STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
I
VALDOSTA STATE UNIVERSITY
VALDOSTA, GEORGIA REPORT ON AUDIT
OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Russell W. Hinton State Auditor

VALDOSTA STATE UNIVERSITY - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON AUDIT OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

BASIC FINANCIAL STATEMENTS

EXHIBITS

A STATEMENT OF NET ASSETS

3

B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

5

C STATEMENT OF CASH FLOWS

6

D NOTES TO THE FINANCIAL STATEMENTS

8

SUPPLEMENTARY INFORMATION

SCHEDULES

SCHEDULES OF REVENUES AND EXPENDITURES COMPARED TO

BUDGET - (NON-GAAP BASIS)

1

RESIDENT INSTRUCTION

31

2

LOTTERY FOR EDUCATION

32

3 RECONCILIATION OF SALARIES AND TRAVEL

33

SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

Russell W. Hinton
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
November 24, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia
and Honorable Ronald M. Zaccari, President Valdosta State University
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying basic financial statements of Valdosta State University, an organizational unit ofthe State of Georgia, and its' aggregate discretely presented component unit as ofand for the year ended June 30, 2004, as listed in the table ofcontents. These financial statements are the responsibility ofthe Valdosta State University's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of Valdosta State University's discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for Valdosta State University Foundation, Inc. is based on the report of the other auditors.
We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica. 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 and the report of other auditors provide a reasonable basis for our opinions.
As discussed in Note 1, the financial statements ofValdosta State University are intended to present the financial position and changes in financial position (including cash flows) ofonly that portion of the business-type activities ofthe State of Georgia that is attributable to the transactions ofValdosta State University. They do not purport to, and do not, present fairly the financial position and changes
04ARL-61

in financial position (including cash flows) of the State of Georgia, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Valdosta State University and of its aggregate discretely presented component unit as of June 30, 2004, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1, the University adopted the provisions of the Governmental Accounting Standards Board, Statement Number 39, Determining Whether Certain Organizations are Component Units during the year ended June 30, 2004.
Management's Discussion and Analysis is not a required part ofthe basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We and the other auditors have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit this information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the University's basic financial statements. The accompanying supplementary information (Schedules 1 through 3) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied by us in the audit of the basic financial statements and, in our opinion, based on our audit, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Respectfully submitted,
~ ~-~
R sell W. Hinton State Auditor
RWH:gp 04ARL-61

REQUIRED SUPPLEMENTARY INFORMATION

VALDOSTA STATE UNIVERSITY
Management's Discussion and Analysis

Introduction

Valdosta State University is one of the 34 institutions of the University System of Georgia. The University, located in Valdosta, Georgia, was founded in 1906 and is one of only two regional universities within the University System. The University offers nationally accredited programs in Art, Business, Music, Nursing, Sports Medicine, Speech and Language Pathology, School Psychology and Teacher Education. Valdosta State University offers baccalaureate and masters degrees in a wide variety of subjects. This wide range of educational opportunities attracts a highly qualified faculty and a student body of approximately 10,000 students each year. The institution suffered enrollment losses after implementing the System Initiative to move Remedial Instruction to the System's 2-year colleges.

Faculty

Students

FY2004 FY2003 FY2002

423

10,457

417

10,547

427

9,900

Overview ofthe Financial Statements and Financial Analysis

Valdosta State University is proud to present its financial statements for fiscal year 2004. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and, the Statement of Cash Flows. This discussion and analysis of the University's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2003 and fiscal year 2004.

Statement ofNet Assets

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

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

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

Statement of Net Assets, Condensed

June 30, 2004

June 30, 2003

Assets Current Assets Capital Assets, Net Other Assets

$ 7,370,559.44 95,232,347.19 11,399,767.20

$ 6,530,803.69 83,942,021.18 11,107,388.37

Total Assets

$114,002,673.83 $101,580,213.24

Liabilities Current Liabilities Noncurrent Liabilities

$ 6,095,672.93 1,344,415.45

$ 5,083,267.38 1,767,695.73

Total Liabilities

$ 7,440,088.38 $ 6,850,963.11

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

$ 94,621,800.69 2,336,552.00 4,064,807.51 5,539,425.25

$ 83,099,718.78 2,090,809.91 4,107,778.76 5,430,942.68

Total Net Assets

$106!562!585.45 $ 94!729!250.13

The total assets of the institution increased by $12,422,460.59. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $11,290,326.01 of investment in plant, net of accumulated depreciation. The consumption of assets follows the institutional philosophy to use available resources to acquire and improve all areas of the institution to better serve the instruction, research and public service missions of the institution.

The total liabilities for the year increased by $589,125.27. The primary cause for the increase was in contract payables. The combination of the increase in total assets of $12,422,460.59 and the increase in total liabilities of $589,125.27 yields an increase in total net assets of $11,833,335.32. The increase in total net assets is primarily in the category of invested in capital assets, net of debt, in the amount of $11,522,081.91.

- ii -

Statement ofRevenues, Expenses and Changes in Net Assets

Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received by the institution, both operating and nonoperating, and the expenses paid by the institution, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the institution. Generally speaking operating revenues are received for providing goods and services to the various customers and constituencies of the institution. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the institution. Nonoperating revenues are revenues received for which goods and services are not provided. For example state appropriations are nonoperating because they are provided by the Legislature to the institution without the Legislature directly receiving commensurate goods and services for those revenues.

Statement of Revenues, Expenses and Changes in Net Assets, Condensed

June 30, 2004

June 30, 2003

Operating Revenues Operating Expenses

$ 45,913,400.22 95,165,589.97

$ 46,704,731.20 99,745,316.09

Operating Loss

$ -49,252,189.75 $ -53,040,584.89

Nonoperating Revenues and Expenses

47,804,617.00

50,002,874.86

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

$ -1,447,572.75 $ -3,037,710.03

Other Revenues, Expenses, Gains or Losses

13,280,908.07

2,802,971.72

Increase (Decrease) in Net Assets

$ 11,833,335.32 $ -234,738.31

Net Assets at Beginning of Year, as Originally Reported

$ 94,729,250.13 $ 92,334,933.67

Prior Period Adjustment

2,629,054.77

Net Assets at Beginning of Year Restated

$ 94,729,250.13 $ 94,963,988.44

Net Assets at End of Year

$106!562!585 .45 $ 94!729!250.13

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

- 1ll -

Revenue By Source For The Years Ended June 30, 2004 and June 30, 2003

Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Auxiliary Other
Total Operating Revenue
Nonoperating Revenue State Appropriations Grants and Contracts Gifts Investment Income Other
Total Nonoperating Revenue
Capital Grants and Gifts State Other
Total Other Revenues
Total Revenues

June 30, 2004

June 30, 2003

$ 22,512,927.25 7,784,835.40
347,888.80 14,630,006.16
637,742.61
$ 45,913,400.22

$ 19,308,967.22 7,281,380.08
374,946.29 18,883,085.39
856,352.22
$ 46,704,731.20

$ 43,352,518.72 3,757,347.29 948,743.38 702,060.30 -70,291.37
$ 48,690,378.32

$ 46,254,022.81 3,996,597.31 409,375.24 426,864.43 -1,046,348.51
$ 50,040,511.28

$ 12,659,288.07 621,620.00
$ 13,280,908.07
$107,884,686.61

$ 2,770,341.72 32,630.00
$ 2,802,971.72
$ 99,548,214.20

- IV -

Expenses (By Functional Classification) For The Years Ended June 30, 2004 and June 30, 2003

June 30, 2004

June 30, 2003

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

$ 45,096,620.34 56,821.46
1,241,707.92 6,635,818.77 5,705,458.59 7,906,099.10 5,378,584.04 7,920,745.37 15,223,734.38

$ 40,507,673.67
1,074,792.16 6,134,431.87 5,088,386.13 12,403,364.17 7,935,483.37 3,558,921.67 18,236,534.99 4,805,728.06

Total Operating Expenses

$ 95,165,589.97 $ 99,745,316.09

Nonoperating Expenses Interest Expense (Capital Assets) Other Nonoperating Expenses

$ 29,175.30 $ 37,636.42 856,586.02

Total Nonoperating Expenses Total Expenses

$ 885,761.32 $ 96,051,351.29

$_--=-3-'-'7=63=-=6'-'---.4=2 $ 99.782,952.51

Tuition revenues accounted for the largest increase in revenues for the year of $3,203,960.03. This was primarily the result of a tuition increase of approximately 10%. Athletics did have a small increase in its fees per student which impacted the increase as well. Finally, Grants and Contracts Revenue also increased $503,455.32, which is largely attributable to the acquisition of the Transition to Teaching grant that is a multi-year grant totaling $1,000,000.00.

The compensation and employee benefits category decreased by $457,813.13. The decrease reflects the attrition concept implemented across the campus in response to state funding reductions.

Utilities increased by $12,255.97 during the past year. The increase was primarily associated with the increased natural gas costs that were experienced in the winter of fiscal year 2004.

Under nonoperating revenues (expenses) state appropriations decreased by $2,901,504.09. The reduction of state appropriations system-wide, due to a sluggish economy, has created a challenge for all institutions of the University System of Georgia and, thus, for Valdosta State University. We are hopeful that the economy is now on an upward trend.

- V-

Statement ofCash Flows

The final statement presented by the Valdosta State University is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets.

Cash Flows for the Years Ended June 30, 2004 and June 30, 2003, Condensed

June 30, 2004

June 30, 2003

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

$ -44,065,257.35 46,970,308.88 -2,475,267.83 384,370.82

$ -49,832,556.84 51,406,279.47 -2, 734,887.06 448,811.84

Net Change in Cash Cash, Beginning of Year

$ 814,154.52 2,164,135.90

$ -712,352.59 2,876,488.49

Cash, End of Year

$ 2,978,290.42 $ 2,164,135.90

Capital Assets

The University had two significant capital asset additions for facilities in fiscal year 2004. The Odum Library Addition, which was funded by Georgia State Financing and Investment Commission (GSFIC) at $12,659,288.07 was completed and placed into service during fiscal year 2004. Further, the University accepted a gift of land from the Valdosta State University Foundation, Inc. valued at $617,500.00 which is intended for future residence halls.

For additional information concerning Capital Assets, see Notes 1, 6, 8, and 10 in the Notes to the Financial Statements.

Long-Term Debt

Valdosta State University had a total Long-Term Debt of $3,119,885.78 of which $1,775,470.33 was reflected as current liability at June 30, 2004.

For additional information concerning Long-Term Debt see Notes 1 and 8 in the Notes to the Financial Statements.

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Component Units In compliance with GASB Statement No. 39, Valdosta State University has included the financial statements and notes for all required component units for fiscal year 2004. The Valdosta State University Foundation, Inc. had Net Assets totaling $18,172,758 as of December 31, 2003, including $12,861,450 in Investment assets and $3,984,536 in Long Term debt. Details are available in Note 1, Summary of Significant Accounting Policies and Note 16, Component Units. Economic Outlook The University is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. The University's overall financial position is strong. Even with continuing State funding reductions, the University was able to avoid a large decrease in Net Assets. The University anticipates the current fiscal year will be much like last and maintains a close watch over resources to preserve the University's ability to react to unknown internal and external issues. Ronald M. Zaccari, President Valdosta State University
- Vll -

BASIC FINANCIAL STATEMENTS - 1-

VALDOSTA STATE UNIVERSITY STATEMENT OF NET ASSETS
JUNE 30. 2004

EXHIBIT"A"

ASSETS
Current Assets Cash and Cash Equivalents Accounts Receivable, Net Federal Financial Assistance Other Pledges Receivable Prepaid Items Inventories Notes and Mortgages Receivable Other Assets
Total Current Assets
Noncurrent Assets Investments Notes Receivable Pledges Receivable Capital Assets, Net
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Contracts Payable Salaries Payable Accounts Payable Deferred Revenue Funds Held for Others Capital Leases Compensated Absences Current Portion of Long-Term Debt Other Liabilities
Total Current Liabilities
Noncurrent Liabilities Capital Leases Compensated Absences Liabilities under Split-Interest Agreements Long-Term Liabilities
Total Noncurrent Liabilities
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for:
Nonexpendable Expendable Unrestricted
Total Net Assets

PRIMARY GOVERNMENT

COMPONENT UNIT
VALDOSTA STATE UNIVERSITY FOUNDATION, INC.

$ 2,978,290.42 $ 974,939.10
2,120,306.75 358,046.36 938,976.81
$ 7,370,559.44 $
$ 11,253,385.71 $ 146,381.49
95,232,347.19 $ 106,632,114.39 $ $ 114,002,673.83 $

2,889,630.00
50,000.00
373,467.00 218 455.00 3 531 552.00
12,861,450.00 231,052.00
6 566 737.00 19,659,239.00 23,190,791.00

$

1,048,770.92

1,128,060.80

754,445.68 $

894,869.82

473,991.55

84,171.53

1,432,703.60

258,595.20

20,063.83

$ 6,095,672.93 $

$

267,779.77

1,076,635.68

$

$

1 344 415.45 $

$ 7,440,088.38 $

755,986.00
703,950.00 1 459 936.00
277,511.00 3,280,586.00 3,558,097.00 5,018,033.00

$ 94,621,800.69 $
2,336,552.00 4,064,807.51 5,539,425.25

2,582,201.00
13,653,778.00 1,421,338.00
515 441.00

$ 106,562,585.45 $

18,172,758.00

The notes to the financial statements are an integral part of this statement. -3-

VALDOSTA STATE UNIVERSITY STATEMENT OF REVENUES. EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30. 2004

EXHIBIT "B"

OPERATING REVENUES
Student Tuition and Fees Less: Scholarship Allowances
Gifts and Contributions Endowment Income (Per Spending Plan) Grants and Contracts
Federal Rents and Royalties Sales and Services of Educational Departments Auxiliary Enterprises
Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benefits 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 Nongovernmental Gifts Interest and Other Investment Income Interest Expense (Capital Assets) Other Nonoperating Revenues Other Nonoperating Expenses
Net Nonoperating Revenues
Income (Loss) Before Other Revenues, Expenses. Gains. or Losses
Capital Grants and Gifts State Nongovernmental
Additions to Permanent Endowments
Total Other Revenues
Increase (Decrease) in Net Assets
Net Assets - Beginning of Year
Net Assets - End of Year
The notes to the financial statements are an integral part of this statement.
-5-

PRIMARY GOVERNMENT

COMPONENT UNIT
VALDOSTA STATE UNIVERSITY FOUNDATION, INC.

$ 26,678.821.26 -4.165.894.01 $
7,784,835.40 39.673.65
347.888.80
4,378,418.86 1.433.490.84 3.213.535.57
934.284.15 1.445.753.69 2.750.275.63
474.247.42 598.068.96
$ 45,913,400.22 $

1,101 .925.00 1,081,295.00
727.468.00 2.910.688 00

$ 27.893.368.61 24.309.119.38 14,730.555.72 737.260.87 5.024.088.93 3.333.339.66 14,202.373.03 $ 4 935 483.77
$_-=c9c5:..1::6=5=.5.:8:.9..:9..7.. $
$ _ _-_4:_9:.::2=5==2-.-1-.8:=9.:...7..:5:.. $

2.225.753 00
2.225 753.00 684,935.00

$ 43,352,518.72
2,128.136.74 1.223.388.62
405,821.93 948.743.38 702.060.30 $ -29.175.30 -70.291.37 -856.586.02
$ _ ___4_7:_:.--8-'=0--4':...=6:...1.:..7:....:.0::.0.::.. $
$ _ _-1:..,,_4_:_4:..7:...,._5_::7'--'2-=-.c7.:...5:::.. $
$ 12.659.288.07 621.620.00 $
13.280,908.07 $
$_----'--'-1-'-1"-.-8'-3-"-3'-,-3"-"3--5'-.'-3=2=- $
$_-"-=9=4c..7=2--9=-2-5'-0'-.-1=3-- $

2.320.644.00
2.320.644.00 3,005,579.00
1.270.986 00 1,270 986.00 4,276,565.00 13.896.193.00

$ 106 562 585.45 $ ===.;,;18~17:a,;2;b7~5;;;8;,;;.0;;;;;,,0

VALDOSTA STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30. 2004
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Loans Issued to Students and Employees Collection of Loans to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parkingffransportation 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 Other Nonoperating Receipts
Net Cash Flows Provided (Used) by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Sale of Capital Assets Purchases of Capital Assets Principal Paid on Capital Debt and Lease Interest Paid on Capital Debt and Lease
Net Cash Provided (Used) by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments Purchase of Investments
Net Cash Provided (Used) by Investing Activities
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
-6-

EXHIBIT"C"

$ 22,305,641.80 7,819,325.34 347,888.80
-32,677,405.99 -52,201,822.07
-5,024,088.93 -7,779.29 33,089.94
4,420,442.91 1,456,712.33 3,213,512.01
933,509.15 1,445,753.69 2,736,348.63
474,247.42 659,366.91
$ -44,065,257.35

$ 43,352,518.72 -200,682. 71
3,750,755.51 67,717.36
$ 46,970,308.88

$

16,306.73

-2,357, 102.42

-105,296.84

-29, 175.30

$ -2,475,267.83

$

757,138.64

-372,767.82

$ _ _ _38_4~,3_7_0_.8_2

$

814,154.52

2, 164, 135.90

$ 2,978,290.42

VALDOSTA STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2004

EXHIBIT"C"

RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Inventories Prepaid Items Notes Receivable Accounts Payable Salaries Payable Deferred Revenue Other Liabilities Compensated Absences

$ -49,252, 189.75
4,935,483.77
-77,218.22 132,504.77
12,498.10 25,310.65 93,158.66 46,718.77 85,051.80 -22,533.05 -44,042.85

Net Cash Provided (Used) by Operating Activities

$ -44,065,257.35

NONCASH ACTIVITY

NONCAPITAL FINANCING, CAPITAL AND RELATED FINANCING TRANSACTIONS AND

INVESTING ACTIVITIES

Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts

$

Change in Fair Market Value of Investments Recognized as a Component of

Interest Income

$

-13,280,908.07 -55,078.34

The notes to the financial statements are an integral part of this statement. - 7-

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS Valdosta 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 Valdosta State University is one of thirty-four (34) 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 Valdosta 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. Valdosta State University does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Valdosta 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.
The Board of Regents of the University System of Georgia (and thus Valdosta State University) is required to implement the Governmental Accounting Standards Board (GASB) Statement No. 39 Determining Whether Certain Organizations are Component Units - an amendment of Statement No. 14, for fiscal year 2004. This statement requires the inclusion of the financial statements for Foundations and affiliated organizations that qualify as component units of the institution. These statements (Statement of Net Assets and Statement of Revenues, Expenses and Changes in Net Assets) are reported discretely in the University's financial statements. For fiscal year 2004, Valdosta State University is reporting the activity for the Valdosta State University Foundation, Inc.
See Note 16, for additional component unit disclosures.
FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia implemented GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the
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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION State of Georgia, the University also adopted GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the University's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fund group perspective previously required.
GAAP requires that the reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year. Due to the lack of materiality, Institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the predominate activity takes place.
BASIS OF ACCOUNTING For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the preceding paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-University transactions have been eliminated.
The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University has elected to not apply FASB pronouncements issued after the applicable date.
CASH AND CASH EQUIVALENTS Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the Board of Regents Short-Term Investment Pool.
INVESTMENTS The University accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the statements of revenues, expenses and changes in net assets. The Board of Regents Total Return Fund and the State of Georgia Extended Asset Pool are included under Investments.
ACCOUNTS RECEIVABLE Accounts receivable consists of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Georgia. Accounts receivable also include amounts due from the Federal government, state and
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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE 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.
INVENTORIES Consumable supplies are carried at the lower of cost or market on either the first-in, first-out ("FIFO") basis.
Resale Inventories are valued at cost using the average-cost basis.
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 $5,000.00 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000.00 and significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for buildings and building improvements, and facilities and other improvements.
To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged.
Effective July 1, 2001, the GSFIC retains construction in progress on their books throughout the construction period and transfers the entire project to Valdosta State University when complete. For the year ended June 30, 2004, GSFIC transferred capital additions valued at $12,659,288.07 to Valdosta State University.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEFERRED REVENUES Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned.
COMPENSATED ABSENCES Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as accrued vacation payable in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statements of Revenues, Expenses and Changes in Net Assets. Valdosta State University had accrued liability for compensated absences in the amount of $2,553,382.15 as of July 1, 2003. For fiscal year 2004, $1,896,527.62 was earned in compensated absences and employees were paid $1,940,570.49, for a net decrease of $44,042.87. The ending balance as of June 30, 2004 in accrued liability for compensated absences was $2,509,339.28. Compensated absences include a current liability of $1,432,703.60.
NONCURRENT LIABILITIES Noncurrent liabilities include (1) liabilities that will not be paid within the next fiscal year; (2) capital lease obligations with contractual maturities greater than one year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets.
NET ASSETS The University's net assets are classified as follows:
Invested in capital assets, net ofrelated debt: This represents the University's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. The term "debt obligations" as used in this definition does not include debt of the GSFIC as discussed previously in Note 1 - Capital Assets section.
Restricted net assets - nonexpendable: Nonexpendable restricted net assets consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. The University may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 4415-7 of Annotated Code of Georgia.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT D 11 11

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NET ASSETS Restricted net assets - expendable: Restricted expendable net assets include resources in which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties.

Expendable Restricted Net Assets of the University include the following:

June 30, 2004

Restricted - E&G Federal Loans Institutional Loans Term Endowments Quasi- Endowments

$ 2,902,108.17 60,947.56
369,480.34 664,356.08
67,915.36

Total Restricted Expendable

$ 4,064.807.51

Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) of $61,903.52. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia - Administrative Central Office for remittance to the Office of Treasury and Fiscal Services. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff.

Unrestricted Net Assets of the University includes the following items which are quasi-restricted by management.

June 30, 2004

Reserve for Encumbrances Reserve for Inventory Other Unrestricted

$3,196,447.64 488,357.20
1,854,620.41

Total Unrestricted Net Assets

$ 5,539,425.25

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

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME TAXES Valdosta 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 The University has classified its revenues as either operating or nonoperating revenues in the Statement of Revenues, Expenses and Changes in Net Assets according to the following criteria:
Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) sales and services of auxiliary enterprises, (3) most Federal, state and local grants and contracts and Federal appropriations, and (4) interest on institutional student loans.
Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.
SCHOLARSHIP ALLOWANCES Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net Assets. Scholarship allowances are the difference between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or third parties making payments on the students' behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs, are recorded as either operating or nonoperating revenues in the University's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded contra revenue for scholarship allowances.
NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds belonging to the State of Georgia (and thus Valdosta State 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 50-1759:
1. Bonds, bill, certificates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia.
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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES 2. Bonds, bills, certificates of indebtedness, notes, or other obligations of the counties or municipalities of the State of Georgia.
3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.
4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.
5. Bonds, bills, certificates of indebtedness, notes, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest, or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, The Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.
6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.
As authorized in the Official Code of Georgia Annotated Section 50-17-53, the State Depository Board has adopted policies which allow agencies of the State of Georgia (and thus Valdosta State University), the option of exempting demand deposits from the collateral requirements.
The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.
CATEGORIZATION OF DEPOSITS Cash deposits are categorized by risk as follows:
Category 1 - Amounts covered by depository insurance or collateralized with securities (at fair value) held by the entity or by its agent in the entity's name.
Category 2 - Amounts collateralized with securities (at fair value) held by the pledging financial institution's trust department or agent in the entity's name.
Category 3 - Amounts collateralized with securities (at fair value) held by the pledging financial institution, or by its trust department or agent but not in the entity's name, and amounts uncollateralized.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS

CATEGORIZATION OF DEPOSITS

Valdosta State University At June 30, 2004, the University's cash deposits were as follows:

Cash Deposits

Carrying Amount

Bank Balances

Risk Categories

2

3

$ 2,755,493.83 $ s 385,945.13 $ 120,859.01 $===='o""'.o_o $ s,26s,086.12

Component Unit At December 31, 2003, Valdosta State University Foundation, Inc.'s cash deposits were as follows:

Carrying Amount

Bank Balances

Risk Categories

2

3

Cash Deposits Investment Portfolio
Accounts

$ 1,863,747.00 $ 1,673,952.56 $ 100,000.00 $ 1,025,883.00 1,025,883.00

0.00 $ 1,573,952.56 I ,025,883.00

Total Cash Deposits $ 2,889 630.00 $ 2 699,835.56 $ 100,000.00 $.===='0'='.0,,,.0 $ 2,599,835.56

CATEGORIZATION OF INVESTMENTS Investments are categorized as to credit risk within the three categories described below:

Category 1 - Insured or registered, or securities held by the entity or its agent in the entity's name.

Category 2 - Uninsured and unregistered, with secunt1es held by the counter party's trust department or agent in the entity's name.

Category 3 - Uninsured and unregistered, with securities held by the counter party, or by its trust department or agent, but not in the entity's name.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS

CATEGORIZATION OF INVESTMENTS

Valdosta State University At June 30, 2004, the University's investments consisted of the following:

Type of Investments
Investments Not Subject to Categorizations: Board of Regents Short-Term Fund Total Return Fund
Office of Treasury and Fiscal Services Georgia Extended Asset Pool
Total Investments

Carrying Amount
$ 176,846.59 5,980,764.57 5,272,621.14
$11,430,232.30

Funds invested in an investment pool managed by another governmental entity are not required to be categorized since the University did not own any specific, identifiable investment securities of the pool.

Component Unit At December 31, 2003, Valdosta State University Foundation, Inc.'s investments consisted of the following:

Type of Investments
Investments Not Subject to Categorizations: Investment Portfolio Accounts Mutual Funds

Carrying Amount
$12,861,450.00

NOTE 3: ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at June 30, 2004.

Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal, State and Private Funds Other
Less Allowance for Doubtful Accounts
Net Accounts Receivable

$ 137,315.69 478,434.42
2,406,633.41 103,671.57
$ 3,126,055.09 30,809.24
$ 3,095,245.85

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 4: INVENTORIES

Inventories consisted of the following at June 30, 2004.

Bookstore Food Services Physical Plant

$ 738,464.11 160,519.12 39,993.58

Total NOTE 5: NOTES/LOANS RECEIVABLE

$ 938.976.81

Notes/Loans receivable consisted of the following at June 30, 2004:

Perkins Loans Institutional Loans

$ 39,507.62 106,873.87

Total Notes/Loans Receivable

$ 146.381.49

The Federal Perkins Loan Program (the Program) comprises twenty-seven percent of the loans receivable at June 30, 2004. The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. As the University determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans are written off and assigned to the U.S. Department of Education. At June 30, 2004, no provision has been made for uncollectible loans.

NOTE 6: CAPITAL ASSETS

Following are the changes in the University's capital assets for the year ended June 30, 2004:

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE6: CAPITAL ASSETS

Beginning Balance Julx I, 2003

Additions

Reductions

Ending Balance June 30, 2004

Capital Assets, Not Being Depreciated:

Land

$ 1,679,485.21 $ 617,500.00

$ 2,296,985.21

Construction Work-In-Progress

973,115.84 1,607,499.84 $ 1,128,420.52 1,452,195.16

Total Capital Assets Not Being Depreciated

$ 2,652,601.05 $ 2,224,999.84 $ 1,128,420.52 $ 3,749,180.37

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

$ 97,020,503.22 $ 13,859,766.08

4,598,091.00

14,061,345.92

614,581.10 $

2,112,129.12

16,771,086.19

658,837.28

$110,880,269.30 4,598,091.00
811,784.67 13,864,142.35 2,112,129.12
28,060.20 17,401,863.27

Total Assets Being Depreciated

$134,563,155.45 $ 15,133,184.46 $ 839,844.87 $148,856,495.04

Less: Accumulated Depreciation:

Buildings and Building Improvements $ 29,219,298.45 $

Facilities and Other Improvements

2,236,351.17

Equipment

9,072,356.91

Capital Leases

437,818.33

Library Collections

12,307,910.46

2,619,714.44 229,126.99
l, 113,870.62 $ 53,800.72
918,971.00

$ 31,839,012.89 2,465,478.16
807,830.67 9,378,396.86
491,619.05 28,060.20 13,198,821.26

Total Accumulated Depreciation

$ 53,273,735.32 $ 4,935,483.77 $ 835,890.87 $ 57,373,328.22

Total Capital Assets, Being Depreciated,

Net

$ 81,289,420.13 $ 10,197,700.69 $

3 954.00 $ 91,483,166.82

Capital Assets, Net

$ 83942021.18 $ 12,422,700 53 $ 1,132.374 52 $ 95,232,347.19

NOTE 7: DEFERRED REVENUE

Deferred revenue consisted of the following at June 30, 2004.

Prepaid Tuition and Fees Other Deferred Revenue

$ 57,562.93 837,306.89

Totals

$ 894,869.82

NOTE 8: LONG-TERM LIABILITIES

The University's Long-Term liability activity for the year ended June 30, 2004 was as follows:

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 8: LONG-TERM LIABILITIES

Beginning Balance July 1, 2003

Additions

Reductions

Ending Balance June 30, 2004

Current Portion

Leases Lease Obligations

$ 430 847.26

$ 78 895.96 $ 351,951.30 $ 84 171.53

Other Liabilities

Compensated Absences

$ 2,553,382.15 $ 1,896,527.62 $ 1,940,570.49 $ 2,509,339.28 $ 1,432,703.60

Other Long-Term Liabilities

284 996.06

26,400.86

258,595.20

258,595.20

Total

$ 2,838,378.21 $ 1,896,527.62 $ 1,966,971.35 $ 2,767,934.48 $ 1,691,298.80

Total Long-Term Obligations $ 3.269 225.47 $ 1,896,527.62 $ 2,045,867.31 $ 3.119 885.78 $ 1 775 470.33

NOTE 9: SIGNIFICANT COMMITMENTS

The Valdosta State University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $1,491,699.34 as of June 30, 2004. This amount is not reflected in the accompanying basic financial statements.

NOTE 10: LEASE OBLIGATIONS

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

CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2005 and 2011. Expenses for fiscal year 2004 were $108,071.26 of which $29,175.30 represented interest. Total principal paid on capital leases was $78,895.96 for the fiscal year ended June 30, 2004. Interest rates range from 5.035 percent to 8.15 percent.

The following is a summary of the carrying values of assets held under capital lease at June 30, 2004:

Land Buildings Equipment

$ 143,816.07 1,473,653.98 3,040.02

Totals

$ 1,620.510.07

Certain capital leases provide for renewal and/or purchase options. Generally purchase options at bargain prices of one dollar are exercisable at the expiration of the lease terms.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 10: LEASE OBLIGATIONS

CAPITAL LEASES With the exception of an equipment lease, all other capital leases are between Valdosta State University and Valdosta State University Foundation, Inc., a component unit.

The lease purchase obligation at June 30, 2004 on these capital leases is $349,269.84. The University at its option may terminate the leases.

The capital lease for equipment has an outstanding balance of $2,681.46 at June 30, 2004.

OPERATING LEASES Valdosta State University's cancellable operating leases provide for renewal options for periods from one to three years at their fair rental value at the time of renewal. All agreements are cancelable if the State of Georgia does not provide adequate funding, but that is considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are generally payable on a monthly basis. Examples of property under operating leases are copiers, other small business equipment, and buildings.

Cancellable operating lease rental expenses in 2004 were $594,000.00 for real property.

FUTURE COMMITMENTS Future commitments for capital leases (which here and on the Statement of Net Assets include other installment purchase agreements) having remaining terms in excess of one year as of June 30, 2004, were as follows:

Capital Leases

Year Ending June 30: 2005 2006 2007 2008 2009 2010 through 2014

$ 108,071.28 82,304.73 49,920.00 49,920.00 49,920.00 99,840.00

Total Minimum Lease Payments

$ 439,976.01

Less: Interest

88,024.71

Principal Outstanding

$ 3512951.30

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 11: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA

Plan Description Valdosta State University 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, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the TRS offices or the Georgia Department of Audits and Accounts.

Funding Policy Employees of Valdosta State University who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Valdosta State University makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2004, the employer contribution rate was 9.24% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2004 2003 2002

100% 100% 100%

$ 2,870,027.54 $ 2,968,322.25 $ 2,912,449.91

REGENTS RETIREMENT PLAN

Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 4721-1 et. seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 11: RETIREMENT PLANS
REGENTS RETIREMENT PLAN
Funding Policy Valdosta 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. The employer contributes 10.03% of the participating employee's earnable compensation. Employees contribute 5% of their eamable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.
Valdosta State University and the covered employees made the required contributions of $1,611,626.43 (10.03%) and $803,460.21 (5%), respectively.
AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.
GEORGIA DEFINED CONTRIBUTION PLAN
Plan Description Valdosta 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 $3,500.00 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 and Vesting 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.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 11: RETIREMENT PLANS
GEORGIA DEFINED CONTRIBUTION PLAN
Contributions and Vesting Total contributions made by employees during fiscal year 2004 amounted to $83,506.20 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 two different selfinsured healthcare plan options - a PPO/PPO Consumer healthcare plan, and an indemnity healthcare plan. Valdosta State University and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these two plans are considered to be a self-sustaining risk fund. Both selfinsured healthcare plan options provide a maximum lifetime benefit of $2,000,000.00 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WellPoint, to serve as the claims administrator for the two self-insured healthcare plan products. In addition to the two different self-insured healthcare plan options offered to the employees of the University System of Georgia, two fully insured HMO healthcare plan options are also offered to System employees.
The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. Valdosta 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.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 12: RISK MANAGEMENT
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 expenditures which are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Valdosta State University expects such amounts, if any, to be immaterial to its overall financial position.
Litigation, claims and assessments filed against Valdosta 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, 2004.
NOTE 14: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 203-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia are on a pay as you go basis to finance the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000.00 for basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.
As of June 30, 2004, there were 325 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2004, Valdosta State University recognized as incurred $1,361,355.60 of expenses, which was net of $633,599.56 of participant contributions.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 15: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS

The University's operating expenses by functional classification are shown below:

Statement of Operating Expenses - Natural vs Functional Classifications For the Fiscal Year Ended June 30, 2004

Functional Classification

Natural Classification

Instruction

Research

Public Service

Academic Sui;mort

Student Services

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

$27,769,665.11 2,593,612.72 $ 7,504,256.79
247,400.22
477,348.41 434,886.44
3,206,780.37 2,862,670.28

$ 96,529.00 $ 15,362.00

37,902.77

674,207.30

3,393,836.98 $ 3, I 07,455.99

7,311.21

184,892.44

847,885.75

822,126.88

73,980.41

189,427.00

80,559.36

3,377.00

29,841.07

67,350.80

10,812.08 795.40

161,198.94 47 522.83

1,012,661.10 I 146 804.87

1,584,501.37 43 464.19

Total Operating Expenses

$45,096 620.34 $ 56 821.46 $ I 241 707.92 $ 6,635,818.77 $ 5 705 458.59

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

Institutional Support

Functional Classification

Plant

Operations and Scholarships

Auxiliary

Maintenance and Fellowships

Enterprises

Total Operating Expenses

$ 5,620,406.89 2,633,400.24
64,897.27

$ 3,327,944.50 1,205,334.79 -1,001,125.81 3,933.53

$ 11,812.50 5,553,752.23 1,525,347.62 1,001,125.81 77,063.08

$ 27,893,368.61 24,309,119.38 14,730,555.72 0.00 737,260.87

-4,165,894.01 164,542.20

$ 7,920,745.37 2,364,128.04

788,512.16 272,591.11

5,024,088.93 3,333,339.66

3,507,367.70 81 378.81

-846,401.71 324 770.70

5,565,453.18 428 076.69

14,202,373.03 4 935 483.77

$ 7,906 099.10 $ 5 378 584.04 $ 7,920,745.37 $ 15 223 734.38 $ 95 165 589.97

NOTE 16: COMPONENT UNITS

Valdosta State University Foundation, Inc. (Foundation) is a legally separate, tax-exempt component unit of Valdosta State University (University). The Foundation owns buildings and facilities and leases the buildings to the institution. The twenty-five-member board of the Foundation is self-perpetuating and consists of graduates and friends of the University. Although the University does not control the timing or amount of receipts from the Foundation, the majority of resources or income thereon that the Foundation holds and invests is restricted to the real estate activities of the University by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of, the University, the Foundation is considered a component unit of the University and is discretely presented in the University's financial statements.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 16: COMPONENT UNITS

The Foundation is a private nonprofit organization that reports under FASB standards, including FASB Statement No. 117, Financial Reporting for Not-for-Profit Organizations. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. The FASB reports were reclassified to the GASB presentation for external financial reporting purposes in these financial statements. The Foundation's fiscal year is January 1 through December 31.

Buildings valued at 2.6 million are included in the financial statements of the Foundation. The corresponding capital leases and associated long-term debt are included in the University's report. Complete financial statements for the Foundation can be obtained from the Foundation Office at 102 Georgia Avenue, Valdosta, Georgia 31602.

Investments for Component Units Valdosta State University Foundation, Inc. holds endowment investments in the amount of $12,861,450.00 million. The corpus of the endowment is nonexpendable, but the earnings on the investment may be expended as restricted by the donors. Valdosta State University Foundation, Inc. in conjunction with the donors, has established a spending plan whereby 4.5% of the previous year's December 31 portfolio value may be expended.

Long-Term Liabilities for Component Units Real Estate Purchase Bonds are issued by the Valdosta State University Foundation, Inc. to finance purchase of real estate which will be leased to the University. The bonds, payable quarterly, are secured by real estate. The interest rate is a floating tax-exempt rate.

Athletic Facilities Notes are issued by the Valdosta State University Foundation, Inc. to cover the cost of renovation of athletic facilities in furtherance of extramural and intramural sports. Notes are unsecured. The interest rate has a floor of 4.75%, ceiling of 8.0%.

Changes in long-term liabilities for component units for the fiscal year ended December 31, 2003 are shown below:

Valdosta State University Foundation, Inc. Bonds Payable Real Estate Purchase Notes Payable
Total Long-Term Debt

Beginning Balance
January I, 2003

Additions

Reductions

Ending Balance December 31, 2003

Amounts Due Within
One Year

$ 4,421,698.00 $ 1,018,326.00
$ 5,440 024.Q0 $

0.00 $ 706,054.00 749 434.00
0.QQ $ 1,455,488.Q0

$ 3,715,644.00 268,892.00
$ 3,984 536.Q0

$ 435,058.00 268,892.00
$ 703 950.00

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 2004

EXHIBIT "D"

NOTE 16: COMPONENT UNITS

Long-Term Liabilities for Component Units Annual debt service requirements to maturity for Real Estate Purchase (Valdosta State University Foundation, Inc.) bonds payable are as follows:

Year Ending December 31: 2004 2005 2006 2007 2008 2009 through 2013

Bonds Payable

Princi12al

Interest

Total

$ 435,058.00 $ 456,818.00 479,666.00 503,658.00 528,849.00
1,311,595.00

174,736.00 152,976.00 130,128.00 106,137.00 80,945.00
84,608.00

$ 609,794.00 609,794.00 609,794.00 609,795.00 609,794.00
1,396,203.00

$ 3,715,644.00 $ 729,530.00 $ 4A45,I 74.oo

Annual debt service requirements to maturity for Athletic Facilities (Valdosta State University Foundation, Inc.) notes payable are as follows:

Year Ending December 31: 2004

Notes Payable

Princi12al

Interest

Total

$ 268,892.00 $ 9,190.00 $ 278,082.00

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SUPPLEMENTARY INFORMATION - 29 -

VALDOSTA STATE UNIVERSITY SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO
BUDGET - (NON-GAAP BASIS) RESIDENT INSTRUCTION
YEAR ENDED JUNE 30, 2004

SCHEDULE "1"

REVENUES
State Appropriations Other Revenues Retained

BUDGET

ACTUAL (1)

VARIANCEFAVORABLE (UNFAVORABLE)

$ 43,369,909.00 $ 43,369,909.00 $

42,821,866.00

37,761,623.55

0.00 -5,060,242.45

$ 86,191,775.00 $ 81,131,532.55 $ _ _ _-5--'-,0_6_0-'-,2_4_2_.4_5

EXPENDITURES
Personal Services: Education, General and Departmental Services Sponsored Operations
Operating Expenses: Education, General and Departmental Services Sponsored Operations
Capital Outlay Special Funding Initiative

$ 57,446,408.00 $ 57,083,876.57 $

2,359,653.00

1,597,721.67

12,283,331.00 12,230,884.00
1,350,048.00 521,451.00

12,108,519.34 10,080,881.00
0.00 460,921.34

362,531.43 761,931.33
174,811.66 2,150,003.00 1,350,048.00
60,529.66

$ 86,191,775.00 $ 81,331,919.92 $ _ _ _4-'-,8_5_9-'-,8_5_5._0_8

Excess of Revenues over Expenditures

$

-200,387.37 $===-=2=00,,.,=3=87==3=7

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

See notes to the financial statements.

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VALDOSTA STATE UNIVERSITY SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO
BUDGET - {NON-GAAP BASIS) LOTTERY FOR EDUCATION YEAR ENDED JUNE 30. 2004

SCHEDULE "2"

REVENUES State Appropriations

BUDGET

ACTUAL (1)

VARIANCEFAVORABLE (UNFAVORABLE)

$

5,009.00 $

0.00 $ _ _ _ _-_5'-,0_0_9._00_

EXPENDITURES
Equipment, Technology and Construction Trust Fund

$

5,009.00 $

0.00 $ _ _ _ _5_,0_0_9_.0_0

Excess of Revenues over Expenditures

$

0.00 $ ========O=.O=O

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

See notes to the financial statements.

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VALDOSTA STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2004

SCHEDULE "3"

Totals per Annual Supplement

Accruals June 30, 2004 June 30, 2003

Compensated Absences June 30, 2004 June 30, 2003

Adjustments

Shared Services on Jointly Staffed Personnel

South Georgia College

Benson,

Duane Allen

Johnson,

Charles W.

SALARIES $ 52,187,682.22 $

TRAVEL 737,260.87

1,128,060.80 -1,081,342.03

2,331,016.55 -2,371,929.55

8,000.00 1,000.00
$ 52,202,487.99 $ ===7=37=,2=6=0.=87=

See notes to the financial statements.

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SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS

VALDOSTA STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

No matters were reported.

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ELIGIBILITY Failure to Maintain Proper Documentation of Student Eligibility Student Financial Aid Cluster Program Finding Control Number: FA-551-04-01

Condition:

The Student Financial Aid (SFA) office failed to maintain proper documentation of student financial aid eligibility; the SFA Office awarded a H.O.P.E. scholarship to an ineligible student.

Criteria:

Provisions included in 34 CFR 674, 675, 676 and 690 provide reporting requirements specific to the Federal Pell Grant Program, the Federal Supplemental Educational Opportunity Grant, the Federal Work-Study Program and the Federal Perkins Loan Program. Provisions included in Section I.A. of H.O.P.E. Scholarship Regulations provide eligibility requirements for students receiving H.O.P.E. funds.

Questioned Cost: $1,635.00

Information:

A sample of fifty-one financial aid files was selected to determine if proper documentation was maintained for student financial aid eligibility and that the financial aid was properly calculated and disbursed to eligible students. Our examination revealed the following:

1) Five students' folders did not contain a completed in-house manual check sheet which is used by the SFA Office to list items needed to document students' financial aid eligibility.

2) Three students' folders did not contain Financial Aid award letters.

3) One student's folder contained a Financial Aid award letter which did not match the correct amount that was actually disbursed.

4) One student's folder failed to contain proper documentation ofcitizenship status which resulted inH.O.P.E. funds in the amountof$1,635.00 being disbursed to an ineligible student.

- 1-

VALDOSTA STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

ELIGIBILITY Failure to Maintain Proper Documentation of Student Eligibility Student Financial Aid Cluster Program Finding Control Number: FA-551-04-01

Cause:

The SFA office did not have procedures in place to ensure that students' financial aid files were properly maintained. Also the SFA office was not in compliance with H.O.P.E. regulations concerning eligibility for disbursement of funds.

Effect:

Student financial aid files did not include all required documentation which contributed to awarding ofH.O.P.E. funds to an ineligible student.

Recommendation:

The University should implement procedures to ensure that all students' financial aid files are properly maintained and that funds are only disbursed to eligible students.

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