Audit report, Georgia Public Telecommunications Commission, a component unit of the state of Georgia, year ended June 30, 2004

STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor
AUDIT REPORT GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION
A COMPONENT UNIT OF THE STATE OF GEORGIA YEAR ENDED JUNE 30, 2004

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION -TABLE OF CONTENTS-

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S REPORT ON BASIC FINANCIAL STATEMENTS

ACCOMPANIED BY REQUIRED SUPPLEMENTARY INFORMATION AND

SUPPLEMENTARY INFORMATION

1

MANAGEMENT'S DISCUSSION AND ANALYSIS

5

EXHIBITS

BASIC FINANCIAL STATEMENTS

GOVERNMENT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

12

B

STATEMENT OF ACTIVITIES

13

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET - GOVERNMENTAL FUNDS

14

D

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES-GOVERNMENTAL FUNDS

15

E

NOTES TO THE FINANCIAL STATEMENTS

16

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND

ACTUAL - GENERAL FUND

32

SUPPLEMENTARY INFORMATION

COMBINING FUND STATEMENTS

2

COMBINING BALANCE SHEET - NONMAJOR GOVERNMENTAL

FUNDS

35

3

COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES - NONMAJOR

GOVERNMENTAL FUNDS

36

ANALYSIS OF FINANCIAL ACTIVITY OF BLENDED COMPONENT UNIT

4

ANALYSIS OF BALANCE SHEET ACTIVITY OF BLENDED

COMPONENT UNIT

38

5

ANALYSIS OF OPERATING ACTIVITY AND CHANGES IN FUND

BALANCES OF BLENDED COMPONENT UNIT

39

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION -TABLE OF CONTENTS-

SECTION II

COMPLIANCE AND INTERNAL CONTROL REPORT

REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL

REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED

IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

43

SECTION Ill

AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

48

SECTION I FINANCIAL

DEPARTMENT OF AUDITS AND ACCOUNTS

254 Washington Street, S.W., Suite 214

w. RUSSELL

HINTON

STATE AUDITOR

(404) 656-2174

Atlanta, Georgia 30334-8400

September 16, 2004
Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Georgia Public Telecommunications Commission
and Honorable Nancy Hall, Executive Director
INDEPENDENT AUDITOR'S REPORT ON BASIC FINANCIAL STATEMENTS ACCOMPANIED BY REQUIRED SUPPLEMENTARY INFORMATION AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying financial statements of the governmental activities, the major fund, and the aggregate remaining fund information of the Georgia Public Telecommunications Commission, a component unit of the State of Georgia, as of and for the year ended June 30, 2004, which collectively comprise the Commission's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Commission's management. Our responsibility is to express opinions 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the major fund, and the aggregate remaining fund information of the Georgia Public Telecommunications Commission, as of June 30, 2004, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

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In accordance with Government Auditing Standards, we have also issued a report dated September 16, 2004, on our consideration of the Georgia Public Telecommunications Commission's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.
The management's discussion and analysis and budgetary comparison information on pages 5 through 9 and 32 are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Georgia Public Telecommunications Commission's basic financial statements. The accompanying supplementary information (Schedules 2 through 5) is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying supplementary information (Schedules 2 through 5) has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

RWH:klc

Russell W. Hinton, CPA, CGFM State Auditor

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GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2004
The following is a discussion and analysis of the financial performance of Georgia Public Telecommunications Commission (d/b/a Georgia Public Broadcasting, GPB). It provides an overview of the activities for the fiscal year ended June 30, 2004 and compares them to fiscal year ended June 30, 2003. Georgia Public Broadcasting provides educational, instructional and public broadcasting services to the citizens of the State of Georgia. It is designed to be read in conjunction with the Georgia Public Broadcasting financial statements that follow this section.
HIGHLIGHTS
Net Assets As of the close of fiscal year 2004, Georgia Public Broadcasting's combined ending net assets totaled $40,555,217.45. Of this total, $25,106,169.19 is invested in capital assets; $336,030.62 is restricted for the Singleton Trust; $36,500.00 is restricted for the WSVH Endowment; and $15,076,517.64 is unrestricted.
Long-term Debt GPB's total long-term debt obligations consist of capital lease payments of $645,180.77 due to Bank of America and $1,076,667.99 in compensated absences.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to Georgia Public Broadcasting's basic financial statements. GPB's basic financial statements have three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains additional supplementary information to the basic financial statements themselves.
Government-wide Financial Statements The government-wide financial statements are designed to provide a broad overview of Georgia Public Broadcasting's finances, in a manner similar to private-sector business reports.
The Statement of Net Assets presents information on all GPB assets and liabilities, with the difference between the two reported as Net Assets. Over time, increases or decreases in net assets should serve as a useful indicator of whether the financial position of Georgia Public Broadcasting is improving or deteriorating.
The Statement of Activities presents information showing how GPB's net assets have changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., earned unused vacation leave).
The government-wide financial statements only include the operations of Georgia Public Broadcasting. The Commission is considered a component unit of the State of Georgia
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for financial reporting purposes because of the significance of GPB's legal, operational and financial relationships with the State of Georgia. These reporting entity relationships are defined in Section 2100 of the Governmental Accounting Standards Board's Codification of Governmental Accounting and Financial Reporting Standards.
Fund Financial Statements A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. Georgia Public Broadcasting, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All GPB funds can be classified into the category of governmental funds.
Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as balances of spendable resources available at the end of the fiscal year. Both the governmental fund Balance Sheet and the governmental fund Statement of Revenues, Expenditures and Changes in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.
Georgia Public Broadcasting maintains four individual governmental funds. The General Fund is the only major fund and is used to account for all activities of the Commission not otherwise accounted for by specific funds. Data from the other three governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report.
Notes To Financial Statements. Notes to financial statements provide additional information essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found in the Basic Financial Statements section of this report.
Other Information. In addition to the basic financial statements and accompanying notes, this report also presents a General Fund Statement of Revenues and Expenditures Budget And Actual statement. The combining statements referred to earlier in connection with non-major governmental funds are presented as supplementary information.
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GOVERNMENT-WIDE FINANCIAL ANALYSIS

Georgia Public Telecommunications Commission Net Assets

FY2004

FY2003

Capital Assets, Net of Depreciation Other Assets

$ 25,751,349.96
17,597,416.46

$ 29,665,546.66
17,087,957.66

Total Assets

$ 43,348,766.42 $ 46,753,504.32

Other Liabilities Long-Term Liabilities
Current Noncurrent

$ 1,071,700.21
1,092,870.98 628,977.78

$ 399,603.85
2,037,368.14 1,323,183.00

Total Liabilities

$ 2,793,548.97 $ 3,760,154.99

Net Assets Invested in Capital Assets, Net of Debt Restricted Unrestricted

$ 25,106,169.19
372,530.62 15,076,517.64

$ 27,454,392.98
359,828.27 15,179,128.08

Total Net Assets

$ 10 555 217 .15 $ 42 993 319 33

The largest component (62%) of GPB's net assets is the investment in Capital Assets (e.g. land, buildings and equipment) of $25,106,169.19. Less than 1% ($372,530.62) of current assets are restricted funds for the WSVH endowment and Singleton Trust. The remaining balance of $15,076,517.64 (37%) is unrestricted and may be used to meet the Commission's ongoing obligations to citizens and creditors.

The following is a summary of the Revenues, Expenses and changes in Net Assets for FY 2004:

Revenues Program Revenues Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues Intergovernmental - Other Unrestricted Investment Earnings Other
Total Revenues
Expenses Culture and Education
Increase (Decrease) in Net Assets
Net Assets - Beginning
Total Net Assets - Ending

FY 2004
$ 3,637,486.95
8,577,027.04 70,810.69
17,703,442.00 241,276.48 0.00
$ 30,230,043.16
32,668,175.04
$ (2,438,131.88)
42,993,349.33
$ 4Q 555 21Z45

FY 2003
$ 3,530,492.99
8,792,269.40 410,678.57
20,565,802.00 144,963.86 36,663.82
$ 33,480,870.64
34,292,268.11
$ (811,397.47)
43,804,746.80
$ 42 993 349 33

A decrease in Georgia Public Broadcasting's net assets of $2,438,131.88 in FY 2004 was due to the weakening economy that resulted in cuts in state appropriations and reduced revenues. However, the negative impact on net assets was mitigated by a 5% reduction in expenditures of $1,624,093.07.
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FINANCIAL ANALYSIS OF THE COMMISSION'S FUNDS
General Fund. The General Fund is the chief operating fund of Georgia Public Broadcasting. It consists of two components: the general fund of The Foundation for Public Broadcasting in Georgia, Inc., and the budget fund for GPB. Although legally separate, the Foundation is in substance a part of the Commission's operations. Funds raised by the Foundation are almost entirely devoted to the benefit of the Commission. The budget fund for GPB is the fund responsible for all activities of the Commission not otherwise accounted for in the Foundation or by the specific funds described in the following paragraph. At June 30, 2004, the General Fund has $172,549.68 reserved for encumbrances and unreserved, designated fund balances of $15,980,635.95 that are described in the Notes to the Financial Statements.
Other Non-major Governmental Funds. Three funds comprise the Other Non-major Governmental funds and are detailed individually on Schedules 2 and 3 of this report.
The assets of the Special Revenue Fund for the Singleton Trust were bequeathed to the Foundation and are restricted to providing programming about the environment and the evil of child abuse. The fund balance of $336,030.62 is reserved for specific use in accordance with the Singleton Trust guidelines.
The Capital Projects Fund is used to account for financial resources designated for the digital studio conversion project. The Georgia State Finance and Investment Commission (GSFIC) reimburse GPB for the expenditures of the digital library with the proceeds from G.O. bonds. There is no fund balance at year-end.
The WSVH Endowment is a Permanent Fund of which $36,500.00 is held in perpetuity. The prior year unreserved, designated fund balance of $16,413.40 was used in accordance with the needs of WSVH. The Foundation Board of Directors approved the expenditure.
BUDGET COMPARISON ANALYSIS
The final budget for Georgia Public Broadcasting was reduced by $2,453,934.00 during the fiscal year. This amount is the net effect of the following activities: 1) a reduction of $2,000,000.00 to reflect expected actual revenues for fiscal year 2004, and 2) the Commission's budget was reduced by $453,934.00 (2.5%) in state appropriations to comply with directives set forth by the Governor and the General Assembly.
CAPITAL ASSETS
Georgia Public Broadcasting's investment in capital assets as of June 30, 2004, amounts to $69,896,984.44, which with accumulated depreciation of $44,145,634.48, leaves a net book value of $25,751,349.96. This investment in capital assets includes land, buildings and equipment. The actual depreciation charges for the year totaled $3,995,185.52.
ECONOMIC FACTORS AND NEXT YEAR'S BUDGET
The impact of the recession on Georgia's economy resulted in a 2.5 percent reduction in Georgia Public Broadcasting's state funding in FY 2004. Proposed cuts for FY 2005 call for another 3.6% reduction in state funding. Unless a significant increase in state revenues materialize during FY 2005, additional cuts in state funding are anticipated during the next legislative session for the FY 2005 amended budget and FY 2006 general appropriations budget.
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Proposed state budget cuts are only a part of the story for GPB. The state appropriation is approximately 50% of GPB's annual budget. To meet our expenditures, GPB must raise approximately $12 million. Unfortunately, the same factors that are having such a negative impact on the economy and the state budget are also impacting our own fund raising efforts. Our revenue generation from outside sources continues to remain relatively flat with no significant increases expected into FY 2006. GPB will make additional cuts in the FY 2005 operating budget, if necessary, to maintain fiscal responsibility. The General Assembly approved an appropriation of $32 million in G.O. Bonds in the amended FY 03 budget for converting the GPB broadcast signals from analog to digital transmission. These funds are required for the Commission to meet the FCC mandate that all public television stations begin broadcasting a digital signal by May 2003 or risk fines and penalties including losing their licenses. GPB cannot begin the conversion to a digital broadcast signal until the G.O. Bonds are sold and available for use. At the printing of this report, the bonds remain appropriated but have not been sold. GPB has received two extensions from the FCC for failing to adhere to the May 2003 deadline. GPB applied for a third extension in June 2004; that request is pending. Failure to meet future deadlines could result in potential fines for the Commission.
REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of Georgia Public Broadcasting's finances for all those individuals having an interest in the Commission's finances. Questions concerning any of the information provided in this report should be addressed to: Georgia Public Broadcasting, 260 14th Street, NW, Atlanta, Georgia 303185360.
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BASIC FINANCIAL STATEMENTS - 11 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION STATEMENT OF NET ASSETS JUNE 30, 2004

EXHIBIT"A"

ASSETS Cash and Cash Equivalents Investments Accounts Receivable Other (net of allowance for uncollectibles) Inventories Capital Assets Land Buildings and Building Improvements Other Property and Equipment Less: Accumulated Depreciation
Total Assets
LIABILITIES Salaries/Withholdings Payable Deferred Revenue Noncurrent Liabilities Due Within One Year Capital Leases Compensated Absences Due in More Than One Year Compensated Absences
Total Liabilities
NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Singleton Trust WSVH Endowment Nonexpendable Unrestricted
Total Net Assets

Governmental Activities

$

9,528,914.14

7,246,093.47

806,811.81 15,597.04

1,278,948.00 26,127,162.00 42,490,874.44 -44, 145,634.48

$ _ _ _4-'3,'--34_8....a.,7_6_6_.4_2

$

8,211.21

1,063,489.00

645,180.77 447,690.21
628,977.78

$

2,793,548.97

$

25,106,169.19

336,030.62

36,500.00 15,076,517.64

$

40,555,217.45

The notes to the financial statements are an integral part of this statement. - 12 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2004

EXHIBIT"B"

Functions/Programs Governmental Activities Culture and Education
Total Governmental Activities
......
(..,.)

Expenses

Charges for Services

Program Revenues Operating Grants and
Contributions

Capital Grants and Contributions

Net (Expense) Revenue and Changes in
Net Assets
Governmental Activities

$

32,668,175.04 $

$

32,668,175.04 $

3,637,486.95 $ 3,637,486.95 $

8,577,027.04 $ 8,577,027.04 $

70,810.69 $

-20,382,850.36

_ _ _ _ 70,810.69 $

-2_0;_,_3_8_2,;,,,8, 50.36

General Revenues Intergovernmental - Other Unrestricted Investment Earnings Total General Revenues Change in Net Assets
Net Assets - Beginning
Net Assets - Ending

$

17,703,442.00

241,276.48

$

17,944,718.48

$

-2 ,438, 131.88

42,993,349.33

$

40,555,217.45

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

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2004

EXHIBIT"C"

ASSETS Cash and Cash Equivalents Investments Accounts Receivable
Other (net of allowance for uncollectibles) Inventories
Total Assets

General Fund

Other Governmental
Funds

Total Governmental
Funds

$

9,192,883.52 $

7,209,593.47

336,030.62 $ 36,500.00

9,528,914.14 7,246,093.47

806,811.81 15,597.04

806,811.81 15,597.04

$

17,224,885.84 $

372,530.62 $

17,597,416.46

LIABILITIES AND FUND BALANCES Liabilities
Salaries/Withholdings Payable Deferred Revenue
Total Liabilities
Fund Balances Reserved for: Encumbrances Singleton Trust WSVH Endowment Unreserved Designated
Total Fund Balances
Total Liabilities and Fund Balances

$

8,211.21 $

1,063,489.00

$

1,071,700.21 $

0.00 $ 0.00 $

8,211.21 1,063,489.00
1,071,700.21

$

172,549.68

$

15,980,635.95

$

16,153,185.63 $

$

17,224,885.84 $

$ 336,030.62
36,500.00
0.00
372,530.62 $
372,530.62

172,549.68 336,030.62
36,500.00
15,980,635.95
16,525,716.25

Amounts reported for governmental activities in the Statement of Net Assets are different because:
Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land Buildings and Building Improvements Other Property and Equipment Accumulated Depreciation
Total Capital Assets
Long-term liabilities are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-term Liabilities at year-end consist of:
Capital Leases Compensated Absences
Total Long-Term Liabilities

$

1,278,948.00

26,127,162.00

42,490,874.44

-44, 145,634.48

$

-645,180.77

-1,076,667.99

25,751,349.96 -1,721,848.76

Net Assets of Governmental Activities (Exhibit "A") The notes to the financial statements are an integral part of this statement.
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$ ==4=0,.5..5=5=,2=1=7=.4=5

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION EXHIBIT"D" STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2004

REVENUES lntergo11emmental - Federal lntergo11emmental - Other State Appropriations through the Board of Regents of the Uni11ersity System of Georgia Corporation for Public Broadcasting - Grants GSFIC Contributions and Donations Foundation for Public Broadcasting in Georgia, Inc. Interest and Other ln11estment Income Production Grants Rents and Royalties Sales and Services Underwriting Miscellaneous
Total Re11enues
EXPENDITURES Current
Culture and Education
Excess Of Re11enues O11er (Under) Expenditures
OTHER FINANCING SOURCES (USES) Operating Transfers In Operating Transfers Out
Total Other Financing Sources (Uses)
Net Change In Fund Balances
FUND BALANCES - BEGINNING
FUND BALANCES - ENDING

General Fund

Other Go11emmental
Funds

Total Go11emmental
Funds

$

40,370.00

$

40,370.00

17,703,442.00 3,537,134.00 $
4,999,523.04 240,911.44 436,505.79 858,841.09 773,264.90
1,399,831.42 169,043.75
$ ------'--'-'3-'0..C,1..5C8.',-8" 67.43 $

70,810.69 365.04
71,175.73 $

17,703,442.00 3,537,134.00 70,810.69
4,999,523.04 241,276.48 436,505.79 858,841.09 773,264.90
1,399,831.42 169,043.75
30,230,043.16

$---===3:0.,.3:2=1-,=63-5.53 $ $ _ _ _.-..1..6;.;2=,.7..6c 8.10 $

$

16,428.19 $

-29,000.00

$ _ _ _ _-_1;,2=,,.5::.7.;_1.81 $

$

-175,339.91 $

16,328,525.54 $ _________
16,153,185.63 $

71,045.19 $ 130.54 $
29,000.00 $ -16,428.19 12,571.81 $ 12,702.35 $ 359,828.27 372,530.62 $

30,392,680.72 -162,637.56
45,428.19 -45,428.19
0.00 -162,637.56 16,688,353.81 16,525,716.25

Net change in fund balances - total go11emmental funds

Amounts reported for go11emmental activities in the Statement of Activities are different because:

Capital outlays are reported as expenditures in go11emmental funds. Howe11er, in the Statement of Activities, the cost of these assets is allocated 011er their estimated useful li11es as depreciation expense. In the current period, these amounts are:

Capital Outlay

$

Depreciation Expense

Excess of Depreciation Expense 011er Capital Outlay

Repayment of long-term debt is reported as an expenditure in go11emmental funds, but the repayment reduces long-term liabilities in the Statement of Net Assets. In the current year, these amounts consist of:

Capital Lease Payments

Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in go11emmental funds. This activity consists of:

Decrease in Compensated Absences

$
80,988.82 -3,995, 185.52

-162,637.56
-3,914,196.70 1,565,972.91
72,729.47

Change in net assets of go11emmental activities (Exhibit "B") The notes to the financial statements are an integral part of this statement.
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$ _ _ _-.;;;,2..;,4,;;;38;;,:.,1,;.,;3;.;1.;.:.8;,;;.8

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. REPORTING ENTITY The Georgia Public Telecommunications Commission ("the Commission") is an instrumentality of the State of Georgia and a public corporation. The Commission was created by an Act of the General Assembly of the State of Georgia for the purpose of providing educational, instructional and public broadcasting services to the citizens of the State of Georgia.
The overall management of the business and affairs of the Commission is vested in a Board of Directors. State law provides that the Board is to be comprised of nine members. Board members serve on a part-time basis and are appointed by the Governor for specific periods of time. The Board of Directors appoints an Executive Director who is responsible for the day-to-day operations of the Commission.
A component unit is an entity for which the Commission is considered to be financially accountable. Financial accountability includes the ability of the Commission to appoint a voting majority of an organization's governing board and to impose will upon the organization or to have exist the potential for the organization to provide specific financial benefits or impose specific financial burdens on the Commission.
As required by generally accepted accounting principles (GAAP), these financial statements present the Commission and its blended component unit, the Foundation for Public Broadcasting in Georgia, Inc. ("the Foundation"). The Foundation assists the Commission in fulfilling its statutory responsibility for providing educational and public broadcasting to the citizens of the State of Georgia. Funds raised by the Foundation are almost entirely devoted to the benefit of the Commission. The Foundation's Board of Directors is composed of the Chairperson of the Commission's Board, two directors elected by the Commission's Board and the Executive and Deputy Directors of the Commission.
Because the Foundation, a legally separate entity, is in substance a part of the Commission's operations, the financial statements of the Foundation have been blended with the financial statements of the Commission. Information on obtaining the individual financial statements of the blended component unit is available from the Finance Office of the Commission.
The Georgia Public Telecommunications Commission, with its blended component unit, is considered a component unit of the State of Georgia for financial reporting purposes because of the significance of its legal, operational and financial relationships with the State of Georgia. These reporting entity relationships are defined in Section 2100 of the Governmental Accounting Standards Board Codification of Governmental Accounting and Financial Reporting Standards.
B. BASIS OF PRESENTATION A key feature of the governmental financial reporting model is its unique combination of government-wide and fund financial reporting. This combination of government-wide and fund financial reporting is designed to accomplish two goals: (1) to provide information using the economic resources measurement focus and the accrual basis of accounting for

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GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

functions reported in governmental funds, and (2) to provide net cost information by function for governmental activities. This is accomplished through government-wide financial statements and fund financial statements.
Government-Wide Financial Statements The Statement of Net Assets and Statement of Activities report information on all the non-fiduciary activities of the Commission and its blended component unit.
As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. The only exception to this general rule are in those instances where the elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned.
The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable within a specific function. Program revenues include (a) charges to customers or applicants who purchase, use, or directly benefit from goods, services or privileges provided by a given function and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Annual appropriations received from the State of Georgia and other items not meeting the definition of program revenues are instead reported as general revenue.
Fund Financial Statements Separate financial statements are provided for governmental funds. Major individual governmental funds are reported as separate columns in the fund financial statements. All remaining governmental funds are aggregated and reported as nonmajor funds.
The financial activities of the Commission and its blended component unit are recorded in individual funds, each of which is deemed to be a separate accounting entity. The Commission uses fund accounting to report on its financial position and results of operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain government functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
The Commission reports the following major governmental fund:
The General Fund is used to account for all financial transactions not required to be accounted for in another fund. These transactions relate to resources obtained and used for providing educational, instructional and public broadcasting services to the citizens of the State of Georgia.
C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING Government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of a9counting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of cash flows.

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GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Major revenue sources susceptible to accrual include intergovernmental revenue. Appropriations from the State of Georgia, passed through the Board of Regents of the University System of Georgia to the Commission, are recognized when they become measurable and available to the extent they are collected within the current period. All other revenue items become measurable and available when they are earned.
Expenditures generally are recorded when the related fund liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.
D. ASSETS, LIABILITIES AND NET ASSETS OR EQUITY
Cash and Cash Equivalents The Commission's Cash and Cash Equivalents are considered to be cash on hand, demand deposits with banks and other financial institutions, and the State investment pool that has the general characteristics of demand deposit accounts in that the Commission may deposit additional cash at any time and also may withdraw cash at any time without prior notice or penalty.
The State investment pool (Georgia Fund 1) is an external investment pool that is not registered with the Securities and Exchange Commission (SEC) but does operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940. The State of Georgia's Office of Treasury and Fiscal Services (OTFS) manages Georgia Fund 1 in accordance with policies and procedures established by State law and the State Depository Board, the oversight Board of OTFS. This investment is valued at the pool's share price, $1.00 per share.
The Commission does not have any risk exposure related to investments in derivatives or similar investments in Georgia Fund 1 as the investment policy of OTFS does not provide for investments in derivatives or similar investments through the Georgia Fund 1.
Investments Investments are defined as those financial instruments with terms in excess of three months from the date of purchase. Investments of the Commission are reported at cost (certificates of deposit). Accounting principles generally accepted in the United States of America require that investments be reported at fair value, however, the variance in cost and fair value is deemed immaterial to the financial statements.
Accounts Receivable Accounts receivable for service charge revenues arising from operations are shown net of an allowance for uncollectibles. Service charge accounts receivable in excess of 120 days

- 18 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

comprise the allowance for uncollectibles.

Capital Assets Capital assets, which include property, plant and equipment, are reported in the applicable governmental type activities in the government-wide financial statements. All land is capitalized regardless of cost. Buildings and Building Improvements are capitalized when the cost of individual items or projects exceed $100,000.00. Equipment is capitalized when the cost of individual items exceed $5,000.00. Such assets are recorded at historical costs or estimated historical cost if historical cost information is unavailable. Donated capital assets are recorded at fair market value on the date donated. Disposals are deleted at recorded cost.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized.

Capital assets of the Commission are depreciated using the straight-line method over the following estimated useful lives:

Buildings and Building Improvements Equipment

40 Years 3-7 Years

Compensated Absences Employees earn annual leave ranging from ten to fourteen hours each month depending upon the employee's length of continuous State service with a maximum accumulation of forty-five days. Employees are paid for unused accumulated annual leave upon retirement or termination of employment. Funds are provided in the appropriation of State funds each fiscal year to cover the cost of annual leave of terminated employees.

Employees earn ten hours of sick leave each month with a maximum accumulation of ninety days. Sick leave does not vest with the employee. Unused accumulated sick leave is forfeited upon retirement or termination of employment. However, certain employees who retire with one hundred and twenty days or more of forfeited annual and sick leave are entitled to additional service credit in the Employees' Retirement System of Georgia.

Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities.

Net Assets In the government-wide financial statements, the difference in the Commission's assets and liabilities is reported as net assets. Net assets are reported in three categories:

Invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation and reduced by outstanding balances for bonds, notes, and other debt that are attributed to the acquisition, construction, or improvement of those assets. Restricted net assets result when constraints placed on net asset use are either externally imposed by creditors, granters, contributors, and the like, or imposed by law through constitutional provisions or enabling legislation.
-19-

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

Unrestricted net assets consist of net assets that do not meet the definition of the two preceding categories. Unrestricted net assets often are designated, indicating they are not available for general operations. Such designations have internally imposed constraints on resources, but can be removed or modified.
Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change.
The Commission receives an annual appropriation from the State of Georgia. In general, Georgia law requires that unencumbered annual state appropriations lapse at fiscal year end, however, statutory provisions allow the Commission to carry over unencumbered appropriations to future periods. Encumbrance accounting is employed in the governmental funds. Encumbrances (e.g., purchase orders, contracts) outstanding at yearend are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent fiscal year.
NOTE 2: STEWARDSHIP. COMPLIANCE AND ACCOUNTABILITY
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds of the State of Georgia 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 (OCGA) Section 50-17-59:
(1) Bonds, bills, certificates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia.
(2) Bonds, bills, certificates of indebtedness, notes, or other obligations of the counties or municipalities of the State of Georgia.
(3) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.
(4) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.
(5) Bonds, bills, certificates of indebtedness, notes, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest, or debt obligations issued by or securities guaranteed 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 Corporation, or the Federal National Mortgage Association.

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GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

(6) Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.
As authorized in the OCGA Section 50-17-53, the State Depository Board has adopted policies that allow agencies of the State of Georgia the option of exempting demand and special deposits from the collateral requirements.
NOTE 3: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS
For purposes of analysis of custodial credit risk, cash deposits consist of all bank balances, which include demand deposits and/or interest bearing accounts. The bank balances as of June 30, 2004, are categorized below in order to provide information about the extent to which such deposits are exposed to custodial credit risk.
Category 1 - Amounts covered by depository insurance or collateralized with securities (at market value) held by the Commission or by its agent in the Commission's name.
Category 2 - Amounts collateralized with securities (at market value) held by the pledging financial institution's trust department or agent in the Commission's name.
Category 3 - Amounts collateralized with securities (at market value) held by the pledging financial institution or by its trust department or agent, but not in the Commission's name, and amounts uncollateralized.

Carrying Amount Bank Balances

Risk Categories

1

g

Cash Deposits $16,762,923.46 $17,454,517.62 $300,000.00 $0.00 $17,154,517.62

Reconciliation of cash and cash equivalents and investments from Statement of Net Assets to notes to the financial statements follows:

Per Statement of Net Assets
Certificates of deposits reclassified to cash deposits for analysis of custodial credit risk
State investment pool reclassified to investments for analysis of custodial credit risk
Per notes to the financial statements

Cash and Cash Equivalents
$ 9,528,914.14

Investments $7,246,093.47

7,246,093.47

(7,246,093.47)

(12,084.15) $16,762,923.46

12,084.15 $ 12,084.15

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GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

The carrying amount of the investment balance as of June 30, 2004, shown below is maintained in an investment pool by the Office of Treasury and Fiscal Services and is not subject to risk categorization.

Type of Investment State Investment Pool

Reported Amount/ Fair Value
$12 084.15

NOTE 4: ACCOUNTS RECEIVABLE

Receivables at June 30, 2004, with applicable allowances for doubtful collections, consist of the following:

Other (Services) Less: Allowance for Doubtful Accounts
Total Receivables

General Fund
$836,097.85 (29,286.04)
$806,811.81

NOTE 5: CAPITAL ASSETS Capital asset activity for the year ended June 30, 2004, was as follows:

Governmental Activities: Capital Assets, Not Being Depreciated:
Land

Beginning Balance
$ 1.278.948.00

Increases

Decreases

Ending Balance
$ 1,278 948.00

Capital Assets, Being Depreciated: Buildings and Building Improvements Other Property and Equipment
Total Capital Assets Being Depreciated

$26,127,162.00 43.428.947.79
$69,556 109.79

$ 118 160.82 $ 118,160.82

${1056234.17} ${1.056.234.17}

$26,127,162.00 42 490.874.44
$68,618,036.44

Less: Accumulated Depreciation For: Buildings and Building Improvements Other Property and Equipment
Total Accumulated Depreciation

$ (3,478,178.44) {37,691,332.69} $(41.169.511.13}

$ (587,861.15) {3 354 788.26}
$(3,942,649.41}

$ 966 526.06 $ 966 526.06

$ (4,066,039.59) {40 079,594.89}
${44 145 634.48}

Governmental Activities Capital Assets, Net $ 29 665 546 66 $(3 824 488 59) $ (89 ZQ8 11) $ 25 Z51 349 96

Depreciation expense for the fiscal year ended June 30, 2004, was $3,995,185.52 and the total amount was charged to Culture and Education function of the Commission.

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GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

NOTE 6: OPERATING LEASES
The Commission has entered into certain agreements to lease equipment and transmitter space, which are classified for accounting purposes as operating leases. These leases generally contain provisions that, at the expiration date of the original term of the lease, the Commission has the option of renewing the lease on a year-to-year basis. Total expenditures for the rental of real property under such leases were $559,500.16 for the year ended June 30, 2004. The future minimum commitments for operating leases as of June 30, 2004, are listed below. Amounts are included only for multi-year leases and for cancellable leases for which an option to renew for the subsequent fiscal year has been exercised.

Fiscal Year Ended June 30
2005 2006 2007 2008 2009 2010 - 2014
Total Minimum Commitments

$ 1,055,720.80 1,071,270.80 1,057,820.80 553,310.40 48,000.00 248,000.00
$ 4,034,122.80

NOTE 7: LONG-TERM DEBT
Compensated Absences Compensated absences are liquidated by the fund they are reported in and do not have scheduled future debt service requirements beyond one year.
Capital Leases The Commission has entered into agreements to lease certain equipment. Such agreements are, in substance, purchases (capital leases) and are reported as capital lease obligations. These agreements contain fiscal funding clauses in accordance with Georgia statutes which prohibits the creation of a debt to the State of Georgia for the payment of any sums under such agreements beyond the fiscal year of execution if appropriated funds are not available. If renewal of such agreements is reasonably assured, however, capital leases requiring appropriation by the General Assembly are considered noncancellable for financial reporting purposes.
The future minimum capital lease payments at June 30, 2004 are as follows:

Fiscal Year Ended June 30
2005 Less: Amounts Representing Interest (4.08% to ~.29%)
Total Minimum Commitments

$ 658,293.20 (13,112.43)
$ 645,180.77

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GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

long-term obligations at June 30, 2004, and changes for the fiscal year then ended are as follows:

Capital Leases Payable Compensated Absences

July 1, 2003
$2,211,153.68 1,149,397.46
i3,360,551.14

Increases
i526,402.13 i526,402.13

Decreases
$1,565,972.91 599,131.60
i 2 , 165,104.51

June 30, 2004

Amounts Due Within One Year

$ 645,180.77 1,076,667.99

$ 645,180.77 447,690.21

i1,721,848.76

i1 ,092,870.98

NOTE 8: UNRESERVED - DESIGNATED FUND BALANCES
Designations of fund balances are used to show the amounts within the unreserved fund balances intended to be used for specific purposes, but not legally restricted. The Commission has designated unreserved fund balances for future years expenditures as follows:

Purpose
Digital content creation for multiple delivery General operational support lllges fund Programming and educational content productions Rome radio tower
Total Designations

General Fund
$ 8,500,000.00 813,141.02 727,494.93
5,850,000.00 90,000.00
$15,980,635.95

NOTE 9: RISK MANAGEMENT
Public Entity Risk Pool The Department of Community Health administers for the State of Georgia a program of health benefits for the employees of units of government of the State of Georgia, units of county government and local education agencies located within the State of Georgia. This plan is funded by participants covered in the plan, by employers' contributions paid by the various units of government participating in the plan, and appropriations made by the General Assembly of Georgia. The Department of Community Health has contracted with various outside parties to process claims in accordance with the State Employees' Health Benefit Plan as established by the Department. Details on the liability for unpaid claims are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2004.
Other Risk Management The Commission is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and injuries to employees. The State of Georgia utilizes self-insurance programs established by individual agreement, statute or administrative action, to provide property insurance covering fire and extended coverage and automobile insurance and to pay losses that might occur from such causes; liability insurance for employees against personal liability for damages arising out of performance
- 24 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION . NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT "E"

of their duties; survivors' benefits for eligible members of the Employees' Retirement System; consolidating processing of unemployment compensation claims against State agencies and the payment of sums due to the Department of Labor; and workers' compensation insurance coverage for employees of the State and for the receipt of benefits as prescribed by the workers' compensation statutes of the State of Georgia. These self-insurance funds are accounted for as internal service funds of the State of Georgia where assets are set aside for claim settlements. The majority of the risk management programs are funded by assessments charged to participating organizations. A limited amount of commercial insurance is purchased by the self-insurance funds applicable to property, employee and automobile liability, fidelity and certain other risks to limit the exposure to catastrophic losses. Otherwise, the risk management programs service all claims against the State for injuries and property damage. Financial information relative to the self-insurance funds will be presented in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2004.
In addition, the Commission has purchased a liability insurance policy for broadcasters and producers and another liability and crime policy for the Foundation's Board of Directors.
NOTE 10: RELATED PARTY TRANSACTIONS
As further described in Note 1, the Commission, through its board members, the State of Georgia, and other State agencies, participates in related party transactions which are inherent to its organizational and funding structure. Agencies that fund the Commission also contract with the Commission for goods and services and the Commission purchases goods and services from funding agencies.
NOTE 11: POST EMPLOYMENT BENEFITS
In addition to the pension benefits described in Note 13 that follows, the State of Georgia provides postretirement health care benefits through the State Health Benefit Plan to retirees pursuant to OCGA Section 45-:18. An individual eligible for these benefits must have been a full time employee at the time of retirement of either the State of Georgia or a county social service agency and must be receiving monthly retirement benefits from either the ERS or a county employees' retirement system.
The State Heath Benefit Plan (Plan) is a public entity risk pool funded by employee and employer contributions. Employees and retirees subject to the Plan contribute amounts determined by the Department of Community Health for various health insurance plans. The various agencies of the State contribute to the health insurance fund based upon amounts recommended by the Department on Community Health and set forth in the State of Georgia's Appropriations Act. The Plan is funded on a "pay-as-you-go" basis. Expenses of the Plan include provisions for incurred but not reported claims. The portion of the employer contributions and expenses attributable to postretirement health care benefits cannot be reasonably estimated.

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GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

NOTE 12: RETIREMENT PLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description
The Commission participates in the Employees' Retirement System of Georgia ("ERS"), a single-employer defined benefit plan established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia. The benefit structure of ERS is defined by State statute and was significantly modified on July 1, 1982. Unless elected otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. All other members are "new plan" members subject to the modified plan provisions.
Under both the old plan and the new plan, members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 65. If 10 years of service is completed and age 60 is reached, the member may retire with a reduced benefit. Additionally, there are certain provisions allowing for retirement after 25 years of service regardless of age.
Retirement benefits paid to members are based upon a formula which considers the monthly average of the member's highest twenty-four consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension at reduced rates to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS.
In addition, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan (SRBP) effective January 1, 1998. The SRBP was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415.
The ERS issues a financial report each fiscal year which may be obtained through ERS.
Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political subdivision, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The Commission's payroll for the year ended June 30, 2004, for employees covered by ERS was $7,972,415.83. The Commission's total payroll for all employees was $8,841,547.59.
Under the old plan, member contributions consist of 4% of annual compensation up to $4,200.00 and 6% of annual compensation in excess of $4,200.00. Of these member contributions, the employee pays the first 1.25% and the employer pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.25%

- 26 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

of annual compensation paid by employee. The Commission also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation. For the year ended June 30, 2004, the ERS employer contribution rate for the Commission amounted to 10.18% of covered payroll and included the amounts contributed on behalf of the employee under the old plan referred to above. Employer contributions are also made on amounts paid for accumulated leave to retiring employees.
Total contributions to the plan made during fiscal year 2004 amounted to $910,946.30, of which $811,268.91 was made by the Commission and $99,677.39 was made by employees. These contributions met the requirements of the plan. There is no net pension obligation for the plan. Employer contributions (annual pension cost) for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year
2004 2003 2002

Annual Pension Cost (APC)
$811,268.91 $870,553.07 $890,281.32

Percentage
OfAPC
Contributed
100.00% 100.00% 100.00%

Net Pension Obligation
N/A N/A N/A

The required contribution for 2004 was determined as part of the June 30, 2003, actuarial valuation using the entry age actuarial cost method. The actuarial assumptions included (a) 7.25% investment rate of return, (b) projected salary increases ranging from 5.45% to 9.25% per year. Both (a) and (b) included an inflation component of 3.75%. The assumptions did not include postretirement cost-of-living adjustments. The actuarial value of assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a five-year period. The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on an open basis. The employer contributions are projected to liquidate the actuarial accrued funding excess within 10 years based upon the actuarial valuation at June 30, 2003.
Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2004, financial audit report which may be obtained through the Georgia Department of Audits and Accounts.
GEORGIA DEFINED CONTRIBUTION PLAN Plan Description
Certain employees of the Commission participate in the Georgia Defined Contribution Plan ("GDCP"), a single-employer defined contribution plan established by the Georgia General Assembly for the purpose of providing retirement coverage for State employees who are not members of a public retirement or pension system. The ERS Board of Trustees administers GDCP.

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GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

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. If a member has less than $ 3,500 credit to their account, the Board 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 their account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.
The Employees' Retirement System of Georgia (ERS) issues a financial report each fiscal year which may be obtained through ERS .
Contributions and Vesting Member contributions are 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. Upon termination of employment, the amount of the member's account is refundable upon request by the member. The Commission's payroll for the year ended June 30, 2004, for employees covered by GDCP was $135,807.24. The Commission's total payroll for all employees was $8,841,547.59.
Total contributions made by employees during fiscal year 2004 amounted to $10,186.94 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.
TEACHERS' RETIREMENT SYSTEM OF GEORGIA Plan Description
The Commission also participates in the Teachers Retirement System of Georgia (TRS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances and other benefits for teachers of the State of Georgia. TRS provides service retirement and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from TRS.
Benefits 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 2.0% of the average of the member's 2 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 1/12 of 7.0% for each month the member is below age 60, or by 7.0% 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 CPI, will be made in future years. Retirement benefits are payable monthly for life. Death, disability and spousal benefits are also available.
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GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

Funding Policy TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Member contributions are 5% of annual salary, and employer contributions are 9.24%, as required by the annual actuarial valuation. The Commission's payroll for the year ended June 30, 2004, for employees covered by TRS was $555,366.00. Total contributions to the plan made during fiscal year 2004 amounted to $79,084.60, of which, $51,316.05 was made by the Commission and $27,768.55 was made by employees. These contributions represented 9.24% (Commission) and 5% (employees) of covered payroll.
Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year
2004 2003 2002

Percentage Contributed
100.00% 100.00% 100.00%

Required Contribution
$51,316.05 $54,552.32 $46,369.41

NOTE 13: LEAVE POLICIES
Employees earn ten hours of sick leave each month with a maximum accumulation of ninety days. Unused accumulated sick leave does not vest with the employee and is forfeited upon retirement or termination of employment.
Employees earn annual leave ranging from ten to fourteen hours each month depending upon the employees' length of continuous State service with a maximum accumulation of forty-five days. Employees are paid for unused accumulated annual leave upon retirement or termination of employment. Certain employees who retire with one hundred and twenty days or more of forfeited annual and sick leave are entitled to additional service credit in the ERS.
NOTE 14: NONMONETARY TRANSACTIONS
During the year ended June 30, 2004, the Commission received administrative, communication, and departmental support from Augusta State University for the operation of WACG Radio in the amount of $217,624.41. Also, the Commission received the same support from the University of Georgia in the amount of $476,163.00 for the operation of WUGA Radio. In addition, the Commission received facilities and services support from the State University of West Georgia in the amount of $17,350.00. These amounts are not reflected on the financial statements.
NOTE 15: INTERFUND TRANSFERS
During fiscal year 2004, the Permanent Fund, WSVH Endowment, transferred $16,428.19 to the General Fund. The transfer represented the net appreciation on investments of the donor-restricted endowment authorized for expenditure by the Foundation Board of

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GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

EXHIBIT"E"

Directors. The General Fund transferred back $29,000.00 of the $55,000.00 that was transferred during fiscal year 2003 from the Special Revenue Fund, Singleton Trust, as a contribution towards the production and broadcast of a television series on the concerns and issues of water as a natural resource.
NOTE 16: CONTINGENCIES
Amounts received or receivable from granter agencies are subject to audit and adjustments by granter agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the granter cannot be determined at this time, although the Commission expects such amounts, if any, to be immaterial.
Litigation, claims and assessments filed against the Commission, if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2004.

- 30 -

REQUIRED SUPPLEMENTARY INFORMATION - 31 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION SCHEDULE OF REVENUES AND EXPENDITURES BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2004

SCHEDULE "1"

Funds Available Revenues Federal Revenues Other Revenues Retained
Total Revenues
Carry-Over from Prior Year Transfer from Reserved Fund Balance
Total Funds Available

Original Budget

Final Budget

Actual Amounts (Budgetary Basis)

Variance-
Fa110rable
(Unfa110rable l

$

0.00 $

11,417.00$

40,370.00 $

36,381,667.00

33,916,316.00

30,134,925.62

$ 36,381,667.00 $ 33,927,733.00 $ 30,175,295.62 $

28,953.00 -3,781,390.38
-3,752,437.38

0.00

0.00

2,124,177.72

$ 36,381,667.00 $ 33,927,733.00 $ 32,299,473.34 $

2,124,177.72 -1,628,259.66

Expenditures Personal Services Operating Expenses General Programming Distance Leaming Programming Austerity Adjustments
Total Expenditures

$ 14,618,782.00 $ 15,495,157.00 4,070,278.00 2,784,685.00 -587,235.00
$ _ _ _ _ __ 36,381,667.00 $

13,051,727.00 $ 16,805,728.00 4,070,278.00
0.00 0.00
33,927,733.00 $

11,532,945.29 $ 14,680,789.82 4,070,278.00
0.00 0.00
30,284,013.11 $

1,518,781.71 2,124,938.18
0.00 0.00 0.00
3,643,719.89

Excess of Funds Available over Expenditures
The budget for the Commission is adopted on a basis consistent with accounting practices prescribed or permitted by statutes and regulations of the State of Georgia, which is a basis other than prescribed by Generally Accepted Accounting Principles (GAAP). This budget is considered to be an appropriated budget The following is an explanation of differences between budgetary inflows and outflows and GAAP revenues and expenditures.
Sources/Inflows of resources Actual amounts (budgetary basis) "Funds available"
Differences - Budget to GAAP: The carry-over transfer from reserved fund balance is a budgetary resource but is not a current-year revenue for financial reporting purposes.
Operating transfer from the WSVH Endowment to the General Fund reported as other revenues retained under the budgetary basis of accounting rather than other financing sources for financial reporting plfPOses.
Total revenues as reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds (Exhibit "D")
Uses/outflows for resources Actual amounts (budgetary basis) "expenditures"
Differences - Budget to GAAP: For budget purposes, certain adjustments to prior year expenditure/payable items and inventory adjustments are considered fund balance adjustments rather than expenditure items for financial reporting purposes.
For budget purposes, encumbrances are reported as expenditures in the year purchase orders are issued but are expensed when in110iced for financial reporting purposes.
Operating transfers from the General Fund to the Singleton Trust reported as operating expenses under the budgetary basis of accounting rather than other financing uses for financial reporting purposes.
Total expenditures as reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds (Exhibit "D")

$

2,015,460.23 $

2,015,460.23

$ 32,299,473.34 -2,124,177.72 -16,428.19
$ 30,158,867.43 $ 30,284,013.11
52,936.25 13,686.17 -29,000.00 $ _ _3o_.,3_2_1,._,6_35_._53_

- 32 -

SUPPLEMENTARY INFORMATION - 33 -

NONMAJOR GOVERNMENTAL FUNDS

Special Revenue Fund - The Special Revenue Fund for the Commission is used to account for funds bequeathed to The Foundation for Public Broadcasting in Georgia, Inc. (blended component unit of the Commission). The funds are restricted to providing programming about the environment and the evil of child abuse.

Capital Projects Fund - The Capital Projects Fund is used to account for the financial resources provided by the Georgia State Financing and Investment Commission (GSFIC) for the acquisition of the digital asset library.

Permanent Fund - The Permanent Fund for the Commission is used to account for

funds bequeathed to The Foundation for Public Broadcasting in Georgia, Inc. (blended

component unit of the Commission). The permanent fund is divided into two parts:

reserved and unreserved. The reserved portion of the endowment is held in perpetuity.

The interest earned on the endowment can be used in accordance with periodic

determinations of the needs of WSVH as determined by the Foundation Board of

Directors.



- 34 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION COMBINING BALANCE SHEET
NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2004

SCHEDULE "2"

ASSETS Cash and Cash Equivalents Investments
Total Assets

Seecial Revenue Singleton Trust

Caeital Projects GSFIC

Permanent Fund WSVH
Endowment

Total Nonmajor Governmental
Funds

$

336,030.62 $

0.00 $

$ 36,500.00

336,030.62 36,500.00

$

336,030.62 $

0.00 $

36,500.00 $

372,530.62

FUND BALANCES Reserved for: Singleton Trust WSVH Endowment Unreserved Undesignated
Total Fund Balances

$

336,030.62

$

$

336,030.62 $

$ 0.00 0.00 $

$ 36,500.00
36,500.00 $

336,030.62 36,500.00
0.00
372,530.62

- 35 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION COMBINING STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS
YEAR ENDED JUNE 30, 2004

SCHEDULE "3"

REVENUES ntergovemrnental - Other nterest and Other nvestment ncome
Total Revenues
EXPENDITURES Current Culture and Education
Excess Of Revenues Over Expenditures
OTHER FINANCING SOURCES (USES)
Operating Transfers n
Operating Transfers Out
Total Other Financing Sources (Uses)
Net Change n Fund Balances
FUND BALANCES - BEGINNING
FUND BALANCES - ENDING

Seecial Revenue Singleton Trust

Caeital Projects GSFIC

Pennanent Fund WSVH
Endowment

Total Nonmajor Governmental
Funds

$

70,810.69

$

350.25

$

$ 14.79

70,810.69 365.04

$

350.25 $

70,810.69 $

14.79 $

71,175.73

$

234.50 $

$

115.75 $

$

29,000.00

$

$

29,000.00 $

$

29,115.75 $

306,914.87

$

336,030.62 $

70,810.69 $ 0.00 $
0.00 $ 0.00 $ 0.00 $ 0.00 0.00 $

0.00 $ 14.79 $
$ -16,428.19 -16,428.19 $ -16,413.40 $ 52,913.40 36,500.00 $

71 045.19 130.54
29,000.00 -16,428.19 12,571.81 12,702.35 359,828.27 372,530.62

- 36 -

ANALYSIS OF FINANCIAL ACTIVITY OF BLENDED COMPONENT UNIT (FOUNDATION FOR PUBLIC BROADCASTING IN GEORGIA, INC.)
- 37 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION ANALYSIS OF BALANCE SHEET ACTIVITY OF BLENDED COMPONENT UNIT JUNE 30, 2004

SCHEDULE "4"

ASSETS Cash and Cash Equivalents Investments Accounts Receivable
Other (net of allowance for uncollectibles) Inventories
Total Assets
LIABILITIES AND FUND BALANCES Liabilities
Salaries/Withholdings Payable Deferred Revenue
Total Liabilities
Fund Balances Reserved for: Encumbrances Unreserved Designated (Deficit)
Total Fund Balances
Total Liabilities and Fund Balances

Commission

Foundation

Total

$

409,156.49 $ 8,783,727.03 $ 9,192,883.52

7,209,593.47

7,209,593.47

806,811.81 15,597.04

806,811.81 15,597.04

$ 1,231,565.34 $ 15,993,320.50 $ 17,224,885.84

$

8,211.21 $

1,063,489.00

$ 1,071,700.21 $

0.00 $ 0.00 $

8,211.21 1,063,489.00
1,071,700.21

$

172,549.68

$

172,549.68

-12,684.55 $ 15,993,320.50

15,980,635.95

$

159,865.13 $ 15,993,320.50 $ 16,153,185.63

$ 1,231,565.34 $ 15,993,320.50 $ 17,224,885.84

- 38 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION SCHEDULE "5" ANALYSIS OF OPERATING ACTIVITY AND CHANGES IN FUND BALANCE
OF BLENDED COMPONENT UNIT YEAR ENDED JUNE 30, 2004

REVENUES Intergovernmental - Federal Intergovernmental - Other State Appropriations through the Board of Regents of the University System of Georgia Corporation for Public Broadcasting - Grants Contributions and Donations Foundation for Public Broadcasting in Georgia, Inc. Interest and Other Investment Income Production Grants Rents and Royalties Sales and Services Underwriting Miscellaneous
Total Revenues
EXPENDITURES Current Culture and Education
Excess Of Revenues Over (Under) Expenditures
OTHER FINANCING SOURCES (USES) Operating Transfers In Operating Transfers Out Intra-Fund Transfers
Total Other Financing Sources (Uses)
Net Change In Fund Balances
FUND BALANCES - BEGINNING
FUND BALANCES - ENDING

Commission

$

40,370.00

Foundation $

Total 40,370.00

17,703,442.00 3,537,134.00

17,703,442.00 3,537,134.00

$ 12,822.32 436,505.79 858,841.09 773,264.90 1,399,831.42 169,043.75

4,999,523.04 228,089.12

4,999,523.04 240,911.44 436,505.79 858,841.09 773,264.90
1,399,831.42 169,043.75

$ 24,931,255.27 $ 5,227,612.16 $ 30,158,867.43

$ 30,181,661.57 $ 139,973.96 $ 30,321,635.53 $ -5,250,406.30 $ 5,087,638.20 $ -162,768.10

$

16,428.19

$

-29,000.00

2,510,000.00 $ -2,510,000.00

16,428.19 -29,000.00
0.00

$ 2,497,428.19 $ -2,510,000.00 $

-12,571.81

$ -2,752,978.11 $ 2,577,638.20 $ -175,339.91

2,912,843.24 13,415,682.30

16,328,525.54

$

159,865.13 $ 15,993,320.50 $ 16,153,185.63

- 39 -

SECTION 11 COMPLIANCE AND INTERNAL CONTROL REPORT
- 41 -

DEPARTMENT OF AUDITS AND ACCOUNTS

254 Washington Street, S.W., Suite 214

RussELL W. HINTON
STATE AUDITOR (404) 656-2174

Atlanta, Georgia 30334-8400

September 16, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Georgia Public Telecommunications Commission
and Honorable Nancy Hall, Executive Director
REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited the financial statements of the Georgia Public Telecommunications Commission, a component unit of the State of Georgia, as of and for the year ended June 30, 2004, and have issued our report thereon dated September 16, 2004. 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.
Compliance As part of obtaining reasonable assurance about whether the Georgia Public Telecommunications Commission's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, 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 that are required to be reported under Government Auditing Standards.
Internal Control Over Financial Reporting In planning and performing our audit, we considered the Georgia Public Telecommunications Commission's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial
- 43 -

reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the audit committee, management, members of the Commission, management of the State of Georgia, and federal and state awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
LI~~
Russell W. Hinton, CPA, CGFM State Auditor RWH:klc
- 45 -

SECTION Ill AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND
QUESTIONED COSTS
- 47 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-977-01-01

Unresolved

CORRECTIVE ACTION/RESPONSES
REVENUES/RECEIVABLES/RECEIPTS Control over Third Party Tower Rental Finding Control Number: FS-977-01-01
Georgia Public Broadcasting concurs with this finding. During the Georgia Technology Authority's (GTA) tenure of authority over the broadcast towers, Georgia Public Broadcasting (GPB) was restricted from pursuing a resolution to Control over Third Party Tower Rental. On July 12, 2002, GTA released GPB from the State of Georgia's Converged Communications Outsourcing Project, the comprehensive statewide telecommunications RFP. As a result of this, GPB was left without funding to implement the federally mandated FCC requirements for conversion to a digital broadcast signal.
In FY 2003 the General Assembly approved $32.1 million in five-year General Obligation Bonds for the digital conversion of all nine GPB television transmitters. However, the use of general obligation bonds for the digital conversion has created circumstances that continue to hinder GPB from resolving the "Third Party Tower Rental" finding until other related issues are resolved.
The first issue is that, according to the Attorney General's office, GPB, as an authority created after 1967, cannot have the bonds sold on its behalf. Therefore, the custody of each piece of property will need to be transferred to the Board of Regents. This process is under way and should be completed in FY 2005. GPB does not want to initiate any contract changes with existing tenants until this transfer is completed and management details have been confirmed through a contract with the Board of Regents.
The second issue, which most directly affects the tower rental contracts, is whether the bonds will be sold as taxable or non-taxable bonds. If it is determined that the bonds will be sold as non-taxable general obligation bonds, then the commercial (or non-state) tenants will have to vacate the towers. This scenario resolves the finding by having all non-state tenants vacate the towers immediately. However, this determination has yet to be made and the bonds have not been sold as of this date.

- 48 -

GEORGIA PUBLIC TELECOMMUNICATIONS COMMISSION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES REVENUES/RECEIVABLES/RECEIPTS Control over Third Party Tower Rental Finding Control Number: FS-977-01-01 In light of the current budget crisis and until all issues related to the transfer of property and the sale of the bonds are resolved, GPB cannot afford to give up the revenues being generated from the tower rentals. The current management of GPB has not added any new tenants since joining GPB in 1999; however, contracts and agreements already in place at that time have been honored and kept in place. GPB is working diligently through all of the above issues before attempting to modify or enter into new agreements with the tenants that currently reside on the towers. It is management's belief that these issues will be resolved in FY 2005.
- 49 -