Valdosta State University, Valdosta, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2006

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, 2006
Russell W. Hinton State Auditor

VALDOSTA STATE UNIVERSITY - TABLE OF CONTENTS -

SECTION I

FINANCIAL

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

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

BASIC FINANCIAL STATEMENTS

EXHIBITS

A STATEMENTOFNETASSETS

2

B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

3

C STATEMENT OF CASH FLOWS

4

D NOTES TO THE FINANCIAL STATEMENTS

7

SUPPLEMENTARY INFORMATION

SCHEDULES

I BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND

28

2 BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT

(NON-GAAP BASIS) BUDGET FUND

29

3 RECONCILIATION OF SALARIES AND TRAVEL

31

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
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
August 24, 2006

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 (Exhibits A through D) of Valdosta State University, an organizational unit of the State of Georgia, as of and for the year ended June 30, 2006. These financial statements are the responsibility of the Valdosta State University's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States 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 provides a reasonable basis for our opinion.
As discussed in Note 1, the financial statements ofValdosta State University are intended to present the financial position and changes in financial position and cash flows of only that portion of the business-type activities of the State of Georgia that is attributable to the transactions of Valdosta State University. They do not purport to, and do not, present fairly the financial position and changes in financial position and cash flows ofthe State of Georgia, in conformity with accounting principles generally accepted in the United States of America.

06ARL-62

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Valdosta State University as of June 30, 2006, and its changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Management's Discussion and Analysis is not a required part ofthe basic financial statements but is required supplementary information required by accounting principles generally accepted in the United States ofAmerica. We have applied certain limited procedures, which consisted principally ofinquiries of management regarding the methods ofmeasurement and presentation ofthis required supplementary information. However, we did not audit this information and express no opinion on it.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Valdosta State University taken as a whole. 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 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.
Respectfully submitted,
~ Q Q ~
Russell W. Hinton, CPA, CGFM State Auditor
RWH:gp 06ARL-62

REQUIRED SUPPLEMENTARY INFORMATION

VALDOSTA STATE UNIVERSITY
Management's Discussion and Analysis

Introduction

Valdosta State University is one of the 35 institutions of the University System of Georgia. The University, located in Valdosta, Georgia, was founded in 1906 and has become known for its state-of-the-art technology and technology-related programs. The University offers nationally accredited programs in Art, Business, Music, Nursing, Speech and Language Pathology, School Psychology and Teacher Education as well as baccalaureate and masters degrees in a wide variety of other subjects. This wide range of educational opportunities attracts a highly qualified faculty and a student body of more than 10,000 students each year. The institution continues to grow as shown by the comparison numbers that follow.

Faculty

Students

FY2006 FY2005 FY2004

435 420* 423

10,503 10,400 10,457

* This figure reflects a shift in the coding applied to personnel rather than a decrease in the total number ofinstructionalfaculty.

Overview ofthe Financial Statements and Financial Analysis

Valdosta State University is proud to present its financial statements for fiscal year 2006. 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 2005 and fiscal year 2006.

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, 2006

June 30, 2005

Assets Current Assets Capital Assets, Net Other Assets

$ 10,761,953.09 125,244,166.33 11,672,664.83

$ 9,122,464.86 117,996,220.21 11,464,372.87

Total Assets

$147,678,784.25 $138,583,057.94

Liabilities Current Liabilities Noncurrent Liabilities

$ 7,631,215.80 27,293,019.56

$ 7,253,425.73 20,353,977.92

Total Liabilities

$ 34,924,235.36 $ 27,607,403.65

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

$ 98,702,388.69 2,420,924.51 3,771,794.76 7,859,440.93

$ 97,770,276.29 3,041,856.40 3,093,606.08 7,069,915.52

Total Net Assets

$112!754!548.89 $110!975!654.29

The total assets of the institution increased by $9,095,726.31. A review of the Statement ofNet Assets will reveal that the increase was primarily due to an increase of $7,247,946.12 of investment in plant, net of accumulated depreciation, due to the addition of a leased asset, Lowndes Hall and related renovations. 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 $7,316,831.71. The primary cause for the increase was in noncurrent liabilities, primarily $6,839,677.34 in noncurrent lease payment obligations related to the acquisition of Lowndes Hall, the aforementioned leased asset, which contributed to the increase in invested in capital assets, net of debt. The combination of the increase in total

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assets of $9,095,726.31 and the increase in total liabilities of $7,316,831.71 yields an increase in total net assets of $1,778,894.60. The remaining increase in total net assets is primarily in the category of unrestricted net assets, which is largely due to a planned increase in Auxiliary Net Assets to meet funding requirements of Dining Service renovations in process.

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, 2006

June 30, 2005

Operating Revenues Operating Expenses

$ 63,241,403.23 110,721,583.61

$ 57,365,763.52 104,564,837.05

Operating Loss

$ -47,480,180.38 $ -47,199,073.53

Nonoperating Revenues and Expenses

48,440,014.62

44,941,127.75

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

$ 959,834.24 $ -2,257,945.78

Other Revenues, Expenses, Gains or Losses

819,060.36

6,671,014.62

Increase (Decrease) in Net Assets

$ 1,778,894.60 $ 4,413,068.84

Net Assets at Beginning of Year

110,975,654.29

106,562,585.45

Net Assets at End of Year

$112,754,548.89 $110,975,654.29

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:

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Revenue By Source For The Years Ended June 30, 2006 and June 30, 2005

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 Capital Grants and Gifts
Total Revenues

June 30, 2006

June 30, 2005

$ 26,768,895.38 11,361,517.02
622,157.79 23,699,868.16
788,964.88
$ 63,241,403.23

$ 23,271,954.23 11,336,999.32
518,440.87 21,806,513.47
431,855.63
$ 57,365,763.52

$ 47,853,835.22 809,999.64
1,266,544.43 917,926.67 -642,526.18
$ 50,205,779.78

$ 43,573,156.48 929,327.56
1,862,071.52 399,162.83
-1,079,011.47
$ 45,684,706.92

$ 722,535.36 96,525.00
$ 819,060.36
$114)66!243.37

$ 6,617,954.62 53,060.00
$ 6,671,014.62
$1091721A85.06

- IV -

Expenses (By Functional Classification) For The Years Ended June 30, 2006 and June 30, 2005

June 30, 2006

June 30, 2005

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

$ 42,996,879.95 333,082.86
1,656,323.65 7,217,800.10 6,878,994.07 17,374,268.92 9,550,853.79 3,560,277.87 21,153,102.40

$ 40,945,552.48 209,046.92
1,430,882.18 6,866,319.86 6,923,171.24 13,371,010.82 9,620,933.43 3,735,901.11 21,462,019.01

Total Operating Expenses

$110,721,583.61 $104,564,837.05

Nonoperating Expenses Interest Expense (Capital Assets)

1,765,765.16

743,579.17

Total Expenses

$112.487.348.77 $105.308.416.22

There were two primary increases in revenues. The first was Tuition and Fees, net of scholarship allowances, which increased $3,496,941.15. This increase was due to a general tuition increase of approximately 5%, which resulted in $1,753,642.38 of additional revenue. However, a new fee, University Union Construction, was also implemented in the current year. Revenues associated with that fee totaled $1,618,495.16.

Second, revenues associated with the residential life, net of scholarship allowances, category increased $1,684,085.64 during the year. This increase reflects the changing environment of residential life on the University's campus. During the year residential life opened the second phase of Centennial Hall, increasing the number of on campus residence available rooms by approximately 200. The University entered into a long-term leasing relationship for additional housing units with the Valdosta State University Real Estate Foundation, LLC, an affiliated organization.

The compensation and employee benefits category increased by $5,090,576.76. The increase reflects an increase in faculty and staff salaries as well as the cost of health insurance for the employees of the institution.

Utilities increased by $853,287.77 during the past year. The increase was primarily associated with the increased electrical costs as well as natural gas costs that were experienced in the winter of fiscal year 2006.

Under nonoperating revenues (expenses) state appropriations increased by $4,280,678.74. The addition in state appropriations was due to formula funding increases for enrollment and other funding allocations such as merit increases.

-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, 2006 and June 30, 2005, Condensed

June 30, 2006

June 30, 2005

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

$ -39,903,467.71 50,125,344.12 -9,007,115.99 698,185.82

$ -43,321,211.66 47,584,924.00 -3,536,546.98 284,080.66

Net Change in Cash Cash, Beginning of Year

$ 1,912,946.24 3,989,536.44

$ 1,011,246.02 2,978,290.42

Cash, End of Year

$ 5,902,482.68 $ 3,989,536.44

Capital Assets

The University had one significant capital asset addition for facilities in fiscal year 2006. The Lowndes Hall renovation was completed and opened during the fiscal year, for which the University entered into a capital lease with the Valdosta State University Foundation Real Estate I, LLC. The lease value is $7,116,694.00.

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

Long-Term Liabilities

Valdosta State University had Long-Term Liabilities of $29,232,516.99 of which $1,939,497.93 was reflected as current liability at June 30, 2006.

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

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Economic Outlook The University is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. The University's overall financial position is strong. The University continues to move toward its strategic goals incorporating planning and realizing efficiencies in operations whenever possible. The University anticipates the current fiscal year will be much like last year and will maintain a close watch over resources to maintain the University's ability to react to unknown internal and external issues. Ronald M. Zaccari, President Valdosta State University
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BASIC FINANCIAL STATEMENTS - 1-

VALDOSTA STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30, 2006
ASSETS
Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Inventories (Note 4) Prepaid Items
Total Current Assets
Noncurrent Assets Noncurrent Cash Investments Notes Receivable, Net Capital Assets, Net (Note 6)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Deposits Deferred Revenue (Note 7) Other Liabilities Funds Held for Others Lease Purchase Obligations Compensated Absences Current Portion of Long-Term Other Liabilities
Total Current Liabilities
Noncurrent Liabilities Lease Purchase Obligations Compensated Absences Other Noncurrent Liabilities
Total Noncurrent Liabilities
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for:
Nonexpendable Expendable Unrestricted
Total Net Assets
The notes to the financial statements are an integral part of this statement.
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EXHIBIT"A"

$

5,873,701.34

673,482.09 2,753,667.76 1,364,103.58
96,998.32

$ 10,761,953.09

$

28,781.34

11,588,208.73

55,674.76

125,244,166.33

$ 136,916,831.16

$ 147,678,784.25

$

2,015,038.35

1,157,735.80

636,656.00

860,155.45

29,039.93

993,092.84

403,950.10

1,496,503.39

39,043.94

$

7,631,215.80

$ 25,947,828.20 1,194,235.96 150,955.40
$ 27,293,019.56
$ 34,924,235.36

$ 98,702,388.69
2,420,924.51 3,771,794.76 7,859,440.93

$ 112,754,548.89

VALDOSTA STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30, 2006

EXHIBIT"B"

OPERATING REVENUES
Student Tuition and Fees Less: Scholarship Allowances
Grants and Contracts Federal State Other
Sales and Services of Educational Departments Auxiliary Enterprises
Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES)
State Appropriations Grants and Contracts
Federal State Other Gifts Interest and Other Investment Income Interest Expense Other Nonoperating Revenues
Net Nonoperating Revenues
Income (Loss) Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts State Other
Total Other Revenues
Increase (Decrease) in Net Assets
Net Assets - Beginning of Year

$ 30,950,238.17 -4, 181,342.79
9,126,321.41 1,769,775.24
465,420.37 622,157.79
6,968,553.48 5,619,146.82 4,988,459.32 1,021,161.62 1,514,745.08 3,121,011.26
466,790.58 788 964.88
$ 63,241,403.23

$ 29,346,571.63 26,000,895.18 16,358,801.73 209,491.74 970,140.54 5,041,080.16 4,539,337.29 21,936,331.66 6 318 933.68
$ 110,721,583.61
$ -47,480, 180.38

$ 47,853,835.22

619,339.84 186,128.37
4,531.43 1,266,544.43
917,926.67 -1,765,765.16
-642 526.18

$ 48 440 014.62

$

959 834.24

$

722,535.36

96 525.00

$

819 060.36

$

1,778,894.60

110,975,654.29

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

$ 112,754,548.89

VALDOSTA STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2006
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 Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Receipts (Payments)
Net Cash Provided (Used) by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes
Net Cash Flows Provided (Used) by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Purchases of Capital Assets Principal Paid on Capital Debt and Leases Interest Paid on Capital Debt and Leases
Net Cash Provided (Used) by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments Interest on Investments
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
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EXHIBIT "C"

$ 26,902,096.09
11,503,565.83 284,155.46
-43, 685,499.14 -55,095,697.85
-5,041,080.16 -184,812.32 201,272.62
6,938,415.81 5,592,316.69 5,925,735.98 1,024,434.14 1,523,586.36 3,317,575.92
-637,339.95 1,527,806.81
$ -39,903,467.71

$ 47,853,835.22
180,637.95 2,090,870.95
$ 50,125,344.12

$

597,251.09

-6,947,780.80

-890,821.12

-1,765,765.16

$ -9,007, 115.99

$

-102,328.99

800,514.81

$

698,185.82

$

1,912,946.24

3,989,536.44

$ ==5=,9=0=2=,4=82==68=

VALDOSTA STATE UNIVERSITY STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2006
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, Net Accounts Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of Investments Recognized as a Component of Interest Income Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts

EXHIBIT"C"
$ -47,480,180.38
6,318,933.68 204,553.64 46,133.50 17,759.46 16,460.30 125,434.72 474,523.09 219,503.09 153,411.19
$ -39,903,467.71
$ ==7,=1=77=,7=8=3=.4===6 $ ===1=17=,4=1=1=.8===6 $ ==-=2=21=,8=0=8=.3=7

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

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

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-five (35) State supported member institutions of higher education in Georgia which comprise the University System of Georgia, an organizational unit of the State of Georgia. The accompanying financial statements reflect the operations of 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.
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 State of Georgia, the University was also required to adopt 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, entitywide perspectiv~ of the University's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fund group perspective previously required.
Generally Accepted Accounting Principles (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.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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 Statement of Revenues, Expenses and Changes in Net Assets. The Board of Regents Total Return Fund, the Board of Regents Diversified Fund, and the Georgia Extended Asset Pool are included under Investments.
ACCOUNTS RECEIVABLE Accounts receivable consists of tuition and fees charged to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Georgia. Accounts receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University's grant and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
INVENTORIES Consumable supplies are carried at the lower of cost or market on the first-in, first-out ("FIFO") basis. Resale Inventories are valued at cost using the average-cost basis.
NONCURRENT CASH AND INVESTMENTS Cash and investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged.
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, 2006, GSFIC transferred capital additions valued at $125,283.37 to Valdosta State University.
DEPOSITS Deposits represent good faith deposits from students to reserve housing assignments m a University residence hall.
DEFERRED REVENUES Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned.
COMPENSATED ABSENCES Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as 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 $2,537,328.16 as of July 1, 2005. For fiscal year 2006, $1,984,205.54 was earned in compensated absences and employees were paid $1,830,794.35, for
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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPENSATED ABSENCES a net increase of $153,411.19. The ending balance as of June 30, 2006 in accrued liability for compensated absences was $2,690,739.35.

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.

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

Expendable Restricted Net Assets include the following:

June 30, 2006

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

$2,617,516.80 35,565.65
319,771.48 691,332.91 107,607.92

Total Restricted Expendable

$ 3,771,794.76

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NET ASSETS 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 $149,513.91. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System Office for remittance to the office of 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 includes the following items which are quasi-restricted by management.

June 30, 2006

R&RReserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted

$ 1,025,712.83 4,816,041.51 338,131.23 1,679,555.36

Total Unrestricted Net Assets

$ 7,859,440.93

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

INCOME TAXES 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, net of scholarship allowances, (3) most Federal, state and local grants and contracts and Federal appropriations, and (4) interest on institutional student loans.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CLASSIFICATION OF REVENUES 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: DEPOSITS AND INVESTMENTS
DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the University's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:
1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.
2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.
3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.
4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 2: DEPOSITS AND INVESTMENTS

DEPOSITS 5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary
corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association.

6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.

The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.

At June 30, 2006, the carrying value of deposits was $5,846,371.68 and the bank balance was $7,332,820.71. Of the University's deposits, $7,232,072.48 were uninsured and uncollateralized.

INVESTMENTS At June 30, 2006, the carrying value of the University's investments was $11,588,208.73, which is materially the same as fair value. These investments were comprised entirely of funds invested in the Board of Regents and/or Office of Treasury and Fiscal Services investment pools as follows:

Investment Pools Only

Investments Pools Board of Regents Total Return Fund Diversified Fund

$ 2,952,245.24 3,085,930.89

$ 6,038,176.13

Office of Treasury and Fiscal Services Georgia Extended Asset Pool
Total Investment Pools

5,550,032.60 $11,588,208.73

The Board of Regents Investment Pool is not registered with the Securities and Exchange Commission as an investment company. The fair value of investments is determined daily. The pool does not issue shares. Each participant is allocated a pro rata share of each investment at fair value along with a pro rata share of the interest that it earns. Participation in the Board of Regents Investment Pool is voluntary. The Board of Regents Investment Pool is not rated.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 2: DEPOSITS AND INVESTMENTS
INVESTMENTS Additional information on the Board of Regents Investment Pool is disclosed in the audited Financial Statements of the Board of Regents of the University System of Georgia Administrative Central Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at http://www.audits.state.ga.us/internet/ead/colltech.html.
The Weighted Average Maturity of the Total Return Fund is 8.2 years. Of the University's total investment of $2,952,245.24 in the Total Return Fund, $917,098.00 is invested in debt securities.
The Weighted Average Maturity of the Diversified Fund is 8.2 years. Of the University's total investment of $3,085,930.89 in the Diversified Fund, $903,303.00 is invested in debt securities.
The Georgia Extended Asset Pool, managed by the Office of Treasury and Fiscal Services, is not registered with the Securities and Exchange Commission as an investment company. Net Asset Value (NAV) is calculated daily to determine current share price, which was $1.97 at June 30, 2006. The Georgia Extended Asset Pool is an AAA[ rated investment pool by Standard and Poor's.
Interest rate risk Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University does not have a formal policy for managing interest rate risk. However, the duration of the Georgia Extended Asset Pool was .92 years for the month of June 2006.
Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University does not have a formal policy for managing credit quality risk.
NOTE 3: ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at June 30, 2006.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 3: ACCOUNTS RECEIVABLE

Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal Financial Assistance Georgia State Financing and Investment Commission Other

$ 62,728.44 529,849.31 673,482.09 410,879.92
1,779,811.74

Less Allowance for Doubtful Accounts

$ 3,456,751.50 29,601.65

Net Accounts Receivable NOTE 4: INVENTORIES

$ 3A271149.85

Inventories consisted of the following at June 30, 2006.

Bookstore Physical Plant Other
Total
NOTE 5: NOTES/LOANS RECEIVABLE

$ 945,150.55 354,933.26 64.019.77
$ L3641103.58

The Federal Perkins Loan Program (the Program) comprises approximately one-half of the loans receivable at June 30, 2006 (the remainder is made up of Institutional Loans). The Perkins 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, 2006, no provision has been made for uncollectible loans.

NOTE 6: CAPITAL ASSETS

Following are the changes in capital assets for the year ended June 30, 2006:

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE6: CAPITAL ASSETS

Beginning Balance Jul):'. I, 2005

Additions

Reductions

Ending Balance June 30, 2006

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

$ 2,434,485.21 $ 55,269.00

0.00

26,817.00

606,219.34 3,477,881.90 $

$ 2,489,754.21 26,817.00
858,877.43 3,225,223.81

Total Capital Assets Not Being Depreciated

$ 3,040,704.55 $ 3,559,967.90 $ 858 877.43 $ 5,741,795.02

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

$118,814,493.55 $ 4,598,091.00 14,485,523.35 20,494,752.74 18,207,722.14

1,287,309.62 $ 1,462,723.43
645,759.73 7,177,783.46 1,229,788.62

2,021,600.00 $118,080,203.17 6,060,814.43
456,568.15 14,674,714.93 5,700.03 27,666,836.17
22,961.86 19,414,548.90

Total Assets Being Depreciated

$176,600,582.78 $ 11,803,364.86 $ 2,506,830.04 $185,897,117.60

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

$ 34,171,721.66 $ 2,684,149.24 9,957,692.55 813,178.04 14,018,325.63

3,142,002.00 $ 197,922.76 975,353.79 953,748.13
1,049,907.00

1,351,945.00 $ 35,961,778.66 2,882,072.00
189,692.62 10,743,353.72 4,655.03 1,762,271.14 22,961.86 15,045,270.77

Total Accumulated Depreciation

$ 61,645,067.12 $ 6,318,933.68 $ 1,569,254.51 $ 66,394,746.29

Total Capital Assets, Being Depreciated,

Net

$114,955,515.66 $ 5,484,431.18 $ 937,575.53 $119,502,371.31

Capital Assets, Net

$117 996 220.21 $ 9.044.399.08 $ I.796.452.96 $125,244,166 33

NOTE 7: DEFERRED REVENUE

Deferred revenue consisted of the following at June 30, 2006.

Other Deferred Revenue

$ 860,155.45

NOTE 8: LONG-TERM LIABILITIES

Long-term liability activity for the year ended June 30, 2006 was as follows:

Beginning Balance Jul):'. 1, 2005

Additions

Reductions

Ending Balance June 30, 2006

Current Portion

Leases Lease Obligations

$ 19,991,053.56 $ 7,177,783.46 $ 817,058.72 $ 26,351,778.30 $ 403,950.10

Other Liabilities Compensated Absences Softball Field - Athletics

$ 2,537,328.16 $ 1,984,205.54 $ 1,830,794.35 $ 2,690,739.35 $ 1,496,503.39

234,890.36

44,891.02

189,999.34

39,043.94

Total

$ 2,772,218.52 $ 1,984,205.54 $ 1,875,685.37 $ 2,880,738.69 $ 1,535,547.33

Total Long-Term Obligations $ 22.763.272.08 $ 9.161.989.00 $ 2.692.744.09 $ 29,232.5 I6.99 $ 1939497 43

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 9: SIGNIFICANT COMMITMENTS

The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $1,638,637.08 as of June 30, 2006. 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.

CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2007 and 2031. Expenditures for fiscal year 2006 were $2,656,586.28 of which $1,765,765.16 represented interest and $890,821.12 represented principal. Interest rates range from 4.25 percent to 10.00 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2006:

Buildings Equipment

$ 25,810,218.44 94,346.59

Total Assets Held Under Capital Lease

$ 25,904,565.03

Certain capital leases provide for renewal and/or purchase options.

Valdosta State University had three capital leases with related entities in the current fiscal year. In 2006, Valdosta State University entered into a capital lease of $7,116,694.00 at a varying interest rate with the Valdosta State University Foundation Real Estate I, LLC, an affiliated organization. The University leased Lowndes Hall, a housing unit located on main campus for a twenty-five year period. In 2005, the University entered into a capital lease for a twenty-five year period at an amount of $19,285,471.00 at a varying interest rate with the Valdosta State University Foundation Real Estate I, LLC, an affiliated organization, for Centennial Hall, a housing unit located on Sustella Avenue. Finally, in 2004, the University entered into a capital lease of $1,141,194.06 at 6.25 percent with the Valdosta State University Foundation, also an affiliated organization, whereby the University leases a building for a six-year period. The outstanding liability at June 30, 2006 on these capital leases is $7,193,676.00, $18,261,647.66, and $807,063.31 respectively.

Valdosta State University also has various capital leases for equipment with an outstanding balance at June 30, 2006 in the amount of $89,391.33.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 10: LEASE OBLIGATIONS

OPERATING LEASES Valdosta State University's noncancellable operating leases having remaining terms of more than one year expire in various fiscal years from 2007 through 2014. Certain operating leases provide for renewal options. 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 noncapital property leases, copiers and other small business equipment. Noncancellable operating lease expenditures in 2006 were $315,240.00 for real property.

Future commitments for capital leases (which here and on the Statement of Net Assets include other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2006, were as follows:

Year Ending June 30: 2007 2008 2009 2010 2011 2012 through 2016 2017 through 2021 2022 through 2026 2027 through 2031

Real Property Capital Leases Operating Leases

$ 2,468,711.54 $ 240,240.00

2,503,024.08

139,440.00

2,530,735.10

139,440.00

2,555,236.65

139,440.00

2,364,350.12

139,440.00

11,980,342.94

418,320.00

11,666,000.82

11,790,060.00

10,321,734.60

Total Minimum Lease Payments

$ 58,180,195.85 $ 1,216,320.00

Less: Interest

31,828,417.55

$ 26,351,778.30

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 Georgia General Assembly. TRS provides retirement allowances and other benefits for plan participants. TRS provides service retirement, disability retirement, and survivor's benefits for its members in

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 11: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA

Plan Description 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 from 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 2006, 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

2006 2005 2004

100% 100% 100%

$2,878,308.57 $2,805,355.72 $2,870,027.54

EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA

Plan Description Valdosta State University participates in the Employees' Retirement System of Georgia (ERS), a single-employer defined benefit pension 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 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 60. Additionally, there are certain provisions allowing for retirement after 25 years of service regardless of age.

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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 11: RETIREMENT PLANS
EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
Plan Description 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 ofERS. 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 subdivisions, 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 University's payroll for the year ended June 30, 2006, for employees covered by ERS was $29,265.96. The University's total payroll for all employees was $55,556,958.55.
Under the old plan, member contributions consist of 7.41 % of annual compensation. Of these member contributions, the employee pays the first 1.5% and the University pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.5% of annual compensation paid by employee. The University also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation. For the year ended June 30, 2006, the ERS employer contribution rate for the University amounted to 10.41 % of covered payroll and included the amounts contributed on behalf of the employees 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 2006 amounted to $3,485.52, of which $3,046.56 was made by the University and $438.96 was made by employees. These contributions met the requirements of the plan.
Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2006, financial report, which may be obtained through ERS.
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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 11: RETIREMENT PLANS
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.
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. For fiscal year 2006, the employer contribution was 9.65% of the participating employee's eamable compensation. Employees contribute 5% of their eamable compensation. Amounts attributable to all plan contributions are fully vested and non-forfeitable at all times.
Valdosta State University and the covered employees made the required contributions of $1,789,243.93 (9.65%) and $927,195.64 (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
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VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 11: RETIREMENT PLANS
GEORGIA DEFINED CONTRIBUTION PLAN
Benefits Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.
Contributions Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member.
Total contributions made by employees during fiscal year 2006 amounted to $85,410.69 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
- 22 -

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 12: RISK MANAGEMENT
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.
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 that 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, 2006.
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

- 23 -

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 14: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS

Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000.00 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.

As of June 30, 2006, there were 344 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2006, Valdosta State University recognized as incurred $1,675,478.70 of expenditures, which was net of$642,375.12 of participant contributions.

NOTE 15: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS

The University's operating expenses by functional classification for fiscal year 2006 are shown below:

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

Instruction

Functional Classification

Research

Public Service

Academic Sum1ort

Student Services

$ 29,042,875.58 2,712,840.68 8,023,834.35 65,979.37 242,042.93
199,578.59 221,065.92
2,214,940.01 273,722.52
$ 42 996 879 95

$ 82,441.40 $ 74,773.78 $ 102,174.98

47,102.74

651,151.92

3,612,937.09 $ 3,340,737.34

2,103.06

177,911.24

924,589.84

914,775.51

5,454.88

3,418.15

10,847.89

33,997.88

369,693.13

103,191.12

770.00

10,753.00 13,059.35

45,830.36

103,364.14

151,062.31 38,755.46

195,687.51 498 988.97

702,960.64 1,454,159.18

2,331,748.13 81 759.68

$ 333 082 86 $ 1,656 323 65 $ 7,217 800 10 $ 6 878 994 07

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

Institutional Su1mort

Functional Classification

Plant

Operations and Scholarships

Auxiliary

Maintenance and FellowshiQS

Enternrises

Total Operating
Ex11enses

$ 26,493.13 6,867,676.85 3,626,310.28 51,743.57 109,136.92

$ 3,075,256.05 1,109,106.71 -860,510.99 4,045.85

$ 17,812.76 5,693,192.51 1,580,170.74 943,406.76 97,184.82

$ 29,346,571.63 26,000,895.18 16,358,80 I. 73 209,491.74 970,140.54

346,435.72 257,766.65

$ 3,560,277.87 3,410,599.61

923,264.98 487,651.26

5,041,080.16 4,539,337.29

5,717,453.10 371,252.70

234,969.53 2,577,387.03

10,387,510.43 1,022,908.14

21,936,331.66 6,318,933.68

$ 17 374 268 92 $ 9 550 853 79 $ 3,560,277 87 $21153,10240 $1]0 72158361

- 24-

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006

EXHIBIT "D"

NOTE 16: AFFILIATED ORGANIZATIONS
The Valdosta State University Foundation, Inc. is a legally separate, tax exempt organization whose activities primarily support Valdosta State University. This affiliated organization is considered a potential component unit of the State of Georgia in accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units. Therefore, the financial statements of this affiliated organization is not included in these financial statements. Copies of the financial statements for the affiliated organization may be obtained from Valdosta State University.

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SUPPLEMENTARY INFORMATION - 27 -

VALDOSTA STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS)
BUDGET FUND JUNE 30, 2006
ASSETS
Investments Accounts Receivable
Federal Financial Assistance Other Prepaid Expenditures Inventories
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Cash Overdraft Accrued Payroll Payroll Withholdings Accounts Payable Benefits Payable
Total Liabilities
Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Inventories Unreserved Surplus Regular
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

$ 8,273,315.86 398,520.80 339,325.40 66,548.07 419,421.39
$ ===9=,=49=7=,1=3=1=.5=2=

$

411.29

1,076,403.86

32,563.90

4,617,101.66

179,892.87

$ 5,906,373.58

$

64,988.09

137,742.99

254,330.56

2,617,516.80

28,534.36

338,131.23

149,513.91
$ 3,590,757.94

$ ==9=,4=9=7=1,=31=.5=2=

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.
- 28 -

VALDOSTA STATE UNIVERSITY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)
BUDGET FUND YEAR ENDED JUNE 30, 2006

SCHEDULE "2"

REVENUES
State Appropriations State General Funds
Federal Funds Other Funds
Total Revenues
EXPENDITURES
Public Services/Special Funding Initiatives Teaching
Total Expenditures
Excess of Funds Available over Expenditures
FUND BALANCE JULY 1
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Prior Year Receivables/Revenues Unreserved Fund Balance (Surplus) Returned
to Board of Regents - Administrative Central Office Year Ended June 30, 2005
Non-Mandatory Transfers
FUND BALANCE JUNE 30

BUDGET

ACTUAL

VARIANCEFAVORABLE (UNFAVORABLE)

$ 47,916,536.00 $ 47,916,536.00 $

15,785,674.00

12,128,333.35

31,598,701.00

30,742,843.87

$ 95,300,911.00 $ 90,787,713.22 $

0.00 -3,657,340.65
-855,857.13
-4 513197.78

$

235,848.00 $

234,886.83 $

95,065,063.00

91,374,313.84

$ 95,300,911.00 $ 91,609,200.67 $

$

0.00 $ -821,487.45 $

961.17 3,690,749.16
3,691,710.33
-821 487.45

3,637,761.81 62,700.78

64,258.71 -14,659.13
-62,700.78 724,884.00 $ 3,590,757.94

SUMMARY OF FUND BALANCE
Reserved Department Sales and Services Indirect Cost Recovery Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Inventories
Total Reserved
Unreserved Surplus

$

64,988.09

137,742.99

254,330.56

2,617,516.80

28,534.36

338,131.23

$ 3,441,244.03

149 513.91

Total Fund Balance

$ 3,590,757.94

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.
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VALDOSTA STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2006

SCHEDULE "3"

Totals per Annual Supplement

Accruals June 30, 2006 June 30, 2005

Compensated Absences June 30, 2006 June 30, 2005

Salary Legal Settlement

Adjustments

Shared Services on Jointly Staffed Personnel

Columbus State University

Stokes,

Donovan

Medical College of Georgia

Blackmore, Mark

Flaherty,

Frances

Manning,

Thomas

Neinow,

James

South Georgia College

Benson,

Duane

Carson,

Paul

Tanner,

Jamie

Taylor,

Michael

University of West Georgia

Green,

Ravonne

Waycross College

Wozney,

Christopher

Unidentified Variance

SALARIES $ 55,319,464.85 $

TRAVEL 970,140.54

1,157,735.80 -1,057,095.09

2,499,525.66 -2,357,016.42
-636.17

-7,535.50
-3,500.00 -480.00 -660.00 -180.00
9,150.25 6,588.18 3,660.10 -7,670.05
-6,997.25
2,153.00
451.19
$ 55,556,958.55 $ ==97=0=1,=40=.5=4=

- 31 -

SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS

VALDOSTA STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2006
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No findings or matters related to management were reported. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No findings or matters related to management were reported.