Valdosta State University, Valdosta, Georgia, report on audit of the financial statements for the fiscal year ended June 30, 2010

VALDOSTA STATE
UNIVERSITY
VALDOSTA,GEORGIA
REPORT ON AUDIT OF THE FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED jUNE 30,2010

yr;(~l~!yl-=l7I 'll 7

flqI pk@a Departmentof

1 Audits and Accounts

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Russell W=Hinton

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VALDOSTA STATE UNlVERSlTY - 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 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS C STATEMENT OF CASH FLOWS D NOTES TO THE FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION SCHEDULES
1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND
2 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND
3 STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET (NON-GAAP BASIS) BUDGET FUND
4 RECONCILIATION OF SALARIES AND TRAVEL
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

DEPARTMENOTF AUDITSAND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
November 19,2010

Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the UniversitySystem of Georgia
and Honorable Patrick Schloss, 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, a unit of the University System of Georgia, which is an organizational unit of the State of Georgia, as of and for the year ended June 30, 2010. 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 of America. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of University's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 of Valdosta State Universityare 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 of the State of Georgia, in conformity with accounting principles generally accepted in the United States of America.

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, 2010, 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 part of the basic financial statements but is required supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of this 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 1through 4) 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,
~ u s d lWl . Hinton, CPA, CGFM State Auditor

REQUIRED SUPPLEMENTARY INFORMATION

VALDOSTA STATE UNIVERSITY
Management's Discussion and Analysis

Introduction

Valdosta State University is one of the 35 institutions of higher education 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 Language Pathology, School Psychology and Teacher 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 12,000 students. The institution continues to grow as shown by the

comparison numbers that follow.

Students

Students

Faculty

(Headcount)

FiscalYear 2010 FiscalYear 2009 FiscalYear 2008

Overview of the FinancialStatementsand FinancialAnalysis
Valdosta State University is proud to present its financial statements for fiscal year 2010. 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 2010 and fiscal year 2009.

S;tatement of Net 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 FinancialStatements.
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.
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 30,2010

Assets Current Assets Capital Assets, Net Other Assets

Total Assets

Liabilities Current Liabilities Noncurrent Liabilities

Total Liabilities

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

$ 102,182,637 2,052,958 3,344,869
24,108,471

Total Net Assets

June 30,2009
$ 98,201,513 1,675,874 3,241,854
13,016,164

The total assets of the institution increased by $105,224,464. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $93,506,006 in the category of Capital Assets, Net. The balance of the increase is mainly in receivable categories.
The total liabilities for the year increased by $89,670,934. The combination of the increase in total assets of $105,224,464 and the increase in total liabilities of $89,670,934 yields an increase in total net assets of $15,553,530. The increase in total net assets is primarily in the category of lnvested in Capital Assets, Net of Debt, in the amount of $3,981,124.
Statement of Revenues, Expenses and Changesin 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 30,2010

June 30,2009

Operating Revenues Operating Expenses

Operating Loss

$ -56,822,839

$ -64,911.129

Nonoperating Revenues and Expenses

65,824,119

60,431,401

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

$ 9,001,280

$ -4,479,728

Other Revenues, Expenses, Gains or Losses

4,671,017

2,064,880

Increase (Decrease) in Net Assets

$ 13,672,297

$ -2,414,848

Net Assets at Beginning of Year, as Originally Reported

Prior Year Adjustments

Net Assets at Beginning of Year, Restated $ 118,016,638

$ 118,550,253

Net Assets at End of Year

The Statement of Revenues, Expenses and Changes in Net Assets reflect 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:

Revenue by Source For the Years Ended June 30,2010 and June 30,2009

June 30,2010

Operating Revenue

Tuition and Fees

$

Grants and Contracts

Sales and Services of Educational Departments

Auxiliary

Other

46,453,440 3,476,218 918,356
40,607,143 642,305

Total Operating Revenue

Nonoperating Revenue State Appropriations Federal Stimulus - Stabilization Funds Grants and Contracts Gifts Investment Income Other

$ 41,876,536 8,506,075
21,107,898 2,060,376 826,051 4,148

Total Nonoperating Revenue

Capital Grants and Gins State Other

Total Capital Grants and Gifts

Total Revenues

Expenses (By Functional Classification) For the Years Ended June 30,2010 and June 30,2009

June 30,2010

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

Total Operating Expenses

Nonoperating Expenses Interest Expense (Capital Assets)
Total Expenses

June 30,2009 $ 37,423,940
4,046,932 842,306
34,699,747 496,113
$ 50,303,199 513,654
13,841,611 2,551,145 -67 1,183 -41.945
June 30,2009

Operating revenues increased by $14,588,424 in fiscal year 2010. This increase reflects a 24% increase in Tuition and Fees as well as an increase in Auxiliary revenues.

The Auxiliary revenue increase of $5,907,396 is primarily due to a 3% increase in housing and meal plan rates.
Nonoperating revenues increased by $7,884,603 for the year primarily due to a swap out of Federal Stimulus funds to offset the decrease of $8,426,663 in State Appropriations.
The compensation and employee benefits category increased by $40,223 and primarily affected the Instructional category. The increase reflects an addition of faculty to cover the increased head counts as well as some part-time instructors moving to the tenor track.
Utilities increased by $315,600 during the past year. The increase was primarily associated with the increased natural gas costs that were experienced in the winter of fiscal year 2010 and affected the Plant Operations and Maintenance category.

Statement of Cash 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, Expensesand Changes in Net Assets.
Cash Flows for the Years Ended June 30,2010, and 2009, Condensed

June 30,2010

June 3 0 , 2 0 0 9

Cash Provided (Used) By: OperatingActivities Noncapital FinancingActivities Capital and Related FinancingActivities Investing Activities

$ -47,487,688 70,718,511 -18,055,838 206,573

$ -50,153,842 67,561,919 -14,190,123 322,065

Net Change in Cash Cash, Beginningof Year

Cash, End of Year

Capita/ Assets
The University had several significant capital asset additions for buildings and building improvements in fiscal year 2010. These consisted of the following: two new capital leases with VSU Auxiliary Services Real Estate Foundation, Inc. a related party amounting to $91,167,636, construction of the Student Union was completed with Valdosta State University funding $4,974,985 from student fees and the Steam Plant Condensate/Air Cooled Chiller Renovation project was completed amounting to $2,022,248.
For additional information concerning Capital Assets, see Notes 1,6, 8, 9 and 1 0 in the Notes to the Financial Statements.
Long- Term Liabilities
Valdosta State University had Long-Term Liabilities of $222,610,785 of which $4,284,112 was reflected as current liability at June 30, 2010.
For additional information concerning Long-Term Liabilities, see Notes 1and 8 in the Notes to the Financial Statements.
Economic Outlook
The University is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. The University's overall financial position is strong. Even with a relatively flat funded year, the University was able to generate a modest increase in Net Assets. The University anticipates the current fiscal year will be much like last and will maintain a close watch over resources to maintain the University's ability to react to unknown internal and external issues.
Dr. Patrick J. Schloss, President Valdosta State University

BASIC FINANCIAL STATEMENTS

ASSETS
Current Assets Cash and Cash Equivalents Accounts Recelvable, Net (Note 3) Federal Financial Assistance Other Inventories (Note 4) P r e ~ a ~Itedms
Total Current Assets
Noncurrent Assets Noncurrent Cash Investments (Externally Restricted) Investments Notes Recelvable Capital Assets, Net (Note 6)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Llabllltles Accounts Payable Salarles Payable Contracts Payable Deposlts Deferred Revenue (Note 7) Other Llabllltles Deposlts Held for Other Organlzatlons Lease Purchase Obllgatlons Compensated Absences Current Portlon of Other Long-Term Llabllltles
Total Current Llabllitles
Noncurrent Liabilities Lease Purchase Obligations Compensated Absences
Total Noncurrent Liabilities
Total Liabil~ties
NET ASSETS
Invested In Capital Assets, Net of Related Debt Restricted for:
Nonexpendable Expendable unrestricted
Total Net Assets

VALDOSTA STATE UNIVERSITY STATEMENT OF NET ASSETS
JUNE 3 0 , 2 0 1 0

The notes t o the flnanctal statements are an integral part of this statement.

VALDOSTA STATE UNIVERSITY STATEMENTOF REVENUES. EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDEDJUNE 30.2010
OPERATING REVENUES
Student Tult~onand Fees Less: Scholarship AllOwanCeS
Grants and Contracts Federal Federal Stlmulus State Other
Sales and Servlces of Educational Departments Rents and RoyaltleS Auxll~aryEnterprlses
Residence Halls Bookstore Food Servlces Park~ng/Transpottatlon Health Servlces lntercolleg~ateAthletics Other Organlzatrons Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benefits Other Personal Servlces Travel Scholarships and Fellowships utilltles Supplies and Other Services Deprec~ation
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES lEXPENSE.5)
State Approprlatlons Federal Stimulus -Stabilization Funds Grants and Contracts
Federal Federal Stlmulus State Other Gifts Interest and Other Investment Income Interest Expense (CapitalAssets) Other NonoperatingRevenues
Net NonoperatingRevenues
Income (Loss) Before Other Revenues. Expenses. Gans, or Losses
Capital Grants and Gifts State Other
Total Other Revenues. Expenses. Galns or Losses
Increase (Decrease) in Net Assets
Net Assets at Beginning of Year (Restated)
Net Assets End of Year
The notes to theflnanclal statements are an Integral part of thts statement.

VALDOSTA STATE UNIVERSITY STATEMENT OF CASH FLOWS YE4R ENDED JUNE 30,2010
CASH FLOWS FROM OPERATING ACTIVITIES Tultion and Fees Grants and Contracts Sales and S e ~ i c e sof Educational Departments Payments t o Suppliers Paymentst o Employees Payments for Scholarships and Fellowships Loans Issued to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parklng/Transportatlon Health Sewlces Intercollegiate Athletics Other Organizations Other Receipts (Payments)
Net Cash Provided (Used) by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCINGACTIVITIES State Appropriations Federal Stimulus -Stabilization Funds Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes
Net Cash Flows Provided (Used) by Noncapital ~lnanclng~ctlvitles
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Recelved Purchases of Capital Assets Pr~ncipaPl aid on Capital Debt and Leases lnterest Pald on Capital Debt and Leases
Net Cash Provided (Used) by Capital and Related FinancingActivities
CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments Purchase of Investments
Net Cash Provided (Used) by lnvestlng Activ~ties
Net Increase (Decrease) In Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents- End of Year

VALDOSTA STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 3 0 , 2 0 1 0
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED(USED) BY OPERATINGACTIVITIES:
Operatlng Income (Loss) Adjustments to Reconc~leOperatlng Income to Net Cash
Prov~ded(Used) by Operat~ngActlvitles Depreciation Change In Assets and L~abilities: Accounts Receivable, Net Inventories Prepaid Items Notes Receivable Accounts Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Prov~ded(Used) by Operating Activities
NONCASH ACTIVITY Fixed Assets Acquired by lncurrlng Capital Lease Obligat~ons Change in Fa~Vr alue of Investments Recognizedas a Component of Interest Income Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts Change in Accrued Interest PayableAffecting Interest Paid
The notes to the financial statements are an integral part of this statement. -5-

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VALDOSTA STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "Dm

Note 1. Summary of SignificantAmounting 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 Resorting Standards.
Legally separate, tax exempt organizations whose activities primarily support units of the University System of Georgia, which are organizational units of the State of Georgia, are considered potential component units of the State. See Note 16 for additional information.
Financial Statement Presentation The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards t o provide a comprehensive, entity-wide perspective of the University's assets, liabilities, net assets, revenues, expenses, changes in net assets and cash flows.
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 predominant activity takes place.
New Accounting Pronouncements In fiscal year 2010, Valdosta State University adopted the Governmental Accounting and Standards Board (GASB) Statement No. 51, Accounting and Reporting for IntangibleAssets. The provisions of this Statement generally required retroactive reporting for intangible assets acquired after June 30, 1980, with the exception of those intangible assets that have indefinite useful lives and those that are considered internally generated.
In addition, Valdosta State University adopted GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. The provisions of this Statement impacts disclosure regarding derivative instruments entered into by the state and local governments. Derivative disclosures, if any, will be identified in Note 2.

VALDOSTA STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "Dl1

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 intraUniversitytransactions 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.
lnvestments lnvestments include financial instruments with terms in excess of 1 3 months, certain other securities for the production of revenue, land, and other real estate held as investments by endowments. The University accounts for its investments at fair value. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Assets. 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 grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
Inventories Consumable supplies are carried at the lower of cost or market on the first-in, first-out ("FIFO") basis. Resale Inventories are valued at cost using the average-cost basis.
Noncurrent Cash and lnvestments 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.
Capital Assets Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. For equipment, the University's capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000 and/or significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation, which also includes amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, and copyrights, as well as software is computed using the straight-line method over the estimated useful lives of the assets, generally 4 0 to 6 0 years for buildings, 2 0 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.

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financingand Investment Commission (GSFIC) - a n 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.
For projects managed by GSFIC, the GSFIC retains construction in progress on its books throughout the construction period and transfers the entire project to the University when complete. For projects managed by the University, the University retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2010, GSFIC did not transfer any capital additions to Valdosta State University.
Deposits Deposits represent good faith deposits from students to reserve housing assignments in 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 compensated absences in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Assets. Valdosta State University had accrued liability for compensated absences in the amount of $3,469,406 as of July 1, 2009. For fiscal year 2010, $2,368,928 was earned in compensated absences and employees were paid $2,372,049, for a net decrease of $3,121. The ending balance as of June 30, 2010, in accrued liability for compensated absences was $3,466,285.
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 of related 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.
Restrictd 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 44-15-7 of Annotated Code of Georgia.

VALDOSTA STATE UNIVERSrPl NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

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:

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

2,404,288 338,291 509,622 92,668

Total Restricted Expendable

$

3,344,869

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 $541,279.33. 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 selfsupporting activities that provide services for students, faculty and staff.
Unrestricted Net Assets includes the following items which are quasi-restricted by management.

R & R Reserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted
Total Unrestricted Net Assets

$

24,108,471

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 Revenuesand Expenses The Statement of Revenues, Expenses and Changes in Net Assets classify fiscal year activity as operating and nonoperating according to the following criteria:
Operating Revenues Operating revenue includes activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) certain Federal, state and local grants and contracts, and (3)sales and services.

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Nonoperating Revenues Nonoperating revenue includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenue by GASB No. 9, Reporting Cbsh Flows of Proprietary and Nonexpendable Trust Funds and GovernmentalEntities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.

Operating Expenses: Operating expense includes activities that have the characteristics of exchange transactions.

Nonoperating Expenses Nonoperating expense includes activities that have the characteristics of nonexchangetransactions, such as capital financing costs and costs related to investment activity.

Scholarship Allowances Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net 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.

Restatement of Prior Year Net Assets Valdosta State University has a restatement of prior year net assets increasing beginning net assets by $1,881,233. This is a correction of fiscal year 2009 Construction Work in Process that was recorded as an expense in error.

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.

VALDOSTA STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

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 MortgageAssociation.

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, 2010, the carrying value of deposits was $19,104,207 and the bank balance was $21,221,923. Of the University's deposits, $21,221,923 was uninsured. Of these uninsured deposits, $21,221,923 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the University's name.

Investments At June 30, 2010, the carrying value of the University's investments was $11,844,256, which is materially the same as fair value. These investments were comprised entirely of funds invested in the Board of Regents and Office of Treasury and Fiscal Services investment pools as follows:

lnvestment Pools

Board of Regents Diversified Fund

Office of Treasury and Fiscal Services Georgia Extended Asset Pool
Total Investments

$ 11,844,256

The Board of Regents lnvestment 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 lnvestment Pool is voluntary. The Board of Regents lnvestment Pool is not rated. Additional information on the Board of Regents lnvestment Pool is disclosed in the audited Financial Statements of the Board of Regents of the University System of Georgia - University System Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at htt~://www.audits.state.Ra~us/internet/searchR~ts.html.
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 $2.03 at June 30, 2010. The Georgia Extended Asset Pool is an AAA rated investment pool by Standard and Poor's. The Weighted Average Maturity of the Fund is .97 years.

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT " D

lnterest Rate Risk lnterest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University does not have a formal policy for managing interest rate risk.

The Effective Duration of the Diversified Fund is 3.15 years. Of the University's total investment of $5,250,767 in the Diversified Fund, $2,027,058 is invested in debt securities.

Note 3. Accounts Receivable Accounts receivable consisted of the following at June 30, 2010:

Student Tuition and Fees

$

Auxiliary Enterprisesand Other OperatingActivities

Federal Financial Assistance

Georgia State Financing and Investment Commission

Other

802,499 2,87 1,192 1,587,540
1,462 3,508,517

Less Allowance for Doubtful Accounts

$ 8,771,210 114,372

Net Accounts Receivable

$ 8,656,838

Note 4. Inventories Inventories consisted of the following at June 30, 2010:

Bookstore Physical Plant Other

Total

$ 1,548,986

Note 5. Notes/Loans Receivable

At June 30, 2010, Notes Receivable were comprised of institutional loans, with $ 0 provision for uncollectible amounts.

VALDOSTA STATE UNIVERSrPl NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

Note 6. CapiW Assets

Following are the changes in capital assets for the year ended June 30,2010:

Beginning Balance July 1,2009 (Restated)

Additions

Reductions

Ending Balance June 30,2010

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

$

3,662,832

Total Capital Assets, Not Being Depreciated $

9,649,956$

7,951,812 $

4,859,783 $

12,741,985

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

$

125,175,264$

7,653,490 $

508,346 $

132,320,408

Total Assets Being Depreciated

$

304,544,797$

101,923,111$

1,586,929 $

404,880.979

Less: Accumulated Depreciation: Building and Building Improvements Fac~litiesand Other lmprovements Equipment Capital Leases Library Collections

$

41,431,161 $

3,571,254

Total Accumulated Depreciation

$

83,943,368$

12,879,960$

1,076,522 $

95,746,806

Total Capital Assets. Being Depreciated. Net $

220,601,429 $

89,043,151$

510,407 $

309,134,173

Capital Assets. Net

Note 7. Deferred Revenue Deferred revenue consisted of the following at June 30, 2010:

Prepaid Tuition and Fees Other Deferred Revenue

Totals

$ 1,340,292

VALDOSTA STATE UNIVERSIW NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBlT "D"

Note 8. Long- Term Liabilities

Long-Term liability activity for the year ended June 30, 2010, was as follows:

Beginning Balance July 1,2009

Additions

Reductions

Ending Balance June 30, 2010

Current Portion

Leases Lease Obligations

$ 128,738,821 $ 91,787,473 $ 1,397,059 $ 219,129,235 $ 2,485,496

Other Liabilities Compensated Absences $ Other Long-Term Liabilities

3,469,406 $ 56,518

2,368,928 $

2,372,049 $ 41,253

3,466,285 $ 15,265

1,783,351 15,265

Total

Total LongTerrn Obligations $ 132,264,745 $ 94,156,401 $ 3,810,361 $ 222,610,785 $ 4,284,112

Note 9, Significant Commitments
The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $11,177,565 as of June 30, 2010. The University's previous rental agreement with the VSU Auxiliary Real Estate Foundation for Georgia and Reade Halls were converted to capital leases in fiscal year 2010.

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 2 0 1 1 and 2039. Expenditures for fiscal year 2010 were $9,954,024 of which $8,556,965 represented interest. lnterest expense included $600,075 of accrued interest which was added to the lease principal. Total principal paid on capital leases was $1,397,059 for the fiscal year ended June 30, 2010. lnterest rates range from 4.25 percent to 10 percent. The following is a summary of the carrying values of assets held under capital lease at June 30,2010:
Buildings Equipment

Total Assets Held Under Capital Lease

$ 205,759,641

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

VALDOSTA STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "Dl'

Valdosta State University had ten capital leases with related entities in the current fiscal year. In fiscal year 2010, Valdosta State University entered into two capital leases with VSU Auxiliary Real Estate Foundation as follows:
Georgia and Reade Halls combined for $30,419,725 at an average coupon rate of 4.150%, and Student Union for $60,747,911 at an average coupon rate of 4.514%.
Both capital leases spans 3 0 years with outstanding liabilities at June 30, 2010, of $31,019,799, and $60,607,898, respectively.
In fiscal year 2009, the University also entered into four new capital leases with VSU Auxiliary Real Estate Foundation, as follows:
Hopper Hall, a 513 bed housing unit with dining services, campus mail and office space located on main campus for $27,484,345 at an average coupon rate of 4.554%, and Student Health Center for $12,221,729, Oak Street Parking Deck for $24,869,880 and, Sustella Parking Deck for $21,468,631, all with an average coupon rate of 4.649%.
All four capital leases spans 3 0 years with outstanding liabilities at June 30, 2010, of $27,366,275, $12,355,381, $25,301,139, and $21,840,912, respectively.
The University also entered into a new capital lease with the Valdosta State University Foundation Real Estate I, LLC for the Athletic Field House, spanning 2 0 years, for $5,994,383, at an average coupon rate of 4.55%. The outstanding liability at June 30, 2010, on this capital lease is $5,825,899.
In fiscal year 2007, the University entered into a capital lease of $10,399,786 at a varying interest rate for Patterson Hall, a 3 0 0 bed housing unit located on main campus. This lease spans a twentyfive year period. In 2006, Valdosta State University leased Lowndes Hall for $7,116,694 at a varying interest rate with the Valdosta State University Foundation Real Estate I, LLC, for a 25 year period. In 2005, the University entered into a capital lease for a twenty-five year period at an amount of $19,285,471 at a varying interest rate with the Valdosta State University Foundation Real Estate I, LLC, for Centennial Hall, a housing unit located on Sustella Avenue. All of these leases were transferred to the VSU Auxiliary Real Estate Foundation in fiscal year 2010, with the same terms as the original capital lease. The outstanding liabilities at June 30, 2010, on these capital leases are $10,080,790, $6,986,040, and $17,598,948, respectively.
Valdosta State University entered into three new equipment capital leases during fiscal year 2010 in the amount of $23,883. The outstanding liability at June 30, 2010, on these equipment leases is $18,235. All equipment leases are with third parties.
Valdosta State University also has various capital leases for equipment with an outstanding balance at June 30,2010, in the amount of $127,919.
OPERATING LEASES Valdosta State University's noncancellable operating leases having remaining terms of more than one year expire in various fiscal years from 2 0 1 1through 2013. Certain operating leases provide for renewal options for periods from one to three years at their fair rental value at the time of renewal. All agreements are cancellable if the State of Georgia does not provide adequate funding, but that is considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are generally payable on a monthly basis. Examples of property under operating leases are copiers and other small business equipment.

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "Dl'

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 30,2010, were as follows:

Real Property and Equipment

Capital

Operating

Leases

Leases

Year Ending June 30: 2011 20 12 20 13 20 14 2015 2016 - 2020 2021- 2025 2026 - 2030 2031- 2035 2036 - 2039

Total Minimum Lease Payments $ 379,645,622 $

42,942

Less: Interest Principal Outstanding

160,516,387

Valdosta State University's fiscal year 2010 expense for rental of real property and equipment under operating leases was $22,662.
Note 11. Retirement Plans
Teachers Retirement System of Georgia
Plan Description Valdosta State University participates in the Teachers Retirement System of Georgia (TRS), a costsharing 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 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 5.25% 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 2010, the employer contribution rate was 9.74% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

Fiscal Year

Percentage Contributed

Required Contribution

EXHIBIT "D"

Employees' Retirement System of Georgia
Plan Description Valdosta State University participates in the Employees' Retirement System of Georgia (ERS), a costsharing 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. Employees hired on or after July 1,1982, but prior to January 1,2009 are "new plan" members subject to the modified plan provisions. Effective January 1,2009, newly hired State employees, as well as rehired State employees who did not maintain eligibility for the "old" or "new" plan, are members of the Georgia State Employees' Pension and Savings Plan (GSEPS). ERS members hired prior to January 1,2009 also have the option to change their membership to the GSEPS plan.
Under both the old plan and new plan, members become vested after 1 0 years of creditable service. A member may retire and receive normal retirement benefits after completion of 1 0 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. Post-retirement cost-of-living adjustments are also made to member's benefits. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension at reduced rates to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS.
In addition, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan (SRBP) effective January 1,1998. The SRBP was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415.
The ERS issues a financial report each fiscal year, which may be obtained through ERS.
Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political 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, 2010, for employees covered by ERS was $65,706. The University'stotal payroll for all employees was $66,332,793.

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

For the year ended June 30, 2010, under the old plan, member contributions consist of 4% of annual compensation up to $4,200 plus 6% of annual compensation in excess of $4,200. Of these member contributions, the employee pays the first 1.25% and the University pays the remainder on behalf of the employee.

Under the new plan, member contributions consist solely of 1.25% 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, 2010, 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

Percentage Contributed

Required Contribution

Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2010, 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. 47-21-1 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 2010, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 5%of their earnable 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
$2,246,418 (9.24%) and $1,214,986 (5%),respectively.
AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.

VALDOSTA STATE UNIVERSIlT NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

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 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.
Contributions Member contributions are seven and one-half percent (7.5%)of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member.
Total contributions made by employees during fiscal year 2010 amounted to $122,506 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 selfinsured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these two plans are considered to be a self-sustaining risk fund. Both self-insured healthcare plan options provide a maximum lifetime benefit of $2,000,000 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, a fully insured HSA/High Deductible PPO healthcare plan and two fully insured HMO healthcare plan options are also offered to System employees.
The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

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 expenditure that is 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 30,2010.
Note 14, Post-Employment Benefits Other Than Pension Benefits
Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 20-3-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the UniversitySystem of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee.
The Board of Regents Retiree Health Benefit Plan is a single employer defined benefit plan. Financial statements and required supplementary information for the Plan are included in the publicly available Consolidated Annual Financial Report of the University System of Georgia. The University pays the employer portion of health insurance for its eligible retirees based on rates that are established annually by the Board of Regents for the upcoming plan year. For the 2009 and 2010 plan years, the employer rate was between 70-75%of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%.

VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

As of June 30, 2010, there were 506 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2010, Valdosta State University recognized as incurred $2,131,296 of expenditures, which was net of $925,201 of participant contributions.

Note 15. Natura/ C/assfications with Functional Classifiwtions The University's operating expenses by functional classification for fiscal year 2010 are shown below:

Functional Classification

Natural Classification

Instruction

Research

Public Service

Academic Support

Student Services

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

$ 50,100,506$

469,859 $ 1,342,793 $ 10,972.882 $ 7,804,161

Natural Classification

Institutional Support

Functional Classification

Plant Operations Scholarships

and

and

Maintenance

Fellowships

Auxiliary Enterprises

Total Operating Expenses

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

$ 13,828,697$

15,050,689 $ 10,916,048 $ 38,434,666 $ 148,920,301

Note 16. 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, a unit of the University System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office has determined Component Units of the State of Georgia, as required by GASB Statement No. 39, should be assessed in relation to their significance to the State of Georgia. Accordingly, Valdosta State University has not included financial activity for Valdosta State University Foundation, Inc., and VSU Auxiliary Services Real Estate Foundation, Inc. in these financial statements.

VALDOSTA STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

The Valdosta State University Auxiliary Services Real Estate Foundation, Inc. has been determined significant to the State of Georgia for the year ended June 30, 2010, and as such, is reported as a discretely presented component unit in the Comprehensive Annual Financial Report of the State of Georgia (CAFR). The significant discretely presented component unit issues separate audited financial statements that can be obtained from the Board of Regents of the University System of Georgia.

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SUPPLEMENTARY INFORMATION

VALDOSTA STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS)
BUDGET FUND JUNE 30.2010
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable
Federal Financial Assistance Other Prepaid Expenditures Inventories
Total Assets
LIABILITIES AND FUND EOUlTY
Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Deferred Revenue Other Liabilities
Total Liabilities
Fund Balances Resewed Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carryover lnventories Unreserved Surplus
Total Fund Balances
Total Liabilities and Fund Balances
Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetarystatutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.
- 26 -

SCHEDULE " 1

VALDOSTA STATE UNlVERSlN SUMMARY BUDGETCOMPARISON AND SURPLUS ANALYSIS REPORT (NON-GMPBASIS)
BUDGET FUND YEAR ENDED JUNE 30.2010

REVENUES
State Appropriation State General Funds
Federal Funds Other Funds
Total Revenues
CARRY-OVER FROM PRIOR YEAR
Transfer from Resewed Fund Balance
Total Funds Available
EXPENDITURES
Excess of Funds Available over Expenditures
FUND BALANCE JULY 1
Reserved Unreserved
ADJUSTMENTS
Prior Year Payables/Expenditures Unreserved Fund Balance (Surplus) Returned
to Board of Regents - Univers~hSJ ystem Office Year EndedJune 30,2009
Early Return of Surplus in Current Fiscal Year Non-Mandatory Transfers Prlor Year Resewed Fund Balance Included in Funds Ava~lable
FUND BALANCEJUNE 30
SUMMARY OF FUND BALANCE
Reserved Department Sales and Services Indirect Cost Recoveries Technology Fees Restr~cted/SponsoredFunds Uncollectible Accounts Receivable Tuit~onCarry-Over lnventor~es
Total Reserved
Unreserved Surolus
Total Fund Balance

BUDGET

ACTUAL

SCHEDULE " 2
VARIANCE FAVORABLE (UNFAVORABLE)

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

Spacial Fundlng Initiauve State Approprlaeon state General Funds

VALDOSTA STATE UNIVERSITY STATEMENT OF PROGRAM REVENUES AND EXPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET
( N O N - W BASIS) BUDGET FUND YEAR ENDED JUNE 30,2010

Onanal !+pmpnabon

Ffnal Budget

Current Year Revenues

FundsAvailable Comparedto Budget

Pr~oYr ear Carry Over

Total Funds Ava~lable

Var~ance PBIUVB (Negative)

Teaching state Appmprlauon State General Funds Federal Funds American Rewvetyand RetnvestrnentAct of 2009 Federal Stab~llretionFunds Other Federal Funds Other Funds
Total Teachlng
- Grsnd Totels All Pmgrarna

$

53.216.330 00 $

42.130.486 04 0

42,130,48600 $

000 $

42,130,48600 $

0 00

2.767.580 00

8,506,075 00

8,506,075 OD

0 00

251,442 00

168.651 93

67.968.547.00

88,057,915 00

81,350,531 83

-- $ 123.952.457 00 8 138,925,918O i l $ 132,155,744 76 $

0 00 0 00 3.753.374 18
3.753.374 18 8

8.506.075 00 168.651 93
85.103.906 0 1

0 00 -82.790.07 -2,934,00899

135.909.11894 5 -3.016.79906

$ 123,960,645.00 $ 138,925,918 00 $ 132.155.744 76 $ 3.753.374 18 5

135,909,118 94 $ -3,016,79906

M u s l amouniswere prepared on a prescribed baslsof accounungthat demonstrates wrnpllance wuth budgetery stshrtas and regulaeonaof the State of Georaa, whlch sa comprehensive basls of aomunbngomarthan generally acceptedaccountlngpnnc~ples

ExpendlturesCornpared to Budget

Var~ance

P~~~tlve

Actual

(Neptlve)

Actual FunbsAvaIlable
Over/(Under) Expenditures

Prior Period Adysments

Gther Adjustments

Early Remlttanoe of Surplus

Program Fund
Balances

Transfers

Program Fund Balances

Reserve

Surplus

Fund Balance

8 506 075 W 16865193
8098851685

0 00 82 79007 704939815

0 00 0 00 411538916

OM) OM) OM)

0 00 0 00 721 806 64

0 00 0 00 000

000 OW 483719580

OW OW OW

OW 0 W 443818222

000 0 DO 39901358

0 00 0 W 483719580

Unexpendable Reserves U n c o l l e c t ~ b e h u n t sRece~vable lnventorles
Total Fund Balance

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VALDOSTA STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDEDJUNE 30.2010

SCHEDULE 4

Totals per Annual Supplement

Accruals June 30,2010 June 30,2009

Compensated Absences June 30,2010 June 30,2009

Adjustments

Shared Services on Jointly Staffed Personnel

Abraham Baldwin Agricultural College

Chason,

Michael

Kent,

Janet

Rivers,

Jewell

Williams,

Amy

Coastal College of Georgia

Schmaugh,

Nicolette

Georgia Perimeter College

Minchew,

Tessa

Georgia Southern University

Cunningham,

Teddi

Walker,

Edward

Kennesaw State University

Randall,

Christopher

South Georgia College

Eaves,

Michael

Hodge,

Tina

Reiman

R~chard

Stelzer,

Jiri

Stevens,

Terri

Templin,

Wyonne

Ward,

Charles

Universityof Georgia

Miller,

Maw

Unidentified Variance

SALARIES

TRAVEL

SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS

VALDOSTA STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30,2010

FINANCIAL STATEMENT FINDINGS AND OUESTION ED COSTS

COMMUNICATION OF INTERNAL CONTROL DEFICIENCIES

The auditor is required to communicate to management and those charged with governance control deficiencies identified during the course of the financial statement audit that, in the auditor's judgment, constitute significant deficiencies or material weakness.

A deficiency in internal controls exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the Valdosta State University'sfinancial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Any identified deficiencies in internal controls that we did not consider to be significant deficiencies and/or material weaknesses have been communicated to management and those charged with governance within a separate management letter dated November 19, 2010. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below:

FINANCIAL REPORTING Inadequate Controls over Financial Reporting Significant Deficiency Finding Control Number: FS-551-10-01

Condition:

The University's accounting procedures were insufficient to provide for adequate controls over the financial statements preparation process.

Criteria:

A system of internal control over financial reporting does not stop at the general ledger. Management is responsible for implementing a system of internal control over the preparation of financial statement prepared in accordance with generally accepted accounting principles (GAAP). Additionally, the University is required to annually submit GAAP basis financial statements for inclusion in the State of Georgia's Comprehensive Annual Financial Report (CAFR) and the State of Georgia's Single Audit Report.

Questioned Cost:

N/A

Information:

During the audit, the following deficiencies were noted in the University's GAAP basis financial statements:

1) Unrestricted Net Assets were overstated by $1,881,233 and Supplies and Other Services expense was understated by the same amount as a result of an attempt to correct a prior year misstatement related to Capital Assets. The entry, as posted, resulted in the financial statements being out of balance when presented for audit. An audit adjustment was proposed and posted to correct the error.

VALDOSTA STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30,2010

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINANCIAL REPORTING Inadequate Controls over Financial Reporting Significant Deficiency Finding Control Number: FS-551-10-01

2) Several errors were noted in the Notes to the Financial Statements requiring adjustment.

3) The Management's Discussion and Analysis required adjustment to agree to the Financial Statements.

Cause:

The University's management failed to adequately review the year-end financial statements to ensure that the statements as presented for audit were accurate and properly supported by underlying accounting records.

Effect:

Significant misstatements were included in the financial statements presented for audit. In addition, the lack of controls and monitoring could impact the reporting of the University's financial position and results of operations.

Recommendation:

The University should review the accounting controls and procedures currently in place, identify weaknesses, and design and implement procedures necessary to strengthen controls over the preparation of the financial statements.

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.