FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. FORT VALLEY, GEORGIA

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FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. FORT VALLEY, GEORGIA CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2016 AND 2015 AND INDEPENDENT AUDITOR S REPORT

FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. CONTENTS Independent Auditor s Report... 1 Consolidated Financial Statements Consolidated Statements of Financial Position... 3 Consolidated Statements of Activities... 4 Consolidated Statements of Cash Flows... 5 Notes to Consolidated Financial Statements... 6 Other Financial Information Schedule of Expenditures of Federal Awards... 25 Notes to Schedule of Expenditures of Federal Awards... 26 Independent Auditor s 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... 27 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance... 29 Schedule of Prior Audit Findings... 31 Schedule of Findings and Questioned Costs... 32

MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLC CERTIFIED PUBLIC ACCOUNTANTS 388 Mulberry Street Post Office Box One Macon, GA 31202 Telephone (478) 746-6277 Facsimile (478) 743-6858 mmmcpa.com September 14, 2016 INDEPENDENT AUDITOR S REPORT Board of Directors Fort Valley State University Foundation, Inc. Report on the Financial Statements We have audited the accompanying consolidated financial statements of Fort Valley State University Foundation, Inc. and Subsidiaries (the Foundation) (a nonprofit organization), which comprise the consolidated statements of financial position as of June 30, 2016 and 2015, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Foundation s preparation and fair presentation of the consolidated 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 Foundation 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. - 1 -

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Fort Valley State University Foundation, Inc. and Subsidiaries as of June 30, 2016 and 2015, and the changes in its net assets and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Fedeal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 14, 2016 on our consideration of the Foundation 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 Foundation s internal control over financial reporting and compliance. McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLC - 2 -

FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION JUNE 30 2016 2015 Assets Cash and Cash Equivalents $ 2,285,819 $ 1,820,955 Mortgage Loans 6,369 10,551 Contributions Receivable 36,404 166,404 Loans Receivable 4,500 5,569 Investments 6,934,490 7,316,338 Assets Limited as to Use 7,022,670 6,584,684 Leases Receivable 56,740,105 57,217,949 Investments in Real and Other Property 1,120,788 1,476,993 Bond Issuance Costs 917,577 980,331 Total Assets $ 75,068,722 $ 75,579,774 Liabilities Due to Fort Valley State University $ 1,283,451 $ 1,242,507 Accounts Payable - Repairs 827,000 - Accrued Interest 347,450 353,017 Notes Payable 544,978 855,233 Revenue Bonds Payable 60,930,940 61,695,403 Total Liabilities 63,933,819 64,146,160 Net Assets Unrestricted 2,137,775 2,384,497 Temporarily Restricted 5,039,904 5,131,331 Permanently Restricted 3,957,224 3,917,786 Total Net Assets 11,134,903 11,433,614 Total Liabilities and Net Assets $ 75,068,722 $ 75,579,774 See accompanying notes which are an integral part of these financial statements. - 3 -

FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED JUNE 30 2016 2015 Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Revenues and Support Contributions $ 83,490 $ 1,003,238 $ 39,438 $ 1,126,166 $ 164,725 $ 1,051,411 $ 104,940 $ 1,321,076 Lease Revenue 3,418,528 - - 3,418,528 3,394,427 - - 3,394,427 Investment Income, Net 119,278 (118,355) - 923 287,442 221,511-508,953 Net Assets Released from Restrictions 976,310 (976,310) - - 927,957 (927,957) - - 4,597,606 (91,427) 39,438 4,545,617 4,774,551 344,965 104,940 5,224,456 Expenses Program Services Program Grants 679,997 - - 679,997 622,386 - - 622,386 Student Housing 3,645,544 - - 3,645,544 2,790,313 - - 2,790,313 Supporting Services Management and General 518,787 - - 518,787 548,230 - - 548,230 4,844,328 - - 4,844,328 3,960,929 - - 3,960,929 Change in Net Assets (246,722) (91,427) 39,438 (298,711) 813,622 344,965 104,940 1,263,527 Net Assets, Beginning 2,384,497 5,131,331 3,917,786 11,433,614 1,570,875 4,786,366 3,812,846 10,170,087 Net Assets, Ending $ 2,137,775 $ 5,039,904 $ 3,957,224 $ 11,134,903 $ 2,384,497 $ 5,131,331 $ 3,917,786 $ 11,433,614 See accompanying notes which are an integral part of these financial statements. - 4 -

FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30-5 - 2016 2015 Cash Flows From Operating Activities Change in Net Assets $ (298,711) $ 1,263,527 Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities Depreciation and Amortization 116,019 131,761 Amortization of Unearned Income 80,598 46,908 Provision for Bad Debts (8,505) 5,318 Net Realized and Unrealized Gains on Investments (28,449) (301,846) (Gain) Loss on Sale of Property 13,810 (111,192) Contributions Restricted for Long-Term Investments (39,438) (111,668) Change in Operating Assets and Liabilities Contributions Receivable 130,000 (159,676) Other Assets 397,246 504,663 Accounts Payable and Other Liabilities 862,377 49,701 1,224,947 1,317,496 Cash Flows From Investing Activities Net Change in Investments 410,297 81,214 Disbursement of Loans (19,402) (11,843) Repayment of Loans 33,158 21,663 Sale of Property 294,667 294,667 Change in Assets Limited as to Use (437,986) (470,977) 280,734 (85,276) Cash Flows From Financing Activities Contributions Restricted for Long-Term Investments 39,438 111,668 Repayment of Principal on Notes Payable (310,255) (353,432) Payment of Bond Principal (770,000) (655,000) (1,040,817) (896,764) Net Increase in Cash and Cash Equivalents 464,864 335,456 Cash and Cash Equivalents, Beginning 1,820,955 1,485,499 Cash and Cash Equivalents, Ending $ 2,285,819 $ 1,820,955 See accompanying notes which are an integral part of these financial statements.

FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Nature of Organization and Significant Accounting Policies Organization Fort Valley State University Foundation, Inc. (the Foundation) was organized in 1972, in the state of Georgia, as a not-for-profit corporation to encourage, solicit, receive and administer gifts and bequests of property and funds for scientific, educational and charitable purposes for the advancement of Fort Valley State University (the University). The Fort Valley State University Foundation Property, LLC (Student Housing), a wholly-owned subsidiary of the Foundation, was formed as a single member limited liability company in 2006 to serve as the holder of certain buildings and personal property of the Student Housing project, which are leased to the University System of Georgia Board of Regents (Board of Regents). Student Housing is included in the consolidated financial statements of the Foundation and all material intercompany accounts and transactions have been eliminated. The FVSU Wildcat Commons III, LLC (Wildcat Commons), a wholly-owned subsidiary of the Foundation, was formed as a single member limited liability company in 2008 to serve as the holder of certain buildings and personal property of the Wildcat Commons project, which are leased to the Board of Regents. Wildcat Commons is included in the consolidated financial statements of the Foundation and all material intercompany accounts and transactions have been eliminated. Basis of Accounting The consolidated financial statements of the Foundation have been prepared on the accrual basis of accounting where support is recognized when earned, and costs and expenses are recognized when incurred. Financial statements of private, not-for-profit organizations measure aggregate net assets based on the absence or existence of donor-imposed restrictions. Three categories of net assets serve as the foundation of the accompanying consolidated financial statements. These classes are labeled unrestricted, temporarily restricted and permanently restricted net assets. The following are brief definitions of the three net asset classes: Unrestricted Net Assets Net assets that are not subject to donor-imposed stipulations. Temporarily Restricted Net Assets Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Foundation and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. - 6 -

(1) Nature of Organization and Significant Accounting Policies (Continued) Basis of Accounting (Continued) Permanently Restricted Net Assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the Foundation. Generally, the donors of these assets permit the Foundation to use all or part of the income earned on any related investments for general or specific purposes. Use of Estimates The Foundation prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of cash held in checking and money market accounts excluding assets limited as to use. At year-end and throughout the year, the Foundation s cash balances were deposited in several banks and investment companies. Management believes the Foundation is not exposed to any significant credit risk on cash and cash equivalents. Substantially all cash and cash equivalents are temporarily or permanently restricted. Excluded are amounts for specific purposes (assets limited as to use) or amounts which are included in the Foundation s long-term investment strategies. Investments Investments in equity securities with readily determinable fair values and all investments in debt securities, including assets limited as to use, are measured at fair value in the consolidated statements of financial position. Short-term, highly liquid investments are treated as investments rather than cash equivalents. The net realized and unrealized appreciation (depreciation) in market value of investments is included in the consolidated statements of activities. Investment securities are exposed to various risks, such as interest rate risk, market risk and credit risk. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect the amounts reported in the accompanying consolidated financial statements. - 7 -

(1) Nature of Organization and Significant Accounting Policies (Continued) Investment in Real and Other Property Investments in real property include land, buildings, furniture, fixtures and equipment. These investments are recorded at net realizable value at date of donation or amortized cost. Depreciation is computed on a straight-line basis over the estimated useful lives of buildings and systems (10-30 years) and equipment and furniture (3-7 years). Mortgage Loans and Loans Receivable Mortgage loans and loans receivable are stated at the amount of unpaid principal, adjusted for unearned discounts and fees and origination costs, less an allowance for loan losses. The allowance for loan losses is increased through a provision for loan losses charged to income, and decreased by charge-offs, net of recoveries, when management determines that collectibility of all amounts when due is unlikely. The allowance is based on management s estimate of the amount necessary to absorb losses on existing loans. Management s estimate is based on a review of specific loans and, for smaller balance homogeneous loans, on the Foundation s past loan loss experience, known and inherent risks in the entire loan portfolio, overall portfolio quality, estimated fair value of any underlying collateral, and current economic conditions that may affect the borrower s ability to repay. For those loans that are separately evaluated for collectibility, when management determines that it is probable that principal and interest on those loans will not be collected according to their contractual terms, the impairment of those loans is recognized in the allowance account based on the present value of expected future cash flows discounted at the loans effective rate, except for those loans where foreclosure is probable, on which impairment is based on the fair value of the collateral. Cash collections on loans that are impaired are credited to the loans receivable balance, and no interest income is recognized on those loans until the principal balance has been collected. Assets Limited as to Use Assets limited as to use primarily include assets held by trustees under indenture agreements. Contributions Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support depending on the existence and/or nature of any donor restrictions. Contributions, including unconditional promises to give, are recorded as made. Unconditional promises to give due in the next year are recorded at their net realizable value. Unconditional promises to give due in subsequent years are reported at the present value of their realizable value. Amortization of the discounts is included in contribution revenue. An allowance for uncollectible contributions receivable is provided based upon management s judgment, including such factors as prior collection history, type of contribution and nature of fund-raising activity. Advertising Costs Costs of advertising are expensed as incurred. - 8 -

(1) Nature of Organization and Significant Accounting Policies (Continued) Functional Expenses The costs of providing various programs and activities have been summarized on a functional basis in the consolidated statements of activities. Costs are charged directly to program or management expense based on specific identification. Income Taxes The Foundation qualifies as a tax-exempt organization as described in Internal Revenue Code Section 501(c)(3) and has been classified by the Internal Revenue Service as a publicly supported organization and not as a private foundation. However, income from certain activities not directly related to the Foundation s tax-exempt purpose is subject to taxation as unrelated business income. In the opinion of management, the Foundation had no significant unrelated business taxable income during fiscal years 2016 or 2015. Additionally, in the opinion of management, the activities of the subsidiaries are not subject to unrelated business taxable income. The Foundation does not have any material unrecognized tax positions that should be recognized in the consolidated financial statements. Accordingly, no provision or benefit for federal and state income taxes has been recorded in the accompanying consolidated financial statements. The Foundation is subject to routine audits by taxing jurisdictions; however, there are no audits for any periods in progress. The Foundation believes it is no longer subject to income tax examinations for years prior to 2013. Student Housing and Wildcat Commons, the subsidiaries, are treated as disregarded entities for federal and state income tax purposes and are included in the Foundation s annual filing. Net Assets Released from Restrictions Reclassification of net assets is based upon the satisfaction of the purpose for which the net assets were restricted or the completion of a time stipulation. Restricted contributions and net investment income earned are reported as temporarily restricted support and reclassified to unrestricted when any donorimposed restrictions are satisfied. Restricted net assets associated with physical capital assets are released from their temporary restrictions and reclassified as unrestricted support when spent. All expenses are recorded as a reduction of unrestricted net assets. - 9 -

(2) Mortgage Loans 2016 2015 Mortgage Loans Receivable, with Interest from 2.75% to 9.25%; Due in Monthly Installments to 2020; Secured by Property, Inventories, Equipment and Assignment of Life Insurance. $ 234,294 $ 246,981 Allowance for Loan Losses (227,925) (236,430) The loans have maturities as follows: $7,000 in 2017 and $227,294 in 2018. $ 6,369 $ 10,551 (3) Contributions Receivable Contributions as of June 30 are expected to be realized in the following periods: 2016 2015 In One Year or Less $ 12,500 $ 142,500 Between One Year and Five Years 25,000 25,000 Over Five Years - - 37,500 167,500 Discount to Present Value (6%) (1,096) (1,096) Contributions receivable are intended for the following purposes: $ 36,404 $ 166,404 2016 2015 Scholarships $ 36,404 $ 36,404 Operating Programs - 130,000 $ 36,404 $ 166,404-10 -

(4) Investments Investments are composed of the following as of June 30: 2016 2015 Money Market Accounts $ 491,902 $ 423,622 Certificates of Deposit 923,947 922,675 U.S. Government Obligations 308,308 309,195 Bonds 142,455 112,799 Mutual, Exchange Traded and Index Funds 4,152,990 4,528,576 Stocks 872,624 976,153 Cash Surrender Value of Life Insurance 42,264 43,318 Total Fair Value $ 6,934,490 $ 7,316,338 Net investment income (loss) including assets limited as to use consist of the following for the years ended June 30: 2016 2015 Dividends and Interest $ 128,540 $ 200,329 Amortization of Unearned Income (80,598) (46,908) Rental Income, Net 26,786 30,505 Net Realized and Unrealized Gains 28,449 301,846 Gain (Loss) on Sale of Property (13,810) 111,192 Investment Expense (88,444) (88,011) $ 923 $ 508,953-11 -

(5) Assets Limited as to Use The composition of assets limited as to use as of June 30 follows: Student Housing (Series 2006) 2016 2015 Repairs and Replacement Fund Government Money Market $ 1,076,273 $ 926,010 Debt Service Reserve Fund FNMA 3,800,909 3,805,249 Government Money Market 410,364 218,987 Administrative Fee Fund Government Money Market 184,192 160,148 Nonconstruction Fund Cash 6,246 6,246 Bond Fund Government Money Market 246,385 246,336 Wildcat Commons (Series 2013) 5,724,369 5,362,976 Debt Service Reserve Fund Government Money Market 641,938 641,937 Bond Fund Government Money Market 182,262 182,262 Administrative Fee (Cost) Account Government Money Market 141,183 119,316 Repairs and Replacement Government Money Market 332,918 278,193 1,298,301 1,221,708 $ 7,022,670 $ 6,584,684-12 -

(6) Endowment The Foundation s endowment includes both donor-restricted funds and funds designated by the board of directors to function as endowments. As required by U.S. GAAP, net assets associated with endowment funds, including funds designated by the board of directors to function as endowments, are classified and reported based upon the existence or absence of donor-imposed restrictions. In approving endowment spending and related policies, as part of the prudent and diligent discharge of its duties, the board of directors of the Foundation, as authorized by Georgia state law, has relied upon the actions, reports, information, advice and counsel taken or provided by its duly constituted committees and the duly appointed officers of the Foundation, and in doing so has elected to value donor-restricted endowment funds based on historic value, absent explicit direction to the contrary. As a result of this interpretation, for accounting and financial statement purposes, the Foundation classifies as permanently restricted net assets the historic dollar value of assets held as donor-restricted endowment, including any subsequent gifts and any accumulations to donor-restricted endowments made in accordance with the direction of the applicable gift instrument. The portion of the donor-restricted endowment fund that is not classified as permanently restricted net assets is classified for accounting and financial statement purposes in accordance with requirements of the Financial Accounting Standards Board (FASB) and the law. Endowment net asset composition by type of fund as of June 30 follows: 2016 Unrestricted Temporarily Restricted Permanently Restricted Total Donor-Restricted Endowment $ (163,140) $ 2,634,408 $ 3,957,224 $ 6,428,492 Funds Functioning as Endowment - - - - 2015 Donor-Restricted Endowment $ (1,784) $ 2,881,716 $ 3,917,786 $ 6,797,718 Funds Functioning as Endowment - - - - - 13 -

(6) Endowment (Continued) Changes in endowment net assets for the fiscal years ended June 30 follows: 2015 Unrestricted Temporarily Restricted Permanently Restricted Total Endowment Net Assets, Beginning $ (1,784) $ 2,946,250 $ 3,806,118 $ 6,750,584 Investment Return Investment Income - 116,540-116,540 Net Gain (Realized and Unrealized) - 113,926-113,926 Contributions - - 111,668 111,668 Appropriation of Endowment Assets for Expenditure - (295,000) - (295,000) Endowment Net Assets, Ending $ (1,784) $ 2,881,716 $ 3,917,786 $ 6,797,718 2016 Endowment Net Assets, Beginning $ (1,784) $ 2,881,716 $ 3,917,786 $ 6,797,718 Investment Return Investment Income - 39,957-39,957 Net Gain (Realized and Unrealized) - (158,557) - (158,557) Contributions - - 39,438 39,438 Appropriation of Endowment Assets for Expenditure (161,356) (128,708) - (290,064) Endowment Net Assets, Ending $ (163,140) $ 2,634,408 $ 3,957,224 $ 6,428,492 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level of historic value. In accordance with U.S. GAAP, deficiencies of this nature that are reported in unrestricted net assets were $163,140 and $1,784 as of June 30, 2016 and 2015, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred after the original investment and continued appropriation for certain programs that was deemed prudent by the board of directors. The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organization must hold in perpetuity or for a donor-specified period as well as board-designated funds. Endowment assets are invested to achieve a long-term rate of return in excess of the spending policy rate, plus the rate of inflation, and after deducting for fees and other investment costs. Results are measured against performance benchmarks of similarly managed funds. - 14 -

(6) Endowment (Continued) To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). (7) Fair Value Measurements FASB issued a statement that defines fair value and establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 Level 2 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. Inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; and Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset s and liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following are descriptions of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at June 30, 2016 and 2015. Money Market and Certificates of Deposit - The carrying amounts reported on the consolidated statements of financial position approximate fair value because of the short maturities of those instruments. U.S. Government and Agencies Obligations and Corporate Bonds - Valued using quoted market prices of recent transactions or are benchmarked to transactions of similar securities. Common Stocks - Valued at the closing price reported on the active market on which the individual securities are traded. Mutual, Exchange Traded and Index Funds - Valued at the net asset value of shares held at year-end. Cash Surrender Value - Valued at policies cash value. - 15 -

(7) Fair Value Measurements (Continued) The methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Foundation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following tables set forth by level, within the fair value hierarchy, the Foundation s financial instruments as of June 30: 2016 Level 1 Level 2 Level 3 Total Money Market and Certificates of Deposit $ 1,415,850 $ - $ - $ 1,415,850 U.S. Government and Agencies Obligations 7,022,670 308,308-7,330,978 Corporate Bonds - 142,455-142,455 Common Stocks 872,624 - - 872,624 Mutual, Exchange Traded and Index Funds Fixed Income 991,861 - - 991,861 Large Cap Growth/Blend/Value 2,088,984 - - 2,088,984 Mid Cap Growth/Blend/Value 327,007 - - 327,007 Small Cap Growth/Blend/Value 185,039 - - 185,039 International Equity 548,894 - - 548,894 Commodities 7,460 - - 7,460 Real Estate 3,744 - - 3,744 Cash Surrender Value - 42,264-42,264 $ 13,464,133 $ 493,027 $ - $ 13,957,160-16 -

(7) Fair Value Measurements (Continued) 2015 Level 1 Level 2 Level 3 Total Money Market and Certificates of Deposit $ 1,346,296 $ - $ - $ 1,346,296 U.S. Government and Agencies Obligations 6,584,684 309,196-6,893,880 Corporate Bonds - 112,799-112,799 Common Stocks 976,153 - - 976,153 Mutual, Exchange Traded and Index Funds Fixed Income 1,084,517 - - 1,084,517 Large Cap Growth/Blend/Value 2,147,708 - - 2,147,708 Mid Cap Growth/Blend/Value 434,083 - - 434,083 Small Cap Growth/Blend/Value 267,349 - - 267,349 International Equity 588,394 - - 588,394 Commodities 3,993 - - 3,993 Real Estate 2,532 - - 2,532 Cash Surrender Value - 43,318-43,318 $ 13,435,709 $ 465,313 $ - $ 13,901,022 The Foundation recognizes transfers of assets into and out of fair value hierarchy levels as of the date an event or change in circumstances causes the transfer. There were no transfers among levels in the years ended June 30, 2016 and 2015. (8) Leases Receivable Student Housing In support of the University, the Foundation borrowed funds and constructed and placed into service the Student Housing (see Note 11) in 2006. It then leased the facility to the Board of Regents under an annual lease that expires on June 30 of each year, but is renewable on a year-by-year basis at the option of the Board of Regents until 2038. Under the terms of the lease, payments are used to retire the debt incurred by the Foundation and provide for a capital replacement reserve. The Board of Regents failure to exercise its options through 2038 has been determined to be remote and thus, a lease receivable has been recorded totaling $37,295,005 and $37,434,590 as of June 30, 2016 and 2015, respectively. The debt outstanding on the Series 2006 Bonds totaled $41,980,000 and $42,440,000 as of June 30, 2016 and 2015, respectively. - 17 -

(8) Leases Receivable (Continued) Student Housing (Continued) The annual lease payments, including payments to the repairs and replacement fund totaled $2,640,794 and $2,569,033 for fiscal years 2016 and 2015, respectively. The unearned income recorded is being amortized to investment income. Amortization of unearned income was $257,661 and $259,736 in 2016 and 2015, respectively. The Foundation leases from the Board of Regents the land on which Student Housing is located under a 30-year lease, expiring 2038. Upon full payment of the debt incurred by the Foundation to construct Student Housing, the ground lease terminates and Student Housing will be transferred to the Board of Regents by the Foundation. The following represents anticipated future lease payments to be received on the capital lease for the subsequent five years: Fiscal Year Amount 2017 $ 2,492,625 2018 2,562,002 2019 2,632,812 2020 2,706,484 2021 2,779,738 Wildcat Commons In support of the University, the Foundation borrowed funds and constructed and placed into service Wildcat Commons (see Note 11) in 2010. It then leased the facility to the Board of Regents under an annual lease that expires on June 30 of each year, but is renewable on a year-by-year basis at the option of the Board of Regents until 2038. Under the terms of the lease, payments are used to retire the debt incurred by the Foundation and provide for a capital replacement reserve. The Board of Regents failure to exercise its options through 2038 has been determined to be remote and thus, a lease receivable has been recorded totaling $19,445,100 and $19,783,359 as of June 30, 2016 and 2015, respectively. The debt outstanding on the Series 2013 Bonds totaled $19,560,000 and $19,870,000 as of June 30, 2016 and 2015, respectively. The annual lease payments, including payments to the repairs and replacement fund totaled $1,174,980 and $1,142,135 for the fiscal years 2016 and 2015, respectively. The Foundation leases from the Board of Regents the land on which Wildcat Commons is located under a 30-year lease, expiring 2038. Upon full payment of the debt incurred by the Foundation to construct Wildcat Commons, the ground lease terminates and Wildcat Commons will be transferred to the Board of Regents by the Foundation. - 18 -

(8) Leases Receivable (Continued) Wildcat Commons (Continued) The following represents anticipated future lease payments to be received on the capital lease for the subsequent five years: Fiscal Year Amount 2017 $ 1,122,765 2018 1,153,521 2019 1,184,260 2020 1,223,233 2021 1,240,041 (9) Investments in Real and Other Property The classification of these assets as of June 30 follows: 2016 2015 Land $ 300,267 $ 300,267 Buildings and Improvements 1,343,547 1,684,197 Rehabilitation Projects 40,000 40,000 Furniture and Fixtures 70,906 70,906 1,754,720 2,095,370 Accumulated Depreciation (633,932) (618,377) $ 1,120,788 $ 1,476,993 Depreciation expense for the years ended June 30, 2016 and 2015 was $47,728 and $66,079, respectively. - 19 -

(10) Notes Payable 2016 2015 Note Payable to Bank, Interest at 4.5%, Due March 2016, Collateralized by Real Property. $ - $ 315,117 Note Payable to Bank, Interest at 4.5%, Due April 2017, Unsecured. 21,450 - Note Payable to the Department of Agriculture, Rural Business- Cooperative Services of $1,000,000, Due in Annual Installments of $22,933, with Interest at 1%, Through December 2027, Collateralized by Real and Personal Property, Including Mortgage Loans. 254,125 254,125 Note Payable to the Department of Agriculture, Rural Business- Cooperative Services of $394,787, Due in Annual Installments of $19,434, with Interest at 1%, Through August 2031, Collateralized by Real and Personal Property Including Mortgage Loans. 269,403 285,991 The aggregate maturities of notes payable are as follows: $ 544,978 $ 855,233 Fiscal Year Amount 2017 $ 292,136 2018 16,727 2019 16,895 2020 17,065 2021 17,237 Thereafter 184,918 $ 544,978 All interest incurred on the above debt during the years ended June 30, 2016 and 2015 was charged to operations. Interest payments for 2016 and 2015 were $19,208 and $25,569, respectively. In December 2015, the Foundation failed to make its annual payment on the note payable to the Department of Agriculture. The Department of Agriculture notified the Foundation of a preemptive default due to nonpayment on the $1,000,000 note payable. - 20 -

(11) Revenue Bonds Payable Revenue bonds payable as of June 30 consist of the following: Maturity Original Outstanding as of June 30 Interest Rate (Serially) Issue 2016 2015 Student Housing Bonds Series 2006 4.0% - 5.0% 2037 $ 44,060,000 $ 41,980,000 $ 42,440,000 Wildcat Commons Bonds Series 2013 2.0% - 5.0% 2038 20,490,000 19,560,000 19,870,000 Total Revenue Bonds Payable, Gross 61,540,000 62,310,000 Unamortized Premium 165,828 212,597 Unamortized Discount (774,888) (827,194) Total Revenue Bonds Payable, Net $ 60,930,940 $ 61,695,403 Student Housing Bonds On June 1, 2006, Student Housing entered into a loan agreement with the Development Authority of Peach County (the Authority) whereby the Authority would issue certain bonds (June 29, 2006) totaling $44,060,000 and loan the entire proceeds to Student Housing. As part of the loan agreement, Student Housing agreed to use the bond proceeds to: (1) finance the construction, equipping and installation of certain buildings and personal property to be used as student housing facilities, related parking, a student amenities building, relocation of an existing softball field and infrastructure improvements located on the Fort Valley State University campus; (2) establish a debt service reserve fund for the Series 2006 Bonds; (3) fund capitalized interest for the Series 2006 Bonds; and (4) pay cost of issuance of the Series 2006 Bonds, including the insurance policy premium. The principal and interest are payable solely from and secured by a lien upon certain interest in real property and certain assignments of rental income originating from a rental agreement between Student Housing and the Board of Regents of the University System. The rental agreement is for an initial one-year term (annual renewals for 30 years). The bonds are subject to certain optional and extraordinary mandatory redemption provisions. Additionally, the trust indenture requires the maintenance of certain deposits with a trustee, which are included in assets limited as to use. The Series 2006 Bonds were issued with a bond discount of $840,263, which is being amortized, and had a balance of $494,160 and $527,956 as of June 30, 2016 and 2015, respectively. Interest paid in 2016 and 2015 totaled $1,923,000 and $1,938,000, respectively. Interest expense for 2016 and 2015 totaled $1,921,000 and $1,937,000, respectively, and was allocated to program services, student housing. - 21 -

(11) Revenue Bonds Payable (Continued) Wildcat Commons Bonds During June 2008, the Series 2008 Bonds were issued to provide funds to finance the costs of construction of student housing and parking facilities on the University campus. During December 2010, the Series 2008 Bonds were reissued with an amended swap agreement. Based upon the amended swap agreement, Wildcat Commons will pay a fixed rate of 4.075 percent to the swap provider in exchange for the swap provider s payment of a floating rate. In addition, during May 2013, the Series 2013 Bonds were issued to (a) refund all of the outstanding Series 2008 Bonds, (b) pay a termination payment for an interest rate hedge related to the Series 2008 Bonds, (c) fund a debt service reserve fund for the Series 2013 Bonds and (d) pay the costs of issuing the Series 2013 Bonds (See Note 8). The Series 2013 Bonds were issued with a bond premium of $321,469 and a bond discount of $337,803. The bond premium and discount are being amortized and had a balance of $165,828 and $280,727, respectively, as of June 30, 2016. Interest paid in 2016 and 2015 totaled $747,000 and $752,000, respectively. Interest expense for 2016 and 2015 totaled $744,000 and $751,000, respectively, and was allocated to program services, student housing. The following represents the mandatory principal redemptions on revenue bonds payable until maturity: Student Housing Wildcat Commons Bonds Bonds Fiscal Year Series 2006 Series 2013 2017 $ 540,000 $ 345,000 2018 630,000 385,000 2019 725,000 430,000 2020 830,000 485,000 2021 935,000 520,000 Thereafter 38,320,000 17,395,000 $ 41,980,000 $ 19,560,000 (12) Endowment Challenge Grant The Foundation was awarded various endowment challenge grants from 1985 to 2001 from the U.S. Department of Education. Pursuant to the grants, the Foundation matched funds (50 percent to 100 percent). During the grant periods (10 to 20 years), the Foundation cannot spend or withdraw any part of the endowment corpus, neither the federal nor Foundation matching amount. At the end of the grant periods, the Foundation may use the endowment for any educational purpose. As of June 30, 2008, the U.S. Department of Education released the 1985 and 1986 Endowment Challenge Grants. The Foundation may withdraw and spend up to 50 percent of the total aggregate endowment income earned prior to the date of expenditure. The Foundation withdrew $0 in 2016 and $175,000 in 2015. - 22 -

(13) Program Grants All program grants were to the University for scholarships and educational purposes. (14) Concentrations of Credit Risk Financial instruments which potentially subject the Foundation to concentrations of credit risk include marketable debt securities. The Foundation places its temporary cash investments with creditworthy, high quality financial institutions. The Foundation holds notes issued by the United States government. By policy, these investments are kept within limits designed to prevent risks caused by concentration. (15) Restrictions on Net Assets Temporarily restricted net assets as of June 30 are available in the subsequent years for educational purposes. Permanently restricted net assets are to provide a permanent endowment with investment income expendable to support the University and Foundation. Net assets were released from donor restrictions by incurring expenses satisfying the purpose specified by the donors. (16) Related Parties Principally all activities (program grants) of the Foundation are for the benefit of the University. See also Notes 8 and 11. One member of the Authority is also a board member of the Foundation. (17) Contingencies Litigation The Foundation is subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such legal proceedings will not have a material adverse effect on the Foundation s financial position or results of operations. Federal Programs Federal programs are subject to audit. Such audits could result in claims against the resources of the Foundation. No provision has been made for any liabilities which may arise from such audits since the amounts, if any, cannot be determined at this date. - 23 -

(18) Subsequent Events The Foundation has agreed to the transfer and sale to the USG Real Estate Foundation-IV, LLC the Student Housing project (See also Notes 8 and 11). The Foundation anticipates the transaction to be completed in fiscal year 2017. In preparing the financial statements, the Foundation has evaluated events and transactions for potential recognition or disclosure through September 14, 2016, the date the financial statements were available to be issued. - 24 -

FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2016 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDA Number Federal Expenditures Major Programs Department of Education Endowment Challenge Grants 84.031G $ 500,000 Endowment Challenge Grant for Strengthening HBCU 84.031B 309,159 U.S. Department of Agriculture Intermediary Relending Program Rural Development Loan Fund 10.767 523,529 Total Federal Awards $ 1,332,688 See accompanying notes to schedule of expenditures of federal awards. - 25 -

FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2016 (1) Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Foundation for the year ended June 30, 2016. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the schedule presents only a selected portion of the operations of the Foundation, it is not intended to and does not present the consolidated financial position, changes in net assets or cash flows of Fort Valley State University Foundation, Inc. and Subsidiaries. (2) Summary of Significant Accounting Policies Expenditures reported on the schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, where certain types of expenditures are not allowable or are limited as to reimbursement. The Foundation has elected to use the 10 percent de minims indirect cost as allowed under the Uniform Guidance. (3) Endowment Challenge Grant Program The Foundation was awarded various endowment challenge grants from 1985 to 2001 from the U.S. Department of Education. Pursuant to the grants, the Foundation matched funds (50 percent to 100 percent). During the grant periods (10 to 20 years), the Foundation cannot spend or withdraw any part of the endowment corpus, neither the federal nor Foundation matching amount. At the end of the grant periods, the Foundation may use the endowment for any educational purpose. The U.S. Department of Education has released the 1985 and 1986 Endowment Challenge grants. The Foundation may withdraw and spend up to 50 percent of the total aggregate endowment income earned prior to the date of expenditure. The Foundation made no withdrawals during the year ended June 30, 2016. (4) Intermediary Relending Program Rural Development Loan Fund The Foundation was approved for a $1,000,000 and a $394,787 loan from the U.S. Department of Agriculture, Rural Business-Cooperative Services. Loans are to be used solely for activities set forth in the Intermediary Relending Program. As of June 30, 2016, the Foundation owed $523,528 to the Program. - 26 -

MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLC CERTIFIED PUBLIC ACCOUNTANTS 389 Mulberry Street Post Office Box One Macon, GA 31202 Telephone (478) 746-6277 Facsimile (478) 743-6858 mmmcpa.com September 14, 2016 INDEPENDENT AUDITOR S 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 Board of Directors Fort Valley State University Foundation, Inc. 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 consolidated financial statements of Fort Valley State University Foundation, Inc. and Subsidiaries (the Foundation) (a nonprofit organization), which comprise the consolidated statement of financial position as of June 30, 2016, and the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated September 14, 2016. Internal Control Over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered the Foundation 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 opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Foundation s internal control. Accordingly, we do not express an opinion on the effectiveness of the Foundation 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 combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Foundation s consolidated financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or 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 these 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. - 27 -