in a significant overstatement of revenues, which caused budgetary fund balance to be reported as a positive balance, when a significant deficit fund balance actually existed.

4. The University reported an unreserved budgetary deficit of $1,542,632.39.

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SOUTHERN POLYTECHNIC STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS AND MANAGEMENT'S CORRECTIVE ACTION PLAN
YEAR ENDED JUNE 30, 2013

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

5. A comparison of funds available and expenditures by budgetary program and funding source revealed expenditures in the Teaching program exceeded total funds available for Other funds by $576,586.78.

Questioned Cost:

N/A

Cause:

The University's previous financial management did not implement internal controls and procedures to adequately review the budgetary statements to ensure that the statements as presented for audit were accurate and properly supported by underlying accounting records.

Effect:

The inability to provide accurate budget basis statements prohibits users from having access to pertinent financial information needed for decision making.

Recommendation:

Although the University's new management provided revised budget basis statements that were a significant improvement, the University should continue to design and implement procedures to ensure appropriate budget preparation and execution and the consistent application of budgetary revenue recognition.

Views of Responsible Officials and Corrective Action Plans:

We concur with this finding. We will take or have taken the following actions to address the specific deficiencies noted:

All account balances reported in the budget basis statements will be supported by reconciliation to the general ledger that has been reviewed by the Controller to ensure accuracy.

The Controller will review all budget statement entries to ensure proper supporting documentation is attached and that the entry is appropriate. As noted in the response to FS-550-13-02, Fiscal Affairs has updated their year-end calendar and year-end staff assignments to ensure that all year-end tasks are assigned to staff with the appropriate skill level. The updated year-end calendar will also ensure a more timely year-end close, and preparation of the budget basis financial statements, which will allow more time to review the statements for accuracy.

As noted in the response to FS-550-13-02, the allocation of summer tuition and fee revenue between fiscal years will be performed in Banner via the appropriate detail code. At year-end the Controller will review deferred revenue and student receivable balances to ensure the allocation is appropriate.

Contact Person: Telephone: Email:

Julie Peterson, Controller (678) 915-3282 jpeters4@spsu.edu

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SOUTHERN POLYTECHNIC STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS AND MANAGEMENT'S CORRECTIVE ACTION PLAN
YEAR ENDED JUNE 30, 2013 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.
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