STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS I STATE UNIVERSITY OF WEST GEORGIA CARROLLTON, GEORGIA REPORT ON REVIEW OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Russell W. Hinton State Auditor STATE UNIVERSITY OF WEST GEORGIA - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS EXHIBITS A STATEMENT OF NET ASSETS 3 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 5 C STATEMENT OF CASH FLOWS 6 D NOTES TO THE FINANCIAL STATEMENTS 8 SUPPLEMENTARY INFORMATION SCHEDULES 1 SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GAAP BASIS) RESIDENT INSTRUCTION 33 2 RECONCILIATION OF SALARIES AND TRAVEL 35 SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 January 18, 2005 Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia and Honorable Beheruz N. Sethna, President State University of West Georgia INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Ladies and Gentlemen: We have reviewed the accompanying basic financial statements ofState University ofWest Georgia, an organizational unit ofthe State ofGeorgia, and its' aggregate discretely presented component unit, as of and for the year ended June 30, 2004, as listed in the table of contents, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. We did not review the financial statements of State University of West Georgia's discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us and the results ofour review expressed herein, insofar as it relates to the amounts included for State University ofWest Georgia Foundation is based solely upon the report of the other auditors. All information included in these financial statements is the representation of the management of State University of West Georgia. A review consists principally ofinquiries ofUniversity personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an op1mon. Based on our review and the report of other auditors discussed above, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. 04ARL-66 As discussed in Note 1, the University adopted the provisions of the Governmental Accounting Standards Board, Statement Number 39, Determining Whether Certain Organizations are Component Units during the year ended June 30, 2004. 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 of America. We and other auditors have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of this supplementary information, and we are not aware of any material modifications that should be made thereto. Our review was made for the purpose of expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with accounting principles generally accepted in the United States ofAmerica. The accompanying supplementary information (Schedules 1 and 2) is presented for additional analysis purposes. Such information has been subjected to the inquiries and analytical procedures applied in the review ofthe financial statements, and we are not aware ofany material modifications that should be made to such data. Respectfully submitted, RWH:as 04ARL-66 Russell W. Hinton State Auditor REQUIRED SUPPLEMENTARY INFORMATION STATE UNIVERSITY OF WEST GEORGIA Management's Discussion and Analysis Introduction State University of West Georgia is one of the 34 institutions of the University System of Georgia. The State University of West Georgia, a charter member of the University System of Georgia, is a selectively focused, public comprehensive institution providing undergraduate and graduate education in arts and sciences, business and education. The University located in Carrollton, Georgia, was founded in 1906 and remains second to none in relation to our theme of Educational Excellence in a Personal Environment. In the fall of 2003, we had the highest headcount, highest credit hour generation and the highest SAT scores in the history of the University. West Georgia offers a range of disciplinary, interdisciplinary and professional programs at the baccalaureate level. The State University of West Georgia offers 113 programs of study, including 60 at the Bachelor's level, 52 at the Masters and Specialist level, and one Doctoral program. During fall semester, the Southern Association of Colleges and Schools (SACS) reaffirmed State University of West Georgia's accreditation for another 10 years, based on an accreditation visit in February 2003. In addition, the University has achieved national recognition in several areas including, academic debate, faculty-directed student research and athletic competition. The institution continues to grow as shown by the comparison that follows: Faculty Students FY2004 FY2003 FY2002 398 10,255 355 9,675 344 9,030 Overview ofthe Financial Statements and Financial Analysis State University of West Georgia is proud to present its financial statements for fiscal year 2004. 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 2003 and fiscal year 2004. Statement ofNet Assets The Statement of Net Assets presents the assets, liabilities, and net assets of the University as of the end of the fiscal year. The Statement of Net Assets is a point oftime financial statement. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a - 1- fiscal snapshot of State University of West Georgia. The Statement of Net Assets presents endof-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. Expendable restricted net assets are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted net assets are available to the institution for any lawful purpose of the institution. Statement of Net Assets, Condensed June 30, 2004 June 30, 2003 Assets Current Assets Capital Assets, Net Other Assets $ 16,349,507.20 57,806,738.27 1,863,246.96 $ 16,343,609.26 55,821,328.92 1,876,989.84 Total Assets $ 76,019,492.43 $ 74,041,928.02 Liabilities Current Liabilities Noncurrent Liabilities $ 8,698,111.90 2,616.201.25 $ 7,480,961.89 996,329.86 Total Liabilities $11,314,313.15 $ 8,477,291.75 Net Assets Invested in Capital Assets, Net of Debt Restricted - Expendable Unrestricted $ 56,421,479.02 2,060,580.45 6,223,119.81 $ 55,791,201.94 2,062,366.31 7,711,068.02 Total Net Assets $64,705,179.28 $ 65.564.636.27 The total assets of the institution increased by $1,977,564.41. The increase was primarily due to an increase of $1,985,409.35 in Capital Assets, net of accumulated depreciation. The consumption of assets follows the institutional philosophy to use available resources to acquire and improve all areas of the institution to better serve the instruction, research and public service missions of the institution. -11- The total liabilities for the year increased by $2,837,021.40. The primary cause for the increase was in current liabilities, primarily $872,873.44 in accounts payable activity due to higher volume of year end commitments and $616,461.15 increase in advance tuition and fee payments for summer semester. Noncurrent liability increased by approximately $1.6 million primarily due to a new " Financial Commitment Agreement" of approximately $1.7 million being reflected as deferred revenue, which will benefit future fiscal years, and a decrease of approximately $83,000 in compensated absences liability. The combination of the increase in total assets of $1,977,564.41 and the increase in total liabilities of $2,837,021.40 causes a decrease in total net assets of $859,456.99. The decrease is due primarily to the overall increase in current liabilities versus current assets and can be summarized by the increase in deferred revenue. Statement ofRevenues, Expenses and Changes in Net Assets Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present revenues received by the institution both operating and nonoperating, 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 Georgia Legislature to the institution without the Legislature directly receiving commensurate goods and services for those revenues. - 111 - Statement of Revenues, Expenses and Changes in Net Assets, Condensed June 30, 2004 June 30, 2003 Operating Revenues Operating Expenses $ 43,096,644.88 85,031,127.81 $ 39,571,379.45 84,742,910.22 Operating Loss $-41, 934,482.93 $-45,171,530.77 Nonoperating Revenues and Expenses 37,653,186.58 38,911,734.54 Income (Loss) Before Other Revenues, Expenses, Gains or Losses $ -4,281,296.35 $ -6,259,796.23 Other Revenues, Expenses, Gains or Losses 3,421,839.36 733,367.32 Increase (Decrease) in Net Assets $ -859,456.99 $ -5,526,428.91 Net Assets at Beginning of Year 65,564,636.27 71,091,065.18 Net Assets at End of Year $ 64)05!179.28 $ 65!564!636.27 The Statement of Revenues, Expenses and Changes in Net Assets reflects an overall decrease 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, which can be better understood with reference to the statement of Revenues by Source are, as follows: - IV - Revenue By Source For The Years Ended June 30, 2004 and June 30, 2003 Operating Revenue Tuition and Fees Grants and Contracts Rents and Royalties Sales and Services of Educational Departments Auxiliary Other Total Operating Revenue Nonoperating Revenue State Appropriations Gifts Investment Income Grants and Contracts Other Total Nonoperating Revenue Capital Grants and Gifts State Other Total Capital Grants and Gifts Total Revenues June 30, 2004 June 30, 2003 $18,967,484.51 8,914,580.67 12,462.00 271,488.40 14,307,960.89 622,668.41 $ 43,096,644.88 $ 15,894,201.69 8,968,841.00 13,831.00 258,475.01 13,300,102.57 1,135,928.18 $ 39,571,379.45 $ 38,308,824.05 193,578.47 -288,248.11 $ 38,214,154.41 $ 39,946,637.36 4,000.00 299,599.97 10,000.00 -1,345,632.43 $ 38,914,604.90 $ 3,246,839.36 175,000.00 $ 3,421,839.36 $ 84)32!638.65 $ 161,197.90 572,169.42 $ 733,367.32 $ 79!219)51.67 - V- Expenses (By Functional Classification) For The Years Ended June 30, 2004 and June 30, 2003 June 30, 2004 June 30, 2003 Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises $ 34,713,240.31 860,659.05 163,571.16 11,253,016.14 4,816,802.95 8,152,838.24 10,420,879.21 1,419,185.97 13,230,934.78 $ 36,759,876.31 922,986.26 176,203.62 11,215,927.25 4,470,628.32 8,055,238.59 11,594,831.66 1,626,188.09 9,921,030.12 Total Operating Expenses $ 85,031,127.81 $ 84,742,910.22 Nonoperating Expenses Interest Expense Other $ 2,027.83 $ 2,870.36 558,940.00 Total Nonoperating Expenses $ 560,967.83 $_--=2i=.,8..:....:70:c.=.3:..=6 Total Expenses $ 85,592,095.64 $ 84,745,780.58 An overall increase in the operating revenues of over $3 .5 million was the results of the impact of a 10% ($1.6 million) tuition increase granted by the Regents of the University System of Georgia, plus an increase in fall and spring head count and credit hours. We served 10,255 students in the fall, up from 9,675 in fall 2002, resulting in an additional $1.4 million in tuition revenue. Auxiliary revenues also increased by approximately $1 million, the result of the additional students having an impact on bookstore sales, and food service revenues. During the summer of 2003, the food service facilities were completely renovated which had a significant impact on the food service program, and thus contributed to the increased revenue. Nonoperating revenues decreased overall by approximately $700,000. The decrease is primarily a result of a decrease in state appropriations of $1,637,813.31 caused by a 5.5% budget cut at the state level. In addition, investment income was down by approximately $100,000, because of the continued weak economy. Capital gifts of approximately $3.3 million were booked with the construction completion of the new Adamson Hall. This building is a reproduction of the earlier Adamson, which was one of the original campus buildings constructed in 1917. It was tom down two years ago. The new building looks like the original and will be used as offices and classrooms for the Richards College of Business and the Department of Continuing Education. - Vl - Total expenditures increased by $846,315.06, with expenditure highlights as follows: A decrease in instructional expense of approximately $2.0 million, which is directly related to the decrease in the state appropriation of $1,637,813.31. An increase in academic support expense of $37,088.89 reflecting increased support costs for the additional students in the areas of library collections, and other library and instructional technology costs. Increases in the areas of institutional support and student service support reflect the costs of the additional students. Auxiliary enterprises expenditures increased by $3 .3 million reflecting the cost of generating revenue. The compensation and employee benefits category increased by $1,460,604.58. The increase reflects a 10% increase in all health benefits and an increase in the number of faculty and staff employees. Per legislative directive and Board of Regents budgeting practice, the University did not grant any salary increases in the 2004 fiscal year. This reflects the continued poor economic conditions in the state. Utilities increased by $354,523.59 during the past year. The increase was primarily associated with a combination of increased usage because of our record headcount, more classes, a colder than normal winter, and overall rising utility costs. Also, during fiscal year 2003, we had a credit of $200,000, a rebate against our utility costs, which understated the true cost in fiscal year 2003. Statement ofCash Flows The final statement presented by the State University of West Georgia 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. - Vll - Cash Flows for the Years Ended June 30, 2004 and June 30, 2003, Condensed June 30, 2004 June 30, 2003 Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities $-37,366,477.39 38,999,934.51 -1,984,005.72 221,784.76 $-38,834,955.98 40,448,015.26 -3,087,678.75 279,825.92 Net Change in Cash $ -128,763.84 $ -1,194,793.55 Cash, Beginning of Year $ 13,400,069.85 $ 14,594,863.40 Cash, End of Year $ 13.271,306.01 $ 13.400.069.85 Capital Assets The University had significant capital asset additions for facilities in fiscal year 2004. A new parking lot (400 vehicles) was completed at a cost of $456,000 the new Adamson Hall was completed at a cost of $3.3 million, Row Hall was renovated (mechanical systems and new windows) for $976,000; and the Z-6 and UCC food service facilities were completely renovated with our ARAMARK partners. Cost to the University was $400,000 for infrastructure improvements. Facilities projects designed to enhance campus life include the completion of our privatized University Suites housing facility (612 beds in partnership with the State University of West Georgia Foundation); a second phase of housing (602 beds) which will start construction this fall and is scheduled for completion in fall 2005; a new privatized campus center; and the Health Wellness and Lifelong Leaming Center, which we expect will start construction in the summer of 2005. All of these projects are expected to increase the number of on-campus residents and further our efforts toward positive growth and retention. For additional information concerning Capital Assets, see Notes 1, 6, 8 and 10 in the Notes to the Financial Statements. Long-Term Debt The University had a total Long-Term Debt of $2,067,133.81, of which $1,165,932.56 was reflected as current liability at June 30, 2004. For additional information concerning Long-Term Debt, see Note 1 and 8 in the Notes to the Financial Statements. - Vlll - Component Units In compliance with GASB Statement No. 39, State University of West Georgia has included the financial statements and notes for all required component units for the calendar year 2003. The State University of West Georgia Foundation had endowment investments of $11,314,911 as of December 31, 2003. Details are available in Note 1, Summary of Significant Accounting Policies and Note 16, Component Units. Economic Outlook The University continues to enjoy significant growth in student headcount. Our numbers increased by 580 students, the second year in a row with an increase in the 6-7% range, and the fourth record setting year in a row. Overall, the growth comes at a time when we continue to have budget cuts. The cumulative effect on operating funds in the last three years is about 16.3%, or a total of $5.2 million. This does not include the $748,000 we lost in MRR (maintenance, repair and rehabilitation) funds in 2003. Because of the budget cuts we are having a difficult time maintaining services at our usual high levels of customer support. However, the overall market position of the university is strong, and although we have some challenges on the financial resource side, we have a strong administrative team, that pulls together even as our resources per student continue to decline. We continue to manage this institution efficiently. As we move into fiscal year 2005 we expect strong continued growth in undergraduate enrollment, a tight budget because of the weak economy, the continued need to manage our resources very efficiently, and the maintaining of our conservative approach to budget forecasting and management. Beheruz N. Sethna, President State University of West Georgia William N. Gauthier, Vice President for Business and Finance State University of West Georgia - IX - BASIC FINANCIAL STATEMENTS - 1- STATE UNIVERSITY OF WEST GEORGIA STATEMENT OF NET ASSETS JUNE 30 2004 EXHIBIT"A" ASSETS Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable, Net Federal Financial Assistance Other Pledges Receivable Prepaid Items Inventories Total Current Assets Noncurrent Assets Investments Notes Receivable Pledges Receivable Capital Assets, Net Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Contracts Payable Salaries Payable Accounts Payable Deferred Revenue Funds Held for Others Capital Leases Compensated Absences Other Liabilities Total Current Liabilities Noncurrent Liabilities Bonds Payable Capital Leases Compensated Absences Deferred Revenue Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Nonexpendable Expendable Unrestricted PRIMARY GOVERNMENT COMPONENT UNIT STATE UNIVERSITY OF WEST GEORGIA FOUNDATION $ 13,271,306.01 $ 600,000.00 196,645.30 751,037.60 771,515.89 759,002.40 $ 16,349,507.20 $ $ $ 1,863,246.96 57 806 738.27 $ 59,669,985.23 $ $ 76,019,492.43 $ 9,677,414.00 288,735.00 3,509.00 590,460.00 10,560 118.00 10,588,942.00 1,000.00 440,963.00 6,601,397.00 17,632,302.00 28,192,420.00 $ 51,841.12 $ 193,235.37 1,401,395.78 4,558,943.72 966,810.85 11,840.60 1,154,091.96 359,952.50 $ 8,698,111.90 $ $ $ 7,358.65 893,842.60 1,715,000.00 $ 2,616,201.25 $ $ 11,314,313.15 $ $ 56,421,479.02 $ 2,060,580.45 6,223,119.81 1,374,219.00 1 374,219.00 13,205,000.00 13 205,000.00 14,579,219.00 4,500.00 12,058,546.00 1,068,842.00 481,313.00 Total Net Assets $ 64,705,179.28 $ See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement. -3 - 13,613,201.00 STATE UNIVERSITY OF WEST GEORGIA STATEMENT OF REVENUES EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30 2004 EXHIBIT"B" OPERATING REVENUES Student Tuition and Fees Less: Scholarship Allowances Gifts and Contributions Endowment Income (Per Spending Plan) Grants and Contracts Federal State Nongovernmental Rents and Royalties Sales and Services of Educational Departments Auxiliary Enterprises Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Salaries Faculty Staff Employee Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Payments to or on the Behalf of State University of West Georgia Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) State Appropriations Interest and Other Investment Income Interest Expense Other Nonoperating Expenses Other Nonoperating Revenues Net Nonoperating Revenues (Expenses) Income (Loss) Before Other Revenues, Expenses, Gains, or Losses Capital Grants and Gifts State Local Additions to Permanent Endowments Total Other Revenues Increase (Decrease) in Net Assets Net Assets - Beginning of Year Net Assets - End of Year See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement. -5- PRIMARY GOVERNMENT COMPONENT UNIT STATE UNIVERSITY OF WEST GEORGIA FOUNDATION $ 24,002,585.67 -5,035, 101.16 $ 7,132,705.39 713,185.45 1,068,689.83 12.462.00 271,488.40 5,578,360.65 841,499.58 3,336,414.78 568,526.38 1,326,717.80 2,214,520.44 441,921.26 622,668.41 $ 43,096,644.88 $ 1,467,769.00 395,802.00 244 512.00 2,108,083.00 $ 21,989,066.52 23,084,794.47 $ 12,552,023.12 823,473.84 2,389,546.48 3,141,292.06 16,747,869.43 4,303,061.89 $ 85,031,127.81 $ $ -41,934,482.93 $ 477,068.00 490,108.00 1,314,937.00 2,282,113.00 -174,030.00 $ 38,308,824.05 193,578.47 $ -2,027.83 -558,940.00 -288,248.11 37,653, 186.58 $ $--=-4=,28=1,=29-6=.35- $ $ 3,246,839.36 175,000.00 $ $ _ ___3c,:4:.2,_1,,_8=3=9=.3=6- $ $ ___-:8:5;=9,-4=56.99 $ 65,564,636.27 $ 1,601,073.00 1 601 073.00 1 427,043.00 1,225,709.00 1 225 709.00 2 652 752.00 10,960 449.00 $ 64,705, 179.28 $ ===~13;;;,,,;;,61;,;;3;i,;2;,;;0.;,1;,;;;0,;;,0 STATE UNIVERSITY OF WEST GEORGIA STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30 2004 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Loans Issued to Students and Employees Collection of Loans to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizations Other Receipts (Payments) Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Other Nonoperating Receipts Net Cash Flows Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of Capital Assets Principal Paid on Capital Debt and Lease Interest Paid on Capital Debt and Lease Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments Interest on Investments Net Cash Provided (Used) by Investing Activities Net Increase (Decrease) in Cash Cash and Cash Equivalents - Beginning of Year Cash and Cash Equivalents - End of Year EXHIBIT"C" $ 19,185,395.24 8,784,469.36 147,811.15 -33,072,615.48 -45, 136,136.85 -2,389,546.48 -481,664.59 495,407.47 5,718,612.14 841,499.58 3,336,414.78 568,526.38 1,326,717.80 2,214,520.44 441,921.26 652 190.41 $ -37,366,477.39 $ 38,308,824.05 537,557.78 153,552.68 $ 38,999,934.51 $ -1,971,050.16 -10,927.73 -2 027.83 $ -1 984 005.72 $ 28,206.29 193,578.47 $ 221 784.76 $ -128 763.84 $ 13,400,069.85 $ 13,271,306.01 -6- STATE UNIVERSITY OF WEST GEORGIA STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30. 2004 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating Income (Loss) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net Inventories Prepaid Items Notes Receivable, Net Accounts Payable Salaries Payable Deferred Revenue Other Liabilities Compensated Absences Net Cash Provided (Used) by Operating Activities NONCASH ACTIVITY NONCAPITAL FINANCING, CAPITAL AND RELATED FINANCING TRANSACTIONS AND INVESTING ACTIVITIES Capital Assets Acquired by Financial Commitment Agreement (Deferred Revenue) Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts EXHIBIT"C" $ -41,934,482.93 4,303,061.89 163,394.79 -81,350.27 -89,232.02 13,742.88 186,087.87 51,569.90 -31,137.91 102,577.50 -50 709.09 $ -37,366.477.39 $ -1,366,060.00 $ -3,421,839.36 See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement. -7- STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS State University of West Georgia 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 State University of West Georgia is one of thirty-four (34) 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 State University of West Georgia 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. State University of West Georgia does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, State University of West Georgia is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards. The Board of Regents of the University System of Georgia (and thus State University of West Georgia) is required to implement the Governmental Accounting Standards Board (GASB) Statement No. 39 Determining Whether Certain Organizations are Component Units - an amendment of Statement No. 14, for fiscal year 2004. This statement requires the inclusion of the financial statements for Foundations and affiliated organizations that qualify as component units of the institution. These statements (Statement of Net Assets and Statement of Revenues, Expenses and Changes in Net Assets) are reported discretely in the University's financial statements. For fiscal year 2004, State University of West Georgia is reporting the activity for the State University of West Georgia Foundation. See Note 16, for additional component unit disclosures. FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia implemented GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the -8- STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL STATEMENT PRESENTATION State of Georgia, the University 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 University's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fund group perspective previously required. GAAP requires that the reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year. Due to the lack of materiality, Institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the predominate activity takes place. BASIS OF ACCOUNTING For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the preceding paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-University transactions have been eliminated. The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University has elected to not apply FASB pronouncements issued after the applicable date. CASH AND CASH EQUIVALENTS Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the State Investment Pool and the Board of Regents Short-Term Investment Pool. SHORT-TERM INVESTMENTS Short-Term Investments consist of investments of 90 days - 13 months. This would include certificates of deposits or other time restricted investments with original maturities of six months or more when purchased. Funds are not readily available and there is a penalty for early withdrawal. INVESTMENTS The University accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of investments are -9- STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS reported as a component of investment income in the statements of revenues, expenses and changes in net assets. The Board of Regents Legal Fund, the Board of Regents Balanced Income Fund and the Board of Regents Total Return Fund are included under Investments. ACCOUNTS RECEIVABLE Accounts receivable consists of tuition and fee charges 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 include 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 recorded on the consumption method and are valued at cost using the weighted average method. Resale Inventories are valued at cost using the first-in, first-out ("FIFO") method. CAPITAL ASSETS Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. For equipment, the University's capitalization policy includes all items with a unit cost of $5,000.00 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000.00 and significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements. To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged. Effective July 1, 2001, the GSFIC retains construction in progress on their books throughout the construction period and transfers the entire project to State University of West Georgia when complete. For the year ended June 30, 2004, GSFIC transferred capital additions valued at $3,246,839.36 to State University of West Georgia. - 10 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DEFERRED REVENUES Deferred revenues include (1) amounts received for tmt10n and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period; (2) amounts received from grant and contract sponsors that have not yet been earned; and (3) a Financial Commitment Agreement between the University and ARAMARK Educational Services, Inc. COMPENSATED ABSENCES Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as accrued vacation payable in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statements of Revenues, Expenses and Changes in Net Assets. State University of West Georgia had accrued liability for compensated absences in the amount of $2,098,643.65 as of July 1, 2003. For fiscal year 2004, $1,584,659.90 was earned in compensated absences and employees were paid $1,635,368.99, for a net decrease of $50,709.09. The ending balance as of June 30, 2004 in accrued liability for compensated absences was $2,047,934.56. Compensated absences include a current liability of $1,154,091.96. 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; (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets; and (4) deferred revenue that will not be recognized within the next fiscal year. NET ASSETS The University's net assets are classified as follows: Invested in capital assets, net ofrelated debt: This represents the University's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. The term "debt obligations" as used in this definition does not include debt of the GSFIC as discussed previously in Note 1 - Capital Assets section. Restricted net assets - 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. The University's Expendable Restricted Net Assets include the following: - 11 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS June 30, 2004 Federal Loans Institutional Loans $ 1,811,240.96 249,339.49 Total Restricted Expendable $ 2,060,580.45 Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) of $21,560.69. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia - Administrative Central Office for remittance to the Office of Treasury and Fiscal Services. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. The University's Unrestricted Net Assets includes the following items which are quasi-restricted by management. June 30, 2004 Reserve for Encumbrances Reserve for Inventory Other Unrestricted $ 2,600,561.29 759,002.40 2,863,556.12 Total Unrestricted Net Assets $ 6,223,119.81 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 State University of West Georgia, as a political subdivision of the State of Georgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended. CLASSIFICATION OF REVENUES The University has classified its revenues as either operating or nonoperating revenues in the Statement of Revenues, Expenses and Changes in Net Assets according to the following criteria: - 12 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CLASSIFICATION OF REVENUES Operating revenues: Operating revenues include actlv1tles that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) sales and services of auxiliary enterprises, (3) most Federal, state and local grants and contracts and Federal appropriations, and (4) interest on institutional student loans. Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income. SCHOLARSHIP ALLOWANCES Student tuition and fee revenues, and certain other revenues from students, are reported at gross with a contra revenue account of scholarship allowances in the Statement of Revenues, Expenses and Changes in Net Assets. Scholarship allowances are the difference between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or third parties making payments on the students' behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs, are recorded as either operating or nonoperating revenues in the University's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded contra revenue for scholarship allowances. NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds belonging to the State of Georgia (and thus State University of West Georgia) 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, bill, 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 ofthe 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. - 13 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES 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, 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 allow agencies of the State of Georgia (and thus State University of West Georgia), the option of exempting demand deposits from the collateral requirements. 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. CATEGORIZATION OF DEPOSITS Cash deposits are categorized by risk as follows: Category 1 - Amounts covered by depository insurance or collateralized with securities (at fair value) held by the entity or by its agent in the entity's name. Category 2 - Amounts collateralized with securities (at fair value) held by the pledging financial institution's trust department or agent in the entity's name. Category 3 - Amounts collateralized with securities (at fair value) held by the pledging financial institution, or by its trust department or agent but not in the entity's name, and amounts uncollateralized. State University of West Georgia At June 30, 2004, the University's cash deposits were as follows: Cash Deposits Carrying Amount Bank Balances Risk Categories 2 3 $ 1,589 236.74 $ 3,521,344.64 $ 201,711.26 $ 3.319 633.38 $===0==.0==0 - 14 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS CATEGORIZATION OF DEPOSITS Component Unit At December 31, 2003, State University of West Georgia Foundation's cash deposits were as follows: Carrying Amount Bank Balances Risk Categories 2 3 Cash Deposits Investment Portfolio Accounts $ 1,666,866.00 $ 1,640,661.00 $ 611,049.00 $ 8,010,548.00 8,010,548.00 7,721,813.00 0.00 $ 1,029,612.00 288,735.00 Total Cash Deposits $ 9.677 414 00 $ 9,651,209.00 $ 8,332,862.00 $ 0.00 $ 1.318.347.00 CATEGORIZATION OF INVESTMENTS Investments are categorized as to credit risk within the three categories described below: Category 1 - Insured or registered, or securities held by the entity or its agent in the entity's name. Category 2 - Uninsured and unregistered, with securities held by the counter party's trust department or agent in the entity's name. Category 3 - Uninsured and unregistered, with securities held by the counter party, or by its trust department or agent, but not in the entity's name. State University of West Georgia At June 30, 2004, the carrying amount of the University's total investments was $12,262,894.27. These investments consisted of $10,420,651.39 in the State Investment Pool administered by the State of Georgia-Office of Treasury and Fiscal Services and $1,842,242.88 in the Board of Regent's Short-Term Fund. Funds invested in an investment pool managed by another governmental entity are not required to be categorized since the University did not own any specific identifiable investment securities of the pool. Funds invested in an investment pool managed by another governmental entity are not required to be categorized since the University did not own any specific, identifiable investment securities of the pool. Component Unit At December 31, 2003, State University of West Georgia Foundation's investments consisted of the following: - 15 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS CATEGORIZATION OF INVESTMENTS Component Unit Type of Investments Cash and Money Market Funds Corporate Bonds U.S. Government Securities Investment Accounts - Equities Totals Risk Categories 2 3 Carrying Amount $ 398,302.00 $ 275,051.00 263,438.00 9.652, 151.00 0.00 $ 0.00 $ 398,302.00 275,051.00 263,438.00 9,652,151.00 $ 10,588,942.00 $ o.oo $.===='o=.o~o $ J0,588,942.00 NOTE 3: ACCOUNTS RECEIVABLE The University's accounts receivable consisted of the following at June 30, 2004. Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal, State and Private Funds Other $ 257,723.58 71,624.48 245,057.88 461,139.14 Less Allowance for Doubtful Accounts $ 1,035,545.08 87,862.18 Net Accounts Receivable $ 947,682.90 NOTE 4: INVENTORIES The University's Inventories consisted of the following at June 30, 2004. Bookstore Central Warehouse $ 627,127.20 131,875.20 Total $ 759,002.40 NOTE 5: NOTES/LOANS RECEIVABLE The University's Notes/Loans receivable consisted of the following at June 30, 2004: Perkins Loans Institutional Loans $ 1,728,941.98 134,304.98 Total Notes/Loans Receivable $ L863.246.96 - 16 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 5: NOTES/LOANS RECEIVABLE The Federal Perkins Loan Program (the Program) comprises substantially all of the loans receivable at June 30, 2004. The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. As the University determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans are written off and assigned to the U.S. Department of Education. NOTE6: CAPITAL ASSETS Following are the changes in the University's capital assets for the year ended June 30, 2004: Beginning Balance July 1, 2003 Additions Reductions Ending Balance June 30, 2004 Capital Assets, Not Being Depreciated: Land $ Construction Work-In-Progress 554,184.25 $ 579 680.49 $ 3,953,023.30 $ 3774316.77 554,184.25 758,387.02 Total Capital Assets Not Being Depreciated $ 1,133,864.74 $ 3,953,023.30 $ 3,774,316.77 $ 1,312,571.27 Capital Assets, Being Depreciated: Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections Capitalized Collections $ 79,947,056.60 $ 1,376,803.34 11,195,758.14 106,915.94 12,425,015.64 48 616.00 4,735,696.28 $ 456,123.35 807,455.87 552,290.00 1,304,618.00 $ 83,378,134.88 1,832,926.69 292,764.53 11,710,449.48 106,915.94 62,634.00 12,914,671.64 35 100.00 13 516.00 Total Assets Being Depreciated $105, JOO, 165.66 $ 6,551,565.50 $ 1,695,116.53 $109,956,614.63 Less: Accumulated Depreciation: Buildings and Building Improvements $ 32,655,068.07 $ Facilities and Other Improvements 548,391.09 Equipment 7,879,988.84 Capital Leases 51,670.73 Library Collections 9,263,176.71 Capitalized Collections 14 406.04 2,439,405.63 $ 68,076.78 1,192,637.14 21,383.19 581,075.00 484.15 918,058.04 $ 34,176,415.66 616,467.87 265,091.82 8,807,534.16 73,053.92 62,634.00 9,781,617.71 7 531.88 7 358.31 Total Accumulated Depreciation $ 50,412,701.48 $ 4.303,061.89 $ 1,253,315.74 $ 53,462,447.63 Total Capital Assets, Being Depreciated, Net $ 54,687,464.18 $ 2,248,503.61 $ 441 800.79 $ 56,494,167.00 Capital Assets, Net $ 55,821,328.92 $ 6,201,526.91 $ 4,216.117.56 $ 57,806,738.27 NOTE 7: DEFERRED REVENUE In fiscal year 2004, the University entered into a "Financial Commitment Agreement" with ARAMARK Educational Services, Inc., in which ARAMARK Educational Services, Inc. made a financial commitment of $2,100,000.00 to the University's Campus Food Service program for "food service facility renovations and in the purchase and installation of food service equipment, - 17 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 7: DEFERRED REVENUE area treatment, signage and marketing materials and other costs associated with the Campus Food Service program". In exchange, the University will allow ARAMARK Educational Services, Inc., to operate on the University's campus. The Financial Commitment agreement is for a period of ten years commencing September 2003 and ending August 2013. The Financial Commitment made by ARAMARK Educational Services, Inc., to the University's Campus Food Service program will be amortized by the University over the ten year period. Deferred revenue consisted of the following at June 30, 2004. Financial Commitment Agreement Prepaid Tuition and Fees Other Deferred Revenue $ 1,925,000.00 3,164,349.70 1,184,594.02 Totals $ 6,273,943.72 Current Portion $ 4,558,943.72 NOTE 8: LONG-TERM LIABILITIES Long-Term liability activity for the year ended June 30, 2004 was as follows: Beginning Balance July 1, 2003 Additions Reductions Ending Balance June 30, 2004 Current Portion Leases Lease Obligations $ 30,126.98 $ 10,927.73 $ 19,199.25 $ 11,840.60 Other Liabilities Compensated Absences 2,098,643.65 $ 1,584,659.90 1,635,368.99 2,047.934.56 1,154,091.96 Total Long-Term Obligations $ 2,128 770.63 $ 1,584,659.90 $ 1,646 296. 72 $ 2,067,133.81 $ 1,165,932.56 NOTE 9: SIGNIFICANT COMMITMENTS The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $489,052.75 as of June 30, 2004. This amount is not reflected in the accompanying basic financial statements. - 18 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 10: LEASE OBLIGATIONS State University of West Georgia is obligated under various operating leases for the use of real property (land, buildings, and office facilities) and equipment, and also is obligated under capital leases and installment purchase agreements for the acquisition of real property and equipment. CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2005 and 2006. Expenses for fiscal year 2004 were $12,955.56 of which $2,027.83 represented interest. Total principal paid on capital leases was $10,927.73 for the fiscal year ended June 30, 2004. Interest rates equaled 8.05 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2004: Equipment $====3=3,-86=2==0.==2 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. OPERATING LEASES State University of West Georgia 's noncancellable operating leases having remaining terms of more than one year expire in various fiscal years from 2005 through 2010. 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. The real estate leases consist of three buildings and a rental fee for the use of a stadium. Noncancellable operating lease expenditures in 2004 were $422,734.11 for real property and 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, 2004, were as follows: - 19 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 10: LEASE OBLIGATIONS FUTURE COMMITMENTS Year Ending June 30: 2005 2006 2007 2008 2009 2010 Total Minimum Lease Payments Less: Interest Principal Outstanding Capital Leases Operating Leases $ 12,955.60 $ 350,438.63 7,557.42 309,112.23 179,676.41 131,297.06 97,170.58 68,392.53 $ 20,513.02 $ 1,136,087.44 1,313.77 19,199.25 NOTE 11: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description State University of West Georgia participates in the Teachers Retirement System of Georgia (TRS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances and other benefits for teachers of the State of Georgia. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the TRS offices or the Georgia Department of Audits and Accounts. Funding Policy Employees of State University of West Georgia who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. State University of West Georgia makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2004, 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: - 20 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 11: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Funding Policy Fiscal Year Percentage Contributed Required Contribution 2004 2003 2002 100% 100% 100% $ 2,202,322.42 $ 2,191,615.93 $ 2,129,640.40 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description State University of West Georgia participates in the Employees' Retirement System of Georgia (ERS), a single-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia. The benefit structure of ERS is defined by State statute and was significantly modified on July 1, 1982. Unless elected otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. All other members are "new plan" members subject to the modified plan provisions. Under both the old plan and new plan, members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 65. If 10 years of service is completed and age 60 is reached, the member may retire with a reduced benefit. Additionally, there are certain provisions allowing for retirement after 25 years of service regardless of age. Retirement benefits paid to members are based upon a formula which considers the monthly average of the member's highest twenty-four consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension at reduced rates to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS. - 21 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 11: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description In addition, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan (SRBP) effective January 1, 1998. The SRBP was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415. The ERS issues a financial report each fiscal year which may be obtained through ERS. Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political subdivisions, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The University's payroll for the year ended June 30, 2004, for employees covered by ERS was $46,000.00. The University's total payroll for all employees was $45,073,860.99. 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 University pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.5% of annual compensation paid by employee. The University also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation. For the year ended June 30, 2004, the ERS employer contribution rate for the University amounted to 5.66% 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 2004 amounted to $5,523.60, of which $2,603.60 was made by the University and $2,920.00 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, 2004, financial report which may be obtained through ERS. - 22 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 11: RETIREMENT PLANS REGENTS RETIREMENT PLAN Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 4721-1 et. seq. and is administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts. Funding Policy State University of West Georgia 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. The employer contributes 10.03% of 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. State University of West Georgia and the covered employees made the required contributions of $1,712,671.19 (10.03%) and $853,774.27 (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 State University of West Georgia 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. - 23 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 11: RETIREMENT PLANS GEORGIA DEFINED CONTRIBUTION PLAN Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $ 3,500.00 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute. Contributions and Vesting Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member. Total contributions made by employees during fiscal year 2004 amounted to $68,702.76 which represents 7.5% of covered payroll. These contributions met the requirements of the plan. The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices. NOTE 12: RISK MANAGEMENT The University System of Georgia offers its employees and retirees access to two different selfinsured healthcare plan options - a PPO/PPO Consumer healthcare plan, and an indemnity healthcare plan. State University of West Georgia and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these two plans are considered to be a self-sustaining risk fund. Both selfinsured healthcare plan options provide a maximum lifetime benefit of $2,000,000.00 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WellPoint, to serve as the claims administrator for the two self-insured healthcare plan products. In addition to the two different self-insured healthcare plan options offered to the employees of the University System of Georgia, two fully insured HMO healthcare plan options are also offered to System employees. -24- STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 12: RISK MANAGEMENT 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. State University of West Georgia, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment. A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund. NOTE 13: CONTINGENCIES Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures which are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although State University of West Georgia expects such amounts, if any, to be immaterial to its overall financial position. Litigation, claims and assessments filed against State University of West Georgia (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, 2004. NOTE 14: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 203-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the - 25 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 14: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS 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 are on a pay as you go basis to finance the employer portion for group insurance for affected individuals. With regard to life insurance, the employer covers the total cost for $25,000.00 for basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the employee. As of June 30, 2004, there were 380 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2004, State University of West Georgia recognized as incurred $1,333,553.86 of expenses, which was net of $433,295.94 of participant contributions. NOTE 15: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS The University's operating expenses by functional classification are shown below: -26 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 15: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS Statement of Operating Expenses - Natural vs Functional Classifications For the Fiscal Year Ended June 30, 2004 Functional Classification Natural Classification Instruction Research Public Service Academic Su1mort Student Services Salaries Faculty Staff Employee Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation $21,316,509.47 $ 4,138,556.10 6,163,448.25 463,164.49 9,844.37 208,811.67 -441,582.99 2,854,488.95 154,258.75 258,076.96 $ 63,398.72 39,754.46 2,898.16 1,179.68 284,625.82 56,466.50 123,076.94 30,277.62 2,742.28 $ 488,155.30 5,265,971.41 1,460,731.24 127,419.37 $ 17,018.00 2,795,798.48 684,655.66 51,520.14 1,376.92 67,426.42 5,270.93 49,145.39 6,097.40 3,055,157.11 788,155.29 1,210,271.56 3,122.79 Total Operating Expenses $ 34 713 240 31 $ 860 652.05 $ 163 51116 $ 11 253 016 14 $ 4 816 802.95 Natural Classification Salaries Faculty Staff Employee Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Institutional Support Functional Classification Plant Operations and Scholarships Auxiliary Maintenance and Fellowships Enterprises Total Operating Expenses $ 3,873,547.67 $ 3,941,668.44 2,267,281.75 -851,889.13 58,452.84 10,029.32 $ 13,125.00 2,688,098.47 2,734,119.01 70,390.94 $21,989,066.52 23,084,794.47 12,552,023.12 823,473.84 333,293.61 60,579.02 $ 1,339,355.38 2,349,392.10 698,884.03 403,380.86 2,389,546.48 3,141,292.06 1,504,568.60 55 114.75 5,074,932.44 -103,253.96 79,830.59 5,973,968.90 648,967.57 16,747,869.43 4,303,061.89 $ 8 152 838.24 $ 10 420 879.21 $ 1412185.97 $ 13 230 934.78 $ 85 031127.81 NOTE 16: COMPONENT UNITS State University of West Georgia Foundation (Foundation) is a legally separate, tax-exempt component unit of State University of West Georgia (University). The Foundation acts primarily as a fund-raising organization to supplement the resources that are available to the University in support of its programs. The Foundation board consists of approximately forty members and is made up of alumni and friends of the University. Although the University does not control the timing or amount of receipts from the Foundation, the majority of resources or income thereon that the Foundation holds and invests is restricted to the activities of the University by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of, the University, the Foundation is considered a component unit of the University and is discretely presented in the University's financial statements. The Foundation is a private nonprofit organization that reports under FASB standards, including FASB Statement No. 117, Financial Reporting for Not-for-Profit Organizations. As such, - 27 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 16: COMPONENT UNITS certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. The FASB reports were reclassified to the GASB presentation for external financial reporting purposes in these financial statements. The Foundation's fiscal year is January 1 through December 31, 2003. During the year ended December 31, 2003, the Foundation distributed $1,314,937.00 to the University for both restricted and unrestricted purposes. Complete financial statements for the Foundation can be obtained from the Administrative Offices at 1601 Maple Street, Carrollton, Georgia 30118. Investments for Component Units State University of West Georgia Foundation holds endowment investments in the amount of $11,314,911.00. The corpus of the endowment is nonexpendable, but the earnings on the investment may be expended as restricted by the donors. State University of West Georgia Foundation, in conjunction with the donors, has established a spending plan whereby 5% of the corpus balance earnings may be used for academic scholarships and 1% to 3% may be used for an administrative fee. The remaining balance of the earnings are set aside as a reserve. Long-Term Liabilities for Component Units Student Housing Bonds are issued by the State University of West Georgia Foundation to finance student housing on University property. The bonds, serial and term, are secured by pledges of gross receipts from student housing at State University of West Georgia. The interest rate is variable based on the Weekly Snap Index published by the Bond Market Association, adjusted weekly, with a cap of 12%. The current rate is 1.15%. Changes in long-term liabilities for component units for the fiscal year ended June 30, 2004 are shown below: Revenue Bonds Payable Student Housing Beginning Balance January I, 2003 Additions Ending Balance Reductions December 31, 2003 Amounts Due Within One Year $======'0'='.0-0 $ 13,205,000.00 $===='0'='.0-0 $ 13,205,000.00 $======'0"='.0=0 Annual debt service requirements to maturity for Student Housing revenue bonds payable are as follows: - 28 - STATE UNIVERSITY OF WEST GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 16: COMPONENT UNITS Year Ending December 31: 2004 2005 2006 2007 2008 2009 through 2013 2014 through 2018 2019 through 2023 2024 through 2028 2029 Bonds Payable Principal Interest Total $ 405,783.00 $ 405,783.00 405,791.00 405,791.00 $ 375,000.00 401,018.00 776,018.00 385,000.00 389,366.00 774,366.00 400,000.00 377,337.00 777,337.00 2,185,000.00 1,692,759.00 3,877,759.00 2,565,000.00 1,329,763.00 3,894,763.00 3,005,000.00 903,774.00 3,908,774.00 3,520,000.00 404,923.00 3,924,923.00 770,000.00 13,860.00 783,860.00 $13,205,000.00 $ 6,324,374.00 $19,529,374.00 - 29 - SUPPLEMENTARY INFORMATION - 31 - STATE UNIVERSITY OF WEST GEORGIA SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GAAP BASIS} RESIDENT INSTRUCTION YEAR ENDED JUNE 30. 2004 SCHEDULE "1" REVENUES State Appropriations Other Revenues Retained BUDGET ACTUAL {1} VARIANCEFAVORABLE {UNFAVORABLE} $ 38,308,825.00 $ 38,308,825.00 $ 0.00 58,069,789.00 35,117,595.99 -22,952, 193.01 $ 96,378,614.00 $ 73,426,420.99 $ -22,952, 193.01 EXPENDITURES Personal Services: Education, General and Departmental Services Sponsored Operations Operating Expenses: Education, General and Departmental Services Sponsored Operations Special Funding Initiative $ 49,445,447.00 $ 49,495,088.97 $ -49,641.97 2,292,836.00 1,545,370.47 747,465.53 12,158,499.00 31,462,481.00 1,019,351.00 13,943,849.33 7,247,576.43 1,019,143.62 -1,785,350.33 24,214,904.57 207.38 $ 96,378,614.00 $ 73,251,028.82 $ 23,127,585.18 Excess of Revenues over Expenditures $ 175,392.17 $===17=5=3=9=2.=17= (1) 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. See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. - 33- STATE UNIVERSITY OF WEST GEORGIA RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2004 SCHEDULE "2" Totals per Annual Supplement Accruals June 30, 2004 June 30, 2003 Compensated Absences June 30, 2004 June 30, 2003 Prepaid Salaries June 30, 2004 June 30, 2003 Adjustments Clark, King, Mehok, Ward, Adam Lakeia Laura Jamie Unidentified Variance SALARIES $ 45,138,617.78 $ TRAVEL 823,894.72 193,235.37 -141,665.47 1,902,400.90 -1,949,506.42 -331,264.04 268,127.37 -6,084.50 -30.48 -55.00 -275.40 -60.00 $ 45,073,860.99 $ ====82=3=,4=73==84= See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. - 35 - SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS STATE UNIVERSITY OF WEST GEORGIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contractual Obligation Finding Control Number: FS-554-04-01 Condition: The University entered into a contractual agreement with Aramark Educational Services, Inc. (ARAMARK) for a Campus Food Service Program. The contractual agreement included a clause that provided for a contribution of $200,000.00 to be made by ARAMARK to the State University of West Georgia Foundation (foundation), which would violate the "gratuities clause" of the Constitution of the State of Georgia (Constitution). Criteria: The Constitution of the State of Georgia; Article III; Section VI; Paragraph VI, Gratuities. Questioned Costs: NIA Information: The University and ARAMARK entered into a Food Services Management Agreement (Agreement) whereby ARAMARK would provide a Campus Food Service Program for the University. The Agreement is for a period of ten years commencing September 2003 and ending August 2013. According to Paragraph 12, section H of the Agreement: "ARAMARK shall contribute to the State University of West Georgia Foundation a total of $200,000 over the ten year Term ofthis Agreement, payable in equal installments of $20,000 each year during the Term hereof. Said contribution shall be made payable to the State University of West Georgia Foundation and paid by November 1st of each Term." This type of contribution for which the University is receiving no substantial benefit would violate the "gratuities clause" ofthe Constitution which states in part "(I) the General Assembly shall not have the power to grant any donation or gratuity or to forgive any debt or obligation owing to the public, and (2) the General Assembly shall not grant or authorize extra compensation to any public officer, agent, or contractor after the service has been rendered or the contract entered into". Cause: Management of the University entered into a contractual agreement which provided for a contribution to be made by ARAMARK to the Foundation which constitutes a violation of the State's "gratuities clause". -I- STATE UNIVERSITY OF WEST GEORGIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contractual Obligation Finding Control Number: FS-554-04-01 Effect: In addition to the violation of the State's "gratuities clause", the University has placed itself in a position where the required contribution to the Foundation could become a factor in determining food service charges that could be passed on to students and faculty. Recommendation: The University should (1) ensure that all contracts comply with all Board of Regents policies and applicable State laws; and (2) secure reimbursement from the Foundation for any and all funds received under the terms of the ARAMARK contract. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. -2-