STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS MANAGEMENT REPORT VALDOSTA STATE UNIVERSITY VALDOSTA, GEORGIA AN ORGANIZATIONAL UNIT OF THE STATE OF GEORGIA YEAR ENDED JUNE 30, 2008 Russell W. Hinton State Auditor VALDOSTA STATE UNIVERSITY - TABLE OF CONTENTS - SECTION I FINANCIAL LETTER OF TRANSMITTAL SELECTED FINANCIAL INFORMATION EXHIBITS A STATEMENT OF NET ASSETS-(GAAP BASIS) 2 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - (GAAP BASIS) 3 C STATEMENT OF CASH FLOWS -(GAAP BASIS) 4 D SELECTED FINANCIAL NOTES 7 SUPPLEMENTARY INFORMATION SCHEDULES 1 BALANCE SHEET- (STATUTORY BASIS) BUDGET FUND 20 2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (STATUTORY BASIS) BUDGET FUND 21 3 STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET (STATUTORY BASIS) BUDGET FUND 22 4 RECONCILIATION OF SALARIES AND TRAVEL 25 SECTION II FINDINGS, QUESTIONED COSTS AND OTHER ITEMS SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER ITEMS 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 October 28, 2008 Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the State Board of Regents of the University System of Georgia and Honorable Patrick Schloss, President Valdosta State University Ladies and Gentlemen: As part ofour audit ofthe basic financial statements ofthe State ofGeorgia presented in the State of Georgia Comprehensive Annual Financial Report and the issuance of a State of Georgia Single Audit Report pursuant to the Single Audit Act Amendments, as of and for the year ended June 30, 2008, we have performed certain audit procedures at Valdosta State University. Accordingly, the financial statements and compliance activities of Valdosta State University were examined to the extent considered necessary in order to express an opinion as to the fair presentation ofthe financial statements contained in the foregoing documents and to issue reports on compliance and internal control as required by the Single Audit Act Amendments of 1996. This Management Report contains information pertinent to the financial and compliance activities of Valdosta State University as of and for the year ended June 30, 2008. Information contained in this report is a by-product ofour audit ofthe basic financial statements ofthe State of Georgia and is the representation of management. Accordingly, we do not express an opinion or any other form of assurance on it. The particular information provided which includes a section on findings and other items reported in accordance with Commission on Colleges regulation 2.11.1 is enumerated in the Table of Contents. This report is intended solely for the information and use of the management of Valdosta State University, members ofthe Board ofRegents ofthe University System ofGeorgia and the Southern Association ofColleges and Schools - Commission on Colleges and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, ~uJ.c:iJ~ Russell W. Hinton, CPA, CGFM State Auditor RWH:gp SELECTED FINANCIAL INFORMATION - 1- VALDOSTA STATE UNIVERSITY STATEMENT OF NET ASSETS - (GAAP BASIS) JUNE 30, 2008 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Inventories Prepaid Items Total Current Assets Noncurrent Assets Noncurrent Cash Investments Notes Receivable Capital Assets, Net (Note 4) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deposits Deferred Revenue (Note 5) Other Liabilities Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences Current Portion of Other Long-Term Liabilities Total Current Liabilities Noncurrent Liabilities Lease Purchase Obligations Deferred Revenue (Note 5) Compensated Absences Other 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 -2 - EXHIBIT"A" $ 10,182,585 2,987,986 2,863,271 1,993,941 79,997 $ 18 107,780 $ 28,973 12,223,823 38,110 135,639,052 $ 147,929,958 $ 166,037,738 $ 2,642,312 1,383,049 351,678 738,000 1,313,545 10,306 1,022,584 368,596 1,703,565 41,966 $ 9,575,601 $ 35,139,935 1,366,070 1,344,002 61 877 $ 37,911,884 $ 47,487,485 $ 97,829,878 2,460,134 3,638,487 14,621,754 $ 118,550,253 VALDOSTA STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - (GAAP BASIS) YEAR ENDED JUNE 30, 2008 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 Other Increase (Decrease) in Net Assets Net Assets - Beginning of Year Net Assets - End of Year $ 43,163,685 -8,466,079 12,190,737 1,375,695 682,567 895,367 7,733,861 6,491,569 7,054,443 2,406,282 1,929,579 3,379,999 650,073 598,769 .1 $ 80.086,547 $ 32,240,107 29,282,682 18,826,113 385,116 1,081,238 7,962,631 4,630,514 30,205,232 6,926,064 $ 131,539.697 $ -51,453,150 $ 53,079,000 430,761 116,852 181,910 2,825,057 427,508 -2,357,237 -1,596,875 $ 53,106,976 $ 1,653,826 1,928,870 $ 3,582,696 114,967,557 $ 118,550,253 -3- VALDOSTA STATE UNIVERSITY STATEMENT OF CASH FLOWS - (GMP BASIS) YEAR ENDED JUNE 30, 2008 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 Parkingrrransportation 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 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 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 EXHIBIT"C" $ 34,926,582 14,005,050 895,367 -55,468,938 -61,157,510 -8,312,561 -334,669 343,162 7,913,447 6,679,408 7,488,458 2,413,808 1,932,107 3,711,179 490,804 -1,085,431 $ -45,559, 737 $ 53,079,000 -552,641 3 571 764 $ 56,098,123 $ -4,194,350 -942,636 -2,357,237 $ -7,494,223 $ 236,334 1,282,755 -723,349 $ 795 740 $ 3,839,903 6,371,655 $ ====1=0..2..1....1.=,5=5=8 -4- VALDOSTA STATE UNIVERSITY STATEMENT OF CASH FLOWS - (GAAP BASIS) YEAR ENDED JUNE 30, 2008 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating Income (Loss) Adjustments to Reconcile Operating Income to Net Cash Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Receivables, 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" $ -51,453,150 6,926,064 -1,684,770 -616,119 34,604 10,267 156,164 944,703 -10,589 133 089 $ -45,559, 737 $ ===1=5=0=6==1 $ =====85=5=2=4=7 $ ===1,=92==8=,8=7==0 -5- (This page left intentionally blank) VALDOSTA STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. 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. 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. -7- VALDOSTA STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2008 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 $72,742.44. 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. NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the University's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59: 1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia. 2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia. 3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose. 4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia. 5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association. 6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation. -8- VALDOSTA STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 2: DEPOSITS AND INVESTMENTS DEPOSITS 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, 2008, the carrying value of deposits was $10,174,422 and the bank balance was $12,954,140. Of the University's deposits, $12,954,140 were uninsured and uncollateralized. INVESTMENTS At June 30, 2008, the carrying value of the University's investment was $12,223,823, 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 Pool Board of Regents Diversified Fund $ 5,985,062 Office of Treasury and Fiscal Services Georgia Extended Asset Pool 6,238,761 Total Investments $ 12,223,823 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 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 $2.02 at June 30, 2008. NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2008. -9- VALDOSTA STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 3: ACCOUNTS RECEIVABLE Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal, State and Private Funds Other $ 319,159 439,158 3,463,749 1,696,803 Less Allowance for Doubtful Accounts $ 5,918,869 67,612 Net Accounts Receivable $ 5,851,257 NOTE 4: CAPITAL ASSETS Following are the changes in the University's capital assets for the year ended June 30, 2008: Beginning Balance Julx 1, 2007 Additions Reductions Ending Balance June 30, 2008 Capital Assets, Not Being Depreciated: Land $ Construction Work-In-Progress Capitalized Collections 2,686,656 $ 6,785,099 26 817 255,703 3,137,558 $ $ 6,405,880 2,942,359 3,516,777 26 817 Total Capital Assets Not Being Depreciated $ 9,498,572 $ 3,393,261 $ 6,405,880 $ 6,485,953 Capital Assets, Being Depreciated: Building and Building Improvements $ 119,939,869 $ Facilities and Other Improvements 9,087,639 Equipment 15,487,551 Capital Leases 38,072,882 Library Collections 20,676,401 6,643,603 $ 175,453 734,510 15,061 1,255,440 5,892,208 $ 306,119 242,565 1,154,207 16 681 120,691,264 8,956,973 15,979,496 36,933,736 21,915,160 Total Assets Being Depreciated $ 203,264,342 $ 8,824,067 $ 7 611 780 $ 204,476,629 Less: Accumulated Depreciation: Buildings and Building Improvements $ Facilities and Other Improvements Equipment Capital Leases Library Collections 38,957,325 $ 3,152,387 11,597,998 3,255,533 15,994,112 3,309,132 $ 418,771 1,219,225 960,123 1,018,813 4,128,423 $ 181,885 221,575 11,325 16 681 38,138,034 3,389,273 12,595,648 4,204,331 16,996,244 Total Accumulated Depreciation $ 72,957,355 $ 6,926,064 $ 4 559 889 $ 75,323,530 Total Capital Assets, Being Depreciated, Net $ I 30,306,987 $ 1,898,003 $ 3,051,891 $ 129,153,099 Capital Assets, Net $ 139.805 559 $ 5.291.264 $ 9,457,771 $ 135 639.052 NOTE 5: DEFERRED REVENUE In fiscal year 2006, the University entered into a "Financial Commitment Agreement" with SODEXHO Operations, LLC, in which SODEXHO Operations, LLC, made a financial commitment of $4,119,900 to the University's Campus Food Service program "in equipment - IO - VALDOSTA STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 5: DEFERRED REVENUE and/or physical renovations to the Premises". In exchange, the University will allow SODEXHO Operations, LLC, to operate on the University's campus. The Financial Commitment made by SODEXHO Operations, LLC, to the University's Campus Food Service program will be amortized by the University over the life of the agreement. Deferred revenue consisted of the following at June 30, 2008. Financial Commitment Agreement Prepaid Tuition and Fees Other Deferred Revenue $ 2,196,800 66,300 416,515 Totals NOTE 6: LONG-TERM LIABILITIES $ 2,679,615 The University's Long-Term liability activity for the year ended June 30, 2008 was as follows: Beginning Balance July 1, 2007 Additions Reductions Ending Balance June 30, 2008 Current Portion Leases Lease Obligations $ 36,394,616 $ 15 061 $ 901 146 $ 35,508,531 $ 368 596 Other Liabilities Compensated Absences $ Other Long-Term Liabilities 2,914,477 $ 145 333 2,309,219 $ 2,176,129 $ 41 490 3,047,567 $ 103 843 1,703,565 41 966 Total $ 3,059,810 $ 2,309,219 $ 2,217,619 $ 3,151,410 $ 1 745 531 Total Long-Term Obligations $ 39 454 426 $ 2,324.280 $ 3,118.765 $ 38,659.941 $ 2,114.127 NOTE 7: NET ASSETS Changes in Net Asset activity for the year ended June 30, 2008 are as follows: Invested in Capital Assets Net of Related Debt Restricted Net Assets Unrestricted Net Assets Total Net Assets Balance July 1, 2007 Additions Reductions Balance June 30, 2008 $ 99,992,255 $ 7,295,394 $ 9,457,771 $ 97,829,878 6,826,184 14,329,711 15,057,274 6,098,621 8 149 118 125,014,724 118,542,088 14,621,754 $ 114,267.557 $ 146,639,829 $ 143,057,133 $ I 18,550,253 - 11 - VALDOSTA STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 8: 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 2009 and 2033. Expenses for fiscal year 2008 were $3,258,383 of which $2,357,237 represented interest. Total principal paid on capital leases was $901,146 for the fiscal year ended June 30, 2008. Interest rates range from 4.25 percent to 10 percent. OPERATING LEASES Valdosta State University's noncancellable operating leases having remaining terms of more than one year expire in various fiscal years from 2009 through 2015. 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 rental expenses in 2008 were $600,480 for real property and/or equipment. FUTURE COMMITMENTS 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, 2008, were as follows: - 12 - VALDOSTA STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 8: LEASE OBLIGATIONS FUTURE COMMITMENTS Capital Leases Operating Leases Year Ending June 30: 2009 2010 2011 2012 2013 2014 - 2018 2019 - 2023 2024 - 2028 2029 - 2033 $ 2,873,485 $ 2,939,928 3,021,316 3,094,448 3,152,508 15,956,448 16,335,144 16,815,012 8,163,140 378,647 147,697 147,697 141,194 139,440 278,880 Total Minimum Lease Payments $ 72,351,429 $ 1,233,555 Less: Interest 36,842,898 Principal Outstanding $ 35,508.531 NOTE 9: 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 2008, the employer contribution rate was 9.28% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: - 13 - VALDOSTA STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 9: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Funding Policy Fiscal Year Percentage Contributed Required Contribution 2008 2007 2006 100% 100% 100% $ 3,087,054 $ 2,947,248 $ 2,878,309 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description Valdosta State University participates in the Employees' Retirement System of Georgia (ERS), a cost-sharing multiple-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. 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. - 14 - VALDOSTA STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 9: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description 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, 2008, for employees covered by ERS was $30,907. The University's total payroll for all employees was $61,522,789. For the year ended June 30, 2008 under the old plan, member contributions consist of 6.5% of annual compensation minus $7.00. 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 both old and new plans. For the year ended June 30, 2008, 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. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: Fiscal Year 2008 2007 2006 Percentage Contributed 100% 100% 100% Required Contribution $ 3,218 $ 2,920 $ 3,047 Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2008 financial report, which may be obtained through ERS. REGENTS RETIREMENT PLAN Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 47- - 15 - VALDOSTA STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 9: RETIREMENT PLANS REGENTS RETIREMENT PLAN Plan Description 21-1 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 2008, the employer contribution was 8.13% for the first six months and 8.15% for the last six months 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 $1,761,722 (8.13% or 8.15%) and $1,082,087 (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 ofthe 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 - 16 - VALDOSTA STATE UNIVERSITY SELECTED FINANCIAL NOTES JUNE 30, 2008 EXHIBIT "D" NOTE 9: RETIREMENT PLANS GEORGIA DEFINED CONTRIBUTION PLAN Benefits 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. Total contributions made by employees during fiscal year 2008 amounted to $100,135 which represents 7.5% of covered payroll. These contributions met the requirements of the plan. The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices. NOTE 10: 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, 2008. NOTE 11: AFFILIATED ORGANIZATIONS The Valdosta State University Foundation, Inc., and the VSU Auxiliary Services Real Estate Foundation, Inc., are legally separate, tax exempt organizations whose activities primarily support Valdosta State University. These affiliated organizations are considered potential component units of the State of Georgia in accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units. Therefore, the financial statements of these affiliated organizations are not included in these financial statements. Copies of the financial statements for the affiliated organizations may be obtained from Valdosta State University. - 17 - (This page left intentionally blank) SUPPLEMENTARY INFORMATION - 19 - VALDOSTA STATE UNIVERSITY BALANCE SHEET (STATUTORY BASIS) BUDGET FUND JUNE 30, 2008 ASSETS Cash and Cash Equivalents Investments Accounts Receivable Federal Financial Assistance Other Prepaid Expenditures Inventories Total Assets LIABILITIES AND FUND EQUITY Liabilities Salaries Payable Encumbrances Payable Accounts Payable Deferred Revenue Other Liabilities Total Liabilities Fund Balances Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Inventories Unreserved Surplus Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "1" $ 1,823,022.96 8,684,204.36 804,902.26 1,830,272.43 52,187.97 378,503.08 $ 13,573,093.06 $ 1,287,440.51 7,409,908.50 360,206.81 376,382.98 10,305.92 $ 9,444,244.72 $ 179,476.95 207,556.15 183,936.14 2,445,630.02 56,187.51 645,187.90 338,131.23 72,742.44 $ 4,128,848.34 $ 13,573,093.06 Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrated compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. -20- VALDOSTA STATE UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (STATUTORY BASIS} BUDGET FUND YEAR ENDED JUNE 30, 2008 SCHEDULE "2" REVENUES State Appropriation State General Funds Federal Funds Other Funds Total Revenues CARRY-OVER FROM PRIOR YEARS Transfers from Reserved Fund Balance Total Funds Available EXPENDITURES 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 - University System Office Year Ended June 30, 2007 Non-Mandatory Transfers Prior Year Reserved Fund Balance Included in Funds Available FUND BALANCE JUNE 30 BUDGET ACTUAL VARIANCEFAVORABLE {UNFAVORABLE) $ 53,123,276.00 $ 53,123,276.00 $ 17,472,050.00 12,498,852.80 38,995,436.00 40 844 495.01 $ 109,590,762.00 $ 106,466,623.81 $ 0.00 -4,973, 197.20 1 849 059.01 -3,124,138.19 0.00 2,823,361.79 $ 109,590,762.00 $ 109,289,985.60 $ 2,823,361.79 -300,776.40 $ 32,480.00 $ 33,491.33 $ 109,558,282.00 106,309,488.99 $ 109,590,762.00 $ 106,342,980.32 $ $ 0.00 $ 2,947,005.28 $ -1,011.33 3,248,793.01 3,247,781.68 2,947,005.28 3,208,009.35 44,275.82 62,640.32 9,671.18 -44,275.82 724,884.00 -2,823,361.79 $ 4 128 848.34 SUMMARY OF FUND BALANCE Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over Inventories Total Reserved Unreserved Surplus $ 179,476.95 207,556.15 183,936.14 2,445,630.02 56,187.51 645,187.90 338,131.23 $ 4,056,105.90 72 742.44 Total Fund Balance Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrated compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. - 21 - $ ==4=1=28====84=8=.3=4= VALDOSTA STATE UNIVERSITY STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET (STATUTORY BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2008 Special Funding Initiatives State Appropriation State General Funds Original Appropriation Final Budget Current Year Revenues Funds Available Compared to Budget Prior Year Carry-Over Total Funds Available Variance Positive (Negative) $ 32,480.00 $ 32,480.00 $ 32,480.00 $ 0.00 $ 32,480.00 $ 0.00 Teaching State Appropriation State General Funds Federal Funds Other Funds Total Teaching $ 52,986,037.00 $ 53,090,796.00 $ 53,090,796.00 $ 0.00 $ 53,090,796.00 $ 0.00 15,489,808.00 17,472,050.00 12,498,852.80 0.00 12,498,852.80 -4,973, 197.20 35,501,932.00 38,995,436.00 40 844 495.01 2 823 361.79 43,667 856.80 4 672 420.80 $ 103,977,777.00 $ 109 558 282.00 $ 106 434 143.81 $ 2,823,361.79 $ 109,257,505.60 $ -300 776.40 Grand Totals - All Programs $ 104,010,257.00 $ 109,590,762.00 $ 106,466,623.81 $ 2,823,361.79 $ 109,289,985.60 $ -300,776.40 Statutory Basis financial information was prepared on a prescribed basis of accounting that demonstrated compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. - 22 - SCHEDULE "3" Exe!ndltures Comeared to Budget Variance Positive Actual (Negative) Actual Funds Available Over/(Under) Expenditures Prior Period Adjustments Other Adjustments Total Program Fund Balances Transfers Program Fund Balances Reserve Surplus Total $ 33 491.33 $ -1,011.33 $ -1,011.33 $ 0.00 $ 0.00 $ -1,011.33 $ 0.00 $ 0.00 $ -1,011.33 $ -1,011.33 $ 53,079,682.55 $ 11,113.45 $ 12,498,852.80 4,973,197.20 40 730,953.64 -1 735 517.64 $ 106 309A88.99 $ 3 248 793.01 $ 11,113.45 $ 0.00 2,936,903.16 2 948 016.61 $ 72,311.50 $ 0.00 0.00 72311.50 $ -9,671.18 $ 73,753.77 $ 0.00 0.00 724 884.00 3661787.16 715,212.82 $ 3,735,540.93 $ 0.00 $ 0.00 $ 73,753.77 $ 73,753.77 0.00 0.00 0.00 0.00 0.00 3 661 787.16 0.00 3 661 787.16 0.00 $ 3,661 787.16 $ 73 753.77 3,735,540.93 $ 106,342,980.32 $ 3 247 781.68 $ 2,947,005.28 $ 72,311.50 $ 715,212.82 $ 3,734,529.60 $ 0.00 $ 3,661,787.16 $ 72,742.44 $ 3,734,529.60 Unexpendable Reserves Uncollectibles Accounts Receivable Inventories Total Fund Balance 56,187.51 338,131.23 4,128,848.34 -23- (This page left intentionally blank) VALDOSTA STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2008 SCHEDULE "4" Totals per Annual Supplement Accruals June 30, 2008 June 30, 2007 Compensated Absences June 30, 2008 June 30, 2007 SALARIES $ 61,130,327 $ TRAVEL 1,081,238 1,383,049 -1,114,219 2,830,996 -2,707,364 $ 61,522,789 $==1=,0=8=1=,2=38= - 25 - SECTION II FINDINGS, QUESTIONED COSTS AND OTHER ITEMS VALDOSTA STATE UNIVERSITY SCHEDULE OF FINDINGS, QUESTIONED COSTS AND OTHER MATTERS YEAR ENDED JUNE 30, 2008 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were noted. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were noted. OTHER ITEMS {NOTED FOR MANAGEMENT'S CONSIDERATION) BUDGETARY OVEREXPENDITURES Valdosta State University did not have sufficient procedures in place to ensure that the funds were not expended in excess of the approved budgetary authority. Valdosta State University had an approved expenditure budget for Special Funding Initiatives in the amount of $32,480.00. The University exceeded the approved budgetary spending authority amount by $1,011.33. The University should closely monitor their budget operations to prevent expenditure offunds in excess of budget approval. SPECIAL TESTS AND PROVISIONS Procedures were not in place to ensure that Federal Work-Study Program (FWS) timesheets were completed and approved after work was completed. Federal regulations (34 CFR 675.19b) require Institutions to establish and maintain program and fiscal records to certify that each student has worked and earned the amount they are being paid. Three out of the six students tested had timesheets which were completed before the student worked the hours listed on the timesheet. In two instances, student timesheets were approved by the Supervisor before the students worked the hours listed on the timesheet. The University should establish appropriate procedures to ensure that timesheets are reviewed and approved after FWS wages are earned to ensure compliance with Federal regulations.