STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS I LANIER TECHNICAL COLLEGE OAKWOOD, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Russell W. Hinton State Auditor LANIER TECHNICAL COLLEGE - 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 2 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 3 C STATEMENT OF CASH FLOWS 4 D NOTES TO THE FINANCIAL STATEMENTS 5 SUPPLEMENTARY INFORMATION SCHEDULES 1 BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND 18 2 BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND 19 3 RECONCILIATION OF SALARIES AND TRAVEL 21 SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS LANIER TECHNICAL COLLEGE - TABLE OF CONTENTS - SECTION III FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 October 20, 2006 Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the State Board of Technical and Adult Education Members of the Local Board of Directors and Honorable Michael D. Moye, President Lanier Technical College 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 Lanier Technical College, an organizational unit of the State of Georgia, as of and for the year ended June 30, 2006. These financial statements are the responsibility of the Technical College's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1, the financial statements ofLanier Technical College 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 Lanier Technical College. They do not purport to, and do not, present fairly the financial position and changes in financial position and cash flows ofthe State of Georgia, in conformity with accounting principles generally accepted in the United States of America. 06ARL-2TC In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Lanier Technical College as of June 30, 2006, and its changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Management's Discussion and Analysis is not a required part ofthe basic financial statements but is supplementary information required by accounting principles generally accepted in the United States ofAmerica. We have applied certain limited procedures, which consisted principally ofinquiries of management regarding the methods of measurement and presentation of this 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 Lanier Technical College taken as a whole. The accompanying supplementary information (Schedules 1 through 3) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Respectfully submitted, RWH:gp 06ARL-2TC ell W. Hinton, CPA, CGFM State Auditor REQUIRED SUPPLEMENTARY INFORMATION Lanier Technical College Management's Discussion and Analysis The following is management's discussion and analysis of Lanier Technical College's financial performance for the fiscal year ending June 30, 2006 with comparative data from fiscal year ending June 30, 2005. This discussion has been prepared by and is the responsibility of management. Overview ofthe Financial Statements and Financial Analysis This annual report consists of a series of financial statements prepared in accordance with the rules and regulations established by the Governmental Accounting Standards Board. 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. The Statement of Net Assets used in conjunction with the Statement of Revenues, Expenses and Changes in Net Assets contains information concerning the College's finances and activities as a whole and assists with providing an answer to the question "Is the College as a whole better or worse off as a result of the year's activities?" These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting method used by corporations and other private sector companies. All revenues and assets are recognized when the service is provided and expenses and liabilities are recognized when others provide the goods or service, regardless of when cash is exchanged. The Statement of Cash Flows is a valuable tool when evaluating the ability of the College to meet financial obligations as they mature. This statement presents information related to cash inflows and outflows summarized by operating, noncapital financing, capital and related financing and investing activities. This discussion and analysis of the College's financial statements provides an overview of its financial activities for the year. Statement ofNet Assets The purpose of the Statement of Net Assets is to present to the users of the financial statements a fiscal snapshot of the Technical College at a specific point in time. The statement presents the assets, liabilities and net assets of the College as of the end of the fiscal year. Assets and liabilities are reported as current and noncurrent and the difference between assets and liabilities is reported as net assets. Over a period of time the increases and decreases reflected in the Statement of Net Assets, when considered with other nonfinancial facts such as enrollment levels and the condition of the facilities, can provide a measure to aid in determining whether the Technical College's financial position is improving or deteriorating. Net assets are divided into two major categories. The first category, invested in capital assets, net of debt, provides information concerning the College's equity in property, plant and - 1- equipment owned by the College. The final category is unrestricted net assets, which are available for expenditure by the College for any lawful purpose deemed necessary to operate the College. Statement of Net Assets (thousands of dollars) June 30, 2006 June 30, 2005 Assets Current Assets Capital Assets, Net $ 1,019 12,188 $ 1,117 11,189 Total Assets $_ _1_3,2_0_7 $_ _1_2,_30_6 Liabilities Current Liabilities Noncurrent Liabilities $ 755 $ 740 253 242 Total Liabilities $_ _.cc.,1,=.-00~8 $_ _----"-'98'-=2 Net Assets Invested in Capital Assets, Net of Debt Unrestricted $ 12,188 11 $ 11,189 135 Total Net Assets $==1==-2-==19==9 $==1==-1,==32==4 The total assets of the College increased by approximately $901,000 from the prior year. This increase can be attributed to an increase of close to $999,000 in net capital assets for the purchase of equipment and building renovations. Offsetting this increase in net capital assets, current assets decreased around $98,000. This overall increase in assets follows the institutional philosophy to use available resources to acquire and improve all areas of the College to better serve the instruction and public service missions of the College. Total liabilities for the fiscal year increased by approximately $26,000. The primary reason for the increase was in current liabilities. Deferred revenue increased nearly $40,000 and the current portion of compensated absences increased nearly $19,000. Accounts payable and funds held for others, also in the current liability totals, decreased close to $44,000. In the noncurrent liabilities, compensated absences increased roughly $11,000. The combination of the increase in total assets of approximately $901,000 and the increase in total liabilities of approximately $26,000 yields an increase in total net assets of close to $875,000. Statement ofRevenues, Expenses and Changes in Net Assets The purpose of the Statement of Revenues, Expenses and Changes in Net Assets is to present the revenues received by the College, both operating and nonoperating, and the expenses incurred by the College, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the College during the fiscal year. Changes in total net assets as presented - ii - on the Statement of Net Assets are based on the information presented in the Statement of Revenues, Expenses and Changes in Net Assets. Operating revenues are received for providing goods and/or services to various customers and constituencies of the College. Operating expenses are those expenses paid to acquire or produce the goods and/or services provided in return for the operating revenues, and to carry out the mission of the College. Therefore, nonoperating revenue is received when no goods or services are provided in exchange for the revenue. With the issuance of Statement No. 35, new guidelines were established by the Governmental Accounting Standards Board (GASB), which changed the classifications of state appropriations and gifts from operating to nonoperating revenue. This change may result in an operating deficit that is offset by a nonoperating surplus. Statement of Revenues, Expenses and Changes in Net Assets (Thousands of dollars) June 30. 2006 June 30. 2005 Operating Revenues Operating Expenses $ 6,293 17,136 $ 5,462 16.205 Operating Gain/Loss $ -10,843 $ -10,743 Nonoperating Revenues and Expenses 11.508 10.222 Income (Loss) Before Other Revenues, Expenses, Gains or Losses $ 665 $ -521 Other Revenues, Expenses, Gains or Losses 210 558 Increase (Decrease) in Net Assets $ 875 $ 37 Net Assets at Beginning of Year 11,324 11,287 Net Assets at End of Year $ 12,199 $ 11,324 The Statement of Revenues, Expenses and Changes in Net Assets reflects a positive year with an increase in the net assets at the end of the year. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are as follows: - 111 - Revenue By Source (thousands of dollars) For The Years Ended June 30, 2006 and June 30, 2005 June 30, 2006 June 30, 2005 Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Rents and Royalties Other $ 3,875 1,220 1,192 1 5 $ 3,396 1,128 928 1 9 Total Operating Revenue $ 6,293 $ 5,462 Nonoperating Revenue State Appropriations Federal Grants and Contracts Nonoperating Gifts Investment Income Other $ 9,862 1,232 308 21 135 $ 8,515 1,295 88 22 345 Total Nonoperating Revenue $ 11,558 $ 10,265 Capital Grants and Gifts State/Local $ 210 $ 558 Total Revenues $ 18!061 $ 16!285 Expenses (thousands of dollars) For The Years Ended June 30, 2006 and June 30, 2005 June 30, 2006 June 30, 2005 Operating Expenses Instruction $ 17,136 $ 16,205 Nonoperating Expenses Other 50 43 Total Expenses $=====1===7="=1==8==6 $==1==6='=2===4==8 The sources of operating revenue for the College are tuition and fees, grants and contracts, live work services, and educational activities. The increase in operating revenue of approximately $831,000 is directly related to an increase in tuition and fees and sales and service income for fiscal year 2006. - lV - Tuition and Fees increased by nearly $479,000. This increase is directly related to an increase in the amount charged per credit hour for tuition from $28 to $31. In addition, the college began charging a new fee, Instructional/Technology fee, during the year also. The fee was $35 per quarter for all credit students. Also in operating revenue, Sales and Service income increased just over $264,000 between 2005 and 2006. This increase was due to additional income generated through the Economic Development Department at Lanier Technical College. Utilities increased by almost $52,000 during the past year. The College completed a new building at the end of June 2005 which would cause utilities to increase during fiscal year 2006. However, the primary reason for the increased costs was an increase in the rates charged by the utility companies. Personal Services expenses increased by approximately $968,000. This increase reflects an annual pay raise for College employees of approximately 2% with the associated fringe benefits. It also reflects an increased cost of 1.1 % to the College for health insurance benefits for staff. Depreciation expense decreased by more than $72,000 between fiscal year 2005 and 2006. Several pieces of equipment became fully depreciated during 2005 or early in 2006 which resulted in the lower depreciation amounts. Under nonoperating revenues (expenses) state appropnat10ns increased by approximately $1,347,000. The College received $927,000 in state appropriations to establish the Center for Innovative Manufacturing Excellence. The remaining increase was for the mandatory cost increases of various expense categories. Gifts also increased by close to $220,000 during fiscal year 2006. The increase was due in part to donations used to purchase equipment for the Dawson satellite. Offsetting the increases in state appropriations and gifts, nonoperating revenues from grants and contracts decreased by around $273,000. Bond revenue, included in the grants and contracts revenue, decreased during this fiscal year. Statement of Cash Flows The purpose of the Statement of Cash Flows is to provide relevant information concerning the cash receipts and payments of the College during the year. It also provides information concerning the College's ability to generate future cash flows and to meet its obligations as they come due. The statement is divided into five sections. The first section reports on the operating cash flows and shows the net cash used by the operating activities of the College. The second section reflects cash flows from noncapital financing activities. The third section deals with cash flows from capital and related financing activities, which reflects the cash used for the acquisition and construction of capital related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The final section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets. -V- Statement of Cash Flows (thousands of dollars) Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities Net Change in Cash Cash, Beginning of Year Cash, End of Year June 30, 2006 $ -10,595 11,650 -1,364 21 $ -288 485 $ 197 June 30, 2005 $ -10,284 10,027 -186 22 $ -421 906 $ 485 Capital Assets The College had one significant capital asset addition to facilities in the fiscal year under review. The 500 building on the main campus in Oakwood, Georgia was renovated for nearly $586,000 to house the Center for Innovative Manufacturing Excellence. This renovation was funded primarily with state appropriations dollars. Capital asset purchases funded by the Georgia State Financing and Investment Commission (GSFIC) included around $182,000. Projected funding by the GSFIC for fiscal year 2007 is expected to increase in fiscal year 2007. The additional funding will be for instructional equipment and equipment for the Center for Innovative Manufacturing Excellence. Long-Term Debt Lanier Technical College had a total Long-Term Debt of $562,370.32 of which $309,365.43 was reflected as a current liability at June 30, 2006. For additional information on Long-Term Debt see Notes 1 and 6 in the Notes to the Financial Statements. Economic Outlook The College is unaware of any currently known fact, decision, or condition that is expected to have a significant effect on the financial position or change how the College operates for the next fiscal year. As in prior years, the College's overall financial position is strong. Between the fall quarter of2001 and the fall quarter of 2003, enrollment increased 55.95%. However, enrollment decreased 3.45% from the fall quarter of 2003 to the fall quarter of 2006. College staff is working diligently to reverse the decreasing trend and keep enrollment levels high through marketing efforts, studying retention and constantly reviewing the programs of study offered by the college. As a result, the College anticipates the next fiscal year will be much like the last and the College will maintain a close watch over resources to maintain the ability to react to unknown internal and external issues. Michael D. Moye, President Lanier Technical College - Vl - BASIC FINANCIAL STATEMENTS - 1- LANIER TECHNICAL COLLEGE STATEMENT OF NET ASSETS JUNE 30, 2006 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable, Net State Appropriations Federal Financial Assistance Other Prepaid Items Total Current Assets Noncurrent Assets Capital Assets, Net Total Assets LIABILITIES Current Liabilities Salaries Payable Accounts Payable Deferred Revenue Funds Held for Others Compensated Absences Total Current Liabilities Noncurrent Liabilities Compensated Absences Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Unrestricted Total Net Assets EXHIBIT"A" $ 197,455.32 2,110.00 88,234.94 716,401.70 14,939.90 $ 1,019,141.86 12,187,409.39 $ 13,206,551.25 $ 23,063.58 267,868.04 78,372.00 76,238.85 309,365.43 $ 754,907.90 253,004.89 $ 1,007,912.79 $ 12,187,409.39 11,229.07 $ 12,198,638.46 The notes to the financial statements are an integral part of this statement. -2 - LANIER TECHNICAL COLLEGE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 2006 EXHIBIT "B" OPERATING REVENUES Student Tuition and Fees Less: Scholarship Allowances Grants and Contracts Federal Rents and Royalties Sales and Services Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Salaries Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) State Appropriations Grants and Contracts Federal Local Gifts Interest and Other Investment Income Other Nonoperating Expenses Net Nonoperating Revenues Income (Loss) Before Other Revenues, Expenses, Gains, or Losses Capital Grants and Gifts State Nongovernmental Total Other Revenues, Expenses, Gains, or Losses Increase (Decrease) in Net Assets Net Assets - Beginning of Year Net Assets - End of Year $ 3,942,601.33 -67,429.75 1,219,627.52 750.00 1,192,355.91 4,999.00 $ 6,292,904.01 $ 9,416,394.84 1,986,814.67 128,971.13 1,109,745.25 605,078.93 3,355,332.27 534,049.79 $ 17, 1361386.88 $ -10,843,482.87 $ 9,862,177.09 1,231,793.92 135,514.50 307,784.84 20,971.52 -49,773.90 $ 11,508,467.97 $ 664,985.10 $ 185,472.36 24,115.51 $ 209,587.87 $ 874,572.97 11,324,065.49 $ 12, 198,638.46 The notes to the financial statements are an integral part of this statement. -3- LANIER TECHNICAL COLLEGE STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2006 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Other Receipts (Payments) Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Other Nonoperating Receipts Net Cash Flows Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants and Gifts Received Purchases of Capital Assets Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Earnings on Investments Net Increase (Decrease) in Cash Cash and Cash Equivalents - Beginning of Year Cash and Cash Equivalents - End of Year RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating Income (Loss) Adjustments to Reconcile Operating Income to Net Cash Provided (Used) by Operating Activities Depreciation Expense Change in Assets and Liabilities: Receivables, Net Prepaid Items Accounts Payable Salaries Payable Compensated Absences Net Cash Provided (Used) by Operating Activities NONCASH ACTIVITY Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts The notes to the financial statements are an integral part of this statement. -4- EXHIBIT"C" $ 3,875,171.58 929,438.27 1,192,355.91 -6, 101,740.10 -9,386,665.40 -1,109,745.25 5,749.00 $ -10,595,435.99 $ 9,883,869.04 -33,254.94 1,808,375.76 -8,500.00 $ 11,650,489.86 $ 27,174.96 -1,390,842.31 $ -1,363,667.35 $ _ _....;2=0;.,.;,9;...;.7....;.1=5=-2 $ -287,641.96 485,097.28 $ 197,455.32 $ -10,843,482.87 534,049.79 -290, 189.25 -14,939.90 -10,603.20 155.64 29,573.80 $ -10,595,435.99 $ 182,412.91 LANIER TECHNICAL COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT"D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY Lanier Technical College is one of thirty-four (34) State supported member colleges of postsecondary education in Georgia which comprise the Georgia Department ofTechnical and Adult Education, an organizational unit ofthe State of Georgia. The accompanying financial statements reflect the operations of Lanier Technical College as a separate reporting entity. The Technical College's Local Board of Directors is composed of twelve (12) members serving staggered three-year terms who are appointed by the State Board ofTechnical and Adult Education. Appropriation of State funds is made to the Georgia Department of Technical and Adult Education by the General Assembly ofGeorgia. The Department's Administrative Central Office determines the amount of State appropriations to be received by Lanier Technical College. The Technical College does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Lanier Technical College is considered an organizational unit of the Georgia Department of Technical and Adult Education for financial reporting purposes because of the significance of its legal, operational, and financial relationships as defined in Section 2100 ofthe Governmental Accounting Standards Board (GASB) Codification ofGovernmental Accounting and Financial Reporting Standards. Legally separate, tax exempt organizations whose activities primarily support member colleges of postsecondary education in Georgia which comprise the Georgia Department ofTechnical and Adult Education (an organizational unit ofthe State ofGeorgia), are considered potential component units of the State. See Note 12 for additional information. FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion andAnalysisfor State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State ofGeorgia implemented GASB No. 34 as ofand for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the Technical College also adopted GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the Technical College's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fund group perspective previously required. BASIS OF ACCOUNTING For financial reporting purposes, the Technical College is considered a special-purpose government engaged only in business-type activities. Accordingly, the Technical College'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 -5- LANIER TECHNICAL COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-college transactions have been eliminated. The Technical College has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The Technical College has elected to not apply FASB pronouncements issued after the applicable date. CASH AND CASH EQUIVALENTS Cash and Cash Equivalents include petty cash and demand deposits in authorized financial institutions. ACCOUNTS RECEIVABLE Accounts receivable consist oftuition and fee charges to students, allotments due from the Georgia Department ofTechnical and Adult Education - Administrative Central Office, reimbursements due from Federal, State, local, and private grants and contracts, and other receivables disclosed from information available. Accounts receivable are recorded net of estimated uncollectible amounts. CAPITAL ASSETS Capital assets are recorded at cost at date of acquisition, or fair market value at the date of capital contribution. The Technical College capitalizes all land and land improvements. For equipment, the Technical College's capitalization policy includes all items with a unit cost of $5,000.00 or more, and an estimated useful life of greater than one year. Buildings and Building Improvements, Improvements Other Than Buildings and Library Collections that exceed $100,000.00 or significantly increase the value or extend the useful life of the asset are capitalized. For infrastructure, the Technical College's capitalization threshold is $1,000,000.00. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful lives ofthe assets, generally 10 to 40 years for buildings, 15 to 25 years for infrastructure, 15 years for improvements other than buildings, 10 years for library books, and 3 to 10 years for equipment. To fully portray capital assets acquired by the Technical Colleges of the Georgia Department of Technical and Adult Education, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to both the Technical College and the Georgia Department of Technical and Adult Education. The 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 are issued for the purpose of acquiring capital assets and this debt constitutes 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. -6 - LANIER TECHNICAL COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CAPITAL ASSETS For major construction projects, GSFIC records construction in progress on its books throughout the construction period and at project completion transfers the entire project costs to Lanier Technical College to be recorded as an asset on the Technical College's books. For the year ended June 30, 2006, GSFIC transferred capital additions valued at $182,412.91 to Lanier Technical College. DEFERRED REVENUES Deferred revenues include amounts received for tuition and fees prior to the end of the fiscal year but related to the subsequent accounting period. COMPENSATED ABSENCES Employee vacation pay is accrued for financial statement purposes when vested. The liability and expense incurred are recorded at year-end as accrued vacation payable in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Assets. Lanier Technical College had an accrued liability for compensated absences in the amount of $532,796.52 as of July 1, 2005. For fiscal year 2006, $513,920.39 was earned in compensated absences and employees were paid $484,346.59, for a net increase of$29,573.80. The ending balance as ofJune 30, 2006 in accrued liability for compensated absences was $562,370.32. NONCURRENT LIABILITIES Noncurrent liabilities include liabilities that will not be paid within the next fiscal year. NET ASSETS The Technical College's net assets are classified as follows: Invested in capital assets, net ofrelated debt: This amount represents the Technical College'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 above.) Unrestricted net assets: Unrestricted net assets represent available resources derived from student tuition and fees, state appropriations, and sales and services of educational departments. These resources will be used for transactions relating to the educational and general operations of the Technical College, and may be used at the discretion of the governing board to meet subsequent fiscal year expenses for those purposes, except for unexpended state appropriations (surplus) of $7,684.57. Unexpended state appropriations must be refunded to the Department of Technical and Adult Education for remittance to the Office of Treasury and Fiscal Services. -7- LANIER TECHNICAL COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS When an expense is incurred that can be paid using either restricted or unrestricted resources, the Technical College's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources. INCOME TAXES Lanier Technical College, as a political subdivision ofthe State ofGeorgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended. CLASSIFICATION OF REVENUES The Technical College has classified its revenues as either operating or nonoperating revenues in the Statement of Revenues, Expenses and Changes in Net Assets according to the following criteria: Operating revenues: Operating revenues include activities that have the characteristics ofexchange 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 revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary FundAccounting, and GASB No. 34, such as state appropriations and investment income. SCHOLARSHIP ALLOWANCES Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net Assets. Scholarship allowances are the difference between the stated charge for goods and services provided by the Technical College, 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 Technical College's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the Technical College has recorded contra revenue for scholarship allowances. NOTE 2: DEPOSITS DEPOSITS The custodial credit risk for deposits is the risk that in the event of a bank failure, the Technical College's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the Technical College) 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 - 8- LANIER TECHNICAL COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "D" NOTE 2: DEPOSITS DEPOSITS 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, certificates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia. 2. Bonds, bills, certificates of indebtedness, notes, or other obligations of the counties or municipalities of the State of Georgia. 3. Bonds of any public authority created by the laws ofthe 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 ofthe United States government, which are fully guaranteed by the United States government both as to principal and interest, or debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association. 6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation. As authorized in the Official Code of Georgia Annotated Section 50-17-53, the State Depository Board has adopted policies, which allows agencies of the State of Georgia (and thus Lanier Technical College), the option of exempting demand deposits from the collateral requirements. At June 30, 2006, Lanier Technical College's bank balance was $618,122.09 and none ofthe balance was exposed to custodial credit risk. NOTE 3: ACCOUNTS RECEIVABLE Accounts receivable at June 30, 2006, consists of the following: -9- LANIER TECHNICAL COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "D" NOTE 3: ACCOUNTS RECEIVABLE State Appropriations Student Tuition and Fees Federal, State and Private Funds Other $ 2,110.00 6,148.67 538,864.36 276,273.61 $ 823,396.64 Less: Allowance for Doubtful Accounts 16,650.00 Net Accounts Receivable $ 8062746.64 NOTE 4: CAPITAL ASSETS Following are the changes in capital assets for the year ended June 30, 2006: Balance Julx 1, 2005 Additions Reductions Balance June 30, 2006 Capital Assets, Not Being Depreciated: Land and Land Improvements $ 2,059,609.00 $ 0.00 $ 0.00 $ 2,059,609.00 Capital Assets, Being Depreciated: Building and Building Improvements Improvements Other Than Buildings Equipment Library Collections $ 11,249,726.00 $ 903,322.00 3,478,318.27 400 476.47 585,554.45 942,010.77 $ 45,690.00 $ 11,835,280.45 903,322.00 367,361.53 4,052,967.51 3,857.82 442,308.65 $ 16,031,842.74 $ 1,573,255.22 $ 371,219.35 $ 17,233,878.61 Less: Accumulated Depreciation: Building and Building Improvements $ 2,701,377.00 $ Improvements Other Than Buildings 776,582.65 Equipment 3,191,497.68 Library Collections 232,516.55 271,875.25 71,133.76 146,424.13 $ 44,616.65 $ 326,280.52 3 664.93 2,973,252.25 847,716.41 3,011,641.29 273,468.27 $ 6,901,973.88 $ 534,049.79 $ 329,945.45 $ 7,106,078.22 Total Capital Assets, Being Depreciated, Net $ 9,129,868.86 $ 1,039,205.43 $ 41,273.90 $ 10,127,800.39 Capital Assets, Net $ 11.18947786 $ 1,039.205 .43 $ 41,273.90 $ 12,187,409.39 NOTE 5: DEFERRED REVENUE Deferred revenue at June 30, 2006, consists of the following: Prepaid Tuition and Fees $ 782372.00 - 10 - LANIER TECHNICAL COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "D" NOTE 6: LONG-TERM LIABILITIES Long-Term liability activity for the year ended June 30, 2006, was as follows: Other Liabilities Compensated Absences Balance July 1, 2005 Additions Reductions Balance June 30. 2006 Current Portion $ 532.796.52 $ 5I3 920 39 $ 484,346.59 $ 562.370 32 $ 309.365.43 NOTE 7: NET ASSETS Changes in Net Asset activity for the year ended June 30, 2006 was as follows: Invested in Capital Assets Net of Related Debt Restricted - Expendable Unrestricted Net Assets Total Net Assets Balance July I, 2005 Additions Reductions Balance June 30, 2006 $11,189,477.86 $ 1,039,205.43 $ 41,273.90 $12,187,409.39 0.00 2,451,421.44 2,451,421.44 0.00 134,587.63 15,399,724.44 15,523.083 .00 11,229.07 $ 11.324.065,49 $ 18.890.35 I 3 I $ 18.015 778 34 $ 12.198.638.46 NOTE 8: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description Lanier Technical College participates in the Teachers Retirement System ofGeorgia (TRS), a costsharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances and other benefits for teachers of the State of Georgia. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the TRS offices or from the Georgia Department of Audits and Accounts. Funding Policy Employees of Lanier Technical College who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Lanier Technical College makes monthly employer contributions to TRS at rates adopted by the TRS Board ofTrustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2006, the employer contribution rate was 9.24% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows: - 11 - LANIER TECHNICAL COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "D" NOTE 8: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Funding Policy Fiscal Year Percentage Contributed Required Contribution 2006 2005 2004 100% 100% 100% $ 555,986.46 $ 524,261.62 $ 525,355.69 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description Lanier Technical College participates in the Employees' Retirement System of Georgia (ERS), a single-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia. The benefit structure of ERS is defined by State statute and was significantly modified on July I, 1982. Unless elected otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. All other members are "new plan" members subject to the modified plan provisions. Under both the old plan and new plan, members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of IO 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 ofthe member's highest twenty-four consecutive calendar months ofsalary, the number ofyears of creditable service, and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. The normal retirement pension is payable monthly for life; however, options are available for distribution ofthe 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 ofthe Internal Revenue Code (IRC) as a portion ofERS. The purpose ofSRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415. - 12 - LANIER TECHNICAL COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "D" NOTE 8: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description The ERS issues a financial report each fiscal year which may be obtained through ERS. Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political subdivisions, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The Technical College's payroll for the year ended June 30, 2006, for employees covered by ERS was $1,304,076.47. The Technical College's total payroll for all employees was $9,416,394.84. Under the old plan, member contributions consist of 7.16% of annual compensation. Of these member contributions, the employee pays the first 1.5% and the Technical College pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.5% of annual compensation paid by employee. The Technical College also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation. For the year ended June 30, 2006, the ERS employer contribution rate for the Technical College amounted to 10.41 % of covered payroll and included the amounts contributed on behalf of the employee under the old plan referred to above. Employer contributions are also made on amounts paid for accumulated leave to retiring employees. Total contributions to the plan made during fiscal year 2006 amounted to $155,315.51, of which $135,754.36 was made by the Technical College and $19,561.15 was made by employees. These contributions met the requirements of the plan. Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2006, financial report which may be obtained through ERS. GEORGIA DEFINED CONTRIBUTION PLAN Plan Description Lanier Technical College 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 - 13 - LANIER TECHNICAL COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "D" NOTE 8: RETIREMENT PLANS GEORGIA DEFINED CONTRIBUTION PLAN Benefits Trustees. If a member has less than $3,500.00 credited to his/her account, the Board ofTrustees has the option ofrequiring a lump sum distribution to the member in lieu ofmaking 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. The Employees' Retirement System ofGeorgia issues a financial report each fiscal year which may be obtained through ERS. Contributions and Vesting Member contributions are seven and one-halfpercent (7.5%) ofgross 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. The Technical College's payroll for the year ended June 30, 2006, for employees covered by GDCP was $1,507,822.04. The Technical College's total payroll for all employees was $9,416,394.84. Total contributions made by employees during fiscal year 2006 amounted to $113,087.57 which represents 7.5% of covered payroll. These contributions met the requirements of the plan. NOTE 9: RISK MANAGEMENT Public Entity Risk Pool The Department of Community Health administers for the State of Georgia a program of health benefits for the employees of units of government of the State of Georgia, units of county governments, and local education agencies located with the State ofGeorgia. This plan is funded by participants covered in the plan, by employers' contributions paid by the various units ofgovernment participating in the plan, and appropriations made by the General Assembly of Georgia. The Department of Community Health contracted with Blue Cross Blue Shield of Georgia thru December 31, 2005 and has contracted with United Healthcare beginning January 1, 2006 to process medical claims and Express Scripts, Incorporated to process prescription drug claims in accordance with the State Employees' Health Benefit Plan as established by the Department of Community Health. Other Risk Management The Department ofAdministrative Services (DOAS) has the responsibility for the State ofGeorgia ofmaking and carrying out decisions that will minimize the adverse effects ofaccidental 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' - 14 - LANIER TECHNICAL COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2006 EXHIBIT "D" NOTE 9: RISK MANAGEMENT Other Risk Management 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. The Technical College, as an organizational unit of the Georgia Department of Technical and Adult Education, 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. NOTE 10: CONTINGENCIES Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenses which are disallowed under grant terms. The amount of expenses which may be disallowed by the grantor cannot be determined at this time although Lanier Technical College expects such amounts, if any, to be immaterial to its overall financial position. Litigation, claims and assessments filed against Lanier Technical College (an organizational unit of the Department of Technical and Adult Education), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2006. NOTE 11: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS The Technical College's operating expenses shown at the natural classification on the "Statement of Revenues, Expenses and Changes in Net Assets" are all classified as Instruction at the functional classification. NOTE 12: AFFILIATED ORGANIZATIONS In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment ofGASB Statement No. 14, The Reporting Entity, which became effective for the year ended June 30, 2004, Lanier Technical College Foundation has been determined to be a legally separate, tax exempt organization whose activities primarily support Lanier Technical College, a member college of postsecondary education in Georgia whose units comprise the Department of Technical and Adult Education (an organizational unit of the State of Georgia). The State Accounting Office has determined Component Units ofthe State ofGeorgia, as required by GASB Statement No. 39, should be assessed in relation to their significance to the State of Georgia. Accordingly, Lanier Technical College has not included financial activity for Lanier Technical College Foundation in these financial statements. - 15 - (This page left intentionally blank) SUPPLEMENTARY INFORMATION - 17 - LANIER TECHNICAL COLLEGE BALANCE SHEET (NON-GAAP BASIS) BUDGET FUND JUNE 30, 2006 ASSETS Cash and Cash Equivalents Accounts Receivable State Appropriation Federal Financial Assistance Other Prepaid Expenditures Total Assets LIABILITIES AND FUND EQUITY Liabilities Salaries Payable Accounts Payable Deferred Revenue Total Liabilities Fund Balances Reserved Local Grants and Contracts Prior Year Local Funds Live Works Projects Continuing Education Regular Technology Fees Uncollectible Accounts Receivable Unreserved Surplus Total Fund Balances Total Liabilities and Fund Balances SCHEDULE "1" $ 544,192.43 2,110.00 56,225.70 372,764.84 14,939.90 $ ===99=0=,2=32==87= $ 23,063.58 635,734.00 75,577.00 $ 734,374.58 $ 67,757.84 6,625.74 42,430.08 61,603.49 53,106.57 16,650.00 7,684.57 $ 255,858.29 $ ===99=0=,2=32==87= Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. - 18 - LANIER TECHNICAL COLLEGE BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS) BUDGET FUND YEAR ENDED JUNE 30, 2006 SCHEDULE "2" REVENUES State Appropriation State General Funds Federal Funds Other Funds Total Revenues CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance Total Funds Available EXPENDITURES Adult Literacy Economic Development Technical Education Total Expenditures Excess of Funds Available over Expenditures FUND BALANCE JULY 1 Reserved Unreserved ADJUSTMENTS Prior Year Payables/Expenditures Prior Year Receivables/Revenues Unreserved Fund Balance (Surplus) Returned to Georgia Department of Technical and Adult Education Year Ended June 30, 2005 Refunds to Grantors Federal Financial Assistance Returned to Georgia Department of Technical and Adult Education Year Ended June 30, 2005 Prior Year Reserved Fund Balance Included in Funds Available FUND BALANCE JUNE 30 BUDGET ACTUAL VARIANCEFAVORABLE (UNFAVORABLE) $ 9,862,743.00 $ 9,862,743.00 $ 1,394,012.70 1,290,744.35 5,511,158.24 5,479,823.89 $ 16,767,913.94 $ 16,633,311.24 $ 0.00 -103,268.35 -31 334.35 -134,602.70 0.00 89 159.03 $ 16 767 913.94 $ 16,722,470.27 $ 89 159.03 -45 443.67 $ 1,195,345.32 $ 1,300,398.09 $ 1,050,747.50 968,725.85 14,521,821.12 14,202,803.90 $ 16,767,913.94 $ 16 471 927.84 $ $ 0.00 $ 250,542.43 $ -105,052.77 82,021.65 319,017.22 295,986.10 250,542.43 89,159.03 565.91 11,112.74 -3,374.57 -565.91 -2,422.31 -89 159.03 $ 255,858.29 SUMMARY OF FUND BALANCE Reserved Live Works Projects Prior Year Local Funds Local Grants and Contracts Continuing Education Technology Fees Uncollectible Accounts Receivable Total Reserved Unreserved Surplus Total Fund Balance Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles. - 19 - $ 42,430.08 6,625.74 67,757.84 61,603.49 53,106.57 16 650.00 $ 248,173.72 7 684.57 $ ======25=5;..,8=5=8.=29= (This page left intentionally blank) LANIER TECHNICAL COLLEGE RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2006 SCHEDULE "3" Totals per Annual Supplement Accruals June 30, 2005 June 30, 2006 Compensated Absences June 30, 2005 June 30, 2006 Agency Funds Reconciling Items SALARIES $ 9,393,924.27 $ TRAVEL 129,421.46 -26,789.76 23,063.58 -525,181.39 554,332.50 -2,886.74 -67.62 -651.97 201.64 $ 9,416,394.84 $==1=28=,9=7=1.=1=3 - 21 - SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS LANIER TECHNICAL COLLEGE AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-834-05-01 Unresolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES CAPITAL ASSETS Inadequate Capital Asset Records Finding Control Number: FS-834-05-01 The original corrective action plan was to train the staff on how to record construction-inprogress into the capital assets module of PeopleSoft. However, due to constraints ofthe software, this plan could not be followed. In the current version of PeopleSoft used by Lanier Technical College, a purchase is designated as paid by quantity or amount. For an item to flow into the capital assets module, the purchase must be designated as paid by quantity. Due to the nature ofthe construction-in-progress, it must be paid by the amount ofthe invoice and so entering construction-in-progress into the capital assets module is not feasible. This situation arose because the building was under construction at the end ofthe year. The building was added to the capital assets module at the beginning of fiscal year 2006. For any future construction that is in progress at the end of a fiscal year, the appropriate GAAP journal entries will be recorded to ensure that the asset is properly recorded on the College's records. SECTION III FINDINGS AND QUESTIONED COSTS LANIER TECHNICAL COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2006 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS CAPITAL ASSETS Inadequate Capital Asset Records Repeated From Prior Year Finding Control Number: FS-834-06-01 Condition: The College failed to record building renovations within the Capital Assets Module. Criteria: NCGA Statement 1, paragraph 1, which prescribes that an accounting system (1) present fairly and fully disclose its financial position including its financial operation of its funds and account groups in accordance with generally accepted accounting principles and (2) demonstrate compliance with finance related legal and contractual provisions. Administrative requirements contained in the Accounting Procedures Manual for State of Georgia and Pertinent sections of the Official Code of Georgia Annotated (O.C.G.A.). Questioned Cost: NIA Information: Capital expenditures related to building renovations and improvements totaling $585,554.45 were not properly accounted for within the Capital Assets Module. Cause: The College failed to properly maintain and track capital asset additions. Effect: By failing to accurately record capital assets, the College could place itselfin a position where potential misappropriation of assets could occur and impact reporting of its financial position and results of operations. Recommendation: The College should establish appropriate procedures and controls to ensure that all items, meeting capitalization thresholds, are recorded in accordance with guidelines set forth in the State of Georgia Capital Asset Guide. Policies and procedures should also be established to ensure that reconciliations are performed for the Capital Assets Module and the related subsidiary records. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No findings or matters related to management were reported.