VALDOSTA STATE UNIVERSITY - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS EXHIBITS A STATEMENT OF NET ASSETS B STATEMENT OF REVENUES, EXPENSESAND 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 FUNDS AVAILABLE AND EXPENDITURESCOMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND 4 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE (NON-GAAP BASIS) BUDGET FUND 5 RECONCILIATIONOF SALARIES AND TRAVEL SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS VALDOSTA STATE UNIVERSITY - TABLE OF CONTENTS - SECTION Ill CURRENT YEAR FINDINGSAND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 666-2174 DEPARTMENOTF AUDITSAND ACCOUNTS 270 Washington Street, S.W., Suite 1-1 56 Atlanta, Georgia 30334-8400 November 2 8 , 2 0 1 1 Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia and Honorable Louis H. Levy, Interim 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 30,2011. 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 University are intended to present the financial position and changes in financial position and cash flows of only that portion of the business-type activities of the State of Georgia that is attributable to the transactions of Valdosta State University. They do not purport to, and do not, present fairly the financial position and changes in financial position and cash flows 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 30,2011, 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 5) 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 & e l lW. 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) (FTE) Fiscal Year 2 0 1 1 Fiscal Year 2 0 1 0 Fiscal Year 2 0 0 9 Overview of theFinancialrnternen& and Financial Analysis Valdosta State University is proud to present its financial statements for fiscal year 2011. 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 2 0 1 1 and fiscal year 2010. Statement of Net Assets The Statement of Net Assets presents the assets, liabilities, and net assets of the Universityas of the end of the fiscal year. The Statement of Net Assets is a point of time financial statement. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a fiscal snapshot of Valdosta State University. The Statement of Net Assets presents end-of-year data concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements. From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors. 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 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 Total Net Assets June 3 0 , 2 0 1 1 $ 106,759,759 2,700,858 3,547,278 27,701,379 $ 140.709.274 June 30,2010 $ 102,182,637 2,052,958 3,344,869 24,108,471 $ 131,688,935 The total assets of the institution increased by $6,999,182. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $1,698,707 in the category of Capital Assets, Net. The balance of the increase is mainly in cash and cash equivalents. The total liabilities for the year decreased by $2,021,157. The combination of the increase in total assets of $6,999,182 and the decrease in total liabilities of $2,021,157 yields an increase in total net assets of $9,020,339. The increase in total net assets is primarily in the category of Invested in Capital Assets, Net of Debt, in the amount of $4,577,122 as well as an additional increase in Unrestricted Net Assets. 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 3 0 , 2 0 1 1 June 30,2010 Operating Revenues Operating Expenses Operating Loss Nonoperating Revenuesand Expenses Income (Loss) Before Other Revenues, Expenses, Gains or Losses Other Revenues, Expenses, Gains or Losses Increase in Net Assets Net Assets at Beginningof Year, as Originally Reported Prior Year Adjustments Net Assets at Beginningof Year, Restated 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 Forthe Years Ended June 3 0 , 2 0 1 1 and June 3 0 , 2 0 1 0 June 3 0 , 2 0 1 1 June 3 0 , 2 0 1 0 Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Auxiliary Other Total Operating Revenue Nonoperating Revenue State Appropriations Federal Stimulus - Stabilization Funds Grants and Contracts Gifts Investment Income Other Total Nonoperating Revenue Capital Grants and Gifts State Other Total Capital Grants and Gifts Total Revenues Expenses (By Functional Classification) For the Years Ended June 3 0 , 2 0 1 1 and June 30,2010 June 3 0 , 2 0 1 1 June 3 0 , 2 0 1 0 Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises Total Operating Expenses $ 160,612,416 $ 148,920,301 Nonoperating Expenses Interest Expense (Capital Assets) Special Item Loss on Demolition of Building Total Expenses Operating revenues increased by $9,402,863 in fiscal year 2011. Although Tuition and Fees included a 17% increase, revenues decreased marginally in both Federal and state Grants and Contracts - Operating. The Auxiliary revenue increase of $1,776,660 is primarily due to an increase in Bookstore Sales related to the Tech Store, as well as Dining Services. Nonoperating revenues decreased for the year primarily due to an decrease of $8,506,075 in Federal Stimulus Stabilization Funds. The compensation and employee benefits category increased by $4,776,466 and primarily affected the Instruction and Auxiliary Services categories. The increase reflects the addition of faculty members to meet enrollment demands and the increased cost of health insurance for the employees of the institution. Utilities increased by $556,891 during the past year. The increase was primarily associated with the increases in utility rates across the state 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, Expenses and Changes in Net Assets. Cash Flows for the Years Ended June 3 0 , 2 0 1 1 and 2010, Condensed June 3 0 , 2 0 1 1 June 30,2010 Cash Provided(Used) B y Operating Activities Noncapital FinancingActivities Capital and Related FinancingActivities InvestingActivities $ 41,867,066 69,401,291 -20,958,964 239,916 $ 47,487,688 70,718,511 -18,055,838 206,573 Net Change in Cash Cash, Beginningof Year Cash, End of Year Capita/ Assets The University had several significant capital asset additions for facilities in fiscal year 2011. The Odum Library and Communication Arts Building renovations were completed and construction of the Jennett Lecture Hall was completed and opened during fiscal year 2011. Valdosta State University also completed major renovations to Nevins Hall in fiscal year 2011. The $4.0 million for this project was funded by the Georgia State Financing and Investment Commission (GSFIC). Other capital projects funded by the GSFIC included $1.0 million for mechanical upgrades in the Education Center. For additional information concerning Capital Assets, see Notes 1,6,8, and 1 0 in the Notes to the Financial Statements. Long- Term Liabilities Valdosta State University had Long-Term Liabilities of $220,148,216, of which $4,733,488 was reflected as current liability at June 30, 2011. 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. 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. Louis H. Levy, Interim President Valdosta State University BASIC FINANCIAL STATEMENTS VALDOSTA STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30,2011 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Receivables - Federal Financial Assistance Receivables - Other Inventories (Note 4) Prepaid Items Total Current Assets Noncurrent Assets Noncurrent Cash Investments (ExternallyRestricted) Investments Notes Receivable Capital Assets, Net (Note 6) Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deposits Deferred Revenue (Note 7) Other Liabilities Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences Total Current Liabilities Noncurrent Liabilities Lease Purchase Obligations Deferred Revenue Compensated Absences Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in Capital Assets. Net of Related Debt Restricted for: Nonexpendable Expendable Unrestricted Total Net Assets The notes to the financial statements are an integral part of this statement. EXHIBIT "A" VALDOSTA STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEAR ENDEDJUNE 30.2011 OPERATING REVENUES Student Tuition and Fees Less: ScholarshipAllowances Grants and Contracts Federal Federal Stimulus State Other Sales and Services Rents and Royalties Auxil~aryEnterprises Residence Halls Bookstore Food Servlces ParhingKransportat~on Health Servlces IntercollegiateAthletics Other Organizations Other Operating Revenues Total Operatlng Revenues QPERATINS EXPENSES Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplles and Other Services Depreciation Total Operatlng Expenses Operating lncome [Loss) NONOPERATING REVENUES (EXPENSES) State Appropriations Grants and Contracts Federal Federal Stimulus State Other G~fls Investment lncome Interest Expense Other NonoperatingRevenues Net NonoperatingRevenues lncome (Loss) Before Other Revenues. Expenses. Galns, or Losses Capital Grants and Gifts State Other Total Capital Grants and Gifts Speclal Item (See Note 14) Total Other Revenues. Expenses. Gains or Losses Increase (Decrease)In Net Assets Net Assets - BeBnnlngof Year Net Assets - End of Year The notes to the financial statements are an Integralpart of t h ~ statement. VALDOSTA STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDEDJUNE 3 0 . 2 0 1 1 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services Paymentsto Suppliers Paymentsto Employees Paymentsfor Scholarships and Fellowships Loans Issued t o Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Receipts (Payments) Net Cash Provided (Used) by OperatingActivities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Receivedfor Other than Capital Purposes Other Nonoperating Receipts Net Cash Flows Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Purchases of Capital Assets Principal Paid on Capital Debt and Leases Interest Paid on Capital Debt and Leases Net Cash Provided (Used) by Capital and Related FinancingActivities CASH FLOWS FROM INVESTING ACTIVITIES lnterest on lnvestments Purchase of Investments Net Cash Provided (Used) by Investing Activit~es Net Increase (Decrease) In Cash Cash and Cash Equivalents - Beginning of Year Cash and Cash Equivalents - End of Year EXHIBIT "C" VALDOSTA STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDEDJUNE 30.2011 RECONCILIATIONOF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating lncome (Loss) Adjustments to ReconcileOperatinglncome (Loss)to Net Cash Provided(Used) by OperatingActivities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Inventories Prepaid Items Notes Receivable. Net Accounts Payable Deferred Revenue Other Liabilities Compensated Absences Net Cash Provlded (Used) by OperatingActivities NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of Investments Recognizedas a Component of lnterest lncome Special Item-Demolitionof Building Interest on Capital Debt Forgiven by VSU Auxiliary Real Estate Foundation, LLC Principal on Capital Debt Forgiven by VSU Auxiliary Real Estate Foundation, LLC Gift of Capital Assets ReduclngProceeds of Capital Grants and Gifts EXHIBIT "C" The notes to the financial statements are an integral part of this statement. - 5- VALDOSTA STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011 EXHIBIT "Dl' Note 1: Summary of SignifiwntAccounting 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 Renortins! 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 affiliated organizations of the State. See Note 17 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 to 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. 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 intraUniversity transactions have been eliminated. The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University has elected to not apply FASB pronouncements issued after the applicable date. VALDOSTA STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011 EXHIBIT "D" Cash and Cash Equivalents Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. Investments lnvestments include financial instruments with terms in excess of 13 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 lnventories are valued at cost usingthe average cost basis. Noncurrent Cash and Investments Cash and investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets. 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, 20 to 25 years for infrastructure and land improvements, 1 0 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements. To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financingand Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged. VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "D" 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, 2011, GSFIC did not transfer any capital additions to Valdosta State University. Deposits Deposits represent good faith deposits from students to reserve housing assignments in University residence halls. 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 $3,466,285 as of July 1, 2010. For fiscal year 2011, $2,394,895 was earned in compensated absences and employees were paid $2,528,370, for a net decrease of $133,475. The ending balance as of June 3 0 , 2 0 1 1 in accrued liability for compensated absences was $3,332,810. 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. Restrided net assefs - 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. Restrided 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. VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBlT "D" Expendable Restricted Net Assets include the following: Restricted - E&G and Other Organized Activities $ Institutional Loans Term Endowments Quasi-Endowments 2,319,500 347,685 769,355 Total Restricted Expendable $ 3,547,278 Unrestrictednetasse&: 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 $256,196.81. 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 the State Treasurer. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. Unrestricted Net Assets includes the following items which are quasi-restricted by management. R & R Reserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted Total Unrestricted Net Assets $ 27,701,379 When an expense is incurred that can be paid using either restricted or unrestricted resources, the University's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources. Income Taxes Valdosta State University, as a political subdivision of the State of Georgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended. Classification of Revenues and 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. 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, Repotting Cash Flows of Pmprietaty and Nonexpendable Tmst Funds and GovernmentalEntities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income. VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011 EXHIBIT "DM Operating Expenses: Operating expense includes activities that have the characteristics of exchange transactions. Nonoperating Expenses: Nonoperating expense includes activities that have the characteristics of nonexchange transactions, 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. Note 2: Deposits and I nvestments 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 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. VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011 At June 30, 2011, the carrying value of deposits was $25,919,787 and the bank balance was $28,156,529. Of the University's deposits, $28,156,529 was uninsured. Of these uninsured deposits, $28,129,353 was 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, 2011, the carrying value of the University's investments was $12,765,798, 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 the State Treasurer investment pools as follows: lnvestment Pools Board of Regents Diversified Fund Office of the State Treasurer Georgia Extended Asset Pool Total lnvestrnents $ 12,765,798 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 - System Office (oversight unit). This audit can be obtained from the Georgia Department of Audits - Education Audit Division or on their web site at http://www.audits.aa.aov. The Georgia Extended Asset Pool, managed by the Office of the State Treasurer, 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 $2.00 at June 30, 2011. The Georgia Extended Asset Pool is an AAAf rated investment pool by Standard and Poor's. The effective duration for the fund is .63 years. 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 4.31 years. Of the University's total investment of $6,136,489 in the Diversified Fund, $1,986,901 is invested in debt securities. VALDOSTA STATE UNIVERSIlY NOTES T O THE FINANCIAL STATEMENTS JUNE 30, 2011 Note 3: Accounts Receivable Accounts receivable consisted of the following at June 3 0 , 2011: Student Tuition and Fees Auxiliary Enterprisesand Other OperatingActivities Federal FinancialAssistance Georgia State Financingand Investment Commission Due from Affiliated Organizations Other $ 406,420 243,370 1,270,383 97,004 1,709,723 1,780,394 EXHIBIT "D" Less Allowance for Doubtful Accounts Net Accounts Receivable $ 5,376,580 Note 4: Inventvries lnventories consisted of the following at June 3 0 , 2011: Bookstore Other Total lnventories Note 5: Notes/Loans Receivable At June 3 0 , 2 0 1 1 , Note/Loans Receivable were comprised of institutional loans, with no allowance for uncollectible loans. VALDOSTA STATE UNIVERSrPl NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011 EXHIBIT "D" Note 6: Capital Assets Following are the changes in capital assets for the year ended June 30, 2011: Beginning Balance July 1,2010 Additions Reductions Ending Balance June 30,2011 Capital Assets, Not Being Depreciated: Land Capitalized Collections Construction Work-In-Progress $ 3,662,832$ 39.187 25,920 8,000 $ 3,688,752 47,187 Total Capital Assets, Not Being Depreciated $ 12,741,985$ 14,884,314$ 12,625,951 $ 15,000,348 Capital Assets. Being Depreciated: Building and Building Improvements Facilitiesand Other Improvements Equipment Capital Leases Library Collections $ 132,320.408 $ 9,377.190 18.697.615 220,246,695 24,239,071 11,970,211 $ 284,275 1,202,282 208.712 1,350,182 1.381.158 $ 29.915 772.166 42.363 143,949 142,909,461 9,631,550 19,127,731 220,413,044 25.445.304 Total Assets Being Depreciated Less: Accumulated Depreciation: Building and Building Improvements Facilitiesand Other Improvements Equipment Capital Leases Library Collections $ 45,002,415 $ 4,173,952 13,381,647 14,487,054 18,701,738 3.717.547 $ 368.207 1,317,643 7,876,098 1,175,114 262,485 $ 29,915 768,074 44,419 143,949 48,457,477 4,512.244 13,931,216 22.318.733 19,732.903 Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net $ 309,134,173$ 561,053 $ 1.120.709 $ 308,574,517 Capital Assets, Net Note 7: Deferred Revenue Current deferred revenue consisted of the following at June 30, 2011: Prepaid Tuition and Fees Other Deferred Revenue Total Deferred Revenue Noncurrent deferred revenue was $906,523 at June 30, 2011. VALDOSTA STATE UNIVERSIlY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "D" Note 8: Long- Term Liabilities Long-Term liability activity for the year ended June 30, 2 0 1 1was as follows: Be@nn i ng Balance July 1.2010 Additions Reductions Ending Balance June 30,2011 Current Portion Leases Lease Obligations $ 219,129,235 $ 208,712 $ 2,522,541$ 216,815,406$ 2,922,787 Other Liabilities Notes and Loans 15,265 15,265 0 Total Total LongTerm Obligations $ 222,610,785$ Note 9: Signifiwnt Commitmenis 2.603.607 $ - - 5,066,176 $ 220.148.216 $ 4,733.488 The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $12,022,098 as of June 30, 2011. This amount is not reflected in the accompanying basic financial statements. Note 10: Lease Obligations Valdosta State University is obligated under various operating leases for the use of real property (land, buildings, and office facilities) and equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of real property. CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2012 and 2039. Expenditures for fiscal year 2 0 1 1 were $9.4 million of which $7.4 million represented interest. Total principal paid on capital leases was $2.0 million for the fiscal year ended June 30, 2011. Additionally the VSU Auxiliary Real Estate Foundation, LLC forgave VSU capital debt principal and interest during fiscal year 2 0 1 1 of $488,460 and $2,055,998, respectively. Interest 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 30,2011: Equipment Buildings Total Assets Held Under Capital Lease 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 University had ten capital building leases with related entities in the current fiscal year, In fiscal year 2011, Valdosta State University entered into no new capital leases with related entities. VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBll "D" Valdosta State University has nine capital building leases with VSU Auxiliary Real Estate Foundation, LLC, as follows: Georgia and Reade residence halls (combined) for $30,419,725 at an average coupon rate of 4.150% with an outstanding liability at June 30,2011 of $30,918,987; Student Union for $60,747,911 at an average coupon rate of 4.514% with an outstanding liability at June 30, 2 0 1 1 of $59,739,108; Hopper residence hall with dining services, campus mail and office space for $27,484,345 at an average coupon rate of 4.554% with an outstanding liability at June 30, 2 0 1 1 of $27,297,700; Student Health Center for $12,221,729 at an average coupon rate of 4.649% with an outstanding liability at June 30, 2 0 1 1 of $12,145,048; Oak Street Parking Deck for $24,869,880 at an average coupon rate of 4.649% with an outstanding liability at June 30, 2 0 1 1 of $25,073,126; Sustella Parking Deck for $21,468,631, at an average coupon rate of 4.649% with an outstanding liability at June 30, 2 0 1 1 of $21,644,084; Patterson residence hall for $10,399,786 at a varying interest rate with an outstanding liability at June 30, 2 0 1 1 of $9,920,041; Lowndes residence hall for $7,116,694 at a varying interest rate with an outstanding liability at June 30, 2 0 1 1 of $6,879,925; Centennial residence hall for $19,285,471 at a varying interest rate with an outstanding liability at June 30, 2 0 1 1 of $17,287,585. Valdosta State University has one capital building lease with Valdosta State University Foundation, LLC, as follows: Athletic Field House for $5,994,383 at an average coupon rate of 4.55% with an outstanding liability at June 30, 2 0 1 1of $5,638,864. Valdosta State University entered into six new equipment capital leases during fiscal year 2 0 1 1 in the amount of $208,712. The outstanding liability at June 30, 2 0 1 1 on these new equipment leases is $170,996. All but one of the new equipment leases are with third parties; the University leases electronic display boards located in the PE Complex from the Valdosta State University Foundation, LLC, a related party. Valdosta State University also has various capital leases for equipment from prior fiscal years with an outstanding balance at June 3 0 , 2 0 1 1 in the amount of $99,942. 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 1 through 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. 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 30,2011, were as follows: VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011 EXHIBIT "DM Year EndingJune 30: 2012 2013 2014 2015 2016 2017 - 2021 2022 - 2026 2027 - 2031 2032 - 2036 2037 - 2039 Total Minimum Lease Payments Less: Interest Principal Outstanding Real Property and Equipment Capital Operating Leases Leases Valdosta State University's fiscal year 2011 expense for rental of real property and equipment under operating leases was $24,603. Note 11: RetirementPtans Valdosta State University participates in various retirement plans administered by the State of Georgia under two major retirement systems: Employees' Retirement System of Georgia (ERS System) and Teachers Retirement System of Georgia. These two systems issue separate publicly available financial reports that include the applicable financial statements and required supplementary information. The reports may be obtained from the respective system offices. The significant retirement plans that Valdosta State University participates in are described below. More detailed information can be found in the plan agreements and related legislation. Each plan, including benefit and contribution provisions, was established and can be amended by State law. Employees' Retirement System of GeorgSa The ERS System is comprised of individual retirement systems and plans covering substantially all employees of the State of Georgia except for teachers and other employees covered by the Teachers Retirement System of Georgia. One of the ERS System plans, the Employees' Retirement System of Georgia (ERS), is a cost-sharing multipleemployer defined benefit pension plan that was established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees and has the powers and privileges of a corporation. ERS acts pursuant to statutory direction and guidelines, which may be amended prospectively for new hires but for existing members and beneficiaries may be amended in some aspects only subject to potential application of certain constitutional restraints against impairment of contract. VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011 EXHIBIT "D" On November 20, 1997, the Board created the Supplemental Retirement Benefit Plan (SRBP-ERS) of ERS. SRBP-ERS 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 the SRBP-ERS is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC Section 415. Beginning January 1,1998, all members and retired former members in ERS are eligible to participate in the SRBP-ERS whenever their benefits under ERS exceed the limitation on benefits imposed by IRC Section 415. The benefit structure of ERS is established by the Board of Trustees under statutory guidelines. Unless the employee elects 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. Members 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 the old plan, new plan, and GSEPS, a member may retire and receive normal retirement benefits after completion of 1 0 years of creditable service and attainment of age 60 or 3 0 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60. Retirement benefits paid to members are based upon a formula adopted by the Board of Trustees for such purpose. The formula considers the monthly average of the member's highest 24 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 may be made to members' benefits provided the members were hired prior to July 1,2009. 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. Member contribution rates are set by law. Member contributions under the old plan are 4%of annual compensation up to $4,200 plus 6% of annual compensation in excess of $4,200. Under the old plan, Valdosta State University pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these Valdosta State University contributions are included in the members' accounts for refund purposes and are used in the computation of the members' earnable compensation for the purpose of computing retirement benefits. Member contributions under the new plan and GSEPS are 1.25% of annual compensation. Valdosta State University is required to contribute at a specified percentage of active member payroll established by the Board of Trustees determined annually in accordance with actuarial valuation and minimum funding standards as provided by law. These Valdosta State University contributions are not at any time refundable to the member or his/her beneficiary. Employer contributions required for fiscal year 2 0 1 1 were based on the June 30, 2008 actuarial valuation for the old and new plans and were set by the Board of Trustees on September 18, 2008 for GSEPS as follows: Old Plan* New Plan GSEPS 10.41% 10.41% 6.54% * 5.66% exclusive of contributions paid by the employer on behalf of old plan members VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2011 EXHIBIT "D" Members become vested after 1 0 years of service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions; the member forfeits all rights to retirement benefits. Teachers Retirement System of Georgia The Teachers Retirement System of Georgia (TRS) is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS. On October 25, 1996, the Board created the Supplemental Retirement Benefit Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1,1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits. TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 3 0 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 2 5 years of creditable service. Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 4 0 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 3 0 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available. TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 1 0 years of service. If a member terminates with less than 1 0 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2 0 1 1 were 5.53% of annual salary. Employer contributions required for fiscal year 2 0 1 1 were 10.28% of annual salary as required by the June 30, 2009 actuarial valuation. VALDOSTA STATE UNIVERSrPl NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "D" The following table summarizes the Valdosta State University contributions by defined benefit plan for the years ending June 30,2011, June 30, 2010, and June 30, 2009 (dollars in thousands): Fiscal Year ERS Required Percentage Contribution Contributed TRS Required Percentage Contribution Contributed 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. 47-21-1et.seq. and 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 2011, 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 $2,362,879 (9.24%) and $1,278,616 (5%),respectively. AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices. Georgia Defined Contribution Plan Plan Description Valdosta State University participates in the Georgia Defined Contribution Plan (GDCP) which is a single-employer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia. VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBrr "D" 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 2 0 1 1 amounted to $136,628 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 three different selfinsured healthcare plan options. A PPO/PPO Consumer healthcare plan was offered for the entire reporting period, and effective 01/01/2011, a HSA/High Deductible PPO and a HMO are also offered on a self-insured basis. The HSA/High Deductible PPO and HMO were previously insured through Blue Cross Blue Shield of Georgia. Valdosta State University and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these plans are considered to be a self-sustaining risk fund. 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 self-insured healthcare plan products. In addition to the self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HMO healthcare plan option is also offered to System employees through Kaiser. The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. Valdosta State University, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment. VALDOSTA STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "D" A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund. Note 13: Contingencies Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures 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, 2011. Note 14: Special Items A portion of Converse Hall, a dormitory on campus, was demolished during fiscal year 2 0 1 1to make room for a new building. The portion of the building being demolished was of such a magnitude that the decision was made to delete a portion of the asset. This deletion resulted in a loss of $1,065,449. Note 15: Post-Employment BenefiB 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 University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits. Organizational units of the Board of Regents of the University System of Georgia 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 College pays the employer portion of health insurance for its eligible retirees based on rates that are established annually by the Board of Regentsfor the upcoming plan year. For the 2010 and 2 0 1 1 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 30,2011 EXHIBIT "D" As of June 30, 2011, there were 505 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2011, Valdosta State University recognized as incurred $2,015,464 of expenditures, which was net of $1,067,959 of participant contributions. Note 16: Natural Classificationswith Functional Classifiwtions The University's operating expenses by functional classification for fiscal year 2011are 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 Natural Classification lnst~tut~onal 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 VALDOSTA STATE UNIVERSIlY NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011 EXHIBIT "D" Note 17: AMIiated Organizations Valdosta State University Foundation, Inc., and Valdosta State University 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 determined Component Units of the State of Georgia, as required by GAS6 Statement No. 39 should not be assessed in relation to their significance to Valdosta State University, but instead based on 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. The Valdosta State University Auxiliary Services Real Estate Foundation, Inc. has been determined as being significant to the State of Georgia for the year ended June 30, 2011, 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 units issue separate audited financial statements that can be obtained from the Board of Regents of the University System of Georgia. (This page left intentionally blank) SUPPLEMENTARY INFORMATION VALDOSTA STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30,2011 ASSETS Cash and Cash Equivalents Investments Accounts Receivable Federal Financial Assrstance Other Prepaid Expenditures lnventories Total Assets LIABILITIESAND FUND EOUITY Liabil~tres Accrued Payroll 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 lnventories Unreserved Surplus Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "1" Actual amounts were prepared on a prescribed basis of accountingthat demonstrates compliance with budgetary statutes and regulations of the State of Georgia, whrch is a comprehensive basis of accounting other than generally accepted accounting principles. -26- VALWSTA STATE UNIVERSIlY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NONGAAP BASIS) BUDGET FUND YEAR ENDEDJUNE 30.2011 SCHEDULE '2" REVENUES State Approprlatlon State General Funds Other Funds Total Revenues ADJUSTMENTSAND PROGRAM TRANSFERS CARRY-OVER FROM PRIOR YEARS Transfers from Reserved Fund Balance Total Funds Available EXPENDITURES Teaching Excess of Funds Avallable over Expenditures FUND BALANCE JULY 1 Reserved Unreserved ADJUSTMENTS Prior Year Payables/Expenditure$ Prlor Year Rece~vables/Revenues Unreserved Fund Balance (Surplus) Returned to Board of Regents - University System Office Year Ended June 30,2010 Early Return of Surplus in Current Fiscal Year Prlor Year R e s e ~ e dFund Balance Included in Funds Avallable FUND BALANCE JUNE 3Q BUDGET ACTUAL VARIANCE - FAVORABLE (UNFAVORABLE) SUMMARY OF FUND BALANCF Resewed Department Sales and Sewlces Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carryaver l nventories Total Resewed UnreSe~ed Surplus Total Fund Balance Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance wlth budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. VALDOSTA STATE UNIVERSITY STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE (NONGAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30.2011 Teaching State Appropriation State General Funds Federal Funds American Recovery and Reinvestment Act Federal Stabilization Funds Other Funds Total Teachtng Original Appropriation Amended Appropr~at~on Ftnal Budget Current Year Revenues Actual amounts were prepared on a prescribed basls of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. SCHEDULE "3" Funds Ava~lableCompared to Budget Prior Year Adjustments and Total Carryaver Program Transfers Funds Available varlance Positive (Negattve) Expenditures Compared to Budget Actual Variance Positive (Negauve) Excess (Deficiency) of Funds Ava~lable Over/(Under) Expenditures $ 4.438.182.22$ P -- 724.884.00 $ 144.255.151.643 238.579.64 $ 139.189.931.51$ I - 4,826,640.49$ 5,065,220.13 VALDOSTA STATE UNIVERSITY STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE [NONGAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30.2011 Teachlng State Appropr~ation State General Funds Federal Funds Amerlcan Recovery and Reinvestment Act Federal Stabilization Funds Other Funds Total Teaching Total OperatingActlvily Pr~oYr ear Reserves Not Available for Expenditure Inventories UncollectlbleAccounts Rece~vable Beg~nn~nFgund Balance/(Dehclt) July 1 Fund Balance Carr~edOver from Prlor Perlod as Funds Available Return of FlscalYear 2010 Surplus Prlor Perlod Adjustments Budget unlt ~ o t a l s Actual amounts were prepared on a prescribedbasis of accountingthat demonstrates compliance with budgetary statutes and regulationsof the State of Georgia. which is a comprehensive basis of accountingother than generally accepted accounting principles. other Adjustments Early Return F~scaYl ear 2 0 1 1 Surplus Excess (Defic~ency) of Funds Available Over/(Under) Expenditures Ending Fund Balance/(Deficit) June 3 0 Analysis of Endlng Fund Balance Reserved Surplus/(Deficit) Total Summaryof Ending Fund Balance Reserved Department Sales and Services Indirect Cost Recover~es Technology Fees Restricted/Sponsored Funds Uncollect~bleAccounts Receivable Tuition Carryover lnventorles Unreserved Surplus Total Ending Fund Balance - June 30 (This page left intentionally blank) VALDOSTA STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30,2011 SCHEDULE "5" Totals per Annual Supplement Accruals June 30,2011 June 30,2010 Compensated Absences June 3 0 . 2 0 1 1 June 30,2010 Adjustments Shared Services on Jointly Staffed Personnel Abraham Baldwin Agricultural College Chason, Michael Rivers, Jewell Williams, Amy College of Coastal Georgia Aguado, David Mortier, Jane Georgia Institute of Technology Hansard. La r ly Georgia Southwestern State University Siders, Janet Kennesaw State University Randall, Christopher South Georgia College Cano, Israel Cano, Lilia Eaves. Michael Halter. Julie Manganaro, Debb~e Smith, Daniel Stelzer, Jiri Stevens, Terri Templin, Wyonne Ward. Charles University of Georgia Graham, Suzanne Universityof Georgia Libraries Miller, Mary Unidentified Variance SALARIES TRAVEL $ 70,155,782 $ 835,016 SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGSAND QUESTIONEDCOSTS VALDOSTA STATE UNIVERSITY AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONEDCOSTS YEAR ENDED JUNE 30,2011 PRlOR YEAR FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-551-10-01 Previously Reported Corrective Action Implemented PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION Ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS VALDOSTA STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 3 0 , 2 0 1 1 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.