AUDITOR GENERAL WILLIAM O. MONROE, CPA

Transcription

1 AUDITOR GENERAL WILLIAM O. MONROE, CPA Financial Audit For the Fiscal Year Ended June 30, 2006

2 During the audit period, the President of the University was Dr. Modesto A. Maidique. Members of the University s Board of Trustees who served during the audit period are listed below: Board Member David R. Parker, Chair Sergio Pino, Vice Chair Betsy S. Atkins Albert E. Dotson, Sr. Patricia Frost Armando J. Guerra from (1) Bruce Hauptli (2) Robert Kirkwood Landon Alfonso Leon from (3) Miriam Lopez Alex Prado to (3) Claudia Puig Rosa Sugrañes Herbert A. Wertheim Notes: (1) Position remained vacant from July 1, 2005, through August 29, (2) Faculty senate chair. (3) Student body president.

3 TABLE OF CONTENTS PAGE NO. EXECUTIVE SUMMARY... v INDEPENDENT AUDITOR S REPORT ON FINANCIAL STATEMENTS... 1 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS... 3 Internal Control Over Financial Reporting... 3 Compliance and Other Matters... 4 MANAGEMENT S DISCUSSION AND ANALYSIS... 5 FINANCIAL SECTION Statement of Net Assets Statement of Revenues, Expenses, and Changes in Net Assets Statement of Cash Flows Notes to Financial Statements iii-

4 EXECUTIVE SUMMARY The audit of the financial statements of Florida International University for the fiscal year ended June 30, 2006, was conducted pursuant to Section 11.45, Florida Statutes, and applicable standards contained in Government Auditing Standards issued by the Comptroller General of the United States. The scope of this audit included an examination of the financial statements of the University, a component unit of the State of Florida, and a determination as to whether management has complied with applicable laws, administrative rules, regulations, contracts, and grant agreements and other matters that are material to the financial statements. An examination of Federal awards administered by the University is included in our Statewide audit of Federal awards administered by the State of Florida. The following provides a summary of the findings of our audit of the financial statements of the University: We found that the University s financial statements presented fairly, in all material respects, the financial positions of the University and its aggregate discretely presented component units as of June 30, 2006, and the respective changes in financial position and cash flows, where applicable, thereof for the fiscal year then ended. We noted no matters involving the University's internal control over financial reporting and its operation that we considered to be material weaknesses. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This audit was coordinated by Tamara T. Brooks, CPA, and supervised by Ramon A. Gonzalez, CPA. Please address inquiries regarding this report to Ted J. Sauerbeck, CPA, Audit Manager, via at tedsauerbeck@aud.state.fl.us or by telephone at (850) This report, as well as other audit reports prepared by the Auditor General, can be obtained on our Web site ( by telephone at (850) ; or by mail at G74 Claude Pepper Building, 111 West Madison Street, Tallahassee, Florida v-

5 WILLIAM O. MONROE, CPA AUDITOR GENERAL AUDITOR GENERAL STATE OF FLORIDA G74 Claude Pepper Building 111 West Madison Street Tallahassee, Florida / /SC Fax: /SC The President of the Senate, the Speaker of the House of Representatives, and the Legislative Auditing Committee INDEPENDENT AUDITOR S REPORT ON FINANCIAL STATEMENTS We have audited the accompanying financial statements of Florida International University, a component unit of the State of Florida, and its aggregate discretely presented component units as of and for the fiscal year ended June 30, 2006, as shown on pages 15 through 42. These financial statements are the responsibility of University management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the aggregate discretely presented component units, as described in note 1 to the financial statements, which comprise 100 percent of the transactions and account balances of the aggregate discretely presented component units columns. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion on the financial statements, insofar as it relates to the amounts included for these entities, is based solely upon the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. 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 and the reports of the other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of Florida International University and of its aggregate discretely presented component units as of June 30, 2006, and the respective changes in financial position and cash flows, where applicable, thereof for the fiscal year then ended, in conformity with accounting principles generally accepted in the United States of America. -1-

6 In accordance with Government Auditing Standards, we have also issued our report on our consideration of Florida International University's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, administrative rules, regulations, contracts, and grant agreements and other matters included under the heading INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The MANAGEMENT S DISCUSSION AND ANALYSIS on pages 5 through 14 is not a required part of the basic financial statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Respectfully submitted, William O. Monroe, CPA March 28,

7 WILLIAM O. MONROE, CPA AUDITOR GENERAL AUDITOR GENERAL STATE OF FLORIDA G74 Claude Pepper Building 111 West Madison Street Tallahassee, Florida / /SC Fax: /SC The President of the Senate, the Speaker of the House of Representatives, and the Legislative Auditing Committee INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS We audited the financial statements of Florida International University, a component unit of the State of Florida, and its aggregate discretely presented component units as of and for the fiscal year ended June 30, 2006, and have issued our report thereon included under the heading INDEPENDENT AUDITOR S REPORT ON FINANCIAL STATEMENTS. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Our report on the financial statements included disclosures regarding our reference to the reports of other auditors. Internal Control Over Financial Reporting In planning and performing our audit, we considered the University's internal control over financial reporting to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the University's internal control over financial reporting. Our consideration of internal control over financial reporting would not necessarily disclose all matters in internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving internal control over financial reporting and its operation that we consider to be material weaknesses. -3-

8 Compliance and Other Matters As part of obtaining reasonable assurance about whether the University s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, administrative rules, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to University management in our information technology audit report No , dated July This report is intended for the information of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, Federal and other granting agencies, and applicable management. Copies of this report are available pursuant to Section 11.45(4), Florida Statutes, and its distribution is not limited. Respectfully submitted, William O. Monroe, CPA March 28,

9 MANAGEMENT S DISCUSSION AND ANALYSIS The management s discussion and analysis (MD&A) provides an overview of the financial position and activities of the University for the fiscal year ended June 30, 2006, and should be read in conjunction with the financial statements and notes thereto. This overview is required by Governmental Accounting Standards Board (GASB) Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities, as amended by GASB Statements Nos. 37 and 38. The MD&A, and financial statements and notes thereto, are the responsibility of University management. FINANCIAL HIGHLIGHTS The University s assets totaled $790.5 million at June 30, This balance reflects a $34.8 million, or 4.6 percent, increase from the fiscal year, resulting from an increase in capital assets of $51 million and cash and investments of $40.2 million offset by a decrease in receivables and amounts due from State and component units of $55 million. While assets grew, liabilities decreased by $9.8 million, or 3.7 percent, totaling $257.6 million at June 30, 2006, compared to $267.4 million at June 30, As a result, the University s net assets increased by $44.6 million, reaching a year end balance of $532.9 million. The University s operating revenues totaled $253.7 million for the fiscal year, representing a 6.6 percent increase over the fiscal year due mainly to an increase in grants and contracts revenue and sales and services of auxiliary enterprises revenue. Operating expenses totaled $497.1 million for the fiscal year, representing an increase of 9 percent over the fiscal year due mainly to an increase in compensation and employee benefits expense. In addition, a change in the estimated useful lives of certain building components resulted in $18.4 million additional depreciation expense. OVERVIEW OF FINANCIAL STATEMENTS Pursuant to GASB Statement No. 35, the University s financial report includes three basic financial statements: the statement of net assets; the statement of revenues, expenses, and changes in net assets; and the statement of cash flows. The financial statements, and notes thereto, encompass the University and its component units. These component units include: Florida International University Foundation, Inc. The purpose of the Florida International University Foundation, Inc., is to encourage, solicit, receive and administer gifts and bequests of property and funds for the advancement of Florida International University and its objectives. Florida International University Research Foundation, Inc. The purpose of the Research Foundation includes the promotion and encouragement of, and assistance to, the research and training activities of faculty, staff, and students of Florida International University through income from contracts, grants, and other sources, including, but not limited to, -5-

10 income derived from or related to the development and commercialization of University work products. Information regarding these component units, including summaries of their separately issued financial statements, is presented in the notes to the financial statements. This MD&A focuses on the University, excluding the component units. MD&A information regarding component units is included in their separately issued audit reports. THE STATEMENT OF NET ASSETS The statement of net assets reflects the University s assets and liabilities, using the accrual basis of accounting, and presents the University s financial position at a specified time. The difference between total assets and total liabilities, net assets, is one indicator of the University s current financial condition. The changes in net assets that occur over time indicate improvement or deterioration in the University s financial condition. The following summarizes the University s assets, liabilities, and net assets at June 30: Condensed Statement of Net Assets (In Millions) Assets Current Assets $ $ Capital Assets, Net Other Noncurrent Assets Total Assets Liabilities Current Liabilities Noncurrent Liabilities Total Liabilities Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total Net Assets $ $ The statement of net assets reflects the University s growth, primarily its continued physical expansion to meet student and faculty needs. Current assets mainly depict cash and investments, amounts due from the State to fund approved construction and renovation projects and receivables from students, granting agencies, and others. Amounts due from the State decreased from $106.1 million to $65.4 million. Accounts receivables, net of allowances, decreased by $14.4 million due to lower contracts and grants receivables and receivables from -6-

11 students. Based on these reductions in receivables and amounts due from the State, cash and investments reflected in current assets increased $31.7 million. The University s net capital assets increased from $485.1 million to $536.1 million due mainly to an increase in construction in progress of $52.6 million; completed buildings of $24.4 million; and purchases of furniture, equipment, software, and library resources of $14.7 million, offset by the change in accumulated depreciation of $41.4 million. The increase in buildings of $24.4 million is primarily comprised of the addition of the Marine Biology and Recreation Center buildings of $11.4 million and $7.8 million, respectively. In addition, construction was completed on several other buildings totaling $5.2 million. The increase in construction in progress is primarily attributable to the Law School, Lakeview Housing, and the Patricia and Phillip Frost Art Museum buildings. At June 30, 2006, total assets increased 4.6 percent, while total liabilities decreased by 3.7 percent to $257.6 million. As a result, the Net Assets increased by $44.6 million to $532.9 million at June 30, The Net Assets ending balance included $443 million invested in Capital Assets, net of related debt, $76.9 million in unrestricted funds, and $13 million in restricted funds. For more detailed information see the Statement of Net Assets. THE STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS The statement of revenues, expenses, and changes in net assets presents the University s revenue and expense activity, categorized as operating and nonoperating. Revenues and expenses are recognized when earned or incurred, regardless of when cash is received or paid. The following summarizes the University s activity for the and fiscal years: -7-

12 Condensed Statement of Revenues, Expenses, and Changes in Net Assets (In Millions) Operating Revenues $ $ Operating Expenses Operating Loss (243.4) (217.7) Net Nonoperating Revenues Loss Before Other Revenues, (11.0) (1.8) Expenses, Gains, or Losses Other Revenues, Expenses, Gains, or Losses Increase in Net Assets Net Assets, Beginning of Year Adjustment to Beginning Net Assets (19.3) Net Assets, Beginning of Year, as Restated Net Assets, End of Year $ $ Revenues from both operating and nonoperating sources totaled $551.3 million for the fiscal year. This represents a 6.8 percent increase over the fiscal year, due mainly to increases in State appropriations, auxiliary operations, and grants and contracts revenue. Total revenues by source are shown below: Revenues by Source (In Millions) Change State Appropriations $ $ $ 15.0 Net Tuition and Fees Sales and Services Federal Grants and Contracts Capital Appropriations Nonoperating Revenues Other Operating Revenues (10.0) State and Local Grants and Contracts Nongovernmental Grants and Contracts Capital Grants, Contracts, and Donations Total $ $ $ 35.1 State appropriations, consisting of General Revenue distributed by the Legislature and the State lottery system, constituted the largest component of revenue at $191.5 million. The $15 million increase was allocated to fund University strategic initiatives, annualized salary increases, the Health and Life Sciences program, utilities increase, -8-

13 plant operations and maintenance, and the nursing program. Also, demonstrating noticeable growth was a $16.2 million increase in revenue from Federal, State and Local, and Nongovernmental grants and contracts. Operating expenses totaled $497.1 million for the fiscal year, representing an increase of 9 percent over the fiscal year. Compensation, employee benefits, and depreciation were the primary causes of higher operating costs. Operating Revenues GASB Statement No. 35 categorizes revenues as either operating or nonoperating. Operating revenues generally result from exchange transactions where each of the parties to the transaction either give up or receive something of equal or similar value. The following summarizes the operating revenues by source that were used to fund operating activities during the and fiscal years: Operating Revenues (In Millions) Net Tuition and Fees $ $ Grants and Contracts Sales and Services of Auxiliary Operations Sales and Services of Educational Departments Other Total Operating Revenues $ $ Operating revenues totaled $253.7 million for the fiscal year, representing a 6.6 percent increase over the fiscal year. This was primarily due to an increase in Sponsored Research activity and an increase in sales and services of auxiliary operations offset by a reduction in other operating revenues. Operating Expenses Expenses are categorized as operating or nonoperating. The majority of the University s expenses are operating expenses as defined by GASB Statement No. 35. GASB gives financial reporting entities the choice of reporting operating expenses in the functional or natural classifications. The University has chosen to report the expenses in their natural classification on the statement of revenues, expenses, and changes in net assets and has displayed the functional classification in the notes to financial statements. The following summarizes the operating expenses by natural classifications for the and fiscal years: -9-

14 Operating Expenses (In Millions) Compensation and Employee Benefits $ $ Services and Supplies Utilities Scholarships and Fellowships Depreciation Total Operating Expenses $ $ Operating expenses totaled $497.1 million for the fiscal year. This represents a 9 percent increase over the fiscal year and was primarily the result of Board of Trustees approved increases in salary and retirement and employee benefits. In addition, a change in the estimated useful lives of certain building components resulted in $18.4 million additional depreciation expense. Nonoperating Revenues and Expenses Certain revenue sources that the University relies on to provide funding for operations, including State appropriations, certain gifts and grants, and investment income, are defined by GASB as nonoperating. Nonoperating expenses include capital financing costs and other costs related to capital assets. The following summarizes the University s nonoperating revenues and expenses for the and fiscal years: Nonoperating Revenues (Expenses) (In Millions) State Appropriations $ $ Federal and State Student Financial Aid Investment Income Interest on Capital Asset-Related Debt (6.8) (7.4) Other Nonoperating Expenses (2.7) (1.9) Net Nonoperating Revenues $ $ During the fiscal year, the University was appropriated additional legislative funding to assist in the completion of strategic initiatives, give salary increases, provide funding for the Health and Life Sciences program, fund utilities increase, plant operations and maintenance spacing, and to assist in funding the nursing program. This contributed to the increase of $15 million in State appropriations. -10-

15 Other Revenues, Expenses, Gains, or Losses This category is mainly composed of capital appropriations and capital grants, contracts, and donations. The following summarizes the University s other revenues, expenses, gains, or losses for the and fiscal years: Other Revenues, Expenses, Gains, or Losses (In Millions) Capital Appropriations $ 52.7 $ 50.0 Capital Grants, Contracts, and Donations Total $ 55.6 $ 52.5 THE STATEMENT OF CASH FLOWS The statement of cash flows provides information about the University s financial results by reporting the major sources and uses of cash. This statement will assist in evaluating the University s ability to generate net cash flows, its ability to meet its financial obligations as they come due, and its need for external financing. Cash flows from operating activities show the net cash used by the operating activities of the University. Cash flows from the capital financing activities include all plant funds and related long-term debt activities. Cash flows from the investing activities show the net source and use of cash related to purchasing or selling investments, and earning income on those investments. Cash flows from the noncapital financing activities include those activities not covered in other sections. The following summarizes cash flows for the and fiscal years: Condensed Statement of Cash Flows (In Millions) Cash Provided (Used) by: Operating Activities $ (182.7) $ (208.5) Noncapital Financing Activities Capital and Related Financing Activities (16.0) (31.3) Investing Activities (34.9) 4.6 Net Increase (Decrease) in Cash and Cash Equivalents 2.5 (9.1) Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year $ 6.4 $ 3.9 Major sources of funds came from State appropriations ($191.5 million), net student tuition and fees ($106.3 million), grants and contracts ($85.5 million), and sales and services of auxiliary enterprises ($59.2 million). Major -11-

16 uses of funds included payments to employees ($297 million), payments to suppliers ($102.6 million), and purchases of capital assets ($93.4 million). CAPITAL ASSETS, CAPITAL EXPENSES AND COMMITMENTS, AND DEBT ADMINISTRATION CAPITAL ASSETS At June 30, 2006, the University had $805.8 million in capital assets, less accumulated depreciation of $269.7 million, for net capital assets of $536.1 million. Depreciation charges for the current fiscal year totaled $47.4 million. The following table summarizes the University s capital assets, net of accumulated depreciation, at June 30: Capital Assets, Net (In Millions) Land $ 28.4 $ 28.4 Buildings Infrastructure and Other Improvements Furniture, Equipment, and Software Library Resources Property Under Capital Leases Works of Art and Historical Treasures Construction in Progress Total Capital Assets, Net $ $ Additional information about the University s capital assets is presented in the notes to the financial statements. CAPITAL EXPENSES AND COMMITMENTS Major capital expenses through June 30, 2006, were incurred on the Law School, Lakeview Housing, and the Patricia and Phillip Frost Art Museum buildings. The following table summarizes the University s major capital commitments ($3 million or more) as of June 30, 2006: -12-

17 Capital Assets, Net (In Millions) Project Name Total Completed Balance Commitment to Date Committed Graduate School of Business $ 24.1 $ 3.8 $ 20.3 Social Science - International Studies Molecular Biology Lakeview Housing Law School Building Wolfe University Center Art Museum Total $ $ 78.1 $ 76.0 Additional information about the University s capital commitments is presented in the notes to the financial statements. DEBT ADMINISTRATION As of June 30, 2006, the University had $166.4 million in outstanding bonds and revenue certificates, compensated absence liability, and capital leases, representing a decrease of $7 million, or 4 percent, from the fiscal year. The following table summarizes the outstanding long-term debt by type of debt for the fiscal years ended June 30: Long-Term Debt, at June 30 (In Millions) Bonds and Revenue Certificates $ $ Compensated Absence Liability Capital Leases Total $ $ Additional information about the University s long-term debt is presented in the notes to the financial statements. ECONOMIC FACTORS THAT WILL AFFECT THE FUTURE The University will continue strengthening its position as a top public urban research institution. The University expects higher revenue from student tuition and fees due to increasing enrollment. In addition, the Board of Trustees approved an increase in tuition rates for resident undergraduate and graduate students which will further generate revenues. The budget that the Florida Legislature adopted for the fiscal year provided an 8.2 percent increase in the education portion of the budget. Overall, the Legislature provided a salary increase of 3 percent for State university employees and $6 million to fund enrollment growth. The University is grateful for the State s support and strong commitment to higher education. However, taking into account projected -13-

18 increases in operating costs and our mission to provide access to the highest quality education, the University s funding requirements continue to outpace allocated state funds. As a result, the University remains dedicated to increasing its self sufficiency and continues to explore ways to increase revenue-generating capability, specifically through auxiliary operations and fundraising. Gifts and donations for the Florida International University Foundation, Inc., increased 38 percent from the fiscal year. To accommodate our growth and strengthen our research and academic excellence, the University is continuing its plan to improve and enhance the infrastructure by expanding research capabilities and adding student support services such as housing, parking, dining and advising. Capital improvements and new construction is the centerpiece of this strategy. The University expects to strengthen its collaboration with business leaders and leverage the region s growing economic resources to further develop its research programs. -14-

19 FINANCIAL SECTION STATEMENT OF NET ASSETS As of June 30, 2006 University Component Units ASSETS Current Assets: Cash and Cash Equivalents $ 3,293,898 $ 14,174,608 Restricted Cash and Cash Equivalents 3,135,848 Investments 112,217,443 26,652,125 Receivables, Net 23,830,612 19,442,376 Loans and Notes Receivable, Net 1,103,782 Due from State 65,363,989 Due from Component Units/University 41,934 7,820,000 Inventories 236,925 Other Current Assets 605, ,968 Total Current Assets 209,829,976 68,438,077 Noncurrent Assets: Restricted Cash and Cash Equivalents 6,091,727 Restricted Investments 41,648,695 65,126,596 Loans and Notes Receivable, Net 1,954,932 Depreciable Capital Assets, Net 409,911,925 11,924,132 Nondepreciable Capital Assets 126,173, ,500 Other Noncurrent Assets 963, ,050 Total Noncurrent Assets 580,652,226 83,972,005 TOTAL ASSETS $ 790,482,202 $ 152,410,082 LIABILITIES Current Liabilities: Accounts Payable $ 3,538,631 $ 153,985 Construction Contracts Payable 9,221,911 Salaries and Wages Payable 11,382,797 Deposits Payable 8,575,689 Due to State 307,310 Due to Component Units/University 7,820,000 41,934 Deferred Revenue 50,257, ,522 Other Current Liabilities 364,068 Long-Term Liabilities - Current Portion: Bonds and Revenue Certificates Payable 5,883,257 Notes Payable 2,292,811 Capital Leases Payable 1,255,475 Compensated Absences Payable 1,268,608 Total Current Liabilities 99,511,225 3,246,320 Noncurrent Liabilities: Bonds and Revenue Certificates Payable 132,355,661 Notes Payable 16,700,000 Capital Leases Payable 1,681,945 Compensated Absences Payable 24,035,533 Other Long-Term Liabilities 352,404 Total Noncurrent Liabilities 158,073,139 17,052,404 TOTAL LIABILITIES 257,584,364 20,298,

20 STATEMENT OF NET ASSETS (Continued) As of June 30, 2006 University Component Units NET ASSETS Invested in Capital Assets, Net of Related Debt $ 442,943,851 $ Restricted for Nonexpendable: Endowment 82,417,390 Restricted for Expendable: Debt Service 178,069 Loans 1,650,206 Capital Projects 2,806,135 Other 8,434,934 26,070,875 Unrestricted 76,884,643 23,623,093 TOTAL NET ASSETS 532,897, ,111,358 TOTAL LIABILITIES AND NET ASSETS $ 790,482,202 $ 152,410,082 The accompanying notes to financial statements are an integral part of this statement. -16-

21 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS For the Fiscal Year Ended June 30, 2006 University Component Units REVENUES Operating Revenues: Student Tuition and Fees, Net of Scholarship Allowances of $42,734,623 $ 103,239,027 $ Federal Grants and Contracts 61,803,513 State and Local Grants and Contracts 9,321,388 Nongovernmental Grants and Contracts 6,931,796 Sales and Services of Auxiliary Enterprises 58,725,482 Sales and Services of Educational Departments 3,144,029 Gifts and Donations 18,205,300 Interest on Loans and Notes Receivable 172,905 Other Operating Revenues 10,416,772 4,121,733 Total Operating Revenues 253,754,912 22,327,033 EXPENSES Operating Expenses: Compensation and Employee Benefits 298,664,737 Services and Supplies 89,744,948 Utilities 15,924,343 Scholarships and Fellowships 45,352,896 Depreciation 47,431,730 Other Operating Expenses 14,657,250 Total Operating Expenses 497,118,654 14,657,250 Operating Income (Loss) (243,363,742) 7,669,783 NONOPERATING REVENUES (EXPENSES) State Appropriations 191,480,504 Federal and State Student Financial Aid 47,776,443 Investment Income 2,653,832 9,081,229 Interest on Capital Asset-Related Debt (6,828,624) Other Nonoperating Revenues (Expenses) (2,697,601) 340,000 Interest Expense (298,656) Net Nonoperating Revenues 232,384,554 9,122,573 Income (Loss) Before Other Revenues, Expenses, Gains, or Losses (10,979,188) 16,792,356 Capital Appropriations 52,729,640 Capital Grants, Contracts, and Donations 2,895,496 Total Other Revenues 55,625,136 Increase in Net Assets 44,645,948 16,792,356 Net Assets, Beginning of Year 488,251, ,864,002 Adjustment to Beginning Net Assets (545,000) Net Assets, Beginning of Year, as Restated 488,251, ,319,002 Net Assets, End of Year $ 532,897,838 $ 132,111,358 The accompanying notes to financial statements are an integral part of this statement. -17-

22 STATEMENT OF CASH FLOWS For the Fiscal Year Ended June 30, 2006 University CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees $ 106,341,568 Grants and Contracts 85,488,769 Sales and Services of Auxiliary Enterprises 59,153,799 Sales and Services of Educational Departments 3,144,029 Interest on Loans and Notes Receivable 172,371 Other Operating Receipts 8,461,697 Payments to Employees (296,996,634) Payments to Suppliers for Goods and Services (102,644,797) Payments to Students for Scholarships and Fellowships (45,352,895) Net Loans Issued to Students (472,751) Net Cash Used by Operating Activities (182,704,844) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations 191,480,504 Operating Subsidies and Transfers (1,555,021) Net Change in Funds Held for Others (1,171,573) Federal and State Student Financial Aid 47,776,443 Other Nonoperating Receipts 25,624 Other Nonoperating Expenses (340,000) Net Cash Provided by Noncapital Financing Activities 236,215,977 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Appropriations 48,144,852 Capital Subsidies and Transfers 40,758,848 Capital Gifts and Grants 2,185,953 Proceeds from Capital Debt and Leases 502,731 Purchases of Capital Assets (93,443,460) Principal Paid on Capital Debt and Leases (7,357,849) Interest Paid on Capital Debt and Leases (6,830,898) Net Cash Used by Capital and Related Financing Activities (16,039,823) CASH FLOWS FROM INVESTING ACTIVITIES Change in Investments, Net (40,092,574) Investment Income 5,161,731 Net Cash Used by Investing Activities (34,930,843) Net Increase in Cash and Cash Equivalents 2,540,467 Cash and Cash Equivalents, Beginning of Year 3,889,279 Cash and Cash Equivalents, End of Year $ 6,429,

23 STATEMENT OF CASH FLOWS (Continued) For the Fiscal Year Ended June 30, 2006 University RECONCILIATION OF NET OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating Loss $ (243,363,742) Adjustments to Reconcile Net Operating Loss to Net Cash Used by Operating Activities: Depreciation Expense 47,431,730 Change in Assets and Liabilities: Receivables, Net 8,149,795 Inventories 1,523,925 Other Assets 42,398 Accounts Payable 1,458,170 Salaries and Wages Payable 1,896,903 Deposits Payable 90,710 Compensated Absences Payable (228,799) Deferred Revenue 294,066 NET CASH USED BY OPERATING ACTIVITIES $ (182,704,844) The accompanying notes to financial statements are an integral part of this statement. -19-

24 NOTES TO FINANCIAL STATEMENTS June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity. The University is a separate public instrumentality that is part of the State university system of public universities, and is directly governed by a Board of Trustees (Trustees) consisting of 13 members. The Governor appoints six citizen members and the State s Board of Governors appoints five citizen members. These members are confirmed by the Florida Senate and serve staggered terms of five years. The chair of the faculty senate and the president of the student body of the University are also members. The State s Board of Education is responsible for overseeing kindergarten through graduate school education in the State. The State s Board of Governors establishes the powers and duties of the Trustees. The Trustees are responsible for setting policies for the University, which provide governance in accordance with Florida law, State Board of Education rules, and Board of Governors regulations. The Trustees select the University President and the State Board of Education ratifies the candidate selected. The University President serves as the executive officer and the corporate secretary of the Trustees, and is responsible for administering the policies prescribed by the Trustees for the University. Criteria for defining the reporting entity are identified and described in the Governmental Accounting Standards Board s Codification of Governmental Accounting and Financial Reporting Standards, Sections 2100 and These criteria were used to evaluate potential component units for which the primary government is financially accountable and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the primary government s financial statements to be misleading or incomplete. Based on the application of these criteria, the University is a component unit of the State of Florida, and its financial balances and activity is reported in the State s Comprehensive Annual Financial Report by discrete presentation. Discretely Presented Component Units. Based on the application of the criteria for determining component units, the following direct support organizations (as provided for in Section , Florida Statutes, and Board of Governors Regulation 6C-9.011) are included within the University reporting entity as discretely presented component units. These legally separate, not-for-profit, corporations are organized and operated exclusively to assist the University to achieve excellence by providing supplemental resources from private gifts and bequests, and valuable education support services. The Statute authorizes these organizations to receive, hold, invest, and administer property and to make expenditures to or for the benefit of the University. These organizations and their purposes are explained as follows: -20-

25 NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006 Florida International University Foundation, Inc. The purpose of the Florida International University Foundation, Inc., is to encourage, solicit, receive and administer gifts and bequests of property and funds for the advancement of Florida International University and its objectives. Florida International University Research Foundation, Inc. The purpose of the Research Foundation includes the promotion and encouragement of, and assistance to, the research and training activities of faculty, staff, and students of Florida International University through income from contracts, grants, and other sources, including, but not limited to, income derived from or related to the development and commercialization of University work products. An annual audit of each organization s financial statements is conducted by independent certified public accountants. The annual report is submitted to the Auditor General and the University Board of Trustees. Additional information on the University s component units, including copies of audit reports, is available by contacting the University s Controller s Office. Condensed financial statements for the University s discretely presented component units are shown in a subsequent note. Basis of Presentation. The University s accounting policies conform with accounting principles generally accepted in the United States of America applicable to public colleges and universities as prescribed by the Governmental Accounting Standards Board (GASB). The National Association of College and University Business Officers (NACUBO) also provides the University with recommendations prescribed in accordance with generally accepted accounting principles promulgated by GASB and the Financial Accounting Standards Board (FASB). GASB allows public universities various reporting options. The University has elected to report as an entity engaged in only business-type activities. This election requires the adoption of the accrual basis of accounting and entity-wide reporting including the following components: Management s Discussion and Analysis Basic Financial Statements: Statement of Net Assets Statement of Revenues, Expenses, and Changes in Net Assets Statement of Cash Flows Notes to Financial Statements -21-

26 NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006 Basis of Accounting. Basis of accounting refers to when revenues, expenses, and related assets and liabilities are recognized in the accounts and reported in the financial statements. Specifically, it relates to the timing of the measurements made, regardless of the measurement focus applied. The University s financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchangelike transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets, and liabilities resulting from nonexchange activities are generally recognized when all applicable eligibility requirements, including time requirements, are met. The University s discretely presented component units use the accrual basis of accounting whereby revenues are earned and expenses are recognized when incurred. The Florida International University Foundation, Inc., follows FASB standards of accounting and financial reporting for not-for-profit organizations. The Florida International University Research Foundation, Inc., follows the GASB standards of accounting and financial reporting because it meets the criteria regarding the popular election of officers or appointment of a controlling majority of the members of the organization s governing body by one or more State or local governments. The University follows FASB statements and interpretations issued after November 30, 1989, unless those pronouncements conflict with GASB pronouncements. Interdepartmental sales between auxiliary service departments and other institutional departments have been accounted for as reductions of expenses and not revenues of those departments. The University's principal operating activities consist of instruction, research, and public service. Operating revenues and expenses generally include all fiscal transactions directly related to these activities as well as administration, operation and maintenance of plant assets, and depreciation on capital assets. Nonoperating revenues include State appropriations, Federal and State student financial aid, investment income, and revenues for capital construction projects. Interest on capital asset-related debt is a nonoperating expense. The statement of net assets is presented in a classified format to distinguish between current and noncurrent assets and liabilities. When both restricted and unrestricted resources are available to fund certain programs, it is the University s policy to first apply the restricted resources to such programs followed by the use of the unrestricted resources. The statement of revenues, expenses, and changes in net assets is presented by major sources and is reported net of tuition scholarship allowances. Tuition scholarship allowances are the differences between the stated charge for goods and services provided by the University and the amount that is actually paid by a student or -22-

27 NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006 a third party making payment on behalf of the student. The University applied The Alternate Method as prescribed in NACUBO Advisory Report to determine the reported net tuition scholarship allowances. Under this method, the University computes these amounts by allocating the cash payments to students, excluding payments for services, on a ratio of total aid to the aid not considered to be third-party aid. The statement of cash flows is presented using the direct method in compliance with GASB Statement No. 9, Reporting Cash Flows for Proprietary and Non-Expendable Trust Funds. Capital Assets. University capital assets consist of land; buildings; infrastructure and other improvements; furniture, equipment, and software; library resources; property under capital leases; construction in progress; and works of arts and historical treasures. These assets are capitalized and recorded at cost at the date of acquisition or at estimated fair value at the date received in the case of gifts and purchases of State surplus property. Additions, improvements, and other outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. The University has a capitalization threshold of $1,000 for tangible personal property and $50,000 for buildings and other improvements. A change in the estimated useful lives of certain building components resulted in $18.4 million additional depreciation expense. Depreciation is computed on the straight-line basis over the following estimated useful lives: Buildings 20 to 50 years Infrastructure and Other Improvements 15 years Furniture and Equipment 3 to 20 years Software 5 years Library Resources 10 years Property Under Capital Leases 5 years Depreciable assets of the Florida International University Foundation, Inc., are stated at cost, and are net of accumulated depreciation of $1,319,503. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 40 years. Noncurrent Liabilities. Noncurrent liabilities include principal amounts of bonds and revenue certificates payable, capital leases payable, and compensated absences payable that are not scheduled to be paid within the next fiscal year. Bonds and revenue certificates payable are reported net of unamortized premium or discount and deferred losses on refundings. The University amortizes bond premiums and discounts over -23-

28 NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2006 the life of the bonds and revenue certificates using the straight-line method. Deferred losses on refundings are amortized over the life of the old debt or new debt (whichever is shorter) using the straight-line method. Issuance cost paid from the debt proceeds are reported as deferred charges, and are amortized over the life of the bonds and revenue certificates using the straight-line method. 2. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist primarily of cash on hand and cash in demand accounts. University cash deposits are held in domestic and foreign banks. The domestic banks qualified as public depositories under Florida law. All such deposits are insured by Federal depository insurance, up to specified limits, or collateralized with securities held in Florida's multiple financial institution collateral pool required by Chapter 280, Florida Statutes. As of June 30, 2006, deposits held in foreign banks totaled $86,672. Cash and cash equivalents that are externally restricted to make debt service payments, maintain sinking or reserve funds, or to purchase or construct capital or other restricted assets, are classified as restricted. 3. INVESTMENTS Section (5), Florida Statutes, authorizes universities to invest funds awaiting clearing with the State Treasury and State Board of Administration, and requires that universities comply with the statutory requirements governing investment of public funds by local governments. Accordingly, universities are subject to the requirements of Chapter 218, Part IV, Florida Statutes. Pursuant to Section (16), Florida Statutes, the University is authorized to invest in the Local Government Surplus Funds Trust Fund investment pool administered by the State Board of Administration; interest-bearing time deposits and savings accounts in qualified public depositories, as defined in Section , Florida Statutes; direct obligations of the United States Treasury; obligations of Federal agencies and instrumentalities; securities of, or interests in, certain open-end or closed-end management type investment companies; Securities and Exchange Commission registered money market funds with the highest credit quality rating from a nationally recognized rating agency; and other investments approved by the University s Board of Trustees as authorized by law. Investments set aside to make debt service payments, maintain sinking or reserve funds, or to purchase or construct capital assets are classified as restricted. The University s investments at June 30, 2006, are reported at fair value, as follows: -24-