Southern Arkansas University

Transcription

1 Southern Arkansas University Magnolia, Arkansas Basic Financial Statements and Other Reports June 30, 2013 LEGISLATIVE JOINT AUDITING COMMITTEE

2 TABLE OF CONTENTS Independent Auditor's Report Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Management Letter Management s Discussion and Analysis BASIC FINANCIAL STATEMENTS Comparative Statement of Net Position A Southern Arkansas University Foundation, Inc. - Statement of Financial Position A-1 Comparative Statement of Revenues, Expenses, and Changes in Net Position B Southern Arkansas University Foundation, Inc. - Statement of Activities B-1 Comparative Statement of Cash Flows C Notes to Financial Statements Postemployment Benefits Other Than Pensions REQUIRED SUPPLEMENTARY INFORMATION OTHER INFORMATION Schedule of Selected Information for the Last Five Years (Unaudited) 1 Exhibit Schedule

3 Sen. Bryan B. King Senate Chair Rep. Kim Hammer House Chair Sen. Linda Chesterfield Senate Vice Chair Rep. John W. Walker House Vice Chair Roger A. Norman, JD, CPA, CFE Legislative Auditor LEGISLATIVE JOINT AUDITING COMMITTEE DIVISION OF LEGISLATIVE AUDIT INDEPENDENT AUDITOR'S REPORT Southern Arkansas University Legislative Joint Auditing Committee Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and the discretely presented component unit of Southern Arkansas University (University), an institution of higher education of the State of Arkansas, as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the University s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Southern Arkansas University Foundation, Inc., which represent 100% of the assets and revenues of the discretely presented component unit as of and the year ended December 31, Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Southern Arkansas University Foundation, Inc., is based solely on the report 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 from material misstatement. The financial statements of the Southern Arkansas University Foundation, Inc., were not audited in accordance with Government Auditing Standards. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the discretely presented component unit of the University as of June 30, 2013 and December 31, 2012, and the respective changes in financial position, and where applicable, cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America. 172 STATE CAPITOL LITTLE ROCK, ARKANSAS PHONE (501) FAX (501)

4 Emphasis of Matter As discussed in Note 30 to the financial statements, the financial statements of the Southern Arkansas University Foundation, Inc. were prepared on a cash basis for the year ended December 31, 2011, which is a comprehensive basis of accounting other than generally accepted accounting principles. For the year ended December 31, 2012, the financial statements of the Southern Arkansas University Foundation, Inc., were prepared on an accrual basis of accounting in accordance with pronouncements of the Financial Accounting Standards Board. Our opinion is not modified with respect to this matter. Other Matters Prior Year Comparative Information We have previously audited the University s 2012 financial statements, and we expressed an unmodified audit opinion on the financial statements of the business-type activities and a qualified opinion on the financial statements of the discretely presented component unit in our report dated August 6, In our opinion, the comparative information presented herein as of and for the year ended June 30, 2012, is consistent, in all material respects, with the audited financial statements from which it has been derived. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis and certain information pertaining to postemployment benefits other than pensions on pages 6-12 and 42 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the University s basic financial statements. The Schedule of Selected Information for the Last Five Years (Schedule 1) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 4, 2014 on our consideration of the University s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. 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 in considering the University s internal control over financial reporting and compliance. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas September 4, 2014 EDHE10513 Roger A. Norman, JD, CPA, CFE Legislative Auditor - 2 -

5 Sen. Bryan B. King Senate Chair Rep. Kim Hammer House Chair Sen. Linda Chesterfield Senate Vice Chair Rep. John W. Walker House Vice Chair Roger A. Norman, JD, CPA, CFE Legislative Auditor LEGISLATIVE JOINT AUDITING COMMITTEE DIVISION OF LEGISLATIVE AUDIT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Southern Arkansas University Legislative Joint Auditing Committee INDEPENDENT AUDITOR'S REPORT We have audited, in accordance with the 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, the financial statements of the business-type activities and the discretely presented component unit of Southern Arkansas University (University), an institution of higher education of the State of Arkansas, as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the University s basic financial statements, and have issued our report thereon dated September 4, Our report includes a reference to other auditors who audited the financial statements of the Southern Arkansas University Foundation, Inc., as described in our report on the University s financial statements. The financial statements of the Southern Arkansas University Foundation, Inc., were not audited in accordance with Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the University s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control. Accordingly, we do not express an opinion on the effectiveness of the University s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the University s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given those limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the University s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of the state constitution, state laws and 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. 172 STATE CAPITOL LITTLE ROCK, ARKANSAS PHONE (501) FAX (501)

6 We noted certain matters that we reported to management of the University in a separate letter dated September 4, Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the University s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas September 4, 2014 Larry W. Hunter, CPA, CFE Deputy Legislative Auditor - 4 -

7 Sen. Bryan B. King Senate Chair Rep. Kim Hammer House Chair Sen. Linda Chesterfield Senate Vice Chair Rep. John W. Walker House Vice Chair Roger A. Norman, JD, CPA, CFE Legislative Auditor LEGISLATIVE JOINT AUDITING COMMITTEE DIVISION OF LEGISLATIVE AUDIT MANAGEMENT LETTER Southern Arkansas University Legislative Joint Auditing Committee STUDENT ENROLLMENT DATA - In accordance with Ark. Code Ann , we performed tests of the student enrollment data for the year ended June 30, 2013, as reported to the State Department of Higher Education, to provide reasonable assurance that the data was properly reported. The enrollment data reported was as follows: Summer II Term Fall Term Spring Term Summer I Term Student Headcount 702 3,332 3, Student Semester Credit Hours 2,859 42,712 38,575 4,068 During our review, nothing came to our attention that would cause us to believe that the student enrollment data was not substantially correct. This letter is intended solely for the information and use of the Legislative Joint Auditing Committee, the governing board, University management, state executive and oversight management, and other parties as required by Arkansas Code, and is not intended to be and should not be used by anyone other than these specified parties. However, pursuant to Ark. Code Ann , all reports presented to the Legislative Joint Auditing Committee are matters of public record and distribution is not limited. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas September 4, 2014 Larry W. Hunter, CPA, CFE Deputy Legislative Auditor 172 STATE CAPITOL LITTLE ROCK, ARKANSAS PHONE (501) FAX (501)

8 Management s Discussion and Analysis Overview of the Financial Statements and Financial Analysis Southern Arkansas University is pleased to present its financial statements for the fiscal year ended June 30, 2013, with fiscal year ended June 30, 2012 data presented for comparative purposes. This discussion and analysis of the University s financial statements provides an overview of its financial activities for the year ended June 30, 2013, as required by Governmental Accounting Standards Board (GASB). There are three financial statements presented: Statement of Net Position; the Statement of Revenue, Expenses, and Changes in Net Position; and the Statement of Cash Flows. The University implemented GASB Statement no. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, for the fiscal year ended June 30, The statement amends the previous net assets reporting requirements in Statement no. 34 by standardizing the presentation of deferred outflows of resources and deferred inflows of resources. The statement also renames the residual measure as net position, rather than net assets. Statement of Net Position The Statement of Net Position presents the assets, liabilities, and net position of the University as of June 30, This statement presents to the readers a fiscal snapshot of the year-end balances that were a result of the transactions posted during the fiscal year from July 1, 2012 through June 30, This statement also serves as a starting point for transactions that will occur for the next fiscal period. The assets and liabilities are broken down into current and non-current sections to provide information relative to the time required in converting non-cash assets to cash or cash equivalents or that may require the use of cash. The net position is the difference between assets and liabilities. The Notes to Financial Statements explain the differences between current and non-current assets and liabilities. The readers of the Statement of Net Position are able to determine the assets available to continue the operations of the Institution and how much the Institution owes vendors, lending institutions, and investors for the bonds of the University. Net Position is divided in three major categories. Net investment in capital assets provides the Institution s equity in property, plant and equipment owned by the Institution. Restricted net position, which is divided into two categories, nonexpendable and expendable. The corpus of the nonexpendable restricted resources is only available for investment purposes. Expendable restricted position is 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. Unrestricted net position is available to the Institution for any lawful purpose of the Institution. Statement of Net Position June 30, 2013 June 30, 2012 Assets: Current assets $ 11,339,314 $ 10,778,083 Noncurrent assets 12,216,508 12,631,501 Capital assets, net 76,816,331 70,566,720 Total Assets 100,372,153 93,976,304 Liabilities: Current liabilities 5,207,723 5,446,297 Noncurrent liabilities 51,291,857 44,260,900 Total Liabilities 56,499,580 49,707,197 Net Position: Net investment in capital assets 33,569,269 34,171,122 Restricted-expendable 1,102,735 1,024,316 Restricted-nonexpendable 4,113,274 3,885,247 Unrestricted 5,087,295 5,188,422 Total Net Position $ 43,872,573 $ 44,269,

9 Statement of Net Position (Continued) Assets June 30, 2013 June 30, ,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 - Current assets Noncurrent assets Capital assets, net Liabilities June 30, 2013 June 30, ,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 - Current liabilities Noncurrent liabilities Current Ratio June 30, 2013 June 30,

10 Statement of Net Position (Continued) Net Position June 30, 2013 June 30, ,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 - Net investment in capital assets Restricted Unrestricted A review of the Statement of Net Position will reveal that the total assets of the University increased by $6,395,849. This change is primary due to the increase in net capital assets of $6,249,611 as five capital improvement projects and three additional buildings were completed. Cash and cash equivalents, both current and noncurrent, showed an increase of $872,269. Deposits with trustee decreased by $775,704, while bond issuance costs increased by $133,161. These items are directly related to additional bond issues and the use of funds expended for capital projects. Accounts receivable showed a decrease of $237,413 which is partially attributable to the adoption of the allowance method for uncollectible accounts. Endowment investments showed an increase of $220,334 due to an increase in endowment investments held in the securities market. Notes and student loans receivable decreased $135,648 due to the decreased issuance of loan funds and the timing of loan payment receipts. The changes in other asset categories, current and noncurrent, show a net increase of $69,239, primarily due to the timing of prepaid expense items. Total liabilities increased by $6,792,383. The most significant cause was an increase in long term debt payable (noncurrent) totaling $7,286,619. Current debt payable increased $155,437, current interest payable on debt increased $65,991, and bond discount/deferral on debt defeasance (contra-liabilities) increased $327,012. These items are directly related to additional bonds that were issued during the fiscal year. Accounts payable showed a decrease of $935,366 due to the timing of expense payments and other accrued liabilities. An increase of $332,755 in deposits/assets held for others was primarily due to the increase in organizational and foundation agency funds held by the University. Deferred revenue showed an increase of $149,610 due to the timing of deferred tuition revenue. The changes in other liability categories, current and noncurrent, show a net increase of $64,349, primarily due to the increase in compensated absence payable. The increase in total assets of $6,395,849 and the increase in total liabilities of $6,792,383 combine to reflect a decrease in total net position of $396,534. Statement of Revenues, Expenses, and Changes in Net Position The changes in total net position as presented on the Statement of Net Position are based on the activity presented in the Statement of Revenues, Expenses, and Changes in Net Position. The purpose of the statement is to present the revenues received by the Institution, both operating and non-operating, and the expenses paid by the Institution, operating and non-operating, and any other revenue, expenses, gains and losses received or spent by the Institution. The operating revenues are generally 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 goods and services in return for the operating revenues, and to carry out the mission of the Institution. Non-operating revenues are revenues received for which goods and services are not provided. For example, the Governmental Accounting Standards Board (GASB) considers state appropriations as non-operating revenues because the revenue is provided by the legislature to the Institution without the legislature directly receiving commensurate goods and services

11 Statement of Revenues, Expenses, and Changes in Net Position (Continued) Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2013 June 30, 2012 Operating revenues $ 20,751,265 $ 17,935,095 Operating expenses 48,232,326 45,786,780 Operating loss (27,481,061 ) (27,851,685 ) Non-operating revenues (expenses) 26,094,680 26,535,873 Income (loss) before other revenues, expenses, gains, or losses (1,386,381 ) (1,315,812 ) Capital gifts and grants 965,399 3,222,691 Donated assets 24,448 99,827 Net increase (decrease) in net position (396,534 ) 2,006,706 Net position at beginning of year (as restated) 44,269,107 42,262,401 Net position at end of year $ 43,872,573 $ 44,269,107 Revenues and Expenses June 30, 2013 June 30, ,000,000 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 - Operating revenues Operating expenses Nonoperating rev (exp) Capital gifts and grants Other A review of the Statement of Revenues, Expenses, and Changes in Net Position will reveal the effects of revenues and expenses on the net position at the end of the year. Highlighted information presented on the statement is as follows: Net student tuition and fees increased by $597,463. This change is primarily attributable to an $8 increase in tuition per credit hour. Total operating grants showed an increase of $1,736,703. The increase is due to state system funds and the addition of the Arkansas Public School Resource System grant funds. Auxiliary housing and food service, net of scholarship allowances, increased by $162,563. This is due to the increase in students living in residence halls

12 Statement of Revenues, Expenses, and Changes in Net Position (Continued) Other operating revenues increased by $345,726 due to the revenue generated by the Natural Resource Research Center along with other sales and services. Personal services expenses increased by $1,428,627. The increase is attributed to the Arkansas Public School Resource System salaries being paid by the University but reimbursed by state grant funds. Supplies and other services increased by $755,928. The increase is due to Reynolds Restricted and Arkansas Public School Resource System supplies being expensed by the University but reimbursed by grant funds. Additionally, non-capitalized furniture expenses were incurred to furnish the completed buildings across campus. Depreciation/amortization showed an increase of $224,409 due to the completion of capital projects. Total non-operating grants showed a decrease of $377,052. The increase in Academic Challenge funding was offset by a larger reduction in federal financial aid funding (Pell grants). Capital gifts and grants decreased by $2,257,292 due to the one time nature of federal stimulus funds and the decline in foundation funds expended for capital projects. Donated assets totaled $24,448 as a result of assets being donated to the University by the Southern Arkansas University Foundation, Incorporated. The total resulted in a decrease of $75,379 from the prior fiscal year. Other categories of operating and non-operating revenues, net of expenditures, decreased by $127,008. This is primarily attributable to a decrease in state appropriations, increases in interest expense on debt and scholarships and fellowships, offset by an increase in investment income, and various increases or decreases in remaining categories. 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 sections. Operating Cash Flows provides detail of the operating cash flows and the net cash used by operating activities of the Institution. Non-capital financing activities reflect cash received and spent for non-operating financing activities. Cash flows from investing activities indicate the purchases, proceeds, and interest received from investing activities. Capital and related financing activities provide specific information on the cash used for the acquisition and construction of capital and related items. The last section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses, and Changes in Net Position. Statement of Cash Flows For the Year Ended June 30, 2013 June 30, 2012 Cash provided (used) by: Operating activities $ (23,817,110 ) $ (24,757,019) Non-capital financing activities 28,128,091 28,350,799 Capital and related financing activities (3,536,940 ) (5,162,969) Investing activities 98,228 (111,935) Net change in cash 872,269 (1,681,124) Cash, beginning of year 8,806,854 10,487,978 Cash, end of year $ 9,679,123 $ 8,806,

13 Statement of Cash Flows (Continued) Cash Flows June 30, 2013 June 30, ,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 - Operating activities (outflow) Non-capital financing activities (inflow) Capital and related financing activities (outflow) Investing activities (inflow and outflow) Capital Assets and Debt Administration The University had $76,816,331 invested in capital assets, net of accumulated depreciation of $48,373,254 at June 30, Depreciation expense totals $3,196,233 for the current fiscal year. Details of these assets, net of accumulated depreciation, are shown below. June 30, 2013 June 30, 2012 Land and mineral rights $ 376,820 $ 376,820 Construction in progress 8,333,921 13,598,073 Infrastructure and other improvements 6,088,502 5,626,781 Buildings 57,638,891 46,172,906 Equipment 1,784,797 2,093,763 Livestock 63,385 71,156 Library holdings 2,240,489 2,369,550 Intangible assets 289, ,671 Total $76,816,331 $ 70,566,720 Major capital additions for the year included the completion of the Agriculture Center, the Rodeo Arena, and the Student Recreation Center in the amounts of $6,313,348, $2,863,934, and $4,503,736, respectively. Capital improvements completed during the fiscal year include the Historic Campus Plaza, Wharton Nursing additions, and Dolph Camp renovations in the amounts of $6,294, $73,834, and $78,138, respectively. In addition, the Softball complex improvements totaled $305,365 and the Auburn Smith renovations totaled $249,673. Capital additions also include continued construction on the University Hall, District Heat/Cool Loop 12B, Sidewalk Improvements, and the Rodeo Arena reception center totaling $4,487,378, $477,589, $349,888, and $162,562, respectively. The University had a total of $50,094,188 in bonds, lease-purchases, notes, and loans payable at June 30, Principal payments on debt during the year totaled $1,329,284 and interest and other charges totaled $1,980,826. Additional information concerning the University s Capital Assets and Debt Administration is presented in Notes 9, 12, 13, 14, 15, 16, 17, and 18 to the Financial Statements

14 Economic Outlook The University is expecting a minimal increase in state appropriations during the fiscal year In fiscal year , the state revenue is expected to increase by approximately 2% based on the Arkansas Department of Higher Education s recommendation. Based on the Fall 2013 enrollment and future expectations, student undergraduate enrollment is expected to increase slightly at an annual rate of 1.5%. Student graduate enrollment should grow with the addition of new graduate degree offerings on campus and through the continued addition of online degrees. The focus of the University s marketing plan is to promote our academic success and excellent facilities to students from a broader region, where student population growth is sufficient. As part of that plan, the administration has encouraged each academic unit to become more involved in activities such as the expansion of recruiting to larger populations in locations outside our historical region. The results of those efforts are beginning to be seen through the increased number of students living in University housing and their participation in the campus food service programs. The University has contingency plans in the event of unexpected reductions in the budget of state revenues. These plans include reductions in expense budgets to offset the potential decrease in state revenue, the elimination of various staff and adjunct faculty positions, and/or the usage of balances held in reserve. Changes in base salaries will be conditioned upon revenue growth and as such, those increases will not be released until supported by the increased student enrollment numbers each fall and/or state revenue increases. The University is not aware of any facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during the fiscal year beyond those already discussed. The University s overall financial position remains sound and in the future should remain sound. The University has made and continues to make significant investments in classroom buildings and other physical plant facilities. The University has also received various academic accreditations which, coupled with an increased recruitment effort, has and should continue to produce additional revenue and allow the University to continue its role as a quality, comprehensive, regional university. However, as always, the University will monitor conditions related to internal and external issues and be prepared for opportunities that may become available. Paul A. McLendon Vice President for Finance

15 COMPARATAIVE STATEMENT OF NET POSITION FOR THE YEAR ENDED Exhibit A For the Year Ended June 30, 2013 June 30, 2012 ASSETS Current assets: Cash and cash equivalents $ 8,226,620 $ 7,519,385 Accounts receivable, net of allowances of $514,600 in ,577,351 2,814,764 Notes and student loans receivable, net 88,698 71,711 Inventories 144, ,532 Prepaid expenses 284, ,951 Bond issuance costs 17,787 12,740 Total current assets 11,339,314 10,778,083 Noncurrent assets: Cash and cash equivalents 1,452,503 1,287,469 Endowment investments 3,189,609 2,969,275 Deposits with trustee 6,339,557 7,115,261 Accrued interest receivable Notes and student loans receivable, net 768, ,369 Capital Assets, net of accumulated depreciation of $48,373,254 in 2013 and $45,343,614 in ,816,331 70,566,720 Bond issuance costs, net of accumulated amortization costs of $31,591 in 2013 and $32,077 in , ,380 Total noncurrent assets 89,032,839 83,198,221 Total assets 100,372,153 93,976,304 LIABILITIES Current liabilities: (Amount due within 1 year) Accounts payable and accrued liabilities 1,584,532 2,519,898 Bonds, certificates of indebtedness, notes, and leases payable 1,484,722 1,329,285 Bonds, certificates of indebtedness, notes, and leases interest payable 312, ,795 Compensated absences payable 58,981 52,606 Deferred revenue 584, ,113 Deposits/assets held in custody for others 1,211, ,884 Bond discount and deferral on debt defeasance (29,660) (16,284) Total current liabilities 5,207,723 5,446,297 Noncurrent liabilities: (Amounts due in more than 1 year) Bonds, certificates of indebtedness, notes, and leases payable 48,609,466 41,322,847 Compensated absences payable 772, ,629 Refundable advances 685, ,217 Other postemployment benefits (OPEB) 1,874,587 1,834,564 Bond discount and deferral on debt defeasance, net of accumulated amortization costs of $47,982 in 2013 and $41,180 in 2012 (650,993) (337,357) Total noncurrent liabilities 51,291,857 44,260,900 Total liabilities 56,499,580 49,707,197 NET POSITION Net investment in capital assets 33,569,269 34,171,122 Restricted for: Nonexpendable: Scholarships and fellowships 436, ,453 Endowments and other 3,385,749 3,167,365 Loans 291, ,429 Expendable: Capital projects 536, ,778 Debt service 272, ,519 Other 294, ,019 Unrestricted 5,087,295 5,188,422 Total net position $ 43,872,573 $ 44,269,107 The accompanying notes are an integral part of these financial statements. -13-

16 FOUNDATION, INC. STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2012 Exhibit A-1 ASSETS Cash and Cash Equivalents $ 1,653,662 Accrued Investment Earnings 62,373 Unconditional Promises to Give 41,202 Investments 25,323,912 Total Assets $ 27,081,149 LIABILITIES AND NET ASSETS Liabilities Accounts Payable $ 637,247 Note Payable 250,000 Annuities Payable 671,839 Total Liabilities 1,559,086 Net Assets Unrestricted 138,224 Temporarily Restricted 1,267,455 Permanently Restricted 24,116,384 Total Net Assets 25,522,063 Total Liabilities and Net Assets $ 27,081,

17 COMPARATIVE STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED Exhibit B For the Year Ended June 30, 2013 June 30, 2012 REVENUES Operating Revenues: Student tuition and fees (net of scholarship allowances of $11,298,746 in 2013 and $11,940,447 in 2012) $ 10,411,080 $ 9,813,617 Federal grants and contracts 2,457,156 2,423,964 State and local grants and contracts 540, ,920 Non-governmental grants and contracts 1,522,459 31,870 Sales and services of educational departments 107, ,025 Auxiliary enterprises: Athletics 80,405 64,006 Housing and food service (net of scholarship allowances of $2,654,773 in 2013 and $2,963,000 in 2012) 4,643,356 4,480,793 Bookstore 207, ,418 Health services 5,116 4,493 Student activities 23,709 36,865 Other 140, ,832 Other operating revenues 612, ,292 Total operating revenues 20,751,265 17,935,095 EXPENSES Operating expenses: Personal services 27,962,911 26,534,284 Supplies and other services 14,265,934 13,510,006 Scholarships and fellowships 2,807,248 2,770,666 Depreciation/amortization 3,196,233 2,971,824 Total operating expenses 48,232,326 45,786,780 Operating income (loss) (27,481,061) (27,851,685) NONOPERATING REVENUES (EXPENSES) State appropriations 16,675,083 16,806,440 Federal grants 6,637,085 7,474,668 State grants 3,807,023 3,556,316 Non-governmental gifts and grants 676, ,080 Investment income (net of investment expense of $73,499 in 2013 and $70,199 in 2012) 318, ,999 Interest on capital asset related debt (1,980,826) (1,944,582) Gain/(Loss) on disposal of capital assets (7,771) 63,304 Other nonoperating revenues Amortization of bond discount and deferral on debt defeasance (17,207) (16,284) Amortization of bond issuance cost (14,473) (12,740) Net nonoperating revenues 26,094,680 26,535,873 Income before other revenues, expenses, gains/losses (1,386,381) (1,315,812) Capital gifts and grants 965,399 3,222,691 Donated assets 24,448 99,827 Net increase (decrease) in net position (396,534) 2,006,706 NET POSITION Net position -- beginning of year (as previously reported) 44,269,107 42,231,946 Correction of error in amortization of deferral of debt defeasance 30,455 Net position -- beginning of year (as restated) 44,269,107 42,262,401 Net position - end of year $ 43,872,573 $ 44,269,107 The accompanying notes are an integral part of these financial statements. -15-

18 FOUNDATION, INC. STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2012 Exhibit B-1 Temporarily Permanently Unrestricted Restricted Restricted Total Revenue and Support Contributions $ 280,264 $ 1,910,561 $ 707,563 $ 2,898,388 Contributions-in-kind 61,793 61,793 Investment Income 713,511 2,210,994 2,924,505 Miscellaneous Income 2,375 2,375 Net Assets Released from Restrictions 4,235,496 (3,967,979) (267,517) Total Revenue and Support 4,518,135 (1,282,114) 2,651,040 5,887,061 Expenses Grants and Allocations 4,157,734 4,157,734 Annuities 22,687 22,687 Trustee Fees 98,821 98,821 Awards and Promotions 57,578 57,578 Conferences, Meetings, and Lectures 63,716 63,716 General and Administrative 28,738 28,738 Total Expenses 4,429,274 4,429,274 Increase (Decrease) in Net Assets 88,861 (1,282,114) 2,651,040 1,457,787 Net Assets at the Beginning of the Year 49,363 2,549,569 21,465,344 24,064,276 Net Assets at the End of the Year $ 138,224 $ 1,267,455 $ 24,116,384 $ 25,522,

19 COMPARATIVE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED Exhibit C For the Year Ended June 30, 2013 June 30, 2012 CASH FLOWS FROM OPERATING ACTIVITIES INFLOWS: Tuition and fees (net of scholarships) $ 10,434,919 $ 9,088,233 Federal grants and contracts 2,457,208 2,424,384 State grants and contracts 410, ,236 Non-governmental grants and contracts 1,413,184 31,950 Sales and services of educational departments 107, ,025 Collection of loans and interest to students 169, ,606 Auxiliary enterprise revenues: Athletics 80,405 64,006 Housing and food service (net of scholarships) 4,732,069 4,482,944 Bookstore 208, ,868 Health services 5,116 4,493 Student activities 23,709 50,463 Other 137, ,967 Other receipts 605, ,814 OUTFLOWS: Payments to suppliers (14,634,356) (13,618,945) Payments to employees (21,586,926) (19,850,286) Payments of employee benefits (5,438,071) (5,783,388) Scholarships and fellowships (2,842,934) (2,817,480) Loans issued to students (99,708) (105,909) Net cash provided (used) by operating activities (23,817,110) (24,757,019) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES INFLOWS: State appropriations 16,675,083 16,806,440 Federal grants 6,641,000 7,906,924 State grants 3,807,023 3,556,316 Non-governmental gifts and grants 704, ,989 Direct lending and plus funds (inflows) 13,516,798 13,298,710 Administrative fee Direct lending and plus funds (outflows) (13,516,798) (13,298,710) Other agency funds (net of outflows) 299,859 (314,542) Net cash flows provided (used) by noncapital financing activities 28,128,091 28,350,799 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES INFLOWS: Distributions of debt proceeds (relating to previously issued bonds) and interest earnings 4,999,124 2,248,159 Distributions of debt proceeds (relating to current year issued bonds) and interest earnings 3,534,316 Proceeds from non-bonded debt 531, ,834 Capital gifts and grants 965,399 3,222,691 Proceeds from sale of capital assets 19,119 90,912 OUTFLOWS: Purchases of capital assets (10,354,028) (8,393,081) Payments to trustees for principal (875,000) (850,000) Principal paid on non-bonded debt (454,284) (314,653) Payments to trustees for interest and paying agent fees (1,834,778) (1,865,179) Interest and paying agent fees on non-bonded debt (68,148) (73,652) Net cash provided (used) by capital and related financing activities (3,536,940) (5,162,969) -17-

20 COMPARATIVE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED Exhibit C For the Year Ended June 30, 2013 June 30, 2012 CASH FLOWS FROM INVESTING ACTIVITIES INFLOWS: Proceeds from the sales and maturities of investments $ 1,439,892 $ 1,537,213 Investment income (net of fees) 126, ,547 OUTFLOWS: Purchase of investments (1,468,064) (1,788,695) Net cash provided (used) by investing activities 98,228 (111,935) Net increase (decrease) in cash 872,269 (1,681,124) Cash and cash equivalents -- beginning of year 8,806,854 10,487,978 Cash and cash equivalents -- end of year $ 9,679,123 $ 8,806,854 Reconciliation of net operating revenues (expenses) to net cash provided (used) by operating activities: Operating income (loss) $ (27,481,061) $ (27,851,685) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation expense 3,196,233 2,971,824 Change in assets and liabilities: Receivables, net 216,162 87,150 Inventories 22,692 (5,206) Prepaid expenses (92,066) 1,157 Other assets 135,647 79,849 Accounts payable (51,121) (302,829) Deferred revenue 139,160 (163,961) Deposits/assets held in custody for others (housing deposits) 32,895 22,519 Compensated absences 90,556 9,200 Refundable advance (66,230) (64,748) Other postemployment benefits 40, ,711 Net cash provided (used) by operating activities $ (23,817,110) $ (24,757,019) NONCASH TRANSACTIONS Buildings/Equipment -- donated $ 24,448 $ 99,827 Proceeds of bond issues 14,325,000 Bond proceeds to trustee for capital projects (7,325,929) Bond proceeds to trustee for debt service reserve (628,055) Refunding bond proceeds to trustee (6,015,524) Debt service reserve funds to refunding bond agent (211,506) Bond issuance costs (228,098) Bond discounts (127,394) Deferral on debt defeasance (268,852) Accrued interest received on bonds and deposited with trustee 12,665 Net unrealized gain (loss) on investments (192,161) 1,786 Capital assets acquired by incurring capital lease obligations 401,468 The accompanying notes are an integral part of these financial statements. -18-

21 NOTE 1: REPORTING ENTITY Southern Arkansas University Southern Arkansas University, formerly State Agricultural and Mechanical College, was established by an act of the Arkansas Legislature in 1909 as a district agricultural school for Southwest Arkansas. Southern Arkansas University is an institution of higher education of the State of Arkansas. The Vice President for Academic Affairs administers the Academic program of Southern Arkansas University. The program includes the following four (4) colleges: College of Business Administration, College of Education, College of Liberal and Performing Arts, and the College of Science and Technology, plus the School of Graduate Studies. Southern Arkansas University is fully accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools (HLC/NCA); the National Council for the Accreditation of Teacher Education (NCATE); the Association to Advance Collegiate Schools of Business-International (AACSB-I); the National Association of Schools of Music (NASM); National League For Nursing Accrediting Commission, Inc. (NLNAC); Commission on Accreditation of Athletic Training Education (CAATE) and the Council on Social Work Education (CSWE). Southern Arkansas University is one of two campuses of the Southern Arkansas University system. A five member Board of Trustees governs the Southern Arkansas University system. The Governor appoints board members. Component Unit Southern Arkansas University Foundation In May 2002, the Governmental Accounting Standards Board (GASB) issued Statement no. 39, Determining Whether Certain Organizations are Component Units, which amends GASB no. 14 to provide additional guidance to determine whether certain organizations for which the primary government is not financially accountable should be reported as component units based on the nature and significance of their relationship with a primary government. Under the standard, which became effective with fiscal year ended June 30, 2004, the financial activities of qualifying foundations are to be included in the financial statements of the primary government, through discrete presentations. There is one qualifying foundation for Southern Arkansas University: the Southern Arkansas University Foundation, Inc. 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 are 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 has a year ending on December 31 of each year. Southern Arkansas University Foundation, Inc. (Foundation) is an Arkansas not for profit corporation, qualified as 501 (C) 3 organization under the Internal Revenue Service Code, supporting Southern Arkansas University (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 Board of Directors of the Foundation is made up of 24 members including one member who is also a member of the Southern Arkansas University Board of Trustees, and two members who are also employees of the University. During the year ended June 30, 2013, the Foundation made distributions of $2,799,860 to the University for both restricted and unrestricted purposes. Complete financial statements for the Foundation can be obtained by writing the Director s Office at Post Office Box 9174, Magnolia, AR NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Statement Presentation In June 1999, the GASB issued Statement no. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments. GASB Statement no. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities followed in November As an institution of higher education of the State of Arkansas, Southern Arkansas University was required to implement GASB Statement no. 35 at the same time the State of Arkansas implemented GASB Statement no. 34, which was the year ended June 30, The financial statement presentation required by GASB Statements no. 34 and no. 35 provides a comprehensive, entity-wide perspective of the University s assets, liabilities, net position, revenues, expenses, changes in net position, cash flows, and replaces the fund-group perspective previously required. In June 2011, the GASB amended these reporting requirements with Statement no. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. The amended statement provides the standards for the presentation of deferred outflows and inflows of resources as items distinct from asset or liabilities within the Statement of Net Position

22 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. Cash Equivalents The University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Additionally, funds maintained by the State of Arkansas on behalf of the University are considered to be cash equivalents. 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 reported as a component of investment income in the Statement of Revenues, Expenses, and Changes in Net Position. Accounts Receivable Accounts receivable consists primarily of charges due the University from various educational activities, student fees, and room and board. Accounts receivable also includes unreimbursed expenses relating to grants and contracts with federal, state, and private agencies and reimbursements not received. Beginning in the fiscal year ended June 30, 2013, accounts receivable are recorded net of estimated uncollectible amounts. Previously, the University utilized direct write-off method for uncollectible student accounts. Inventories Inventories are valued at cost with cost being generally determined on a first-in, first-out basis. Noncurrent Cash and Investments Cash and investments that are externally restricted to make debt service payments, maintain sinking or reserve funds, purchase capital or other noncurrent assets are classified as noncurrent assets in the Statement of Net Position. Cash, cash equivalents, and investments relating to University endowments are also reflected as noncurrent assets in the Statement of Net Position. Deposits with Trustee Deposits with trustees include cash and investments held in debt service reserve and capital project accounts. 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. Livestock is recorded at estimated fair value. Equipment recorded prior to July 1, 2011 includes all items with a unit cost of $2,500 or more. Equipment recorded after that date adheres to the $5,000 capitalization threshold to be in accordance with state guidelines. All capitalized items have an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that significantly increase the value or extend the life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. The University also received donated assets in the amount of $24,448 reflected on the Statement of Revenues, Expenses, and Changes in Net Position. Intangible assets include the University trademark, web domain, and internally developed computer software